Brazil Conflicted Whether World Cup Wonderful or Wasteland

June 12 (Bloomberg) –- Roughly two miles outside of Sao Paulo's new World Cup soccer stadium, there is a tent city that houses more than 4,500 families. They are part of the Homeless Workers Movement, and they hope that their presence puts pressure on Sao Paulo's city officials to provide adequate housing. Erik Schatzker takes a look. Video by: Dan Przygoda, Micha Rondeau, Justin Beach. (Source: Bloomberg)

When the World Cup kicks off today, the 12 Brazilian cities hosting matches will have new or refurbished stadiums, hundreds of miles of fiber optic cables, five airport terminals and a dozen new control centers to boost public security surveillance.

“Mission accomplished,” Odebrecht SA, Latin America’s biggest builder, wrote on a banner emblazoned with the company’s logo that slung from the stands of Arena Corinthians stadium, where Brazil will face Croatia in the opening game. A week before the match, temporary seating was still being worked on after cost overruns and two deaths of stadium workers.

Francisca das Chagas, who commutes four hours a day in a crammed bus to clean an office in downtown Brasilia, says the $11 billion spent on the World Cup was squandered. Chagas’s sentiment, which is shared by most Brazilians in a Pew Research Center survey, illustrates the mixed feelings emerging in the soccer crazy nation frustrated with quickening inflation, slowing growth and poor public services.

“Benefits? I’ve just seen waste,” Chagas, 36, said in an interview.

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Her daughter’s school shut down four months ago because it couldn’t pay the teachers. A community health center would only see her son when his fever exceeded 40 degrees centigrade (104 Fahrenheit), and that only after queuing for a day. When she looks at Brasilia’s new World Cup stadium -- at $763 million the second-most expensive soccer venue per seat in the world -- her disappointment turns to anger.

Photographer: Dado Galdieri/Bloomberg

World Cup merchandise for sale at a vendor's stall near Maracana Stadium in Rio de Janeiro on May 26, 2014. Close

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Photographer: Dado Galdieri/Bloomberg

World Cup merchandise for sale at a vendor's stall near Maracana Stadium in Rio de Janeiro on May 26, 2014.

“How can a stadium be more important than a school?” Chagas said.

Drawing Board

Hosting the World Cup gave Brazil the impetus to advance several infrastructure projects that have been stuck on the drawing board for decades, including the first major overhaul at Rio de Janeiro’s international Galeao airport since it was built under military rule in 1977. Compared to the obligations agreed to by policy makers, public works are fewer and costlier, and a larger, more educated middle class is less tolerant of mismanagement.

Where to Play the World's Game?

“There are real social and economic benefits, but there are questions as to the costs and the government’s priorities,” said William Nobrega, managing partner with Quincy, Massachusetts-based The Conrad Group, an investment advisory firm for private equity. “People will walk away with mixed feelings.”

Tear Gas

Since more than 1 million Brazilians protested a year ago, in part against World Cup spending, the price tag for the work on the World Cup stadiums continued to balloon and is now at 8 billion reais ($3.6 billion), almost four times the initial 2007 budget.

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People gather outside Itaquerao stadium, also known as Arena de Sao Paulo and Arena Corinthians, in Sao Paulo. Close

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People gather outside Itaquerao stadium, also known as Arena de Sao Paulo and Arena Corinthians, in Sao Paulo.

Today in Sao Paulo a small group of protesters against the World Cup clashed twice with police about 13 kilometers (8 miles) from Arena Corinthians. Police used tear gas to break up the demonstration. About 300 protesters left the area and planned to regroup in another part of the city, according to Sao Paulo-based UOL news website.

Roads, Bridges

Three of the 12 host cities -- Brasilia, Cuiaba, and Manaus -- have no first- or second-division teams.

A few cities have made progress in tackling infrastructure bottlenecks stemming from rapid urbanization, a near-tripling of air travel over a decade, and a doubling of the country’s motor vehicles in the same period.

On June 1 President Dilma Rousseff inaugurated part of an express bus lane in Rio de Janeiro, which, when it’s complete, will cut travel time by 66 percent between Galeao and Barra da Tijuca, one of the fastest-growing residential and business neighborhoods and a major venue for the 2016 Olympics. The Transcarioca, as the system is called, increases leisure time and helps cut labor costs, said Leonardo Maciel, head of Rio Eventos Especiais, the city company organizing the World Cup.

‘First World’

Since 2011 the capacity of Brazilian airports to handle passengers increased 70 percent, while parking space rose 37 percent to accommodate an additional 270 aircraft.

Used to overcrowded, run-down airports, many travelers have noticed improvements such as those at Sao Paulo’s Guarulhos.

“It’s like the first world, and the stores are very good, with a lot of different products for sale, good service and good prices on some items, including the Apple (AAPL) iPhone,” said Rosimar Ribeiro, 43, who was traveling to Zurich.

Schools, Health

Most Brazilians are skeptical of the ultimate benefits. Hosting the Cup is a bad thing because it takes money from schools, health, and other public services, according to 61 percent of those polled by the Pew Research Center. The survey of 1,003 people from April 10-30 had a margin of error of plus or minus 3.8 percentage points.

Rousseff has defended public investment in the World Cup, saying it would benefit Brazilians for years to come and that outlays for health and education have been much bigger than for the sporting event.

“The result and final celebration are worth the effort,” she said this week in a televised address to the nation. “Brazil overcame the main obstacles and is prepared for the Cup, on and off the field.”

The tourney arrives when Brazil’s economy is slowing from a 2.5 percent growth rate last year. Gross domestic product expanded 0.2 percent in the first quarter, the national statistics agency said May 30, and economists surveyed by the central bank last week cut their forecasts for the year to just 1.44 percent.

Transport Systems

Cities that opted for more complex, rail-based transport systems made less progress than those choosing cheaper and simpler bus-based systems, said Jaime Kuck, head of the Council of Architecture and Urbanism in Manaus, a city where booming car sales have slowed traffic to a crawl on its main avenues. Plans for a light railway were shot down over concerns of damaging historic sites. A bus rapid transit system was then suspended because of a lack of funds and time.

“Policy makers are a bit megalomaniac,” said Kuck. “They prefer big works, when smaller ones solve the problem.”

Neither Rousseff’s office nor the Manaus mayor’s office responded to e-mails requesting comment.

Poor planning, mismanagement and red tape are the main culprits of cost overruns and delays, said Mauricio Guimaraes, chief coordinator for the Cup in the state of Mato Grosso.

“I’m not satisfied because we haven’t managed to deliver all the projects,” Guimaraes said by phone. “We sinned a lot, we started late and Brazil’s bureaucracy weighs heavily.”

Tax Snarl

Brazil places 116th out of 189 countries in the World Bank’s ranking on the ease of doing business, with companies spending 2,600 hours per year to deal with taxes versus 369 in the rest of Latin America.

The original $312 million budget for the stadium in Brasilia included only the concrete structure, without the roof or any seats, said Gil Castello Branco, executive secretary of Contas Abertas, a Brasilia-based group that examines public spending. The stadium, which Sports Minister Aldo Rebelo likened to Rome’s Colosseum, holds 73,000 spectators. Local soccer matches typically draw a crowd of around 1,000 people.

Brazilian politicians are not the only ones to understate costs and oversell benefits of large sporting events, said Bent Flyvbjerg, a professor at Said Business School at the University of Oxford, who has studied large projects for over two decades. Olympic games have average overruns of 179 percent, he said.

Such facts, reinforced by reporting of busted budgets in Brazil and at the Winter Olympics in Sochi, are leading potential hosts of sporting events to reconsider, Flyvbjerg said.

Some Brazilians will leave judging the costs and benefits of hosting the Cup until after the games.

“Once the Brazilian national anthem starts and the ball starts rolling, Brazil will support the team all together,” Flavio Augusto Guimaraes, a shoe-shiner who works in front of the Sao Paulo exchange. “Football runs inside our veins.”

To contact the reporter on this story: Raymond Colitt in Brasilia Newsroom at rcolitt@bloomberg.net

To contact the editors responsible for this story: Andre Soliani at asoliani@bloomberg.net Harry Maurer, Robert Jameson

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