Sochi Winter Olympics are the costliest Games ever

Sochi 2014 Olympics

The Sochi Olympics, due to be held next February, will be the biggest international event hosted by Russia since the fall of the Soviet Union. While the event aims to affirm Vladimir Putin’s international legitimacy and power, the Games have also emerged as a touch point for corruption and all types of abuse.

Sochi is a peculiar choice for the Winter Olympics. With a lush subtropical climate and very little infrastructure, this small seaside resort town is one of the very few places in Russia where snow is scarce in winter. Located a few hours’ drive from the North Caucasus, an extremely volatile region well known for Salafist insurgency movements, Sochi is also a not obvious choice for security reasons. Last year, nearly 600 insurgents, security forces and civilians died in the region.

A cauldron of cost overruns and corruption

Since the beginning, preparations for the Sochi Games have been surrounded by huge expenses and allegations of fraud. Over the past six years, the initial estimated budget of $12 billion went up to $50 billion, making Sochi win the gold medal for the costliest Olympics in history – three times the budget allocated to education and twice the budget allocated to health care in Russia.

In comparison, the London 2012 Summer Olympics cost $14 billion, the 2010 Winter Games in Vancouver $6 billion and the 2008 Olympics in Beijing $40 billion. While in the past 14 years initial budgets were increased roughly two-fold on average, in the case of Sochi the costs have risen fourfold from the initial estimates to the final figures.

Such a staggering amount of money – half of which comes directly from state coffers and the rest from state-controlled companies, banks and Russian magnates – has raised criticism of lacking transparency and accountability.

As opposition leader Boris Nemtsov argues, Sochi has emerged as a model of corruption, unfair competition and “crony capitalism.” He estimates that nearly $30 billion have been lost to “kickbacks and embezzlement” so far, benefiting oligarchs and businessmen close to the government. For instance, Arkady Rotenberg, Putin’s close friend and former judo partner, has been awarded more than $7 billion in contracts, which is more than the entire budget for the 2010 Vancouver Winter Games. Meanwhile, the most expensive deal has gone to Russian Railways, a state-run monopoly headed by a former KGB official and comrade-in-arms of Vladimir Putin.

Uncertain returns

Last February, President Putin decided to fire the vice president of the Russian Olympic Committee, Akhmed Bilavov, as his company, in charge of building the ski-jumping complex, was accumulating huge cost overruns (more than $193 million) and severe delays. Several construction projects have been redone due to botched or wrong calculations.

That is why many private investors are now increasingly skeptical about the possibility to get good returns (or government support) from their investments. As Vladimir Potanin, CEO of GMKN (the world’s largest producer of nickel) recently confessed, a good deal of the infrastructure and facilities built for the Olympics prove commercially useless before and after the games.

By the end of the Sochi Olympics, many small and medium enterprises could end up on the brink of bankruptcy, while major banks such as VTB and VEB, which provided public and private investors with massive credit, may suffer heavy losses. In early November, three powerful Russian tycoons had already warned that they would not be able to pay back VEB’s loans. If so, this could significantly affect the Russian investment climate and public finances, since the state is responsible for covering losses in the case of payment default.

Migrant labour with no rights

There have also been increasing concerns over Putin’s recent crackdown on human rights and the freedom of expression. To build such a gigantic city from scratch, no fewer than 70,000 construction workers have been hired, calling to mind former Soviet-style construction projects.

According to Human Rights Watch, nearly half of them are migrants from Central Asia or other former Soviet Republics, working 12 hours shifts (often illegally and without a permit) with one day off and $500 per month at best. Many workers get their passport confiscated by their employers so they cannot leave the site.

Another worrying detail concerns the transformation of Sochi into a vast experimental basis for the SORM system. Activated by the all-powerful Federal Security Service (FSB) to monitor all Internet and telephone communications, SORM appears to be one of the most intrusive spying and surveillance systems created in the history of the Olympics.

So far, only German President Joachim Gauck and European Union Commission Vice President Viviane Reding have decided to boycott the Sochi Winter Games in response to Russia’s widespread violation of human rights and “deficit of rule of law.”

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Categories: Economics, Europe

Author:Louise Meloy

Louise Meloy is a recent MSc Graduate in Political Economy of Europe from the London School of Economics and Political Science. Her MSc Dissertation provided a comparative analysis of the impact of political conditions (government effectiveness, state capacity, rule of law, level of perceived corruption…) on Foreign Direct Investment in Slovakia and Bulgaria, demonstrating the importance of good institutional bases in generating positive spillovers for host countries. She also holds a MSc in European Studies with Distinction from the Université Libre de Bruxelles and previously achieved her BA in Political Science and Sociology at Paris Dauphine University. Her areas of specific interest include the analysis of Political and Economic transitions in Western, Central and Eastern Countries as well as the study of Interest Groups and Economic Policy Making in the EU. Currently, she is working as an Intelligence intern at AKE Group, providing political and security risk research and analysis on European and Former Soviet Union Economies.

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One Comment on “Sochi Winter Olympics are the costliest Games ever”

  1. December 28, 2013 at 6:26 am #

    Reblogged this on dipublicus.

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