Long before the first samba dancer stepped out at the opening ceremony Brazil’s Olympic Games had already been heavily criticised by the international media. The Zika virus kept athletes and spectators away, shoddy accommodation and sporting facilities were a terrible advert for the country’s workmanship, while the state of Rio de Janeiro needed to be bailed out by the federal government. More generally, there was a sense of bad timing as the games, which had been planned in the middle of Brazil’s economic boom, arrived amidst a severe recession.
With an estimated cost of $4.6billion, Rio’s Olympics will be far cheaper than London or Beijing, yet it is an unwelcome burden when the economy is due to contract by 3% this year and the government is facing a ballooning fiscal deficit – especially when it is coming in $1.5billion over budget. But one of the constant arguments wheeled out in defence of the Games is that this investment has a multiplier effect, creating extra growth through tourist spend and infrastructure construction. Unfortunately, in Brazil’s case, the positive impact looks to be limited.
“With an estimated cost of $4.6billion, Rio’s Olympics will be far cheaper than London or Beijing…”
When it comes to tourist spend, London-based consultancy, Capital Economics, believes that Brazil’s economy is simply too big to be significantly moved by a one-off event. “The 2014 World Cup led to a rise in spending in some retail sectors but this wasn’t enough to prevent the economy from contracting in annual terms in the same quarter.” Anywhere between 350,000 to 500,0000 tourists will visit the country for the Olympics but “assuming that these visitors spend the same amount on their trip as the average tourist visiting Brazil, this boost in revenue would be equivalent to just 0.03% of GDP.”
As for infrastructure, again there will be some positive impact but again it will be limited. Prior to the games there was a surge of investment as Brazil raced to complete key Olympic infrastructure commitments, such as metro extensions. The improvements to the transport infrastructure will continue delivering benefits after the games however, Capital Economics notes that “the capital budget for the games is small in the bigger scheme of things (0.03% of GDP). This isn’t going to plug Brazil’s (national) infrastructure deficit, which is needed to raise its perilously low productivity growth.”
But it is not all bad. Brazil’s recession has shown signs of bottoming out as the effects of the weaker real are finally being felt by exports and industry. The IMF expects the economy to return to positive territory next year with annual growth of 0.5%. It’s a long way from the heady expansion of 5.2% when Rio first submitted its Olympic bid in 2008, but nonetheless it is light at the end of the tunnel for a struggling economy.