Should developing countries hold such mega events?
Every time a developing country hosts the Olympics, a singular questions dogs the process. Even as the curtain falls and gold, silver, bronze are won, the question persists. Why would a developing country host the Olympics? Why would a country such as Brazil, which has a long way to go in terms of providing a decent standard of living to its citizens, volunteer to host an event that costs billions of dollars?
On the average, according to a report by Oxford’s Said Business School, it takes $5.2 Billion to host a summer Olympic game with Beijing topping the charts, outshooting the average by nearly 10 times having incurred a total cost of nearly $40 Billion. The bill for the Rio comes at a relatively more modest $4.6 Billion.
These questions are doubly important for developing countries, where there is such a fierce competition for resources, especially so within the public sector. How do you justify spending resources on building stadiums worth Billions of Dollars when large parts of your population have do not have access to quality healthcare?
Organisers contend that far from being a drain on Government resources, the Olympics are catered for through private funding. According to an article in the Financial Times, Rio City’s Mayor brushed aside any notions of overspend stating that of the budgets allocated for the games, nearly half came from the Rio 2016 Organising Committee which was 100 percent privately funded while another 60% of the remaining amount was also privately funded, leaving the Government to fund the balance.
The issue of funding needs to be seen in the context of a country’s political economy. From the financier’s point of view, funding is first and foremost an investment decision which comes with its own baggage. The diversion of resources to the benefits of the elite, also referred to as ‘elite capture’ is an ongoing issue in the developing world. Allegations of elite capture have dogged the construction of a $2.7 Billion subway that connects the wealthy suburbs of Ipanema to the Athletes’ Village in Barra da Tijuca, an area where Carlos Carvalho, real estate magnate and financier of the Olympics, holds approximately 6 Million square meters of land along with a stake in the Olympic Village which is to be sold as high-end luxury housing post Olympics.
Where Brazil was able to secure private funding for its games, Greece’s hosting endeavour resulted in debt worth Billions of dollars being piled up. Today, the country’s Olympic stadiums lie derelict, lingering monuments to an era of misplaced confidence and hubris. Similarly, Montreal’s debt from hosting the 1976 games has just recently been paid off, underlying the dangers of hosting an event that is notorious for cost-over runs.
Why would any country then, let alone a developing one, host the Olympics? The games are not without their benefits. London’s boost to tourism related activities is cited as a beneficial legacy of the games. Through much of 2013, London experienced record numbers of tourists, attributed to the city hosting the games in 2012. Rio also expects to cash in on the event in the future, hoping to seal a permanent increase in tourists coming to the city.
It is hard to generalise though. In contrast to the tourism boost experienced by London, hosts of the 2008 Summer Olympics, the city of Beijing did not experience the sort of sustained increase in tourism that is touted as a predestined outcome of hosting the games.
Tourism apart, fewer events herald in the arrival of a country on the global stage as the Olympics. Holding mega-event requires substantial economic resources and organisational ability. The Olympics provide a respected forum from which to flaunt national organisational prowess. The uniqueness of the event ensures that come game time, the hosting country will take centre stage.
In fact so pronounced is this effect that countries hosting the Olympics experience a 30% increase in external trade, according to research by Andrew Rose, professor at Berkley’s Haas School of Business. The Olympics serve as a clear signal to the global community regarding a country’s stability and future prospects. However, similar effects hold true for the losing bidders too, underlying the limited advantages of actually hosting the event.
While tangible benefits such as tourism trade and investment are debated, there is less emphasis on intangible benefits accruing from the event, economist from either side of the divide tend to focus too much on concrete measures of GDP and job creation to evaluate the Olympics, glossing over the fact that part of hosting benefits include harder to quantify social benefits that might not fit into the Jobs/GDP framework.
Beijing’s clean-up drive prior to the 2008 Olympics is a case in point. The benefits accruing from the massive clean-up operation will manifest themselves in the form of a higher quality of life for its citizens and reduced health expenditures. While the latter will be accounted for in GDP calculation, quantifying the former may be a task that is likely to be omitted from the final analysis.
The city’s environmental clean-up may be seen as part of a larger move towards urban renewal as a consequence of the games. Hosting the games means large investments, which if channelled properly, could allow cities to reengineer themselves in unprecedented ways. The games provide an impetus for resource injection allowing cities to jump start development with a large array of policy tools that might not be available to officials under non-hosting circumstances.
The 1992 Olympic Games are cited as a case in point, having been credited with bringing Barcelona back from the pits of urban degradation. Planners used the games to rejuvenate areas suffering from neglect, focusing on neighbourhoods with high crime rates and low levels of public amenities. The outcome has been a turnaround for Barcelona, rendering it into a sound urban space. As a small indication, the Games allowed planners to add nearly 490 acres of green spaces to the city, compared to 172 acres added during the 40 odd years of the Franco dictatorship.
Given weak regulatory frameworks and the tendency of elites to divert resources to their own ends, could urban renewal be as pronounced in developing country as was the case with Barcelona? In Rio, the athlete’s village, far from being placed in an area in need of urban revival, was placed in the affluent Barra De Tujica neighbourhood. Unlike in the case of London and Barcelona, which ensured that the village be placed in areas in need of urban revival.
Developing countries ought to be wary of hosting the Games, especially in lean economic times such as these given how the jury is still out on how much of a positive impact hosting the Olympics has on hosting nations and whether the large outlays of the Games are justified, especially in the context of developing countries.
