World Cup has ‘little’ impact on Brazil’s problems

Carlos Braga is the only Brazilian professor at the IMD in Lausanne IMD

In the run-up to the World Cup in June, Brazil has seen many protests over the money being spent despite the high cost of living and poor services. It’s not the first time a major sporting event failed to solve a host country’s problems, an expert says.

This content was published on March 12, 2014 - 11:00
Dalen Jacomino,

Carlos Braga, professor of international political economy at the IMD management school in Lausanne – and the only Brazilian among the 60 prominent professors at the school - explains to the context of the protests and the possible impact of the football tournament. 2014 is an important year for Brazil. What expectations do you have, given the structural and economic challenges facing the country?

Carlos Braga: The challenges are independent of the World Cup. Brazil still has infrastructure problems. That is an area where investment has been much lower than it should have been.

Over time a number of bottlenecks have built up. This has happened in the context of the investment model applied over the last ten years. It led to a reduction in social inequality, but the problem is that it was based on an increase in consumption. This model, which worked well in the early years of the [Luiz Inácio da Silva] “Lula” presidency [2003 - 2011], has now started to run out of steam, because it is difficult to maintain economic growth based simply on consumption – all the more so since there are these bottlenecks in the infrastructure. What role does the World Cup play here?

C. B.: The World Cup is a festival, a sports event. The Brazilians are famous for organising successful festivals. It’s expected to be an event that will arouse a lot of enthusiasm and demonstrate the sophistication of certain branches, such as marketing. That’s probably the area that will benefit most. On the other hand, it would be wrong to think that the World Cup will make a huge difference as far as infrastructure is concerned.

Carlos Braga

Carlos Alberto Primo Braga is professor of international political economy at IMD.

He is also director of the Evian Group, an international coalition of business, government and opinion leaders which aims to foster an open and fair global market economy in a rules-based multilateral framework.

Before joining IMD in September 2012, he worked in a number of capacities for the World Bank, which he joined in 1991.

He has taught at the Johns Hopkins University in the United States and the University of São Paulo, and also at the World Trade Institute of the University of Bern.

His first degree was in Mechanical Engineering. He then took an MSc in Economics at the University of São Paulo and a PhD in Economics at the University of Illinois.

End of insertion What about investment in the stadiums?

C. B.: The World  Cup means that some stadiums can be modernised and new ones built, but in some cases they are white elephants. This is the case with the stadiums in Manaus and Brasilia, which have a much greater capacity than those cities currently need, since they don’t have teams in the national championships. So the real question is how much it will cost to maintain and use these facilities.

On the other hand, in cities like Sao Paulo, Rio de Janeiro and Belo Horizonte, the investments could very well have a major impact, because by providing better conditions for fans it will be possible to attract more spectators to the stadiums in the future. So you agree with British sports journalist and author Simon Kuper, who says that it’s misguided to believe that the World Cup could stimulate the economy?

C. B.: From a purely economic point of view the direct impact of the World Cup is relatively small, given the size of the Brazilian economy.

The issue of priorities in the matter of investment still remains, of course. It is easy to understand why, even in a football-mad country, some of the people are unhappy at such a lot of money being spend on stadiums. But that doesn’t apply only to Brazil and the football World Cup. It’s the same problem for all major sports events.

The Winter Olympics in Sochi in Russia is perhaps a textbook example of overspending. Obviously those who are directly concerned with the event will always stress the positive impact, for example the benefits for the country’s image. But in general, experience shows that the costs are higher than the economic benefits.

World Cup 2014

The 2014 football World Cup starts on June 12, with the opening match played in Sao Paulo.

The final will be played in Rio de Janeiro on July 13.

Matches will be played in 12 cities across Brazil.

Switzerland is in group E, where its first round opponents will be Ecuador, France and Honduras.

End of insertion But are there any positive examples at all?

C. B.: Yes, Barcelona is a good example. The Catalan capital had an urban development plan and the Olympics were part of it. This was one of the rare instances where there was a positive long-term result. As far as the Rio 2016 [Olympics] is concerned, I think the Olympic Committee is doing a professional job. That will have a positive impact. But it’s more complicated in the case of the World Cup. We are talking of investments spread out across 12 cities all over the country, not all of which will necessarily be fully implemented in the way originally planned. What about the demonstrations?

C. B.: Society is experiencing a general kind of anxiety and dissatisfaction. The success of social programmes, which has led to an increase in the number of the middle class, is in a way the source of this social dissatisfaction. As soon as people start having to pay taxes, they also start looking much more closely at the government’s priorities and spending. And they demand more. So there will be demonstrations, but they will be manageable. But it is not so good as far as the country’s image is concerned.

One thing that not many people realise is that Brazil is a world leader as far as social networks are concerned. Everyone is connected. This creates different types of social organisations and movements which can give the government some surprises. Does ordinary Brazilians’ high level of debt threaten the economy?

C. B.: The Brazilian financial sector is generally healthy. Most banks are posting good results. The increase in household debt is very large. But this model, based on the rise in consumption, hasn’t put the financial sector at risk. Even so, it is true that the extension of credit means that low-income families have got further into debt, and it’s legitimate to wonder whether this can be sustained or not.

In my opinion, the model of consumer growth has gone as far as it can go. This will have to change, one way or another. The focus needs to be on the creation of mechanisms to promote savings and investment. The problem is knowing how to bring about this change without it being too painful, especially for the least well-off sectors of society. One thing that foreigners are annoyed about is the unfair prices being charged for plane tickets and hotels, especially in the places hosting the matches. How has this come about?

C. B.: The World Cup is expected to attract an extra three million foreign tourists to Brazil. But Brazil is a three-star hotel charging five-star prices. That’s been the case for some time now. The country’s tourism infrastructure is not up to the mark. There have been tax breaks to encourage the construction of new hotels and to enlarge existing ones, but they are still not enough. It’s clear that the market isn’t working. The Swiss government recently presented a three-year campaign to boost awareness of the country among Brazilians, to run between the football World Cup and the Olympics. Is this kind of initiative effective?

C. B.: Switzerland is a strong brand in Brazil, as in other places. For big companies like Nestlé and Novartis, it certainly won’t make a lot of difference, because they have their own promotion campaigns and are already established there. But it might have a greater impact for medium-sized companies.

That said, the composer and musician Tom Jobim used to maintain that Brazil isn’t a country for beginners. And that’s really the problem, especially for small and medium-sized enterprises. Not only in Brazil, but in all the large emerging economies, the business climate is very complicated. Things have got much better in the past few years, but to be able to operate in Brazil small and medium-sized enterprises end up looking for partners inside the country.

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