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Olympics a test for ambitious developing countries

Monday - 2/17/2014, 7:34am  ET

FILE - In this Thursday, Feb. 6, 2014 file photo, the Olympic Park is illuminated in Sochi, Russia, prior to the start of the 2014 Winter Olympics. Westerners coming to Sochi for the Olympic games seemed surprised by the unfinished hotels, packs of stray dogs, and warnings not to drink the strange-colored water. But these vivid problems aside, the Olympics and ancillary development show some promising signs for the country. (AP Photo/Pavel Golovkin, File)

AP Business Writer

BEIJING (AP) -- Playing host to the Olympics or World Cup can showcase an ambitious country's rise and cast a harsh light on its weaknesses.

This week in Sochi, the eye-popping cost of Russia's Winter Games and logistical fumbles got as much attention as figure skaters and snowboarders. But organizers say the problems will be forgotten quickly, while the infrastructure improvements, international attention to the region and new winter resort built for the games will be a legacy benefiting Russia for decades.

Russia is hardly alone. Brazil, South Africa, India and other rising star economies that shoot for an image boost by hosting sports mega-events can be forced to contend with accusations of mismanagement, graft and misplaced priorities.

This has been going on for half a century. The 1964 Tokyo Games helped post-war Japan show off its postwar revival and technical prowess, as viewers around the world marveled at rebuilt cities and the new bullet train. In 1988, South Korea used the Seoul Games to highlight a modern industrial economy. And just four years ago, South Africa used a successful World Cup to show how the nation had emerged from apartheid.

Brazil, eager to raise its global profile and attract investors, is taking on the daunting challenge of holding the World Cup this year and, just two years later, the Summer Olympics in Rio de Janeiro.

That has aggravated simmering complaints Brazilian politicians squander money on status symbols and skimp on public services. Residents of poor Rio neighborhoods say thousands have been evicted to make way for sports facilities.

"It is money that should be spent on education, health, public safety, transportation and housing," said Ana Maria Lopes Cruz, a 35-year-old manicurist in Sao Paulo, the country's business capital. "We spend most of the year paying high taxes, and for what? To pay for the World Cup, so that we could look pretty before the world?"

Claims of long-term economic benefits from the Olympics or World Cup have been largely debunked by researchers. But a headline-grabbing event can put a city on the global tourist map. The 1992 Summer Games did that for Barcelona, Spain's business center.

Sports can attract investor attention and provide insights -- at times disturbing ones -- into a host's decision-making process and business conditions.

"Countries host them largely as a very costly publicity exercise," said Jorge Mariscal, chief investment officer for emerging markets at UBS. "It's a double-edged sword. They show the good stuff, but also the bad stuff."

The Beijing Olympics in 2008 was seen as a success and showed off the Communist Party's skills at planning and coordination. It also displayed the party's thuggish streak.

To build facilities, neighborhoods in the Chinese capital were bulldozed over residents' objections. Under pressure to respect human rights, authorities set aside areas for protests -- and then detained people who tried to use them.

Spending on the 2008 Games was estimated at $41 billion, though Chinese authorities never disclosed the total.


Global events have become a rite of passage for the BRICS -- the emerging economies of Brazil, Russia, India, China and South Africa. By the end of this year, each will have held at least one Olympics, World Cup or Commonwealth Games since 2008.

"If it's done well, then you've made a good impression on millions of people," said Greg Gilligan, president of the American Chamber of Commerce in China. "And if it's done poorly, then everybody is talking about, hey, they screwed this one up."

Potential investors can learn about a host's business climate by watching how well it honors commitments to sponsors and others, said Gilligan.

"Whether those promises bear fruit should absolutely reflect on the investment environment of the country beyond the Olympics," he said.

Of course, potential pitfalls aren't limited to developing countries.

The 1976 Summer Olympics left Montreal burdened with debt that took 30 years to pay off. In 1996, the Summer Games in Atlanta were marred by a bombing and snarled traffic.


Promoters often court trouble by promising a boost in investment and tourism. That can backfire by making a government look unreliable if such hopes are disappointed.

"Most nations have received little or no economic benefit from hosting such mega-sporting events," wrote Bob von Rekowsky, a vice president of Fidelity Investments, in a report in August.

Worse, economic growth in Olympics host nations including South Korea, China and Greece declined after the Games. Italy basked in praise for the 2006 Winter Olympics in Turin. Two years later, it plunged into a debt crisis.

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