Firjan Study: Rio de Janeiro's Business Environment Adds R$274.8 Billion Annually to Company Costs

The Bottom Line

• Rio de Janeiro's business environment imposes an additional R$274.8 billion annually on companies, representing 20% of the state's Gross Domestic Product (GDP).
• Key challenges include taxation (R$93.1 billion), legal-regulatory complexities (R$42.8 billion), and public security, despite relative advantages in human capital and logistics.
• The "Custo Rio" study by Firjan highlights the state's eighth-highest structural cost burden in Brazil, impacting investment and operational expansion.

A study conducted by the Federation of Industries of the State of Rio de Janeiro (Firjan) indicates that operating or expanding businesses in Rio de Janeiro incurs significantly higher costs than the national average. The "Custo Rio" report calculates that bottlenecks related to taxation, insecurity, expensive credit, and bureaucracy add R$274.8 billion annually to the expenses of companies within the state. This figure accounts for 20% of Rio de Janeiro's GDP, which represents the total sum of goods and services produced in the region.

The study, launched on May 25th, Industry Day, at Firjan's headquarters, compares Rio de Janeiro's business environment to the average standards of other Brazilian states and countries within the Organisation for Economic Co-operation and Development (OECD). The findings position Rio as having the eighth-highest structural cost burden in Brazil.

Key Challenges Identified

The analysis categorizes the challenges into six primary areas: taxation, legal-regulatory environment, infrastructure, human capital, business financing, and public security. These areas are further broken down into eighteen indicators that quantify the difficulties of the business landscape, ranging from credit and logistics costs to labor litigation, informality, and tax complexity. In comparison with other states, Rio de Janeiro's costs exceed the average of OECD countries.

Taxation Burden

The most significant bottleneck affecting the state's economy is the "honoring taxes" axis, which alone accounts for R$93.1 billion of the total additional cost. Of this amount, R$44.4 billion is attributed to the informal economy in Rio. This specific cost even surpasses the impact of the high overall tax burden, estimated at R$43.6 billion, while tax complexity contributes an additional R$5 billion.

Legal and Regulatory Costs

Opening and operating a business in Rio de Janeiro is further complicated by legal and regulatory aspects that add R$42.8 billion annually to the state's productive environment. Firjan's report states that Rio has the eighth-highest legal-regulatory cost in Brazil. Regulatory bureaucracy, significant state interference, and judicial slowness are cited as key challenges. The average time for a first-instance legal ruling in the state is three times longer than the OECD country average.

Expenses related to bureaucracy and regulatory complexity total R$24.4 billion per year, while state interference adds another R$15 billion, marking the highest cost observed among Brazilian states in this category.

Human Capital and Logistics

Conversely, the study identifies relative advantages for Rio in human capital when compared to other Brazilian states. Labor charges in Rio, amounting to R$19.3 billion per year (1.4% of state GDP), are 46% lower than the average for Brazil's South and Southeast regions. This advantage is primarily attributed to the level of qualified labor available. However, despite this, the state still lags behind average OECD standards in human capital metrics. Labor litigation costs, however, remain substantial, estimated at R$4.5 billion annually.

Rio also possesses competitive assets in logistics and connectivity. Firjan notes that the state has one of the lowest connectivity deficits in Brazil and more favorable logistics costs than 24 other Brazilian states. However, these logistical advantages are insufficient to offset the broader structural impediments.