World Cup protests threaten Brazil's economy and its image

RIO DE JANEIRO Wed May 21, 2014 9:46am EDT

Brazil's President Dilma Rousseff (3rd R) poses with workers during the opening ceremony of the Beira-Rio stadium, which will be one of the stadiums hosting the 2014 World Cup soccer matches, in Porto Alegre February 20, 2014. REUTERS/Edison Vara

Brazil's President Dilma Rousseff (3rd R) poses with workers during the opening ceremony of the Beira-Rio stadium, which will be one of the stadiums hosting the 2014 World Cup soccer matches, in Porto Alegre February 20, 2014.

Credit: Reuters/Edison Vara

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RIO DE JANEIRO (Reuters) - When Adilson Ferreira hoped for big crowds during the World Cup, this wasn't what he had in mind.

Starting last June, protesters angry about the money Brazil is spending to host the soccer tournament have regularly marched

outside the small restaurant he manages in downtown Rio de Janeiro. One night, they smashed the windows and even destroyed the espresso machine.

Instead of hiring extra workers during the Cup, as he once planned, Ferreira is now focused on how to limit the damage.

"We need the World Cup to be a success on and off the field so everyone can win from this," he said.

Expectations that the World Cup might bring a big boost to Brazil's economy have been replaced by more sober forecasts and fears that street demonstrations and other problems could chase away business and tarnish the country's image among investors.

President Dilma Rousseff's government estimates the month-long event, which starts on June 12 in Sao Paulo, could add over half a percentage point of economic growth this year and more than half a million jobs.

Economists are, on average, more conservative. They see a boost closer to 0.2 percentage points, according to a recent Reuters poll.

The economy is expected to grow just 1.6 percent this year, putting pressure on Rousseff as she seeks re-election in October.

"It would be worse if we didn't have the Cup, but the tournament will not save our economy from a pretty bad year," said Fabio Bentes, economist with the National Confederation of Commerce, which represents retailers and service companies.

It's a long way from the euphoria of 2007, when Brazil was awarded the right to host the tournament, which its team has won a record five times.

Back then, politicians said the Cup would showcase Brazil's long-awaited arrival as a major economic power and provide a good reason to completely transform its dilapidated airports, highways and other transport infrastructure.

However, only about $7 billion of the $11.7 billion in planned investments for the Cup have been executed, according to the Office of the Comptroller General, a shortfall that most analysts blame on poor planning and red tape. Nationwide only 36 of 93 major projects have been finished, says Sinaenco, a trade group of engineers and architects.

The chances are still good that Brazil will host a successful tournament for soccer fans and if the national team wins it for a sixth time - and the first on home soil - there will be wild celebrations.

But instead of emphasizing its strengths, the event now risks reinforcing Brazil's image as a country that doesn't invest enough, lacks the political will to undertake big projects and overall has failed to live up to the promise it showed during a long boom last decade.

THE WORLD IS WATCHING

Anger over politicians' broken promises was the main reason why protests broke out during a warm-up tournament in June 2013.

As TV images were broadcast around the world of shops on fire and clashes between police and masked demonstrators, the effect on the economy was chilling.

Consumer confidence plummeted, and the economy contracted during the ensuing quarter for the first time since the depths of the 2008-09 global financial crisis.

Demonstrations since then have been smaller, but still frequently violent. Students, union workers and homeless groups have been organizing even bigger marches for when the World Cup starts, hoping to broadcast their cause to the more than 1 billion spectators around the world.

"We are demanding that authorities provide more security," said Antonio Joao Teixeira, an executive with a car dealership chain in Belo Horizonte that suffered $678,000 in damages and lost sales from last year's protests.

"This was supposed to be a party," he said. "But it's turning into a real problem for us."

Accounts differ widely on whether tourists have been scared off by the threat of renewed unrest.

The face of Brazilian soccer, three-time World Cup winner Pele, warned on Monday that the fears have already caused about 25 percent of foreign tourists to cancel their plans to attend.

But FIFA, world soccer's governing body, has said it had record demand for World Cup tickets.

As many as 600,000 foreign tourists are expected to come to Brazil during the event. The money they spend, along with Brazilian travelers, should add up to about $3 billion, the tourism ministry says.

Brazilian officials say the Cup will have an even bigger long-term economic impact because of improvements they've made to infrastructure. Even though many projects fell short, new airport terminals have opened in Sao Paulo, Brasilia and elsewhere, and some road and rail projects were built.

Even the 12 soccer stadiums built or renovated for the tournament, widely derided here as symbols of waste, could end up attracting more fans to local games, officials say.

Sports Minister Aldo Rebelo has said the Cup could add about 0.4 percentage points of economic growth each year till 2019.

Private-sector economists say that figure is overinflated, and point to other side-effects that could slow the economy down.

Some hotel and airline executives say demand during the tournament has not been as high as expected. Productivity will also fall as some cities decree public holidays and many private businesses close down for a few hours when Brazil's team is playing.

By far the biggest risk, however, is on the streets.

"I'm very worried about the country's image. We cannot run the risk of losing any investment at a time that our economy is underperforming," said Antenor Barros Leal, head of the Rio de Janeiro's Chamber of Commerce.

"Any sign of instability could scare off investors who were ready to put their money in Brazil."

(Editing by Brian Winter and Kieran Murray)

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