UPP Favelas See 23% Business Growth

By Andrew Willis, Contributing Reporter

RIO DE JANEIRO, BRAZIL – Businesses in favelas with Pacifying Police Units (UPPs) are showing a trend towards greater growth, according to a recent study by the Fundação Getúlio Vargas (FGV). The Brazilian higher education and research center looked at five favelas in Rio de Janeiro that have been ‘pacified’ in recent years.

Speaking at a conference in Rio last week, economist Marcelo Neri referred to the study that analyzed the Pavão-Pavãozinho-Cantagalo, Chapéu Mangueira-Babilônia, Santa Marta, Cidade de Deus and Batan favelas.

The FGV professor and president of the government’s Instituto de Pesquisa Econômica Aplicada (Ipea) said the study showed that 23 percent of businesses in the five favelas had grown since UPPs were installed.

Th research also showed that bigger businesses had higher levels of growth, said the Neri. “In this way, a big hamburger company that is attracted by pacification and the possibility of advertising its product, might be invading a [smaller] Brazilian barbeque business,” he said.

Without making a value judgment regarding this market struggle, Neri said the government could play an important role as favela economies evolve. “We will have to make a choice: whether we want to protect the small businesses or not,” he said.

Two businesses approached by The Rio Times in the Pavão-Pavãozinho-Cantagalo favela attest to the mixed experiences of businesses, post pacification. The favela – which straddles the border between Copacabana and Ipanema in Rio’s Zona Sul (South Zone) – was the fifth in Rio to be pacified, receiving UPP stations in December of 2009.

The Pura Vida Hostel was established following pacification and has seen a growth in clients since then, according to employee Luiz Carlos. “Our guests our both foreigners and Brazilian. They frequently ask whether the favela is safe and I can safely say it is, thanks to the pacification,” he said.

A nearby bar has had a different experience with pacification however. “We used to have more clients, people coming for the baile funk parties in the favela. Now they are banned and numbers are down,” said the bar’s owner, who did not wish to be named.

In addition to the added security, Rio’s favela communities have attracted a number of international companies in recent years due to the increased spending power of their inhabitants. Rises in the minimum wage, government social welfare transfers and Brazil’s growing economy have all contributed to Brazil’s growing middle class.

Communities with UPPs have also received a new program called “Comércio Legal” (Legal Trade), which has brought representatives from financial institutions, micro-entrepreneurs and local business people together to discuss future possible economic growth through incentives and credit lines.

Yet added security and an influx of investor interest in pacified communities has also contributed to rising property prices, a point noted by Neri. “The UPP is a good thing, but it also bring secondary effects. In the case of increased rents for houses in these areas, this generates a reduction in income for many inhabitants,” he said.

The favela communities are not the alone in skyrocketing housing costs however, in 2011 the average cost per square meter in Rio rose 34.9 percent, with Zona Sul (South Zone) beach-side areas leading the charge. Recent reports indicate prices have leveled off in 2012 some, however with the 2014 World Cup and 2016 Olympics approaching, Rio is set for more favela UPPs and more spikes in the real estate market.