Brazil Data Talk: According to the National Construction Cost Index (INCC) prepared by the Getulio Vargas Foundation, the average construction cost in Brazil grew at 7.49% year-on-year in December 2011, which was higher than the average growth rate of 7.46% over the past two years. Furthermore, the growth rate of the INCC exceeded the 6.5% inflation rate measured by the Broad Consumer Price Index (IPCA) at the end of 2011. Among all Brazilian regions, the South and Northeast regions saw the highest growth in their average construction costs as of December 2011, increasing by 8.81% and 8.15% respectively.
Chart provided by: CEIC
According to the statistics from the Brazilian Chamber of Construction Industry, 48.69% of total construction costs were labour costs, which, besides wages, also include spending on employee training. The construction costs on labour were indeed 1.64% higher than that of material costs for year 2011. In 2011, the BRL 914.56 per square meter average construction costs could be broken down into BRL 445.26 per square meter on labour cost, BRL 430.30 per square meter on materials, BRL 34.74 per square meter on administrative costs, and BRL 4.26 per square meter on equipment.
The statistics further showed that the increase in average construction costs per square meter was largely due to the 11.22% increase in manpower costs and, to a lesser extent, the 9.24% increase in administrative expense. These statistics suggest that, given the lack of qualified labour force, construction companies were spending a significant amount of resources on employee training.
The latest figures for April 2012 showed that average construction costs grew at 7.13% during the month. While labour costs have been increasing at double digits, the growth in material costs has also continued since April 2011.
Most companies are optimistic about the benefits that will be brought by hosting the 2014 World Cup in Brazil. Some have already been preparing for more business opportunities by increasing and diversifying production and services, as well as raising their company profiles. According to the National Industry Confederation, however, the construction sector generally believes that high manpower costs are a potential concern surrounding hosting the 2014 World Cup.
By B. Vasconcelos – CEIC Analyst