Violence and insecurity limit the growth of the Brazilian economy

Insecurity and violence are costly to the Brazilian economy. A study carried out by economists from the International Monetary Fund (IMF) shows that the Brazilian economy could grow 0.6 percentage points more if crime fell to the world average. For this year, the Fund’s projection is for an expansion of 1.7% of Brazilian GDP.

“Violence is a serious problem that affects a series of decisions that have an impact on people’s daily lives: where to live, where to invest”, highlights the coordinator of the Center for Science Applied to Public Security at Fundação Getulio Vargas (FGV), Joana Monteiro.

She points out that one of the worst impacts comes from organized crime. In Rio de Janeiro, for example, he is involved in gas distribution, civil construction and beverage sales. “This prevents competition,” says Monteiro. There are also threats to companies, which are charged protection fees.

The United Nations Office on Drugs and Crime (UNODC) points out that in 2021 Brazil recorded 21.26 homicides per group of 100,000 inhabitants. It is almost ten times the global rate, of 2.24 homicides per 100,000.

In Latin America and the Caribbean, the Brazilian number was only lower than that of the Bahamas. Belize, Colombia, Honduras, Jamaica, Mexico, Saint Kitts and Nevis, Saint Lucia, Saint Vincent and the Grenadines and Trinidad and Tobago.

According to IMF economists, crime and violence are serious problems in Latin America and the Caribbean. Crime rates, measured by reported intentional homicides, are historically high and have worsened recently in many countries in the region.

Latin America and the Caribbean have seen annual homicide rate increases of around 4% over the past two decades. Almost half of the victims of intentional homicide in the world are from the region, despite it representing just 8% of the world’s population, according to data from the United Nations.

The impacts of violence on the economy

The survey carried out by IMF economists shows that crime entails considerable macroeconomic costs. The survey results suggest that a 1% increase in homicide rates reduces GDP growth by 0.3 percentage points.

“This occurs through the drop in capital accumulation and the reduction in productivity growth”, highlights the study, signed by Rodrigo Valdés, IMF director for the Western Hemisphere, and Rafael Machado Parente.

Valdés and Parente point out that crime makes capital accumulation difficult, possibly by deterring investors, who fear theft and violence. And it harms productivity, as it tends to divert resources to less productive investments, such as residential security.

Estimates suggest that the gains from reducing violence in Latin America and the Caribbean to rates close to the world average could increase regional GDP growth by up to half a percentage point. The Fund predicts that the region will grow 1.9% in 2024 and 2.5% in 2025.

Spending on maintaining order and public security is large in Latin America and the Caribbean

Spending on maintaining public order and security is high in the region. In Brazil, they correspond to just over 1% of GDP, according to UNODC. In Jamaica, it is more than triple.

Parente points out that, although high levels of spending on order and security are necessary to prevent further crime, this suggests that more effective crime-fighting practices could free up significant resources for other priority expenses.

“These other priority expenditures could, by attacking structural obstacles to growth, generate job opportunities to reduce crime levels in the region,” he says.

The Fund’s economists point out that there are other valuable resources in terms of scientific evidence on the effectiveness of existing security and justice solutions. One of them is the Security and Justice Evidence Platform of the Inter-American Development Bank (IDB).

The platform highlights, for example, the lack of evidence regarding the effectiveness of license plate recognition in reducing traffic violence. And it points out that pricing and taxation policies on alcoholic beverages have positive impacts on reducing violence in certain situations.

Economists also point out that crime is an issue of a socioeconomic nature, with far-reaching consequences and a variety of interconnected roots. “By prioritizing more effective strategies to combat crime, governments in the region would not only increase public security, but also increase the economic potential of the region”, they emphasize.

One path forward for this, according to experts, would be to increase collaboration between authorities, international financial institutions, academia, NGOs and the private sector to find alternatives and ways to eliminate this obstacle to growth.