Brazil's weak economic outlook (Part 2 of 5)
Wasted infrastructure spending
The World Cup itself actually caused huge infrastructure spending that’s unlikely to pay off in the longer run. Brazil (EWZ) has more important infrastructure projects to invest in. The Olympics have added the burden of building stadiums that will be deserted once the games are done. We’ve seen over and over again that hosting these events offers a minimal benefit to the country compared to the investments required.
London and Beijing are the two most recent examples. Even though they were both planned with the intention of sustainable development, the east side of London is still under its “legacy” transformation—mostly inhabited by cranes and bulldozers working on a legacy that cost tax payers more than they received. Google “Beijing Olympics then and now” and check out the pictures of the abandoned Bird’s Nest and Cube. They’re quite depressing.
In Brazil, the people caught on to this trend. There was a public outcry about the amount of money spent on stadiums while transportation infrastructure, healthcare, and education needed the funds more urgently. This sparked transportation riots earlier in the year, which were instrumental in decapitating foreign direct investment in the country.
In May 2013, riots were ignited over transportation costs and quickly spread as other causes were recruited and demand was added. The government’s response was slow and insufficient, allowing the riots to spread to over 100 cities and scaring foreign investors who had just witnessed the effect of the Turkish riots and the Egyptian revolt.
Foreign direct investment fell over 30% month-over-month in May 2013.
Enough said. Now let’s look at the underlying data.
Browse this series on Market Realist:
- Part 1 - Must-know: Why Brazil’s outlook is flat at best
- Part 3 - Why industrial production in Brazil points to stagnation
- Part 4 - Misguided monetary policy could hurt the Brazilian market