It is reported that a contraction of 0.6% in Brazil's economy between April and June 2014 and a revision of the first quarter, has pushed the country into recession.
This is coming closely on the heels of its staging 2014 World Cup while it is getting ready to conduct the 2016 summer Olympics. These two events are meant to uplift the economy to new heights.
Brazil is a strong US$ 2.2 trillion economy and has expended an estimated US$11.3billion on the World Cup -- the most expensive World Cup since its inception 84 years ago. .According to the Geneva-based World Economic Forum, Brazil is placed at 57th position in terms of competitiveness and is among the top-10 countries having high GDP in terms of purchasing power parity.
It opted to stage two such events as the recently concluded World Cup-2014 (US$(11.3billion already spent) and Summer Olympics in 2016 (capital outlay around US$18billion) as an opportunity to improve its infrastructure: like building good roads, creating a rapid transit railway between Sao Paulo and Rio, state of the art subway lines in Sao Paulo, developing new ports, expanding 12 airports, building hydroelectric plants and transmission lines, plus keeping an eye on boosting tourism.
Its basic aim is to address its vital infrastructural requirements, which will act as a catalyst for economic growth, giving improved number on its GDP and for showcasing Brazil as a high-ranking emerging nation.
As experience and research on the subject of stadiums and arenas reveal that they leave no long-term benefits, Brazil planned that non-sport infrastructure like transport, security and communications would take 75% of the outlay -- leaving the balance for construction or upgrading of stadiums. But the facts tell a different story.
Stadiums -- The FIFA requirement is that the host country must have eight modern stadiums with at least 40,000 seating capacity, with one having 60,000-capacity for the opening game and another with 80,000-capacity for closing. This basic condition itself would involve heavy capital outlay. But Brazil went one step further and committed to 12 centres with a minimum capacity of 40,000 spectators, mainly to showcase its cities and to extend key infrastructure to those areas. Nine of the twelve stadiums are new, out of which seven were built on old stadiums that were demolished.
Starting with an original investment estimate of US$1.1billion, the revised budget placed the outlay at US$4.7 billion. The cost overruns and delays further pushed the outlays on stadiums and -- in order to scramble home safely with prestige factor at high stakes before the opening ceremony -- Brazil had to divert its resources from non-sport infrastructure.
This has stalled the economic benefits. Stadiums not having long-term benefits claimed the majority of funds. Stadiums are not major income earners besides consuming maintenance costs from the exchequer, and are considered white-elephants.
For example Fortaleza, Recife and Salvador where heavy investment has been made have first division football teams. But the average attendance in all these stadiums has been around fifteen thousand, with an average ticket costing around US$10. The purchasing power of the people to pay for tickets that would amply cover maintenance s of the stadiums and debt-servicing the construction is a doubtful factor. Recife already has three large multi-purpose stadiums.
In Sao Paulo, as Morumbi Stadium did not meet FIFA standards, a new stadium was built and later enhanced on the further advice of FIFA -- expending an additional US$650million and thereby overshooting the original budget by about 30%.
RioÃ¢â‚¬â„¢s MaracanÃƒÂ£ stadium that hosted the 1950 World Cup and which was refurbished in 2007 for the Pan-American games, did not satisfy FIFA and had to be further refurbished; not only by partial demolition of the stadium but also demolition of a nearby Indigenous Cultural Centre, a school, and a gymnasium at a further cost of US$500million. MaracanÃƒÂ£ is proving to be an Achilles-heel for Brazilians, for it was here they lost to a smaller country like Uruguay during a traumatic encounter in 1950.
According to Mr. John Oliver in his book, Brilliant Skewering of FIFA, the stadium in Manaus (a remote city in Amazon) costing between US$270million to US$300million and where four matches were played, does not have even a first division team to use the facility afterward. Against a capacity of 42,000-plus, the stadium now caters to the needs of a second division team with an average attendance of 1,500.
Experience with previous Olympic Games and World Cups suggests many cities that conduct mega-events are left with unused structures involving considerable maintenance costs. BeijingÃ¢â‚¬â„¢s BirdÃ¢â‚¬â„¢s Nest and Velodrome remain unused, involving heavy maintenance costs. Greece hosted the 2004 Olympics and had 21 of the 22 stadiums built for the games unoccupied in 2010. The Olympic Village is a litter-filled wreck. The vast table-tennis stadiums and baseball stadiums have no use for the people looking for a better standard of life.
According to a Wall Street Journal analysis done in 2010, Ã¢â‚¬Å“the vacant venues, several of which dominate parts of the cityÃ¢â‚¬â„¢s renovated Aegean coastline, have become most valuable reminders of GreeceÃ¢â‚¬â„¢s age of excessive spendingÃ¢â‚¬Â. GreeceÃ¢â‚¬â„¢s debt-fuelled spending nearly brought the euro to its knees.
In South Africa which hosted the 2010 World Cup, the vast stadiums built now cater to local teams who have an audience of 10,000. Will that even pay back the maintenance cost?
The above points are a reminder for nations taking up mega-sport events to have a balanced budget between non-sport structure giving long-term economic benefits and sport structure with a particular eye on cost overruns. BrazilsÃ¢â‚¬â„¢ cost over-runs have led to charges of corruption and overspending when it has nearly 16% of its population living in poverty and whose basic housing needs have to be addressed. About 250,000 people have been relocated to accommodate the World Cup.
In World Cups and Olympics, costs are often underestimated. For the 2008 Olympics in Beijing, the total budget exceeded US$40billion. The 2012 Olympics at London over-shot the budgeted US$4billion by a wide margin.
Economic Factors -- Prior to taking up the World Cup-2014 and Olympics-2016, the Brazilian economy had been reporting an impressive growth with low unemployment rate at 6%. In such a scenario, undertaking long-term infrastructure programmes with huge capital commitments leads to inflation and overheating of the economy.
The Keynesian style of infusing funds into activities is well advocated to stimulate demand when there is unemployment, excess capacity and depression. There were reports that Sao Paulo construction projects were delayed due to lack of skilled personnel and was a key factor leading to wage inflation. BrazilÃ¢â‚¬â„¢s GDP growth rate, which was 7.53% in 2010, has come down to 1.82% in 2014.
Growth -- Euler Hermes, the trade credit insurance business, says that World Cup and Olympics will between them add 0.2% points to GDP growth in 2014, making it 1.82% for a full-year total while at the same time contributing 0.5% points to inflation and bringing it to 6.3% -- evening out each other. While jobs are created, they just last for the short-term.
Revenues from mega-events
Based on the previous experience, normally the World Cup generates approximately US$3.5billion and Olympics US$ 5billion, and a major chunk of it goes to the governing bodies like FIFA and IOC. In terms of revenue, the games do not produce much for the host country. Mega-events like a World Cup or Olympics do not pay for themselves. Increased income from tourism and making the sport venues and infrastructure to produce streams of benefits are the options left to the host country
The claim of the Organising Committee of Olympic Games (OCOGs) that every city that hosted the games since 1984 has broken-even is based only on operational costs but does not include capital costs on infrastructure -- at least on sport infrastructure let alone other infrastructure cost. Mind you, that capital cost comes from public funds or debt funds. Debt servicing and other maintenance costs ultimately burden the taxpayer.
During the 2000 Sydney Olympics, OCGC reported that it had a break-even operating result. But the state auditor had to intervene to figure out that the long-term cost would be US$2.2billion as it would cost US$30million a year to operate the 90,000 capacity Olympic Stadium.
Brazil has had its share of frustration on the sports-front too. Its team was knocked out of the games by Germany in a very humiliating manner at the EstÃƒÂ¡dio MineirÃƒÂ£o in Belo Horizonte. Brazilian media referred to the match as the Mineirazo, reminding of MaracanÃƒÂ£ in which Brazil unexpectedly lost the 1950 FIFA World Cup on home-soil to Uruguay.
FIFA is currently not a much-liked figure in Brazil. It is being perceived as an organisation that turn up, demands more elaborate preparations and darts away with the proceeds. But the organisation has protested that it has contributed US$2billion toward operation costs.
In South Africa, FIFA made US$ 3.7billion (excluding ticket sales) on an investment of US$1.3billion, leaving South Africa to work out how much the World Cup has impacted its economic growth.
Many big infrastructures from scandal-ridden New Delhi Commonwealth games of 2010 are largely unused.
The boost that mega-events give to tourism is not only minimal but questionable.
Mr. Philip PorterÃ¢â‚¬â„¢s Ã¢â‚¬Å“Mega-Sports Events as Municipal Investments : A Critique of Impact AnalysisÃ¢â‚¬Â reveals gate arrivals at Atlanta Airport during the 1996 Summer Olympics were similar to the gate arrivals in 1995 and 1997 -- showing that the boost to tourism is not pronounced.
In an interesting study of the 1994 Winter Olympics conducted in Norway by Mr. Jon Teigland in 1999, he found little long-term benefit. This is against encouraging predictions from authorities before the Winter Olympics. 40% of the hotels around the games venue at Lillehammer have gone bankrupt. According Mr. Teigland, Ã¢â‚¬Å“February 1994 became a major disappointment for many hotels in the host regionÃ¢â‚¬Â.
The 2006 World Cup in Germany generated additional spending by tourists worth 0.28% of that spent by other visitors to Germany that year.
Brazil is a well-known destination for its carnival, and does not need any boosts from special mega-events. BrazilÃ¢â‚¬â„¢s Rio is already a noted place for its tourism, with about 2.8 million people visiting it annually
Ultimately, it boils down to the fact that the real reasons for holding such events are not guided purely by numbers. They are showpieces meant to demonstrate pride and achievement: ChinaÃ¢â‚¬â„¢s 2008 Olympics demonstrated its insatiable quest for Super Power status. BritainÃ¢â‚¬â„¢s 2012 Olympics showed it is still to be reckoned with in global policies.
As Mr. Andrew Zimbalist says in his analysis Ã¢â‚¬Å“Can Brazil build the massive infrastructure it needs to host the Olympics and the World Cup ?Ã¢â‚¬Â, any country -- specially developing ones, opting to stage a mega-sports event would do well to consider the following points:
1. Avoid temptations of gigantism in construction projects
2. Focus on infrastructure improvements that will serve the countryÃ¢â‚¬â„¢s economic development
3. Make full use of existing sporting facilities
4. Involve local communities in the planning process.
The USA (1994) and France (1998) with good infrastructure and comprehensive planning did these to keep costs down and spent less than a billion for their World Cups.
Finally, glossy opening and closing ceremonies are not all the people want. People want economic improvement in their living standards, which calls for an optimal mix of resources for infrastructure -- and Brazil has one more opportunity until the 2016 summer Olympics to make corrections.
By SUNDARAJU SRINATH