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The Gloomy Post-Olympic Scenario for Brazil

by EOS Intelligence

The Gloomy Post-Olympic Scenario for Brazil

by EOS Intelligence

by EOS Intelligence
352views

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.

1-Cost

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.


2-Impact

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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