The Stadium Hangover: Did Brazil’s World Cup Investment Pay Off

Did hosting the World Cup in 2014 actually help Brazil, and where is their economy now?

Dan Irvine

Brazil is a country with a strong culture, many world class footballers and poor governance. Ten years after hosting the world cup, we will examine whether this has had a positive impact on economic outcomes. Hosting the 2014 World Cup is yet to suggest positive returns for the wider Brazilian economy. 

Robert Baade introduced a number of explanations why hosting sporting events doesn’t actually make you rich. Leakages depict the false narrative that building these stadiums can allow for ‘trickle down effects’. The truth is, many Brazilians were shunted from their homes to allow these vast stadiums to be built. Now, these stadiums are falling into disrepair. The cost to maintain these stadiums is extortionate and inefficient as 50,000 capacity stadiums used for the World Cup are being used for fourth tier Brazilian stadiums now. Furthermore, the term ‘crowding out’ was used to describe the existing demand in the economy regardless of the sporting event. In this case, there was actually a net negative for demand statistics released by the Brazilian government. $1.6bn was spent during the world cup, but $4.4bn was spent abroad during this period. For Brazilians that don’t like football (I know, there can’t be many), escaping the mania was in the forefront of their mind. It is estimated that income from tourists accounted for 2.5% of the total cost of hosting the World Cup. 

Corruption has been a major factor in the slowdown of Brazil’s economy. In Brazil, there is social unrest from the exorbitant sum spent on the world cup and the Rio Olympics two years after. It is estimated that the cost of hosting these sporting events would have alleviated absolute poverty for 50 million people. Brazil’s export driven economy in the late 90’s and early 2000’s made it look more developed than it actually was. The political mismanagement and corruption made very little change to the real economy. 2015 brought about the largest corruption scandal in history. $2.1bn of public funds was mismanaged. All of this greed compounded over the years since 2005, which is when the first investigation started, to the point now where Brazil’s reputation on the global stage is severely undermined. This does make it less attractive for international businesses to set up shop in the country. It effectively cuts off investment into the country, which could allow for major innovation and help Brazil develop alongside its BRICS counterparts. Until Brazil can rebuild faith in the political system and in public officials, it will continue its decline. The uncovering of operation car wash coincided with a drop in commodity prices, further exacerbating the downwards trend of the Brazilian economy. It goes to show that being dependent on primary resource extraction is very volatile, and for the health of the wider economy, it is extremely risky. Barry Eichengreen suggests a way for countries to escape the middle income trap. Innovation in key industries. Brazil’s labour force has been subject to massive brain drain, with the political unrest giving an excuse to move elsewhere. Without skilled labour, this process becomes that much harder.

Brazil’s geography is problematic to say the least. The amazon rainforest makes it very hard to transport goods across Brazil, and as their economy is reliant on primary resources, such as oil, sugar, soybeans and iron, this decreases the global competitiveness of exports. To ship goods to Asia, which has been and is a very strong export partner for Brazil, either goods must go through the Drake passage or through the Panama canal. This added difficulty does mean Brazilian exports are less attractive. China was a prominent export partner during the 2008 global financial crisis, where China implemented massive stimulus programmes and undertook large infrastructure projects. This was made possible by countries such as Brazil, Canada and Australia, who exported vast amounts of construction materials. Now that demand from China has cooled due to internal issues, Brazil does find itself in a precarious situation. The added complexity of the effects of Dutch disease, where the only viable industry becomes oil. Alongside political mismanagement, speculation has already started that Brazil could end up like Venezuela. There is significant downward pressure on the Brazilian real, which does help an export driven economy. 

Although Brazil has been painted to have a bleak future, it doesn’t have to be this way. A massive restructuring of the political system must take place, so that international business can be opened up and Brazil can develop and engage in higher value adding exports to drive sustainable growth.