The CEO Game

Following the last two pieces on the rampant violence that is going on in Brazil: A Favela Love Story and Brazil Battles Crime Rates, we now move the focus to the outcome of the crime, and its counterpart- the Brazilian corruption, which stands in the way of a bigger, mightier and more prosperous Brazil just like the crime and violence do.

Despair, frustration, pain, misery, poverty, crime, violence and drugs are all common sites in Brazil and especially its favelas. But all of these things don’t concern nor bother Rio de Janeiro’s economists from proudly showcasing their presentations and plans for the Olympic village. The plans are ravishing indeed and have many ideas in store for Rio. For example in Copa Cabana, the most prime and well known beach location in Rio, a huge beach volleyball stadium will be built and not far away from there, the Olympic village and the rest of the facilities will be built from scratch too.

The governor’s house is situated only a five minute drive from the Rosana favela (which we mentioned last time on A Favela Love Story), but it seems to be as if it resides not only in a different place but in a totally different reality: with glittering chandeliers hanging from the ceiling and lavish oil paintings hanging on the walls. It’s clear for everyone that in order for the governor to keep his lifestyle, the peace and order must be kept. With raging crime including kidnappings and shootouts, maintaining the order is a key challenge and goal in order for the Olympics to become a success story.

Today, some six years before the games’ opening ceremony, crime is already providing for thousands of personal bodyguards in Rio and Sao Paolo. Moreover, the homeland security market (electronic fences, anti theft systems) seems to be doing quite well with 2$ billion a year and is getting popular by the minute, with many investors and companies worldwide competing over the Brazilian market and dough. Economy experts predict that these phenomena will keep growing, “until the opening ceremony, the security market will rise by 15% yearly” says one.

Everyone wants a bite from the cake, and with a 5$ billion cake (the huge Brazilian investment in the games’ security measures) it’s no wonder. Brazil has no state comptroller, you know, the guy who inspects that everything is legit. Because of that and due to a tradition of corrupted decision makers like many developing countries, the greedy and cheeky foreign investors are not playing fair. When “any friend of El Presidente’ is a friend of the national treasury” becomes a way of life, it is no wonder that companies and even countries, pushing hard their products without no respect for the standard bureaucratic procedures.

One of the protruding companies in the field of security there is ISDS. In the 2007 Pan-America games the company was involved in 20$ million deals. The company hires retired personal from combat units who train local bodyguards and policemen. But the market is a hard market, Brazil usually allows only deals who cut in the local Brazilian companies. Nevertheless, there is enough for everyone, but experts claim that it is still a bit early to discuss tenders for safe guarding the world cup games and the Olympics, because of the elections that will be held soon. “Many projects will be postponed to after the elections. These things involve a lot of lobbying, and people who are close to power and can influence the decisions made” claims an ISDS spokesman.

Although corruption roams in Brazil, some claim it is decreasing gradually. A sign for that is the fact that the tenders for the games will be open and managed online, so theoretically they will be “fair and righteous”, but many think that in Brazil which is corruption prone, the Olympic race for money will reveal Brazil’s uglier sides.

More on Brazil: Focus on Brazil, Focus on Brazil: Only Second to the US, Focus on Brazil: The Olympics to Boost Communications, Focus on Brazil: It’s in the Oil, Focus on Brazil: Brazil Battles Crime Rates, Focus on Brazil: A Favela Love Story and Will the Olympics be a Financial Success Story part one and two.

Omer Shachnai

The CEO Game.

After Brazil Battles Crime Rates we continue to question the Brazilian crime and violence which are standing between Brazil and its dream of being all that it can be.

If you would have asked any ordinary Brazilian who lives outside the favelas to go inside on his own and roam the place, he would definitely refuse. The reason? The cramped favelas are filled with armed drug gangs who control the streets. Drugs are trafficked in broad daylight, when children 13-14 of age sell them on the street corners. Beside pinpoint operations the police try to avoid showing any presence there.

Brazilian Favela

Anyone who wants to see it on his own eyes can go ahead and do it in an organized tour. In the beginning of the tour the guide, who works for the Brazilian office of tourism, warns everyone not to take any pictures. “Lately, the gangs have started shooting at tourists who insisted of taking a photo in order to warn them”, he explains. Gang members, have also shot down a police chopper lately, using an automatic rifle. At the same time, more than 25 people were killed in the clashes between the police and the gangs and all that happened in the favela which is located just a shout away from the famous Marakana stadium, which is supposed to host the 2016 Olympics’ opening ceremony.

Most tours then wander around the alleys of the favela, which houses some 200 thousand people. There are many favelas around Rio but they are common site around most Brazilian cities. When you look outside from the Rosana favela near Rio, you can see the famous Jesus statue whose hands are spread and you can look upon the beautiful coastline. On the contrary, one look to the inside and you can understand why the average price of an apartment in the favela is only 3,000$.

The houses are built extremely close to each other and are very cramped as mentioned above. Beside crime the favelas are plagued by sewage, hygiene problems and litter with syringes lying around, a sad sight. Most apartments in the favela have only one room, deluxe ones have a couple. Between the apartments you can see improvised phone and power lines, this is what happens when the authorities are not functioning and the residents take care for themselves, including water, electricity, telephones and even health and education services.

The Brazilian government has failed to wipe out the favelas in the last 30 years and by now the authorities have already realized that they wouldn’t succeed in doing so by the time the Olympics begin also. What will they do? Seems like no one in Brazil knows the answer for that. Some argue that they would either invest heavily in infrastructures, water and education or hand out large amounts of money to the favelas’ residents in order to buy tranquility for the time of the games.

Some measures are already being taken. The government has decided to build walls around the favelas of Rio de Janeiro for instance. The authorities have explained that the irregular move is supposed to protect the rain forests from the favelas’ expansions, but they were showered by harsh criticism both from human rights activists and from the residents of the favelas.

In conclusion, there is no solution in sight, the favelas’ sad and striking day to day reality will go on regardless of the games. It seems that just like China who hosted the last Olympic Games, the government in Brazil is seeking a fast and temporary solution to a permanent problem. Even if they would “succeed” in lowering the crime rates or dealing with poverty, literacy and other problems before the Olympics’ kickoff, all those problems will come a knocking’ a second after the games end just like they did in China.

More on Brazil: Focus on Brazil, Focus on Brazil: Only Second to the US, Focus on Brazil: The Olympics to Boost Communications, Focus on Brazil: It’s in the Oil, Focus on Brazil: Brazil Battles Crime Rates and Will the Olympics be a Financial Success Story part one and two.

Omer Shachnai

The CEO Game.

Brazil’s economy is on the up and growing rapidly as the swift pace of the samba, the national icon: the investments are flowing in, the investors are enthusiastic, the market is getting stronger and the gap between rich and poor is closing gradually. The CEO Game launches a special series of articles about Brazil, one of the hottest countries in South America and a rising powerhouse in the global scene, in order to shed some light on this Latin wonder and answer why all investors are going crazy for Brazil?

The ninth economy in the world

In Brazil, the land of the samba, even rallies appear like a carnival: balloons in all sorts of colors are flown into the air, bands are playing to the beat of the drums and the protesters are making themselves heard through singing altogether. That’s just how the 50 thousand workers of the major banks of Brazil, looked like when they assembled to protest three weeks ago in front of the parliament in Brasilia, the capital. They requested to minimize the working week to 40 hours of work and to improve the labor conditions.

“Our economy is growing in the recent years, partially due to the oil, which is a national resource that belong to all the Brazilian people. It is not understandable why all the profit is going only to the investors and the rich. The workers, the ones who are behind the wheel, who put the wheels of the economy in motion, also are entitled to some of the wealth”, that’s the reason for the protest according to one of the protesters. This rally, which might seem trivial to the Western “eye”, says something about the new club that the Brazilian worker is gradually joining.

That worker, is no longer demanding work by itself, he wants privileges too. It is another symptom for the change that Brazil is undergoing in the last few years- millions of people who have gone from the poor layer of society to the middle class and are changing the face of the country. You can notice the change everywhere, from Sao Paulo, the largest city in Brazil and financial capital of it to Rio de Janeiro (the host of the 2016 Olympic Games), where each weekend thousands of Brazilians are swarming to Copa Cabana, the most prime and well known beach location in the city.

In the last few months, Brazil became the hottest name in the global economy. Approximately two weeks ago, the “Economist” magazine published that in five years, Brazil’s economy will become the fifth largest economy in the world, while surpassing France and the UK. This optimistic estimation lit a fire under this already hot potato and increased the buzz surrounding the country through the global markets.

Brazil is currently the ninth economy in the world in size and is one of the four countries who are lucky enough to be a part of “BRIC”, a term that refers to the fast-growing developing economies of Brazil, Russia, India, and China which are meant to be the fastest growing economies of 21st century. The acronym was first coined and prominently used by Goldman Sachs in 2001. In the twenty-one century, these four countries will consist 40% of the world population, while only 12% of the world population will live in the Western countries.

Brazil’s ace and uniqueness in this pack is its democracy which treats foreign investors gracefully and in dignity. Moreover, hosting the 2014 Mondial games and the 2016 Olympics and the 20$ billion that the government is expected to spend on these ventures will definitely and significantly increase the financial boom and is surely another reason for foreign investors to come a knockin’.

Omer Shachnai

The CEO Game.

The second of two articles on the Connection between Rio, the Olympics and cultural and financial prosperity.

do the games bring benefits to make up for the constant rising prices? Some do and some just don’t work out as well as planned, like described in part 1. The Olympic games brought a fresh breeze of regeneration to Barcelona, allowing authorities to use the games as an excuse to rebuild the coastline making Barcelona a worldwide popular travel destination and they gave Sydney a status of a “world class city”- live and kicking. The problem is that you can’t precisely put a figure on rebranding and giving a makeover to a city and a country. “This is the most emotional day in my life”, said Brazilian President Luiz Inacio Lula da Silva and he should be excited according to the next figures. The current cost estimations for the Rio games stand at $15bn while predicted profits are around $50bn, a worthy investment, but remember what happened to Greece’s first estimations. The Brazilians also claim that the games will create 120 thousands jobs a year for the following years. The IOC announced that the games will bring up the quality of life for the city’s residents, but in order to make it possible, Brazil’s leaders will have to step up, invest and upgrade infrastructures, fight the sky high crime rates and corruption. The same things were heard six years ago, when China was chosen to host the games, so that brings us to the next question.

The Olympic Games printed money for Beijing will it do the same for Rio?

What did the games do for Beijing? The Olympics committee’s people said that choosing Beijing will increase China’s involvement in western politics and economics and will help improve issues regarding human rights in the country. The result was kind of controversial. The diligent Chinese were efficient as usual and built mega structures who now decorate National Geographics’ magazines, in no time. It also had such pervasive influence both on national pride and on the economy that it even made China temporarily replace the images of Mao Zedong on their paper bills to the ones of the Olympic stadiums like the “Bird’s nest”. But, aside from these organizational and construction related achievements, it raised the inflation (partly due to the new demand for Yuan) and the horror stories about the relocation of thousands of people, some who lost their homes entirely because of the location of Olympic facilities, are still remembered. It did nothing to address the regional and ethnical inequality in China, a problem that Brazil faces every day. Finally, when the Olympic delegations returned to their home countries, Beijing resunk in its totalitarian routine.

In conclusion, the most important competition, in the Olympic Games, is neither the marathon nor the 100 meter swim in the glittering Olympic pool; instead it is the race for profit. The problem is that the staging costs can’t be calculated at the beginning, the same goes for estimating the benefits of placing your city as the host of the games. While, the short term effects are pretty obvious, no one can predict accurately what will happen in the long run. Issues like this, really concern us here in the CEO game and we believe that by using the simulation, and the ideas and theories you will encounter while using it you can assess such financial impacts to get a better view of the bigger picture. As for the question of how significant the Olympics will be? The answer is that Brazil is far from being a dark dictatorial country like China, but only time will tell whether the Olympics will actually change the problematic face of Rio for good and make it a pleasant, progressive city or will the corruption and crime return to rule the streets as soon as the games end like the pollution and tyranny in Beijing.

Omer Shachnai.

The CEO Game.

The crowd went wild and the media sensation was noticeable as Rio was officially crowned as the host of the 2016 Olympic Games. Rio de Janeiro, one of Brazil’s major tourism attractions and a poverty and crime struck city; rode a wave of Olympic Committee Sympathy to beat Michelle Obama’s Chicago and Madrid and bring the Olympics to South America for the first time in history. Subsequent to the announcement, the streets and the famous Copa Cabana beach were rightfully painted yellow and green, carnival style and the wild sensation was captured and broadcasted live to millions worldwide. That kind of exposure, is exactly what, the local organizers are hoping that will help the region’s economy. So, will the Olympic Games be a long time financial success story or a another event in history?

Obama - Lost With Chicago

This media’s zealous interest (which you can’t get anywhere else) in the hosting cities, is one of the reasons why cities across the globe, compete so hard to host the games. The Olympics are proven money makers for the hosting cities; generally, the loads of tourists that come a knocking, and the increased economic investment are supposed to cover and then some, the billions of dollars that are needed in order to put on the Olympic gig. Private revenue mostly made from advertising in all media platforms and television broadcasting rights is also something that makes the venue’s planners to drool at night. The Los Angeles 1984’s run for the money, was a great success as American television networks and big time corporate sponsors were psyched to pay a lot of money to place their names in the track lights. The size of the city also meant that not much of building was needed to be done as the city’s resources already could accommodate the events. The games also represent an opportunity for the common people such as renting their homes, providing light entertainment, souvenirs and food.

However, some fear that it is just not enough. Those commercially rosy days are long gone, there has been somewhat of a backlash against commercialism and advertising and many TV companies go all out against charges for rights. Also, in the last few Olympic Games, security and politics related expenditures alone have escalated to the sum that once represented the entire cost of hosting the games. Considering these issues and prior examples, the games might help Rio only to a minimal extent, over the long. Take the case of Salt Lake City (host of the Olympic Winter Games in 2002), which reports now show that the games’ economic influence on the city has been somewhat limited, or Canada, where smokers still pay taxes, on their cigarettes, to finance the games that were held there nearly three decades ago. A big concern, is that usually a large portion of the Olympic revenues, goes to maintaining the sport facilities, which were specially set up for the games and are not so commercially appealing after the Olympic closing ceremony. Moreover, as Greece found out, the staging costs cannot be fully accounted for, at the early time of discussing the Olympic Boosters. The final cost of the Olympics in Athens had risen by nearly 13 billion dollars from their first estimation of $1.3bn. Financial advisers also claim that another issue that needs to be taken into account is the fact that the IOC, or International Olympic Committee and sponsors are there, first and foremost in order to provide for themselves and promote their products and not to support the community. Many also fear that it’s only a temporary boost. Don’t forget that the games last for 17 days only and then fade into memory.

Rio Olympics: Will the Games be a Financial Success Story?

Choosing Rio, the poor city infested with crime and unemployment over the other more glamorous cities serves the organizers’ publicity, but worldwide investors didn’t need the IOC’s announcement in order to focus their attention on Brazil’s economy, they have already noticed it in the midst of the economic crisis. Brazilian bear bonds gave a nice yearly profit of nearly 10%, and Brazil’s economy is considered amongst the only markets whose production hasn’t declined this year. The games will increase tourism in Rio and throughout Brazil, this will be a short term effect but it will help increase spending in the economy, but might as well provide a long term boost in repetitive tourism. This could be very meaningful since Rio’s tourism is partly undeveloped today. The increased investment in transport links will probably have effect in increasing the productive capacity and will boost Aggregate Demand and economic growth. However, the increased spending will only represent a relatively small percentage of the GDP. Another issue revolving the Olympics is national pride and prestige, which really concerns Brazilian authorities. Take a look at London which begun its marketing campaign in the locking ceremony in Beijing.

So the required question is do the games bring benefits to make up for the constant rising prices? I’ll try to answer this question tomorrow in part 2.

Omer Shachnai.

The CEO Game.