By Stephen Thompson
It’s a typical quiet Sunday morning in São Paulo and I am standing in the Stand Center Shopping Mall, on Avenida Paulista, which is already buzzing with activity, even though most of the shops on São Paulo’s most famous street are closed. It’s a bit of the Chinese electronics market in Brazil. You can get laptops, desktops, iPod’s, and just about every type of high-tech gadget you can imagine, for 40% less than the price in legitimate shops. In the two-storey shopping centre there are 200 booths, mostly selling computers and electronics smuggled in from China via Paraguay. Most of the shop owners, and the owners of the shopping centre itself, are Chinese. They stay in their tiny booths seven days a week because they make more money here than they could ever make in China.

I myself have just opened up a restaurant further down Paulista Avenue, but now I’m regretting I didn’t come here and open up a shop selling smuggled Chinese electronics. The rents of the shops here start at 3,500 Reais per month, for the smallest booth, measuring just 6 square meters in size. There’s a list of 500 people waiting to rent, and there hasn’t been a vacant booth in over 18 months, so it must be good business. You can imagine how much money passes through this place, and how much tax the Brazilian government fails to collect, because the goods sold here do not pass through legitimate channels. This scene is repeated every day all over the country. Over 70% of computers sold in Brazil are smuggled in from Paraguay. But the Brazilian government still cherishes the dream of nurturing a home-grown electronics industry here in Brazil, to rival that of China’s. You can hardly blame the Chinese for taking advantage of a good business opportunity, legitimate or illegitimate

I’ve always hated spending more than necessary on computers, software and related goods. I’m looking forward to the day when I can buy a laptop in Brazil for a price that compares well with New York or Paraguay. I’ll be able to go home just to visit my friends, without staggering under the weight of my shopping. It’s not purely for selfish reasons that I oppose the Information Technology Law. I honestly believe that it does harm Brazil to restrict the access to high-quality computer products and encourages the development of the black market, corruption and tax evasion.

Of course, I support the noble ideal that Brazil should encourage its own home-grown electronics industry, behind a super high tariff barrier, but only up to a point. I think it became clear a long time ago that Brazil cannot compete with China, Taiwan and Korea when it comes to producing cheap PCs, and the tariff barrier only serves to encourage smuggling, with the knock-on effects of tax evasion and police bribery. If I was an IT company executive faced with the question of where I was going to open a semiconductor plant I wouldn’t do it in Brazil for a long list of reasons, beginning with insane bureaucracy, high taxes, high interest rates, high non-wage labour costs, dilapidated infrastructure, a complex and constantly changing tax system, a creaking justice system and lack of protection for intellectual property; the list is long. Compared with these disadvantages, Brazil’s tariff protection doesn’t count for much. It’s better to produce in China.

Here is a small example from personal experience of the difference of doing business in China and Brazil. Last year I opened a bank account at the Bank of China in Beijing, in half an hour, on a Sunday. I walked out right then and there with my bank book and plastic cash card. All I had to show was my passport. The same process took three months in Brazil, with weekly visits to the bank, when the bank manager would say every time it’ll be ready by next week at the very latest”. The requests for documentation seemed endless, irrelevant, for example documentary proof of my parents names, and were often unnecessarily repeated because the bank staff didn’t bother to look carefully at what I had already provided. By the time I’d finished opening my account, my currency had devalued more than 20%.

So it would be better if Brazil abandoned its dream of developing a high-tech electronics industry and reduced its tariff barriers to something more reasonable, say 20%. Then Brazilians would be able to benefit from cheap computer imports, which would stimulate their software industry, which by the way is as big as India’s, believe it or not.

It would encourage social inclusion, education and help businesses compete for export markets. The Brazilian government would collect more taxes because most computers would be imported legitimately. Police corruption would be reduced, and intellectual property will be more respected. Brazil would have entered the real world, somewhat humbler having abandoned its grandiose dreams, but able to benefit fully from the amazing Chinese capacity to push down prices. But don’t expect it to happen soon, reform moves at a glacial pace in Brazil. Oh, and don’t forget to bring me a laptop if you go home.

Editor’s Note: Stand Center was recently raided by the Federal Police and associated bodies, and is currently closed while they conduct their audit.

Stephen Thompson runs “O Gaucho”, a snack bar serving breakfast, juices, smoothies, sandwiches. For an English menu contact stephenthompson@hotmail.com

To read previous articles by Stephen click the links below:

Managing a Brazilian bank account
Brazil’s Middle Class Ruled By Political Apathy

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