Brazil's Brain Strain: Will a Skills Shortage Dampen Growth?
This past February, Brazil's Labor Ministry reported that local companies hired 280,799 workers. That was an all-time high, beating the previous record set a year earlier by 34%. Meanwhile, unemployment in the country, having hit an all-time low of 5.3% last year, is still only hovering around 6%. In sharp contrast to so many other economies around the world, it's a job hunter's market in Brazil. For now, that seems like a nice problem to have, but experts wonder whether corporate growth plans will be hindered if supply continues to lag demand.
"It's hard to say if Brazil will have the labor force it needs in the future," says Rafael Pereira, an analyst at the government's Institute for Applied Economic Research, or IPEA. "We have the numbers. It's the quality that is becoming the problem, and a lot of that is going to depend on a company's willingness to train new talent."
In a new report, the IPEA says that if Brazil's economy grows an average of 3.5% over the next 10 years, as it has between 2000 and 2010, the supply and demand curve for skilled labor will be relatively stable, despite an on-going skills deficit in a handful of sectors, such as financial services and engineering. But if it grows more than 4%, Brazil's future might look less rosy.
Even without a worst-case scenario, the impact of the skills shortage is noticeable. One byproduct is migration, with workers moving from the southern half of the country to the faster-growing regions in the north as they seek more -- and better paying -- opportunities.
Immigration, too, is changing. According to the Labor Ministry, the number of authorized foreign workers rose 30% in 2010, to 50,000. The majority came from the U.S., the U.K., Germany and the Philippines. Paulo Sergio Almeida of the Labor Ministry's foreign labor department says many immigrant workers were needed for the offshore oil and gas sector -- about 15,200 of the total. "The increase also accounts for the expansion of Brazil's industrial parks and the modernization of industry, [which] has required us to purchase equipment and technology overseas that demands specialized training and supervision," Almeida says.
Mining for Expertise
During the economic upswing of recent years, highly skilled, specialized workers haven't accounted for a major portion of Brazil's labor pool. Engineers made up just 0.47% of the workforce as of the end of 2009, and directors and managers only 1%, according to the Labor Ministry. If that needs to change dramatically, many companies will be ill-prepared, observe experts.
"[Skills] management is a problem for the big multinational," says Felipe Monteiro, a Brazilian-born management professor at Wharton. A case in point is Brazilian mining giant Vale. "It has operations in Canada and Africa and has a shortage of middle managers who can work across those countries. Compare Vale to companies like IBM and Unilever, which are more prepared for that level of international expertise and cross-border project management than the big Brazilian companies, which are just getting into it now."
But Vale is responding to the challenge. On March 17, The Wall Street Journal reported that Vale is spending around US$100 million in 2011, as much as 50% more than 2010, to train new mid- and senior-level project managers. This year's management trainee group is double the size of 2010's, and includes 29 Brazilians and 11 foreigners.
For the most part, however, Brazil's growth has created challenges for many corporate HR departments. The industrial sector, which includes energy and mining, grew over 10% last year. And now the development spurt under way in the northern part of the country includes at least three large hydroelectric dams requiring thousands of skilled workers and the re-development of airport, highway and ports infrastructure in time for Brazil to host the FIFA World Cup in 2014 and 2016's Summer Olympic Games. The government says it also wants a multi-billion dollar bullet train between São Paulo and Rio de Janeiro up and running by 2015 -- a new project never done in the country before.
Such growth is a relatively new phenomenon to Brazil and not experienced since the "miracle" years in the 1980s, when the country was under a dictatorship. In the 1990s and early 2000s, industrial growth was essentially nonexistent. Students were not interested in getting degrees in engineering or management and the volume of graduates in these areas declined, according to Carlos Cavalcanti, director of the business school Instituto Euvaldo Lodi in Brasilia, the nation's capital.
In 2009, some 38,000 students received engineering degrees. Cavalcanti estimates that with GDP growth over 5%, the country needs 60,000 engineering graduates. In 2010, just 9.3% of the country's university graduates had engineering degrees, according to the Paris-based Organisation for Economic Co-operation and Development, compared with an average of 12.2% among the group's member countries.
"The big corporate names will snatch up the brightest management and engineering students in the country and train them," Cavalcanti says. "But the mid-sized companies that don't have that kind of brand name power are having a harder time."
As companies become more sophisticated, so do their labor needs. That's been the case in Brazil's burgeoning sugar and ethanol sector. Companies in the fast-globalizing, volatile sector don't just need a chemical engineer, but a chemical engineer who also knows agriculture or material engineering. Antonio Padua, technical director of Unica, the São Paulo sugarcane industry association notes that, with global interest in non-fossil fuel energy and demand for sugarcane-based ethanol growing, suddenly, "you needed an environmental engineer; you needed a new kind of finance manager, and you needed top-notch mechanical engineers and managers of co-generation power plants that understand the use of [sugarcane fiber called] bagasse and ethanol to generate electricity. This was and is brand new for the labor market."
Overall compensation levels are on the rise for all kinds of managers and engineers. According to local executive recruitment firm Catho, the average salary for senior managers has risen 20% since 2008, to US$30,000 a month.
While pay levels increase, competition for talent is intensifying, says Flavio Marques, a manager at CTIS, one of Brazil's oldest and largest information technology firms, with a staff of 8,500 and revenue of R$720 million (US$436 million) in 2010. He says generalists are easy to find; specialists are next to impossible. "If I ask my human resource department to find me 50 IT engineers, I will have my qualified 50 engineers in about two weeks," notes Marques. "If I asked HR to find me 10 guys with software engineering backgrounds who can speak fluent English, I'd probably find none.... If you need someone who has solid foreign language skills and can do the same thing as a graduate from [the Massachusetts Institute of Technology], you're out of luck."
But Paulo Nascimento, one of the lead researchers of the IPEA's study, contends that the lack of highly skilled labor is not as bad as it seems. He notes that 38% of students who graduated with advanced degrees in engineering are working as engineers, and if the economy grows at a steady clip, of 3.5%, that will rise to around 44%. "When you hit 70% of those with engineering degrees working in the field, then it becomes a supply issue," he says. "But that kind of level would be above the worldwide norm."
Like others, however, he predicts, "Specialist managers and engineers in a few sectors are going to see salaries rise and jobs opening up because demand is greater and know-how in these specialties can be thin."
Between 2004 and 2009, the pay of biotech engineers rose 24.4% while demand for them rose 35.5%, according to the IPEA. Geologists and geophysicists -- the kind of engineer who can locate natural gas and oil deposits, not to mention minerals -- saw their salaries rise 11% and demand for their labor rising 43.1%. Demand for computer engineers, such as systems analysts, rose 12% with a moderate salary increase of 3.5%.
One sector to keep an eye on is energy. The IPEA notes that if the economy grows by an average of just 2.5%, thesector's demand for engineers rise 13.3%. If the economy grows 4% over the next 10 years, demand for engineers is expected to increase by 16%. In mining, 2.5% GDP growth will translate into an 8.7% year-over-year increase in demand for engineers between 2011 and 2020; with 4% GDP growth, demand rises 10%, according to the IPEA.
Making the Grade
Some sectors are more prepared than others. Unica's Padua says local agribusiness colleges and universities like Luiz de Queiroz Advanced School of Agricultural Studies, or ESALQ, have been a key supplier of new brain power for Brazil's big agribusiness sector. "ESALQ is preparing the sector for what it needs today," he notes. "And the companies are training lower skilled workers to learn new tasks. Our sector's labor needs are being met."
Other schools are a work in progress. Billionaire investor and oil magnate Eike Batista is said to be investing in a naval college in Rio de Janeiro to help develop engineers and managers for the massive new Açu Port complex.
"The long-term solution, of course, is education," says Monteiro of Wharton. "The short-term solution is you have to train people on the job. If you can't afford to hire the engineer you want, you have to get basic-skilled engineers and train [them]. Then you have to retain them by paying them more. It's a concern. It's what keeps managers who are hiring awake at night and has a potential to be a big bottleneck for companies."