Brazil’s Cities to See Better Growth Prospects after a Nasty Recession
As revealed by recently published City Reviews of São Paulo, Rio de Janeiro and Salvador, during the period 2011-2016 Brazilian cities witnessed the worst economic performance among the BRIC urban markets. In fact, 19 out of 26 first- and second-tier cities in Brazil that Euromonitor International tracks experienced total real GDP contractions of between 1-16% in 2011-2016. However, the outlook is promising as forthcoming investments by domestic and foreign companies will contribute to the expected total real GDP growth of 9.8% on average among Brazilian cities between 2016 and 2021, outpacing the average expansion rate of Russian metropolises (6.9%) in the BRIC group.
Historical and Forecast Real GDP Growth in BRIC Cities
Source: Euromonitor International
Brazil’s economic and political crises are concentrated in cities
Once recognised for its enormous growth potential, the BRIC group of countries has been recently struggling economically amidst an export bust due to falling global commodity prices as well as an escalating debt burden. Brazil was the worst performing economy as its real GDP shrank by 1.9% in 2011-2016, and it was unseated in 2014 by an exceptionally strong growth performer, India, from being the second to the third largest BRIC economy. On top of economic woes, Brazil has lately been beset by a spike in political instability, in particular a corruption scandal at Petrobras (Brazil’s national oil company) and an impeachment of President Dilma Rousseff, following the accusation of government accounts manipulation. In light of the fact that Brazil is by far the most urbanised country among BRICs (with 86% of the total population being urban in 2016, compared to 74% in Russia, 56% in China and just 33% in India), it is obvious why the Latin American country’s difficulties were so intensely manifested in cities.
Key cities of São Paulo and Salvador among the worst effected; Rio holds up
São Paulo and Salvador are among seven Brazilian cities that suffered double-digit dips in real GDP during 2011-2016. The economic downturn was chiefly manifested through labour productivity reductions, that is contraction in profits and wages (-16% and -23% in real terms in respectively São Paulo and Salvador in 2011-2016), rather than workforce layoffs. Employed populations increased by 4% and 14% in São Paulo and Salvador in 2011-2016, correspondingly; although, a much slower pace in São Paulo contributed to a rise in the unemployment rate in the city (from 6.7% to 9.3% of economically active population in 2011-2016). Despite positive net job growth in the two cities, sectoral employment cuts did take place. Specifically, the number of manufacturing jobs in São Paulo (with the key industry being automotive) decreased by 7.6% in 2011-2016, while in Salvador (with dominant industries being petrochemicals and chemicals, as well as metallurgy) – by -5.2% in the same period.
Rio de Janeiro, on the other hand, was spared a severe economic blow. The city actually managed to expand its real GDP by 5% between 2011-2016, on the backdrop of two high-profile events: 2014 FIFA World Cup and 2016 Summer Olympics. The latter in particular, while controversial at home, was deemed a success by the international community. Brazil’s forecast of an Olympian influx of 500,000 foreign visitors was surpassed to record 573,000 travellers, with 83% of surveyed foreign tourists declaring their experience of Rio either equal to or above their expectations. Amidst these developments, the labour productivity drop in Rio de Janeiro in 2011-2016 was marginal (-0.8%), while the employed population rose by 5.4% in the same period, driven by a spike in construction jobs (+29%).
Investors are not deterred
While key Brazilian cities may fail to impress with their economic size compared to leading metropolises in China and Moscow in Russia, or with their growth potential compared to urban centres in India, within Latin America, São Paulo and Rio de Janeiro remain the largest and the fourth largest metropolitan economies respectively, which does not go unnoticed by investors. Transport infrastructure and connectivity is to improve in Salvador and São Paulo, with 2017 bringing expected investments of at least USD114 million in the Port of Salvador by the Brazilian shipping giant, Wilson Sons as well as the expansion of Uber and the launch of a scheduled commercial Airbus A380 flight to São Paulo by Emirates Airlines (first ever to South America).[Investments are also expected in Rio by Coca-Cola in opening a new plant, as well as by Rio-based oil company Petrobras and France’s Total as part of their Brazil-wide operations.