With the opening ceremony of Rio 2016 set for tomorrow, will the Olympic Games be a boon for entrepreneurs in the host city?
Brazil is in the midst of one of its biggest recessions in decades, the state of Rio de Janeiro is mired in a debt crisis and security concerns have plagued preparations for the Games, which run from August 5 to 21.
Drop in firm numbers
In addition thousands of firms closed in Rio between 2013 and 2014, according to statistics drawn from a data portal run by Brazil's small business agency Sebrae.
Between 2009 and 2013 the number of registered small and micro businesses in the municipality of Rio de Janeiro grew by over a third (slightly faster than the national average of 28%), before contracting by 11% (in line with the national average) to 131,464 in 2014..
The faster growth between 2009 and 2013 is mirrored by a finding by the Getulio Vargas Foundation last month that the income growth per person in Rio outpaced that of 26 other state capitals and nine metropolitan areas between 2008 and 2016. It's likely much of this growth was before 2014 when the economy slowed before entering recession last year.
Yet even before the crisis hit the average number of jobs per small and micro firms in Rio fell slightly – from 5.3 jobs per firm, to 5 jobs per firm between 2010 and 2013. The national average in comparison remained at a lower, but steady 3.9 jobs over the same period.
In addition the increase in tax collected via Brazil’s special SME tax regime between 2009 and 2014 in the municipality of Rio (117%) was slightly behind the national average increase (of 123%) between those years.
The jobs and tax figures could be suggestive of the fiscal crisis that the state is now bogged down in, which was triggered by slowing oil revenues.
Small businesses have however still been able to get support from Brazil's small business agency to prepare to supply goods and services to the city's organising committee.
The agency, by way of a specific project dubbed Sebrae no Podio has assisted 12,500 businesses to sign up on the Rio 2016 supplier’s portal. By last month it had helped 414 firms to sign 458 contracts to supply goods and services to the organising committee.
The organising committee has pledged to channel 10% of its 3 billion reals procurement budget to small and micro businesses. By the start of the Games 400 million reals ($127m) in contracts had been channelled to 2,000 small firms, reported Globo.com.*
The project’s co-ordinator Francisco Marins describes the Games as a trampoline that can help improve the productivity of small businesses - with the agency having helped carry out free assessments of a firm's level of management for those that have signed up.
He estimates that as many of the small businesses benefiting from Rio 2016 contracts have about four or five employees they will outsource much of the work to other businesses, which could generate between 16 000 and 18 000 jobs.
Yet many believe The Games bring about few real economic benefits. In a paper written earlier this year economics professors Robert Baade and Victor Matheson said economic impact studies of past Games often ignore the “substitution effect” that occurs when local residents shift their spending from other goods in the local economy to the Olympics.
In addition the crowds and congestion associated with a mega-event dissuades other regular tourists or business travellers from visiting the host region (they point to evidence from the London and Beijing games over lower than expected visitor numbers).
“The overwhelming conclusion is that in most cases the Olympics are a money-losing proposition for host cities; they result in positive net benefits only under very specific and unusual circumstances,” say the authors.
Yet about 60% of 2,400 Rio residents polled this week by the Getulio Vargas Foundation said they believed the Games would be a success.
Grim sales outlook
With a forecast this week by Brazil’s national confederation of commerce (CNC) that retail sales would fall 10% this year (with 167,000 retailers shutting shop in the first half of this year) many Rio business owners will be praying that the games will help fill their pockets.
Among them will be the thousands of one or two-man traders (such as hawkers) that are registered under a special tax called micro empreendedor individual, whose numbers have swelled in Brazil in recent years (see this post). In Rio municipality alone their number has soared from 2,367 in 2009 to 220,986 in 2014. They too will want in on the action.
*These figures were updated following an earlier version of the story.
Timm is a South African who writes on small business. He last strode down Rio's Ipanema beach in 2014. Click here to sign up for the monthly Small Business Insight newsletter.
Stephen Timm is a