Methodology and Culture
III- Effect of the crisis
Christian Cazzaro
1. ARTICLE
Brazil and the World Cup’s economic impact – A look back
BY GIULIA MORPURGO 19/02/2015
In October 2007, Brazil was chosen by the FIFA Committee to host the World Cup, one of the most important sporting events in the international panorama. The whole country rejoiced: united by its love of football, the nation would be at the centre of global attention. The government described it as a victory for the economy as well: more jobs, foreign investment and tourism would spark the beginning of a new Brazilian boom and long-term benefits would be innumerable (McCann, 2014). Seven years later, after a summer of popular protests (Watts, 2014) and athletic failures (Bloor, Powell and Weeks, 2014), what is Brazil left with? Have the optimistic expectations been fulfilled? The Rousseff administration presented positive figures (Associated Press, 2014) and declared the competition a success, but the government’s data still do not make up for other concerning issues which, according to independent institutions (such as Barclays and the Brazilian Airline Association), developed throughout the World Cup, such as wasted resources and decreased productivity.
Brazilian authorities spent about $13 billion to finance the World Cup, including $2 billion for security purposes, prioritized after the outbreak of popular protests (Bobb, 2014). The sum was publicized as beneficial to everyone in the long run (Boadle, 2014): after all, South Africans were still benefiting from the improvements to airports, railways and highways undertaken for the 2010 tournament (Egan, 2014). But it is hard to see all investments in this light: the stadium in Manaus, in the heart of Amazonia, cost $319 million (Ormiston, 2014). After only four games, it will now probably never be used again, despite the huge maintenance costs of $250,000 per month (Ormiston, 2014). How can this spending have increased the welfare of the region?
Brazilian authorities spent about $13 billion to finance the World Cup
The government estimated a great inflow of money for the Brazilian economy: the Ministry of Tourism reported that tourism and investment would bring $13.5 billions in citizens’ pockets in 2014(Bevan , 2014) . The boost was not to be seen as a simple short-term effect as the World Cup, according to Rebelo, Minister of Sport, would result in extra $90 billions revenues over 10 years (O’ Reilly, 2014).
Tourism was, naturally, the sector most impacted by the World Cup: public authorities exulted, as 1 million foreign football fans rushed to Brazil and 3 million Brazilians moved across the country, well over the estimates (Marcopoto, 2014). However, other figures suggest a different picture. When comparing June 2014 to the same month in 2013, the Brazilian Airline Association reported a decrease in air traffic of 11-15 percent (Alves, 2014). Were usual tourists deterred by the flow of football fans? Another question is whether the World Cup will help Brazil become the new tourist mecca. When looking at precedents, the answer remains highly uncertain. Although Barcelona, already one of the most important tourist destinations in Europe, has witnessed a tenfold increase in the sector after the Olympic Games in 1992 (Marcopoto, 2014), Athens, organizer of the 2004 edition, was unable to seize the opportunity and the decrease in tourism revenues, in addition to the substantial spending on now deserted facilities (Bloor, 2014), sharpened the national financial crisis (Malkoutzis, 2012).
What about the promised jobs? The expensive infrastructure projects generated, according to Vicente Neto, president of the Embratur (Brazilian Tourism Institute), about 1 million jobs, of which 710,000 are permanent (Bobb, 2014). But once again the official reports are challenged by numbers: looking at the payroll database of the Labor Ministry, in June 2014 job creation fell to the slowest pace since 1998, with a figure of 25,383 net hires (Simoes and Malinowski, 2014). Not only weren’t people’s expectations met, but Brazilian consumers had to face a general increase in prices because of the World Cup: the annual inflation rate, already high in the months before the tournament, got dangerously close to the 6.5 percent ceiling in June (Biller, 2014). Despite causing popular dissatisfaction, the issue appears to have been contained efficiently by the government, as inflation slowed down as soon as the tournament was over (Biller, 2014).
If the tourism sector apparently flourished, the industrial one undoubtedly suffered during the World Cup as entire cities declared municipal holidays when matches were played. Brazilians spent their days mainly watching football instead of working (Santos, 2014) The impact on productivity was extremely negative. According to Barclays preliminary forecast, total industrial output fell by 4 percent in June, with the vehicle production sector witnessing a radical 19 percent downfall (Rapoza, 2014). Experts disagree on the consequences of the World Cup on Brazilian workers: Santos, leader of Espirito Santo Investment Bank, says these losses counterbalance the short-term boost to the service sector of the economy, hence turning the World Cup into a wasted opportunity (Kiernan, 2014); while others, such as Lisa Delpy Neirotti from George Washington University, believe that in the long run the World Cup will benefit workers, who faced with a more international demand have necessarily improved their skills (Bobb, 2014).
Only more complete and precise information about Brazilian GDP in 2014 can clear the view. Yet what can we expect on the basis of past experiences? For South Africa, the wasted opportunity of the 2010 World Cup, with intense public investment and less tourists than predicted, contributed to a consequent fall in GDP (Egan, 2014). However, it does not necessarily have to end this way. The 2012 Olympic Games in London turned out to be a stimulus to the British economy, through job creations, substantial investments and additional spending by foreigners (Bevan, 2014). Looking at the first tangible evidence, the World Cup does not seem to have boosted the Brazilian economy, although some years have to pass before we can make a final judgement on the economic aftermath of what has turned out to be, for the Brazilians, a sport fiasco (Pandey, 2014).
2. PRESS REVIEW
Brazil is facing consistent challenges for the organisation of Olympic Games and has to contain and manage several consequences caused by the economic crisis of 2008 and by the World Cup.
The Olympic Games have been set in this country in order to improve its economy, giving to the citizens a better opportunity to become wealthy and enjoy a medium standard of life. But the management and the coordination themselves are the main obstacle, in fact there many incomprehensions about government spending. For instance we know that Brazilian financed 13bl for the World Cup and has already spent 15 bn more that London did for the Olympic Game. A new stadium has been built in the heart of Amazonia and cost $319 million, besides the monthly maintenance costs is $250,000, and this building is never going to be used again after the Games, so it is still unclear why they did not recur at the already existing stadiums which are available and in good conditions, but they wasted this huge amount of money.
Looking at the first evidence, the World Cup does not seem to have boosted the Brazilian economy, although some years have to pass before we can say this country totally screw up. It is evident then the bad reaction by the population, which please for investments in education, health care, unemployment or just to help people living in the “favelas” in order to reduce criminality and rise human capital, instead of spending enormous amount of money that may never return.
The crisis of 2008 affected Brazil reporting a decrease in air traffic of 11-15 percent, job creation fell to the slowest pace since 1998, Brazilian consumers had to face a general increase in prices because of the World Cup: the annual inflation rate, already high in the months before the tournament, got dangerously close to the 10% so they pay facilities more. Brazilians also spent their days mainly watching football instead of working during the World Cup and it is expected to happen again during the Games having an extremely negative impact, and in specific vehicle production sector witnessing a radical 19 percent downfall.
Metaphorically speaking Brazil is now playing against two enemies: the population in protest (especially poor people from favelas) and the management of the Games (which is still largely incomplete and unfinished). Security is keeping the protests and situation calm, hoping not to influence negatively the country’s image and reputation which could seriously affect tourism (one of the most important inflow of money) and intimidate people to participate at this memorable event. Another issue come from multinationals which had to sponsor Brazilian’s games and now are investigated for corruption, leaving and putting this country in a very undesirable position. Some of them as Odebrecht, OAS, and of Grupo Galvão have been arrested.
But behind such dark reality, so argumentative and discouraging, there might be some advantages and well prepared projections to defeat the crisis.
Lisa Delpy Neirotti from George Washington University, believe that in the long run the World Cup will benefit workers, who faced with a more international demand have necessarily improved their skills.
In fact, Olympic Games could bring good prospects and goodwill. Public transports and infrastructures are built, tourism should grow (foreign football fans rushed to Brazil), jobs are created (1 million jobs, of which 710,000 are permanent), human capital becomes higher, unify the nation in this period of contrasts, it is expected to pay the debt thank to them, foreign investments are expected, long-term benefits will be brought, airports, railways and highways will be developed, researches show tourism and investment would bring $13.5 billions in citizens’ pockets and an extra $90 billions revenues over 10 years will be generated. In general, not all the countries gain from the Games. For instance Sidney, Southafrica, Athens had a negative result. Barcelona, is now one of the most important tourist destinations in Europe, has witnessed and increased the economy of ten times more than before, Athens, organizer of the 2004 edition, was unable to take the same advantage, observing a decrease in tourism revenues, actually sharpened/deepened the national financial crisis. Southafrica’s Games has seen only the two/third of the investments in return, and is surviving. In conclusion, Olympic Games are not a guarantee of success and a 100% sure investing as it is shown by some countries, besides there are many variables that make a nation more likely to have a return, and unfortunately it is not totally predictable.