Brazil's World Cup still half empty

Source:  Fédération Internationale de Football Association

As many on social media have pointed out, the World Cup 2014 emblem looked like a man hanging his head in shame (Figure 1).*

Not the shame that came from losing 7-1 to Germany (though that was pretty painful). The shame that came from knowing that hosting the World Cup reportedly cost the country $4.2 billion but more than half of Brazilians believed it would hurt the economy. That 50 per cent of Brazilians thought now was a bad time to find employment despite the government saying that the World Cup would create 710,000 jobs. That the number of poor people living in Brazil could have filled its World Cup stadiums 30 times over.**

After the dust settles, and the spotlight dims, the facts will re-emerge. The International Monetary Fund forecasts that the Brazilian economy will grow by 1.8 per cent this year, compared to a 10-year average of 3.5 per cent, because of weakness in manufacturing, consumer spending and export performance. Others are more bearish still. The central bank has raised interest rates in recent months, because of above-target inflation, leading to worries that economic growth will be choked off. Social discontent led to a number of high-profile protests in the months leading up to the World Cup.   

Brazil appears to have lost grip on the solid macroeconomic framework it established over the last decade. This platform generated high single-digit growth rates, funded active redistribution policies and contributed to a rapid fall in inequality. Between 2004 and 2012, poverty rates more than halved from 22 per cent to 9 per cent. Conditional cash transfer programs that provided monetary rewards in exchange for attendance at school and health centres improved outcomes for those on the lowest incomes. Between 1999 and 2009, the increase in per capita income of the poorest 10 per cent was nearly four times that of the richest 10 per cent. Out of a general rise in income, grew a substantial middle class.

This middle class is now demanding action. Brazil needs to take this opportunity to re-establish its credibility and tackle the hard problems that are preventing it from achieving sustainable and inclusive growth. It needs to push forward on much-needed reforms to infrastructure that would reduce local bottlenecks and improve the quality, not just quantity, of public education and healthcare. It needs to tackle wasteful corruption, which is estimated to cost between 1.4 and 2.3 per cent of GDP a year, and enables favours to the 'haves' at the expense of the 'have-nots'.         

Brazil will play host to the Olympics in Summer 2016. It is likely that between now and then we will see more protests from a discontented population. But, if the country undertakes substantive reform, we may also see a very different country when the spotlight returns.

* The green hands form the shape of a head, which is held in the yellow hand
** Author's calculation based on data from the World Bank and the Stadium Guide