What's the economic impact of hosting the Olympic Games? | Commercial awareness on The Gateway

What's the economic impact of hosting the Olympic Games?

As the games come to a close in Rio, what’s the economic value for the host country?

As the first South American country to host the Olympic Games, it's sometimes overlooked that Brazil is very much a poor country in conventional terms.

Indeed, according to the World Bank, around 10% of the population is still subsisting on $3 a day or less, a ratio comparable to some of the more developed African economies.

The fact that around 20 million Brazilians are still 'living in poverty' in official terms is often overshadowed by the strides the country has made over the past two decades.

Brazil's economy is now the ninth largest in the world in absolute terms – bigger than Canada and Russia's and close to overtaking Italy’s. Robust growth through the 2000s and early 2010s (driven in large part by Chinese demand for the country's natural resources) went hand-in-hand with the expansion of the middle class as fiscal stability and social welfare reform helped lift millions of families out of poverty.

However, this progression has since stalled as a perfect storm of falling commodity prices and political upheaval have thrust the economy into a tailspin.

The International Monetary Fund (IMF) forecasts Brazil’s GDP to contract by 3.3% in 2016. Meanwhile, the country's president Dilma Rousseff (conspicuously absent at the opening ceremony) is awaiting trial and faces impeachment amid allegations that she manipulated government accounts.

A timely boost

Rio 2016 – it was hoped – would be the pick-me-up Brazil needed to get its economy going again. However the run-up the event couldn't have been any less smooth.

In April, International Olympic Committee Vice-President John Coates described preparations as the worst ever seen following delays building stadia and other crucial facilities. To make matters worse, the outbreak of the zika virus led to a widespread health scare that forced a number of high-profile athletes to withdraw from the Games.

While the event has not been without its niggles, it may prove to be money well spent. The latest update by the IMF suggests, tentatively, that the recession is bottoming out, with the Games delivering a much-needed boost in the form of tourist receipts and higher spending by enthused local households. 

The total spend by foreign delegates and spectators over the two weeks is expected to come to $1.04 billion, while around 4,000 temporary jobs are thought to have been created by the event. 

Meanwhile, the MSCI Brazil Index, an exchange traded fund (ETF) that tracks a basket of Brazilian shares, rose by a whopping 8% during the opening 10 days of the games.

Braziliant future?

Confidence looks to be returning, due in no small part to the positive impact Rio 2016 has had in repairing Brazil's battered reputation, both at home and overseas. Indeed, the long-term boost to the local tourism industry is likely to surpass August’s spending many times over as images of Sugarloaf Mountain and Rio’s pristine beaches are beamed to living rooms around the world. 

However, Cariocas (as Rio's citizens are known) will be mindful of the fate suffered by other host cities in the aftermath of the Games. The financial legacy of hosting the event has proved crippling in many cases, and for every London 2012 success story there is an Athens or Montreal saddled with decades of debt. 

The final cost of hosting the Olympics is expected to be around $15 billion – an astonishing spend for a country in the grips of recession and battling a major health crisis. The strain on the city’s finances was clearly evident earlier in the year following reports in April that the local government was struggling to finance basic services amid mounting debts. 

Nor is there any guarantee that the swathes of tourists it’s hoped will descend on Rio’s beaches in the years following the Games will actually materialise. Negative publicity generated by tales of tourist and athlete muggings won’t help.

While the general consensus is that Rio 2016 has been a success, the city’s legion of street vendors face an uncertain future without Glover and co. patrolling Copacabana’s golden sands.

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