The huge investment made in World Cup facilities and related infrastructure may not throw up benefits as touted by the government, reports Team IFM
Rio de Janeiro, June 19: The soccer World Cup tournament going on in Brazil puts a spotlight not only on the sport and its colourful fans, but also on the economic and social frictions that the host country is witnessing.
Protesters in the streets of Sao Paolo and Rio de Janeiro demonstrated against the high cost of the mega event, estimated at over $11 billion, questioning the wisdom of this splurge. They said the government, instead, should have been spending more on schools, hospital and other non-sporting infrastructure.
While the proponents of the Cup tout the expected economic benefits of investment on such a grand scale, critics highlight the expensive chores of maintaining empty stadiums and the social cost.
People have started questioning the usefulness of spending billions on mega events. Discontent over the quality of public transport, health, education and security boiled over in mass protests last year during the Confederations Cup, a dry run for this year’s tournament.
The government has made tall promises of great economic gains from hosting the FIFA World Cup, such as the generation of 3.6 million jobs, in an attempt to sell the benefits of the event to an increasingly sceptical public.
Experts say it is difficult to estimate the true economic and other impact of big sporting events, but many have said boosts often end up being short-term.
Moody’s Investors Services predicted that the economic effects of the World Cup for Brazil would be “fleeting.” Lost workdays and sluggish business activity during the month-long event will offset job creation, tourism growth and added spending, it argued.
Compared with the estimated costs, Moody’s put the economic stimulus at $11.1 billion, saying these effects pale beside Brazil’s $2.2 trillion economy.
Overall, the Cup will generate only 0.4 percent of additional gross domestic product for Brazil over a 10-year period, the firm estimated.
TEMPORARY GAINS
In a report entitled “2014 FIFA World Cup Brazil: A Quick Score for the Beverage, Travel, Construction and Broadcast Sectors,” it said those industries would see temporary gains.
“The 32-day event will provide short-lived sales increases that are unlikely to materially affect earnings, and disruptions associated with traffic, crowding and lost workdays will take a toll on business,” wrote Moody’s analyst Barbara Mattos.
The roughly $11 billion in spending on stadiums, airports and other infrastructure accounts for only 0.7 percent of overall planned investments for the 2010-14 period, and most of the impact has already been felt, the firm highlighted.
The global media exposure is one potential benefit for Brazil given that the World Cup is the world’s biggest single-sport event. As many as 1 billion people were estimated to have watched at least parts of the 2010 tournament.
The Brazil government has cited an Ernst & Young study from a couple of years ago that predicted $50.4 billion in additional activity for the country between 2010 and 2014 related to the World Cup. But many infrastructure projects other than the stadiums were already included in a government infrastructure plan.
The study said that, in all, an additional $63.3 billion would flow into the country from 2010 to 2014, generating 3.63 million jobs per year and $28.4 billion of income for the population. But the benefits will not be permanent as the world soccer tournament is a one-time event.
“In fact, once the investments have been concluded and the World Cup has taken place, the positive impacts will remain based on the stakeholders’ ability to benefit from the event’s opportunities and legacies,” the study pointed out.
Is the picture rosy enough for Brazilians to cheer?
According to estimates, South Africa spent about $3.9 billion on the 2010 Cup. The total direct economic benefits were projected to be in the region of $21.3 billion, with 159,000 new jobs created. But the South African economy has slowed since the Cup.
PRESIDENTIAL PROBLEM
If the government promises, such as the Cup expenditure will generate 3.6 million jobs, do not translate into a reality, it would be difficult for President Dilma Rousseff, a pragmatic leftist, to get re-elected this October.
With the World Cup ending in July and a presidential election coming up in October, many Brazilians aren’t looking beyond 2014. But next year is likely to be memorable for all the wrong reasons in Latin America’s biggest economy.
President Rousseff, or whoever forms government, will have to make deep budget cuts, raise taxes and take other painful steps to address the country’s growing financial imbalances– World Cup benefits notwithstanding.
Economists currently expect Brazil’s gross domestic product to grow 1.68 percent this year, and 2 percent in 2015, according to a weekly survey by the central bank. Yet the latter forecast is somewhat misleading, because many economists admit their estimates are based on computer models that don’t fully account for what politicians will do after the election.
“No matter who wins (the election), it’s going to be a difficult year, worse than many believe,” former president Fernando Henrique Cardoso, who was in power from 1995 to 2003, told Reuters. Cardoso still retains considerable influence in financial circles as a leader of the main opposition party.
The biggest and most disruptive task will be reining in Brazil’s fiscal deficit, which investors and ratings agencies say has been too high in recent years.
No one expects President Rousseff to make painful budget cuts while campaigning for re-election. As a result, the cuts will need to be even deeper when the next presidential term begins on January 1, 2015– especially if Brazil’s sovereign credit is downgraded in the interim by S&P’s to its lowest investment-grade rating, as many in Brasilia now anticipate.
The fallout is likely to be more damaging than many investors anticipate, resulting in a fourth straight year of disappointing growth– a hard fall back to earth for a country that last decade was one of the world’s most dynamic emerging markets.