By Dave Marrs
The closer the daily countdown to the kick off of the Fifa World Cup 2010 has gotten to zero, the clearer it has become that initial predictions of the impact the event would have on the South African economy were greatly exaggerated. Early forecasts of half a million visitors – representing a 15% increase on the usual number of foreign tourists – soon dwindled to 450 000, then 330 000, and recently as low as 150 000.
While the latter seems to reflect undue pessimism, the trend is not dissimilar to the experience of previous host countries. But concluding that international sporting events seldom live up to their hype does not necessarily mean they are not worth bothering with. In the case of South Africa, the timing was unfortunate because of the global financial crisis and subsequent recession, which has inevitably put a dampener on fans’ travel plans. But it was also fortuitous, since like most other countries in the world South Africa was forced to provide financial stimulus to the economy when the credit squeeze hit, and for a developing country spending on infrastructure was the obvious way to go. Whether the World Cup-related infrastructure – especially the expensive new stadiums – will be fully utilized after the event is another matter entirely.
A few South Africans have undoubtedly regarded the World Cup as a once-in-a-lifetime opportunity to get rich quickly, and media reports of “rip-off” pricing have caused great consternation both among local politicians and the local organising committee. Trade and Industry Minister Rob Davies issued a stern warning in March that the government would not hesitate to unleash the Competition Commission if there was any suspicion that business cartels were colluding to inflate prices and thereby placing the success of the competition in jeopardy. An investigation has in fact been initiated into price fixing in the airline industry, and Tourism Minister Marthinus van Schalkwyk has commissioned a survey of prices in the hospitality industry to ascertain whether they have been raised unreasonably.
Reinforcing the perception that the event will not be as well attended as initially hoped, Match, Fifa’s exclusive hospitality partner for the World Cup, recently returned more than 400 000 hotel bed nights unsold, while South African National Parks, which had agreed to allocate up to a third of its inventory to foreign visitors, put some 14 000 bed nights back onto the local market when demand failed to materialise. There is now considerable concern within the South African hotel industry that too many new establishments have been erected and that some are going to struggle to remain viable after the event.
Brett Duncan, Chief Executive Officer of the Federated Hospitality Association of South Africa (Fedhasa), told the South African Parliament’s Portfolio Committee on Tourism that some hotel groups could face closure after the Fifa circus had left town. “Hotels will be under enormous pressure. There will be job losses as some won’t be sustainable,” he said. Too much emphasis had been placed on accommodation and not enough on logistics like air travel and vehicle hire, without which fans would not be able to reach the various destinations to stay in the hotels that were eagerly awaiting them. In addition, Duncan said many hotels had made the mistake of relying too heavily on Match to fill their rooms, and had been left stranded when a large chunk of these were handed back to them with only a few months to go before the event.
Gillian Saunders, the Grant Thornton Supervisory Director of Research, when the consultancy released its initial estimates of visitor numbers and the economic impact of the tournament on South Africa in 2008, said the outlook was quite different before the collapse of US investment bank Lehman Brothers triggered the global financial crisis and plunged much of the world into recession. This original survey assumed football fans would stay in South Africa for an average of 15 days and spend as much as R15bn in total, including R6bn in ticket sales and the rest on accommodation, catering and entertainment. Were these expectations to be fulfilled, the direct impact on South Africa’s gross domestic product would be a boost of as much as 0,5% this year. However, with visitor numbers no longer expected to be as high, and fans likely to reduce their time in the country to cut down costs, economists are no longer as confident in these figures. Efficient Group Chief Economist Dawie Roodt estimates that the economic fillip could be as little as 0,2% of gross domestic product.
Citigroup economist Jean Francious Mercier said in a “ballpark assessment” report released in early March that the biggest beneficiary of any Football World Cup was invariably Fifa in the short term, while the host nation almost always carried a disproportionate share of the cost burden. Mercier nevertheless believes that hosting the competition “probably will bring tangible but small economic benefits to the South African economy”. He expects tourism inflows to boost real gross domestic product by 0,5% this year, and that both the balance of payments and the rand could strengthen on the back of the inflow of foreign currency. Potentially the most important benefit is the effect hosting a successful World Cup would have on South Africa’s image, but this is also the most difficult benefit to quantify. Mercier believes there will be some positive legacy, but he doubts it will have a major economic effect. “In the five years prior to the World Cup, the country benefits from spending on stadium building and upgrading of other infrastructure necessary to the event; in the year of the event the main benefits occur from the holiday and ticket spending by spectators, as well as participating teams, Fifa officials and visiting VIPs; in the years following the World Cup, the country can draw benefit from a successful staging of the event in the form of higher tourism inflows and other intangibles, such as international reputation and even political clout,” Mercier says.
The International Monetary Fund argues that hosting mega events such as the Olympic Games or Football World Cup can be important image boosters, especially for a third world countries like South Africa. An article in the Fund’s journal suggested recently that just bidding to host an event of this size sends out a signal that the country is serious about engaging the outside world, especially in terms of trade and tourism. This could go some way towards countering negative perceptions of South Africa as an investment destination arising from the ruling African National Congress’s (ANC’s) internal political battles and calls for the nationalisation of mines and farms.
While the economic “big picture” seems likely to turn out to be rather smaller than expected, there are several sectors of the South African economy apart from long term tourism and the construction industry that are grateful for the World Cup, and especially its timing. South African motor vehicle manufacturers have been particularly hard hit by the recession and the collapse of export markets, so restocking by car hire companies in anticipation of the influx of football fans could not have come at a better time. Imperial Holdings, a listed South African company that owns both car dealerships and rental businesses, said in its results announcement for the six months to December that a forecast recovery in new vehicle sales could be attributed partly to the expected rise in tourism-related vehicle purchases and the World Cup. Imperial, which is supplying the buses that will transport all 32 teams during the competition, said the usage of South Africa’s bus fleet would increase by about a fifth over last year and the “defleeting” that is usually a feature of the winter months would therefore not happen this year. Rental periods are also expected to be extended.
In addition, a study by Cadiz Securities concluded that retail spend would increase by about 0,2% during the World Cup, adding some R800m to the tills of established businesses in the host cities. However, little of this is expected to filter down to the informal sector or rural poor. This is partly a function of the unavoidable urban focus of the tournament due to the location of the majority of the stadiums in South Africa’s bigger cities, but also because of stringent Fifa-imposed regulations covering business conduct during the period of the World Cup.
The South African Treasury estimates that South Africa will have spent about R33bn on infrastructure in preparation for the tournament, some R12bn of this on the stadiums alone and about R13bn on upgrading transportation systems. Indeed, transport infrastructure is destined to be the most useful and visible legacy of the 2010 World Cup. This is not because upgrading public transport was not an urgent necessity before South Africa won the bid to host the tournament, but the event made it a priority for the authorities and forced all levels of government – local, provincial and national – to cooperate in ways that had largely eluded them during the first decade and a half of South Africa’s democratic history. Projects such as the Gautrain high speed commuter rail service linking OR Tambo Airport to Johannesburg and Pretoria were not officially initiated specifically for the World Cup, but there can be no doubt that national pride has played a part in ensuring that it stayed on track and that sections of the line will play a part in getting fans to games across South Africa’s sprawling and congested industrial heartland.
Similar uncharacteristic energy has been devoted to expanding the country’s major airports, investing in undersea cables to add broadband capacity, improving satellite broadcast links, adding lanes to highways and fast-tracking integrated commuter rail and bus rapid transport systems. These have not been without their problems, not least cost escalations that have caused considerable taxpayer anxiety. They have also caused conflict with existing providers of public transport such as privately owned minibuses that dominate many urban transport routes in South Africa and are not above using violence to defend their perceived economic rights. But few could argue against the fact that such infrastructure will form a lasting legacy, or that it would have happened even in the absence of the World Cup.
South Africa’s public transport system was neglected during the apartheid era, with better-off whites generally using private transport and the government actively discouraging black people from settling and working in urban areas. In addition, escalating crime post apartheid, and poor management of the rail infrastructure, discouraged the expansion of the existing rail commuter network and development of integrated rail, bus and taxi transport systems. Winning the bid to host the 2010 Fifa World Cup provided both the necessary incentive and inflexible deadlines to compel the various levels of government and private operators to work together efficiently. The result is that all of the host cities have implemented improved public transport systems, based largely on fleets of buses using dedicated lanes and newly constructed terminals and boarding points. These facilities, along with the integration of other forms of public transport such as rail and the national fleet of privately-owned minibuses, will continue to serve the cities well long after the World Cup final has been played.
According to Mercier, economic theory suggests the impact of infrastructure spending on a country’s economy is not limited to direct outlays but gets magnified by the “multiplier effect”. He points out that a 2008 study aimed at assessing the impact of sporting events in South Africa concluded that public spending related to the World Cup was likely to raise real gross domestic product by about R16,3bn or 1,2% if the indirect effect on manufacturing, business, financial services and internal commerce was taken into account. Previous research had concluded that while the multiplier effect would extend the benefits of World Cup-related spending well beyond the construction, engineering and transportation sectors and create as many as 50 000 jobs, most would be short-term contracts and therefore not make a meaningful dent in South Africa’s high structural unemployment.
Job creation was a big selling point of the World Cup to South Africans prior to the bid to host the competition, and the potential loss of this benefit has been used by government officials to neutralise objections from those who feel they have been prejudiced by the use of state resources to fund a sporting event. Incidents of unrest and organised protest in deprived communities have been rising steadily since before last year’s national election, with anger at a perceived lack of service delivery sometimes spilling over into violence and destruction of property. The ANC has conceded that some residents have legitimate grievances, especially in areas where corruption and inefficiency have caused the effective collapse of local government, which is constitutionally mandated to deliver a range of essential services. Gauteng Local Government and Housing Minister Kgaogelo Sekgoro warned recently that violent protests could derail progress towards staging a successful tournament, since the government was being forced to spend more money than planned on infrastructure that was being damaged during protests. However, it is evident that many South Africans still see the World Cup as a diversion of scarce resources that could have been better utilised to build houses for the millions of economic migrants who continue to flock to South Africa’s cities from the rural areas, only to end up living in shacks.
Trade union federation Cosatu, ostensibly an ally of the ANC government, has been particularly vocal on this point while simultaneously strongly supporting South Africa’s staging of the World Cup. Cosatu general secretary Zwelinzima Vavi warned recently of “mass action” in protest against a decision by the independent energy regulator to allow a 25% electricity tariff hike could run “at a particular speed that we cannot control” and continue beyond the start of the World Cup. Anger over the tournament’s failure to deliver immediate socioeconomic benefits to the poor erupted into the open in March when Fifa was forced to halt production of the official World Cup mascot toy in China, when it was alleged that workers there were being forced to endure “sweatshop” conditions. It emerged that an ANC Member of Parliament had won the Fifa contract to produce the mascot, nicknamed Zakumi, and promptly outsourced production to a factory in Shanghai. Cosatu argued that the government’s failure to ensure that all such World Cup merchandise was sourced locally defeated one of the main objects of staging the event in South Africa. Cosatu has also called for an official inquiry into corruption arising from the awarding of World Cup-related tenders following the granting of a R30m contract to “beautify” the main highway leading to Gauteng’s OR Tambo international airport to a company with links to senior political figures, without a competitive and open tender process.
The South African Local Government Association (Salga) recently issued a warning to all municipalities about the possibility of strikes and violent protests during the World Cup, pointing out that June and July traditionally fall in South Africa’s “strike season”. The competition would be seen by some as an ideal opportunity to get a quick, positive response from management so as to avoid negative publicity, Salga said, and councils should develop contingency plans or negotiate in advance to get written agreements from unions that disputes would not be allowed to disrupt the World Cup.
There has also been a lot of unhappiness among the business community and nongovernmental organisations over Fifa’s aggressive defence of the World Cup brand, its overzealous protection of official sponsors at the expense of small local enterprises, and its demand that host cities deal with vagrancy and other antisocial activities before the event kicks off. The football world body’s uncompromising stance concerning “ambush marketing” was relatively well publicised at the time of the bid, and there have therefore been relatively few instances of heavy-handed action against large companies trying to make a quick buck riding on the coattails of the World Cup brand. However, the owners of small businesses in the vicinity of the stadiums in several South African cities have complained that their ability to capitalise on the dollar and euro-toting pedestrian traffic that will flood these areas before and after games has been severely restricted by the zealous application of bylaws criminalising any reference to the competition, football in general and even the national flag. Vendors selling products considered to compete with those of Fifa’s major sponsors are particularly aggrieved, with some predicting that their sales will be reduced, rather than inflated, as a result of restrictions placed on their ability to advertise and trade. One organisation, Ecumenical Service for Socio-Economic Transformation, has gone so far as to take the City of Johannesburg to court to stop it from clearing out street vendors ahead of major events, specifically the World Cup. The City of Cape Town responded to complaints from informal traders who are to be prevented from trading at their usual sites because of Fifa’s contracts with the city by moving to temporarily suspend certain bylaws for the duration of the event. This would allow informal traders to set up their stalls in the vicinity of fan parks and other planned public football viewing areas.
Overall, it seems likely that hosting the 2010 Fifa World Cup will benefit South Africa economically by means of a relatively brief injection of foreign exchange during the event, significant capital investment at a time when liquidity is in short supply due to the global recession, and significantly improved transport and communications infrastructure that might otherwise have been delayed or not occurred at all. However, it will not be the panacea for the country’s many serious social and economic backlogs that some may have hoped it would be. The biggest potential for long-term benefit lies in the opportunity to market the country as a tourist destination in the coming years, while it has the undivided attention of billions of football fans watching on television and wishing they were there to join the party.