Economic Impact World Cup SA 2010.pdf

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University of Pretoria

Department of Economics Working Paper Series

Predicting the Economic Impact of the 2010 FIFA World Cup on

South Africa

Heinrich R. BohlmannUniversity of Pretoria

Working Paper: 2006-11

May 2006

__________________________________________________________

Department of Economics

University of Pretoria

0002, Pretoria

South Africa

Tel: +27 12 420 2413

Fax: +27 12 362 5207

http://www.up.ac.za/up/web/en/academic/economics/index.html


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PREDICTING THE ECONOMIC IMPACT OF THE 2010 FIFAWORLD CUP ON SOUTH AFRICA

H R Bohlmann

Department of Economics, University of Pretoria, South Africa

bstract

Thefollowingpaperisanexcerptfrommydissertationontheimpactofthe2010FIFAWorldCup.ThissectionconcentratesonthetheliteraturereleventtoSouthAfricashostingofthe2010tournament,andonthelessonsthathavebeenlearntinpreparingformega-events. Factors thatmakeSouthAfricascircumstances

uniquearealsoconsidered.

JEL classification code C68, O10

Keywords computable general equilibrium, mega-

events


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L i t e r a t u r e R e v i e w

The significant growth of the sports and leisure industry since the 1980s has

highlighted the need and importance of sound economic decision making and

planning for all market participants. The global media explosion during this period

has had a considerable effect on the income generated by this industry, as television

networks continue to pay increasing amounts of money for the rights to broadcast

these events. The general publics insatiable appetite for sporting events and the

visual immediacy of live television has been the driving force behind the growth of

this sector. Besides the sports and leisure industry itself, a number of other sectors

in the economy have also gained from the popularity of these events, and their

respective broadcasts, most notably the tourism sector. Research on the economic

impacts of sporting events and the hosting thereof, is relatively new compared to

most traditional economic topics. The first comprehensive economic impact study of

hosting a mega-event, conducted for the Los Angeles Games of 1984, was a direct

result of the interest generated by reports that Montreal declared a considerable

financial loss from the 1976 Games. Subsequently, many studies have been done on

the wide-ranging and diverse impacts of sporting events on economies. The

following section reviews some of the most relevant literature regarding the socio-

economic impact of mega-events1.

Studies concerned with sports tourism provide valuable insight into the impact of

events on this sector. Ritchie and Adair (2002) found a growing recognition of sports

tourism as both a popular leisure experience and important economic activity.

Academic institutions and organizations have responded to calls for integrated

research on the links between sport and tourism. An increasing amount of

1See tables A1 through A4 in the appendix for a complete list of mega-event host cities and counties.


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universities in the United States, United Kingdom and Australia now offer degrees

and certificate programmes in sports tourism and management. The online Journal

of Sports Tourism encourages research and discussion on the topic, and conferences

dedicated to sports tourism have been appearing more regularly. The World Tourism

Organization (WTO) has recognized the importance of these links in the economy by

co-hosting the World Conference on Sport and Tourism held in 2001 with the

International Olympic Committee (IOC). A report released that same year by the

WTO indicated that the contribution of sport to the gross domestic product (GDP) of

industrialized nations could be as high as 2 percent, with the contribution of tourism

between 4 and 6 percent. The Los Angeles Sports and Entertainment Commission

(2003) claimed that the average economic impact on a city hosting a major sporting

event was US$32.2 million, and the Canadian Sport Tourism Alliance (2003)

estimated that in excess of US$2 billion per annum was generated by the sports

tourism industry in Canada. These developments clearly reflect the increased

interest generated in the field of sports tourism. However, in order to measure the

full economic impact of hosting a major sporting event, the economy needs to be

assessed on a much broader scale. The following studies have looked at the

economic impact of mega-events on a macro and sectoral level, and also what the

perceived impacts of these events were before and after the event. These studies

also give greater insight into why countries compete so fiercely against each other to

host these hallmark events.

An interesting study by Kim, Gursoy and Lee (2004) examined the impact of the

2002 FIFA World Cup on the perceptions of South Korean residents before and after

the event, and compared any perceptual differences between the two time periods.

The survey included 26 items, covering a wide range of issues associated with

hosting the tournament. The results of the study show that many of the benefits did


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not materialise as expected. With regard to the expected benefits of cultural

exchange, economic benefits, and natural resource and cultural development, the

perceived gains were much less than expected. However, some of the expected

problems also turned out to be less significant than anticipated. The expected

negative impact of traffic congestion and pollution, price increases, and social

problems were not perceived to be as bad as originally feared. The construction

costs of the World Cup stadiums were perceived to be much higher than expected

without realizing any of the benefits expected from these state-of-the-art facilities,

although some factors may have contributed to these perceptions. The fact that the

second survey was done only three months after the World Cup may not have been

enough time for residents to fully recognize some of the benefits of hosting an event

of this nature. Many of the expected benefits such as attracting more investment, or

increases in tourism and cultural exchanges may only occur over the longer term,

and could still, therefore, meet the expectations that residents held before the event.

However, concerns about the use and maintenance costs of the stadiums after the

World Cup are justified (Watts, 2000). The large number of single-purpose stadiums

built for the event, in both Japan and South Korea, has in effect led to an over-

supply of large stadiums of this nature. Municipalities have admitted that the

stadiums will be underused in future, and have already begun considering alternative

means of utilising the multi-billion dollar facilities. Despite these problems, the 2002

FIFA World Cup turned out to be a successful event for South Korea without any

major societal and cultural problems, although better planning and communication

with regard to the future use of event facilities is suggested.

A number of other studies also examine residents reactions to major events.

Fredline and Faulkner (2002) emphasize that an understanding of the way in which

events impact upon the quality of life of local residents is critical for the success and


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ultimate sustainability of any event, and further show that if disparities exists

between pre- and post-event perceptions, local residents are likely to adjust their

perceptions and attitudes toward hosting events in the future. Deccio and Baloglu

(2002) examined nonhost community residents perceptions of the spillover effects

of the 2002 Winter Olympic Games held in Salt Lake City. Nonhost communities

may potentially benefit from the spin-off effects of a mega-event being hosted in the

area, and therefore, need to plan and market themselves appropriately in order to

take full advantage of this opportunity. They further suggest that mega-events are

also likely to serve as a catalyst for bringing attention to the natural environment,

and may help in preserving parts of the domestic landscape and heritage that would

otherwise have been overlooked.

Although there are many expected and perceived negative impacts of hosting a

mega-event, countries and cities still compete against each other to host these

events because of the expected benefits for the community and local businesses.

The prospect of hosting a successful mega-event and the positive spin-offs and

opportunities that this might create through international publicity and recognition

(Jeong and Faulkner, 1996) often cause potential host communities to ignore any

negative impacts that might occur (Kim et al, 2004).

As the above studies indicate, countries consider the non-sporting impacts of hosting

mega-events as the primary motivating factors for hosting these events. Sports

economist Holger Preuss states that every modern Olympic Games has had a non-

sporting agenda. Preuss (2000) listed a number of objectives that these countries

had in hosting the Olympics. These include i) putting the country on the map; ii)

showcasing the region; iii) promoting the political system; iv) creating new trading

partners; v) attracting investment; vi) boosting tourism; vii) creating jobs and


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that look at the longer-term overall and sectoral impacts of recently held mega-

events.

Ferran Brunet (2005) recently published a comprehensive review of the economic

impact of the Barcelona Olympic Games over the period 1986-2004 and beyond.

Brunet found that Barcelonas hosting of the Games was a remarkable success, and

have contributed significantly to the urban regeneration and attractiveness of the

city. As a result of its triumph on all levels, the Barcelona Games have become a

model from a sporting, organisational, economic, social and urban planning

perspective. Three distinctive periods were identified and reviewed by Brunet. The

first period studies the resources used and planning involved prior to the Games, the

second period studies the economic impact of investments from 1992-2002, and the

last looks at the citys strategic position in future. Samaranch (1992) noted that the

key to the success of the Barcelona Games lies in the strength of its organisational

and urban objectives, the inter-institutional consensus, use of special management

bodies, mixed private-public funding models, and also the harnessing of the Olympic

legacy and attracting of investments. Brunets review of the construction work done

prior to the Games highlighted a number of important aspects. Given the objectives

of the Barcelona Games, a vast amount of construction work was required. Much

more construction was also indirectly generated, most not being directly necessary

for the holding of the Games. This feature is one of the aims of all candidate host

cities: to generate construction of as much infrastructure and facilities which will

serve the city in the aftermath of the mega-event itself. More than 60 percent of

Olympic funding was allocated for building work, highlighting the structuring effect

on the city. The scale of the urban transformation arising from the Games was

enormous, with new roads, sewage systems, green areas and beaches built.

Regional decentralisation was also a key component, with only 38.5 percent of total


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investment in Barcelona itself. Another feature was that construction of sports

facilities accounted for only 9.1 percent of the total investment. This small

percentage reflects the large amount of additional investment created by the Games.

More than a third of the Olympic building work was promoted by the private sector,

focussing on housing, hotels and business centres. Overall, Barcelonas use of

resources and planning remains a benchmark for all future host cities of mega-

events. Their minimising of organisational costs and careful planning with regard to

the required investment and funding thereof has led to tremendous gains for the city

after the event.

The second and third parts of the study specifically look at the economic impact of

the Games during and after the event, and the legacy created by the Games. Brunet

states that the impact of merely the citys nomination as potential Olympic host city

was immediate. Unemployment decreased, the housing market picked up, and the

construction industry had a considerable boom (Brunet, 1995). The longer-term

impact of the Games was higher employment levels, even during economic

downswings. This was partly due to more than 20 000 permanent jobs created

through Olympic-linked investment. The construction industry also continued to

flourish during this period, and house building and hotel capacity increased. Tourism

has been another sector that showed tremendous gains over an extended period of

time, highlighting Barcelonas extraordinary and sustained capacity to ride the

Olympic wave (Brunet, 2005). With regard to Barcelonas Olympic legacy, continued

investment generated by the Games has ensured the citys strategic position within

Europe. Brunet defines the citys Olympic legacy as the new public and private

capital and the permanent employment generated by the Olympic investments. This

legacy includes the citys urban transformation, changed economic structure,

increased capitalisation and service sector activity, improved international position,


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attractiveness, productivity and competitiveness. Many observers and analysts

agree that Barcelona is a different, and improved, city thanks to the Olympic Games

(Ioannides, 2004; Brunet, 2005).

Eight years after the highly successful and popular Barcelona Games, Sydney

attempted to raise the bar even further. Arthur Anderson and the Centre for

Regional Economic Analysis (CREA) at the University of Tasmania joined forces

before the Sydney Games to estimate the impact of the Games on the New South

Wales (NSW) and Australian economy. Their collaboration resulted in a sophisticated

multiregional computable general equilibrium (CGE) model. Model simulations were

designed and implemented to provide results for a range of important micro- and

macroeconomic variables such as employment by industry and government revenue.

Madden (2002) builds on this research by assessing the economic consequences of

the Sydney Games after the event. Madden, who was heavily involved in the initial

CREA study, used the same multiregional model with some amendments to the

database. He included three new industries, namely, international tourism;

interstate tourism; and Olympic operations. In order to accurately measure the total

impact of the Games over an extended period of time, three distinctive periods were

identified. The pre-event phase included all construction, upgrading to venues,

accommodation and transport infrastructure, and operation expenditures in the five

years preceding the event. The event-year phase includes the impact of the great

influx of tourists during the Games, and further operations expenditures. The post-

event phase modelling would focus mostly on the tourism generated by the Games in

the subsequent five to six years. Assumptions regarding supply constraints,

government budgets, labour market conditions and foreign debt differ between these

phases, and it is therefore essential that these phases be modelled separately to

achieve the most accurate results (Madden, 2002). The results suggest that the


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NSW Gross State Product (GSP) was an estimated AU$1.4 billion higher in an

average year during the period from 1998 to 2001. Over the full twelve year period

of the study ending in 2005/06 the Olympics was expected to increase NSW GSP by

an average of AU$490 million per year. GSP for the rest of the country was

estimated to have increased by AU$300 per year from 1998 to 2001 due to the

Games. On the whole, the value of the impact on the Australian GDP was estimated

at AU$6.5 billion (1996 prices) over all three phases. On the employment front,

results show a projected increase in NSW jobs of almost 5300, and 7500 in total, in

an average year over the twelve year period. In the peak four year period, there is

estimated to be over 16 500 extra jobs in NSW per year as a consequence of the

Olympics being staged in Sydney (Madden, 2002). On a microeconomic level, the

effects of the Games on industries show some important results. As expected, the

construction sector was estimated to have been the most positively affected industry

in the pre-event phase. Due to the construction-intensity, this sector expands more

than investment in both the first two phases of the Olympics. The transport and

communication industries, and personal service industries are two most positively

affected in the event-year itself. Post-event impacts depend largely on the success

of the mega-event itself. Both the CREA (1999) and Madden (2002) studies show an

increase in tourism after the event due to the promotional effect of the Games on the

region. In the post-event phase, the NSW economy is characterised by the adverse

effects of the sizeable debt-repayment, overshadowing the positive tourism and

investment impacts. However, this effect is marginal and the net effect of the

Games on the region, and Australia as a whole, remains a massive positive. The

Sydney Games was called the greatest Olympics Games ever by then IOC president

Juan Antonio Samaranch, and since then Australia has hosted two further mega-

events. The success of the 2003 IRB Rugby World Cup (URS, 2004) and 2006

Commonwealth Games was in part due to the organisational and infrastructural


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legacy left behind from Sydney 2000. Richard Tibbott (2001) underlined the success

of the Sydney Games. He stated that besides being a sporting triumph, it was also

an achievement in engineering, marketing, finance, operations management and

communication technology. Although concerns remain about the future

sustainability of some venues like the Homebush complex, the competitive economic

attitude and outlook created by the Games will ensure that the benefits far outweigh

and outlast other factors (Tibbott, 2001). The literature surrounding the

sustainability of mega-event stadia is well document by Rod Sheard (2001). He

discusses various facets of sustainability, including environmental, financial, social

and physical sustainability. In his conclusion he praises Sydney for its remarkable

job in hosting the greatest Olympic Games ever, and in particular the architectural

and building infrastructure that was developed.

The following part of the literature review looks at the original economic impact

assessment done for South Africa during the bid process for the 2010 FIFA World

Cup. Grant Thornton (2003) completed a cost-benefit analysis for the South African

Bid Committee on the possible impact of the World Cup. Although limited in its

application, a cost-benefit analysis remains the most simple and easily

understandable method of measuring potential economic impacts. The study found

that the event would contribute more than R21 billion to the economy, create in

excess of 150 000 new jobs, and generate around R7 billion in taxes for government.

However, a summary of the costs and benefits do raise some interesting questions.

Tangible costs to government include the R2.3 billion investment in stadia and

infrastructure, but the multipliers used in order to achieve some results on the

benefit side are questionable. The income and employment multipliers used are

probably over optimistic compared to estimates from other studies such as Van

Heerden et al (2005). Another concern is the inclusion of domestic residents


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expenditures at the event as direct benefits. Domestic tourism simply implies a

reallocation of expenditure, and would not directly add to the overall GDP of the

country. The summary of intangible costs and benefits to government do highlight

some important issues. Intangible costs include i) negative impact on traffic flows;

ii) negative impact on residents living close to stadiums; iii) negative impact on local

governments; iv) possible football related violence; v) increase in petty crimes; and

vi) displacement of normal tourism (Grant Thornton, 2003). Intangible benefits to

government include i) interest generated in the country and its profile raised; ii)

increase in tourism and foreign direct investment; iii) possible future mega-events;

iv) increase in confidence and pride for citizens; v) the re-use of building materials

for housing; and vi) relieving some of the pressure on the welfare system (Grant

Thornton, 2003). Adding the tangible and intangible benefits to the private sector,

derives a list very similar to that identified by Preuss (2000). These benefits include

increased tourism, marketing and investment opportunities. On the cost side, the

expenditure on facilities and marketing in order to take advantage of these

opportunities should not be underestimated. As previously noted, improper planning

by companies and investors could lead to the net cost eclipsing the overall benefits.

The Grant Thornton study concludes by stating that the hosting of the 2010 FIFA

World Cup will create significant direct and indirect economic benefits for the

countrys economy, with minimal tangible and intangible costs. Regardless of the

over-optimistic view taken in the study, is does highlight the immense potential for

sector-specific benefits.

We conclude this literature review with a look at some of the work done by Matheson

& Baade over the past decade. Matheson & Baade (2004) poses the question of

whether hosting mega-events are a worthwhile investment for developing nations.

Building on their own previous research, they carefully weigh the arguments for and


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against hosting a mega-event. They find that, historically, the actual net economic

impact of hosting mega-events have been very small compared to initial estimates

and predictions by those promoting the events. Theoretically, this could be due to a

number of reasons. Firstly, promoters often use gross direct spending attributable to

the event, as opposed to the net spending figures. The failure of this approach to

take into account the decreased spending by residents on other products due to the

reallocation and displacement of domestic spending, and the substitution effect

caused by hosting of mega-events, are cited as the main reasons why the economic

impact of these events are usually overestimated. Secondly, the crowding out effect

of visitors to the event that displace regular tourism inflow is usually not considered.

Lastly, as highlighted in previous studies, questionable multipliers and calculation

methods are often used in predicting the positive impact on macroeconomic variables

such as employment and GDP growth. In its case against developing countries

hosting mega-events, costs of required infrastructure, opportunity costs, and

utilization of facilities after the event are highlighted as major concerns. On the

positive side, Matheson & Baade (2004) argue that mega-events may prompt

government officials into making needing general infrastructure improvements.

Although the distinction between sports and general infrastructure is not always

clear, the minimizing of expenditure to event-specific capital, may reduce the long-

run cost of hosting the event, and actually speed up the development process in

these countries. The widespread availability of labour in most developing countries

also reduces the opportunity cost of labour, and the need to import labour from

other areas. However, as discussed in the following chapter, the quality and skills of

the unused labour needs to be considered. Matheson & Baade (2004) concludes that

net gains from hosting mega-events are usually grossly over-estimated, and that in

most cases, it is an even worse investment for developing countries than for

industrialized countries.


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Based on the literature that was reviewed, we proceed to the next chapter where the

most important lessons are outlined, and considerations unique to South Africas

hosting of the 2010 FIFA World Cup are presented.


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L e s s o n s a n d C o n s i d e r a t i o n s

The purpose of this chapter is to summarize the most important lessons learnt from

the body of literature on mega-events. Furthermore, we will highlight a number of

considerations that make South Africas hosting of the 2010 FIFA World Cup a rather

unique occasion with regard to its economic impact.

Two of the most successful mega-events hosted in recent times were the Barcelona

Games in 1992 and the Sydney Games in 2000. In both cases, meticulous planning

went into legacy of these events. Due to the nature of these events, costs invariably

end up running over budget. Part of the planning process for these events was to

keep costs from investment in event-specific capital down to a minimum. Although

not always possible, this is necessary due to the low net value of these expenditures

in the post-event phase. Supporting infrastructure such as transport and

telecommunication services, and expenditures focussing on urban regeneration

contribute significantly to the longer term development of the region and country as

a whole. It is imperative from a socio-economic point of view that organisers

attempt to structure expenditures in this manner to ensure the best possible legacy

is achieved.

Expenditures on event-specific capital consist mostly out of stadiums used in the

particular event. In the case of Olympic Games, expenditures on the Olympic Village

should be included. When large expenditures on capital items such as stadiums are

undertaken, owners must be sure that the stadiums can be used in a profitable

manner in future. This entails being able to use the stadium at close to or full

capacity on a regular basis. A prime example of this is the Stade de France stadium

built in Paris for the 1998 FIFA World Cup. Although it was one of the most


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expensive stadiums built in history, it was also a technological marvel. Thanks to its

multi-purpose capabilities it has subsequently held many major sporting contests

that has captured the imagination of sporting fans across the globe. The Stade de

France though does not have a regular tenant2

, and has become similar to Englands

Twickenham rugby stadium which exclusively hosts all of the national teams rugby

test matches. Due to its large capacity, and the current rugby and football climate in

Paris, it is unlikely that any teams will develop a large enough fan base to make the

Stade de France a viable home in the near future. The Stade de France has since

1998 hosted many international rugby and football matches, including the 2006

UEFA Champions League final. It is also at present scheduled to host the both the

semi-finals and final of the 2007 Rugby World Cup.

South America and Europe has historically been the powerhouses of international

football. Until the 1994 FIFA World Cup in the United States, these two continents

alternated as hosts of the tournament. Three of footballs greatest landmarks are

situated in South America. The Estadio Centenario in Montevideo, Uruguay was built

ahead of the inaugural FIFA World Cup in 1930, and has been the home for the

Uruguayan national team ever since. The Centenario hosted 10 of the 18 matches

during the tournament, including both semi-finals and the final, and was famously

called a temple of football by Jules Rimet. Incredibly, the stadium was built in only

12 months amidst initial concerns about capital and infrastructure requirements.

The fact that so many of the 1930 World Cup games, including all Uruguays home

games, were staged at the Centenario, made these monumental efforts all the more

worthwhile. From a socio-economic point of view, the stadium has become a huge

success, and source of inspiration. Today it serves as the home for rivals Penarol

2Due to renovations to its own stadium, Lille OSC football team played all its home games in Europeancompetition during the 2005/06 season at the Stade de France.


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and Nacional. These fierce derbies regularly draw capacity crowds3, as does most

games involving the Uruguayan national team (FIFA, 2006).

With the 1950 FIFA World Cup as a pretext, Brazilian authorities set about building

the worlds biggest football stadium. The Estadio Mario Filho, or Maracana as its

better known, turned out to be just that. Close to 200 000 fans crammed into the

stadium to witness the final contested between Brazil and former champions

Uruguay4. Today, the Maracana stands as both an international sporting venue and

historical monument. It plays host to many club sides in Brazil when important

fixtures are played, and hosted the first FIFA World Club Championship in 2000. The

stadium, which is owned by the municipality of Rio de Janeiro, is currently being

renovated and upgraded for the 2007 Pan-American Games (FIFA, 2006).

The fabled Estadio Azteca in Mexico City was built in 1966 ahead of the 1968

Olympic Games and 1970 FIFA World Cup. Enormous effort went into the design and

construction of this venue, and it is still regarded by many as the best in football

today5. Besides serving as a near impregnable fortress for the Mexican national

team, the Azteca has played host to some of the most extraordinary moments in

FIFA World Cup history. The legendary Pel played his last international match for

Brazil at the Azteca in the 1970 World Cup final, and the genius of Maradona was

immortalised in 1986 with a series of unforgettable performances in that years

World Cup. The Azteca remains the only venue to have hosted two FIFA World Cup

finals (FIFA, 2006).

3The stadiums official capacity has decreased since 1930. Originally built for 100 000 spectators, thecapacity of the ground has been reduced to a current 76 000.4With the stadium built to provide a suitable venue for the host countrys expected victory, Brazil wasshocked when they lost the match in the final minutes. Brazil did avenge the defeat to some extent whenthey beat Uruguay in the final of the 1989 Copa America at the same ground.5Architects Pedro Ramirez Vasques and Rafael Mijares visited many of the worlds finest stadiums of thetime. Trips to Buenos Aires, Madrid, Rome, Paris, Moscow, and many other venues, provided the duo withthe inspiration needed to design the Azteca.


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Although the costs of these stadiums were relatively high, they have been successful

in consistently drawing capacity crowds and hosting major fixtures on a regular

basis. More importantly, these three South American venues have had an extremely

positive impact on the regions they are located in. Serving as a vivid demonstration

of their fans devotion to the game, they have contributed to both the socio-

economic and sporting development of these regions. As noted by Preuss in the

previous chapter, mega-events and related infrastructure have the potential to speed

up the development process within a country by up to a decade. The main lesson

with regard to stadia used in mega-events is that sustainability is the key (Sheard,

2001). All future hosts of mega-events need to consider this point very carefully, as

it is usually the main culprit is budget overruns or financing dilemmas after the

event. The most recent incident of stadia becoming white elephants was at the

2002 FIFA World Cup in Japan and Korea. As neither country had sufficient

infrastructure dedicated to football, capital expenditure was estimated to have

exceeded $5 billion (Matheson & Baade, 2004). Following the event, the underuse of

these state-of-the-art facilities has raised concerns about their financial

sustainability. Due to the football markets emerging status in Japan and Korea, it is

unable to fully utilize so many large stadiums on a regular basis as of yet.

It should be noted at this stage that a number of issues have to be taken into

consideration before making comparisons from previous mega-events to South

Africas present situation. These considerations include event-specific and country-

specific factors. Firstly, the Olympic Games and FIFA World Cup are two very

different types of mega-events. Naturally, they also differ significantly from other

single day mega-events such as Formula One races or NFL Superbowls. Whereas the

Olympic Games are usually held in only one city, the FIFA World Cup is held in


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multiple cities over more than four weeks. However, the demands of hosting an

Olympic Games are much more intense for the host city. A great number of

competitions, requiring a wide variety of stadia and infrastructure, is held over an

action-packed two week period. Beis, et al(2006) described the Olympic Games as

the most complex and voluminous large-scale competition event in the world. The

most recent Olympic Games in Athens was the largest sports event to date,

attracting more than 2000 athletes from 28 different sports. The combined budget

between the Athens 2004 Organizing Committee (ATHOC) and the Greek

government was $7 billion. This large budget included all work done on supporting

infrastructure and stadia development.

Secondly, the growth of football as an international sport has also increased the

requirements for hosting the World Cup. More teams, more games, and greater

audiences pose enormous logistical and infrastructural challenges. Because of the

advances in air travel and marketing, these mega-events also attract more tourists

from across the globe than ever before. The FIFA World Cup has since 1998 been

expanded to include 32 teams. One of the modern infrastructural challenges host

countries face is to build up to 10 stadiums with a minimum capacity of 40 000

each6. This places immense pressure on developing countries to host events of this

nature, as the opportunity costs involved are usually much more considerable.

Whereas in previous years the World Cup was a much smaller logistical challenge,

and a single stadium would host a large majority of matches, this is no longer the

case. The net result for countrys who do not having sufficiently large and affluent

football markets is an oversupply of stadia7. The underuse of expensive stadia and

6 See tables A5 and A6 in the appendix for a complete list of proposed stadia to be newly built orrefurbished for the 2010 FIFA World Cup in South Africa.7Although other sports such as rugby union may be used as a substitute to football, the critical issueremains that the market needs to be large enough to justify the new stadia.


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infrastructure after the event exaggerates its opportunity cost. The expansion of the

FIFA World Cup, although inevitable, has placed enormous strain of nations with

football markets which are not as lucrative as, for example, the English market8.

The third consideration relates to the characteristics of the South African economy.

Despite considerable steps in the fight against poverty and inequality over the past

decade, the South African economy remains one with large disparities between rich

and poor (IMF, 2005). This is perhaps best illustrated in South Africas Human

Development Index rating of 120, compared to its GDP per capita raking of 52

(UNDP, 2005). Boasting one of the ten largest stock exchanges in the world, and

with real GDP growth constantly averaging above 3 percent, it is clear that South

Africa has the potential to become a powerhouse on the international stage.

However, as many observers have pointed out, there are a number of constraints

and fundamental problems in the economy which are currently preventing South

Africa from reaching this potential.

Arguably the most alarming statistic of the South African economy is its high rate of

structural unemployment (LFS, 2005). This imposes significant supply-side

constraints on the economy (Du Toit, Van Eyden and Ground, 2005). These

constraints not only impact on the rate of real GDP growth, but also on how the

growth translates into employment opportunities and, ultimately, socio-economic

development.

In the wake of South Africas winning bid to host the 2010 FIFA World Cup, the need

to address some of these constraints has been highlighted. Infrastructure capacity

and skills shortages are two of the main concerns with regard to the World Cup. As

8Top teams in the English Premier League attract near capacity crowds throughout the season. Ticketprices start from around 20 for regular league games, and increase to above 100 in major Europeancompetitions. Star players in English and European clubs earn in excess of 50 000 per week.


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part of the broader development strategy for the country, government has

recognized and addressed these issues. South Africas new macroeconomic

framework unveiled in February 2006 highlights the need for skills and capacity

development9

. This naturally forms part of South Africas longer-term effort to reach

the Millennium Development Goals (MDG) in 201510. However, in the short-term,

these skills would have to be imported. This is of particular significance to the

potential socio-economic benefits for South Africa in hosting the FIFA World Cup in

2010. The net result of the importing of skills depends heavily on how this process is

managed. If foreign contractors are able and willing to include domestic labour in

projects, the human capital gained will undoubtedly benefit South Africa in the long-

term. If this is not the case, it will negatively effect potential employment and

economic gains from the World Cup.

A fourth consideration is South Africas geographical location and its subsequent

impact on tourism and investment. Being located on the most Southern tip of the

African continent brings with it a number of pros and cons. It offers an exciting

destination for tourists, and remains an important maritime link for the region. With

regard to tourism, and sports tourism in particular, the geographical distance of

South Africa from some of the more lucrative markets in the world needs to be

considered. FIFA World Cup tournaments staged in Europe are much more likely to

attract a large number of tourists than if the tournament is staged in South Africa.

In addition, Sub-Saharan Africa is considered to be the poorest region in the world,

further limiting the potential number of tourists and visitors from within the region

(UNDP, 2005). A final consideration with regard to tourism relates to the net effect

9Deputy President Phumzile Mlambo-Ngcuka introduced the Accelerated and Shared Growth Initiative forSouth Africa (ASGI-SA) in 2006. A number of binding constraints were identified, including a shortage ofsuitably skilled labour.10See the UNDPs Human Development Report and the UNs Millennium Development Goals Report fordetails concerning the MDGs.


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of hosting the World Cup. Indeed, many tourists who would perhaps have visited

South Africa during this time, would now avoid this destination due to all the frenzy

surrounding World Cup related activities. Evidence from previous mega-events

suggest that the net addition of tourists are very difficult to measure, and most likely

negligible (Szymanski, 2005). Predictions of visitor numbers should also consider

the specific countries involved in the event. If a country such as England, whose

supporters are renowned for travelling in support of their team, did not qualify for

the 2010 World Cup, it would surely impact on the number of arrivals from the

United Kingdom (Szymanski, 2005).

International trade and foreign direct investment (FDI) have been identified as key

components to the further development of Southern Africa (IMF, 2005). Although

South Africa attracts the largest amount of FDI in the region, is it still comparatively

low to countries in other regions (UNCTAD, 2005). The immediate benefits that

Barcelona experienced after their hosting of the 1992 Olympic Games were

supported by their geographical location within Europe. Regardless of how

successful FIFA 2010 is, large multi-national companies might still be reluctant to

embrace South Africa as an investment option. However, if political and economic

stability is shown throughout the region in the longer-term, South Africa could

become the first choice for international investors wishing to expand their operations

in future. Factors influencing FDI has been well documented in South Africa11. In

order for South Africa to reap the potential benefits of FIFA 2010, all of these need to

be addressed in a holistic manner.

The fifth consideration relates to the understanding of FIFAs decision in the choice of

host country for their flagship tournament. Although their involvement is usually

11See Jordaan (2004) for an in-depth analysis of factors that influence FDI in Southern Africa.


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Documents

Economic Impact World Cup SA 2010.pdf