Once upon a time, Brazil’s economy seemed like Sleeping Beauty. With plenty of potential and about to wake up and join the party, Sleeping Beauty has fallen off of the castle’s parapet and is crashing on to the rocks below. Even with the World Cup knocking on the castle door isn’t enough of a Prince Charming to rescue the battered and bloody princess.
Brazil has had some ongoing problems and they’re being pushed to the surface. The pressure of hosting the World Cup has been like magma and now the continual challenges to the country are being spewed out like active volcanoes dumping their lava. Workers are unproductive, the spending on infrastructure lags behind even some third-world countries and protectionism is the latest fashion statement.
With inflation rising, the central bank has bumped interest rates several times and Standard & Poors has moved the Brazilian credit rating to just one small step above junk status. Brazil’s Bovespa stock market has slid more than 7 percent, dropping faster than typical benchmarks for emerging markets.
Enter Prince Charming in the form of the world’s biggest sporting event which is bringing millions of tourists, their dollars and corporate sponsors.
To put its best foot forward as Sleeping Beauty prepares for the ball, Brazil has spent approximately $11.5 billion, yes BILLION, on new stadiums, transportation and airports. Trying to justify and explain all of the money spent on new makeup and perfume, Brazilian politicians have promised that the event would bring tremendous financial benefits and improved roads, bridges and other infrastructure.
Most Brazilians are skeptical and don’t believe the politician’s claims. Tens of thousands joined in for street protests and riots during the Confederations Cup in 2013. Many said they were fed up with the government’s lavish spending spree on sports events while the country’s social safety net went wanting.
Brazilians are correct in doubting the financial benefits of hosting the World Cup. Moody’s Investors Service issued a report that shows that new infrastructure spending connected with the event is small for the ailing $2 trillion economy and the benefits to businesses will be momentary and fleeting.
The World Cup brings with it some risks to South America’s largest country. Local economies, already strained to the point of fracturing, will be disrupted. Air travel, already complicated on even the best of days, will be affected as hundreds of thousands of tourists travel between the cities hosting the different matches.
With just a few hours left before the World Cup’s opening kick, the country has been troubled by strikes while workers demand increased benefits and pay raises. The hoped for reputation-polishing will be interrupted if there is a reoccurrence of the social unrest which the world saw during the Confederations Cup.
Who Will Benefit?
So who will benefit from the mega-dollars spent by the Brazilian government? Corporate sponsors and advertisers like Budweiser and Coke. Brazil will face a similar problem in 2016 when Rio de Janeiro is host to the Olympics. Even preparations for that event, two years in the future, have been troubled by rampant corruption.
Meanwhile, elected officials are still trying to support their arguments for hosting the games by trotting out the tired, worn-out claims that there will be “big gains” for the host country.
Most of the world’s economists point out that the real cost of the Olympics is more complicated to determine. It’s also not as pretty a picture as the politicians are portraying.
Maybe Sleeping Beauty would be better off if she just continued her nap and Prince Charming moved to the next castle on down the road.
By Jerry Nelson