Brazil Can Have a Green Economic Recovery
By Caio Koch-Weser
Born in Brazil, Caio Koch-Weser is former vice chairman of Deutsche Bank Group, former German deputy minister of finance and a member of the Global Commission on the Economy and Climate.
This article was originally posted in US News.
The COVID-19 pandemic is one of the greatest challenges of our time. Our world is facing the tragic loss of lives and livelihoods, and a global economic downturn compounded by rising inequality and a changing climate. As this convergence of crises bears down, it is imperative that we use this moment to build back better.
This convergence of crises is particularly acute in Brazil. Unemployment has risen to 12.6% and this year the economy is expected to contract by up to 9.1%. As the country struggles to find new sources of growth in an increasingly uncertain international landscape, Brazil should pursue a new economy for a new era. One that is driven by resilience, efficiency and sustainability. This will attract investments and secure Brazil's position as a global leader in agricultural trade.
Brazil accounts for more than a third of all loss of humid tropical primary forests worldwide – 2019 was an 11-year high in recorded losses. Deforestation at current rates risks reaching a tipping point with huge impacts on Brazil; it would change weather patterns and threaten the country's third-largest sector, agriculture.
Long-term interest in investing in Brazil remains significant, yet backlash to rising deforestation continues to unfold. Approximately 230 global investors with more than $16.2 trillion in assets have pressed companies to halt deforestation in the Amazon, calling deforestation a systemic risk to their portfolios. Seven major European investors have threatened to divest their assets if they do not see efforts to halt this destruction.
Domestic pressure is also mounting. In July, a powerful group of 40 Brazilian companies and business associations issued a statement calling on the government to devise solutions to increasing deforestation. Three major Brazilian banks announced a joint effort to defend Brazil's natural assets by funding sustainable development in the Amazon. And 17 former Brazilian finance ministers and central bank presidents signed a letter proposing how to achieve a sustainable, low-carbon economy in the post-pandemic era.
Brazil should choose a different path, one that will be better for Brazil and Brazilians. Low-carbon and resilient growth will create more jobs and deliver a stronger economic recovery than business-as-usual.
New research finds that compared to business-as-usual growth, a rapid shift to a low-carbon and resilient economy in Brazil could deliver immediate social and economic benefits. By 2030 this would include a net increase of more than 2 million jobs, four times the number of jobs currently in the country's oil and gas sector, and a total gross domestic product gain of $535 billion ($2.8 trillion Brazilian reals).
These benefits, which would immediately help boost the economic recovery, are built upon four action areas: quality infrastructure, innovative industry, deforestation-free and sustainable agriculture; and, thanks to such policies, the ability for Brazil to tap into financial market trends that favor green investments.
First, infrastructure. Increased investment in quality infrastructure, such as sustainable sanitation, smart cities, renewable energy, enhanced natural infrastructure and clean transportation, would help boost jobs and GDP. Before the pandemic, Brazil needed to invest 4.2% of its GDP over the next decade to close its infrastructure gap. Closing this gap will generate jobs and drive investment across the country.
Second, industry. Brazil's rise as a global power needs to be underpinned by a modern and competitive industrial and services sector. Investment in renewable energy for industrial use, electric vehicle production and the bio-economy also present opportunities for job creation. Increased efficiency could be key to the sector catching up to the innovation rate of other countries.
Third, agriculture. As one of the world's leading agricultural producers and exporters, Brazil's future is inextricably intertwined with this sector. Research shows that even with zero deforestation in the Amazon and Cerrado regions, agricultural production can increase by $3.7 billion (nearly 21 billion reals). Crucially, Brazil can maximize its long-term growth and social welfare without reducing its valuable forest assets. Cutting edge agricultural and land-use technologies and expertise can help restore millions of acres of degraded lands to high-productivity agricultural land instead.
And finally finance, which will be essential to deliver the transformations in the other three sectors. Studies show the inclusion of sustainable indicators generates better financial performance, and that international and private finance is increasingly shifting away from high-risk unsustainable investments. Brazil's shift to a low-carbon and resilient economy would make private financing and investment in Brazilian projects much more attractive.
Last month, the European Union agreed on the largest green stimulus in history, allocating 30% of funding, nearly 225 billion euros, for climate initiatives. Prior to the COVID-19 crisis, Indonesia had started integrating a low-carbon development pathway into its 2020-2024 economic development plan, which can deliver more than 15 million additional jobs in 2045 compared to business-as-usual. The country is now discussing how to use this approach in its COVID-19 recovery. That's because leaders around the world increasingly understand that climate action and resiliency are not just compatible with, but necessary for sustainable economic growth.
Using solutions already available in the country, a new economy for a new era can help drive a stronger Brazilian recovery in the short-term, and a more resilient, efficient, and sustainable future. Despite the tough economic landscape before it, Brazil has a huge opportunity and advantage in building back better from COVID-19.