Brazil and 2014 FIFA World Cup - Research Paper Example

Brazil’s development will attempt to lead sustainability for the next World Cup Table of Contents Introduction 1 Background 1.2 Rationale for the study 1 1.3 Research aims and objectives 2 2. Literature review 2.1 Definition – events – sustainability 3 2.2 Link between event and sustainable management 4 2.3 Sustainability and standards 5 2.4 Research Design 6 3. Data finding, presentation and analysis 8 3.1 Investment in stadia – not sustainable 8 3.2 Adverse impacts of World Cup 10 3.3 SWOT analysis 10 4. Conclusion and recommendation 20 References 22 Figures Figure I: Monitoring sustainable events 4 Figure II: Sustainable Standards 6 Figure III: Consolidated Impacts of the 2014 World Cup 11 Figure IV: Direct and indirect impact on Brazil sector GDPs 12 Figure V: Distance between host cities 14 Figure VI: Carbon Footprint World Cup 2010 19 1. Introduction 1.1 Background Sports, conferences and entertainment events have become major events in which environmental sustainability has emerged as an important theme (Ponsford, 2011). Every event claims to be environmentally conscious but the extent to which the authorities take steps to attain sustainability remains a debatable issue. The event organizers should be responsible for making the first step towards sustainability as they make a major impact on the environment (Hill, 1998). The first step involves preparing an action plan based on various factors that are set together to create an event. Brazil is due to host the World Cup in three years’ time and the infrastructure development that this event calls for, is tremendous. Brazil is expected to invest US$18.7bn for the 2014 FIFA World Cup which will fund 50 projects in 12 Brazilian host cities (Portal Brasil, 2010). The Minister for Sports claims that the development of Brazil to meet the demands of the event would greatly improve the country for the citizens. 1.2 Rationale for the study Hosting the World Cup requires the nation to be prepared in three main areas – the stadium, airport and transportation, and accommodation (De la Cerda, Fernandes, Huebner, Madanes & Suarez, 2011). Brazil is poised for growth since its foreign exchange policy is liberalized. The success of an event is not merely limited to whether the event was economically profitable. For most mega events economic benefits are overstated in order to justify the public expenditure by the federal government (Karadakis & Kaplanidou, 2010). It can cause tremendous debts as in the case of Montreal 1976 as it was burdened with capital and interest costs; as resources become scarce price inflation is likely for goods and services. The general population could also be burdened in terms of additional taxation to pay for the cost of hosting. Opportunity costs also arise when the government is unable to raise enough funds to host the event. A reasonable ratio between the profit generated and the costs incurred is based on short-term effects, and is derived from induced demand stimulus (Müller & Moesch, 2010). However, an event can be sustainable only if the added infrastructure continues to generate revenue and pay for its maintenance. Sustainability is not limited to environmental concerns but can expand to other regions as well. 1.3 Research aims and objectives With the aim to evaluate what steps the authorities have taken to ensure that development attempts will lead to sustainability for the next world cup, the objectives of the study are: To determine the likely damage to the environment and suggest measures for sustainable management To determine the likely impact of the World Cup 2014 on the GDP of Brazil and its population in the future generations To evaluate if Brazil is moving towards a sustainable event This study has great significance because event managers/organizers globally would make conscious attempts while planning events to ensure minimum damage to the environment, to the people, to the nation as a whole. 2. Literature review 2.1 Definition – events – sustainability Mega sports events are defined as large sports events of an international nature which are independent of the venue in which they are staged and are regarded as completely independent of the social system (Müller & Moesch, 2010). Substantial economic effects can be expected from such events given their international orientation, and the considerable number of spectators and visitors they attract. Mega sports events have many different faces – they have the potential to initiate collective enthusiasm, they generate the importance of being backed by the population and they can induce expectations that cannot be fulfilled (NCDO, 2008). Sustainability, as per the World Commission on the Environment and Development, has been defined as "…development that meets the needs of the present without compromising the ability of future generations to meet their own needs" (Hart, 1998). Sustainability is the context of the hospitality and the tourism sector generally pertains to the environment but sustainable development can encompass several other forms of capital. It could include natural capital (ecosystems, air, water), cultivated natural capital (salmon farms, wineries), man-made capital (infrastructure), social capital (political institutions), human capital (skills and education) and knowledge capital (Brand, 2009). Natural capital and man-made capital have emerged as the two string elements that must be sustained and maintained for current and future generations. For the man-made capital to sustain, the investments in infrastructure must generate revenue. Thus, to achieve the aims of this paper the natural capital and the man-made capital will be focused upon. 2.2 Link between event and sustainable management Any major event can leave behind both positive and negative impacts because organization can either create or destroy value in the economic, social and the environmental spheres as shown in the figure below (Ma, Egan, Rotherham & Ma, 2010). Figure I: Monitoring sustainable events Source: Ma et al (2010). The theory of Triple Bottom Line (3BL) suggests that the measure of any organization’s or nation’s ultimate success is not merely in terms of traditional financial bottom line; in fact its social/ethical and environmental performance should be held equally important (Norman & McDonald, 2003). This suggests that the nation should be able to discharge its responsibility towards all its stakeholders. This implies that hosting an event should ensure protection of the natural capital, the man-made capital and the financial capital. The need for “a more systematic approach to events tourism planning” is now recognized (Ma et al). Thus, sustainable event management has been defined as “the process of designing and organising an event following sustainable development principles in order to achieve strategic goals which serve the economic, environmental and social interests of organisers, delegates and host communities” (VisitDenmark, 2009). Since the needs of the future generations should not be compromised with, sustainable results should bring positive results for the region as well as the global society. Therefore, the three most important elements that need to be protected are the natural capital, the human capital and the financial capital. 2.3 Sustainability and standards In line with the definition of a sustainable event several International Sustainable Event Standards are available. These standards help in guiding the event planners and managers in maintaining ecological balance and economic health. Sustainable event management program helps in cost savings. Events communicate and enhance the brand image. At COP15 most of the delegates interviewed agreed that the active green agenda of COP15 was very important to them. Thus they would expect organizations to organize sustainable events. According to the 2009, Ernst & Young Report Global Hospitality Insights: Hospitality Going Green, green programs provide competitive advantage. Besides, it serves to motivate the staff as the people want to work for an organization that cares and is responsible. In addition, it enhances reputation and provides business opportunities. Thus, when the benefits are numerous, organizations and event planners should ensure that they abide by the sustainability standards which include the ISO20121 (developed from BS8901), the Apex Green Meeting Standards and the GRI or the Global Reporting Initiative Event Supplement. The GRI provides guidance and performance indicators which help the organizers report the impacts of the event in a transparent and comparable manner. These standards can together deliver optimum results: Figure II: Sustainable Standards Source: VisitDenmark (2009). 2.4 Research Design Considering the various definitions and standards that are in practice, the study would evaluate the sustainability of FIFA 2014 in Brazil based on the 3TB theory which suggests that the human capital (people), the natural capital (environment) and the financial capital should be protected. The study would take into account the previous mega sports events such as the World Cup and Olympics. It would also review the efforts and actions being undertaken by the event managers in Brazil. This study would use SWOT analysis as a tool to evaluate if Brazil is moving towards sustainable event management. Hosting mega events is viewed by the nations as a tourism and economic industries simulator if the event is properly leveraged (Karadakis & Kaplanidou, 2010). The success of sustainability of hosting an event can be evaluated by measuring the benefits or expected benefits in terms of development of collaborations, cultural insights and improved organizational networks. The SWOT (strengths, weakness, opportunity and weakness) analysis is a management tool that helps an organization or a nation to understand its internal (strengths and weaknesses) and external (threats and opportunities) environment. It would thus help in strategic planning of the event to ensure sustainability. Strengths and weaknesses are manageable elements while opportunities and threats are uncontrollable factors. Awareness of such issues can help mitigate problems and perhaps gear the hosting towards a sustainable event. There is a linkage between strengths and weakness, and opportunities and threats. Strengths and opportunities could be antecedents of positive impacts thus leading to successful outcomes, while weakness and threats could have negative impacts which help in guiding towards a sustainable event. 3. Data finding, presentation and analysis The expected infrastructure development include improvements in urban mobility, development of monorail lines, subways, light rail transit system, transit terminals, and other modes of transportation. The National Bank for Economic and Social Development has allotted US$556 million for renovation of hotels (Portal Brasil, 2010). The terms of loan to the hotels are better than the market terms. US$3.1bn has been assigned to renovate the 13 airports in the country and investment in sports is expected to be US$ 426 million. A ten percent increase in traffic is expected through Brazilian airports during the World Cup. Alongside the expenses the federal government also expects that the World Cup would generate an additional US $104bn in economic activity – through tourism, increase in household consumption, and recycling of resources. This can put Brazil’s economy a step closer to competing with other economies of leading countries (Hyatt, 2011). During the World Cup demands of an additional 60,000 visitors have to be met and the government has committed to spending R$959bn by 2014 under its PAC 2 Accelerated Growth Program (Williams, 2011). The two sporting events have thrown infrastructure challenges into sharp focus. The events demand world class airports, roads, ports and reliable energy networks. 3.1 Investment in stadia – not sustainable While the federal government is spending extensively on transport system development, the focus of FIFA – the international soccer’s governing body – is on the stadia, making sure that the field are positioned correctly, and that players are not blinded by sun. FIFA also insists that the stadia must have a seating capacity of 40,000 to 60,000 to hold games but they ignore the real demand of each country (Mühlbeier, 2010). Building new stadia is with the assumption and plan to maximize its use after the event is over (De la Cerda, Fernandes, Huebner, Madanes & Suarez, 2011). However, these stadia become “white elephants” in no time. In Brazil too, the average attendance for soccer game is 15,000 and these stadia will become “white elephants” because the average people cannot afford expensive tickets on a regular basis. Hence having stadia with capacity of 50,000 is not feasible as maintenance would be difficult. This was experienced in South Africa when four months after the World Cup the stadia remained empty. It has also been found during Germany FIFA 2006 that hotel bills were expected to register an increase by two billion euro in retail sales but in reality the sales figures were lower than in 2005. It is believed that the consumers are diverted from their normal consumer behavior due to FIFA, by the matches in the stadia or by the street markets (NCDO, 2008). Other negative impacts suggest that no construction work is permitted in the hosting cities. Besides, the construction of the stadia leads to higher consumption of resources such as electricity, energy and water consumption. Facilities prepared for the FIFA remain underutilized after the event. Such events do offer a branding opportunity. This perhaps is the reason that urban planner Luiz Cesar de Queiroz Ribeiro, a professor at the Federal University of Rio de Janeiro, suggests that events such as World Cup should only be held in rich countries (Mühlbeier, 2010). Only rich countries can invest in luxuries that do not meet the cities’ basic needs. Another view is that if hosting the World Cup causes losses no country would be willing to host World Cup. Value Partners Brasil, estimate that 737,800 jobs will be created by 2014 and the GDP will increase by 0.4% between 2010 and 2019. In addition, the World Cup is expected to generate US $10bn in tax revenue which corresponds to 66% of the total government investments. Hosting the World Cup also boosts the tourism sector as has been experienced in the past. It is thus forecast that Brazil can expect an increase of 79% in the flow of international tourists which will bring in additional revenue of US $3.49bn. Indirect benefits include attracting attention from other countries which enhances the self-esteem of the people. 3.2 Adverse impacts of World Cup While studies forecast several positive impacts on the economy, on the tourism sector and in generating new jobs, a study (De la Cerda, Fernandes, Huebner, Madanes & Suarez, 2011) indicates that estimation mistakes occur is such impact calculations. Previous mega events suggest that huge investments in hosting such events do not fetch the expected returns. Besides, internal customers have fixed leisure budgets and regular tourists avoid already-popular tourist spots. The World Cups held in South Korea-Japan in 2002 and in Germany in 2006 have revealed the fallacy of mega events as economic boosters. South Korea spent approximately US $2bn in stadia development but the tourism in the region did not commensurate with the investment, similarly in Germany too there was inconsistent immediate economic impact. Nevertheless, both these nations claim to have achieved success in the hosting of World Cups. A SWOT analysis would help evaluate whether hosting the World Cup would be sustainable for Brazil. 3.3 SWOT analysis Strengths The government supports public-private partnership which serves to attract private capital. Foreign exchange control is liberalized but control still remains (EDC, 2011). Major infrastructure and security demands are on the horizon. The consolidated impact of the World Cup 2014 has been shown in the figure below: Figure III: Consolidated Impacts of the 2014 World Cup Source: Ernst & Young Terco (2011). The 2014 World Cup is expected to produce a cascading effect on investments. In addition to the amount being spent by Brazil in developing the infrastructure, the tournament is expected to bring in another R$ 112.79 to the economy (Ernst & Young Terco, 2011). This will again have indirect and induced effects. It is thus expected that a total of R$ 142.39 billion would flow in between 2010 and 2014 generating 3.63 million jobs per year and resulting in R$ 63.48 billion of income which would in turn bring in tax collection of R$ 18.13 billion by the local, state and federal governments. The direct impact of the World Cup on the GDP is expected to be R$ 64.15 billion for the period 2010-2014 which is 2.17% of the GDP for 2010, namely R$ 2.9 trillion. Sector-wise direct and indirect impact of the World Cup 2014 has been shown in the figure below: Figure IV: Direct and indirect impact on Brazil sector GDPs Source: Ernst & Young Terco (2011). Weakness The nation’s infrastructure is deplorable. As recent as in November 2009 massive power failure left about 60 million people without electricity in Brazil (Williams, 2011). Situations such as these have given rise to concerns in hosting the FIFA 2014 and the Olympics in 2016. The federal government has still not completed its budget for the FIFA and no provisions have been made for security, which was the highest expenditure item in South Africa (De Melo, 2011). Almost 94% of the budget has been allocated for the renovation of the stadia and construction and the majority of these funds will come from BNDES – Brazilian National Development Bank. The rest will have to be funded by the state governments as they have failed to attract private investments. As per the original plan private investment was supposed to have funded the FIFA but the situation is now reversed. There has also been delay in starting the work. The country’s airports will be able to cope with the demands of the FIFA World Cup. However, the transport system too needs overhaul and doubts have been expressed whether the transportation network can handle the higher traffic caused by the Cup. No investment has been made in the country in the last 30 years and perhaps even the transportation system would be improved (People Daily, 2010). While a high-speed train link has been planned between Rio de Janeiro and Sao Paulao, there has been delay in the bidding deadline itself (Williams, 2011). This has led to concerns over Brazil’s ability to improve infrastructure at the speed at which is required to meet the deadline for the events. Brazil is moving towards becoming the fifth-biggest economy and any major disappointments could seriously damage the credibility of the country. As per the National Transport Association Brazil has 982,000 miles of road of which only 132,000 have been paved, while United Nations World Tourism Organization (UNWTO) ranks Brazil 95th out of 130 countries for the quality of its transport infrastructure (Williams, 2011). The extensive use of road transport and badly maintained roads make the road trips in Brazil very expensive (De Melo, 2011). The transportation cost in Brazil is very important for the World Cup Logistic system because the distance between the host cities are very long (Figure III). Figure V: Distance between host cities Source: De Melo (2011). Bureaucratic approach to handling issues and hence starting a new business in Brazil can take up to 120 days against a regional average of 56.7 days (EDC, 2011). The judicial system is slow and complex. High rate of criminal activity exists in Brazil. Income inequality also is very high. Private consumption has reduced. The unemployment rate in Brazil is 7.3 percent (De Melo, 2011). Brazil, like South Africa has a large informal market. Personal incomes in both these economies are very low. While the European population would be able to buy a football team jersey paying over 80 Euros, people in Brazil and South Africa would not be able to do so. They would prefer to buy the jerseys from the informal market paying about 15 Euros. This is known as ambush marketing in terms of FIFA and is against the FIFA rules. However, these survival strategies are developed by the poor people. They do avail of this opportunity but these are short-term gains. This does not lead to sustained income and employment. The poor can benefit in the short term as the additional employment ceases soon after the event is over (NCDO, 2008). Expectations should not be raised about the socio-economic impact from hosting the World Cup in Brazil. The Brazilian culture does not support spending on entertainment such as soccer tickets that are unaffordable. Investments in stadia would not fetch the returns. Opportunities The World Cup is providing Brazil with a major opportunity to overcome certain barriers and greatly enhance the local infrastructure for long-term benefits. The major benefits will be felt in the transportation system while all other sectors would not benefit as much. These enhanced features will make Brazil greatly visible to international tourists (De la Cerda, Fernandes, Huebner, Madanes & Suarez, 2011). This one step will move Brazil a step closer to integration with the world of developed countries. Branding Immediate economic success is not the only significant impact of mega events. The novelty effect, the feel-good effect of the population and the enhanced image of the country are the long-term impact is hosting mega events (De la Cerda et al). Germany’s image of a nation not much associated with warmth and hospitality, and South Africa being the focus of media for scandals – both received an opportunity because of the World Cup to improve their image. Brazil too is getting an opportunity to show to the world its capacity for growth and its role as a ‘great nation’. ‘Feel-good’ effects as the host countries undergo branding which has a positive impact on the country and its people (NCDO, 2008). This was experienced both by Germans and the South Koreans. Destination branding also serves to attract visitors and tourists to the hosting country. Image gain has been experienced by Germany as it went up in ranking on the Anholt Nation Brands Index as a result of hosting the World Cup. The ‘feel-good’ effect can lead to more expenditure by the people as they tend to spend more when they feel good. Branding also leads to enhanced reputation. A good reputation can lead to increase in tourists much after the World Cup and this involves planning and detailing cultural and sports effects (Ernst & Young Terco, 2011). A comprehensive communication strategy would be necessary and activities that display the country’s typical characteristics should be made visible not only during the tournament but also in the years preceding the tournament. Collaborations and co-operations The United States has offered to help Brazil in its endeavor to enhance its infrastructure. The US has its own interests in supporting Brazil. They expect to profit from their investments while also gaining cooperation from Brazil as it would limit China’s increasing influence in world affairs (Hyatt, 2011). The US companies have also got new opportunities for construction as already several US architect firms have opened up offices in Brazil. This is despite the bureaucratic nature of the country and the amount of time it takes to start a venture in Brazil. However, Hyatt finds that several obstacles could impede the progress of the development work in Brazil. This could range from financial, temporal or cultural barriers which could prevent it from living up to its potential as an emerging world power. The project leaders are nevertheless optimistic even though the construction projects are running behind schedule. Several economic and social benefits are expected long after the two sports events are done with. Urban transportation Salvador’s urgent need is to have good transportation system which could become the best benefit to the city. Current peak-hour traffic jams needed to be avoided for which several projects are underway, including the extension of Subway Line 1, which is expected to have a daily capacity of 250,000 passengers (De la Cerda, Fernandes, Huebner, Madanes & Suarez, 2011). The different public transportation systems are also expected to be integrated. In addition, the BRT bus, a fast commuter bus will connect the northern area of Salvador directly with the airport. Airports and accommodation The Brazilian Sports Ministry forecasts 600,000 foreign tourists and 3.1 million domestic tourists during the FIFA 2014 (De la Cerda, Fernandes, Huebner, Madanes & Suarez, 2011). The current infrastructure will be able to handle 300,000 people during the FIFA and they are preparing to meet the additional demand. Brazil has about 24,000 hotel beds in Salvador and hence the capacity will only have to be marginally increased to 30,000 hotel beds. Since the FIFA is taking place in June which is one of the worst months of tourism in the area, the regular tourists would not be affected. In fact, it is an opportunity to enhance earnings during the low season. Social inequality A research carried out by SINAENCO (National Association of Architectural and Consulting Engineering Companies) finds that the most important challenge for Salvador in 2014 will be to balance the sustainability of the new stadium with the increasing social inequality in the country. Currently most residents do not have the ability to pay for regular tickets for soccer but the emergence of a new Brazilian class, known as the Class C might change this equation. Development of human skills The demand for human resources will not be only during the period of the tournament but will also be during the period of preparation. To meet the demand for tourists various skills would have to be developed through training. These include training volunteers, guides, hotels and restaurant staff, drivers, and public servants (Ernst & Young Terco, 2011). The training would include foreign language classes and relying on quality staff can provide and extend the opportunity for sustained development much after the event. To develop a positive image international service standard must be developed which should be visible at the airports and at all the activity centers related to tourism and trade. Threats Carbon footprint The carbon footprint is one of the major impacts that mega events leave after the event is over. The German 2006 FIFA World Cup expected to achieve carbon neutrality through a specifically targeted program but it was found that transport was the major contributor to carbon emissions (Green Goal, 2010). The accommodation sector, the stadia construction and other operational activities also contribute significantly to carbon emissions. Mega sports events can also result in human rights violation causing hardship and misery. The World Cup planners have to ensure responsible use of natural and economic resources, responsible sourcing of materials, products and services. Carbon dioxide emissions from burning fossil fuels have to be reduced as this is one of the major causes of the ‘greenhouse effect’. Since the German World Cup, the Green Goal, an official program aimed at reducing CO2 emissions has been implemented. The focus is on water, waste, energy and transport. International air travel contributes 67% of the carbon emissions (Figure below) and most visitors to Brazil would arrive through this means of transport. Figure VI: Carbon Footprint World Cup 2010 Source: Ernst & Young Terco (2011). The Brazilian population is twice that of Germany and hence it raises concerns about the size and quality of the infrastructure especially of the transport system (De Melo, 2011). The infrastructure must meet the needs of the population to make the event a success. The World Cup is a one-time event and its impacts will not be permanent (Ernst & Young Terco, 2011). The future positive impact once the event is over depends upon the stakeholders’ ability to leverage advantage. 4. Conclusion and recommendation Mega events such as World Cup foster dialogue and cooperation between people and nations. They are able to attract massive foreign capital; they boost tourism and contribute towards regeneration and achievement of broader development goals. The study reveals that the weaknesses are many as the nation is still an emerging economy but the opportunities too are plenty. Hence, if the opportunities are tapped in the right manner, the weaknesses can be overcome and the nation can leverage advantage. The three most critical elements that need to be nurtured and protected are the human capital, the natural capital and the financial capital. This event is providing the Brazilian economy with an opportunity to train and develop human skills in various sectors. This process has to start now and if they are able to meet the international standards, the tourism sector would receive a boost. This would be an indirect impact of the World Cup 2014. Economic returns expected are high as this will have a cascading effect. The investments in renovation of stadia may not fetch direct returns by way of sale of tickets but consumer spending apart from the tickets also contributes towards revenue generation. Sale of hotel rooms, transport and other consumables impact the economy. Consumer spending grows and besides, because of additional employment and income, tax revenue is expected to be high. The transportation between cities can be very expensive and lengthy given the condition of the roads in Brazil. The average commuting time in Rio de Janeiro to the work place is two hours and thirty minutes and in Sao Paulo a 100km traffic jam on working days is common. These problems could worsen during the World Cup and hence regional groups should be set up to avoid displacement of players and fans which would also result in saving time and money (De Melo, 2011). To promote water conservation technology should be used at the stadia, hotels and other tourist locations and alternative sources should be deployed to meet irrigation needs (Ernst & Young Terco, 2011). Energy efficient technologies can offset carbon footprints. To reduce delays and minimize carbon emissions, the federal government should think in terms of increased cycle use and hence bike paths should be built. Assessment of vehicle black smoke should be done and efforts made to ensure zero emissions. The urban fleet should be composed of eco-taxis which would help to reduce carbon. Overall, the research determines that financial gain is not the only benefit that should be aimed at when hosting such mega events. Financial gain is a short-term vision whereas long-term strategy should be for sustained growth and development. If a nation, is able to meet international standards and equip itself to host such events, its image before other nation changes. Branding is essential and it provides the ‘feel-good’ effect to its people who take pride in being a part of the nation. The reputation of the country as a whole is enhanced, which serves to attract foreign investments, foreign tourists and visitors. Thus, as a long-term strategy hosting the World Cup for Brazil would be a great opportunity to be integrated with other developed nations of the world. They are gearing towards hosting a sustainable event. References Brand, F. (2009). Critical natural capital revisited: Ecological resilience and sustainable development. Ecological Economics, 68, 605-612 De la Cerda, V., Fernandes, M., Huebner, D., Madanes, C., & Suarez, J. (2011). From the Periphery to Prosperity: The Brazil 2014 FIFA World Cup and the City of Salvador. Knowledge@Wharton. Retrieved from http://knowledge.wharton.upenn.edu/article.cfm?articleid=2686 De Melo, L.M. (2011). Experiences from World Cup 2010 in South Africa – first thoughts about implication for Brazil 2014. Retrieved from http://www.ie.ufrj.br/datacenterie/pdfs/seminarios/pesquisa/texto1904.pdf EDC. (2011). Brazil. Retrieved from http://www.edc.ca/english/docs/gbrazil_e.pdf Ernst & Young Terco (2011). 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