Brazil: The Economics of the Rio Olympics 2016

Back in 2009, when Brazil was awarded the rights to host the 2016 Olympic games in Rio, there was so much economic promise in Brazil.

Brazil had just become the fifth-largest economy in the world – ahead of the UK. As with Australia, the “China effect” was driving massive demand for commodities and the large mining revenues were allowing Brazil to put funds into human capital, such as the Science Without Borders scholarships that enabled young Brazilians to study abroad.

Brazil benefits from the fact that, apart from Argentina, it is the only South American economy that truly has scale.

Thanks to the size of its vast resources in the agricultural and mining sectors, Brazil was considered a budding economic super power.

The strong economic environment at the time also helped the federal administration of the PT (the Workers Party), led by President Luiz Inácio Lula da Silva, known as “Lula.”

A former metalworker, Lula was proud to have lifted 33 million Brazilians out of poverty under the Bolsa Familia program (originally devised by his predecessor social democrat Fernando Cardoso, but expanded by President Lula).

Lula had also been very active on the international stage, boosting the BRICs group (Brazil, Russia, India and China and later joined by South Africa, to become BRICSA).

He also formulated a South-South diplomatic strategy in order to position Brazil as the champion of the emerging nations, particularly in Africa.

Hit by recession

It seemed as if Brazil had finally become “the country of the future” that economic historian Charles Kindleberger had famously anointed decades earlier. Brazil was no longer chasing a dream, but turning its long-known potential into economic reality.

But since that moment, when an always quite murky present finally seemed to have caught up with its much brighter future, things could not have turned out more different in Brazil.

Brazil has been hit by a serious recession with the end of the mining boom, falling commodity prices and China as well as the rest of Asia coming off the boil.

As if that weren’t challenging enough, Brazil’s fate turned out considerably worse than the adversities that other commodity exporting nations (like Australia) had to contend with by the end of the mining boom.

Brazil has been hit by a series of corruption scandals that first caught the world’s attention in the lead-up to the 2014 FIFA World Cup.

When FIFA was in Brazil for the Federations Cup, held traditionally a year before the World Cup, a number of demonstrations occurred nominally against public transport fees.

This eventually snowballed into widespread demonstrations against corruption and excessive expenditure on the infrastructure built for the FIFA World Cup itself.

Some of the protestors said, with good reason, that the money could have been better spent on schools and hospitals.

While the FIFA World Cup went ahead largely unaffected by the protests, some of the political issues causing deep dissatisfaction with the government lingered on.

Widespread instability

Well, the demonstrations are now back in Brazil and these are now directed all the way to the top brass in the nation’s capital Brasilia. A scandal with government energy company Petrobras has led to impeachment proceedings against President Dilma.

The courts are preventing Lula from being sworn in as Dilma’s chief of staff. Giving him a cabinet position would provide him with immunity from prosecution.

To top it all off, there is Zika – a virus sweeping Brazil and Latin America, although it originates in Africa. So far, 1.5 million Brazilians are already affected.

Zika is spreading across the Americas. With the Rio Olympics, Brazil’s tourism sector was expected to account for 10% of GDP, up from the regular 9% share in a normal year (given the popularity of Carnival etc.).

If Zika affects Brazil in SARS-like proportions, it will shave 20% off tourism income. Zika is already diverting resources.

President Dilma (who called the anti-Zika operation a “battle for life”) has had to use security resources that were to be used for testing the Olympic venue to combat Zika, along with using 3,000 public health agents whom the City of Rio de Janeiro employs in normal times.

Will this rapid change in fortunes affect the preparation for the Rio Olympics? The experience with previous Olympic Games shows that, whatever the crisis, the show must go on, especially in Brazil.

After all, despite the protests leading up to FIFA World Cup, the event itself was well attended and organized.

Rio has the perfect setting for the Olympic Games, with its natural beauty and outdoor lifestyle and its familiarity in coping with large amounts of tourism.

Gearing up for the Games

The Rio authorities expect that the number of visitors for the Games will be similar to what they receive for Carnival – an estimated one million people.

According to Joaquim Monteiro de Carvalho, the CEO of Empresa Olimpia Municipal (EOM), Rio is using the Olympics to create longlasting legacy in terms of public transport and infrastructure. As he put it:

We went from less than 20% of the population using mass transport (bus, rapid transit, ferry, train, subway, light rail system) to more than 60%. A city that had been made for cars is now being made for the people.

The city is using public private sector partnerships (PPP) to finance Rio’s facilities and lining up a number of business, convention and innovation hub events post-Games to avoid an Olympic “hangover” experienced by other host cities.

In short, while Brazil has a host of serious political and economic issues to work through to ensure the proper functioning of its democracy and domestic economy, we can expect a concerted effort to showcase Rio at the Olympic Games.