According to estimates by the Brazilian Federal Public Ministry, the resources diverted by corruption schemes in Brazil lacerates the public reserves in about R$ 200 billions per year. But if the assault promoted by corruption has this scale, the dimension of the damage caused by bad administration is incalculable.
Together, this combination can hold a country on misery. The analysis comes from economic assessor of Parana’s Federation of Commercial and Business Associations and Professor at FGV, Arthur Schuler da Igreja.
He mentions the Petrobras case as an example, where corruption and incompetence have created a tragic combo. “Fraud losses at Petrobras, investigated by Lava Jato operation, were estimated in R$ 6 billions. In the other hand, the misleading administrative decisions, such as federal government’s decision to artificially hold the price of fuels in order to control inflation since 2005, have caused a devastation – at least R$ 50 billions in loss by bad administration, additionally, the loss of value in the stock market was R$436 billions in the same period”.
In corruption cases, the most harmful thing aren’t the financial losses. One of the worst impacts, according to Arthur Igreja’s understanding, is the moral. “The robbery of politicians isn’t the worst of all. More damaging is the idea that ends up being transmitted with this robbery, the idea that the illicit is somehow acceptable. It makes many people start to believe that they can evade taxes for instance, because if politicians can, why shouldn’t the rest of population do it too? This is the big cancer of corruption”. “When a politician is caught pocketing R$ 79 millions, we get frustrated because it’s a great amount of money. But there are 204 millions of Brazilian citizens. The impact of the small individual decisions is much bigger’’.
Corruption destroys trust and promotes bureaucracy as a consequence. “When corruption is impregnated, business are made at defensive mode. That means more contracts, more litigation, more lawyers…more guarantees are required”, Igreja says. “Everyone creates steps to prevent corruption, motivated by the feeling that they will be betrayed. That’s why a corrupted country, by definition, is poor and inefficient”.
Another loss is on competitiveness. A non reliable country has problems to compete with others that are not highly corrupted. “The corrupted nation is more expensive because of it’s bureaucracy. It’s hard to compete in the international market”. The result is poverty, and that opens the way to more corruption. “The cycle becomes almost impossible to be broken”, says Arthur Igreja.
Besides that, companies located in corrupted countries have between 7% to 10% more employees than the ones from not corrupted countries, which represents more work cost. The interests rates also become higher. Money gets more expensive resulting in less money circulation and decrease in the economic activity.
Incompetence is even harder to be measured. That’s because it’s only possible to calculate consequences that come from concrete actions. Decisions not made and negligence, for example, also constitute lack of management, but are hard to evaluate.
According to Arthur, the incompetence at the Brazilian public government becomes astounding when the immobilized patrimony of state companies are compared to private companies. State owned companies have 48% of the immobilized patrimony in Brazil, but generate only 24% of the GDP. “In other words, for each R$1 of patrimony they have, they generate R$0,50 in revenues.”, Arthur Igreja analyses. Meanwhile, private companies have the other 52% of the national patrimony with 76% of the GDP generation. “Some clear examples are Vale and Embraer, that used to be irrelevant companies internationally and, as soon as they were privatized, they became important global players.
Arthur Igreja also mentions the case of the Provisional Measure 579, that suddenly changed the rules of concession renovations. The result of this “non-market decision” was disastrous. A study of the National Industry Confederation (CNI) points that, in the last 43 years, the investment level had a 60% reduction in relation to the GDP. “Nowadays Brazil is the country with the most expensive energy bill in the world. This incompetent decision has penalized the electric system in more than R$ 130 billions”, according to Arthur Igreja.
Contact Person: Arthur Schuler da Igreja
Phone: +55 45 8819 0826