Rio de Janeiro is the state that grew the least in the 21st century; what are the reasons

Rio de Janeiro is the state that has lost the most economic importance in the country in this century. Figures from the Brazilian Institute of Geography and Statistics (IBGE) show that people from Rio de Janeiro represented 12.38% of the national GDP in 2002. Eighteen years later, this participation was 9.91%.

On average, the state economy grew at a rate of 0.71% per year during this period. Well below the average speed of the Brazilian GDP (1.97% per year), which was not the highest. At the other extreme, the state that grew the most was Mato Grosso, whose GDP increased by an average of 5.42% per year between 2002 and 2020, driven mainly by agribusiness.

Rio de Janeiro still ranks as the second largest economy in the country. But, in the midst of persistent decline, he saw Minas Gerais approaching: the share of the Minas Gerais economy in the national GDP increased from 8.33% to 8.97%.

While there is still no more recent official data on local GDP, other indicators suggest that Rio’s economy remains in trouble. An example: in the first quarter of this year, the state had the seventh highest unemployment rate in the country: 11.6%, almost three percentage points above the national rate.

A hindrance to the trade and services sector is the high default rate, one of the highest in the country. Data from Serasa Experian show that 53% of the adult population in Rio has some type of credit restriction. In May, there were 7.26 million negative consumers in the state.

Retail trade is feeling the slowdown in economic activity more. Volume sales in Rio fell 3.5% in the 12 months through April. In the country, there was an increase of 0.9%. The pace of expansion of the services sector was also below: 5.1% in Rio and 6.8% in the national average.

State situation is “extremely complex”

The chief economist at MB Associados, Sérgio Vale, classifies the situation experienced by Rio de Janeiro as “extremely complex”. “There is political, economic and social instability,” he says. Not even the World Cup, in 2014, and the Olympics, in 2016, managed to change this scenario.

He recalls that former governors were arrested for involvement in cases of corruption, the state suffers from a chronic problem of violence and one of the main engines of the economy, the oil and gas segment, lost strength after the Lava Jato scandal, which hit to Petrobras.

The coordinator of the MBA in Strategic and Economic Business Management at the Getulio Vargas Foundation (FGV), Mauro Rochlin, assesses that the problem has deeper roots: the move from the federal capital to Brasília, in 1960. “The entire federal public machine was in the city,” he says.

The specialist points out that no type of public policy was made by subsequent governments to compensate for the loss of status. A second blow, especially for the city, says the coordinator, would have come in 1975, with the merger of the states of Guanabara and Rio de Janeiro: “More protagonism was lost”.

The situation gained more negative contours after the 2015-16 crisis, during the Dilma Rousseff government, when the Brazilian GDP fell by almost 7% in two years, and with Lava Jato, which affected the oil and gas segment.

“Petrobras had been suffering from Dilma’s policy of holding prices down. At the same time, it was the target of a corruption scandal. The situation became more delicate for the company, which, in order to reduce its indebtedness, reduced investments”, says Rochlin.

The scenario affected cities heavily dependent on the oil and gas sector, such as Itaboraí, Macaé, Rio das Ostras and Campos dos Goytacazes.

Rochlin also points out that there has been a lack of consistent public policies in the area of ​​public security since the Leonel Brizola government, in the 1980s: “The explosion of violence helped in the flight of capital, companies and, more recently, brains”.

Entire sectors, over time, migrated elsewhere. This is the case of finance, which was relevant in the Rio de Janeiro capital until the 1980s and later ended up being concentrated in São Paulo.

Salaries and pensions consume more than half of Rio’s revenue

Another serious problem in Rio de Janeiro is with local public finances, which limits the money available for public policies. The state constantly renegotiates its debt with the federal government and, since 2017, it has been part of the states’ fiscal recovery plan.

The so-called current savings, an indicator of the state’s autonomy to invest with its own resources, is now equivalent to 16% of net current revenue – the fifth lowest rate in the country, according to data from the first four months of the year released by the National Treasury. At the other end, in Mato Grosso, current savings correspond to 40% of net income.

In Rio, the payment of employees’ salaries and pensions consumes more than half of the collection – more precisely, 57% of total revenue, the fifth highest rate in the country.

Rio’s international airport has low traffic

One of the reflections of the situation that affects the state is the problem of low traffic at Tom Jobim International Airport, also known as Galeão, which until the mid-1990s was Brazil’s main connection with foreign countries. The movement has dropped about 65% in the last eight years, causing the terminal to operate at less than 20% of capacity.

Data from Infraero show that the flow of passengers at the international airport of Guarulhos (SP) in one day corresponds to six days of movement on the Tom Jobim.

Rochlin points out that the emptying of the international airport cannot be attributed only to the decay of the city and the state. There are other contributing factors, he said:

• the displacement of international flights to Guarulhos airport;
• the cost of jet fuel in Rio de Janeiro, where the product is heavily taxed; It is
• higher operating costs at Galeão compared to Rio’s central airport, Santos Dumont.

An attempt to reverse this situation was negotiated by the federal and state governments. As of October, the majority of national flights operated today on Santos Dumont will migrate to Galeão. From the central terminal, they would operate frequencies only to São Paulo and Brasília.

Expectations for Rio de Janeiro are not promising

Even though it is an important cultural center and has attractions that favor tourism, both in the capital and on the coast and interior of the state, Rio de Janeiro has a long way to go to reverse the current situation.

“The state simply cannot grow”, says Vale, from MB Associados. For this year, even with the expectation of growth above 2% in the national GDP, the possibilities for Rio de Janeiro are not the best: Brazilian expansion is driven by agriculture, which is less relevant in the state.

The FGV coordinator points out that only more forceful actions, especially by the public authorities, can reverse this situation, which was severely affected by the Covid-19 pandemic, in 2020. But, given the deterioration of public accounts and political instability due to what the state is going through, he cannot be optimistic about the future of Rio de Janeiro.