Economic Impact of the Olympics in Rio

When Brazil was awarded the right to host the 2016 Olympics in 2009, the country had great economic promise as the world's fifth-largest economy, beating out the United Kingdom. Brazil was viewed as a budding economic super power thanks to its vast mining and agricultural sectors, which helped bring about 33 million Brazilians out of economy in the last decade.

Recession

Since then, things have taken a drastic turn for the worst in Brazil and especially Rio with the country suffering from a significant recession due to the end of its mining boom and falling commodity prices. Corruption scandals and the Zika virus outbreak have also damaged the country's economy, and the Olympic games are unlikely to give it the boost it needs.

To host the World Cup in 2015, Brazil spend billions on stadiums, including $300 million to create the Arena Amazonia, where the professional team regularly draws less than 2,000 fans per game. The infrastructure spending for the Olympics in Rio de Janeiro are expected to top $25 billion, according to the New York Times. Countries vye for the opportunity to host the Olympic Games in part to boost tourism to their country, although there is little evidence that the games actually draw in new investment or increase tourism. Stadiums alone tend to produce very little economic benefits and cost a great deal of money.

Improving infrastructure

A recent report by Moody's Investor Service found that the Olympics will improve Rio's infrastructure, but gains from tourism will not help Rio recover from its longest recession in eight decades. In February, Moody's reduced Brazil's debt rating to junk status as the nation faces double-digit unemployment. Rio is expected to draw in nearly 350,000 visitors for the Olympics, offering merely a short-term boost to airlines, hotels, and food and beverage companies. Infrastructure costs alone for the Olympics have cost Brazil $7.1 billion, which includes a nail rail line. This is more than Brazil spent last year for the World Cup that spanned 12 cities.

Just 39 days before the Olympic games began, the federal government had to issue a $2.9 billion loan to help finance Olympic security in Rio after declaring a state of financial emergency in June. The games have already been plagued by problems, including several athletes being robbed, infrastructure still incomplete, and body parts washing ashore near one of the Olympic villages just before the games started. If the Olympics pays off for Brazil in any meaningful economic fashion, it will likely be to boost Brazil's stock market as six of the last eight games increased the stock market index of the host city for the two-week period during which the games were held. The only decline came during the 2000 Sydney Games.


Phil Shawe is an entrepreneur based in New York.