World Cup – benefits to Brazil

Indicators of economic benefit

A study by the Institute for Economic Research Foundation (FIPE) for state tourist board, Embratur, has estimated the June 12-July 13 World Cup tournament should more than triple last year's gain which emanated from a total reals 9 billion spending at the Confederations Cup.

An economic impact study of last year's Confederations Cup, effectively a test event for the World Cup itself, claims the tournament led to a total of reals 20.7 billion (US$9.3 billion) in financial transactions and added reals 9.7 billion (US$4.37 billion) to Brazilian gross domestic product.
The study, conducted by the Economic Research Institute Foundation (FIPE) and published by the Brazilian Ministry of Tourism, also says the competition created the equivalent of more than 300,000 jobs.

Some 58% of the reals 9.7 billion in extra GDP is said to have been spent in the six host cities of Brasilia, Belo Horizonte, Fortaleza, Recife, Rio de Janeiro and Salvador, with 42% disbursed elsewhere.      Rio de Janeiro, host city for the 2016 Olympics and Paralympics as well as the World Cup final, was said to have recorded both the highest number of financial transactions among the Confederations Cup host cities – reals 6 billion (US$1.9 billion) – and the highest number of jobs generated, 59,000.

There are mixed views, however…

When the country was picked in 2007 to host the world’s most-watched sporting event, Localiza Rent a Car SA Chief Executive Officer Eugenio Mattar said he foresaw “an explosion of tourists.” Now he said he sees lukewarm demand from the event as social unrest in the country has dampened fans’ spirits and may detour tourists.
Brazilians aren’t seeing the promised benefits of being the World Cup host, with some transportation projects unfinished and stadium costs that swelled more than 40% to at least reals8 billion (US$3.53 billion). Protests across the country that began last June in demand of better education and healthcare turned deadly, reducing potential benefits for businesses such as Localiza, according to Mattar.
 “The country of soccer doesn’t want to host the World Cup,” Mattar said in an interview at Bloomberg’s Sao Paulo office. “That elan is gone.”
Mattar’s comments defy predictions from Moody’s Investors Service saying Localiza, based in Belo Horizonte, would be among the companies best positioned to benefit from the World Cup, alongside food and beverage company AmBev SA  and airline Gol Linhas Aereas Inteligentes SA.
Moody’s said it expects the influx of visitors during the tournament should contribute to a 10% to 15% increase in Localiza’s car rentals this year, according to a March 31 report.
For Localiza and many related businesses, the big question is will visitors for the Cup actually rent cars and spend.  

Separately, Fator Corretora SA analyst Alessandra Moratti believes this year’s presidential election should help boost Localiza’s fortunes, as candidates need cars for campaigns. Rental car demand gets a bump of as much as 4% in election years, Moratti said. She suggests the World Cup to contribute to a 2% increase in revenue. Some 600,000 tourists are expected to visit Brazil during the coming World Cup. Moody’s reckons long-term effects from the tournament are likely to be limited to changes in how the country is perceived rather than an immediate boost or hit to companies’ bottom line. A smoothly run tournament could lift confidence in Brazil’s government and corporate sector. But there are risks that a poorly-run World Cup adds to the laundry lists of disappointments Brazil’s faced in the last year or so.

The Brazil government has launched a new portal that covers a wide range of information about Brazil during the World Cup, including transport, accommodation, tourist and cuisine info.
Click here to get to that Brazil World Cup portal.

Eric Winton

Director, New Millennium Business

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