Brazil's Oil Royalties Conundrum

On Tuesday, Brazil's Congress is due to vote on a bill that could redistribute the country's oil royalties, reducing the share of oil-producing areas and expanding the share in other states. Officials in Rio de Janeiro and Espírito Santo, two of the states that benefit from the current royalties system, bitterly oppose the bill. But evidence shows that in coastal towns and cities that earn oil royalties in these states have growing cases of corruption and mismanagement, as well as high levels of inequality and little progress in human development.

Landless settlers in Macaé, 2011.

A few recent examples are illustrative of the corruption and mismanagement problem in cities with large oil royalty funds.

In March, the government of Campos dos Goytacazes in Rio proudly announced the inauguration of a new Sambadrome, large enough to hold 40,000 (10 percent of the city's population). The stadium--funded entirely by oil royalties--cost R$80 million, going R$10 million over budget. Campos is the city that earns the most oil royalties of any city in Brazil, receiving R$9.7 billion from 2000 to 2010. But over the same period, the city dropped from 17th to 42nd in Rio state's development index. Seventeen percent of the city's schools and preschools operate in rented homes. Primary education in Campos received the worst grade in the state.

In April, a Federal Police case dubbed Operation Lee Oswald led to the arrest of 28 people including the mayor of the city of Presidente Kennedy, Espirito Santo. The city government was accused of fraud in awarding government contracts, overbilling, and embezzlement, with the mayor as the ringleader. Those arrested were charged with corruption, criminal conspiracy, and money laundering, among other crimes. Presidente Kennedy earns the most money in oil royalties in the whole state; the city gets 20 percent of the total amount of royalties earned in Espirito Santo. From 2000 to 2010, the city earned R$398 million in royalties. Despite a high GDP per capita, the city has the fourth-worst human development index statewide.

In September, a Rio judge decreed that the secretary of security of Mangaratiba, a Rio coastal town, would lose his job and demanded to freeze his assets. The secretary, also a policeman, was accused of earning a fortune far beyond his means, and the judge demanded he pay a fine for illegally accumulating wealth dating back to 1992. Mangaratiba earned R$170 million in oil royalties from 2000 to 2010.

Uneven development in royalty-earning cities is also an issue.

A study by Macroplan as explained in an excellent EXAME article looked at 25 cities that earned the largest amount of oil royalties from 2000 to 2010. It found that despite a huge rise in GDP, cities accomplished little in terms of human development. These coastal cities in Rio, São Paulo, and Espirito Santo earned R$27 billion (US$13.2 billion) over that period. Of the 25 cities, 16 had a higher unemployment rate than the national average in 2010. Seventeen had a lower average wage than the national average of R$1,200 per month. Twenty had higher illiteracy rates than the state average. Many cities imported workers to fill skilled jobs since the locals are unqualified. In total, 10 percent of the inhabitants in all 25 cities earn a quarter of the minimum wage. In Macaé, which earned the second most in royalties at R$4.6 billion over a decade, nearly 10 percent of the population lives in extreme poverty. By comparison, in Rio state as a whole, around 3.7 percent live below the poverty line.

Violence is also an issue. In 13 of the cities, the homicide rate is above the state average. These include Linhares (Espirito Santo), Búzios, Cabo Frio, and Paraty (idyllic beach towns in Rio state) which are among the 100 most violent cities in Brazil.

Other coastal cities in Brazil earn royalties, too--with similar results. Guamaré, a town of 12,000 in Rio Grande do Norte, earned R$202 million over the past decade and had eight mayors during the same period. One was arrested for embezzlement; another is under investigation for paying over half a million reais to bands to play at Carnival last year. The current mayor spent R$2 million on Carnival this year and R$2.2 million to celebrate the city's birthday with high-profile singers. Despite having the 20th highest GDP per capita in the country, as well as being home to biodiesel plants, a Petrobras refinery, and wind farms, 10 percent of the population lives in extreme poverty and a fifth of the poulation is illiterate.

So what will this mean for royalty distribution and how these funds are used? "Oil exploration has 20- to 40-year cycles, which come to an end. Brazil's cycle is just at the beginning and we need to decide how to best use these resources so that in the end, we have thriving cities, not huge favelas," Macroplan director Alexandre Mattos told EXAME.

Image: Mariana Criola. Police prepare to remove landless settlers in Macaé in September 2011.

Comments

[Pedro Mundim]

Ou seja, a riqueza faz mal para os brasileiros.

Rachel não escreveu essas palavras, mas diversos post's anteriores têm passado a mesma mensagem (ãs vezes sub-reptícia): se os brasileiros conseguem enriquecer, por uma razão ou outra, isso é algo ruim, negativo, não contribui para torná-los melhores, mas torna-os, no mínimo, mais caricatos. Brasileiros somente são bons quando são pobres, ou ao menos, esse é o jeito "certo" de ser. O enriquecimento causa o desperdício, o consumismo, a corrupção, e sobretudo o distanciamento entre pobres e ricos e a atitude arrogante dos ricos para com os pobres.

Não vou perguntar o porquê disto, mas observando outros comentaristas estrangeiros (mesmo os que vieram aqui décadas atrás) eu tenho constatado alguns pontos recorrentes, como o fascínio pela pobreza, sobretudo pelos habitantes favelas, que na visão deles, estão sempre alegres e dispostos a festejar, pois não vivem para o trabalho, mas para a celebração de um carnaval eterno. Eles são assim porque (supostamente) não têm necessidade de adquirir riqueza ou bens materiais, já que satisfazem-se apenas com a fruição de instintos básicos (comer, beber, dançar, fazer amor, etc.) Tal como "bon sauvages" rousseanianos, ou como Adão e Eva (antes de serem condenados a ganhar a vida com o suor de seus rostos). Se essas pessoas se tornarem prósperas, correm o risco de apegar-se a bens materiais e adquir valores e vícios próprios do homem civilizado, e isso seria o fim deste cenário edênico. O Brasil perderia a graça.

De resto, é tolice achar que a descoberta de petróleo tornaria tais regiões iguais a um país de primeiro mundo. Mesmo se não existissem a má gestão e a corrupção dos políticos, os rendimentos originados do petróleo não beneficiam necessariamente toda a população, mas apenas aqueles direta ou indiretamente envolvidos na indústria petrolífera. A grande maioria dos países produtores de petróleo está localizada no terceiro mundo. O petróleo só garante o enriquecimento se a quantidade é imensa e a população do país que a contém é pequena, como é o caso dos Emirados Árabes. Macaé não é Qatar, nem Campos á Abu Dhabi. Mas essas cidades já foram bem mais pobres antes da descoberta do petróleo.

[Jon]

Pedro Mundim, quem disse que petróleo deixaria as regiões iguais? Ninguém disse este tolice. E do outro, que o petroleo faria do Brasil um país desenvolvido, acredito que foi apenas Guido Mantega que disse. Este texto, por outro lado parece partir de um presuposto perfetamente razoável - se o petróleo é bom para o desenvolvimento do Brasil, deveriamos esperar que os lugares que mais recebem dinheiro do petróleo se desenvolvam mais do que os lugares que não. Mas o texto mostra evidência que isso não está sendo o caso. O resto, incluindo o cenário "edênico", parece que está tudo na sua cabeça. Você queria que ela escrevesse o que? "Prefeitos de cidades brasileiras com petróleo estão se enriquecendo, obá!"?

[Adam]

Pedro Mundim - you are deluded. Critics of newly found oil wealth in countries like Brazil, Nigeria, Angola and many countries in the middle east and asia are mostly concerned by the lack of robust institutions and systems of accountability. I don't think you even read Rio Gringa's article and just responded in a knee jerk way "you gringos want us to stay poor". Thats is nonsense.

[Dennis]

Excellent article!

[Daniela]

Nice blog... You have good insights here...
Check out my blog at http://thelovevisa.blogspot.ca/

thank you,
Dani