Brazil’s in need of a growth driver
Brazil’s hosting the World Cup this year may have given some hope to the country, whose gross domestic product (or GDP) has seen sluggish growth since it peaked in 2010. Brazil’s GDP was growing at about 6% before recession hit the economy in 2009, when it dipped below zero. The economy did recover very well following the crisis, managing to get its GDP to about 7.5% in 2010. However, the economy again took a gradual dip to levels below 3% and seems to be recovering at a sluggish pace currently.
Can tourism help Brazil?
Brazil is expecting around 3.7 million visitors during the World Cup, according to statistics revealed by Brazil’s Ministry of Tourism. Since the matches may be held at different stadiums across Brazil, domestic travel and tourism is also expected to rise. It’s also estimated that each foreign visitor will attend four World Cup matches on average and spend about $2,488 during their stay, which would add approximately $3.03 billion in total to Brazil’s economy. The ministry expects the World Cup to boost Brazil’s tourism industry.
Who stands to gain?
Sponsors and advertisers such as Anheuser-Busch InBev (AHBIF) and Coca-Cola (KO) are likely to benefit most from the event. The stock exchange may get a temporary boost, especially for companies operating in the hospitality and entertainment industry. Ambev SA (ABEV), a brewing company, and GOL, the second-largest Brazilian airline company by market share and fleet size, along with retail brands like Lojas Americanas and Cielo (CIOXY), stand to gain.
Growth in the consumer sector should reflect in the performance of the Global X Brazil Consumer ETF (BRAQ), which tracks the performance of companies in the consumer sector in Brazil, including LojasAmericanas and Natura Cosmeticos SA. ETFs like the iShares MSCI Brazil Capped (EWZ), which measure broad-based equity market performance in Brazil, may not perform so well on account of the negative sentiment in the country toward the tournament’s expenses.
Negative public relations
However, these expectations are all built upon projected statistics during and after the World Cup. Given the fact that the Brazilian public has taken to the streets in protest of the unwarranted expenditure their country’s incurring to host the World Cup, the ministry’s expectations might not pan out as planned. Negative public relations will only deter and not promote visitors to the country.
Moreover, the unfinished preparations for the World Cup, the stories of infrastructural underdevelopment, personal safety, and public riots don’t paint a very beautiful picture of the economy and will only hurt short-term tourism. Moreover, they may even dissuade some people from wanting to travel to Brazil in 2016 for the Olympics.
© 2013 Market Realist, Inc.