BMI View: As the host of the 2014 FIFA World Cup and 2016 Olympic Games in Rio de Janeiro, we believe Brazil's tourism sector is set for a significant expansion over the coming years. As such, we expect that efforts to improve infrastructure and bolster transport and hotel capacity will be dominant factors in the sector's short-term trajectory, while broader macroeconomic trends such as the continued growth of Brazil's middle class will play a more significant role over the medium to long term.
Brazil's tourism sector is set for a boost in the coming years, as the 2014 FIFA World Cup and 2016 Olympic Games in Rio de Janeiro increase Brazil's global profile as a tourist destination and bring thousands of new visitors to the country ( see our online service, May 3, 'Tourism Industry Forecast - Q3 20 13' ) . In the short term, we expect that continued infrastructure development ahead of these global sporting events will be th e dominant theme in the sector, while over the medium term, trends such as domestic travel will become increasingly important.
Infrastructure To Dominate Short Term Outlook
We have long highlighted that infrastructure improvements will be a key driver of economic activity, as well as growth at the sector level in the next few years, due in part to necessary upgrades to capacity in advance of the 2014 FIFA World Cup and 2016 Olympic Games. This will have a lasting impact on the tourism sector, resulting in significant upgrades to the country's transport and hotel capacity, in addition to improvements in the country's stadium infrastructure. Although stadium construction has long been a hallmark of the government's current infrastructure push, many projects have been held up for reasons ranging from funding difficulties to inclement weather in recent months. As such, we believe the drive to complete these projects will continue to ramp up in the coming months, particularly as FIFA increase their pressure on local officials. Indeed, while Rio de Janeiro's Maracanã stadium was recently cleared for play, FIFA has threatened that São Paulo could lose its rights to host world cup matches unless stadium construction is sped up. Delays in improvements to the stadium in Brasilia, which is scheduled to host the first match of the Confederations Cup in June, are also a source of concern for FIFA officials. Such delays are symptomatic of Brazil's wider business environment issues, as high costs, burdensome regulation and corruption often weigh on firms' ability to complete projects in a timely and cost-effective manner. As such, although Brazil ranks fourth in Latin America in our proprietary Business Environment Ratings, its score is weighed down heavily by its relatively weak performance in sub-categories like government intervention, economic openness, and red tape.
|Arrivals To Remain In An Upward Trend|
|Brazil - Total Tourist Arrivals, '000s|
On the transport side, the government has launched several airport concessions in recent months in order to boost private investment, and a provisional measure outlining improvements to the ports sector that should boost efficiency and capacity there as well, helping to meet rising demand from these global sporting events ( see 'Olympic Opportunities In Sporting Events Supply Chain', April 12). Indeed, São Paulo Governor Geraldo Alckmin presented a concession plan to the country's civil aviation minister in early May covering 19 regional airports, and the tenders are likely to be issued in the latter half of this year. These airport concessions complement investments into road infrastructure - Brazilian President Dilma Rousseff has pledged to spend US$23.5bn on the national rail network by 2014 as part of the PAC II growth acceleration programme. While the ports sector has been the subject of significant controversy in recent months due to a government modernisation programme, we expect that the proposals will help increase efficiency and incentivise private investment ( see 'Investment Plan For Ports', December 11, 2012).
|Accommodations To Remain A Focus|
|Brazil - Hotels And Other Accommodations (LHS) & Accommodation Units (RHS) By Metropolitan Region|
In addition to transport infrastructure, we believe that Brazil's hotel industry is set for a sizeable expansion in the next few years, with the government reporting that 147 hotels are under construction or have been recently inaugurated for the World Cup. Indeed, local press report that FIFA requires 55,000 rooms across the country, and the International Olympic Committee calls for 27,000. Our Tourism team sees potential for international hotel chains to continue increasing their presence in Brazil in the coming years as only 20% of hotels are linked to international chains. Indeed, well-established brands such as Accor are expanding rapidly, while others such as Starwood and Marriott are looking to build their portfolios in the country ( see 'Tourism Industry Forecast - Q3 2013', May 3). In line with this view, our Tourism team forecasts the industry value of hotels and restaurants to rise by 6.1% in 2013 and 6.8% in 2014 to reach BRL75.0bn (US$37.5bn).
|Industry Value On The Up And Up|
|Brazil - Hotels And Restaurants Industry Value, BRLbn|
That said, one area of concern for hotel operators is likely to be the government's announcement that it plans to monitor room rates for major sporting events, starting with the June 2013 Confederations Cup, in order to ensure that prices do not become prohibitively expensive for tourists. While it is unclear how enforceable this measure will be, more significant steps by the government to regulate room rates could cut into firms profit margins during the World Cup and Olympic Games.
Rising Incomes To Boost Tourism Over The Long Term
|Domestic Travel Will Continue To Grow|
|Brazil - Domestic Passenger Landings 2012, % chg (LHS) & Number (RHS)|
Over the medium to long term, we expect that Brazil's tourism industry will continue on the back of continued interest from international travellers due to its diverse attractions and rising global profile, and increased domestic travel, with the industry value of hotels and restaurants reaching US$39.1bn by 2017. The latter trend in particular has started to take shape in recent years, as rising incomes and a growing number of regional airports enable Brazilians to travel around their country in greater numbers. Between 2005 and 2010, the number of domestic trips rose from 139mn to 186mn, according to the Financial Times.
|More Upside Ahead|
|Latin America - GDP Per Capita, US$|
While we believe Brazil's economy is set for a period of slower growth over the medium term, as the consumer sector posts more moderate growth and infrastructure bottlenecks constrain fixed investment, our long-term outlook for the economy remains brighter ( see 'Days Of Easy Growth Are Gone', April 19). Moreover, we expect that the government will continue to pursue policies aimed at closing the country's income and education gaps even after the end of the PAC II growth acceleration programme in 2014, due in part to the dividends it has paid to the economy in recent years ( see 'Economy To Dominate Medium Term Policymaking', May 10). As such, we expect that further redistributive policies and strengthening economic growth in the latter half of the decade will ensure a continued rise in per capita incomes, bolstering the domestic tourism sector in the long term.