Yet in the mid-1860s, the Alagoan deputy Aureliano Tavares Bastos was firmly convinced that the Amazon was the path to prosperity for Brazil.
After all, if all the great economies of our civilization revolved around rivers, there wouldn’t a better river to change the course of Brazilian history than the Amazon, the largest and most powerful river in the world.
Many articles were published in the newspaper "Correio Mercantil" advocating in favor of foreign ships sailing through the Amazon river and its tributaries so that commerce would awaken in the region.
In parliament, plenty of speeches proposing incentives for free trade in the Amazon were also delivered.
When Bastos “discovered” Manaus (AM) for the first time, in 1865, he declared that the city would be "Porto Franco, the emporium of the Amazonian countries".
It took about 80 years for the Amazonian federal deputy Francisco Pereira da Silva to present, in 1951, the draft bill proposing the creation of a free port in the Amazonian capital.
The Free Trade Zone of Manaus (ZFM), however, only got off the ground six years later, with a law sanctioned by President Juscelino Kubitschek, in 1957.
Today, the Polo Industrial de Manaus (PIM) [Industrial Pole of Manaus] houses around 600 industries, is responsible for 108,373 jobs and revenues of R$ 174.1 billion by companies that constitute the financial and tax incentives program, according to data consolidated in 2022 by the Superintendence of the Free Trade Zone of Manaus (Suframa).
It represents an increase by 6.84% in relation to the revenue of the previous year. The number of jobs also increased by 3.67% in the same period. The volume of exports was US$ 583.63 million, 29.08% more than in 2021.
Development
The Special Economic Zones (ZEEs) are not originally a Brazilian initiative. These are geographically demarcated areas in which business rules are different, with fewer taxes and fees, equipped with investment conditions and infrastructure for foreign trade, customs, taxation and regulatory environment.
What is effectively a Brazilian creation, however, is the character of regional development policy given to the endeavor, contrary to Chinese experiences, for example, focused on encouraging exports.
For researcher Luiz Ricardo Cavalcante, from the Brazilian Institute of Teaching, Development and Research, this vision is compatible with the ‘awareness’ of the importance of occupying and industrializing the Amazon, very much in vogue at the time of the ZFM conception, as well as with the importance of supplying products for consumer markets in the South and Southeast of Brazil. In addition, it strengthens the absorption of technologies from foreign countries.
"Opposite to what is observed in the main Special Economic Zones in the world, whose focus is on exports, the objective of the Free Trade Zone of Manaus is to promote regional development through the granting of incentives aimed at overcoming the locational disadvantages of Manaus – or, in wider perspective, of the Amazon. In practical terms, the model adopted ended up converting the ZFM into a unique kind of import processing zone, since the tax incentives offered favor the local processing of components from abroad and their subsequent commercialization in the internal market. This is the case, for example, of electronic products produced in the region", says Luiz Ricardo.
Institutional factors and geopolitical conjuncture structured the ZFM
Researcher Kamyle Medina, from the National School of Public Administration, attributes four definitive milestones that structure the unique character of the Manaus Free Trade Zone (ZFM), without which the history of the Industrial Pole of Manaus (PIM) would have been different.
The first one is that, in an unprecedented way, the federal government decided to encourage this activity with greater added value in the Amazon that did not only include extractive activities – subsistence agriculture or extraction of in natura rubber for export.
The second is represented by the global context of the Cold War. It made the need to occupy the territory, especially the borders, become a way of guaranteeing national sovereignty and turning into a priority for the military government, placing the occupation of the Amazon at the center of the government agenda at the time.
Thirdly, Kamyle argues that unlike most previous policies implemented in the country, the ZFM was not planned to fulfill the interests of the main regional oligarchies, which were located in the Brazilian Central-South region, instead, the model was designed to solve national strategic issues.
Since the project was implemented by an authoritarian government, the oligarchic pressures, which have always existed, did not play a strong role as in other moments of Brazilian history.
"Finally, the creation of the Superintendency of the Free Trade Zone of Manaus (Suframa) took place. For the first time in the region, a robust institutional arrangement was established, with autonomy and political-economic power to implement the public policy under its own custody, counting on the support from both federal and local governments. The institution had its own resources – particularly, self-generated revenue and lands granted to be an autonomous agency. These factors contributed to turning Suframa into a bridge between the central government and local interests. Functioning as an extension of the federal government in the region, the agency also advocates for regional interests in Brasília," points out Kamyle, who also highlights a favorable international context due to Asia's development.
Pursuing greater access to markets for product distribution, Asia decided to expand production in Brazil, starting from Manaus.
By the 1980s, the model was already well-established, and the impact of the economic zone in Manaus was remarkable: the city had 63,000 inhabitants in 1960, and by 1992, it had surpassed one million residents.
In 2022, according to the Brazilian Institute of Geography and Statistics, the capital of Amazonas had already exceeded two million inhabitants.
The journey faced some obstacles. The slowdown of the Brazilian economy starting from 2015 was a harsh dropping to the Free Trade Zone of Manaus.
While in 2014, the industrial hub set a record for job creation with 122,116 occupied positions.
The following year experienced a decline to 104,721 workers. In 2016, the number dropped further to 85,574, which represents a decrease of 37,000 jobs compared to 2014. It was in this scenario that the Free Trade Zone of Manaus was extended until 2073.
The industrial hub employs 5.2% of the population from the Amazonas capital.
Between 2010 and 2018, the Free Trade Zone of Manaus had a trade deficit of approximately US$ 10 billion.
During the same period, the ZFM's exports accounted for only 7.49% of raw material imports. This data reinforces the opinion of critics who argue that the tax incentives granted by the federal government are not justified.
Currently, the Free Trade Zone of Manaus accounts for 7% of the tax incentives classified by the Federal Revenue Service as tax expenditures, with an estimated foregone revenue of around R$ 30 billion for 2023 in federal taxes for the companies within the Manaus Industrial Hub.
This math reveals that for every job generated in the Free Trade Zone with an average annual salary of R$ 56,000, the federal government dismisses R$ 276,000 in revenue.
Beyond the cold numbers, the topic provokes passions. After all, 5.2% of the population of the Amazonas capital is employed at PIM [Manaus Industrial Hub].
Luiz Ricardo Cavalcante, Ph.D in Administration from the Federal University of Bahia, points out that the Free Trade Zone of Manaus is provided for in the 1988 Federal Constitution and must be maintained until 2073.
The challenge, therefore, is to align it more properly with the vocations of the Amazon, with a production process that benefits from a special economic zone near a highly biodiverse forest, considering that industries such as motorcycle and TV manufacturing still suffer from logistical deficits in the region.
Changes
The topic emerged during the discussions on the tax reform, recently approved by the Chamber of Deputies and on its way to the Senate.
At the time, it was decided that the Free Trade Zone of Manaus and other free trade areas would be preserved.
The final bill also establishes other guarantees focused on the competitiveness of the companies located in the region.
One of the proposals consists in a fund to compensate for revenue losses in the Free Trade Zone of Manaus, with resources allocated to diversify the economy of Amazonas until the expiration of the model in 2073.
There will also be a temporary maintenance of the Industrialized Products Tax (IPI) for manufactured goods outside the Free Trade Zone, which will serve as a means to preserve the favorable treatment of the Amazonian region. The same will apply to PIS and COFINS taxes starting in 2027.
The federal government has also shown signs of its intention to expand the activities of the Free Trade Zone of Manaus further this year.
A decree has established the free trade of goods produced in Free Trade Zones and Special Customs Areas between Brazil and Uruguay, including products manufactured in the Manaus Industrial Hub. This action opens doors to another growing market for regional exporters.
Manaus Free Trade Zone in numbers
- About 600 industries
- 108,373 jobs
- BRL 174.1 billion in revenue
Participation of each sector in the revenue of the Manaus Free Trade Zone:
- IT: BRL 51.3 billion (29.49%)
- Electronics: BRL 32.1 billion (18.45%)
- Two-wheelers: BRL 26.09 billion (14.99%)
- Thermoplastics: BRL 15.07 billion (8.66%)
- Chemical: R$14.7 billion (8.47%)
- Metallurgy: R$13.73 billion (7.89%)
- Mechanic: BRL 9.92 billion (5.70%)
