The economic balance of power is gradually shifting toward emerging markets, and immigration patterns will follow suit. A brain gain is already underway in Brazil and this looks set to continue even though economic growth there has temporarily stalled. Although the influx of immigrants and returnees is positive, this won’t solve the country’s talent shortage.
Influx of People
According to Brazil’s Justice Ministry, the number of immigrants jumped by 50% in the first half of 2011 to almost 1.5 million. Portuguese newcomers led the way driven by bad economic conditions at home. Their entries topped 328,000, up from 276,703 in the previous six months.
Meanwhile, Brazilians are returning to their native land in droves. The Justice Ministry estimates there are now only 2 million living abroad, a sharp drop from the roughly 4 million outside the country in 2005. For decades, Brazilians left in search of better opportunities abroad, but no longer. (See LA Times, Poets & Quants, FT’s Beyond Brics)
Still a Talent Shortage
High salaries have helped lure back returnees. Notably, executive pay in Sao Paulo surpassed that in NY and London in 2010, according to a Dasein Executive Search survey. (See: Executive Pay in Brazil: Top Whack.) Booming economic growth (at least until recently) and a strong currency explains part of the rapid rise, but not all of it.
A deeper, structural problem is also at work – a talent shortage. The inflow of immigrants and Brazilians moving back, while positive, is only a drop in the bucket. As seen in Figure 1, a majority of Brazilian employers reported difficulties filling open positions in 2011. Only in Japan and India did employers have more trouble.
Why such difficulty? Employers cite a dearth of quality candidates, who lack the necessary experience and technical skills, according to Manpower’s survey. The education system lies at the heart of the issue.
Figure 1: Brazilian employers have a hard time filling jobs compared with most other EMs
The Global Talent Index, compiled by headhunter Heidrick & Struggles in conjunction with the EIU, reaches similar findings to the Manpower survey. In the 2011 index, Brazil ranks a lowly 42nd out of 60 countries. The scoring is based on the following 7 factors:
- Compulsory education
- University education
- Quality of the labour force
- Quality of environment to nurture talent
- Relative openness of market
- Ability to attract talent
Figure 2: Brazil scored poorly in the Global Talent Index, behind China and India
Source: Global Talent Index 2011
Not surprisingly, Brazil scores very well in the demographics subcategory, given its large, growing labour pool. The country’s population is estimated at just over 190 million, the world’s 5th largest, but size isn’t everything. What drags Brazil’s score down is the quality of the labour force and its limited openness.
To assess labour force quality, the survey looks at the foreign language and technical skills of the workforce as well as the number of technicians and researchers involved in R&D. Brazil’s performance on these measures leaves plenty of room for improvement. Even though the country has a large pool of workers, many lack the skills needed to thrive in global companies.
Brazil also ranks poorly in terms of the relative openness of the market, but I see this as much less of a concern (*see my footnote below).
Favorable demographics is an important, albeit insufficient ingredient for the economy to move to a higher growth path. Brazil needs to improve its education system to realise the potential advantage of its growing population. Not only is higher economic growth at stake if the skills shortage goes unaddressed. Inflation is also an issue. Brazil’s lack of qualified labour is one of the factors that has driven up wages and fueled broader price rises.
Brazil has achieved a number of important education milestones in recent years. Primary education is almost universal, but there’s still plenty of room for improvement.
As seen in Figure 3, Brazilian students scored poorly in the latest PISA (Programme for International Student Assessment), a test given every three years in over 60 countries. Meanwhile, only five Brazilian universities rank among the 600 best in the world.
Figure 3: Brazilian students performed poorly on the PISA test, behind Chile and Mexico
Part of the reason for Brazilian students’ poor showing is due to relatively low education funding. In 2009, Brazil spent less per student than other EMs, such as Thailand, Poland, Colombia and Mexico, according to OECD data. Throwing money at the problem will help, but it won’t be enough on its own.
BRAIN (an initiative supported by ANBIMA and Febraban that aims to turn the country into an international business hub) highlights specific steps to address the talent shortage and improve Brazil’s education system. Their broad recommendations are below. Read the BRAIN report (only in Portuguese) for more specifics.
- Focus more resources on secondary education (i.e. high school level)
- Improve the quality of teachers and incentivize them
- Revamp the school accreditation process
- Promote greater interaction between universities and the private sector
- Expand foreign language training in schools
- Promote education abroad programs
- Increase funding for education at all levels
Brazil is often called ‘o pais do futuro,’ or ‘country of the future.’ South America’s biggest economy has a lot going for it – large domestic market, favourable demographics, expanding middle class. The inflows of immigrants and returning expats are a testament to the country’s increasing allure.
However, Brazil’s talent shortage – even with the brain gain from immigrants and returning expats – could constrain economic growth and disincentivize foreign investment. While the government has made great strides in improving the quality of education, more efforts are needed.
* Trade openness is one of the key measures used in the Global Talent Index to assess relative openness. Brazil has a very large domestic economy so exports make up a relatively small share of GDP (around 10%). Consequently, the country receives a low score on this measure, even though I would categorise its large domestic economy as more of an asset than a liability. Overall, Brazil’s low ranking on openness is much less of a concern than the quality of the labour force.