PREDICTING THE IMPACT OF “FIFA WORLD CUP 2014 AND

OLYMPICS 2016 ON THE ECONOMY OF BRAZIL”

Presented By:

Nimisha Agarwal (2013173)Nitesh Singh Patel (2013178)Nitin Boratwar (2013179)Pawan Agarwal (2013195)Prerna Bansal (2013209)Priya Jain (2013210)

Section: D, PGDM (2013-15)Term: IIIEconomic Environment of Business

BRAZIL: WHERE DOES IT STAND?The Global economy will grow

3.8% in 2014

In Brazil, higher interest rates and a weaker exchange rate

have emerged as key elements of the new macroeconomic

environment.

Brazil have revised their GDP forecast to 2.9% in 2014

Currency depreciation will help keep inflation under pressure

Public sector accounts are expected to worsen in 2014.

(Source: http://www.bbvaresearch.com/KETD/fbin/mult/1308_Brazileconomicoutlook_tcm348-398950.pdf?ts=28102013

EXPERIENCE OF PAST HOST COUNTRIES OF OLYMPICS & WORLD CUP

Most of such events have not been profitable

Only Los Angeles (1984) & Barcelona (1992) have been

economically profitable

Greece (2004) incurred a debt of $15 Billion

(Source: The Guardian, “Don’t Bank On the Olympics,” Jan. 6, 2012.)

(Source: International Journal of Olympic History)

IMPACT ON INFRASTRUCTURE & TOURISM OF BRAZIL

Brazil would be spending R$1 trillion in public works for renovation and construction of 12 stadiums

The projected work includes: building new roads

Creating a rapid-transit train between São Paulo and Rio, new subway lines in São Paulo and new ports

Expanding 12 airports

Compared to London Olympics (40%), Brazil is more interested in infrastructure development rather than spending on sports activities

(20%)

Constant growth in tourism industry from last 5 years

79% increase expected in tourism because of sports events

FIFA would account an additional income of R$5.94 Billion

IMPACT ON TELECOMMUNICATION

Announcement of R$13 Billion broadband plan

Subsidies to go from R$12 Million to R$40 Million

Brazilian broadcasters (Globo, RBS and Net Servicos) are expected to show a double digit growth

Govt. asked the telecom companies to spend more in Brazil

IMPACT ON TRANSPORTATION

To fulfill the demands of increased tourists

R$1.21 Million will be spent

Maintenance of 4334 KMs of

highway needs an additional

R$1.44 Billion

IMPACT ON SOME MORE AREAS

Environment

Community involvement & development Consumer

issuesLabor practices

Reputation management

QUANTITATIVE ANALYSIS

Year GDP (current US$)

Gross capital formation (Current US$)

Gross capital formation to GDP ratio

2002 504221228974.04 81663993995.02 16.20%

2003 552469288267.79 87129021774.46 15.77%

2004 663760341880.34 113618119658.12 17.12%

2005 882185702547.25 142964667214.46 16.21%

2006 1088916819852.94 182456341911.77 16.76%

2007 1366853244424.28 250511754912.33 18.33%

2008 1653538618144.80 342190754912.48 20.69%

2009 1620165226993.77 289005630590.52 17.84%

2010 2143035333258.24 433720677049.82 20.24%

2011 2476652189879.72 488550903630.68 19.73%

2012 2252664120777.39 397297535308.29 17.64%

Gross Capital Formation to GDP Ratio of Brazil for period 2002-12

Source: http://data.worldbank.org/topic/economy-and-growth

Figure: Gross Capital Formation to GDP ratio plotted using MS-Excel

QUANTITATIVE ANALYSIS

Year GDP (current US$)of Brazil FDI (current US$) of Brazil

2002 504221228974.04 16590204193.11

2003 552469288267.79 10143524670.99

2004 663760341880.34 18165693855.28

2005 882185702547.25 15459981604.12

2006 1088916819852.94 19378093068.00

2007 1366853244424.28 44579492464.00

2008 1653538618144.80 50716402711.00

2009 1620165226993.77 31480932200.00

2010 2143035333258.24 53344632547.00

2011 2476652189879.72 71538657409.37

2012 2252664120777.39 76110663188.77

Correlation Analysis of GDP and FDI for the period 2002-12 of Brazil

CORRELATION VALUE = 0.94 (STRONGLY RELATED)

YearGDP growth(annual

%)(X)

Inflation, consumer

prices(%)(Y)2001 1.31 6.842002 2.66 8.452003 1.15 14.722004 5.71 6.602005 3.16 6.872006 3.96 4.182007 6.10 3.642008 5.17 5.662009 -0.33 4.892010 7.53 5.042011 2.73 6.642012 0.87 5.40

Regression Analysis between GDP growth and Inflation

http://data.worldbank.org/topic/economy-and-growth

http://data.worldbank.org/topic/economy-and-growth

  Coefficients Standard Error t Stat P-value Lower 95%Upper 95%

Lower 95.0% Upper 95.0%

Intercept 8.053798911 1.4277884 5.640 0.0002 4.8724 11.235 4.87249 11.23511

X Variable -0.443019507 0.35210017 1.2582 0.2369 1.2275 0.3415 1.22755 0.341509Regression Equation: Y = 8.053 – 0.443X where Y is Inflation (consumer prices) and X is GDP growth (annual %) of Brazil.

YearGDP growth(annual %)(X)

(Source : World Bank.org)

Inflation, consumer prices(%)(Y)(Source: pwc.co.uk)

Forecasted Inflation (consumer prices)(%)(Y) using regression equation (Y=8.053-0.443X)

2013F 2.20 6.2 7.082014F 2.40 5.8 6.992015F 2.70 5.6 6.85

Source: http://www.pwc.co.uk/economic-services/global-economy-watch/gew-projections.jhtml http://www.worldbank.org/en/publication/global-economic-prospects/data?region=LAC (where F = Forecast)

CONCLUSION

We find that Brazilian Govt. might be able to conduct both the events successfully

They need to be cautious in evaluating costs & benefits

Risk of cost overruns

Time delay must be avoided

Development banks should refrain from non-infrastructural investment

Commercial banks should invest in non-infrastructural investment

Government should enter into PPP to avoid risks

Legal system should be fast & robust

REFERENCES

• ErnstandYoungReport(http://www.ey.com/Publication/vwLUAssets/Sustainable_Brazil_-_World_Cup/$FILE/copa_2014.pdf

• http://www.managementcanvas.iimindore.in/icanvas/index.php?option=com_content&view=article&id=224:world-cup-2014-rio&catid=44:other-areas&Itemid=61)

• http://www.americasquarterly.org/zimbalist

• Standard & Poor’s Credit Week “Brazil Gears up for the Games”

• http://www.fifa.com/mm/document/fifaworldcup/generic/02/11/18/55/sustainabilitystrategyconcept_neutral.pdf

• http://www.ey.com/Publication/vwLUAssets/Sustainable_Brazil_-_World_Cup/$FILE/copa_2014.pdf

• Brazil Gears Up For the Games- Standard & Poor's (July, 2012).

• Capturing the momentum: E&Y's 2012 attractiveness survey- Brazil Ernst &Young (2012).

• Source: Jose Roberto Afonso, Reuniao do Conselho de Economia da Associacao Comercial de Sao Paulo, April 26, 2010

• http://data.worldbank.org/topic/economy-and-growth

• http://www.pwc.co.uk/economic-services/global-economy-watch/gew-projections.jhtm

• http://www.ey.com/Publication/vwLUAssets/Sustainable_Brazil_-_World_Cup/$FILE/copa_2014.pdf