Global Markets

Why the World Cup isn’t all about football

21 May, 2014 | Posted By: Oren Laurent

By Oren Laurent
President, Banc De Binary

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 second-largest 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.