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OBOR – What’s in Store for Multinational Companies?


One Belt One Road (OBOR) Initiative, also known as Belt and Road Initiative (BRI), is part of China’s development strategy to improve its trade relations with countries in Asia, Europe, the Middle East, and Africa. OBOR envisions to not just bring economic benefits to China but to also help other participating countries by integrating their development strategies along the way. It has the potential to be one of the most successful economic development initiatives globally. Opportunities are countless for investment along this route. Multinational companies are looking to make the most out of this project, however, capitalizing on this opportunity will not be easy. To benefit from this initiative, companies need to understand that assiduous research and effective long-term planning is crucial, as the nations involved, though offer economic growth, will also present a series of geopolitical risks and challenges.

Chinese President Xi Jinping unveiled OBOR in 2013, aiming to improve relations and create new links and business opportunities between China and 64 other countries included in the OBOR. The initiative has two main segments: The Silk Road Economic Belt (SREB), a land route designed to connect China with Central Asia, Eastern and Western Europe, and the 21st-Century Maritime Silk Road (MSR), a sea route that runs west from China’s east coast to Europe through the South China Sea and the Indian Ocean, and east to the South Pacific. These two routes will form six economic corridors as the framework of the initiative outside China – New Eurasian Land Bridge, China-Mongolia-Russia Corridor, China-Central Asia-West Asia Corridor, China-Indochina Peninsula Corridor, China-Pakistan Corridor, and Bangladesh-China-India-Myanmar Corridor.

OBOR brings opportunities and challenges

Multinational companies will have a plethora of opportunities to explore along these economic corridors – for instance, trading companies can take advantage of these routes for logistics, while energy companies can use these corridors as gateways for exploring new sites of natural resources such as oil and natural gas. Along with dedicated routes, OBOR will require huge investment which is proposed to come from three infrastructure financing institutions set up as a part of this initiative – Asian Infrastructure Investment Bank (AIIB), The Silk Road Fund (SRF), and The New Development Bank (NDB).

The development of OBOR opens up a range of opportunities for overseas businesses. However, with the initiative being launched by the Chinese government and all the six corridors running across the country, it is clear that China will play a major role in most of the business collaborations. Thus, multinational companies investing in OBOR can prefer to partner with Chinese companies and leverage the partnership to access projects and assignments in other countries. Companies are also likely to be able to access new routes to sell products cheaply and efficiently, but looking for opportunities across OBOR would definitely involve initial partnerships between multinationals and Chinese state-owned enterprises.

OBOR – What’s in Store for Multinational Companies

Oil, gas, coal, and electricity

OBOR has the potential to open up opportunities for collaboration in the areas of oil, gas, coal, and electricity. Several energy opportunities may emerge with the OBOR initiative, and these energy-related investment projects are likely to be an important part of OBOR. For instance, the Gwadar-Nawabshal LNG Terminal and Pipeline in Pakistan includes building an LNG terminal in the Balochistan province and a gas pipeline between Iran and central Pakistan. Estimated at a total value of US$46 billion, the project was announced in October 2015 along the China-Pakistan Economic Corridor.

Energy projects along OBOR include initiatives largely by Chinese companies due to funds coming in from China-led financial institutions. In another investment, General Electric, an American corporation, signed a pact with China National Machinery Industry Corporation (Sinomach), in 2015, to offer project contracting (for supply of machinery and hardware tools) for developing a 102-MW Kipeto wind project in Kenya. The project aims to set up 2,036 MW of installed capacity from wind power by 2030. Kipeto wind project was originally a part of US president Barack Obama’s ‘Power Africa’ initiative, but with Sinomach joining in hands, it is clear that more initiatives like this can be expected to come up in the near future as a part of OBOR.


Players in the logistics industry can also benefit from the improved infrastructure along the OBOR. In 2015, DHL Global Forwarding, providing air and ocean freight forwarding services, started its first service on the southern rail corridor between China and Turkey, a critical segment of China’s OBOR initiative. This rail corridor is expected to strengthen Turkey’s trading businesses along with benefiting transport and freight industries of Kazakhstan, Azerbaijan, and Georgia. Logistics companies can also initially partner with local postal or freight agencies to set up new business in these regions. OBOR can provide fast, cost-effective, and high-frequency connections between countries along the route. Improved infrastructure, reduced logistics costs, and better transport infrastructure will also contribute to driving e-commerce businesses in the regions.


Tourism is expected to also see a major boost as a result of OBOR initiative. As connectivity between countries improve and new locations become easily accessible, the tourism industry is expected to see positive growth in the coming years. To support tourism, Evergreen Offshore Inc., a Hong Kong-based private equity firm, in 2016, launched a US$1.28 billion tourism-focused private equity fund called Asia Pacific One Belt One Road Tourism Industry Fund to boost relations between China and Malaysia by investing in tourism sector. The company invested in Malaysia as the country is considered an ideal investment destination for a long-term gain. This is in sync with the long term vision of OBOR to promote tourism sector in countries and regions along the MSR.

As OBOR develops, new markets along the routes are likely to open to business. The already existing routes will experience business diversification as infrastructure and connectivity improves. Trade barriers will most likely reduce as developing countries become more open to international investment which brings new jobs, better infrastructure, economic growth, and improved quality of life. There is bound to be growth in consulting business, professional services, and industrial sectors apart from trade and logistics.

EOS Perspective

While OBOR initiative assures opportunities for multinational companies, the path may not be smooth for all. Investing in these new geographies, companies will come across various economies with different legal and regulatory frameworks. Political stability is also a matter of concern – some regions may have sound political structures while others may be dealing with ineffective government policies. In fact, political instability and violence are some of the key challenges in the development of OBOR. Weak government policies and lack of communal benefit lead to political instability including terrorism and riots. These factors influence the availability of resources, negatively impact the setting up of businesses locally, thus resulting in financial losses for multinationals. Local investments need policies and investment protection backed by the governments to facilitate growth which is far more difficult to achieve in case of political and economic instability. Taking advantage of the opportunities associated with OBOR may be of strategic importance, but the companies need to be cautious about the obstacles associated with it.

While OBOR initiative assures opportunities for multinational companies, the path may not be smooth for all. Political instability and violence are some of the key challenges in the development of OBOR.

Local competitors will also present obstacles to multinational firms. The competition is stiff for international players as local companies can operate better in riskier environment at low operating costs. Not only will regional companies pose a threat for survival of multinationals, in many scenarios, partnering with Chinese companies will also be a massive challenge. Many Chinese companies do not implement a clear structure while partnering with other international companies. Decision making and profit sharing is often not properly documented. Lack of clarity in business dealings give these state-owned enterprises an upper hand.

Complexity and lack of transparency in local regulatory framework for setting up a new business is also a hindrance for investments in many geographies along the OBOR. Absence of clear policies and delays in decision-making processes can prove too challenging for companies to adapt to which may even lead to financial losses or failed attempts to establish local operations. Issues such as corruption, challenges associated with supply chain security, and financial risks are some of the other obstacles that companies are likely to face while setting up businesses in new countries along the OBOR route.

Complexity and lack of transparency in local regulatory framework are a hindrance for investments in many geographies along the OBOR.

OBOR is still in the initial years of implementation. The initiative offers great potential for developing regions in need for improved infrastructure and economic growth but what this really means for multinational companies is still somewhat unclear. It encourages participation from international companies to turn the initiative a success, but there are no clear guidelines on how these investments would be integrated into the OBOR. With a major part of investment coming from China-based institutions, dominance of Chinese companies in major projects cannot be avoided. While the underlying aim of the initiative is to reduce China’s industrial overcapacity and to strengthen its economy, there are concerns about the part being played by multinational companies. To what extent would they participate, who would be the main investor (Chinese company or multinational companies), and how much share and what say would the multinational company have in a project, etc., are some of the questions that still remain unanswered.

With major part of investment coming from China-based institutions, dominance of Chinese companies in major projects cannot be avoided.

In view of these risks and challenges, we believe it is too early to estimate the scale of potential monetary benefits for companies wanting to invest along the OBOR route to expand their businesses. It will surely not be easy for multinational companies to compete for benefits from OBOR in an environment heavily dominated by Chinese companies. Developing business policies and financing schemes through related institutions can help the multinational firms to benefit from this initiative in the long run. There is no doubt that OBOR has the potential to open new markets for doing business by redrawing the global trade map, however, with no clarity and transparency on the role MNC’s as part of OBOR initiative, companies need to correctly identify the best opportunity by accessing the right market and find effective ways to mitigate a wide range of associated risks. For now, the future role of MNC’s in this environment is uncertain. They will have to wait and watch to work out a stable business arrangement. But in current times of global geopolitical turbulence, such a harmony is never guaranteed.

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The Gloomy Post-Olympic Scenario for Brazil


Now that the Rio Olympics have ended, Brazil will soon get to see whether the expected benefits of its enormous investment start materializing. The sports extravaganza was heavy on Brazil’s pocket, as the country spent massive amount of money on construction of sports venues, housing, transportation, and other infrastructure. Hosting Olympics has indisputably driven tourism, created job opportunities, and generated profit from industries such as transportation, hospitality, entertainment, food, retail, etc. However, this upsurge seems to have been momentary, and mostly limited till the time games lasted. The mid and long term benefits of Olympics are still questionable and raising doubts whether Brazil will pay a high price for the Olympic glory.

Hosting a massive event like Olympics is always exorbitant, requiring huge investments to spruce infrastructure, improve accommodation facilities, etc. Brazil invested heavily to host the games resulting in cost overrun of 51%. Some of the major cost heads included administration, technology, and infrastructure.


During the games, Brazil was flocked with visitors, restaurants and hotels were buzzing with people, who spent mammoth amount of money, adding on to Brazil’s revenue. Foreign visitors spent about US$ 617 million, while ticket sales alone generated US$ 323 million. Bars and restaurants witnessed upsurge in sales and hotels enjoyed much higher occupancy rates than any other time.


The post-Olympic scenario looks gloomy with minimal impact on economic growth of the country (meager addition of 0.05pp to GDP) while Brazil remains engulfed with rising inflation, public debt, and high insolvency rate. Further, results of a survey conducted by Fecomércio MG (Federation of Trade in Goods, Services, and Tourism) in 2016, suggests that only 4% people believe that Brazil will reap benefits post-games and 53.3% people consider that Olympics will have no impact on businesses.

3-Post Olympic Impact

EOS Perspective

In 2009, when Rio was chosen to host the 2016 Olympics, Brazil was at the crest of its economic boom. However, currently, Brazil is struggling to fight its third straight year of recession, growing unemployment, and double-digit inflation. The economy is expected to shrink by 3.5% in 2016 owing to weak commodity prices, political instability, and low import demand from China (one of Brazil’s key trade partners). Amidst all the economic mayhem, hosting Olympics further deepened the financial crack such that Rio had to declare a state of financial emergency, when the Brazilian government authorized a loan of US$ 850 million to pay for Olympic infrastructure and security.

Economic benefits of hosting extravagant events like Olympics are often quite exaggerated. For instance, London earned revenue of barely US$3.5 billion after its lavish spending of US$ 15 billion.

For Brazil, Olympics will definitely drive a modest short-term growth in terms of economy, tourism, and job creation, however, the net impact is likely to be negative. Investment in building massive infrastructure for Olympics and additional public spending are expected to escalate public debt. Organizing a mega sporting event like Olympics amidst rising public debt is likely to result in high inflation rate visible until 2020 and an increase in regional business bankruptcies. The benefits generated by hosting Olympics might be insufficient to compensate for the economic turmoil that had already plagued Brazil even before the games commenced. Unfortunately, the timing of hosting opulent events like World Cup and Olympics back to back might jeopardize the much needed positive impact expected from these sports events.

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Zika Virus Outbreak: How Is It Dampening the LATAM and Caribbean Economies?


In February 2016, World Health Organization declared Zika virus outbreak as an international public health emergency across 21 countries in the LATAM and Caribbean region, as Zika is believed to pose a serious threat to human health and life, and to adversely impact businesses and economies. The virus is slowly becoming a great contributor to the financial turmoil by severely affecting tourism industry, one of the key sources of revenue in the region. Zika has recently also become a major hindrance for Brazil Olympics scheduled for August 2016, as athletes and spectators are skeptical of visiting the country due to fears over the virus.

Latin American and Caribbean countries are likely to suffer an estimated economic loss of about US$ 3.5 billion in 2016 due to the Zika outbreak with countries such as Mexico, Argentina, and Brazil blown by the highest fiscal revenue losses in the region. Further, Zika is posing a significant threat to the tourism industry leading to drop in airline bookings to Latin America and Caribbean by 3.4% y-o-y (bookings between January 15 and February 10) in 2016 over 2015. The Caribbean region is hit the worst – airline bookings declined 27% y-o-y in the US Virgin Island and 24% y-o-y in Martinique. Also, shares of travel companies plummeted and several cruise lines, airlines, and hotels are offering fee waivers and options to reschedule travel.

1-economic impact

2-impact on tourism

3-impact travel industry

4-affected Brazil

EOS Perspective

Zika has taken a financial toll on the LATAM and Caribbean countries and might continue to weigh them down till it is adequately curbed or vaccinations are introduced. Zika has also become a major threat to the forthcoming Rio Olympics with a few athletes already starting to back out of the games and health experts across the world discussing to cancel/postpone Olympics over public health concerns. However, Brazil is making relentless efforts to ensure safety of athletes and spectators, and the government has given assurance that the virus will not affect visitors. The country is continuously wrestling against the virus by taking measures such as daily inspection of the Olympic site, spraying mosquito repellents, and eliminating mosquito breeding sites and stagnant water. Also, Brazilian government will temporarily waive visa requirements for citizens of the USA, Japan, Australia, and Canada for travel in 2016 (between June 1 and September 18) to entice visitors. All these efforts by the Brazilian authorities are a vivid illustration that amidst the dwindling economy and political instability, Olympics is the much needed lift for Brazil. Tourism is likely to account 10% of Brazil’s GDP in 2016 due to the Olympics, as compared with an average of 9% in previous years.

Regardless of efforts made by countries to curb the virus, travel alerts for LATAM and Caribbean region have already damaged the travel market and put the US$ 64 billion worth tourism industry at risk.

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Looking for Luxury Accommodation? It’s Time for Nigeria

Over the years, Nigeria has become Africa’s epicenter of economic growth and hub for investments in the hospitality sector. Nigeria’s hospitality market is the most developed in Africa, however, it is far from mature and still has an immense development potential — it is this trait that is constantly enticing international hoteliers to establish their presence across Nigeria. Leading hotel brands are forging ahead with ambitious growth strategies to fill the supply gap. Consequently, Nigeria is speeding its way to become Africa’s powerhouse with an estimated US$1.1 billion revenue from the hotel business by 2018 — gearing up to increase the number of hotel rooms from 8,400 in 2013 to 24,000 in 2018.

Disposable income is rising across the middle and high income consumers in Nigeria, which has kindled the desire for luxury accommodation and fine dining experiences. This growing demand, along with the constant government support and investments in the sector are driving the hotel industry in Nigeria.

The country is endowed with several tourist attractions that encourage international tourism, however, many of these places are still untapped and Nigeria also lacks modern infrastructure. Consequently, the hospitality industry is driven mainly by business customers and inbound travelers.

Slide1 - What Factors Are Driving the Hospitality Market in Nigeria

The number of hotels is higher in Nigeria’s political capital – Abuja, and the country’s commercial center – Lagos. Besides the prime locations, hoteliers can focus on the secondary markets, which have potential due to a high demand for quality accommodation as well as a growing influx of business and leisure travelers.

Slide2 - Which Nigerian Cities Can Be The Potential Upcoming Hotel Sites

Nigeria has several international hotel brands operating in the country while many others are devising strategies to enter the market. International hoteliers such as Fairmount, Marriott, Starwood, Sheraton, etc., have started expanding their businesses in Nigeria.

Slide3 - Hotel Development Projects in Pipeline

Other Upcoming Branded Hotels in Abuja and Lagos

EOS Perspective

Undoubtedly, Nigeria has become an hoteliers’ hotspot for investment and the yearning for luxury hospitality services among Nigerians is bolstering the market. Also, the government is endeavoring to support the tourism industry — in 2014, Nigerian Tourism Development Corporation (NTDC), developed an identity campaign titled ‘Fascinating Nigeria’. A website was launched to showcase Nigeria’s attractions and cultural highlights. The website also provides a list of quality and luxury accommodations across Nigeria. NTDC is planning to set up tourism desks at airports to attract visitors by giving out cultural festival calendars, accommodation brochures, etc.

Besides such efforts, hotel chains can focus to build accommodations to attract corporate customers, as the Nigerian hospitality market is currently dominated by business travelers. Hotels providing space to hold conferences, conventions, events, and business meetings are likely to be preferred by these travelers. Also, corporate discounts and tie-ups with business houses — including various airlines, as crew members are mostly accommodated in luxury hotels — are expected to yield high returns for hoteliers. Apart from business travelers, luxury properties are preferred by local communities (middle to high income consumers) for social gatherings. Hence, efforts to improve fine dining, lounging, and other services may lure customers.

It is definitely time for Nigeria as several prominent international hotel brands are battling for a slice of opportunity to enter or expand business in the rapidly growing hospitality market. Let’s see how many of them will sustain and succeed in the race to build luxury empires in Nigeria.

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2014 FIFA World Cup Brazil – A Squandered Opportunity


After 7 years of preparations, Brazil hosted the most expensive FIFA World Cup in 2014 at a cost that totaled billions of dollars. What is the associated outcome of spending huge sums on World Cup preparation? Did the investment leave any positive legacy for the country? What is the economic impact of hosting the World Cup on Brazil?

Investment and Associated Outcome

Investment in projects considered essential to hosting World Cup in 2014 varied across a range of sectors and had different impact on each of them. Around US$12.9 billion were invested in numerous projects focused on urban mobility, airports, stadiums, tourism, ports, telecommunication, and security between 2007 and 2013.

World Cup-related Investment By Sector, Brazil

Urban Mobility

Brazil has been struggling with overcrowded urban transportation systems for years. The insufficient public systems, paired with Brazilians’ growing financial capabilities, resulted in an increase in personal vehicles use, which in turn triggered chaotic and congested traffic conditions across Brazil’s major cities. 2014 World Cup investments planned in relation to urban mobility were expected to leave positive legacy for the country and to improve transportation systems in metropolitan cities easing traffic problems. But, several delays (caused by corruption, financing problems, etc.) were observed in execution of the planned urban mobility projects during 2007-2012, long before the event. Furthermore, as the World Cup neared, the government’s focus transferred to stadium construction works, as six out of the proposed twelve stadiums for 2014 World Cup still remained incomplete a year before the tournament. According to Responsibility Matrix 2013, investments dedicated to urban mobility projects were cut down to US$4 billion from US$6.6 billion anticipated in 2010. Some 21 of 53 projects planned in 2010 were discarded from the Matrix in 2013. Transformative advancements in transit infrastructure were expected to be the most beneficial outcome from hosting the mega sporting event. But with time, the priorities for government changed, and many of the ambitious projects never took off, as was the case with the proposed project for building high speed train linking Rio and Sao Paulo that was never executed.

Moreover, as the required urban mobility projects remained unfinished during the tournament, government declared holidays in schools and businesses on game days to ease traffic congestion. In June 2014, Sao Paulo State Federation of Commerce, a representative of 155 trade and business unions, estimated that the cost of lost productivity and overtime pay for businesses that remained inoperative during games would be around US$5 billion.

Furthermore, experts allege that these urban mobility projects were approved hastily without giving much thought to long-term benefits, which represents an intangible opportunity cost. For instance, some of the host cities, such as Sao Paulo, Manaus, Salvador, and Porto Alegre, were not allotted any investments in transport infrastructure. In most host cities, the mobility projects were limited to Bus Rapid Transit lines and there were no plans to invest in light rail, metro, or ferry lines.


An estimated investment of US$3.9 billion was designated to airports, out of which US$2.9 billion were contributed by private sources. These investments led to a noticeable improvement in airport infrastructure and facilities. An assessment report, published in July 2014, by President Dilma Rousseff and the Minister of Civil Aviation Moreira Franco indicated that around 16.7 million passengers used airport services in Brazil during the tournament. In addition, annual passenger capacity at airports increased by 52% over 2013 capacity level, reaching 67 million passengers per year. Between 2007 and 2014, aircraft yards were increased by 1,360 m², passenger terminals were increased by 350,000 m² and 54 new boarding gates as well as 10,300 parking slots were built. Modernized infrastructure and increased capacity will remain as positive legacy for the country.


Between 2007 and 2014, Brazil constructed five new stadiums, renovated five stadiums, and demolished and rebuilt two stadiums for 2014 World Cup. The estimated cost of construction and renovation of the proposed twelve stadiums for hosting 2014 World Cup game increased to US$3.5 billion, up from US$1.2 billion projected in 2007. Public opinion was outraged at these inflated costs, especially that they were paired with un-kept promises once given by the government representatives. After winning the bid to host the World Cup in October 2007, the former Sports Minister Orlando Silva promised, “There won’t be one cent of public money used to build stadiums”. However, according to Responsibility Matrix 2013, the contribution by private sources for building and refurbishing stadiums stood only at US$61.3 million, so majority of the costs were borne by federal investments and state and municipal governments. Another issue associated with the construction of large stadiums is its effect on urban real estate. Each newly built facility is spread across around 15 to 20 acres of urban land, making the space unavailable for any other, perhaps more productive, purposes. It is likely to also continue to negatively affect the real estate prices, especially, as urban land is scarce in Brazil.

Post 2014 World Cup, some cities, which received large stadiums built specifically for the tournament at capacities far exceeding local, every-day needs, are struggling to make these facilities economically viable. In particular, the stadiums built in Manaus, Natal, Cuiaba, and Brasilia appear to be under the fear of turning into ‘white elephants’. These cities have football teams playing in Brazil’s third-fourth division championships, which are not expected to attract the audience at volumes close to the stadiums’ capacities. Moreover, if government fails to find private sponsors for these stadiums, hefty maintenance costs will have to be paid from public funds. The newly built US$325 million stadium in Manaus alone is expected to demand US$3 million for annual maintenance.


In June 2013, mass protests were held across the country during Confederation Cup, a warm-up tournament organized by FIFA to test stadiums, transportation, and security before 2014 World Cup, to express frustration over exorbitant spending by government on World Cup while Brazil still struggled with below par standards of healthcare and education. The protests turned violent with police crackdown and arrests. Following the event, Brazil’s government became alert and tightened up the security measures for the 2014 World Cup to ensure safety of the visitors. 177,000 security personnel were deployed during the tournament and US$900 million were invested in security structures, equipment, and training. Such high spending on security might not have been required if the government had addressed the problems of the country’s citizens in time, or at least had exhibited more understanding attitude to these sensitive in nature social problems.


Around US$322 million were invested in ports. With more than 90% of trade in Brazil routed through ports in 2012, ports are an important medium for international trade in the country. However, the funds allotment for improvement of ports under the header of World Cup-related investment remained limited as the sector was not assumed to directly impact the event. Between 2007 and 2013, funds were mainly used for modernization of port terminals at Salvador, Fortaleza, and Natal.


During 2007-2013, around US$200 million were invested in improvement and expansion of telecommunication infrastructure in association with World Cup in Brazil. In order to connect the host stadiums and other official venues of the tournament, a 15,000 km long optical fiber network was installed that enabled to handle 166 terabytes of data during the World Cup. Furthermore, 15,012 mobile antennas were installed across the host cities. A report released post 2014 World Cup by SindiTelebrasil, a national union of telephone companies in Brazil, indicated that the telecommunication networks in the country were successful in handling large traffic volumes during the event. For instance, during the World Cup final match, held on July 13, 2014, between Germany and Argentina, the telecommunication networks managed high traffic volume of around to 2.6 million photos, which is equivalent 1,430 gigabytes of data.


Post 2014 World Cup, President Dilma Rousseff announced that one million foreign tourists visited the country and three million Brazilian tourists travelled around the country during the event. Around 3.4 million people bought tickets to attend matches at the stadiums. Fan Fests attracted another five million people. By mid-June 2014, a total of 340,000 daily hotel bookings were recorded.

According to data released by Brazil Central Bank in July 2014, international visitors spent US$797 million in Brazil in the month of June 2014. Higher revenues from spending by international tourists in Brazil and reduced foreign trips by Brazilians during 2014 World Cup contributed in improvement of international travel account of services trade, which posted a deficit of US$1.2 billion in June 2014, down 17.3% from June 2013, providing some cushion to current account deficit. Economists believe that current account deficit over 5% of gross domestic product may lead to currency crisis in Brazil involving difficulty in debt repayments and currency depreciation. The twelve-month current account deficit remained stable at 3.6% of gross domestic product in June 2014, at the same level as in August 2013, because of narrowed gap in international travel account of services trade.

A survey conducted by Getúlio Vargas Foundation (FGV) and the Foundation Institute of Economic Research (FIPE), conducted by interviewing 6,627 foreign visitors and 6,038 Brazilians during the World Cup indicated that about a million tourists from 203 different countries came to Brazil during the tournament. Foreign visitors stayed in the country for an average of 13 days and visited 378 Brazilian municipalities. Thus, the event offered an opportunity for the country to promote its less popular tourist destinations to a group of diverse visitors. Furthermore, the survey suggests that 95% of the visitors expressed the desire to revisit, which might indicate brighter days for tourism industry in the future, provided that these tourists actually come back.

A Rocky Road to the Event

A look into World Cup-related investment across these sectors reveals that there have been mixed repercussions of the event across social and economy spheres. However, on a broader level, the planning, preparation, and organization of the event were challenged by a range of problems, which led to lost opportunities or even negative outcomes, and questioned the overall benefit of organizing 2014 World Cup by Brazil.

Increased Costs and Delays

In 2007, Carlos Langoni, then Finance Director of the 2014 World Cup Local Organizing Committee and former President of the Brazil Central Bank, estimated the World Cup-related cost at US$6 billion. In January 2010, Sports Ministry revised the estimates to around US$11 billion. According to the Responsibility Matrix 2013, the estimated actual expenditure was US$13 billion.

The increase in costs is believed to be partially attributed to the rampant political corruption in Brazil. By analyzing Brazil’s electoral data and government audit reports from 2007 to 2013, The Associated Press reported many-fold increase in campaign contributions to the political parties by the construction firms that were awarded most World Cup projects. This is suspected to have been a form of a bribe to win Word Cup-related projects and later allowed these companies to make huge profits by indulging into unfair practices such as fraudulent billing, under-compensation to workers, etc. For instance, Andrade Gutierrez, a construction conglomerate that got large contracts associated with World Cup, increased its political contributions to US$37.1 million in 2012 from US$73,180 in 2008. Adding to the suspicion of possible political linkage of the construction firms involved in World Cup-related projects, in 2014, Contas Abertas, a watchdog group that scrutinizes Brazilian government budgets, alleged that some contracts were awarded directly to the chosen construction firms and were never made available for public bid. A government audit report on construction projects associated with World Cup, released in early 2014, highlights several instances of price-gouging and suspected misuse of financial linkages between the construction firms and government. For instance, Brasilia’s government failed to impose US$16 million fine on Andrade Gutierrez for a five-month delay in completion of the stadium in the city. However, no corruption charges have been filed yet on individuals or companies related to World Cup work.

Additionally, experts believe that the lacking capability of construction firms in project planning and management also contributed to rising costs and delays. Furthermore, in order to accelerate the construction work, ‘emergency’ contracts were awarded at a higher price to leading (and known to be influential) construction firms, waiving the normal contracts, which further led to inflated costs.

Overexploitation of Workers

Construction projects, especially the stadiums, which were left to last-minute completion, had adverse effect on the workers. Many workers were assigned twelve-hour shifts and were asked to give up holidays to finish the construction work in time for World Cup. Some workers reportedly lost their employment as they could no longer tolerate the stress and physical strain. Around eight workers died in accidents on construction sites and these accidents occurred mainly due to lack of safety measures and inhuman working conditions. Many workers that had migrated from rural parts of the country to urban areas in search of World Cup-related employment opportunities complained about poor working and living conditions and under-compensation. Between 2007 and 2014, workers in various parts of the country, supported by labor unions, went on strike demanding their basic rights. Strikes and accidents triggered further delay in construction work related to World Cup.

Projects Financing and Funds Clearance Issues

According to Responsibility Matrix 2013, 80% of the total investments in World Cup-related projects were financed through investments and funding from federal, state and municipal governments.

Source of Funds

A larger role from the private sector was anticipated in preparation for 2014 World Cup, particularly for the event-specific projects such as construction of stadiums, and the government was expected to contribute mainly as a facilitator for the event. As the actual contribution from private funding was limited, the strain was passed on to local government budgets. In 2010, on failure to attract private investments for building stadiums for World Cup, the National Bank for Economic and Social Development (BNDES) opened a credit line of US$2.7 billion for completion of the World Cup stadiums. After receiving requests from states for financing, BNDES took up to three months to analyze the proposals and consequently the stadium construction work was further delayed.

Furthermore, complex and time consuming procedures continued to cause delay in funds clearing. According to World Cup Transparency Portal, by March 2014, 89.9% project work had already been contracted out, but payments were done for only 51.2% of them. This was implying increased payments out of local governments’ pockets in the second quarter of 2014, which occurred at the expense of several high-importance sectors such as healthcare or education.

Roadblocks for Micro and Small Enterprise

Around 44,000 enterprises associated with Brazilian Service of Support for Micro and Small Enterprises (SEBRAE), a non-profit autonomous institution promoting competitiveness and sustainable development of micro and small enterprises, are estimated to have earned US$230 million in revenue from World Cup-generated business opportunities from 2007 to 2014, which indicates that several of them were able to take good advantage of the opportunities provided by the event. However, it appears that many small food and FIFA merchandise vendors could have benefited to a greater extent, if they were not deterred to capitalize on large demand generated in the close proximity of stadiums during World Cup by FIFA’s heavy fee of US$8,000 from any non-FIFA approved vendor who wished to operate in a 1.5 km radius of host stadiums. The question is whether such a considerable fee remains in proportion to small and micro vendors’ scale of operations, who after all distribute FIFA merchandize, contributing to the publicity success of the event.

Even the few selected street vendors (estimated at around 1,000) that were granted temporary licenses to sell FIFA sponsors’ goods in the FIFA prohibited zones during the World Cup were not much at advantage. FIFA sponsors were responsible for selecting, contracting, and training the vendors. Proven experience of the vendors in selling goods in the neighborhood was the main the criteria for selection. Vendors were provided with uniforms, authorization cards, as well as goods to sell. Vendors retained a fixed 30% share in revenue from goods sold during the event, which limited their ability to negotiate the profit margins. As these vendors were not allowed to sell goods from non-FIFA sponsors, they lost an opportunity of earning higher revenues by selling locally manufactured or self-produced goods.

Mass Eviction

Eviction of People from Host CitiesBetween 2007 and 2013, about 248,297 people were forced to leave their homes due to infrastructure work for the tournament. Social activists claimed that most of the designated areas for relocation were at far distances from former dwellings and were less developed. There have been complaints that the compensations offered by the government to people for relocation were unfair and insufficient.

For instance, in May 2014, AlJazeera reported that in Rio de Janerio compensation sums offered to people for relocation was half the value of their old house, while employment opportunities in relocated areas remain scarce. These people belong to most impoverished communities in Brazil and lack of work opportunities and inadequate compensation may further worsen their condition, which may also lead to increase in crime rate.

Tax Revenue Lost Opportunity

Brazil government was rather generous in giving out tax breaks in relation to various activities associated with 2014 World Cup, and this was considerable revenue lost for the budget. In 2010, the Ministry of Treasury announced tax breaks for the construction and renovation of the stadiums for World Cup. The entities involved in stadium works were granted exemption from Industrialized Products Tax, Importation Tax, or social contributions. In addition, the twelve host cities were granted exemption from State Value Added Tax on all operations involving merchandise and materials for construction or renovation of the stadiums. Furthermore, all expenditure by FIFA in Brazil for World Cup was exempted from taxation. While it is always expected that tax relieve and exemptions are given in such high-profile, national events, it remains doubtful whether Brazil could afford foregoing such tax revenue, especially in the face of many social, structural, and welfare problems eating away the country’s public system.


EOS Perspective

2014 World Cup is believed to have provided a boost to Brazil economy, but this push was not significant enough to upswing economy’s recently sluggish growth. The temporary rise in tourism associated with the event, can, to some extent, offset lowered production and disruptions in the country during the event. However, it is unlikely that gains from this short tournament will make up for the inflated and overrun costs, suspected political corruption, fraudulently spent or lost money, missed opportunities of diverting some of the funds to other sectors, or social damage caused by disregard for dwellers and workers, along with other social costs that follow these deficiencies in a ripple effect. World Cup-generated opportunities benefited mostly construction, hospitality, travel, and tourism sectors.

The improvements and modernization of infrastructure will leave positive legacy for the country, which is a positive outcome, however achieved at a great expense, arguably not comparable with the country’s current financial capabilities. As emotions cool down and more objective analyses are offered by various experts, it is more and more visible that the positive impact of the event on Brazil economy, its people, and businesses is rather short-lived. Over long term, it is likely that Brazil will end up being the loser of the 2014 FIFA World Cup. As the event-generated income sources slowly dry up, Brazil will be left with a huge bill to pay in its hand, one that will have to be settled over years to come.

by EOS Intelligence EOS Intelligence No Comments

Vietnam’s Macroeconomic Environment: FDI Paving the Way for Growth


2013 was the sixth consecutive year since Vietnam first witnessed macroeconomic instability. With high inflation levels, a collapse of the banking system, and relatively lower growth levels compared with its Asia-Pacific peers, the economy faced immense pressures. However, thanks to continuous efforts by the government to uplift the economy as well as the presence of several inherent benefits that Vietnam offers to foreign corporations, the economy has been resurging, largely on the back of soaring FDI.

Vietnam has faced several economic pressures since 2008, which resulted in high levels of inflation, stagnated growth, and a crumbling financial system primarily led by rising bad debts and loss of liquidity. This also brought a negative impact on the real estate sector and its periphery industries. Over the past few years, the country has struggled to find its ground and has undertaken several policy measures to instigate investor interests. In fact, the Vietnamese government is largely focusing on increasing FDI investment levels and exports as the key tools to pull its economy out of stagnation.

The government made substantial moves with regards to economic policies. These initiatives, which led to a boost in the country’s FDI in 2013, included:

  • Equitization of 573 state-owned enterprises (SOEs), wherein foreign investors are eligible to hold stake in SOEs with few conditions

  • Tax allowance that reduces corporate income tax from 25% to 22% from January 2014 and further to 20% in January 2016

  • The approval of a scheme to enhance FDI management in Vietnam

These efforts by the government appear to have started yielding results, as the registered FDI rose by 95.8% to US$13.1 billion during the first 10 months of 2013, and the disbursed FDI rose by 6.4% year-over-year to $9.6 billion for the first 10 months of the year.

In addition to these initiatives, the government has stepped up to strengthen the country’s banking sector since 2012. Over the past two years it has significantly reduced average lending rates, equitized four state-owned commercial banks, and set up Vietnam Asset Management Company, a state-owned company created solely to purchase bad debt from existing banks in order to clear their books. This company purchased bad loans worth about US$1.6 billion in 2013. In an effort to further speed up the restructuring of the banking system, the government announced that it would increase the allowed limit for foreign strategic investors to invest in a domestic financial institution from 15% to 20% in February 2014.


The government efforts to stimulate FDI have also been supplemented by the existence of several positive intrinsic factors that Vietnam boasts off. The country remains an attractive investment destination thanks to its abundance of natural resources and cheap labor availability (according to JETRO report, monthly pay for general workers in Vietnam is about 32% of levels in China, 43% of that in Malaysia and Thailand, and 62% of that in Indonesia). The country also offers a young and dynamic consumer base domestically, as well as favorable conditions and location to supply within the subcontinent. It also enjoys a stable political environment, a significant advantage over several of its neighbors.

The resurfacing of negotiation talks regarding Vietnam becoming a member of The Trans-Pacific Partnership (TPP) is also positive news for the export sector, which is expected to receive a significant boost with the signing of the agreement (especially in the area of garments, footwear, and wooden furniture). This will also ease investment inflow in Vietnam from other TPP members.

Backed by the aforementioned factors and a robust young population, several sectors in the country are registering a double digit growth and intensified attention from foreign investors.

  • Vietnam’s aviation sector, for instance, is expected to be the third-fastest growing sector globally with regards to international travel and freight, and the second-fastest with respect to domestic travel in 2014.

  • The electronics sector has also witnessed keen interest from foreign players. Nokia, a leading telecom handset player, opened its first factory in Vietnam in 2013. Samsung and LG have announced plans to build factories in the country primarily for export purposes.

  • Retail, consumer goods, and tourism are some of the other best performing sectors with strong growth potential in the near future.

  • Moreover, in anticipation of the TPP agreement, Wal-Mart is also exploring investment opportunities in Vietnam that would entail sourcing of several products, such as clothing and footwear, entertainment, home appliances, toys and seasonal goods.

It is clearly visible that Vietnam is on the right path of growth and expansion, nevertheless, there is still a long way to go. While the FDI levels rise, the government has to channelize this investment to develop support industries and high-quality workforce to sustain growth. Moreover, while Vietnam enjoys abundant natural resources and cheap labor that attracts FDI, these factors remain exhaustible, especially in the light of new investment hotspots (such as Myanmar) emerging. Therefore, in addition to just focusing on economic policies, Vietnam must work towards creating better investment climate to lure FDI. The country’s legal framework still presents several hurdles to foreign investment and the country ranks very poorly on the global corruption index (114 out of 177 countries). While it is almost certain that Vietnam will continue to see an inflow of foreign investments, it is to be seen if it can use this to achieve sustainable growth for its economy.