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Michelle Campbell

Economic Impact Grows as Brazil’s Drought Worsens

by Michelle Campbell | Dun & Bradstreet Editor

April 9, 2015 | No Comments »


Drought land
Economic and health concerns are growing in Brazil as hospitals, businesses, schools, and prisons struggle to maintain normal services amid the worst drought in 80 years. The country’s southeastern region is the hardest hit. The Cantareira reservoir in São Paulo, which provides nearly 50% of the metropolitan area’s drinking water, is currently at 10%, and experts estimate the city’s water levels at 200 cu. meters per capita, which is well below the international threshold of 1,500 cu. meters per person per year.

Moreover, São Paulo’s five reservoirs averaged just 13% in mid-March 2015, and this was after much-welcomed heavy rainfall in the preceding six weeks. Many of the estimated 20 million residents of São Paulo, South America’s largest city and the 12th-most-populous city in the world, have been receiving just two or three days of running water per week in the last few months.

Poor storage of water contributed to above-average incidence of dengue in January. And the public health situation could get grimmer: The official rainy season is coming to an end, and some experts are suggesting that the city’s main reservoir could run dry by the end of 2015.

Economic Activity Slows, Political Tensions Rise

São Paulo accounts for around 30% of Brazil’s GDP, and by some estimates the drought has shaved around 2% off the city’s GDP in the last two quarters. To complicate matters, unless there is consistently heavy rainfall in the coming weeks, an energy crisis appears inevitable as hydroelectric power accounts for around 70% of Brazil’s electric power supply. The country is the second-largest producer of hydroelectric energy globally after China.

Depleting water supplies consequently pose a real and imminent threat to business continuity: Last October international chemical company Solvay Rhodia closed four of its 22 units in São Paulo because nearby rivers, which are its main water sources, were running dry. In addition, textile factories have been negatively affected; sugar and ethanol makers may possibly need to restrict their operations if the situation continues to deteriorate.

Not surprisingly, the situation is fueling already-high political tensions as many Paulistas (residents of São Paulo) attribute the current crisis to poor management. Indeed, the authorities have been accused of failing to reveal the true dire nature of the water shortage earlier because of the presidential election last October. This, many believe, was a missed opportunity to implement crucial water-conservation policies and minimize the impact of the drought.

Short-Term Resolution Unlikely

Deforestation, pollution, a growing population, and the effects of climate change are among the primary causes of the water crisis. This suggests that, in addition to short-term water-saving incentives and measures, new long-term solutions are necessary to reverse the current trend. As such, given that Brazil’s water crisis could last for years, it is imperative for businesses to find innovative ways of minimizing water consumption.

As bad as Brazil’s situation currently is, the country is not alone in its vulnerabilities. Globally, an estimated 1 billion people have no access to potable water. Hence, the water shortage is a rising business risk for firms worldwide and across industry sectors, from restaurants and health care to agriculture and manufacturing.

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