This paper examines Brazil's hospitality industry in the lead-up to the 2014 FIFA World Cup, analyzing the opportunities and challenges posed by hosting one of the world's largest sporting events. The paper surveys the state of Brazil's hotel sector, tourism economy, and infrastructure deficits, while reviewing the investment strategies of major international hotel chains operating in the country. It also assesses government responses—including financing programs, labor training, and price regulation—alongside social tensions, transportation bottlenecks, and lessons learned from the 2013 FIFA Confederations Cup. The paper concludes by weighing the long-term economic benefits of World Cup tourism against the significant costs and risks Brazil faces as a developing BRIC economy.
In 2014, Brazil was expected to host an estimated 50,000 soccer fans from all over the globe for an event lasting four weeks. Fans were expected to stay in hotels, eat in restaurants, shop, and visit Brazil's many attractions. Hosting an event of this magnitude is a challenge, especially for a developing economy like Brazil. However, with careful planning, the opportunities accrued from hosting such events may outweigh the challenges it presents (PWC, 2010).
Tourism has traditionally been neglected in Brazil, with the Ministry of Tourism established only in 2003. International tourism picked up only quite recently. There are 5.2 million international tourists visiting Brazil every year—still below its potential capacity, considering the number of tourist attraction sites the country possesses (Embassy of Denmark, 2010). The tourism sector in Brazil focuses more on domestic tourism, which the government deems more important. The hotel industry in Brazil is becoming increasingly attractive, yet the country still lacks a fully consolidated hotel sector. There are also highly attractive markets for entrepreneurial ventures in underdeveloped regions, particularly in the northeast, while well-established hotel industries exist in the south (Embassy of Denmark, 2010).
Investments in the hotel industry are primarily made through hotels, condo-hotels, and mixed-use properties where hotels and condominiums are developed together with residential towers, corporate offices, and shopping malls. A lack of infrastructure stifles Brazil's hospitality industry. Most of the Brazilian cities earmarked to host the World Cup—such as São Paulo and Aparecida—lack sufficient bed space for visitors, as noted by Portal Brazil (2010). Cities like Natal and Fortaleza in the Northeast are prime examples. Brazil is experiencing hotel investment across the North, Northeast, Northwest, South, and Southeast (Embassy of Denmark, 2010). However, the future of hotel investment primarily focuses on the northeastern region, which accounts for 48.2% of new investment projects and 83.3% of investment capital. Most businesses in these regions are investing in establishing new resorts. The cities selected to host the 2014 FIFA World Cup—Manaus, Cuiabá, Porto Alegre, Curitiba, São Paulo, Rio de Janeiro, Belo Horizonte, Brasília, Salvador, Recife, Natal, and Fortaleza—will see a rise in demand for hospitality services, supported by favorable pricing: 37% of hotels are noted to be priced about right and another 37% as high but still reasonable, according to Ernst & Young (2013).
Brazil is considered one of Latin America's fastest-growing travel and tourism economies. Its travel and tourism sector contributes directly to GDP. The sector contributed a staggering U.S.$79 billion to GDP in 2011 (Olivia R., 2012). This contribution is significantly higher than those of Chile and Colombia, which contributed 4.7% to GDP, while Argentina and Peru's travel and tourism sectors contributed 3.7% and 3.6% respectively (World Travel and Tourism Council, 2012). When the wider indirect and induced impacts of tourism on the Brazilian economy are taken into account, the industry's contribution is nearly three times greater, accounting for an equivalent of 8.65% of Brazil's total GDP. Over 7.7 million jobs in Brazil are supported by travel and tourism and its wider impacts (World Travel and Tourism Council, 2012), accounting for nearly 8% of all employment in the Brazilian economy.
Despite the fact that international tourism is performing well—elevating visitor exports to U.S.$7 billion in 2011—it is domestic tourism that is driving growth. In 2011, domestic tourism grew by 6.5% to U.S.$130 million (World Travel and Tourism Council, 2012).
The Brazilian tourism sector is poised for positive growth if the government and stakeholders agree to a number of open-skies agreements. Nevertheless, Brazil's hospitality industry faces a major challenge with two major sporting events approaching, and specifically the FIFA World Cup slated for 2014. Infrastructure must be improved: major airports are operating at overcapacity, port infrastructure is inadequate, and most critically, major cities lack sufficient hotel rooms (United States Department of Transportation, 2010). The government has initiated construction to ensure such facilities are in place before the World Cup commences, though serious questions remain about whether construction firms will adhere to strict deadlines as the date approaches.
There are 114.6 million passengers currently using Brazilian airports. By 2014, this figure is projected to rise to 167 million (Federal Aviation Administration, 2013). This high flow of visitors will generate much-needed revenue and spur growth in the Brazilian economy. Revenue generated by visitors is expected to increase from U.S.$6.58 billion to U.S.$8.73 billion in 2014. The 2014 World Cup is therefore projected to generate 3.63 million jobs per year and R$63.48 billion in income for the population over the period 2010–2014, while the government is expected to raise R$18.13 billion in tax collections.
The hotel industry in Brazil faces a mammoth preparation task (Hawkes, 2012). This challenge prompted the government to launch a flagship investment program aimed at stimulating economic growth and developing infrastructure for use during the 2014 World Cup. The first phase of the program was allocated $208 billion and the second $125 billion. The challenge is considerable given that Brazil is now ranked alongside Russia, India, and China as one of the powerful BRIC emerging economies (Mignonac, 2012).
Because of the number of visitors expected to attend the 2014 World Cup, the hotel sector is in a race against time. The industry is under intense scrutiny, having never before had to deal with an event the size of the FIFA World Cup. The sector shows promise in managing the situation, given the interest that large international corporations have shown in investing in the Brazilian hotel industry (Jones L., 2012). The biggest concern for local hospitality professionals is ensuring that media attention from the games benefits not only tourism in Rio, but also the surrounding areas (Danish Consulate General, 2010). The hospitality sector must develop a strong tourism brand that comprehensively reflects the tourism industry across Brazil as a whole. Brazil has many large and attractive cities with very limited hotel provisions. The Brazilian government has committed to making more than 48,000 rooms available for the Olympics, which calls for significant investment given the present hotel infrastructure. The Ministry of Tourism is expected to invest more than $140 million in the hospitality industry.
The government has acknowledged its infrastructural inadequacy and has initiated gap analysis to take a more comprehensive approach to mass transit. The government is soliciting bids to erect a monorail system expected to benefit fans attending soccer tournaments as well as business travelers, having recognized that infrastructural inadequacy could be a critical bottleneck to the government's aims in hosting the World Cup (Morgan Stanley Research, 2010).
Seven Brazilian harbors have been identified for expansion to accommodate cruise ships repurposed as hotels. The Manaus harbor's capacity is expected to be doubled and fitted with two floating piers capable of housing six cruise ships, increasing the city's bed space to 12,000 in the run-up to the World Cup. Specific projects have been presented for authorities at Salvador, Recife, Natal, Mucuripe, Santos, and Rio de Janeiro (Embassy of Denmark, 2010).
A total of USD 375 million will be invested in harbor expansion (Embassy of Denmark, 2010). However, at current valuations the Brazilian Real is considered expensive for overseas travelers. To spur investment in the hospitality industry, the Brazilian Development Bank (BNDES) has opened a line of credit with attractive interest rates and terms for Brazilian firms in the hospitality sector (Embassy of Denmark, 2010). The funds are intended for renovation and expansion of hotel supply, as well as financing construction, reform, and modernization of hotels to increase capacity and quality of accommodation for the 2014 World Cup. The program funds tourism projects throughout the country to support the 12 host cities, with special financing conditions for hotel projects certified for sustainability.
"Profiles of international and domestic hotel chains"
"ADR, RevPAR, land costs, and market barriers"
"Price controls, labor training, and regulatory measures"
"Protests, infrastructure failures, and 2014 risk outlook"
Always verify citation format against your institution’s current style guide requirements.