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Brazil: Congress to vote on redistribution of oil royalties

Cities currently pocketing royalties oppose the vote, but a study found that despite a rise in GDP, those receiving the most royalties accomplished little in terms of improving employment, literacy, and wages.

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Uneven development in royalty-earning cities is also an issue.

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A study by Macroplan as explained in an excellent EXAME article looked at 25 cities that earned the largest amount of oil royalties from 2000 to 2010. It found that despite a huge rise in GDP, cities accomplished little in terms of human development. These coastal cities in Rio, São Paulo, and Espirito Santo earned 27 billion reais ($13.2 billion) over that period. Of the 25 cities, 16 had a higher unemployment rate than the national average in 2010. Seventeen had a lower average wage than the national average of 1,200 reais ($590) per month. Twenty had higher illiteracy rates than the state average. Many cities imported workers to fill skilled jobs since the locals are unqualified. In total, 10 percent of the inhabitants in all 25 cities earn a quarter of the minimum wage. In Macaé, which earned the second most in royalties ... over a decade, nearly 10 percent of the population lives in extreme poverty. By comparison, in Rio state as a whole, around 3.7 percent live below the poverty line.

Violence is also an issue. In 13 of the cities, the homicide rate is above the state average. These include Linhares (Espirito Santo), Búzios, Cabo Frio, and Paraty (idyllic beach towns in Rio state) which are among the 100 most violent cities in Brazil.

Other coastal cities in Brazil earn royalties, too – with similar results. Guamaré, a town of 12,000 in Rio Grande do Norte, earned 202 million reais ($99 million) over the past decade and had eight mayors during the same period. One was arrested for embezzlement; another is under investigation for paying over half a million reais to bands to play at Carnival last year. The current mayor spent 2 million reais ($984 thousand) on Carnival this year and 2.2 million reais ($1million) to celebrate the city's birthday with high-profile singers. Despite having the 20th highest GDP per capita in the country, as well as being home to biodiesel plants, a Petrobras refinery, and wind farms, 10 percent of the population lives in extreme poverty and a fifth of the poulation is illiterate.

So what will this mean for royalty distribution and how these funds are used? "Oil exploration has 20- to 40-year cycles, which come to an end. Brazil's cycle is just at the beginning and we need to decide how to best use these resources so that in the end, we have thriving cities, not huge favelas," Macroplan director Alexandre Mattos told EXAME.

Rachel Glickhouse is the author of the blog Riogringa.com

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