The long-awaited Rio 2016 Olympics begins this weekend, and the event is already making history for the most unorganised and controversial Olympic event in recent memory.
The games haven’t even started yet, and they’re already plagued by security concerns, health scares, water pollution fears and contractors have been struggling to get the venue ready in time for the opening ceremony on Saturday.
It is believed that the bill for Rio will come to $4.1 billion, which is modest compared to the price tag for the Winter Olympics in Sochi, Russia, in 2014, which came in at a staggering $51 billion. What’s more, Rio’s spending on the games was supposed to help revitalise the city’s ageing infrastructure showcase a new Rio that has moved on from its troubled past. Or that was the plan…
Rio 2016 won’t help Brazil
Developing the infrastructure for the 2016 Olympics has nearly bankrupted the state of Rio de Janeiro, which had to be bailed out by Brazil’s federal government during June.
According to a recent poll, 50% of Brazilians now oppose staging the Olympics in the country, double the number recorded in 2013. And most economists are now confident that the money spent on the games, and the games themselves will generate almost no economic benefit for Brazil.
Goldman Sachs breaks down the numbers in a recent research report devoted entirely to Rio 2016 and the investment bank find that, overall, “Olympics related investment was just too small to generate a significant economic dividend/impulse given the sheer size of the economy.”
Breaking down the spending
Brazil’s spending on the Olympics can be broken down into three main buckets. These buckets include not just the spending on the Olympic Games but also spending on Paralympic Games and the 2014 FIFA Soccer World Cup.
The first bucket is the estimated operating costs to actually run the events. According to official sources, operating costs for the events are set to come in at $2.4 billion a total which will be 100% funded by the private sector, including sponsors.
The second bucket, includes investment/expenses related to sport facilities and other projects that would not have been undertaken if Rio had not hosted the events. These investments are estimated at $2.1 billion according to official figures of which 60% will be funded by the private sector.
The third and final bucket is the largest bracket of all. This bracket includes projects that either anticipate or increase federal, state and municipal investments in infrastructure and public policy programs such as tramlines, subway lines and roads. Many of these investments have been funded through public-private partnerships and are estimated by government sources to be worth $7.6 billion with 40% of this total being funded by private sector sources.
In total, Goldman estimates that around $10 billion is being spent on infrastructure and logistics for Rio 2016, Paralympic Games and the 2014 FIFA Soccer World Cup. However, when you compare this figure to the size of Brazil’s overall economy, which currently stands at $1.8 trillion, the stimulus is just too small to produce any meaningful economic growth. As Goldman summarises:
“Overall, we believe the World Cup and Olympics related investment was just too small to generate a significant economic dividend/impulse given the sheer size of the economy (? US$1.8 trillion). Furthermore, due to a number of large macroeconomic imbalances that have grown and permeated the economy and the severe drop in confidence indicators, total investment spending has actually been contracting uninterruptedly for 2.5 years. Gross Fixed Investment has now declined for ten consecutive quarters (at a significantly high average rate of -11.6% qoq sa, annualized). Overall, gross fixed investment retrenched by a cumulative 27.0% between 4Q2013 and 1Q2016, and is now at the same level as 2Q2009.” — Goldman Sachs