Brazil's Race to Meet Infrastructure Deadline for World Cup and Olympics

Brazil was ready on Monday to accept bids to construct a 500-mile bullet train railway from São Paulo to Rio de Janeiro, but no one made an offer. The discrepancy between the Brazilian government’s estimate of the railway’s cost and that of the private sector may be a factor in why the German, French, South Korean, Chinese, and Japanese companies who had taken an interest ended up shying away. The Brazilian government estimates the cost at $34 billion, while private-sector estimates run closer to $55 billion, raising doubts about the line’s profitability. With no one interested in joining the project until more studies are done, Brazil was forced to postpone the auction for the third time since November 2010, casting doubt on completion of the project by the government’s 2016 deadline. 

Monday’s episode highlighted the obstacles Brazil faces as it prepares to host the World Cup in 2014 and the Olympics in 2016. It’s not uncommon for planners to fret about construction projects running behind schedule in the lead up to such massive sporting events. People worried Greece wouldn’t be ready to host the Olympics in 2004 or that South Africa would fail to accommodate the 375,000 visitors who showed up for the World Cup in 2010. Still, the stakes are high for Brazil, which can expect as much as $34 billion in private investments for hosting the two events. The figure, put forth by professional services firm PwC on Tuesday, amounts to more than three times that of recent Olympics host cites Barcelona and Sydney. That investment comes on top of more than one trillion dollars the Brazilian government has put into infrastructure between 2007 and 2014, financed primarily by the Brazilian National Development Bank. One of the principal beneficiaries is the state-run engineering enterprise Odebrecht, which has received lucrative contracts to build or renovate several soccer stadiums, including São Paulo’s Itaquerão and Rio de Janeiro’s Maracanã, as well as to modernize Rio’s port and construct new subway lines in Rio and São Paulo. The Tourism industry also expects boom times ahead, with Brazil’s tourism ministry estimating visits from between 800,000 to one million foreigners during the World Cup games alone.

Yet many major projects, from ports to hotels to highways, are running behind schedule. Itaquerão stadium in São Paulo has yet to be built. After three years of squabbling, news reports say that FIFA will soon announce the stadium as the site of the World Cup’s opening match, despite the organization’s worries about construction delays. Only two of 13 air terminals are on track to finish their expansion work before the World Cup starts in June 2014, according to Brazil’s Institute for Applied Economic Research. A fourteenth, entirely new airport in Natal, a northeastern city that will host World Cup games, is also behind schedule. The need for new investment prompted the Rousseff administration in May to offer concessions to private companies to operate five passenger terminals—an activity formally monopolized by the Brazilian government. Adding to the government’s infrastructure woes, Transportation Minister Alfredo Nascimento resigned July 6 after Brazilian weekly Veja reported that high-level functionaries in the ministry were running a kickback scheme and scooping up profits by overcharging. The transportation ministry administers some $313 billion worth of infrastructure projects, the Associated Press reports.

Not all the news about Brazil’s infrastructure projects is gloomy, however. Infrastructure improvements are not the only economic benefits that promise to outlast the games themselves. The Economist Intelligence Unit estimates in its monthly report for July (supscription only) the World Cup will play a major role in lifting economic growth by nearly a percentage point during 2013-2014, to 4.8 percent. Of the 90,000 jobs that PwC estimates the World Cup and Olympics will create, some 35,400 of them will be permanent. In addition to Brazil’s massive infrastructure update, Rio de Janeiro and other cities can expect a long-term increase in tourism revenue. By hosting both events back to back, Brazil also enjoys the opportunity to boost its image as a place for companies to establish permanent operations, as Adidas and Omega did in London ahead of the 2012 Olympics.

Learn more:

• The new issue of Americas Quarterly, which hits newsstands August 15, covers sports in the Americas. In the issue, Andrew Zimbalist explores Brazil's infrastructure needs ahead of these two major sporting events while Larry Rohter weighs in on the issue in the magazine's "Ask the Experts" section. Learn more about the Summer 2011 issue of Americas Quarterly.
• Consult the Brazilian National Development Bank’s website.
• Read Veja’s reporting on the Transportation Ministry scandal.
• See Odebrecht’s 2011 annual report.
• View A Folha de São Paulo’s infographic about the high-speed rail link between São Paulo and Rio de Janeiro.
• Read the Financial Times’ 2010 special report on Brazilian infrastructure.