Why the World Cup isn’t all about foot­ball

Financial Mirror (Cyprus) - - FRONT PAGE -

Last week, as demon­stra­tions gath­ered pace across twelve Brazil­ian cities, just four weeks ahead of the foot­ball World Cup, Pres­i­dent Dilma Rouss­eff was quick to re­as­sure global eyes that “We are ca­pa­ble of putting on the Cup of cups.”

Will this rhetoric hold true? Will Rouss­eff be able to pro­vide the same strong re­as­sur­ance to the skep­ti­cal Brazil­ian pub­lic? As the coun­try’s Oc­to­ber elec­tions ap­proach, all eyes are watch­ing to see if she can calm the so­cial un­rest and liven the cur­rent eco­nomic fore­casts.

On paper, Brazil is an eco­nomic pow­er­house. It is the world’s fifth-largest coun­try both by land mass and pop­u­la­tion. It boasts huge off­shore oil re­serves, has the world’s sec­ond­largest iron ore re­serves and is the third-largest pro­ducer of corn. In re­al­ity, how­ever, its wealth dis­tri­bu­tion is highly un­even, leav­ing large parts of the coun­try af­fected by poverty and crime. In­vest­ments to im­prove the econ­omy’s ef­fi­ciency are be­low half that in China as a per­cent­age of the GDP.

When the foot­ball-lov­ing na­tion was named host in 2007, Brazil viewed the achieve­ment as recog­ni­tion of its ris­ing sta­tus and po­ten­tial. In­vestors jumped on the band­wagon, driv­ing the econ­omy’s com­modi­ties boom. Seven years later, how­ever, and Brazil has spent about $11 bln on host­ing the tour­na­ment, money which the pub­lic be­lieve could have been put to bet­ter use and helped to even the fi­nan­cial im­bal­ance.

In the years since 2007, the state-con­trolled oil gi­ant, Petro­bras, has lost around 60% of its mar­ket value. Since Rouss­eff came to power in 2011, the cur­rency has lost 28%. With ex­ports de­clin­ing, in Jan­uary, Brazil re­ported its worst trade gap since 1991. The govern­ment is un­der sig­nif­i­cant pres­sure to mod­ern­ize Brazil’s in­fra­struc­tures and im­prove its health care and ed­u­ca­tion sys­tems.

Al­though the govern­ment pre­vi­ously jus­ti­fied the World Cup with es­ti­mates of 600,000 for­eign tourists and prom­ises to in­vest in the air­ports and pub­lic trans­port, ho­tels are not fully booked and many of the in­fras­truc­tural de­vel­op­ments have not yet been com­pleted. Ac­cord­ing to the me­dian of 116 econ­o­mists’ es­ti­mates last week, the tour­na­ment will likely add 0.2% to Brazil’s eco­nomic growth this year. It’s some­thing, but it cer­tainly won’t be suf­fi­cient to lift the South Amer­i­can coun­try out of its long slump.

In the longer-term, the World Cup should have a pos­i­tive im­pact on Brazil’s rep­u­ta­tion for busi­ness, in­vest­ment, and tourism. How­ever, this im­pact could be re­duced by the so­cial un­rest and gang threats to tourists. The govern­ment will have to do all in its power to pre­vent an es­ca­la­tion of vi­o­lence, such as po­lice bru­tal­i­ties or pub­lic fa­tal­i­ties, as oc­curred in the protests against ris­ing pub­lic trans­port costs last June, which made me­dia head­lines glob­ally and drove Rouss­eff’s pop­u­lar­ity at home to an all-time low.

Once the month long event

starts, the foot­ball

it­self

will likely dom­i­nate news­pa­per head­lines world­wide and leave a pos­i­tive im­pres­sion over­seas. But will im­proved for­eign re­la­tions do enough to change the na­tional sen­ti­ment and boost the un­set­tled econ­omy? Per­haps in fu­ture, po­ten­tial hosts should bet­ter con­sider the cost of such great sport­ing ex­penses along with the per­ceived re­wards.

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