BUENOS AIRES – US$11.2 billion budget. Over 100 millions furious Brazilian protesters. One million foreign tourists.
In a country where soccer is a religion and building stadiums compares to erecting cathedrals, the 2014 World Cup has casted doubt on whether hosting mega sport events stimulates growth.
Brazil’s economy is in recession since August 29 for the first time in six years.
Rocky road
The South American country spent R$25.8 billion (US$11.2 billion) to build World Cup-related infrastructure – much higher than the expected budget.
“Brazil has considerably benefited from the 2014 World Cup in terms of infrastructure [because it] generated first a sense of awareness regarding the lack of infrastructure in the country,” says Francisco Javier Urra, a Senior Specialist at the Inter-American Development Bank in Brasilia.
Improving roads, railways and airports has been a pressing issue in Brazil for decades.
This nation of 200 million people spent only 1.5% of its GDP on infrastructure in 2013, which is much less than the global average of 3.8%.
“[W]e need [to invest] at least 23% to 25% of [GDP] in infrastructure, mainly in airports, ports [and] highways,” says Michel Alaby, an International Trade and Development Consultant in Sao Paulo.
Modernizing Brazil’s infrastructure was even more crucial to accommodate the massive number of soccer fans.
Upgrading overcrowded airports “is not only key in terms of capital investment (the “money” put into these airports) but also because through private firms, with procurement and contracting under private law, the rhythm of execution of these improvements has been much faster,” says Mr. Urra.
He explains that three major airports were privatized, which enabled to raise US$14 billion.
Despite some improvements, the government’s promises to overhaul major infrastructure fell through.
“We need to begin to control people’s expectations. The idea that we were going to make up for 30 years without investment in infrastructure in just four years was probably never realistic,” acknowledged Aldo Rebelo, Brazil’s sport minister.
Many renovated and newly built stadiums are now white elephants.
The Arena da Amazônia, which can seat 44,000 fans, was erected in Manaus in the middle of the Amazonia, which is largely inaccessible by road. Only a few thousands soccer aficionados attended the games.
The vast Brasilia National Stadium was built in a city that does not have a major football team.
Similarly, amongst the six arenas South Africa used to host the 2010 World Cup, only two – Soccer City and Port Elizabeth – are not white elephants.
The majority of the stadiums were constructed from scratch. Although the African nation spent US$3 billion to build and renovate sport infrastructure, many stadiums required subsidies after the tournament. They have had difficulties attracting business.
The 2014 World Cup did not either improve Brazil’s transportation system as the government vowed to.
For instance, the 511-kilometer high-speed rail between Sao Paulo and Rio de Janeiro was not completed for the games. President Dilma Rousseff once described it as a priority.
The refurbishment of the Rio de Janeiro and Belo Horizonte airports were not finalized before the tournament. Fans landed in Fortaleza in a temporary terminal instead of the planned airport expansion.
Booming tourism?
“We lost the trophy, but Brazil won the World Cup,” proclaimed Aloisio Mercadante, President Rousseff’s Chief of staff, in reference to Brazil’s 7-1 semifinal defeat to Germany.
Official figures set out that one million foreign tourists visited Brazil during the games – generating about US$7.5 billion in revenue. This number exceeded the Tourism Board’s projection of 600,000 visitors.
In comparison, 310,000 foreigners visited South Africa for the 2010 World Cup. Two million went to Germany for the 2006 games.
In Brazil, tourists from Saudi Arabia, Bahrain, Qatar, the United Arab Emirates, Kuwait and Oman spent over US$500,000 with their credit cards during the World Cup, according to a the Visa Everywhere Travel Report.
The survey found that these Middle Eastern tourists spent more than US$5.7 million during the event. Saudis and Emiratis made up more than 70% of the group’s spending.
The hospitality industry also benefited from the nearly three million Brazilians who traveled around their country during the month-long tournament.
Yet, whilst travelers indicated being satisfied with the event, the games’ tickets were quite unaffordable for many Brazilians. Brazil is one of the countries that have the highest level of income disparity.
Mega sport event can be a “potentially successful yet hugely expensive strategy to develop tourism in developing countries,” concludes a research paper by the Journal of African Economies. It indicates that South Africa spent US$13,000 per tourist in 2010.
In addition, it is difficult to assess if the World Cup enabled to create temporary jobs because Brazil’s unemployment rate stood at 4.9% in April 2014 – a historic low – due to a contraction in the labor force.
“[T]he World Cup represented a strong public investment, mostly in infrastructure, that may lead to some job creation, but in general, this was not very significant,” says Mr. Urra.
A test for the government
The 2014 World Cup enabled to assess the administration’s ability to manage public funds, develop an effective economic development policy and deliver large-scale projects it had nine years to prepare.
“We had a strict plan in place to follow up with the construction works of stadiums. We controlled every delivery step of each ground,” declared Brazil’s sports minister.
In reality, the government failed to deliver on its promises, especially in regard to infrastructure.
“The delays in the works, the overprices, and the poor planning of public investments (choosing such a large number of host cities) proved the shortcomings of a public sector model in much need of reform and modernization,” points out Mr. Urra.
Brazil is the biggest spender in the World Cup history. Merrill Lynch estimates that resource-rich Qatar will spend more – over US$65 billion – to host the 2022 World Cup.
Britain either did not manage properly its budget during the 2012 Summer Olympics in London. It spent over US$20 billion whilst it was supposed to disburse US$4 billion.
More worrisome for Brazilians, the US$11.3 billion budget was mainly drawn from public fund that could have been poured into the health and education sectors, critics say.
Otto Nogami, Economist and Deputy Associate Dean at Insper, a higher education institution in Sao Paulo, says that the total cost to build and reform stadiums was 42% higher than expected. It cost R$8.48 billion (US$3.7 billion) whilst it was supposed to cost R$5.97 billion (US$2.6 billion).
Expenses and loans from the federal government, the states and the municipalities equal to 9% of Brazil’s annual public expenditure in education, says Mr. Nogami.
In other words, the World Cup budget amounts to one month’s spending on education, he explains.
“There Will Be No Cup”
Notwithstanding that Brazilians worship soccer, the 2014 World Cup has drawn millions onto the streets of more than 100 cities in protest of the games’ exorbitant cost.
Weeks before the referee blew the first whistle to start the Brazil-Croatia game on June 12, members of the anti-World Cup movement were still outspoken. They rallied under the banner “Não Vai Ter Copa” (There Will Be No Cup in Portuguese).
Protestors demanded improved public services.
Bus drivers, for instance, demonstrated under the banner “FIFA go home” as they expressed their concern about transport infrastructure and safety as well as possible logistical breakdowns.
The Brazil’s Homeless Workers’ Movement staged protests to request affordable housing.
Civil unrest led to violent clashes with the police that used tear gas, grenades and rubber bullets.
A Pew Research Center survey released ahead of the 2014 World Cup reveals that
61% of respondents thought that hosting the event was not a good idea for Brazil. They deemed that it wasted money that could have been used for public services.
It polled 1,003 Brazilians in April 2014.
The survey also sets out that Brazilians trusted less key governmental institutions as well as the police.
Yet, Brazilians considered that hosting the 2014 World Cup was a prestige.
“The success of the World Cup has an ‘intangible’ but real value, in terms of trust and self-confidence for the country, proving itself, and the world, that Brazil is able to undertake ambitious initiatives,” says Mr. Urra.
Economic legacy
Besides economic factors such as 6,5% inflation, fiscal deficit and high interest rates, the World Cup contributed to Brazil’s recession.
The national statistics agency IBGE announced on August 29 that the GDP of the world’s seventh economy fell by 0.6% in the second quarter and by 0.2% in the first one.
In addition, tourism prices – which were higher than expected during the event –contributed to increasing the inflation rate.
There were many municipal days off during the tournament not to disrupt traffic, which contributed to the loss of productivity and sluggish growth.
In a July 2014 report, Brazil’s National Confederation of Industry found that industrial production dropped in June 2014 to the lowest level since the survey began in 2010.
It found that the World Cup played a role in the fall of employee number, capacity utilization and build-up in inventories.
“This reduction in the level of economic activity represented losses [worth] around R$20 billion [US$8.7 billion] per day, which impact[ed] negatively on the GDP performance,” says Mr. Nogami.
The winner is…
FIFA has reaped the financial benefits of the World Cup. It generates more revenue than any other sport event including the Summer Olympics. The association’s profit for the 2014 World Cup is estimated at US$2 billion.
World Cup revenue comes from the sale of television and marketing rights. For example, more than 3.2 billion people watched live coverage of the 2010 World Cup in South Africa for at least a minute, according to a FIFA report.
In 2006, more than 26 billion people watched the World Cup in Germany, says FIFA.
When the euphoria fades away
Whilst the World Cup and mega sport events in general can boost investment and national pride, Brazil’s 2014 tournament was so severely criticized that it has raised concern about its ability to host the 2016 Summer Olympics.
“Hosting large-scale sports events is not a good investment,” says Andrew Zimbalist, Professor of Economics at Smith College in Northampton, Massachusetts, in the United States.
He explains that the only two successful cases over the past 30 to 40 years are Barcelona and Los Angeles, which hosted the Summer Olympics in 1992 and 1984 respectively.
It made sense for Spain to organize the tournament because the city plan predated the Olympics plan. This is generally the reversed for host countries, explains Professor Zimbalist.
In the case of Los Angeles, the infrastructure required to host the international tournament was ready and privately funded.
“For the rest of the countries, and especially developing countries that lack transportation, communication, energy and sport infrastructure, the size of the investment required to host the World Cup or the Olympics is too great,” he says.
Revenue from sport events generally totals between US$3 or US$5 billion, which is five to 50 times less than what countries spend to host large-scale sport events.
For example, Russia disbursed between US$50 billion and US$70 billion to host the 2014 Sochi Olympics. China used up over US$40 billion for the 2008 Beijing Olympics.
Hosting international sport tournaments is more costly for developing nations.
“It is less likely that you will have [in developed nations] the kind of disruptive protests that you had in Brazil,” says Professor Zimbalist.
The World Cup or the Olympics could be justified is if there was long-term return with increased investment and trade.
Yet, return on investment is usually low. South Africa, for instance, only received 11% of the US$4.5 billion it invested in the 2010 World Cup.
It is therefore crucial that countries have the necessary infrastructure and an effective planning strategy to manage funds, “which almost never happens,” he adds.
This article was published in the print edition of International Finance Magazine in October 2014. Click here.
