FDI and the Olympic Effect
With the Olympics over and the Paralympics set to begin shortly, it seems the right time to discuss the effects that such a mega-event can have on foreign direct investment (FDI). At London 2012, UK Trade and Investment reported that the Olympics resulted in GBP2.5bn of "additional inward investment". Importantly, 58% of this was said to be outside London. This totalled 14% more investment than the previous year nationally, and the highest job creation (more than 66,000) in over a decade.
Can Brazil expect the same?
It’s difficult to argue that this is likely, simply because Brazil has a weaker investment proposition, combined with economic, political and social challenges, which for all the talk of Brexit uncertainty, are more acute then any problems the UK has faced in recent times.
The UK numbers quoted above have also been challenged, but this does not mean that Brazil should not expect an FDI boost, although this must be offset against the costs of staging the Games.
Casa Rio is a business program organized by the city Economic Development Organization (EDO), which has organized events throughout 2016, and will do so until the end of September. Its aims is to generate 800 company prospects and 40 new FDI projects in the next 2 years, although the size of these is unclear.
This extends a program that actually started in London 2012, which generated 14 projects in Brazil. This is perhaps the most interesting point – we should indeed expect an Olympics to create FDI for the host country, but what can it do for other countries?
Direct Investment Generation
As Rio promoted itself in London 2012, the UK did the same in Rio this year, both for investment and exports. But you don’t need to be a host to seize an opportunity, for example the agency of Colombia also looked to secure investment at London 2012. In essence, any event with global reach provides an opportunity for a location to promote itself – almost like a big trade show, even though the reason for being there in the first place is not actually for business.
We have already seen that the 2012 effect was not just for London but throughout the UK, and in the same way all of Brazil would hope to benefit from 2016. But perhaps the chances of spillover into neighboring countries just because of their proximity is less likely. So, France may not have expected an FDI benefit from 2012, but could Uruguay for example expect benefit from 2016, simply because the bulk of FDI comes from countries outside South America, who have less prior knowledge of the opportunities?
There may also be a case for Olympic sporting success leading to FDI. While the GB team doing well may not directly translate to FDI success, other countries that normally have less international prominence may see more potential. For example, a first medal for Fiji (or various other first time medal winning countries), is estimated to see the country’s economy benefit by GBP161m from “additional tourism and investment revenue generated by more people wanting to visit the place where rugby magic happens”. In reality, this may be more be about tourism than investment, but is nevertheless a good start.
An FDI Legacy?
The Olympics and Paralympics, like any major events, have the potential to leave a legacy of business investment, particularly for the host. But perhaps these event more than any other (even the soccer World Cup) are able to capture global attention, so that even if Brazil made no promotional efforts such as Casa Rio, there would still be a positive FDI effect. However this boost can only be short-lived – all the Games will soon be over, and all EDOs will need to move on the next opportunity that can help to sustain their FDI momentum.