Brazil’s Golden Age–or Parade of White Elephants?

Brazil’s Golden Age–or Parade of White Elephants?

by COHA Research Associate Augustus Urschel
May 19, 2011

The 2014 World Cup and 2016 Olympics

Winning the 2014 World Cup and 2016 Summer Olympic bids continues to have both intended and unexpected consequences for this year’s miracle country. On November 28, 2010, Brazilian police and soldiers seized the Complexo do Alemão, a large favela in the Northern Zone of Rio, from drug lords. This may have marked a decisive turning point when it comes to safety and stability in the sprawling favela. With the drug lords displaced, Rio officials installed “Pacification Police Units”—or UPPs—which act as permanent military police centers for the city’s numerous favelas. Months after control had been wrested from drug paramilitary groups, citizens felt safer and far more content with the new UPPs, which should prevent the criminal lords from easily returning. The action was one of the more substantial public relations steps in Brazil’s recent efforts to prepare for its upcoming world spotlight.

A part of Brazil’s national effort to prepare for the World Cup and Olympics includes preparing for the safety and success of the anticipated tourist flood. Brazilian President Dilma Rousseff signified that the UPPs would be a semi-permanent installation through the completion of the Olympics.1 Although the purge was not necessarily altruistic in nature, Rio’s citizens—who viewed this intervention as long overdue—are better off now that the region’s organized crime is at bay.2 Yet this dedicated military effort to stabilize the region is the least of Brazil’s worries, with taller hurdles likely to be encountered ahead.

Brazil is undergoing multiple renovations and massive construction projects to prepare for both the World Cup and Olympic games. Brazil has made plans to expand and modernize its airports, improve its congested transportation infrastructure, remodel entire city districts, and construct a series of massive stadiums to prepare for an influx of international tourism. While Brazil’s ambitious Olympic and World Cup projects could be a source of enormous national pride, the reality is that these projects are well behind schedule, with many of them struggling to even get off the ground.

A report from the Brazilian Audit Court, which directly watches over the government’s use of its funds, has accused nearly all of the projects of being mishandled.3 The report stated that there was a “very great risk” of misusing public funds, and raised concern over the lack of transparency in many of the renovation projects. The court is concerned that some of the most important initiatives, such as airline improvements, will not be ready by 2014.4 For example, officials have only just had a stadium project approved by FIFA for the city of São Paulo, which is scheduled to host the opening match of the 2014 World Cup. The project was only approved on March 1, and FIFA did not guarantee, given the delays, that the stadium would be able to host the opening match.5 Even as far back as May 2010, FIFA spokesman Jérôme Valcke commented that, “It is incredible how behind Brazil is, many deadlines have gone by and nothing has happened. Brazil is not on the right track.”6 Most of these projects still run the risk of being caught up in the bidding process among private contractors, bogged down by cost overruns, or further slowed by conflicting policy objectives stemming from the Brazilian government.

If Brazilian officials do manage to avoid the major hazards presented by these massive public projects, the planned infrastructural improvements of city districts, airports, and transportation routes will likely be a huge benefit to the Brazilian economy. Some of these projects, such as airport upgrades, were desperately needed because of Brazil’s rapidly growing economy.7 While many of the projects planned for the 2014 and 2016 events have practical and immediate value, a number are in danger of quickly becoming “white elephant” projects that will cost Brazilian taxpayers much more than what the events are intrinsically worth. Economist and stadium management specialist Ricardo Araújo says that the 12 stadiums to be built are planned politically, not economically. “The big risk is about us, about Brazil, about white elephants and about several billions being poured down the drain on stadiums that will never be used after the World Cup.” Some of these stadiums are being built in cities with excellent infrastructure, but no strong local soccer teams. These event-only projects run the risk of becoming unused and costly to maintain after the World Cup and Olympics are over.8

From an economic point of view, Brazil’s mismanagement of these projects could lead to financial ruin. The Brazilian government already has pledged USD 11 billion for the World Cup alone, and it is unclear how much more will be needed to be spent to prepare for the Olympics.9 It remains ambiguous whether the games will even benefit Brazil. For instance, according to Canadian economist Darren McHugh, the aggregate cost of the 2010 Vancouver Winter Games was USD 1.15 billion, while the aggregate benefit from the entire event, which even includes post-Olympic tourism increases and other “soft” economic considerations, was only USD 1.08 billion.10 McHugh estimates that the2010 Winter Olympics were a net loss, even though the overall Olympic project itself was thoroughly well planned and managed. Considering that Brazil has pledged to spend ten times as much on event projects already—and that these projects are suffering from financial mismanagement—Brazil is in danger of losing a shocking amount of taxpayer funds on a spectacle with few long term benefits.

However, the World Cup and Olympics are not in any danger of being moved to another host country. The country should still be able to host the events, but delays in infrastructural improvements could cause chaos when the first World Cup tourists arrive en masse. Not only would this be a national embarrassment, but it could even prove to be dangerous if cities lack the infrastructure to accommodate the expected number of tourists. Even if Brazilian officials manage to streamline the projects and finish construction on time, it is still uncertain if these games will have a positive impact on Brazil. Although hosting both the World Cup and the Olympics are a huge point of national pride, the growing country arguably could have been better off not hosting the games. Instead, pouring funds into more beneficial projects such as improving living conditions or investing in the favelas and Amazon communities may have involved a better allocation of resources. The decision to host both mega-events consecutively, using the same planned infrastructural improvements, was a bold and cost-efficient move by Brazilian authorities. Nonetheless, some of the current projects —especially those concerning a number of the World Cup stadiums—are in danger of becoming financial black holes afterward. When the 2016 Olympics are finally over, many question whether the stadiums will be utilized in any profitable capacity after the fact. In cities with citizens who are less-than-avid soccer fans, these modern stadiums could very well turn out to be huge drains on local treasuries.

While the net fiscal effects of the World Cup and Olympics are yet to be seen, Brazil is off to an ambitious, yet troubling launch of two renowned international events. While it was clearly the intent of the Brazilian government to slingshot the country into an infrastructural golden age, any net benefits to the Brazilian taxpayer remain questionable, maybe even negligible. The expulsion of Rio’s drug lords and the planned infrastructural improvements will no doubt have some positive effects on many Brazilian citizens, at least in the short run. However, the timing of these efforts suggests that Brazilian initiatives could be pursued for the wrong reasons.

One has to wonder whether the event funds would have been better spent investing in or improving upon living conditions in one or more of Brazil’s notoriously impoverished regions. The question as to why Brazil waited so long before uprooting the favela crime gangs is a question that should be kept in mind. While the events leading up to the expulsion could be later used to justify military action, it is far more plausible that Brazil disturbed the status quo because of the perceived threat to the success of the events. Regardless, general improvements to the fundamental conditions and well-being of Brazilian citizens should consistently be at the forefront of government policy, not shaped by any temporary media spotlight. While Brazil should be rightfully proud of its ambitious advancements, its leadership should remember that good domestic governance is more than conforming to international expectations.

ENDS

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