Global Economics

Olympics Won, Brazil's Work Begins


The IOC's nod to host the 2016 Olympics will require a crash program to upgrade Rio de Janeiro's sagging infrastructure

If there was any doubt that Brazil is on a roll??conomically, politically, and diplomatically??hat doubt was dispelled Oct. 2 when the International Olympic Committee voted to hold the 2016 Summer Olympics in Rio de Janeiro. The IOC chose Rio over Chicago, Madrid, and Tokyo after Brazilian President Luiz In??cio Lula da Silva made an impassioned plea for the Games to be held for the first time in South America.

"I honestly believe it is Brazil's time," Lula, as the President is popularly known, told the Committee before the vote. "Our rivals today have all hosted the Games in their countries before. For them it will be just one more Olympics. For us, it will be an unparalleled opportunity."

There is no doubt about that. Rio de Janeiro, a city of some 6 million people, has budgeted $14.4 billion to prepare for the Games, the largest amount offered among the four cities vying for the event. And it will need to spend every penny to build infrastructure that is sorely lacking in the fabled seaside mecca of sun, samba, and soccer.

Brazil Also Has the 2014 World Cup

Rio, which served as Brazil's capital for nearly two centuries until a new capital was built from scratch in Brasilia in 1960, is a beautifully situated city, ringed by ocean, tropical coastal rainforest, and a series of dramatically shaped rocks jutting from the ocean, including the picture-postcard Sugar Loaf mountain.

As gorgeous as the city is, its infrastructure went downhill after the capital moved to Brasilia. Few new roads and tunnels have been built in the past 20 years. Rio has dozens of three- to five-star hotels that each year receive hundreds of thousands of tourists for the world-famous Carnaval festivities, but many more will be needed.

Rio does boast the storied Maracan?? soccer stadium, the largest stadium in South America, which was built in the 1950s for the FIFA World Cup and is being refurbished for the 2014 World Cup, which Brazil is hosting. Other facilities were built for the Pan American Games that Brazil hosted two years ago. But many more sports venues must be constructed.

"Rio de Janeiro needs to dramatically improve its infrastructure for an event of this magnitude," says Adriano Pires, director of the Rio-based Brazilian Infrastructure Center. "You name it??ublic transportation, subway, water and sewer, electricity."

Another Achievement for Lula

Rio's selection as the 2016 host city for the Olympics caps a remarkable record of achievement for Lula, 63, a former lathe operator who rose to become the country's most prominent labor union leader before winning the presidency in 2002 on his fourth try. Although he never finished elementary school, the bearded, folksy leftist leader has skillfully managed the country's economy, setting aside his old populist rhetoric to hew to prudent, conservative fiscal and monetary rules that kept the country from suffering unduly from the international economic downturn. That helped nab an investment-grade rating for the country's sovereign debt last year.

At the same time, he used the country's fast-growing pile of international reserves??ow at a record $224.2 billion, thanks to recent record-high prices for soy, iron ore, and steel exports??o beef up social policies that have boosted the minimum wage by 45% in real terms in seven years and helped push 24 million Brazilians above the poverty line. The middle class, those earning from $617 to $2,600 a month, has risen from 38% to 50% of the population since 2003.

The President also has guided the country to international diplomatic prominence, taking bold stands before the World Trade Organization, for example, against farm subsidies in the European Union, Japan, and the U.S. that he says harm developing nations. And recently, he has pushed hard for Brazil to occupy a seat on the U.N. Security Council.

Even U.S. President Barack Obama, who unsuccessfully lobbied the IOC on behalf of Chicago, acknowledges Lula's charisma, recently calling him "the most popular politician on earth."

Oil Discoveries Fuel Growth

Politics aside, Brazil has been helped by Mother Nature as well: Over the past two years, state-run oil company Petrobras (PBR) has discovered huge new deepwater oil reserves off the coast of Rio de Janeiro and S??o Paulo that could turn the South American nation into one of the world's leading oil producers and exporters in a decade. Petrobras has embarked on a five-year, $174 billion investment program to double Brazil's production to 3.5 million barrels a day by 2012. Already, Petrobras has placed several years' worth of orders for offshore oil platforms, supply ships, and other industrial equipment??o much that the world's oil majors are having trouble placing their own orders.

Those oil discoveries, plus strong domestic consumer demand thanks to increasing incomes, helped Brazil emerge quickly from recession. Although the economy will shrink slightly this year, it's expected to grow by as much as 5.3% in 2010, according to a new estimate by Bank of America/Merrill Lynch (BAC).

The government in 2007 announced a major Growth Acceleration Program that is fueling some $359 billion in infrastructure investment to build new airports, highways, ports, and other facilities throughout the country by 2010, in a bid to boost economic growth from an average of just 2.5% per year to 5%. Although Lula has embraced many free-market concepts, he is still a big believer in a strong role for the government in promoting economic growth.

But the government will likely need major help from the private sector to be ready in time for the 2016 Olympics. "I hope that Lula understands that the government's role should be to oversee investment and that the private sector should have a preponderant role in getting things ready for the Olympics," says Pires, the infrastructure consultant.

Cleaning Up the "Favelas"

One big task the government will have to take the lead on is making sure the hordes of tourists and athletes who go to Rio in 2016 will be safe. Southern Brazil, where Rio is located, has one of the highest homicide rates in Latin America. When Rio hosted the 1992 Earth Summit, which drew presidents and environmental leaders from around the world, worried organizers placed army tanks on strategic street corners around the city, providing residents with a weeklong respite from muggers, pickpockets, and other petty and not-so-petty crime.

No one is expecting to see army tanks on the streets this time; although crime is still a problem, Brazil's economic advancement over the past decade has reduced poverty and helped chip away at the huge gap between rich and poor that contributes to a high crime rate.

But Rio is pockmarked by several hundred "favelas," or shantytowns, where hundreds of thousands of poor people live in cramped, precarious quarters just a stone's throw??r a stray bullet's path??rom upscale condominium complexes where the city's wealthy minority live.

Ruthless drug-trafficking gangs control many of the favelas, although the city government has moved in recent years to start cleaning them up and provide security, proper electricity, water, and sewage facilities. "It's a shame that it takes something as big as the Olympics to get this needed investment, but hopefully this will be what it takes to finally transform Rio de Janeiro into a better city," says Pires.


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