07 2018 | BUSINESS
From Bust to Boom
The Brazilian economy had to fight a harsh recession in recent years. But these days finally seem to be over. Online merchants especially will profit from a prospering e-Commerce sector. But they have to adapt to the special Brazilian payments landscape.
The year 2018 will be a decisive one for Brazil. There are Presidential elections in October, in which among other things the reformprogramme of the unpopular incumbent Michel Temer will be voted on. It will then be apparent whether this former model pupil among the emerging markets will again be entering a boom cycle lasting several years. In 2015 and 2016, the fifth-largest country on the planet was still in a severe recession, with negative growth rates of 3% and 3.5%.
“There were multiple reasons for that,” comments Klaus Hofstadler, the Austrian Trade Commissioner in São Paulo. “There was mismanagement and corruption, but also general overheating of the economy. Brazilian prices were consequently in general no longer competitive,” he argues, and adds: “Brazil has a cyclical economy, with bust following boom and vice versa.” Hofstadler now sees many signs that the negative trend has finally been overcome this year. “In the next few years, we will admittedly not see Chinese growth rates, but growth rates around 2% and higher are very realistic.”
One reason for the renewed strength of the economy is low inflation and interest rates, which encourage consumption and strengthen industrial production. “The car industry is experiencing a particularly strong growth in production, and the oil and gas sector is also slowly recovering. Other sectors that have resumed growth include energy, agriculture and forestry and the food industry,” observes Dr. Jan Woischnik, economist at the Konrad Adenauer Foundation, who also sees the situation of the eighth-largest global economy in the coming years as positive. Overall, Brazilian households will, despite continuing high unemployment, have more money for consumption again. “Shopping is an extremely popular leisure activity for which every available form of credit is enthusiastically used,” says economist Hofstadler, who has lived in Brazil for several years. That makes the country with its over 200 million residents particularly attractive for trade. Brazilians spend around US$300 billion every year in this sector. The share of e-Commerce is currently just 5%, but expenditure in this sector is growing extremely strongly.
»We’ll see GDP growth rates of 2% and more in the next few years.«
Klaus Hofstadler, Austrian Trade Commissioner in São Paulo
GROWTH SECTOR E-COMMERCE
Even in the middle of the crisis, online trade rose by 7.4% from 2015 to 2016. The number of Brazilian online shoppers grew in the same period by as much as 22%, according to the US International Trade Administration. In 2018, 73 million e-Commerce users are currently predicted and in 2021 they are expected to be nearly half the population (94.6 million). On average, Brazilians spend somewhat more than US$300 a year on online shopping. Revenues will therefore rise to around US$29 billion by 2021. This boom is being encouraged by the good digital infrastructure in the country. The large urban centres in the southeast, where more than 80% of the population live, are particularly well-connected. The fact that internet penetration is only expected to be 61% by 2021 is primarily due to the size of the country. According to the International Telecommunication Union, however, Brazil with its 120 million internet users is still the largest internet market in Latin America and the fourth largest worldwide. An above-average proportion of Brazilian consumers, however, only use smartphones for surfing. Cheaper devices now enable a large group of consumers with lower incomes to compare prices online and look for products. More than half the “views” on online gateways come via smartphones in this South American country. In addition, they are used for the most popular occupation of Brazilians: social media. Well over 100 million Brazilians are enthusiastic users of channels like Facebook, Instagram and WhatsApp. The result is ideal marketing and advertising conditions for online merchants.
Consequently, the first international merchants have already been preparing their direct market entry for a long time. According to the news agency Reuters, Amazon is currently negotiating with Via Varejo, one of the largest e-Commerce traders in Brazil. The internet giant is also said to be looking for suitable warehouses. “The only current problem remaining is the poor postal and delivery system. That is the real bottleneck for e-Commerce, because it is too expensive and inefficient,” says Klaus Hofstadler, who sees this as one of the reasons that more international merchants have not been established in the country for a long time. Overall, though, he sees the sector on the verge of many boom years. “For the next 10 to 20 years we will see double-digit growth rates if the political sphere cooperates.” Then he laughs and says: “You can say that the e-Commerce market here is Ready to Collect.” Before committing in Brazil, however, merchants should look carefully at how the Brazilians pay online.
A local curiosity is for instance that although more credit cards are issued than in any other South American country, the overwhelming majority only allow payments in Reals, the national currency. Anyone who wants to make purchases in other currencies needs an international credit card. However, their share of total online trade is currently only 21%. By contrast, the Boleto Bancário, a genuine Brazilian method to pay with cash online, surprisingly has 24% of the market. In principle, this is a payment certificate that is printed out in order to use it to pay in cash at a bank for a product or service. Very many Brazilians use this option. This includes a large proportion of the around 40% of the Brazilian population who have no bank account and therefore cannot use a credit card or an online account to buy online. However, Tim Werner, the Managing Director of Primeiro Pay, paysafecard’s partner in Brazil, believes that Boleto has one serious disadvantage. “It can take three working days before the trader receives payment. That frustrates many online shoppers. Especially when the goods or services are purely digital.”
LARGE UNBANKED POPULATION
Walter Tauchner, VP Partner Management at paysafecard, sees for just this reason a major potential for paysafecard on the Brazilian market. “The situation in Brazil fits our payment model perfectly. There are large parts of the population who have neither a bank account nor a credit card but because of the wide penetration of smartphones and the internet operate quite naturally in the online world.” In addition, the figures for usage of the Boleto Bancario show how important cash is in Brazil in particular. Especially the young target groups, who are disproportionately represented in the Brazilian population, are among the early adopters of paysafecard. They very much appreciate that the online payments with paysafecard are always authorised immediately. Because when paying for subscriptions to streaming gateways or in-game purchases, the long waiting times are a major disadvantage. Gamers are generally a highly interesting subgroup for paysafecard. With China and the USA, Brazil is one of the countries with the largest number of eSports enthusiasts. 66.3 million gamers spent US$1.3 billion in 2017 for their favourite leisure pursuit. That put Brazil into 13th place among the main global markets for eSports. The sector is currently growing steadily. But it needs even more investments like those of Riot Games, who established the first server in the country for League of Legends in 2012 and thereby made the game one of the most played in the local eSports community.
GAMBLING SOON TO BE LEGALIZED?
While eSports and online games have thus become well- integrated in the world market, another market which is traditionally relevant for paysafecard is still growing more slowly. According to the Brazilian Gaming Congress, however, there is now some movement towards the legalisation of online betting and gambling. “The political debate this year has been less about whether games of chance should be legalised but more about which games could be involved and how legalisation should look,” writes Liliana Costa of Clarion Gaming.
Overall, Brazil is thereby one of the most exciting potential markets in the world for e-Commerce, gaming and gambling. There are numerous signs that this is exactly the right time to get involved, in order to benefit from the next economic boom. Only the outcome of the elections in October and the improvement of the political situation are awaited to give this trend yet another positive impulse.