Rio Olympics 2016: Proof That Investments in Infrastructure Can Be a Waste of Money

The Olympic Games have always been seen as a country’s chance to shine and develop, a source of pride for the nation and a chance for it to expose itself to the world. The great majority of past Olympic projects revolved around the chance to spur economic growth and improve the host city’s infrastructure. But as the Rio de Janeiro 2016 Olympics slowly approach, many questions remain regarding the social and economic impact of the event.

The 1992 Barcelona Olympics are considered a model for success. The city managed to budget itself perfectly by not allowing substantial investments in infrastructure to get in the way of preexisting projects for urban development. Even though research has shown that industrialized countries have it easier, as economic impact is more substantial in cities like Barcelona, the games hosted in Spain proved a great example of proper budgetary administration.

Instead, the planning that has taken place so far suggests a very different outcome in Rio. While concrete investment in infrastructure and transportation may benefit the city, the way in which the games will be financed creates serious worries about their potential impact.

Brazil has announced to the International Olympic Committee it will allocate a total of $240 billion in its candidature file. Part of the money will be taken from PAC, the Federal Government's Plan for Accelerated Growth, which has provided great benefits in terms of security, education, and environmental sustainability to poor urban areas around the country. Also, the committee predicts no costs in Olympic projects following 2016. Considering the delay in the projects, this is extremely unlikely and might require finding even more funding elsewhere.

Investment of this sort can only bring temporary benefits to local businesses. Perhaps two months of outstanding tourism revenue, but that is all. The majority of the profit ends up in the pockets of the few large private investors who are granted tenders. A study by prominent Brazilian economists states that “development is highly uneven and tends to benefit private developers and construction interests.” Other than the transportation infrastructure, the long-term impact does not benefit the average citizen nor does it stimulate the general economy, even if it may promote the image of the city abroad. The critical issues that instead affect the population would remain unaddressed.

A not-at-all superficial illustration of strategic pillars by the planning team.

During the recently ended Confederations Cup, an important football tournament held in Brazil as a precursor to next year’s World Cup, protesters from large urban cities came out against an administration that focused more on sporting events than social services. Corruption in government, scarce funding of the health system, and police brutality are all symptoms of a quickly developing country that must still tackle core issues before being able to provide proper standards of living to its people.

Even though economists Haddad and Haddad predicted a total of $51.1 billion in returns from the investment by 2027, it is likely that the bulk of this capital would not translate into substantial governmental revenue, business growth, or social benefit. Rather, this would only reinforce a currently existing oligopoly of investors and constructors in Rio, expanding wealth inequality and social divides. Additionally, researcher Tommy Andersson noted that multipliers used to calculate returns are often inflated 10-90%, which means that the profit is most likely overestimated.

Even though Brazil is a rising economic power, the country still experiences dramatic domestic social problems in both security and welfare. Sporting events of this type have not done much to ameliorate this, and will not benefit the population as a whole. The population is demanding better legal rights, a stronger social service system, and more educational opportunities. Instead, the political class is responding by organizing ambitious and expensive events in a way that will not help the average citizen find a steady job or send his or her kid to school.

Rio must listen to the protesters and radically change the way in which it will finance the Olympic Games, bringing the general population back into the picture. The clock is ticking for the administration, and the planners must reallocate investment to where it is needed rather than to where it might be shown off.