Telecommunication: Opportunities in Brazil

Brazil has the highest number of internet users in Latin America, ahead of both Argentina and Mexico. Along with Russia, Brazil leads the BRIC quartet in terms of the percentage of the population (13%) which is online. Like India and China, however, Brazil¹s social and economic inequalities mean that the country is still suffering from a vast digital divide. Only 13% of households own a PC and just 3% of the population has broadband access. Unless Brazil’s massive digital divide is bridged soon, multinationals could increasingly overlook Brazil and focus their R&D investments towards other faster-developing economies, such as China. Brazil's GDP, for example, is expected to grow by just 3-4% over the next three years, compared with the blistering pace of 8-9% in India and China.
To prevent such a fall from happening, Brazil is taking steps to lower the cost of PCs and furnish its 33m schoolchildren with laptops. However, it needs to go further and guarantee connectivity in all of its municipalities.
In Latin American terms, Brazil is already a technology leader. It has the largest IT market in Latin America, spending on average 2% of GDP on the sector. IT spending is expected to increase by 14% by 2010 and reach US$20bn for the first time, according to the EIU. Brazil has become a net exporter of telecoms equipment, with export sales totaling an estimated US$3bn in 2006. It is also the world¹s fifth largest economy for mobile telephony, with just over 100m subscribers.
Despite this, Brazil’s ICT infrastructure is extremely poorly distributed.
Virtually all rural areas have zero, or very little connectivity. More than 22m people, or 44% of the country¹s 5,562 municipalities, have no private telecommunications or internet service. In schools the situation is even worse, where just 6% of public schools have connectivity.
The Brazilian government is aware of the problem and is aiming to improve matters. Its Programa de Aceleração do Crescimento (PAC – growth acceleration program), launched in January 2007, includes tax measures that are specifically aimed at encouraging price reduction and increasing IT sales. The Associação Brasileira da Indústria Eléctrica e Electrônica (Abinee) predicts that these measures will enable PC prices to fall by a further 10-12% in the coming year.
This reduction is needed: computers bought on the formal market in Brazil are expensive because consumer businesses suffer from high tax burdens, costly logistics and an underdeveloped national retail infrastructure.
Strong protectionism for the PC industry also pushes up the cost of Brazilian-made computers, although the PAC has introduced a zero tax rate for producers of semiconductors in a bid to attract investment in the area.
Brazil’s grey market currently accounts for around 47% of total PC sales.
Fortunately there is an increasing demand for branded PCs, thanks to the growing availability of installment credit provided by stores and manufacturers. Combined with the government¹s ongoing crackdown on smuggling, the price difference between computers purchased on the formal market and those purchased on the grey market has narrowed significantly. However, with poverty still widespread in Brazil, PCs remain beyond the reach of most families.
Brazil has more than 33m children in primary schools and 10m in secondary schools, in approximately 160,000 public schools across the country. Less than 6% of its schools have connectivity. Compared with former developing countries like South Korea, where 65% of six-year old children are on the internet and practically all public schools have broadband, connectivity amongst Brazilian youth - who make up a third of the population – remains frighteningly low.
In 2005, Brazil signed up to the global One Laptop Per Child (OLPC) project, which aims to deliver US$100 laptops to schoolchildren in the developing world. The green and white machines have a crank so that they can be wound up by hand. As basic as they sound, in April this year the OLPC announced that due to the rising cost of materials, the laptops will now cost US$175 and may not start production until October.
The project requires orders for 3m machines in order for manufacturing and distribution to begin. While Brazil has promised to furnish each of its 43m school children with a laptop, it does not take a genius to calculate that Brazil cannot afford to fund this project, even with increased IT spending.
The money would be better spent carrying out alternative digital projects in schools that have wider reach and impact.
Brazil is strong in terms of e-government communications but there is room for expansion in all areas of public administration. The government is beginning to make some progress by introducing free-access internet booths in post offices (citizens kiosks) and by establishing telecentres in the poorest communities. It is also offering pay-as-you-go computers, which are a result of local businesses teaming up with multinationals such as Microsoft.
However, the government needs to take bigger steps and implement a national high-speed fiber optic point of presence (PoP) in every municipality. This will ensure that all institutions in both urban and rural areas, including schools, public services, telecentres and health centres, have high-quality access to the internet. Without PoPs, whole sections of the population are disconnected from advances in technology, thus putting the country at a disadvantage when multinationals are looking to invest in the local economy.
Clearly, Brazil needs an ICT strategy that will boost the entire economy, not just parts of it. This will not only secure Brazil¹s future growth, but also its economic competitiveness against other developing economies.
Source: Industry Briefing