Publish in Perspectives - Monday, August 20, 2012
Sao Paulo's police are facing growing crime. (Photo: Captalizew)
The impact of the rising crime in Brazil’s largest city.
The murder rate in São Paulo surged by 21 percent in the first six months of the year from the same period in 2011, according to recently released government data, Reuters reported. In addition to high taxes and complex regulation, crime has contributed to making Brazil one of the world's costliest places to do business. What explains the rising crime rate? Is it likely to affect upcoming municipal elections? What effects does crime have on the economy and how does it impact businesses?
Jack Devine, president, and Amanda Mattingly, director for Latin America, at The Arkin Group: An increase in crime in São Paulo is disappointing for Brazil, but it is not necessarily surprising considering that Brazil's economy has slowed in recent months. According to latest economic statistics, Brazil's economy grew by just 0.2 percent in the first quarter of 2012. A slowdown in the economy coupled with an increase in drug trafficking through Brazil's major cities can explain the rising crime rate. All of these factors combined make for a difficult business environment, requiring companies to safeguard their operations, carry out security assessments and risk-management exercises with their employees and increase their spending on private security. In our experience, the firms that succeed in markets facing security challenges are those that make these protocols standard. Still, Brazil has been a great success over the last several years, with impressive overall growth, a consolidated democracy and falling inequality rates. Brazil is now the world's sixth-largest economy and a resource-rich land with many opportunities for foreign investment and trade. It will be up to the Brazilian government at the local and national levels to take on the criminal elements in the big cities of São Paulo and Rio de Janeiro and to protect the business community. Professionalizing the police force with thorough vetting, advanced training, increased intelligence capabilities and coordination will help. Doing business in Brazil may be more complicated by the security situation, but with proper precautions and due diligence, foreign investors can take advantage of the many opportunities Brazil has to offer.
Thomaz Guedes Da Costa, professor and head of the Critical Analysis and Future Department at the National Defense University in Washington: Regarding criminality in the city of São Paulo, there seems to be a break in the recent trends, according to authorities. Homicide in general is up. Some argue that there has been a breakdown on tacit agreements between drug traffickers and the police, and even that drier weather encourages offenders to be outside, committing crimes. More aggregated data is needed to advance causality. What is concerning for business is the increase of car thefts and homicides following robbery attempts which together greatly affect personnel, facilities, properties, family and assets protection. If one fails to prevent these crimes, the tragedies they cause have ripple effects on one's life and associations. Local elected officials have little scope of authority on public security measures as administration of justice and police work are essentially state responsibilities. That said, for business and personnel safety, preventive, remedial and crisis management measures must be integrated into daily operations both strategically and tactically. Violent crime has also been migrating from the city of São Paulo to the interior of São Paulo state. This can surprise established businesses in the state's smaller cities. Brazil offers many opportunities for business, and its challenges with street and organized criminals are not remarkably different from those of many other emerging markets. Sadly, it is not only violent crime that raises concerns. Due to social and governing structures and shortcomings in the administration of justice, mistrust is still a dominant attitude in the market and public policy spaces, increasing transactional costs and risks to doing business in Brazil.
Vander Giordano, managing director of Kroll in Brazil: The increase in reported crime in São Paulo can be connected to various socioeconomic factors. Such variations are often linked to an increase in personnel and police actions in the streets, which generates a response by organized gangs in the commission of crime. The economy and security are important factors in voters' selection of candidates in elections. The proximity of local races and the perceived lack of public security can influence the outcome of elections, and it appears that organized crime knows this relationship very well. However, I don't see that there is necessarily a direct influence on the costs of foreign investments. Historically, crime rates in Brazilian cities like São Paulo and Rio de Janeiro have steadily declined. Specific incidents will occur although at lower frequency and these costs are already considered in the business plans of investors who know the market, which has long ceased to be an unknown environment by the international community.