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Rio 2016: Is Brazil doing the Olympics on the cheap?

Police protests, the threat of the Zika virus, incomplete transport links and a "state of financial emergency" — the build-up to South America's inaugural Olympic Games on August 5 has been rocky.

The governor of Rio de Janeiro declared a "state of financial emergency" just two months ahead of the event in order to secure further funding for during the games. Meanwhile, headlines scream of infrastructure deadlines missed, athletes skipping the event and even a scuppered terror plot.

Brazil's steep recession may mean its economy is less able to withstand the cost than other host nations, though. Its economy is seen shrinking again in 2016, by 3.3 percent, before growing by 0.5 percent in 2017, according to the International Monetary Fund. Its economy was growing strongly when it bid for the games a decade ago.


The Olympic Rings in Madureira Park in Rio de Janeiro, Brazil.
Getty Images
The Olympic Rings in Madureira Park in Rio de Janeiro, Brazil.

The University of Oxford's Said Business School published a report forecasting the sport-related costs of Rio 2016 would likely be 51 percent or $1.6 billion over budget at $4.6 billion.

"The billion-dollar-plus cost overrun on the Rio Games comes at a time when Brazil can ill afford it, given that it's facing its worst economic and political crisis since the 1930s and the state of Rio de Janeiro is particularly hard hit by recession,' Professor Bent Flyvbjerg, lead researcher on the report, said on the university's website.

However, both the budget miss of $1.6 billion and the overall amount of $4.6 billion are below average for Olympic Games' expenditure, according to Flyvbjerg.

On average, since 1960, countries have spent $5.2 billion in inflation-adjusted terms on hosting the summer Olympics and have gone 176 percent over budget, Flyvbjerg's report said. Furthermore, in the last decade, the cost has shot up, with each game averaging $8.9 billion.

Both Beijing in 2008 and London in 2012 set new records for Olympic expenditure, with the U.K spending nearly $15 billion.

Flyvbjerg highlighted the games in Athens 2004, saying the cost overruns and related debt exacerbated Greece's financial crisis of 2007 onward. That was even though its games cost a below-average $2.9 billion.

Private funding

A shopping district in the Centro neighborhood in Rio de Janeiro, Brazil.
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A shopping district in the Centro neighborhood in Rio de Janeiro, Brazil.

Research firm IHS noted that around 70 percent of the cost of the Rio Games would be funded by the private sector, potentially offering some relief for the struggling government coffers. The mayor of Rio, Eduardo Paes, has said this represents the biggest contribution from the private sector for any games other than Atlanta 1996, according to media reports. Local sponsors include Brazilian banking chain Bradesco and NET, part of America Movil.

In addition, the Brazilian federal government has authorized 2.9 billion reais ($890 million) in emergency aid to Rio to help provide necessary security and infrastructure. The sum will help pay the wages of public servants, including police officers, who have not received salaries since May, according to IHS. This should help assuage the risk of the police, who protested at Rios's international airport in late June and early July, going on strike during the games.

The aid provided by the federal government may simply have shifted some problems into the future – it will only cover the wages of public employees and the police until November, according to Carlos Caicedo, senior principal analyst for IHS Country Risk.

He was more positive about the expenditure on infrastructure.

"Infrastructure spending has been generally positive, without it the crisis would be worse; also, transport links (new metro line, light railway and new tram-like bus lanes) would be a great legacy for Rio," he told CNBC via email.


Security: Watch your purse

Police officers and firemen protest against pay delays in Rio de Janeiro, Brazil.
Vanerlei Almeida | AFP | Getty Images
Police officers and firemen protest against pay delays in Rio de Janeiro, Brazil.

The police strike, which featured officers holding placards in English stating that visitors would not be safe, was followed in July by the arrest of 10 people for an "amateur" terror plot. But with police back on duty, IHS said the biggest security risk was petty theft.

"The main threat to visitors of the 2016 Olympic Games in Rio de Janeiro is street robbery: Having wallets, mobile phones, purses, or jewelry stolen, sometimes with the threat or use of violence," IHS said on Monday.

Theft hotspots include the main hotel precincts and popular tourist beaches like Copacabana and Ipanema, where "tourists are less alert," said IHS.


Ipanema beach, in Rio de Janeiro, Brazil.
Getty Images
Ipanema beach, in Rio de Janeiro, Brazil.

It said 85,000 security personnel would be deployed to Olympics venues and tourist areas — more than double the number during the London 2012 Olympics and more than the 2014 Brazil World Cup.

"IHS assesses that this saturation of security force deployment will be effective in containing crime, unrest and vandalism during the Olympics, as was the case during the World Cup," Caicedo, said in a note on Monday.

Homicide mostly affects Rio's slums rather than tourist zones or areas near Olympic sites, IHS added.

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