Editorial: The City of Tomorrow (Part 3)

Part three of four editorial articles regarding the business outlook for Rio de Janeiro this year.

Editorial, by Stone Korshak

RIO DE JANEIRO, BRAZIL – Still (picking up from last week), Brazil is the “country of tomorrow” and so although the joke is that “it always will be”, there are opportunities here for the bold and well prepared. In Rio de Janeiro, most business thinkers are likely talking about; real estate development, oil and gas services, and logistics and shipping.

Stone Korshak, Editor and Publisher of The Rio Times.

Stone Korshak, Editor and Publisher of The Rio Times.

In terms of real estate, few would disagree that most areas in Zona Sul are overvalued or at least have peaked, but other areas in Rio seem set for more growth. Near Centro (the city center), the Port Zone revitalization project Porto Maravilha, with a budget of R$8 billion, will not only encourage urban revitalization but also stimulate both socio-economic and real estate development.

Another area that investors are eager to get involved with are the favelas that are being “regularized,” with legal titles being granted for previously undocumented property. In December 2013 the government reported that 103,000, or 23 percent, of homes are in the process of regularization, although it will take years to complete.

In the past these favela communities in Rio were lawless, controlled by local gangs of drug dealers, but since 2008 the Police Pacification Unit (UPP) program has systematically been working to take control. Some of these favelas sit high on hillsides, offering premium positions with sweeping views of the coast, and several luxury property development projects have already started.

When it comes to oil and gas, many of the U.S. and European multinational companies have already moved out due to high costs and low profits. Yet it is still huge business and some of the world’s largest oil companies joined forces in a successful (but only) bid for the country’s first pre-salt offshore oil field, Libra, in October 2013.

The R$15 billion signing fee was a fraction of what will be invested in the area in the coming years. Europe’s Shell and Total, along with two Chinese companies, will share the costs – and vast profits – with Petrobras (the state majority-owned oil and gas giant).

Fundição Getúlio Vargas (FGV) research university estimates R$3.7 trillion could be generated over the next thirty years from the site. The Libra oil field is in the Santos Basin, about 230 kilometres (140 mi) off the coast of Rio de Janeiro, just below the Campos Basin, which together constitute most of the pre-salt offshore fields.

In the past the royalties of the oil production was mostly destined for Rio State, but that has changed with the new law shifting oil royalties to be distributed more evenly across all states and municipalities. Although some articles of the law are still in litigation, for Rio de Janeiro state, the bill was estimated to represent a R$3.1 billion loss in 2013 alone and R$38.5 billion by 2020, according to outgoing-Governor Sérgio Cabral.

The law would also negatively impact other municipalities around the city that depend heavily on petroleum royalties. Vice-governor of Rio, Luiz Fernando Pezão, estimates that at least twenty municipalities in the state will lose between 60 to 70 percent of their revenues.

Brazil Offshore oil and gas, Rio de Janeiro, Brazil News

Driller Sevan Brasil off the coast of Brazil, photo by D.seeruttun/Wikimedia Creative Commons License.

One Response to "Editorial: The City of Tomorrow (Part 3)"

  1. Pingback: Editorial: The City of Tomorrow (Part 4) | The Rio Times | Brazil News

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