The 2014 World Cup in Brazil is a double-edged sword in many ways, presenting huge potential benefits yet at the same time creating a number of very serious potential risks, making effective risk management a priority.
It is estimated that the Brazilian economy will benefit greatly from hosting the World Cup. The amount invested directly in event-related activities will increase by five times. The following figures are presented in the report:
– R$ 22.46 billion will be spent by Brazil on the World Cup infrastructure and organization
– The World Cup will bring an additional R$112.79 billion to the Brazilian economy
– An additional R$ 142.39 billion will flow in the country from 2010 to 2014, generating 3.63 million jobs/year and R$ 63.48 billion of income for the population
– There will be a resulting additional tax collection of R$ 18.13 billion by the local, state and federal governments.
– The direct financial impact of the World Cup on the Brazilian Gross Domestic Product (GDP) is estimated at R$ 64.5 billion for the period 2010-2014 – an amount equivalent to 2.17% of estimated GDP for 2010 (R$ 2.9 trillion).
The World Cup is popular with the host country as it represents an opportunity to generate tourism revenue directly through spectator tourism, and also indirectly through international media exposure. Internationally Brazil has become more prominent over the last decade however this has not always been leveraged properly by the tourism industry. Brazilian airports are declining in quality, and the number of tourists has remained stagnant. The study shows that if the opportunities presented by the World Cup are capitalized upon the number of tourists could increase by 79% in 2014, and therefore this could lead to higher numbers in subsequent years. Tourism brings money into a number of industries including hospitality, transportation, communications, culture, entertainment and retail. Money from World Cup tourism is estimated to be up to R$ 5.94 billion for Brazilian companies.
Direct Socio-Economic Benefits
1. Investments such as construction and renovation of stadiums/ hotels and infrastructure.
2. Operation of the Event and oversight by local organizing committees and security firms.
3. Visitor spending
These direct forms of socio-economic benefits increase levels of employment, income and tax collection.
Indirect Socio-Economic Benefits
Increased production will also be experienced in other sectors such as the raw materials for construction. A domino effect of the World Cup will be felt across Brazil’s industry. The World Cup generates a long chain of economic consequences. As employment and incomes increase so too be the ability of households to spend money acquiring goods and services, the income effect.
Investments Analysed in Report
• Building and renovation of sports stadiums: A number of host cities do not have stadiums capable of holding World Cup games in terms of safety and accessibility. Brazil has embraced this challenge and the building and renovation of stadiums is the biggest individual cost of the World Cup with investment reaching R$ 4.62 billion.
• Expansion and adequacy of the hotel complex: With increased demand for hotels for the World Cup and any post-World Cup tourist. The challenge is to meet this demand through increased hotel rooms/ seasonal property rentals/ new housing units.
• Investments in media and advertising: In order to cope with the World Cup there will be an increased investment in media (including television, radio, internet, physical space
and others). Investments in media are estimated at some R$ 6.51 billion on account of the
event in Brazil, conducted mainly by the private sector and mostly concentrated in the year 2014.
• Investments in information technology: World Cup internet traffic demands an upgrading of IT infrastructure. Brazil plans to make investments totalling R$ 309 million which will accommodate the large flow of data and processing capacity associated with this event.
• Implementation of media and broadcasting centres: Investments of R$ 184 million have been made in the media broadcasting centres necessary to coordinate the World Cup media coverage.
• Public investments in transport infrastructure: to cope with the increase in traffic flow airports and highways have been heavily invested in. These works will require R$ 1.44 billion
in addition to the investments already planned without the Cup.
• Reurbanization of cities: There are twelve host cities for the games and the World Cup has necessitated an investment into the revitalization of these cities. This has been a challenge as these cities face a number of problems such as urban crime. These problems can be tackled if the necessary investments are made in areas such as police training and security infrastructure.
Organising the World Cup
An organizing committee has been set up to ensure the World Cup complies with FIFA standards. Their responsibilities include the organization of team travels, advertising, World Cup personnel costs. FIFA is responsible for these costs.
Security is also an important factor to consider and the bill for the extra police officers required to carry out security operations is estimated at R$ 327 million.
FIFA also sets standards about the electrical infrastructure required including electrical redundancy across the host cities to increase reliability.
Discussing socio-economic impacts must include a discussion of the impact of the World Cup on the environment at large. Sustainable development requires the World Cup organizers to strive to reduce the social and environmental cost, to minimize waste, foster greater social integration and community development. Six priority areas have been identified by the United Nations Environment Program (UNEP): climate change, disasters and conflicts, ecosystem management, environmental governance, harmful substances and efficient use of natural resources. World Cup organizers must take these six areas into consideration. This requires them to mainstream working conditions in the construction, post-World Cup employment opportunities, urban quality impact, security and environmental education amongst other things.
Environmental impact is especially important and analysing the carbon footprint of the World Cup is on the FIFA agenda. The carbon footprint of the 2010 World Cup is estimated
at 896,661 tonnes of carbon, with an additional 1,856,589 tonnes contributed by air transport. Based on Brazil’s location and its continental size, CO2 emissions will be comparable to that of the 2010 World Cup.
Measuring the sustainability performance of the World Cup requires a set of indicators:
Seven Steps to the Green World Cup: Performance Indicators
1. Energy conservation and climate change: Minimizing the carbon footprint.
2. Water: Promoting water conservation.
3. Integrated waste management: Reduce, reuse and recycle waste.
4. Transport, mobility and access: Attaining energy efficiency, using accessible means of transport that minimize pollution.
5. Landscape and biodiversity: Preserving biodiversity by promoting natural landscape.
6. Green buildings and sustainable lifestyles: Promoting awareness and sustainable lifestyle.
7. Sustainable construction
Environmental and social responsibility – Consideration of the environmental and social benefits and impacts of implementing policies must be carried out.
Carbon offsetting – Carbon offset projects should be integrated within all projects. These projects should go beyond tree planting and actually address emission reduction through eco-efficient solutions and rational use of resources. Indicators should be outlined for sustainable project management such as the “green building” concept for the construction of stadiums and hotels. All structural materials to be used must not be dangerous to health and the environment, should be from sustainable sources; all technology employed should reduce water consumption and; energy usage should be minimized and waste properly managed.
Reduce, reuse and recycle – Contracts should prioritize suppliers that adopt sustainable management principles such as the three R’s for their services.
Certifications – In Brazil, two construction-focused environmental certifications are used: Acqua, a French standard and the US standard Leed (Leadership in Energy and Environmental Design). ISO 14001, a UK standard is also being introduced.
Microeconomy and social impact
The Impact on the Micro-economy
Alongside the impact on the macro-economy the World Cup will also have an impact on the micro-economy of Brazil. Thousands of small enterprises and services will benefit financially from the same direct and indirect impacts mentioned previously.
With international attention focused on the world there is a very definite social impact of the World Cup, a chain reaction of social effects arising from World Cup related events and media coverage. These include:
• The Volunteering Program impacts on the people’s education and income;
• The country’s exposure in the world media and consequential effects on tourism;
• Potentially reduced violence and crime as a result of investments in security;
• Social benefits from investments in infrastructure; and
• The microeconomic impacts of the construction and improvement of stadiums and a whole new window of opportunities that is created around them because of the mega event.
It is harder to represent the social impact on typical input-output methods of analysis. Social impacts are complex in nature. Brazil has made leaps forward socially however the media is always quick to find fault and protests during the World Cup have made headlines. This brings up the idea of the potential risks for Brazil in hosting such a mega-event.
Risks and Constraints
In order for people to benefit from the socio-economic opportunities presented by the World Cup it is necessary to understand the risks and constraints posed by holding the event
• Meeting the needs of host cities: Specific action is needed to meet the needs of host cities, needs that go beyond just event infrastructure. These include transport, safety, hospitality, and communications. Brazil has a history of top-down town planning with local organization points having little autonomy. This could create unnecessary expenditure and also a lack of coordination and political will. The large needs of host cities will ultimately require central planning which may encounter institutional failures. The smaller needs must be addressed at a local level however if the resources are not in place this too could create problems such as poor quality of services, a bottleneck effect on visitors, economic and human loss caused by inflow of visitors to a poorly managed host city and therefore subsequently a negative portrayal of Brazil in the international media. The social issues within host cities are also now open to international media scrutiny and it is important that these needs are addressed as much as is possible.
• Capitalizing on the legacy: If well used the opportunities for industries such as tourism could extend beyond the World Cup itself. The legacy of the World Cup will create different types of fixed capital; tangible capital gains such as stadiums and infrastructure, human capital gains such as training, technological capital such as security and telecommunication equipment and brand capital of Brazil as a tourist destination.
• Economic efficiency: With such a huge undertaking it may result in unnecessary and costly expenditure and mismanagement of funds. Brazil has made a decision to incur significant investments. This is a trade off, an underlying cost spent in the belief that the opportunity cost of holding a mega-event can be significant. For Brazil to gain the greatest return they must carry out investments efficiently at the lowest possible cost, within budgets and deadlines. Historically Brazil has been somewhat inefficient in previous expenditure. Proper management is necessary.
• External factors: As with any international event there are external risks outside of the control of event planners.
Challenges and opportunities
Brazil’s tourism numbers have remained stagnant for the last five years. The World Cup gives Brazil an opportunity to present itself as a global tourist destination, to change this stagnation. However it depends on their ability to overcome challenges:
Governance and planning
Having a strategic plan for each host city is central to proper planning. Co-operation between government and each host city is crucial.
Monitoring, control and transparency
In order to respond to the challenges posed by the World Cup effective management including monitoring, control and transparency is necessary.
Deadline, cost and Quality
Meeting the deadline is non-negotiable for the World Cup and therefore Brazil has fulfilled this major obligation. Meeting the budget and the quality standards is also incredibly important in determining the success of the project. A Steering Committee is responsible for the 2014 World Cup Management and Monitoring Support System (SGMC), an online tool that will monitor the activities of the host cities.
Hosting the World Cup requires significant investment. Raising these funds is no small task.
For the World Cup Brazil has cleverly pursued a combination of funding approaches.
Public-Private Partnerships (PPP) combine the ability to invest, to attract capital and the
managerial expertise of the private sector with the public interest and a part of government resources.
The National Bank for Economic and Social Development (Portuguese acronym – BNDES) will also provide lines of credit to fund works and buildings related to the 2014 Cup.
The federal government had also provided as much as R$ 9 billion for works in the transport sector.
Alternative financing may also be pursued.
Business transactions related to the World Cup also benefit from some tax exemptions with the government choosing this strategy because tax gains will far outweigh any exemptions it provides.
Brand advertising in and around stadiums may call for some change in regulations to comply with organizers’ requirements. Local governments may consider allowing advertising only at specific points during the month of the World Cup.
Infrastructure and services
Brazil has understood that it must ensure stadiums, hotels, and telecommunications comply with standards set by organisations such as FIFA. These services must be adequate to cope with the demand placed on them by visitors.
The World Cup will rely on thousands of volunteers to be a success. Investing in human capital is really one of the biggest ways that Brazil can gain from hosting the World Cup. It has given government the impetus to deal with issues of social exclusion and lack of training.
The potential gain can go beyond purely financial. Reputation gain abroad is also an important potential gain therefore it is advised that proper reputation management is carried out, creating a World Cup atmosphere that will be portrayed by the international media.
Legacy and sustainability
The report divides the legacy into three types:
Tangible Legacy: Stadiums, infrastructure, improved telecommunications
Social Legacy: Improved self-esteem of the people, gains in education and training, social inclusion of underprivileged through volunteer programs, investments in health and safety.
Institutional Legacy: Experience of managing a mega-event which means a gain in coordination and partnership.
Success is defined at a number of levels, by the fans, the governments and the people of Brazil. A successful World Cup will be organized without wasting huge amounts of resources and capitalizing on the opportunities provided by hosting the event. So far Brazil seems to be doing well to comply with the needs of hosting the World Cup.
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03 June 2014
27 October 2014