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Marred economy washes away optimism from Brazil as it hosts World Cup & prepares for Olympics

Bloomberg Jun 13, 2014, 05.52AM IST
(Inflation & flagging growth…)

No, Steve Jobs declared. Apple Inc. wouldn't put a store in Brazil, with its "crazy" and "super-high" taxation. This was 2010, and Jobs was writing, bluntly, to an official in Rio de Janeiro. Four years later, Jobs's successor had a different message for Brazilians.

"'Obrigado' to everyone who visited our new store," CEO Tim Cook tweeted in February, after 1,700 people packed into a Rio mall for the opening of the first Apple store in Latin America. "We are Brazilians, with lots of pride and lots of love," his blue-shirted employees sang, adapting a tune heard in stadiums and bars when the national soccer team plays.

Apple is one of many foreign brands feeling the love for Brazil -- even if Brazilians, mired in an economic slump, aren't. As the country hosts the World Cup and prepares for the Olympic Games in 2016, the optimism that led it to bid for the two most famous sporting events has all but evaporated.

Inflation and flagging growth are squeezing Brazil's new middle class, whose anger is so intense and encompassing that its targets include the World Cup itself -- an amazing thing in a country that is the definition of soccer mad.

Protesters have jeered the national team, the World Cup trophy and the country's president, Dilma Rousseff, whom Brazilians blame for spending extravagantly on stadiums while neglecting basic public services.

Foreign Investors

The foreign investors still come, drawn by something even high taxes can't take away: young, increasingly educated and affluent consumers. Companies as diverse as Forever 21 Inc., known for cheap and cheerful fashions, and luxury automaker BMW AG are putting down stakes this year.

"Brazil has changed," says Arturo Pineiro, head of BMW Brasil Group, which is investing 200 million euros in a plant scheduled to open later this year in the country's south. "It has some problems, but, with the right focus, they can be solved."

It can be hard to find ordinary Brazilians who agree with him, amid reports of protesters pelting police with rocks -- or, at one clash in May, shooting them with arrows -- and widespread griping about public corruption.

Epic Boom

When the country was awarded the two sporting events last decade, then-President Luiz Inacio Lula da Silva -- just Lula to Brazilians everywhere -- was hailed as a miracle worker. The former union leader guided an epic boom during his eight years in office, from 2003 to 2010, with the benchmark Ibovespa stock index growing sixfold and annual economic growth reaching as much as 7.5 percent.

  Brazilians long for those days now. Economic growth has slowed to just over 2 percent annually. Much of this can be attributed to the shrinking of China's once-enormous appetite for Brazilian commodities.

World Cup

Lula pledged projects for the games would jump-start investment in transportation upgrades, and Rousseff promoted a Growth Acceleration Program, known as PAC, that would reinvigorate the economy.

Instead, the $3.6 billion spent on new stadiums was almost four times initial estimates, only 12 percent of the planned public works projects had been completed.

Infrastructure Spending

In March, Mantega spoke to students at a Sao Paulo university. He made the case for his government's policies and for the pro-investment camp. Brazil weathered the 2008 financial crisis better than most major economies while boosting foreign reserves to more than $370 billion, he said. He pointed to the 20 million jobs created since 2003. He said infrastructure spending could help growth reach 4 percent annually during the next eight years.

If Mantega is correct, then que bonito e indeed for Apple and Tim Cook. If the pessimists, and the Brazilian people, are being more realistic, it could turn out that Jobs was right again. Bloomberg