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FIFA World Cup 2014: Social Impacts and Policy Strategies


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The main aim of this study is to analyze ex-ante the likely socio- economic impact of the 2014 FIFA World Cup that will take place in Brazil. The recent trends of highly competitive bids to be designated host country of a sport mega-event show us the bidders believe such events to generate positive impacts. In this paper, we analyze through a descriptive approach the main aspects of potential economic and social effects through the organization of the World Cup, while contrasting it with the major cost and risks Brazil is bearing.
Our conclusions show that organizing a major sporting event is a unique opportunity for economic and social development, can accelerate infrastructure improvement and it is a major factor for gaining in international reputation, and, therefore, increasing in the long run a country’s soft power. However, in the case of Brazil, the high cost, widespread popular discontent, safety issues, lack of planning and coordination may have an important negative impact, which is likely to offset the benefits. It has been said that Brazil is the country of the future, and always will be. The 2014 World Cup, and 2016 Olympic Games will give a strong indication whether this still holds true.

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FIFA World Cup 2014: Social Impacts and Policy Strategies

  1. 1. Bachelor in International Economics, Management and Finance Università Commerciale Luigi Bocconi FIFA World Cup 2014 in Brazil: Social Impacts and Policy Strategies Bachelor Thesis by Flavio Kleijssen Student 1492032 Tutor: Professor Valentina Mele ACADEMIC YEAR 2013-2014
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  3. 3. 3 Acknowledgments I would never have been able to finish my thesis without the guidance of my advisor Professor, help from friends, and support from my family. Therefore, I would like to express my deepest appreciation to those who provided me the help to finalize this thesis. I wish to express my sincere thanks to my supervisor Professor Valentina Mele, for her excellent guidance, patience, and providing me with an excellent atmosphere for doing my research. Indeed her contribution with stimulating suggestions and encouragement helped me tremendously to complete this thesis. I would like to take this opportunity to express my deepest thanks to my parents Jan and Stefania, which supported me both financially and emotionally throughout my degree, and have always believed in me. I wish to thank my two younger brothers, Claudio and Valerio for their incredible love, support and care, as the rest of my family. I am deeply grateful to my friends who have always encouraged me and helped me through the tough moments. A special gratitude I give Anna, her support, encouragement, quiet patience and unwavering love have been essential to complete my degree. Finally, I would like to leave the remaining space in memory of Roberta (1964-2013), an incredible person and example.
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  5. 5. 5 Table of Content Abstract ............................................................................................................................................... 6 1. Introduction .................................................................................................................................. 6 2. Economic Impact ......................................................................................................................... 8 3. Social Impact ............................................................................................................................. 13 4. Sustainability ............................................................................................................................ 18 5. Risks and Constraints ............................................................................................................. 21 6. Long Term Opportunities ..................................................................................................... 24 7. Conclusion .................................................................................................................................. 27 8. Bibliography .............................................................................................................................. 28
  6. 6. 6 Abstract The main aim of this study is to analyze ex-ante the likely socio-economic impact of the 2014 FIFA World Cup that will take place in Brazil. The recent trends of highly competitive bids to be designated host country of a sport mega-event show us the bidders believe such events to generate positive impacts. In this paper, we analyze through a descriptive approach the main aspects of potential economic and social effects through the organization of the World Cup, while contrasting it with the major cost and risks Brazil is bearing. Our conclusions show that organizing a major sporting event is a unique opportunity for economic and social development, can accelerate infrastructure improvement and it is a major factor for gaining in international reputation, and, therefore, increasing in the long run a country’s soft power. However, in the case of Brazil, the high cost, widespread popular discontent, safety issues, lack of planning and coordination may have an important negative impact, which is likely to offset the benefits. It has been said that Brazil is the country of the future, and always will be. The 2014 World Cup, and 2016 Olympic Games will give a strong indication whether this still holds true. 1. Introduction The FIFA World Cup is considered one of the largest events in the world. The football competition between the 32 best national teams in the world engages billions of people from all continents and cultures. Over the last century, the growth of major sports events in general has risen, following the increased commercialisation and the high profile of these events. These events are also the main drivers of sport development. In June 2014, Brazil will once again be hosting the 2014 FIFA World Cup 64 years after its first hosting, in addition to the Olympic Games in 2016. The country that will host the World Cup is very much changed during these
  7. 7. 64 years. It is now the 7th largest economy in the world and one of the largest manufacturers of aircraft and one of the largest producers of food in the world (, 2014). It is a country with a population of 201 million who have built a consolidated economy and democracy. In addition, it is considered as one of the biggest soccer nations of the planet, and the ‘Seleção’, the National Team, is, uniquely, 5-time World Champion. However, the requirements to host the World Cup have also changed, and such a mega event needs to be meticulously planned and organized, meeting short deadlines and high standards. Therefore, a significant commitment is required by public authorities in order to face these challenges. Since the host country was announced by FIFA on October 20, 2007, a national effort has been carried out to prepare in the best way possible this event. The Brazilian government’s objective is to use the event as a means to spur the country’s development and to generate jobs, to overcome inequalities and improve the quality of life of its population. It is a unique and important opportunity to boost Brazil’s international image and to make investments in projects and services that will remain as a long-term legacy. The aim of the government is to convert this significant opportunity into a positive legacy for the country and its population. However, in a tense context of economic crisis and instability, public authorities must carefully assess the costs and the benefits from hosting a mega event. By increasing investment in infrastructures and expertise, hosting a mega event can turn out to be a strong driver for economic development. In addition, these events reach a worldwide audience, putting the host country’s reputation at stake. The objective of this study is to contribute to a better understanding of a widely followed major current event and to determine how this mega-event will be utilized as a means for sustainable socio-economic development while paying due attention to the costs, risks and constraints. We are going to analyze through a descriptive approach these different impacts that a mega event has on its host country. We will thus examine the trade-off between the 7
  8. 8. possible positive social-economic impacts and the costs, both financial and non-financial, of organizing the event. In the conclusions, we confront expected benefits and costs to answer the key question: is the event ultimately likely to enhance Brazil's reputation and contribute to its social-economic 8 development? 2. Economic Impact The potential major positive impact of organizing a mega event such as the FIFA World Cup 2014 is without any doubt the main reason for countries to host the event. Apart from political considerations, such as boosting national prestige, economic considerations are an important motivating factor for states to make a bid to host a major sporting event. Nevertheless, the desire to be appointed the host of a sport mega-event and the need of having to constantly develop new and upgrade existing sports and tourism infrastructures has led cities and countries to be “caught in a vicious cycle of having to provide larger subsidies to finance projects that deliver even fewer public benefits” (Leitner & Garner, 1993). Chappelet (2006) categorized the economic impact as a legacy deriving from the organization of a mega-event. The FIFA World Cup attracts an enormous audience. Therefore, likely high tourist inflows are an expected economic benefit. In fact, according to the federal government forecasts, for the 2014 World Cup in Brazil, a total of 3.7 million between national (3.1 million) and international tourists (0.6 million) are expected (Ernst&Young, 2011). The large amount of tourist inflow is obviously an opportunity for the host country to generate additional revenues. In fact, the tourist inflow is expected to generate US$ 5.9 billion for Brazil (Ernst&Young, 2011). Tourist inflow will benefit mainly businesses in the service sector, such as hotels, restaurants, etc., and will also generate tax revenues. However, when considering such an event, one should bear in mind that the measure of the real economic effects on a host city should be compared only with the economic indicators of the city if the event
  9. 9. would not have taken place, the so called ‘without case’ (Hanusch, 1992). The success factors of the World Cup are the infrastructures needed for the ongoing of the event. The non-adequacy of the existing Brazilian infrastructures made restoration and building necessary. First of all, twelve cities were chosen to be the host cities (in alphabetical order: Belo Horizonte, Brasilia, Cuiaba, Curitiba, Fortaleza, Manaus, Natal, Porto Alegre, Recife, Rio De Janeiro, Salvador, Sao Paolo). These cities were chosen on their ability to host matches during the competition. A further six cities were also candidates but not selected (, 2014). Stadiums can be considered as the essential infrastructure for the organization of a football event, and need to fulfill the strict requirements of the FIFA to be entitled to host matches of the World Cup. Several of the host cities did not have a stadium, which met these requirements. 9 In US Dollars Total Renovation Costs for Stadiums 2 Billion New Stadiums (Natal, Recife, Salvador) 650 Million Projects to improve passenger terminals, marine and land access to terminals 574.8 Million Improvement of Airports 3.45 Million Source: Ernst & Young, 2011 Therefore in Natal, Recife and Salvador, new stadiums were built for a total investment of R$ 1,471.2Million (US$ 650Million) (Ernst&Young, 2011). The other nine stadiums in the other host cities also needed renovation to comply with the FIFA requirements. The total investment for stadium construction and renovation is estimated to be R$ 4.62 billion (approximately US$ 2 Billion) (Ernst&Young, 2011). Those expenses are only related to the competition itself, i.e. the matches only. Additional investments are required for the infrastructures needed to receive the supporters. The expected inflow of 600 thousand international tourists and 3.1 million national tourists requires the country to up-date and expand its current infrastructures necessary for the staying of the visitors. A major challenge for dealing with the high inflow of tourist is the capacity of the
  10. 10. airports. The necessary expansion and improvement of Brazilian airports started in 2011, and the total investment is expected to be US$ 3.45 million. Nowadays some airports are already overloaded, especially the ones of Brasilia and Sao Paolo, which are main hubs for travel to other regions of the country. A monorail train has also been constructed to connect the subway to Congonhas airport and Morumbi stadium in Sao Paolo (Ernst&Young, 2011). Not only the air transport facilities have been renovated and expanded, the government spent US$ 574.8 million in projects to improve passenger terminals, marine and land access to terminals. The government is in fact expecting a high amount of cruise ships to dock on the Brazilian coast (Ernst&Young, 2011). The hosting of the World Cup 2014 will generate an increasing demand for hotels in the selected host cities on the short, and hopefully on the long term, due to two factors, the fans assisting to the event, and the tourists visiting the country due to its global exposure as a holiday destination if the event will result being a success. Nevertheless, among all the host cities only Sao Paolo, Rio de Janeiro and Curitiba are prepared to meet the tourist inflow. The other nine cities are expected to receive more tourists than their actual capacity of hosting. Therefore an investment of R$ 3.16 Billion (about US$ 1.5 Billion) has been made in order to add 19.493 housing units to try to cover the housing deficit (Ernst&Young, 2011). Nevertheless, the expected high amount of cruise ships could also be a partial solution to the housing issue. Thus the organization of the FIFA World Cup clearly does provide an opportunity for Brazil to modernize its infrastructure. The organization of a mega-event like the FIFA World Cup can undoubtedly create a large number of jobs directly related with the organization of the event itself. However, the expansion of infrastructure and the increased volume of tourists stimulates job creation. Schimmel (1995) noted that mega-events mostly generate jobs in the service sector, which are often part-time rather than permanent, and/or low paid. 10
  11. 11. Nevertheless, it is expected that from 2010 to 2014 in Brazil 394,000 permanent jobs will be created as well as 381,000 temporary jobs (, n.d.). These numbers are close to the ones announced by Ricardo Gomyde, the special advisor to Brazil’s Ministry of Sports. In fact, he expects 332,000 permanent jobs and 381,000 temporary jobs to be created through 2014 as a result of World Cup, mainly as the result of new hotels, airport and renovation of football stadiums (Rapoza, 2011). As an overall effect, the hosting of the World Cup is forecast to generate US$ 70 Billion in the nation’s economy according to Brazil’s Ministry of Sports (Rapoza, 2011). This takes in account the country’s public investment into infrastructures, the private investments, the increase in consumption and the increased activity in service related jobs, and obviously tax collection. In fact, the hosting of this mega-event is foreseen to generate more than US$ 30 billion in direct taxes and US$ 10 billion in indirect taxes. This can be explained by the increase in consumption of Brazilian goods and services by an expected US$ 3 billion. The FIFA even expects the event to generate an additional $116 billion to the country’s GDP for the 2010-2019 periods (http://www.brazemb-ksa. 11 org, n.d.). Crompton (1995) points out that the economic impact of a mega-event, in this case the FIFA 2014 World Cup, can be defined as the “net economic change in the host community that results from spending attributed to the event”. In other words, the economic growth of the host country is not necessarily provided by the direct income such as ticket sales, sponsorship and television rights, which are shared with the organizing body (in this case the FIFA) and usually cover only the costs of organizing the event itself. He claims that the economic impact of such an event is mainly thought in terms as the possibilities it provides of increasing the awareness of the country as a tourism destination. Increasing long-term tourist inflows will bring additional revenues. Moreover, there is likely to be an increase in awareness of the country’s potential for investment and
  12. 12. commercial activity. Therefore a host country is able to attract both investments and tourists and, as a consequence increase employment and stimulate the economic growth. In fact, the hosting of the World Cup and the tourist inflow generate direct revenues on the Brazilian households. For example, consider the income of a professional involved in the tourism sector, the increase of income due to the inflow of tourist can contribute to the increase of purchase of home goods (e.g. a new car), representing an increased demand in home goods. This has a positive effect on the purchasing power of Brazilian households as a result of the additional generation of revenues. Source: Ernst & Young, 2011 Source: It is clear, however, that all the expected benefits have to be set against the cost of the organization of the World Cup. According to the official budget, the public sector is supporting the planned projects covering 85,5% of all the expenses. The remaining 14,5% is provided by the private sector only in the building and renovation of airports and stadiums. The federal government is the primary investor with 62,1% of total expenditure and 72,7% of total public expenditure. Local governments instead contribute with 23,4% and 27,3% respectively for total expenses and total public expenses (, n.d.). The two major development financial institutions of Brazil, the National Economic and Social Development Bank (Portuguese acronym 12
  13. 13. BNDES) and the Federal Savings Bank (Portuguese acronym CEF) are the main funding for the federal government totaling an amount of R$ 11.1 billion (US$ 5 billion) (Ernst&Young, 2011). Most of the funds have been spent in stadiums, touristic related projects and for urban mobility purposes. The spending made by the federal government through its budget is amounting R$ 7 billion (US$ 3 billion) (http://www.brazemb-ksa. org, n.d.). The cost of organizing such a mega-event should be balanced by public and private investments in order to increase the benefit, and decrease public spending. A recent example is the Winter Olympics in Sochi, Russia, where a Targeted Federal Programme for the Development Sochi was implemented aiming at modernizing the region in order to make the Caucusus a new destination for winter sports. This development program was financed 60% through public spending and 40% by private investors (IOC evaluation commission report, 2014). 13 3. Social Impact As we have analyzed in the previous chapter, organizing a World Cup has a significant economic impact on the host country. We are now going to focus on the social effects, which, though highly interrelated with the economic impact, merit to be dealt separately. All the services related to the World Cup must be prepared to receive tourists from all over the world. The increase in tourist inflow during the World Cup raises an issue of qualification of the workers in the country. In fact, the tourism professional Brazilian will have to deal with an unusual increase of the tourists, and might not be fully prepared, or qualified to assure the well-being of the national and foreign tourists. Therefore, the Ministry of Tourism took action to deal with this problem and will provide higher qualified professionals with the Bem Receber Copa project, in English the ‘World Cup Well Received.’ This project aims to train 306 thousand workers by the end of 2013 to work in the tourist
  14. 14. area. The Federal Government estimates this investment to be $280 million (, 2014). Moreover, the FIFA provides the host country with a Volunteering Program, one of its flagship programs, where volunteers all over the world come to help with the organization and support the tourists. This could lead to an increase in education and training through the help of multicultural, multilingual volunteers that will help Brazil with the organization of the event (, 2014). The World Cup can also be a factor of social inclusion (Rebelo, 2013). As is common knowledge, Brazil is one of the biggest “Football Nations” in the world, and football is taken very seriously. This could enhance national unity and pride since the country is hosting the major football event. Essex and Chalkley (1998) have put forward that sporting events are able to strengthen national traditions and values and also enhance national pride and community spirit. This was the case for the 2010 World cup was held in South Africa, where for the first time in history the World Cup was being hosted by an African country. This led to a major enthusiasm not only in the South African people, but also in the whole continent, and the event was seen as the regeneration of Africa led by ex-president and national hero Nelson Mandela, who was a strong supporter of the event. The hosting of the World Cup can be seen as a way to accomplish social cohesion driven by the enthusiasm of the people. The final result of the national team, if highly successful, can very much enhance this impact (Dauncey and Hare, 1999). This enthusiasm driven by the host of a major sport event may also lead its people to increase their own participation in sport and as Hooper (2001) has claimed, this increase may, in turn, enhance social cohesion and social interaction since it provides a sense of well-being, that could help integrating people that may feel socially excluded. The increase in sport participation is also facilitated by the large sport facilities that are built in order to host the event, and that could be available to the community after the event’s occurrence. This is also further enhanced by 14
  15. 15. the hosting of the Olympic Games in 2016, which will even further promote the inclusion of sports, since art present Brazil lacks high performance athletes and does not have a great diversity of sports practiced. Access to sport is not only essential for a healthy population, but it also promotes social mobility. In fact, the first Brazilian modern day heroes who came from the poorest layers of the society were the football stars. Therefore, the increase in sport participation could have a significant dual impact on the well being of both individuals and community as a whole. This increase in sport participation cannot only be achieved through the construction and renovation of sport facilities, but support of the government is also needed in the training of public and community agents to encourage the promotion of sport. The local government will be supported by a number of private volunteering and charity programs, such as streetfootballers and Ashoka created through the Clinton Global initiative who established a social legacy fund aimed at pooling financial resources from international funders in order to provide support for local, football-based development projects (Griesbeck, 2013). Another positive effect may come from specific national campaigns organized in the countries participating in the World Cup. The Netherlands authorities, for instance, have launched a major awareness-raising campaign on child prostitution for Dutch fans travelling to Brazil (, 2014). Fans are encouraged to report such child abuse, which hopefully will contribute to combatting this scourge in Brazil. But just as the hosting of a major sport event can bring positive effects for a local community, it can also end up having negative effects. The bidding for the tournament had emphasized the social benefits that the World Cup would bring, which now seem to have been forgotten. Several aspects threaten the social impact of the tournament. A first aspect is the failure to respect safe working conditions. In fact, numerous building works at stadiums have been interrupted such at Curutiba. These 15
  16. 16. violations of safe working condition have reportedly led to the death of six workers during the building of stadiums (BBC News, 2014). The hosting of the World Cup should be seen by public entities as an opportunity for development. In this sense, benefits arising from the mega-event should benefit the local population. But the Brazilian government implemented some controversial measures and policies. One example is the displacement of Brazilians, who live on lands that are going to be repossessed for use during the World Cup. An estimate is that up to 170,000 people will be evicted from their homes (Zibechi, 2012). The pacifying police unit (Brazilian acronym, UPP) was appointed by the government to evict people from the favelas (the shantytowns that surround Brazil’s big cities) in order to present a better image of the country when tourists will start to arrive (Brown, 2014). These measures must comply with human rights, and the government must assure a fair compensation for the housing repossession, if it wants to limit protests and keep a positive international reputation for hosting the tournament. In order to increase the safety of the tourists during the competition, the Federal Government started a militarization of the favelas The federal army already sent 2700 soldiers to the favelas in Rio de Janeiro, and more are expected at the starting of the World Cup (, 2014). In fact, in 2013, during the Confederation Cup, the so-called Brazilian Spring took place (Fusion, 2013). More than one million people protested in the streets all over the country mainly against the rise in public transports, but grew to include other problems as the controversial constructions and renovations, the brutality of the police, and generally, the corruption of the government. During the riots, many people were injured and a man died in Belo Horizonte (, 2013). Moreover, the Government has initiated strong action against weapons and drugs smuggle, as well as illegal immigration along its borders. This military operation is called “Ágata 8” and 30.000 soldiers are involved, as stated by the Brazilian Ministry of Defence. The action was discussed before with Brazil’s ten neighbouring countries. A similar mission was 16
  17. 17. carried out already in 2013 for the Confederations Cup (Sü, 2014). This drastic measure taken by the Federal Government and this kind of “civil riot” climate, due to the numerous soldiers in the streets of the capital, will on the one hand increase the security for the tourists, but on the other hand, have a negative aspect on the sports atmosphere. The enhancement of public transport due to the hosting of the tournament is an opportunity to increase community services. Nevertheless, in June 2013, coinciding with the Confederations Cup - a World Cup test event, the price of public transport was supposed to be increased. But this price increase has been postponed, due to the hard protest that took place in the biggest cities of Brazil. The riots were the result of the people’s disapproval of high fares, corruption, police violence and street crime (Watts, 2013). These protests showed that many Brazilians do not see the benefits that the hosting of the tournament could bring them, and feel the government is investing more in useless infrastructure rather than improving the average Brazilian’s living conditions. This could result in a strong negative impact if the local community does not believe the tournament is going to benefit them, and this could result in a loss of trust in the national institutions. Many Brazilians oppose the government’s investing money to renovate and build new stadiums and believes that the national institutions should be closer to the people and focus on their priorities. The government needs to take measures in order to justify in a better way its investment for the World Cup, as well as for the Olympics in 2016, to avoid further and possibly escalating protests from its population. On balance, one can say that the social impact is a mixed picture. The social inequalities, the poor public services and the consequently chronic crime made the federal government take drastic methods to increase short-term safety (until the end of the event). But this can also be an opportunity to finally tackle this issue and propose long-term actions to decrease the crime rate and the insecurity in Brazil. Moreover, the 17
  18. 18. benefits generated by the event, if spent on major social projects, could bring long-term positive effects on social cohesion. 18 4. Sustainability As Griesbeck (2014) claims “the World Cup in Brazil is going to be the next quest to increase international awareness of football’s potential to affect positive change. And to ensure that the costs of these events do not outweigh their social and economic benefits, we need a strong commitment to a sustainable social legacy.” Football is considered as the most practiced and followed sport in the world. In this sense, football is not only the practicing of the sport, but is also used as a window for values and morals (e.g. fair play, fighting racism). Sustainability is also one of those aspects that football is promoting. Thus, it is crucial that a mega-event as the World Cup needs to conform to sustainability rules in order to safeguard the environment and produce positive legacy for the long term (Hall, 2012). If there is a cost for governments and for the organizations to comply with environmental and social responsibility, the benefits are not negligible; contribution to the good reputation of companies and public organizations; and opportunities for investment in the carbon market (Ernst&Young, 2011). The most straightforward aspect concerns the building and renovations of the stadiums. In 2012, at the United Nation Conference for Sustainable Development in Rio, the local organizing committee presented its strategy to organize a sustainable event. Moreover, FIFA’s head of corporate social responsibility, Federico Addiechi, claimed an investment of 20 million US dollars would be made in order to support the community with waste management, and renewable energy recycling. This has resulted with the hosting stadiums to be equipped with solar generators to generate energy, and the water will be filtered from the rain, the water used for the showers will be recycled for the pitch irrigation (Copa2014.com3, 2014). Their desire is to succeed building stadiums with LEED certifications
  19. 19. (Leadership in Energy and Environmental Design). This certification, created by the US Green Building Council (USGBC) is based on two principles: the reduction in waste and employed resources, the reutilization of the materials and the recycling of materials. Of the twelve cities chosen to host the event, only the stadium in Fortaleza, the Castelão Arena, which was the first to complete its renovations, received a LEED certification. In addition, the FIFA and the Local Organizing Committee established a sustainability-training course for all the stadium operators. The goal is to “strengthen the participants knowledge of sustainable operations at soccer stadiums and other sport facilities” (Environmental Management & Energy News, 2013). The FIFA’s objective for the 2014 World Cup is to organize a pillar sustainable event that can be considered in the future as a model for the next mega events, as the World Cup in Russia (2018) and Qatar (2022) (, 2011). This socioeconomic analysis cannot be dissociated from analyzing the environmental impacts of the event. Investing in a more sustainable event, means contributing to a decrease in inefficiencies, in social and environmental costs, as well as waste. The United Nations Environment Program (UNEP) claims that six crucial areas must be considered for their economic, social and environmental indicators: ecosystem management, environmental governance, disasters and conflicts, climate change and harmful substances and efficient use of natural resources (, 2014). Concerning the relation with the local community, it is essential to “ensure urban quality, accessibility, security, access to information, environmental education and usefulness of facilities, as well as urban interventions after the event” (Ernst&Young, 2011). The government and other private entities involved in the organization of the World Cup need to ensure the responsible management of raw materials, as well as the use of natural and economic resources. One striking element is the reduction of carbon dioxide (CO2) emissions from the combustion of fossil fuels, a major cause of the greenhouse 19
  20. 20. effect. The “Green Goal” program has been established by the FIFA since the 2006 World Cup in Germany together with the Local Organizing Committee (LOC) aiming at environmental protection and has since then is strengthened. For the 2018 and 2022 World Cup new measures have been considered in the bidding such as the establishment of an Environmental Advisory Board, which deals with issues regarding energy, water, waste, transportation, as well as climate change (, 2014). As regarding the 2014 World Cup, Jerome Valcke the secretary general of FIFA, announced that emissions would be reduced through implementing verified carbon offsetting projects encouraging stakeholders to reduce their carbon footprint (Valcke, 2014). The carbon footprint measures how much carbon dioxide is produced by all activities of the even arising from the combustion of fossil fuels. The organizing body expects the Brazilian World Cup to generate over 2.7 million metric tons of CO2, of which transport alone will generate 80.1 percent of the carbon footprint (Valcke, 2014). Nevertheless, the carbon-offsetting plan does not have a full outline of its range of action and precise goals. Therefore a drastic improvement could be obtained by adopting a carbon-offsetting project, which goes beyond planting trees (which is currently the most advertised alternative) to reduce CO2 in the atmosphere arising from the combustion of fossil fuels. Ernst & Young specialists claim one solution could be “a carbon offsetting program, which encourages the use of vehicles that run on ethanol or biodiesel, the search for energy efficiency of companies, “green building” projects and monitoring of carbon emissions before, during and after (the event)” (Ernst&Young, 2011). To strengthen the environmental dedication of the Brazil World Cup, the FIFA decided, upon request of the NGO Associaçao Caatinga (committed to the protection of the Amazonian Forest), that the Armadillo would be the mascot of the event. This animal not only represents the biodiversity of Brazil but is also threatened with extinction (, 2014). 20
  21. 21. 21 5. Risks and Constraints For the country to benefit fully from the hosting of the World Cup, specific risks and constraints must be considered. The current turmoil before the World Cup is a symptom of the situation of the nation: instead of an ongoing dynamic, the country apparently faces only doubts and gaps. The mass protests in summer 2013 showed that the growing middle class does not let things happen against their will and without their agreement. The tax burden for the people, and for the entrepreneurs rises constantly and represents now up to 36 percent of the Gross Domestic Product (GDP) (Rüb, 2014). The underperformance of the inefficient administrative organization is on all levels significant. Only a small number of public schools reach their educational mission, therefore private educational institutions are in a boom. The governmental health system is not financed enough and is overstrained; and cannot sustainably get better through the import of thousands of doctors from Cuba (Lehman, 2014). The inadequate public transport in Brazil’s agglomeration is the result of the growing urbanization - almost 90 percent of the 200 million Brazilians live now in the cities. Meanwhile, more and more cars choke the metropolises and the transport of goods goes over old and ill-maintained railways. Brazil’s investments into the infrastructure are only around two percent of its GDP, a low amount compared to the more than five percent of developed countries (Rüb, 2014). The Brazilian government tries to increase its income through unproductive measures. In addition, 90 percent of violent crime in the dangerous cities of the country remains unsolved (Rüb, 2014). This is the reason for the boom of private security companies: which represent almost one percent of the country’s economic activity (Rüb, 2014). Over one hundred thousand men in Brazil spend their best working years as upper-and middle class security guard, who live behind tall walls in the main cities. Of course, the security guards and their families have a
  22. 22. medium-high income through this business and it is a support to keep the unemployment rate low. But the productivity is significantly low and security guards only fill a gap that the authorities left open (Rüb, 2014). Furthermore, as mentioned above, general taxes and excise taxes, but also the burden of bureaucracy and corruption is as high as nowhere else, and are summarized in the notorious term “Custo Brazil”, Brazil Cost (Leahy, 2014). The strong economic growth from 2003 until 2011 was mainly because of the domestic consumption of the lower and middle class that received multiple transfer payments from the leftist government under president Luiz Inácio Lula da Silva. But Brazilian society is in poor shape since the assumption of office of president Dilma Rousseff. The economy is growing slowly, the inflation pulls, investments and loans decrease, bankruptcies rise (Hughes, 2014). The national economy of Brazil cannot protect itself behind protective barriers and arm for global competition, which will overtake the country soon. The needs of Brazil can be categorized in “small needs” and “large needs”. Those can be satisfied by means of “bottom-up” or “top-down” public policies and actions (Ernst&Young, 2011). These two different approaches present different positive impacts and as well as weaknesses; but the risks are identical, as are the costly interventions and bureaucratic inefficiency. Brazil’s long tradition of vertical planning, where the decision making process is made by the government and spread out to the different local public institutions and authorities remains a problem. There is often very little local autonomy, and consequently very little control over the agents responsible for the policies, and therefore very little feedback on the efficiency or effectiveness of policies and actions on a local level. These issues are present in all the relationships within the public institutions, more specifically between the central government and the other entities, but also at state and municipal level. These risks are increased by implementing a “top down” public policy, because due to the imperfections in the decision making process, the actions can result ineffective, highly costly, or simply do not have any effect. 22
  23. 23. Regarding the central planning issues, one can observe the “crystallization and political takeover of public administrations at various levels, which represent a significant obstacle to the implementation of bottom-up policies” (Ernst&Young, 2011). In Rio de Janeiro for example, attempts such as the subdivision of in sub-city halls (“subprefeituras”) crashed into coordination issues, more specifically between the shared and individual responsibilities of the community (Grin, 2011). This lack of organization and coordination also resulted in delays in the construction of the stadiums, which worries the organizing body, and is putting Brazil’s international reputation at stake. The major risk that Brazil is incurring concerns the significant investment it has made for the hosting of the World Cup, making use of private and public resources that could, and according to many Brazilians should, be used for different purposes – such as for hospitals, schools, etc. This trade-off carries an opportunity cost. This opportunity cost is significant, since most of the positive impacts are temporary, and the legacy depends on how much the host country capitalizes on its investments (Ernst&Young, 2011). Some constraints are represented by the bargaining between the host country and the FIFA. A controversial aspect of hosting a World Cup is that the FIFA requires a country to temporarily change their laws to comply with its requirements. Those requirements enable FIFA to decrease country tax payments and prevent other than sponsor-businesses to be associated with the tournament, and in the case of Brazil, allowing the selling of alcohol inside the stadiums, which are currently banned in Brazil. A key point comes from the sale of the tickets, which will mostly benefit the FIFA. In addition, the high prices of tickets increased the dissatisfaction of Brazilians. The Brazilian sport minister Aldo Rebelo has managed to negotiate a 50 percent discount for the elderly population and for students, claiming that the initial price was unacceptable for Brazilians. Rebelo insisted explaining that the World Cup should be a celebration of the Brazilian people, and high prices would 23
  24. 24. prevent most of Brazilians from attending the matches (FoxSoccer, 2014). The fact that the prices are so high, due to inflation, and the major security issues that Brazil is facing, could also result in a decrease in the number of expected tourists. 24 6. Long Term Opportunities As set out in the previous chapter, the hosting of a World Cup carries a significant opportunity cost. Nevertheless, the bid to hosting the World Cup is highly competitive because countries believe they can benefit of long-term opportunities. Of course, to obtain the greatest returns on the hosting of the event, Brazil’s actions and investment must be carried out efficiently. This means, carrying them out at the lowest cost possible (in terms of time and of resources) to obtain the planned results. Generally, the success of a project can be summarized by three major objectives, the meeting of the deadline, the required quality, and finally, meeting the estimated cost. This is the so-called triple constraint triangle of project management (Dobson, 2004). Concretely, this supposes the performance of the actions to achieve the project within the deadlines and the budget, while ensuring the quality. The World Cup does not only bring investments in infrastructure, but more importantly, it mainly brings media attention together with an increased economic activity and numerous opportunities for the federal government as for the whole society itself (Pauw & Witteman, 2014). The World Cup offers an opportunity to its host cities, which goes beyond the single event. In fact, it can be considered that the hosting of such an event becomes a landmark for the history of these cities. These locations can benefit of an increase of revenues, which can be reinvested and are a huge opportunity to improve the quality of life of the citizens (2014 FIFA World Cup and 2016 Olympic Games: Brazil’s Strategy ‘to Win Hearts and minds’ Through Sports and Football, 2013). In addition, the benefits for the country as a whole can be observed by the rapid growth of
  25. 25. infrastructure building and renovation that would take much longer if the event would not take place. In fact, the large investments of the government in infrastructure for their improvement and expansion, regarding the stadiums, urban mobility, and airports and ports, clearly benefit Brazil. These effects may not be immediate, but will be measurable in the long term. The development of communications and the investment of the media in the World Cup are also a key long term opportunity, and plays a fundamental role in what can be considered the more striking impact of the hosting of such an event, the reputation of the organizing country (Pauw & Witteman, 2014). Brazil can benefit of an advertisement of its country, showing the world, besides the World Cup events, that it has centers of excellence in innovation, a strong economy and multicultural and modernly developed cities (Ernst&Young, 2011). The federal government will need to take advantage of these opportunities by implementing efficient planning, control, monitoring, without neglecting reputation management, transparency, sustainability and legacy. The revenues generated by the event in its various sectors as we analyzed in our previous chapter is without any doubt significant. Yet the country’s reputation gain provided by the success of the event can be more significant than the gain in revenues. As explained previously, the self-esteem of Brazilians in general can be positively affected (Ernst&Young, 2011). The event itself is of course not only a sporting event, but can also be considered as political. It is the consecration of a country on the international scene. In fact, studies have showed that mega events are vehicles used to strengthen the soft power, i.e. international influence, of its host countries (Black and van der Westhuizen, 2004; Cornelissen, 2012). For former president Lula Da Silva and current president Dilma Rousseff the hosting of the World Cup in 2014 and the Olympic Games in 2016 will make the international public opinion think that Brazil is non only becoming a global actor, but a giant economic power (2014 FIFA 25
  26. 26. World Cup and 2016 Olympic Games: Brazil’s Strategy ‘to Win Hearts and minds’ Through Sports and Football, 2013). Thus, the tournament can contribute with great impact to improve the country’s image abroad as it awards a certain prestige on the international scene. Indeed, sport has always permitted countries to show their strength and power. This is a real political tool to legitimize itself in the international arena and to obtain recognition. The success of the event is thus more than necessary and the way the country is going to take advantage of this positive image will result in long-term impacts on its reputation (2014 FIFA World Cup and 2016 Olympic Games: Brazil’s Strategy ‘to Win Hearts and minds’ Through Sports and Football, 2013). Moreover, a good reputation leads to positive effects deriving from it. As examples, one can think of an increase of foreign investments, a greater flow of tourism, as well as a higher credibility and visibility of Brazil (Pauw & Witteman, 2014). The success of the event is also linked to what involves the planning, the sport efforts, the cultural activities and all the supplementary activities that will be organized that create a certain “World Cup atmosphere”. An atmosphere where people get engaged, such as cultural events, artistic events, or festivities, that represent the country’s identity and sponsors it in a strong way (Ernst&Young, 2011). In the long term, we can also say that the reputation gain derived from the host of the World Cup is also related to the legacy that will remain. If at the end of the tournament, the feeling is that the event was a success, and that it left a positive legacy to the local population, Brazil will gain in reputation. Consequently, it is vital that the Federal Government avoids leaving a huge debt or building costly infrastructure that will become useless at the end of the event (Ernst&Young, 2011). This, will result not only in savings the public budget, but will also avoid that the World Cup becomes an exponential trigger for further massive social protests and an increase in the general dissatisfaction of the Brazilian people. 26
  27. 27. 27 7. Conclusion The organization of a World Cup is very challenging for its organizing country. The event is highly costly and the repercussion on the local population may be not favorable, especially during times of economic crisis, as is clear from the widespread social unrest that developed. In fact, the public budget that is spent for the event could, in the views of many much better, be spent in order to improve education, healthcare, housing etc. However, as we have seen, organizing such a mega-event can be a significant opportunity for progress. Therefore, a key question is whether the organization of the 2014 FIFA World Cup can be welfare enhancing for Brazil? Firstly, it can improve the economic situation not only temporarily, but also in the long term. Furthermore, this sport event can contribute to the social inclusion of the underprivileged, and improve people’s self-esteem, along with gains in education through the experience of the tournament. On top of this, some sustainability aspects have also been considered, with the construction of “green” infrastructures, which will result in savings of waste and money in the long run. Of course, the mega-event’s ultimate success will be measured in different ways by the various stakeholders. From the point of view of the visiting tourists, success will be characterized by enjoyable, accessible events associated with quality of service, and safety. For most Brazilian people, it will be measured by their enjoyment of the economic and social benefits, especially in the longer run. On the other hand, for the government, the success of the event will be measured by a generation of revenue, the reputational gain, credibility and visibility. Nevertheless, with the World Cup not even started, the important social tensions and already significant delays in the ambitious infrastructural projects show Brazil’s limitations in planning and coordination, as well as in effectively communicating the expected benefits. Combined with the already high costs, the event could thus result in significant overspending, and increase Brazilians’ already critical attitude towards the event. The
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