RIO DE JANEIRO, Brazil – Adriano Silva owns a water and gas distribution business and just bought a brand new car.

Bus driver Jonas Oliveira began attending a fitness center four months ago and has unlimited Internet access at home.

Helena Barbosa stopped working as a manicurist, opened a thrift store and is preparing to open a bar.

Silva, Oliveira and Barbosa are living proof of the transformation that has been under way in Brazil’s favelas, particularly in Rio de Janeiro.

These residents of Vidigal, a favela between São Conrado and Leblon on the south side of Rio de Janeiro, have seen their incomes rise and they are taking advantage of services that did not exist in their community until recently.

There are a total of 12 million people living in Brazil’s favelas. They spend R$56.1 billion (US$27 billion) per year and are part of an increasingly expanding market, according to a study by the Data Popular research institute, carried out in partnership with the Central Union of Favelas (CUFA) with information from the Brazilian Institute of Geography and Statistics (IBGE).

The Data Popular study was the second in a series that CUFA commissioned to better understand the needs of Brazil’s favelas to provide a foundation for the public policies directed at them. The first study was focused on profiling young people. The second was aimed at identifying the favela’s socioeconomic profile.

“Brazil has changed and so have its favelas. We need to understand these changes to design effective policies that meet the needs of these communities,” CUFA President Celso Athayde said.

Upper class grew from 1% to 11%

The most notable change has been the overall increase in social mobility. In 2002, 1% of the people living in favelas belonged to Brazil’s upper class, having a monthly family income that exceeded R$3,876 (US$1,855), according to the criteria of the Office of the President’s Secretariat for Strategic Affairs.

In 2012, this figure rose to 11%.

During the same period, the middle class, whose monthly incomes range from R$1,110 (US$531) to R$3,875 (US$1,854), grew from 29% to 59% of favela residents. And the lower class, which earns less than R$1,109 (US$531), dropped from 70% to 30% of the total.

This improvement in social conditions was the result of a series of factors that also affected millions of Brazilians who do not live in favelas.

Keeping inflation under control was the first factor. There also were more formal job offers. Today, 36.2 million have formal work contracts, up from 23.1 million in 2002, according to the IBGE.

The minimum wage has risen faster than the price of consumer goods, from food to televisions. The minimum wage has more than tripled, from a monthly salary of R$200 (US$96.43) in 2002 to R$678 (US$328.68) in 2013, while inflation rose just 1.97% during the same period.

Economist Sonia Rocha of the Institute for Studies on Labor and Society (IETS) says prices have gone up in the favelas in certain regions, particularly Rio de Janeiro, due to the work of the Pacifying Police Units (UPPs). As prices rise, the poorest residents wind up leaving because they cannot keep up with the higher cost of living, Rocha adds.

“This is part of the reason why the lower classes make up a smaller proportion of the residents of these favelas. Rents have gone up and those who can’t pay have to leave,” she says.

Most of the favelas’ upper-class residents are small business owners.

Adriano Silva, a 34-year-old micro-entrepreneur from the state of Paraíba, is among those benefitting from favela residents’ increased purchasing power. As the owner of the only water and gas distribution business in Vidigal, he has three employees who take turns making sales and carrying out deliveries, which is his competitive advantage.

“There are people who open this type of business, but they don’t want to make home deliveries,” says Silva, who earns about R$3,000 (US$1,446) monthly. “So they don’t stay in business for too long.”

His wife, Ivanilda, is a real estate agent and complements their monthly income with at least an additional R$1,000 (US$482.16).

They live in a three-story house in the favela and purchased a brand new Chevrolet Captiva.

Silva is one of the small business owners who made it through the drug war that plagued Vidigal until 2007.

During to the conflict, many residents with the financial wherewithal left.

Arildo Lopes da Silva, 47, left Vidigal in 2002, but he kept his businesses – a supermarket and a pet shop – in the favela.

The son of a doorman, Silva has a high school diploma. He studied business administration in college for a year but dropped out when he could no longer pay the tuition.

He ventured into the business world in the 1990s, with a minimarket that was smaller than any of the four rooms in his current home in Jacarepaguá. In 2008, he opened a Super Rede franchise and has 67 employees.

Silva does not discuss how much he earns, but he says that supermarket sales have increased 300% in the past four years. With his business going well, he has traveled throughout Brazil and visited Argentina and the United States.

“I always believed in Vidigal,” he says. “The only reason I left was that I couldn’t stand the violence back then.”

Cable companies open stores

Cable TV companies have also caught on. Sky, a local cable television company, opened a store in Vidigal in June 2011. On average, it gets 30 new customers a month.

The company already has a competitor. Telephone company Claro also has been selling cable TV services in Vidigal since the beginning of 2012 and adds about 20 new customers a month.

Fitness centers are another newcomer to the favela. V+ was opened less than a year ago by two residents of the city’s wealthy south side who saw a business opportunity in Vidigal. Now, it has 350 members who pay R$90 (US$43.39) a month.

Jonas Oliveira, a 43-year-old bus driver from Ceará state, joined the gym four months ago.

“I’ve lived here for 23 years and never exercised because I didn’t have the money and there weren’t any options in Vidigal,” says Oliveira, who earns R$2,200 (US$1,060.75) a month. “Now, I can exercise with a view of the ocean.”

After retiring eight years ago, former manicurist Helena Barbosa opened a thrift store on the ground floor of the house where she lives with her mother, her husband and one of her daughters. Barbosa earns up to R$2,000 (US$946.32) monthly.

Now, she is ready to expand the business.

“I will open a retro-style bar in early 2013,” she says. “Vidigal doesn’t have any bar like this and needs one.”