The stadiums look magnificent, the airports are world class, and the red carpet is being rolled out.
But will it all be worth it? Will the cost of infrastructure, stadiums, security, and marketing be worth the gains from tourism, trade and ticket sales? And will the event be able to spark, if only indirectly, long-term economic development?
The fear is that SA is spending billions on a month-long advert for the country that will fail to deliver the promised returns. Some people moan that Fifa will take all the spoils while SA will be left with only debt and fading memories. Others argue that the money spent on sports stadiums should have gone to schools or hospitals.
Only the rich will gain, they charge , while nothing will change for the poor.
While these fears are not unfounded, international studies show that mega sporting events do shape world tourism patterns and create lasting legacies in host countries. Three studies confirm that SA can expect at least 250 000 additional air arrivals next month and that the net effect on economic activity will be positive.
The FM has designed a true-or-false quiz to clear up some of the myths surrounding the event.
Proposition 1: the World Cup diverted spending away from the poor.
False. SA, because of its healthy fiscal position, was able to meet its World Cup obligations while raising social spending at the same time.
World Cup-related capital spending of around R40bn since 2006/2007 is only 6% of all public-sector capital expenditure that has taken place in that time and only 3% of the R845bn capex that will be allocated from now to 2013.
“Even if the World Cup goes wrong, it will still have been worth it. The marginal loss will be negligible relative to the tangible benefits of improved road, rail, information
The reality is that the infrastructure backlog was constraining the economy’s efficiency and ability to grow. “The benefit of the World Cup’s tight schedule was that this upgrading was brought forward,” says Abedian. “The opportunity cost of delaying it [infrastructure development] would have been huge.”
For instance, Durban’s new King Shaka airport had been under discussion since the 1980s, but it took the World Cup to make it happen. Similarly, the World Cup was the catalyst for the first major upgrade to Cape Town station in 30 years.
Proposition 2: SA will be saddled with insurmountable debt.
False. This World Cup has been one of the most expensive to stage but will also make more money than any of the previously held ones in other countries . Audit and advisory firm Grant Thornton puts the gross impact on economic activity in SA over the past five years at R93bn. Since the time of
But according to national treasury, no part of the World Cup infrastructure has been financed through long-term debt. It has been done through the normal annual budgetary process since 2006. While SA faces a budget deficit of 6,2% in 2010/2011, it was budgeting for surpluses before the global crisis hit.
Treasury says the cost has escalated because government chose to view the World Cup as a mechanism for helping SA to meet its developmental imperatives. Thus it went beyond its contractual obligations to Fifa “to ensure that SA invested in infrastructure with significant legacy value”.
Proposition 3: the projected benefits are usually too optimistic.
True. There has rarely been any significant, sustained impact on growth or employment from these tournaments and sometimes the impact has been negative, according to the literature on mega sports events.
Such events also tend to under deliver because they are over hyped. Take President Jacob Zuma’s ludicrous statement at the tourism Indaba that “over 3,6m additional job opportunities will be created during the World Cup”. (To put the figure in
According to Grant Thornton, only 174000 one-year jobs can be sustained by the additional economic activity that will be generated by the event in 2010. (This assumes it will have a net additional economic impact of about R13bn this year, adding about 0,5% to GDP.)
Most economists expect World Cup-related expenditure to add 0,2%-0,4% (R5bn-R10bn) to GDP in 2010. Treasury is expecting 0,4%. This seems a poor return for government’s investment of R40bn. But the R40bn has stimulated the economy and without it “the contraction in the economy caused by the global recession would possibly have been much worse,” says Abedian.
Once the R40bn is factored in, total net direct World Cup spending rises to R55bn for the period 2005 to 2010. Because World Cup spending ripples through the economy, the gross impact on economic activity climbs to R93bn. The number of sustained one-year jobs associated with this amount of economic activity is just under 700000 over the five-year period.
Proposition 4: half a million foreigners are coming to the World Cup.
False. Grant Thornton’s initial estimate was 483000 visitors, but it revised this to 373000 after taking into account the worldwide recession and latest ticket sales. Two other studies forecast that the event will bring additional air arrivals of between 250000 and 300000 people (see table).
“After almost 18 months of contraction, the SA tourism industry can expect a very positive year ahead,” says Econex director Cobus Venter. “The World Cup is strongly pro-cyclical with regard to tourism numbers, lifting them six to nine months earlier than they would otherwise have gone up.”
Proposition 5: the elevation of brand SA should yield a long-term increase in tourism.
True. After hosting the World Cup in 2006, Germany climbed from seventh position to first place on the Anholt Nation Brand Index (a measure of the global perception of a country). SA is ranked 36th.
“The biggest advantage of the soccer World Cup is that it introduces SA to people who have never even thought about the country,” says Venter.
“The event will address deep Afro-pessimism in Europe and open up new markets for SA, like Brazil and Mexico.”
Grant Thornton principal Gillian Saunders estimates, based on mega sporting events in other countries, that SA could get an additional 2m visitors over the next five years if the event is coupled with a concerted drive to tap new markets.
Last week, tourism minister Marthinus van Schalkwyk launched a national strategy designed to increase foreign arrivals from 9,9m now to 13,5m by 2015. Government recognises that SA has neglected to expand its targeted markets geographically or by economic level and spells out the effort required to do so, using the World Cup as a springboard.
So, will the pomp and fanfare of the World Cup be worth it? Yes. Apart from the actual economic advantages and potential tourism gains, there are also hidden benefits, like the boost to national sentiment and racial inclusiveness, which are priceless.
“The World Cup has undoubtedly been a unifying factor in SA,” says Business Leadership SA CE Michael Spicer. “This does have economic consequences which, though they aren’t immediate, are nevertheless real.”
WHAT IT MEANS
The World Cup has forced infrastructure development
Debt is manageable