Brazilin Crisis

Brazil, international sporting events, and emerging economies

Overview

Background on Brazil

Environment and Economics in Brazil

Olympic Economics

Other Countries post-Olympics

Brazil

Overview: Brazil and the World Cup & Olympics

When the International Olympic Committee awarded Rio de Janerio the 2016 Olympics, the Brazilian economy was booming at 4-6% GDP growth per year.

BUT…From 2011-2014, Brazil has had one of the weakest recoveries to the 2009 financial crisis, having an average GDP growth rate of 1.2%/year.

Changes in Brazilian Economy and Society

• Low GDP growth rates• Corruption • Rise of Brazilian Middle Class• Wealth

• Decreased inequality, reduced poverty rate

• Power and Influence• Concern for their rights

• As Marcia Regina, 55, a teacher from Rio's working-class north side told the Guardian, "I can't stand being in a country where I have to pay such high taxes to get nothing whatsoever in return," she said. "In our health system, we are treated like wild animals. In terms of public safety, we are just treated as statistics. Don't even talk to me about education. They think we are all stupid.“ (CNBC, August 17, 2015)

Brazilian Economic Effects on EnvironmentGuanabara Bay in Rio de Janerio, where the Olympic Sailing Trials and Competitions will take place in 2016.

Brazil: Economics = Environment• Current Challenges for Brazil’s environment:

• Detrimental Droughts• Deforestation (especially in the Amazon)• Water Shortages

• “Half of the Brazilian population does not have sewage collection, said Édíson Carlos, president of Trata Brasil, a nonprofit organization of sanitation companies that listed sanitation problems in the bay in a 2014 report.” (Washington Post, May 15, 2015)

• Water Pollution • Ineffective Sewage control in major cities like Rio and San Paulo

• Causal Relationships: • 75% of Brazil’s energy comes from hydroelectricity• Scientific studies have linked deforestation in the Amazon to massive droughts in

Southern Brazil

Guanabara Bay

• Brazil is significantly behind schedule in cleaning up the overly polluted Guanabara Bay for the Olympics. • In its hosting application, Brazil promised to have 80% of the bay cleaned in time for the

games; however, a year away, only one of eight water treatment plants have been built.

• Causes: • Ineffective sewer treatment• Lack of industry control on oil production• In its hosting application, Brazil promised to have 80% of the bay cleaned in

time for the games; however, a year away, only one of eight water treatment plants have been built.

• http://www.bbc.com/news/world-latin-america-33838578

Brazilian Gov’t Responses• “Officials have admitted that a target to treat 80 percent of the sewage

flowing into Guanabara Bay by 2016 will not be met, and garbage-picking “eco-boats” have been suspended pending new bids for the contract.” (Washington Post, May 15, 2015)• Using “eco-barriers” and chemical agents to clean up and decrease the

toxicity of Guanabara Bay. • Brazilian TV reported that 8,200 liters of sewage reaches the bay per second

and 100 tons of garbage a day. Rio’s state-controlled water and sanitation company, CEDAE, said it had more than tripled the amount of treated sewage reaching the bay. In the next three years, that number will reach 16,000 liters a second. From 2009 to 2016, the company will have spent $668 million on sewage treatment in the bay.

Discussion ?s

• How to companies and federal governments evaluate the negative externalities of pollution at the expense of “higher” economic output/productivity?

RIO OLYMPICS 2016

Cost/Benefit Analysis

• Lessons from the 2014 World Cup• Brazil spent more than $11 billion on hosting the 2014 FIFA World Cup

• However, the revenues were not nearly as big as hoped; according to the Borgen Project, “The World Cup did little to boost the economy and the jump in tourism the government was anticipating was not as significant as expected.”

• Brazil needed to build 12 new stadiums and completely re-do their transportation infrastructure

• But the World Cup only brings in around $3.5 billion in revenue, most of which goes to FIFA.

• “Overheating the Economy”-Economic theory with rising inflation

What you need to host the Olympics

• IOC has been putting more emphasis recently on new infrastructure

• Challenges: Trying to find low-cost, high-quality construction

• Infrastructure Demands• 12 new sporting event stadiums/areas

• Olympic Village

• New Train/Highway construction to connect Olympic areas

• Airport reconstruction for the 3 airports in the Rio area

• Hotel and accommodations to host hundreds of thousands of tourists and sports fans

Is it worth it to host the Olympics?

• Articles to look at: • “Does Hosting the Olympics actually pay off?” New York Times Magazine,

August 5, 2014.

• “Just Say No.” The Economist, February 28, 2015.

• Lessons from other countries• Spending and Revenue: While the London Olympics in 2012 cost $10.4

billion, London only received $5.2 billion in revenue.

• Unused infrastructure and economic losses

• Montreal in 1974 (loss of CAN$990 million), Sydney in 2000 (loss of US$2.1 billion), Athens in 2004 (US$14-15 billion)

• Positive models: Barcelona in 1993: continued use of athletic facilities, made an economic profit of US$10 million.

Challenge: Revenues

One of the biggest complaints about hosting the Olympics and World Cup is that the majority of revenues generated from the events goes to the IOC/FIFA. In the case of the 2012 London Olympics, the IOC pocketed almost 70% of broadcast revenues.

Recommendations for future Olympics/World Cups

Prof. Andrew Zimbalist of Smith College, in his new book Circus Maximus: The Economic Gamble Behind Hosting the Olympics and the World Cup, provides some recommendations for future Olympic and World Cup events:

1. IOC and FIFA should abandon their preference for new construction; put emphasis on usage of existing facilities

2. Limit the number of cities bidding

3. Adjust splitting of TV revenues to favor host nations

4. Increase transparency among national committees and the IOC

Discussion Questions:

• Is it worth it to host the Olympics? What is Brazil gaining and losing?

• Should the Brazilian government be prioritizing their resources in different ways?

• Based on what we’ve heard today, do you think Brazil will be able to successfully host the Olympics come Summer of 2016?

• What do you believe are the major obstacles Brazil must overcome before the Olympics?