This is a guest blog post by Andrew Simms analyst and campaigner at our StopSecretContracts.org coalition partner Global Witness. If you believe public contracts should be open contracts, sign our petition and let world leaders know. This article first appeared on Global Witness’s website.
Symbolism doesn’t get much better than this – thousands of homeless Brazilians set up camp outside São Paolo’s stadium as it prepares for the opening game of the most expensive World Cup ever.
Brazil’s World Cup stadiums have become monuments to broken promises – largely publicly-funded (contrary to government assurances), colossally expensive (around four times over-budget on average, with allegations of overpricing abounding), and some fated to become post-Cup white elephants because their host cities can’t sustain them.
A who’s who of World Cup infrastructure sheds light on a paradox in Brazil’s development model. A major investor in its stadiums was the biggest bank most people haven’t heard of – the country’s national development bank (Banco Nacional de Desenvolvimento Econômico e Social (BNDES)), a majority public-funded bank whose mandate involves ‘promoting socio-environmental sustainability and reducing inequalities.’
These goals sit uncomfortably alongside the World Cup’s potential legacy.
Take the Beira Rio stadium in Porto Alegre, for example, built by Brazil’s second largest construction company, Andrade Gutierrez (which Associated Press says increased its political donations 500-fold in Brazil’s most recent elections). The cost of building Beira Rio went more than 150% over budget, and 80% of total costs were carried by the BNDES.
Andrade Gutierrez also built Brasilia’s Mane Garrincha stadium, along with engineering firm Via Engenharia. A seat in that stadium cost three times what an average stadium seat cost in South Africa and Germany for the last two World Cups.
The BNDES is a major player in Brazil and parts of Latin America and Africa, with a bigger investment portfolio even than the World Bank’s. In 2012 around a quarter of the bank’s funds came from Brazil’s Worker’s Assistance Fund and just over half from the National Treasury. As much as 70 percent of the bank’s expenditure meanwhile goes to ‘big companies’ whose gross annual revenue exceeds US$ 135 million.
Global Witness has three major concerns about the BNDES:
- Choice of investment partners
Senior officials from six World Cup contractors – Construcap, Galvão, Mendes Júnior, OAS, Odebrecht and Via Engenharia – are currently on trial for alleged illicit enrichment through the construction of key infrastructure at ten Brazilian airports between 2003 and 2006 – infrastructure that will bring millions of visitors to World Cup venues. Dozens of representatives stand accused of being part of a criminal association with officials at Infraero, a government-owned company that operates Brazil’s key airports.
Together they are charged with illicit enrichment that Brazil’s Public Attorney claims resulted in over US$ 440 million in public money being diverted. Investigators say that price inflation occurred on such a scale that at Sao Paulo’s Congonhas Airport alone the footbridges used by passengers to board planes were overpriced by 190%, amounting to US$ 2.6 million lost to Brazilian taxpayers.
This case first came to court in 2011. Three years later there have been no convictions. The accused deny the charges.
- Lack of transparency
While some ad hoc data is available on the volumes of money that BNDES invests in certain companies, the bank’s transparency tends to end there.
BNDES does not publish details of its loans to private entities inside or outside Brazil, claiming exemption to freedom of information requests on the basis of banking secrecy.
In the absence of publicly available information on BNDES’ rationale for financing certain companies over others, or the objectives or results of the projects it is funding, citizens are unable to scrutinise what their taxes are spent on.
BNDES investments in public institutions continue to be audited by public officials, but those in companies are not. This seems inconsistent considering that the BNDES is a federal public company under the supervision of the Ministry of Development, Industry and Trade.
- Social and environmental footprint
The BNDES lacks effective environmental and social safeguards to guide its investment choices or monitor their impact. This is evidenced by the fact that the bank is the majority funder of an infrastructure boom in the Amazon basin region, home to the world’s largest rainforest. Globally we are losing forests at a rate of fifty football pitches a minute.
One particularly controversial BNDES-backed project is the Belo Monte Dam, being built on one of the Amazon’s major tributaries. It is anticipated that the dam will result in the destruction of an area of over 1,500 square kilometres of rainforest, the forced displacement of between 20,000 and 40,000 people, and untold impacts on local livelihoods and eco-systems.
The economic viability of the dam has also been called into question, with industry analysts claiming that due to the challenges of building a project of this size in the Amazon total costs could easily exceed government predictions by US$ 5 billion.
The camp for homeless families outside São Paolo’s stadium has been nicknamed ‘The People’s Cup’ and is a stark reminder to World Cup visitors that Brazil’s booming economy remains elusive in much of the country.
Brazil’s month-long football revelries will likely distract from the real winners and losers of the 2014 World Cup, but the tournament offers critical insights into Brazil’s development trajectory – embodied in a bank that facilitates the cosy relationship between business and politics, lacks accountability back to its tax-payer donors, and finances projects that may undermine rather than further sustainable development.