Brazil’s Big Party: Getting Ready For World Cup

When the first match of the World Cup kicks off June 12 in Sao Paulo, the international spotlight will shine brightly on Latin America’s largest economy. Hoping to make a favorable impression, Brazil has poured an estimated $18 billion into the games amid hopes that the event will boost foreign investment, tourism and exports. But the toughest audience to please—and the one whose opinion matters most when it comes to GDP growth—is Brazilians themselves. What happens leading up to and during the month of the World Cup games is a wild card that will substantially impact the country’s economic performance, perhaps for years to come. The uncertainty is putting citizens and investors on edge.

Social unrest is a big concern. Brazilians’ frustration with social services has mixed with anger surrounding spending on the World Cup. In early February, a protest against bus fare hikes in Rio de Janeiro turned violent when police tried to disperse crowds with tear gas. A local cameraman was seriously injured in the confrontation and subsequently died. The incident came on the heels of last year’s mass protests in the urban centers of Sao Paulo and Rio de Janeiro, during which residents of the two cities rallied to the cry of “Não vai ter Copa!” (“There will be no World Cup!”)

This year, politicians were caught off guard by a series of protest “walks” through Sao Paulo’s shopping malls, convening thousands of adolescents in venues wealthy Brazilians have long viewed as a safe refuge from the streets. Sepp Blatter, the president of FIFA, the football association that oversees the games, said he expects the number of rallies to spike in June and July, as Brazilians condemn the government for pumping money into the World Cup while underfunded public services languish. One cartoon making the rounds on Facebook in Brazil shows workers laying out a green football field on top of schools, hospitals, buses and politicians in a bid to pave over Brazil’s underlying problems.

“One concern is that the demonstrations have been specifically tied to the cost of the World Cup, which means they are likely to ramp up as we get closer to the event,” says James Lockhart Smith, head of Latin America for the research firm Maplecroft, which specializes in analyzing global risk. “There’s no doubt in my mind that certain groups will stage protests once the games get under way.”

Although the protests are likely to continue, it’s too early to predict how much disruption they will cause. Also unknown is how the unrest will affect President Dilma Rousseff’s bid for re-election this year; if Rousseff’s Labor Party maintains power, it will please a business community that prefers stability to surprises. And any violence could quickly sour the mood of an electorate already unnerved by the country’s notorious safety concerns.

Another potential headache is transportation problems. “Just getting visitors from the airport into the city centers of Sao Paulo, Rio and Salvador could be a nightmare,” says Irene Mia, Latin American analyst with the Economist Intelligence Unit. Politicians have acknowledged that many of the planned improvements in public transit will not be ready before the games. In Salvador and Natal, officials are toying with the idea of setting up temporary airport facilities that would be dismantled after the World Cup. “Even under normal conditions Guarulhos (Sao Paulo’s international airport) is complete chaos,” says Maria Sampaio, who lives in the U.S. and just returned from a trip visiting family in Brazil. “Coming back, our flight was delayed for several hours for no reason other than the fact that the airport was just unable to process the number of travelers that were there. I can’t even imagine what it will be like during the World Cup.”

Traffic jams in the country’s largest cities, Sao Paulo and Rio de Janeiro, could inflame residents and tourists alike. In this case, Brazilians’ pessimism may help keep the games running smoothly by pushing motorists off the road or even out of town. “Global competition, whether it’s football and the World Cup, or the Olympics, always raises problems concerning costs, infrastructure, transportation and the success of the venues,” says Jed Hughes, Vice Chairman, Global Sector Leader, Sports, at Korn Ferry in New York. “The challenges Brazil faces in the World Cup and Summer Olympics will be the same. If they do it well, it will shine a bright, positive light on the country and its people.”

“Most people I know are looking for a way to get out of Sao Paulo during the time of the World Cup,” said Paula Astiz, a graphic designer and small business owner in the city. A study of 20 leading corporations, led by the business school Fundação Dom Cabral, found that all planned to suspend business travel from mid-June to mid-July. Cautious sentiments like these are a mixed bag, however, for the economy. Although the absence of Brazilians would ease pressure on the country’s infrastructure, it would also mean fewer customers for retail stores and restaurants.  Paulo Motta, head of a retailers union in Salvador, says the revenues of big stores plummeted by 40 percent when the city hosted the Confederations Cup last year. While consumer demand could accelerate once the games are over, it’s unclear whether that will entirely make up for lost business.

The World Cup’s impact on domestic productivity is also a concern. Worker training received a boost as many Brazilians took it upon themselves to improve their language skills—particularly in English—in preparation for the games. However, productivity is expected to suffer during the games. It is unlikely that much business will get done while Brazilians crowd around television screens to root for their home team. On top of this, a late Carnival season, coupled with Brazilians’ tendency to emendar, or lengthen, holiday downtime, is setting many businesses up for a slow year. Sao Paulo-based investment bank Gradual Investimentos forecasts World Cup distractions could take as much as 0.3 percent off GDP growth this year.

The long-term value of infrastructure improvements is also in question. FIFA has voiced frustration that half of the stadiums slated to serve as venues for the games were not ready by the end of 2013. Even if they are completed in time—as is likely—some fear that they will quickly turn into white elephants that serve little post-Cup purpose. The stadium in Manaus, in particular, has been singled out as ill-advised investment, since the city has little football tradition.

A key question is the impact of the World Cup on GDP. According to an analysis by Fidelity Investments, GDP growth tends to accelerate a couple of years before a country hosts a global sporting event, but “tapers off considerably afterward.” In the case of Brazil, the acceleration proved especially short-lived. GDP growth peaked early at 7.5 percent in 2010, but since then has dipped to just above 2 percent annually. Some observers worry that the additional debt Brazil has taken on to finance preparations for the two mega sporting events may be a burden for the country going forward. The picture is further muddled by spending for the 2016 Olympics in Rio de Janeiro, which will cost the government an additional $15 billion. Preparations for that Olympics will add economic stimulus, but will also increase the country’s debt.

The fear that a traffic jam or violence during the World Cup games could have a disproportionate effect on the country’s GDP has unnerved many observers. But not everyone is pessimistic. Brazilians have a reputation for pulling things together at the last minute, and many people expect the country to live up to that reputation. David Sonter, mergers and acquisitions partner and head of the Brazil group at the international law firm Freshfields Bruckhaus Deringer, witnessed the pessimism surrounding the London Olympics yield to enthusiasm and success once the event got under way. “Everyone said that London transportation would be a mess, and Londoners would be too grumpy, but a couple weeks ahead everyone got excited and it turned out to be a big success,” he said. “When the World Cup begins in Brazil, there will be sporting superstars, dancers and music, and the sun will be shining and people will see it as a positive thing for the country.”

Brazilians’ enthusiasm for football may also go a long way toward mitigating any negativity. One early irritant for the fans of the “beautiful game” was the low number of World Cup tickets reserved for the domestic audience—450,000 out of more than 3 million. But nearly all Brazilians will be able to watch the games on television, and once the country’s team starts scoring goals, any previous disappointment may be forgotten.

A World Cup win for Brazil would add a welcome spark of energy to the economy. If the Brazilian team makes it to the finals, or defeats longtime rival Argentina, it could lift the nation’s spirits. The country’s team is expected to perform well; Brazil has won the competition five times, more than any other nation. Yet as football fans know, anything can happen once the games begin. In the end, the impact of an event seven years in the making could turn on the ability of individual players. The final economic tally may come down to the penalty kicks of the final game.

Soccer by the Numbers

In Brazil, Where Football Is a Religion, Stadiums Are the Church

• 5 / number of times Brazil has won the World Cup
• $18 billion / amount of money Brazil is expected to spend on the World Cup
• 900,000 / Brazilian flags expected to be sold during the World Cup games
• 6.5 million / new television sets Brazilians will buy to watch the World Cup 
• 2.5 million / tickets to games at 12 different stadiums
• 500,000 / foreign visitors are expected for the World Cup in Brazil