Keeping Up With The Fulanos

Latin Trade, Nov, 1999 by Sally Bowen, Douglass Stinson, Beth Rubenstein, James (Supreme Court justice) Wilson

Mexican retailer Elektra went another route: financing expensive white goods in small monthly payments that allowed even the poorest consumers to buy a refrigerator or television. With interest rates often over 100% a year, such plans made financing appliances more lucrative than selling them.

Across Lima from the Gorensteins' house, stockbroker Charles Fyfe has what would seem the quintessential job for a developing middle-class society. But selling Peru's blue chip equities to investors is just his day job. Fyfe holds stakes in a number of small ventures oriented toward the plastic-razor-buying market, like a company that distributes one-use sleeves of shampoo to Lima's shantytowns. "If you want to get rich in these countries, you've got to sell things to poor people," he says. He waxes poetic over an old school buddy who has made his fortune selling building materials--cement and roofing--in small lots by drinking trucks into the shantytowns and selling each brick on a cash basis.

Shifting fortunes. In October 1994, American Demographics published an article headlining Mexico's "bulging" middle class. A few short months later, in December 1994, the peso crisis suddenly gobbled up all the gains. Everyday Mexicans watched their savings devalue and their credit card debts soar. Suddenly they were back to a beans and tortillas diet and struggling to find a second job to help cover costs.

Nearly five years later, Mexico seems back on track and families are once again starting to buy their version of the American Dream. Meanwhile, South America suffers mightily under the constraints of the Asian contagion, depressed commodities prices and the bust of the Brazilian real.

Argentine entrepreneur Ruben Gonzalez has seen earnings drop by half at his two laundromats. The vagaries brought about by uncertain economics have kept him a conservative man. A bachelor, he lives in a small house and keeps things simple. His car is 15 years old and he says he doesn't waste money on luxury goods. His clients, however, seem to be deciding that paying to clean their clothes is also a luxury. "A few years ago, the laundry business was better. Now, people like to borrow their family's washing machines because the extra money spent on laundry is a burden," he says.

Recessions have halted the growth needed to increase the middle class across the continent. Gains are on hold in Argentina, Peru, even scrappy Chile, while Brazil and smaller economies like Ecuador have lost ground. Analysts say Brazil is rebounding faster than expected from its devaluation, but in many ways, consumers are blighted with the same process that took Mexicans five years to slog through.

Brazilians are entering what economists call the "informal economy" in droves. A more accurate term might be urban subsistence, similar to the way rural peasants grow their own crops and survive outside the money economy. In cities, however, desperate job seekers sell whatever they can to their neighbors and friends. Impromptu, in-home beauty salons and lunch counters, and door-to-door salespeople are cropping up to replace lost jobs or supplement incomes after hours. No overhead means such goods and services are cheaper than traditional companies can offer, but they chip away at the tax base.