Despite spending $11 billion on the World Cup, Brazil has not be been able increase the nation’s visibility and consolidate an image of “happiness and receptivity” to boost its tourist potential. Moreover, its image has taken beating due to continuing political scandal and recession as well as the looming threat of Zika. Brazilian finance and tax expert Natasha Maggessi from Guardian Wealth Management, discusses the after effects of the world’s biggest sporting event at Rio.
The world’s biggest sporting event, The Olympic Games, has once again come to a close leaving in its wake a multitude of celebrations, surprises and shocks. But as the winners count their medals and the world moves on to the next thing, the host country Brazil reflects on a whirlwind two weeks.
But then the question now is how will Brazil’s economy fare in the Olympic aftermath? Littered with political scandals, economic recession and threats of a deadly virus, it has been far from plain sailing for the South American country.
“It’s been a controversial event since the very first bid back in 2009, which was practically a romanced appeal positioning South America as a “poor sister” deserving of a chance from IOC decision-makers. However, it was very much a different backdrop in Brazil then – socially, politically and economically-speaking. The country was on its climb back to 7.5% economic growth and inflation was below the central bank’s target. The currency was also strong, which helped Brazil’s Bovespa become the world’s best performing stock market in 2009”, explains Natasha Maggessi, Brazilian finance and tax expert at Guardian Wealth Management.
Now it all looks like a distant memory, for today’s reality exudes a more bearish outlook. The Brazilian economy has accumulated losses in five consecutive quarters and the country’s recession has hit its third year, likely to be the longest in Brazil’s history. The IMF confirms that the country took a nosedive into a profound recession, which leads to collateral effects such as unemployment rates increasing, spiraling public debt and instability.
“Because of this, Brazilians were never that enthusiastic about hosting the games. It’s quite difficult to make the public understand that they don’t stand a chance to see a much-needed new school built or even more hospital beds. But instead a new gigantic stadium with no post-use whatsoever will be built and of course, over budget”, continues Maggessi.
The total bill is not yet clear but experts estimate something around US$13b. Money that over 50% of Brazilian citizens consider (according to Brazilian polling agency Datafolha) to be better invested into hospitals, schools and other infrastructure. In addition to this the Brazilian government authorised an $850-million loan for Rio to help pay for Olympic infrastructure and security. After which, the city declared a state of financial emergency.
However, after the start of the event there was certainly a more positive feeling towards the games, with a colourful opening ceremony and some gold medals, but that does not change the reality of the situation in Brazil and its major internal problems.
But will the Olympics help common people and their personal finances? After all, one of the arguments put forward by hosting countries of such events is the publicity that the country stands to receive.
“No”, says Maggessi. “It may help a few individuals profiting from Olympic tourism with things such as accommodation rental, transport, small commerce, etc. However, this has been constrained by fears of the Zika virus, the instilled violence and political turmoil amidst a suspended president, broken parties and impeachment trial”.
“Evidence indicates Rio is unlikely to receive a good return on its heavy spending. The reality is that after the initial momentum built from the hype of the media, people will continue with their daily struggles since no structural changes were made”.
Yet the economic outlook may not all be doom and gloom. Brazil’s stock market has performed better than expected recently, having risen 35% so far this year in local currency terms. In US dollars the gains have been even greater as the MSCI Brazil Index returned 71% year to date – adding 8% since the Olympics opening ceremony. Many Brazilian stocks have seen bottoms providing good investment opportunities for those who can wait.
Some say Brazil is over the worst of its financial recession. But even so, it still has a long way to go to see growth. Just like a trainee athlete dreaming about hitting the big game, Brazil’s rise back to the top may take more than just four years.