Cover stories

World Cup to boost Brazilian economy

Last summer saw Brazil host the Confederations Cup, essentially a smaller-scale dry run for this year’s global event. It was a success on the pitch with the hosts claiming victory and off it with the stadium facilities passing their tests with flying colours.

However, it was marred by protests across Brazil as people vented their fears over the cost of being the host nation in 2014.

The warm-up event therefore demonstrated that this year’s football extravaganza will bring both opportunity and risk.

Fears over the cost involved in being the home nation may be allayed by a report from Ernst & Young (E&Y) that predicts Brazil’s investment in the tournament will prove a lucrative one.

E&Y says the Brazilian economy will snowball, increasing by five times the total amount invested directly in event-related activities and benefiting various industries.

In addition to the R$22bn spent by Brazil on the World Cup to organize the event and ensure an adequate infrastructure is in place, the tournament will bring an additional R$113bn to the Brazilian economy, with indirect and induced effects being produced thereafter.

In total, E&Y says an additional R$142bn will flow in the country from 2010 to 2014. The World Cup will also create jobs, albeit the majority of them temporary ones, adding R$63bn of income for the population.

The knock-on affect of this will see local, state and federal governments collect extra tax of R$18bn while Brazil’s GDP will gain R$64.5bn, or 2.2% over the period 2010 to 2014.

And the lasting legacy of a successful tournament could see ‘Brand Brazil’ take its image as a country with serious capabilities as befits a nation with the desired status of being the world’s fifth largest economy in the very near future.

Risks and constraints

However, the success of the tournament and the lasting positive impact of its legacy are subject to risks and constraints.

A successful event depends on the ability to meet the diverse needs of the host cities by 2014, by means of actions and investments in public and private sectors. Some of these needs require Cup-specific actions, while others can be met in the context of broader actions and activities.

Lack of adequate planning and control may result in excessive or unnecessary expenditures, misallocation or misappropriation of funds. There is also a risk of incurring costs from the failure of the nation to use this opportunity to the full.

In addition, there are macroeconomic scenarios that could affect the flow of visitors – both international and domestic – to the tournament.

There could also be unforeseen political events, which might have a negative impact on the coordination of actions and investments by government levels.

The insurance industry will be playing its part in mitigating these risks with cover for construction projects, investments, property and event cancellation all being placed in the lead up to kick-off.