Those troubles in Brazil continue…

While Brazil’s economy flounders, Rio State governor Sergio Cabral’s once popular positioning drops to a point where there are suggestions he may step down, Eike Batista’s EBX-centred empire really does start to crumble – all of which we have foreshadowed and commented on previously in “Back on the Block” – and President Dilma Rousseff goes to the UN the ‘attack’ the US, probably really to create an aura of locally-admired leadership…

Sergio Cabral has been challenged over misuse of government money as well as his alignment with big business, including the heads of construction company Delta, the largest contractor company in Rio, and of EBX. His earlier approval rating was around 65%. Recently, polls have indicated falls in his approval to 25% and in one case to 12%.

Gregory Michener, Assistant Professor of political science and administration at the Fundaçao Getulio Vargas (EBAPE) in Rio de Janeiro, and Chris Gaffney, a Professor at UFF (Universidade Federal Fluminense), a Federal University in Rio de Janeiro, write:

“Brazil is being simultaneously steamrolled by both the IOC and FIFA, the Swiss-based non-governmental organisations that dominate global sport. Last month, in advance of the IOC's inspection, Marcio Fortes, the head of the Rio 2016 Olympic Public Authority, resigned in high-profile fashion. Fortes complained that his group, which was responsible for coordinating the efforts of government and Olympic officials, lacked influence in the running of the Games' preparations.”

“The behind-the-scenes struggle to control the Olympic purse strings has generated bitter internal conflicts, delayed projects, and prevented the release of a budget”

“The World Cup and Olympics are glitzy conveyor belts for private accumulation. The deployment of public money to facilitate opportunities for private profit sits at the crux of this business model. In Rio, this has crystallised in the case of Maracana Stadium. The Rio de Janeiro state government spent $560m to revamp the hallowed stadium before bequeathing it to private entities at cut-rate prices. Along the way, they violently expelled an indigenous settlement, closed one of Rio's only Olympic-standard athletics facilities, and aggressively repressed protests that demanded the public stadium not be privatised.”

They go on to assert that Military Police have been occupying strategic areas of the city for the past four years…being so-called "pacification units". The security budget for the World Cup is around $1 billion.


Just in recent days, President Dilma Rousseff nominated a senior army officer to fill the role vacated by Marcio Fortes – one of the top roles in organising the 2016 Olympic Games in Rio de Janeiro. Major General Fernando Azevedo e Silva is to be appointed to head the Olympic Public Authority, which coordinates the work of state and local governments. This has gone to Brazil’s senate to be ratified. Azevedo e Silva has been chairman of the Military Sports Commission of Brazil since 2012.

In recent editions of "Back on the Block" we noted the lack of a formal Olympic Games budget and a structured plan – that matrix of responsibilities – for the Olympic games. In an amazing statement last week, Brazil’s national auditor raised concerns about the possibility of delays in the implementation of plans when it reported that just 5.5% of the 1.67 billion Reais (US$752 million) estimated to be spent on the games between 2010 and 2012 had actually been used.


Separately, The Economist commented that “the main reason for Mr Cabral’s dimming popularity is that the euphoria that accompanied the new security policy is giving way to a more realistic assessment. The security strategy involves taking back territory rather than confronting gangs head-on.” Apparently, since 2008, 34 pacification unit positions have been established in the favelas of Rio, mainly around the Olympics and World Cup precincts, with several more to be established prior to the World Cup. “By 2016, when Rio hosts the Olympic games, their coverage will still be largely restricted to favelas that surround richer beach districts and the sporting venues, or line strategic roads.”

There is growing unrest as locals see brutal actions by the police and military as unnecessary and an attack on human rights in the name of the forthcoming major events. And meantime, notwithstanding the promises of a better life, the daily social and economic conditions of those in favelas now ‘pacified’ does not seem to be much improved.


Looking a the bigger picture of infrastructure projects – and there are many planned and in the pipeline – Joe Leahy writes in Financial TImes that Brazil risks a lost decade of infrastructure development due to politicised decision-making and poor management by the public sector. Leahy notes that several large and important projects did not even attract bids, due in part to lack of confidence that the public authorities would or could deliver their components. The risks were too great for private sector companies.  He contends that:

"Critics say the government is obsessed with controlling private sector returns, to the point of making Brazilian projects unattractive.

The joke is that Ms Rousseff’s centre-left Workers’ party has such an instinctive distrust of the private sector that it wants to invent a new type of economic system: non-profit capitalism.

Ms Rousseff insists the government is committed to providing sufficient returns to the private sector."

Now with the World Cup and Presidential elections in 2014, many feel that less rather than more will be set in train until 2015 at the earliest.

Eric Winton

Director, New Millennium Business

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