How Brazil Hopes to Get Rich off the 2014 World Cup

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How Brazil Hopes to Get Rich off the 2014 World Cup
Eraldo Peres/Associated Press

With less than two weeks left before the World Cup kicks off this summer in Brazil, all the attention has understandably been on the football side of things, with all participants playing warm-up friendlies to ready their squad for the tournament.

For the Brazilian government and footballing authorities, who have attracted criticism for repeatedly missing construction deadlines for the World Cup stadiums, perhaps the recent attention to the friendlies makes for a welcome respite.

After all, most of the coverage in the past year or so (this is an example from The Washington Post) has focused on the state of the host nation. (We wrote an article on that only a few months ago.)

But the public protests in Brazil have not gone unnoticed. In fact, the demonstrations that started during last year's Confederations Cup have provided a controversial backdrop to the upcoming World Cup: How will officials be held accountable for the massive overspending they have committed in their preparations for the tournament?

It is imperative that there is an answer to how Brazil and its citizens stand to benefit from hosting a glamour tournament like a World Cup—not just from glory and hype alone.

Let's take a look at how the 2014 host nation hopes to make money off the latest installment of the World Cup—but as we see, not all the hopes and proclamations may ring true.

 

Jobs and the Local Economy

Eraldo Peres/Associated Press

Brazil's tourism minister, Vinicius Lages, told AFP, via Yahoo: "The Cup is not an economic panacea but a catalyst for Brazilian development. It was a key factor behind Brazil finally overhauling its infrastructure."

The World Cup, he predicted, would add about $13.6 billion to the Brazilian economyalready the world's seventh largestin 2014 alone.

It doesn't stop there.

A report by Ernst & Young Terco on the social and economic impacts of the 2014 World Cup concluded that the tournament "should generate 3.63 million jobs/year and R$63.48 billion income for the population in the period 2010-2014, besides an additional R$18.13 billion in tax collections."

EY's projected impact on the national production of goods and services stood at R$112.79 billion, while the sectors most benefiting from the event—defined as economic activities with major increased output—were civil construction, food and beverage, business services, utilities, information services, and tourism and hospitality.

All of which sounds glamorous and sexy, but there have been contrasting reports on the actual long-term gains as a result of hosting the World Cup—and they aren't quite as pretty.

A Moody's report on the impact of the tournament on different industry sectors concluded that "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 work days will take a toll on business."

Then there is the very real possibility that the "World Cup effect"—defined by IBTimes.com as the phenomenon of countries being more harmed economically from hosting the event, as seen from South Africa 2010—may take hold in Brazil.

Four years on, the same uncertain material benefits from a World Cup are still yet to be transparent. As cited in the IBTimes.com article, University of Maryland professor Dennis Coates noted that even the 1994 World Cup in the U.S.—claimed as one of the most successful and transformational ever—ended in an income reduction of $712 million for the average host city relative to predictions.

 

The Tourism Industry 

Eraldo Peres/Associated Press

Vinicius Lummertz, Brazil's national secretary of public policies, told The Rio Times last November of his optimism that Brazil's tourism industry would stand to gain enormously from the World Cup:

We hope tourism in Brazil rises to a new level after the World Cup. With infrastructure improvements that increase the competitiveness of Brazil as a tourist destination, and the high exposure of the country abroad, I expect to see a significant increase in foreign tourists—but mainly more Brazilians traveling through Brazil.

The Tourism Ministry predicted that tourists home and abroad would spend R$25 billion during the tournament, when 600,000 foreign and three million Brazilian travelers are estimated to visit the country.

The massive spending on infrastructure by the Brazilian government in recent years in preparation for the World Cup has likely been to maximize the revenue the country can make during the tournament—and with an eye on the future as well.

The EY study quoted above addressed such needs for investment in order for tourism income to be realized:

Once the actions that are required to enable the country to capitalize on the opportunities generated by the World Cup are completed, the event may result in an increase of up to 79% in the international tourist inflow to Brazil in 2014, with even possibly higher impacts in subsequent years. In the period 2010-2014, that figure should be as high as 2.98 million additional visitors.

The tourist inflow directly and indirectly induced by the World Cup is expected to account for additional income up to R$5.94 billion for Brazilian companies.

Yet before Brazil can throw a metaphorical carnival to celebrate their upcoming economic benefits, a few sobering updates on the tourism front may dampen the mood.

According to Claire Rive of The Rio Times, "The tourism sector in Brazil has had to adjust their inflated estimates concerning the expected influx of tourists...leading to big discounts on local and international flights and accommodation during the tournament."

The reduction in projected tourist numbers has led to discounts on airfare prices and package tours, while demand for accommodation has "substantially decreased and prices have decreased."

 

And, of Course, Corruption

Eraldo Peres/Associated Press

That a World Cup involves staggering amounts of money and an opportunity for businessmen and government officials to make a quick buck is no surprise—and Christopher Gaffney, professor at Rio de Janeiro's Federal University, agrees strongly.

"There's collusion of the Brazilian governmental elite with the business elite, and the game is rigged in their favor," Gaffney said (via Yahoo). "This was an opportunity to make a lot of money and that's what's happened."

But adding to the depressing reality that corruption will form a huge proportion of Brazil's money made from the World Cup is the astonishingly public manner in which the embezzlement has been carried out.

See the case of the lead builder of Brasilia's Mane Garrincha Stadium, already the world's second-most expensive football stadium.

The Associated Press ran a story this May alleging that Andrade Gutierrez, a construction conglomerate, and Via Engenharia, an engineering firm, made up a construction consortium that billed the government $1.5 million for the transportation of prefabricated grandstands for the Brasilia stadium—a fee that was initially thought to cost just $4,700.

Auditors pointed out that "wasteful cutting practices or poor planning added $28 million in costs," while "$16 million was lost when Brasilia's government inexplicably failed to enforce a fine against Andrade Gutierrez for a five-month delay in completion of the main portion of the stadium."

According to Al Jazeera, the same firm made political contributions totaling $37.1 million after confirmation of which cities would be hosting tournament matches, and after it was awarded stakes in contracts totaling "nearly one-fourth of the World Cup's total price tag," four years after it contributed a measly $73,180 in municipal elections, a 500-fold increase.

Moreover, auditors found $275 million in alleged price gouging with just three-fourths of the $900 million Mane Garrincha Stadium project.

The most damning part?

"Funding for Brasilia's stadium relies solely on financing from the federal district's coffers, meaning every cent comes from taxpayers."

What comes around, goes around.

 

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