Ethiopian Business Review

Contentious Economic Pay Backs of the Game: Why Poor Brazilians Oppose the World Cup?

The 20th FIFA World Cup has kicked off on 12th of June at Arena de Sao Paulo, in Sao Paulo, Brazil’s biggest city, with a flamboyant opening ceremony and a game between the host nation and Croatia. Thirty two nations, including five from Africa, will battle for the championship trophy. But rather than the ecstasy of the game, the riots and demonstrations in several host cities and the cost benefit analysis of hosting the game have attracted the more media attentions than the game itself.

Why Host the World Cup?

Countries often compete fiercely to host the quadrennial tournament, the highest competition in the world football competitions –- the FIFA World Cup finals.  It is seen by many as an opportunity of sporting prestige and national pride to stage the World Cup, and even more so to win the trophy. Apart from national prestige and the festive atmosphere created among citizens of the host nation, hosting the FIFA World Cup brings economic benefit to the host nations.

There are conventional arguments that hosting the FIFA World Cup will immediately raise global profile of a country resulting in increased tourism and political benefits and alliances accrue over many years. It serves as promotion for the host nation and cities, showcasing them as places to invest, visit and live. Large gains in temporary employment during the preparation process also boost economic growth.

Yet, there are counter arguments that dismiss the above benefits. Explanations about the net economic impact arising from a boost to aggregate demand in relation to the huge investment costs incurred by the host nation is often negligible or at times negative. 

In fact there is a large, growing and divided literature analysing whether or not hosting big international sporting tournaments like the World Cup, or even the Olympics, actually conveys any concrete net economic benefits to the host country at all.

One cause for this controversy is that economic impact studies tend to be upwardly biased since; in general, the studies are commissioned before the event by promoters anxious to claim that investments—usually from the public purse—have been well spent, according to a research by Stefan Szymanski (PhD), sport management and economics researcher at the University of Michigan. “There is little occasion to go back after the event and try to establish whether the claimed benefits are actually materialized or not”, he concludes.

Cost Benefit Analysis 

Brazil has planned to earn more than eleven billion dollar in revenue from the 2014 FIFA World Cup, more than 20 times what South Africa earned for the previous World Cup in 2010. The Brazilian Institute of Tourism estimated that around 600,000 tourists will visit the country and that they will spend approximately USD2.6 billion, while the 3 million Brazilians estimated to attend will spend about USD7.9 billion. 

Recent records of the tournament however don’t support the Brazilians dream. South Africa’s World Cup for example did not turn out to be the economic success it was predicted to be, with only 309,554 people arriving to see the event out of the estimated 450,000 visitors. The African nation made USD513 million. South Africa is the best example in recent years of the “World Cup effect,” in which host countries are more harmed economically from hosting the event. The country, which was ecstatic to host its first World Cup in Africa, estimated revenues of USD900 million and ended up making about 60Pct of that. By the end of 2010, South Africa had made back only 11Pct of the USD4.5 billion investment it made to build and renovate stadiums and infrastructure.

While prior to the tournament studies almost all show a positive economic impact, ex post macroeconomic studies show hosting the World Cup has little or no economic impact. 

The 1994 World Cup Organizing Committee predicted before the event that as many as one million visitors would travel to the United States as a result of the tournament, and the economic impact would conservatively exceed USD4 billion. A research by well known economists however estimated that the average host city experienced a reduction in income of USD712 million in that particular year and that in aggregate the World Cup had an overall negative impact on the U.S. economy of USD9.3 billion. 

The 2002 World Cup, hosted jointly by Japan and Korea was estimated to bring 0.6Pct GDP growth to Japan and 2.2Pct to Korea. With combined cost of stadium construction worth USD6.05 billion in Japan and USD3.3 billion in Korea, the economic impact was much less than estimated. About nine billion dollar to Japan, equivalent to around 0.2Pct of GDP and USD4.85 billion to Korea, or around 1.2Pct of the GDP.

White Elephants

There has been wide and public speculation that the government of Brazil is paying off political favors through the World Cup. From the 12 cities selected to host the world cup four of them (Manaus, Brasilia, Cuiabá, Natal) do not have teams competing in any of Brazil’s top three divisions. The Estadio Nacional Mane Garrincha, in Brazilia, which can accommodate 70,000 people, is one of 12 stadiums prepared for the tournament. No club from Brasilia plays in the two divisions of the Brazilian national league. Even what passes for the local powerhouse, Brasilia Futebol Clube, plays only in the local state league, in which the average game draws fewer than 1,000 fans. The question here is what will happen to these stadiums when the World Cup ends? 

How can the government justify building these World Cup stadiums, which will cost average of half a billion dollar each, with yearly maintenance costs upwards of three million dollar. It’s such issue that brought Brazilians onto the streets this past June, demonstrating against their country’s hosting of the World Cup and the Rio Olympics of 2016. The Stadiums are just white elephants in their midst for the coming decades–much like the situation that South Africa is currently dealing after the World Cup hangover.

In Rio de Janeiro, less than 20Pct of public schools have recreation areas, yet the Maracanã will undergo an estimated USD600 million reform. Is this another classic case of public risk for private profit, or are there going to be real benefits accruing to the cities and citizens of Brazil long after the last 2014 World Cup game? The problems inherent in hosting a World Cup in Brazil are as immense as the country itself, the Telegraph has once written.

Too Much Cost and Area of Priority- People’s Anger

Renovating old stadiums and building new ones cost Brazil USD3.6 billion. Several of the new stadiums will seldom be used after the World Cup. The same fate will face Brasilia’s World Cup stadium, which was built at a cost of USD900 million. This is beyond the additional USD7 billion bill for infrastructure. The close to USD11 billion expense Brazil incurred is more than double South Africa had incurred to host the previous World cup. This is why unemployed, neglected and mistreated Brazilians are seriously opposing the game. 

Brazil is still a developing country with many inequalities and high levels of poverty. And when you see brand-new stadiums popping up in a Sao Paulo suburb at the cost of millions, and around there are squatter camps full of people saying they cannot afford to live, one can see where the conflict comes from.

2nd Year . July 2014 . No.16

Berihun Mekonnen

EBR Staff Writter

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