In a few short months one of biggest shows on earth will be touring the country of Brazil. The FIFA world cup will take place in 12 hot cities within the country and looked at with a proper lense, this has the potential to be the fuel that the country needs to gain momentum and compete with other developed nations in the 21st century. Here’s what I mean…
Thousands of fired up, energy crazed fans and tourists from 32 countries will be pouring into the 7th largest economic marketplace in the world. This can be a very good thing for domestic business; food and beverage, automotive, hospitality and so on. But first we have to look at the problems that need solving before we can get there… starting with the Brazilian government.
Getting around – Looking at the travel facilitation… The Brazilian airport infrastructure company (INFRAERO) might not be up to the challenge of hundreds of thousands world-walkers coming into the country… namely because their infrastructure hasn’t been updated in a decade. During the 2013 holiday season there was a 15 hour delay for the majority of the flights from Brazilian airline giant TAM. These issues are recurrent and 1,000,000 soccer-crazed flooding an already hot tourist zone and expecting speedy travel could pose problems.
Shoddy construction – A more urgent problem is the construction of the stadiums, where 6 out of the 12 stadiums being built for the cup are well-behind schedule due to building and development problems. The last stadium, the hallmark stadium in Sao Paulo, is scheduled to be finished on April 13, 2014 – just weeks before the first game. Challenges in getting things up and running have included severe weather and the collapse of Itaquerao stadium that killed two workers. Since FIFA officials are already concerned with accommodation to and fro hotels and stadiums, the thought that construction is going to take within days of the cup to is a huge headache.
Pay to stay – The last issue hits the wallet. With an overcrowded atmosphere, tourist should expect a heavy raise in hotel prices .. 20-50% premium to what they’re charging right now. Supply and Demand, we get it, but a 50% rate hike is money that could be spent elsewhere for a hungry consumer..
Now, the flip side. If Brazil can take care of weaknesses within their country, there is major upside in the further development of their nation – we’re talking specifically financials, which would be the fuel for the country over the next decade. With enough momentum, this could trickle into the rest of South America leading the way for unprecedented development in the 21st century.
Because looking into the past is the most valuable tool, let’s look at what happened when someone across the way recently held the Cup.
South Africa / by the numbers – In 2010, SA hosted and had a GDP per capita of about 10,000 per year and 50% of its population living in poverty with a 24% unemployment rate. The games attracted 3.6 billion viewers. The estimated total direct economic value for GDP exploded to an estimated $21.3 billion that year alone. Also, 130,000 new jobs were created. The tournament hosted 32 teams with an average of 50 people per team, 14,500 VIPs and dignitaries, 500 officials and 10,500 media. An estimated 500,0000 foreign visitors (located outside of Africa) visited Africa and stayed for an average of 15 days. Thousands travelled to South Africa to spend money on the local economy. The positive impact also extended to South Africa’s food and beverage industry. Industry giant Famous Brands released to the press figures that showed a 24% increase in revenue during the Cup compared to the last year. South Africa’s automotive industry also took part… the Sunday Times (4/7/10) reported that the National Association of Automobile Manufacturers of South Africa indicated a 21% increase in car sales June 2010 compared to the same month last year.
That’s hospitality, food and bev, and automotive – just to name a few. Growth of 20-25% in an economy far more primitive than Brazil’s.
A look at Brazil – Brazil has always had great potential as an emerging market but they’ve been handicapped by a lack of solid and essential infrastructure, IE roads, railroads, marinas and airports. Until now.
With an estimated 16 Billion, not including outside investment – Brazil has made tightening its infrastructure the sole initiative. BOVESPA, the native equities market, will react positive to the spike in GDP and increased consumer traffic that Cup will bring to many industries. If the Brazilian government can properly allocate revenue from the games and continue to fix problems from the ground up – the future of the country could be very bright, potentially regaining their title as the economy of the future from a few years back.
With the Cup on its way we’ve begun to see some companies becoming major out-liars in the Brazilian markets. A recent report by Bloomberg pointed out that foreign investors are profiting off of publicly-traded companies connected to infrastructure projects for the World Cup. One particular construction company, which supplies concrete and scaffolding, has seen its stock price triple since 2010. Over the last year, growth in Brazil’s domestic economy has been very soft, GDP wise growing at less than 1%… and last quarter down 0.5%. The downtrodden environment makes it even more primed for a spike in growth. The investment and emerging market world I hope would recognize this and be ahead of the World Cup in placing capital into Brazilian companies, especially after the buy-low opportunity created by the emerging markets blip over the last month. It’s undeniable that a boom will occur in the short term when looking at South Africa’s numbers – it’s just a matter of it lasting beyond that.
Their leadership in the ethanol fuel movement is likely to take firmer hold in the coming years as typical gasoline prices rise with global inflation and country’s need a viable alternative, which is it.
While many are betting against the Brazilians because of recent troubles in the markets and controversy over investment allocations, we see it differently. We see the prospect of New growth, a stronger heartbeat and the possibility of economic prosperity that begins with the World Cup. With the Olympic Games following up in 2016, the vote of confidence the world is showing in the fighting country is on par with our belief in their potential over the next decade and beyond.