Will the World Cup Be a Bust for Brazil?

Daniel Basil / CC BY 3.0 BR

Q: While it was originally expected that infrastructure investments and World Cup-related tourism would boost Brazil's economy, a recent Banco Santander report cast doubt on the effects that the sporting event, which begins Thursday, will have on Brazil's economy, noting that hotels and restaurants are expecting a slowdown and that additional holidays taken by Brazilians may dampen economic growth. How is the World Cup affecting Brazil's economy, and will it have an overall negative or positive effect? Will infrastructure investments made for the Cup succeed in promoting long-term growth?

A: Thomas Rideg, managing director of Global Intelligence Alliance: "South Africa broke the world record four years ago when it spent $3.5 billion on the World Cup. Brazil quadrupled that expenditure. Almost every project has gone over budget, reaching levels that have infuriated the population. Part of the investments may contribute to long-term growth, such as non-football related infrastructure projects, but most will not, mainly the billions spent on stadiums. The long-term tourism outlook is a question mark as the protests, albeit peaceful, have increased international concern about safety. One of the organizer's biggest mistakes was to spread the World Cup across 12 cities. Brazil's strongest six cities (São Paulo, Rio de Janeiro, Belo Horizonte, Porto Alegre, Curitiba and Recife) could have handled the entire tournament. This decision was fueled by a combination of pride, greed (as politicians and developers salivated over projects needed to make those cities eligible for the Cup) and a political message that this would increase development and socio-economic well-being in second-tier cities across the nation. To illustrate the magnitude of such irrelevance, three of the 12 cities (Brasília, Manaus and Cuiabá) bring such limited national significance to the sport that the stadiums built in each of these cities could seat the attendance that the local leagues attracted during the entire season! Brazilians will not go to work on the days that Brazil's team is playing, which will affect the restaurants and hotels in the business districts during those days. However, they should benefit on days that Brazil's team does not have matches, as people will spend longer lunch hours or more traditional evening happy hours watching interesting matches. Brazil will be a festival during the Cup, and the vibe is becoming more evident throughout the country. However, had there been less corruption in the event's organization and development, things would be happier and richer for all. Regarding infrastructure investments' contribution to long-term growth, if South Africa is still questioning whether its $3.5 billion investment is yielding any contributions to the nation's growth, I think the answer to Brazil's $14 billion 'investment' is pretty clear."

A: Ben Supple, associate vice president at the The Cohen Group: "Banco Santander rightly argues that Brazil should expect a dip in productivity and demand in certain segments of the economy during the 32 days of the World Cup. Countless commentators have also criticized Brazil's ability to deliver promised infrastructure upgrades on schedule and on budget, if at all. However, while much of this criticism is justified, Brazil's decision to host the 2014 World Cup may still foster a positive economic legacy. First, earning the rights to host the Cup in late 2007 became part of the positive news story (along with offshore oil discoveries and, two years later, a successful Olympic bid) that encouraged companies to invest heavily in Brazil from 2007-2011, contributing to steady economic growth in that period and resilience during the global financial crisis. Second, the ambitious (and, yes, costly) decision to spread the matches across 12 cities will expose a global audience to Brazil's stunning yet lesser-known regions—the images of the Pantanal and beaches of the Northeast will likely compensate for the logistical hiccups in the eyes of future tourists. Third, Brazil's electorate has leveraged the event's visibility to press for policy changes, and due to the Cup's proximity to the October elections, they are more likely to see meaningful results. Finally, if Brazil is to continue to ascend the development curve, it needs to be willing to challenge itself, learn from its mistakes and adapt for the future. The World Cup will provide a useful case study as the country continues along this path."

A: Joel Korn, president of WKI Brasil: "Overall, the World Cup will have a positive impact on the Brazilian economy, but its effects are not expected to be as significant as originally forecasted. In fact, it represents a very modest and transitory contribution to Brazil's projected mediocre GDP growth in 2014, and the extent of its legacy for the upcoming years is debatable. On the positive side, the World Cup prompted the implementation of long-overdue transportation and urban infrastructure investments—not all completed, as is the case of major airports—and has had a positive impact on jobs and on the performance of some obvious sectors such as construction, security, information technology, tourism and related entertainment services, advertising and communications. The Cup also places Brazil, as host, on the world's radar screen. The high visibility, however, has a price. It underscores the challenge of adequate infrastructure and public services to meet the demands of millions of Brazilians and more than 600,000 foreigners who are expected to attend the event. Public-opinion makers will be closely watching the quality of the organization, particularly as it relates to logistics, services and security. Hopefully, the overall perception at the end of this one-month journey will be a positive one and, thus, strengthen the country's credibility for future major international events, such as the 2016 Olympic Games in Rio de Janeiro. The infrastructure investments executed for the Cup—or in process of implementation—are helpful, but only part of a long agenda of critical bottlenecks that must be addressed to place the Brazilian industry and agribusiness sectors at a competitive level. Brazil's long-term growth depends fundamentally on sound macroeconomic policies and overdue structural reforms. Reactive measures to a major international sporting event are not sufficient to ensure the foundation for quality and sustainable performance."