A Rio with Closed Doors

By Richard Mann, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Rio de Janeiro state is the one closing most commercial stores in the country and the same is true for its capital city.

The major events held during the Olympics 2016 in Rio de Janeiro which attracted public and private investment, delayed the entering of Rio de Janeiro into the economic recession that devastated the country in 2014.

But after the Olympic Games, both the city and the state plunged into a recession from which they are unable to emerge.

According to data from the CNC (National Confederation of Commerce of Goods, Services and Tourism) Rio had the worst result in the federation, while São Paulo registered the best result in the ranking of net opening of stores with employment ties.

In the annual balance, among the number of stores open and closed, São Paulo ranks first, with 3883 stores open – followed by Santa Catarina (1706) and Minas Gerais (940).

The state of Rio appears in last position, with a negative balance of 997 closed stores, behind Amapá (-142) and Pará (-374).

The trend is not only assessed in comparison with the states. CNC data on the municipalities of São Paulo and Rio show that between January and July 2018 the city of São Paulo closed the period with 899 stores open, while the capital of Rio de Janeiro registered 419 stores closed.

According to Fabio Bentes, CNC economist, the difference between the reaction to recession by the two states lies in their dependence on the public sector and the contribution of industry in stimulating the economy.

“São Paulo is less dependent on the public sector than Rio. Therefore, it is natural that São Paulo has a greater ability for recovery. The economy of the state and the capital of São Paulo is able to benefit from a greater demand by the external market than of the internal one.”

“During the recession, a solution for industry was to turn the attention to exports. This helped revive the economy, contributed to the creation of jobs and thereby boosted trade.

The city of Rio de Janeiro is more dependent on the services sector, the one finding greater difficulty in overcoming recession and which depends more on the internal market that is stagnant,” said Bentes.

In the commercial sector, in 2018, according to the General Register of Employed and Unemployed (Caged), the city of São Paulo created 5.928 jobs, while the city of Rio created 1108.

In the service sector, the difference is even greater. Rio opened 2,555 jobs, and São Paulo, 50,033 jobs. In the hotel and food sector, Rio ended the year with 96 unemployed. São Paulo, on the other hand, closed 2018 with the offer of 7690 vacancies.

In 2014, according to the Association of Hotels of Rio de Janeiro (Abih-RJ), the rate of hotel occupation in the city of Rio reached 72 percent.

In the following years numbers fell to 66 percent in 2015. In 2016, 58 percent. In 2017, 52 percent. And in 2018, 53 percent.

Rodolpho Tobler, economist at Fundação Getulio Vargas and coordinator of the FGV IBRE Trade Survey, says Rio’s economy is in a vicious circle:

“We have a swollen state, which cannot balance its accounts, spends more than what it collects with an inflated civil service payroll. As long as the state is unable to show ability to reduce spending and balance accounts it will not attract new company investment. São Paulo, on the other hand, holds the best balanced public accounts at the moment.”

Rodolpho Tobler added that political crisis with former governors and corruption aggravates the quagmire in which Rio finds itself.

“The current policy framework contributes to an environment of uncertainty for financial investments in Rio. And we need to overcome this situation of uncertainty to attract investment, dynamize the labor market and make Rio’s trade react again.”