Can the Olympics Improve the Brazilian Market?

Can the Olympics Improve the Brazilian Market?

Posted on August 4, 2016

The opening ceremony of the Olympic Games takes place in Brazil tomorrow, placing Rio de Janeiro on the world center stage. Olympic spectators will finally be able to see the results of the billions of dollars the city has spent preparing for the games. The massive amounts of spending have been justified by promises of long term economic results, though the question remains if the Olympics can truly improve a country's economy.

Hosting the Olympics has a much larger significance than simply a sporting competition. Presenting the Olympics is an opportunity to showcase an emerging economy as having arrived. Brazil ranks among the top ten wealthiest countries and yet is the only one not to have hosted an Olympics. It will be the first South American country to do just that. The Olympics are Brazil’s opportunity to demonstrate its organization and ability to finance a global event. It is a chance to lead an international meeting and bond with foreign leaders.

International sports often reflect international politics. For example, 110 Russian athletes have now been banned from the Rio Olympics due to a doping scandal first reported by the World Anti-Doping Agency last fall. The report alleges a program of systematic doping by a country that is playing by its own set of rules. That sounds quite accurate when considering certain Russian actions such as using soldiers bearing no insignia to invade Crimea.

Greece’s hosting duties in Athens in 2004 foreshadowed the country’s financial problems as they went into massive debt as a result of the games. It has even been suggested that the Olympics triggered their financial crisis.

Brazil’s bidding on and awarding of the Olympics marks an entrance onto the global playing field, trade policies included. A discussion paper published by the National Bureau of Economic Research finds that the Olympics have a largely positive effect on trade – a roughly 30% increase in both imports and exports. Authors of the paper believe hosting a mega-event, such as the World Cup or the Olympics, is linked in practice to trade liberalization. Recent evidence supporting this would be the announcement on Monday of resumed bilateral trade of beef between the U.S. and Brazil, as well as Brazil signing a trade agreement on Tuesday with Argentina to reduce bureaucracy between the two countries.

Many doubt that the Rio’s hosting duties will have a net positive effect. Rio de Janeiro has spent the equivalent of billions of dollars on buildings, infrastructure and security necessary to host the Olympics.  A large portion of Rio’s $15 billion bid has gone towards upgrading the city’s transportation system. Some wonder if the money could have been better spent elsewhere, especially as the county is at the bottom of its worst recession in 80 years.

The upgraded rail and subway lines theoretically allow better access to public transportation, creating more job and housing opportunities for Rio’s underprivileged population. A new 10-mile rail line, costing $2.8 billion, was constructed to connect the western bairro of Barra de Tijuca to the hotels of Ipanema and Copacabana. The rail line cuts commute times to less than 30 minutes from what had been a 1-hour drive at minimum The utility of this subway line post-Olympics is uncertain as Barra da Tijuca is a relatively wealthy area and is not in as much need of transportation solutions as other areas of Rio.

Amid Brazil’s current political and economic troubles, economists see a light at the end of the tunnel. Or at least, they believe things have stopped getting worse. UBS Analysts commented in a client note on Tuesday that there are signs of recovery and the country is expected to rebound in the second half of 2016. Acting President Michel Temer has given economists and investors hope. Since taking on his new role in May, Brazil’s stocks, bonds and currency have all raised in value in response to Temer’s promises to limit spending and cut debts.

As Brazil rises up to meet the monumental challenge of hosting the Olympics, here’s hoping its economy and trade rise to Olympic levels, as well.