Extended Essay Final

EC565 Economics Extended Essay

2010

Economics of FIFA World CupWhat are the economic implications of 2010 World Cup in South Africa following 2006 World Cup in Germany?

Fazan Habib-Sajid

Fazan Habib-Sajid EC565 Extended Essay 2010

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ContentsIntroduction ....................................................................................................................................3

FIFA (Fédération Internationale de Football Association) ..............................................................4

Germany 2006.................................................................................................................................7

South Africa 2010............................................................................................................................9

Travel and Tourism South Africa...................................................................................................13

CGE Model - Economic Impact of 2010 World Cup ......................................................................15

Grant Thornton Economic Impact of 2010 World Cup .................................................................20

Conclusion.....................................................................................................................................21

Bibliography ..................................................................................................................................23

Figure 1- FIFA Revenue 2007-2010 .........................................................................................................5Figure 2 - Expenditure by FIFA ................................................................................................................6Figure 3 - Stadium Investment for Germany 2006 FIFA World Cup .......................................................8Figure 4- Sectoral Composition of South African Economy..................................................................10Figure 5 - Population in South Africa 1998-2008..................................................................................10Figure 6 - Unemployment from 2000-2008 in South Africa .................................................................11Figure 7 - Inflation (Consumer Price Index) 2000-2008 in South Africa ...............................................12Figure 8 - GDP annual percentage change 2000-2008 in South Africa.................................................13Figure 9 - Foreign tourist arrivals 1997-2007 in South Africa ...............................................................13Figure 10 - AS/AD Diagram to show Table 1 effects.............................................................................16 Figure 11- Summary of Costs and Benefits of 2010 World Cup on South African economy................20

Table 1 - Macroeconomic Variables......................................................................................................16Table 2- Contributions to changes in GDP (Expenditure) .....................................................................17Table 3 - Percentage change in basic export demands of selected commodities................................18Table 4 - Macroeconomic Variables......................................................................................................18Table 5 - Overall impact Macroeconomic Variables .............................................................................19


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Economics of FIFA World Cup

What are the economic implications of 2010 World Cup in South Africa following 2006 World Cup in Germany?

Introduction

The FIFA (Fédération Internationale de Football Association) World Cup is arguably the

largest international sporting event around the globe. There is always a carnival like ‘feel-

good’ atmosphere surrounding the host nation from the moment the decision is made to

allocate the World Cup to a nation. It is often easy to get caught up in and become blinded by

the excitement of the occasion, and with the media attention ambushing the host nation, the

economic effects linked with the considerable investment associated with hosting such a

prestigious event are almost totally ignored. However, those involved in the detailed

background work required to make the World Cup a massive success expect a positive return

on the expenditure associated with the tournament. The 2006 hosts Germany possess the

largest economy in Europe, but even then, there was a fear that a net benefit might not have

been achieved by hosting the World Cup (Plessis & Maennig, 2007).

In May 2004, FIFA awarded the hosting of the FIFA World Cup to an African country for the

first time in the 101 years of FIFA’s existence. As the host, South Africa stands not as a

country alone – but rather as a representative of Africa and as a part of an African family of

nations (www.sa2010.gov.za/node/1079, 2010). The need for a positive net benefit from

hosting a successful football World Cup is an urgent necessity for South Africa. Within South

Africa the challenges of economic development are acute because even though South Africa

is the largest economy in its region, it is located in the world’s poorest region.

In terms of assessing the impact of the world cup on South Africa’s economy, this paper will

look at two key literatures. One is an economic assessment by Grant Thornton Kessel

Feinstein but it is a little dated from 2003. Some potential benefits to the economy are

highlighted and the 2003 study found that the staging of the 2010 FIFA World Cup would

create significant direct and indirect economic benefits for the country’s economy, with

minimal tangible and intangible costs (Mabagu & Mohamed, 2008). According to the Grant

Thornton study, the event was expected to contribute R21.3 billion to the economy,

generating an estimated 12.7 billion in direct spending, creating 159,000 new jobs and raising

an additional R7 billion in government revenue (Mabagu & Mohamed, 2008). Although the


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cost-benefit analysis approach used in the study is limited in its application, it remains the

simplest and most easily understood method of measuring potential economic impacts.

(Bohlmann and Van. Heerden, 2008)

The other piece of literature I will look to assess is Heinrich R. Bohlmann and Jan H. Van

Heerdens’ study on predicting the economic impact of the 2010 FIFA World cup in South

Africa. They used a CGE model to derive the likely economic implications of the world cup.

They simulated an increase in government expenditure on construction and found a positive

impact on most macroeconomic variables, including GDP and employment. These gains were

found to be driven mainly by unskilled unemployed resources that were drawn into economic

activity by the demand injection (Mabagu & Mohamed, 2008).

Due to the institutional structure of the World Cup the financial consequences of hosting the

tournament can be analysed separately for FIFA and for the host country (Plessis & Maennig,

2007).

FIFA (Fédération Internationale de Football Association)

Often said that FIFA’s vision is what makes it such an influential power in the world of

football and as a business federation around the globe. It is believed by many that the FIFA

federation can only be successful if football is being developed on a global scale, is touching

the world everywhere and is also used as a tool to achieve beneficial social change worldwide

(build a better future). Joseph S. Blatter, the President of FIFA, also foresees a world where

the language of football unites people from every background. (FIFA Communications,

2008)

Astonishingly FIFA spends over 2 billion USD every 4 years on its football events, football

development programmes and Corporate Social Responsibility (CSR) activities. All the FIFA

events (including 11 other ‘minor’ World Cups) run up a deficit except the World Cup Finals

which are held every four years.


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Figure 1- FIFA Revenue 2007-2010

Source: FIFA Communications (2008)

FIFA’s revenue created during the period 2007-2010 amounts to US$3.2 billion. As the

figure above illustrates majority of this revenue is generated through the sale of media rights

sold to television, radio and other media for the World Cup. Currently, about 2 billion USD

has been generated from the rights. In detail, revenue generated through sales of rights for

2010 FIFA World Cup and all events included in the 2007-2010 period are: Total of 3.2

billion USD where of 2 billion TV (63%), 1 billion marketing (31%), 120 million USD

Hospitality (4%) and 80 million Licensing (2%).

In the 2008 calendar year, FIFA invested 72% of its generated revenue directly back into

several development projects and used the generated revenue to fund the expenditure

payment of the 2006 World Cup in Germany. A total of 133 million USD was spent on

FIFA’s development projects equating to 26% of the total expenditure.

63%

31%

4% 2%

TV Marketing Hospitality Licensing


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Figure 2 - Expenditure by FIFA

Source: FIFA Communications (2008)

The figure above indicates the allocation of expenditure by FIFA. Along with the major

expenses mentioned earlier, breaking down the other outgoing payments for FIFA, we have

to include the payment to the 32 participating teams of the World Cup in the form of prize

money and compensation for travel and preparation costs which equated to around €222

million. Reported FIFA’s costs for the 2006 World Cup were about €530 million.

In economic terms FIFA is a business powerhouse. The amount of capital they invest in

projects is enormous, even on a global scale. This investment leads to several opportunities in

employment and evidently has many economic benefits. The use of resource allocation and

productivity enhances the federation’s reputation, and also indirectly looks to help global

objectives such as poverty and crime.

Operational , 17%

Football Governance, 6

%

Exploitation of rights, 5%

Additional FIFA Events, 6%Development

Projects, 26%

2006 FIFA World

Cup, 40%


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Germany 2006

The key macroeconomic indicators for the German economy in 2006 were pretty good, which

is expected considering it is the “largest” economy in Europe and subsequently one of the

biggest in the world. The population of Germany was just over 82 million in 2006. According

to the Economy Watch website (2006), GDP growth was 3.176%, inflation levels was a fairly

sustainable and healthy 1.784%, unemployment rate was 9.833%(% of labour force) and

there was around 39 million people in employment.

A substantial budget of approximately €430 million was granted to the organising committee

of the FIFA World Cup in 2006. Even on a relatively hefty budget such as this, a surplus was

able to be produced by the organisers of the event. The public sector was provided more than

sufficient support in addition to the cost incurred by the Local Organising Committee (LOC),

as it raised €1.4 billion to finance investment for only the stadiums alone, and arranged €2

million for other related infrastructure (Maennig & Plessis, 2007).

From the very beginning, the LOC for the 2006 World Cup in Germany had very clear

objectives, but it was concerning that several external issues were surrounding the event at

the time. The main objective was to deliver a well organised event, hoping to result in a long

lasting legacy left behind for the football community and general population of Germany.

Prior to the world cup, there was an abundance of negativity surrounding the host nation.

Most of the sceptics came within the host nation, as the media was dominated by negative

reports directed towards Germany, the population and even the national football team itself.

All this pessimism led to security and hospitality concerns and overall doubts about the

success of the event and presented early difficulties to justify the large investments made for

the tournament. (FIFA Communications, 2008)

The world cup was a mega success, which was helped by near perfect weather conditions,

along with a great performance by the heavily criticised (prior to the event) German National

Team which helped unite the nation and kept the atmosphere buzzing throughout the

tournament.

The final report by the German government from 6th December 2006 (FIFA

Communications, 2008) indicates some of the extent of the impact on the host country,

Germany. They analysed overall figures, and not surprisingly approximately €8-10 billion


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was spent in total association with the world cup in terms of investment. Also, in terms of

growth, the tourism and hospitality industry both increased by 19.3% and 4% respectively.

The retailing business generated around €2 billion and direct tax income from ticketing,

players’ fees and profit equated to an estimate of €104 million. In addition to all these

benefits, approximately 40,000 additional long-term jobs were generated. All these effects

deemed to have boosted GDP by 0.3% purely down to the FIFA world cup. (FIFA

Communications, 2008)

To host a global international sporting event, it is certainly vital to obtain new and attractive

infrastructure. The figure below shows the capacity and costs of new or upgraded stadiums

for the 2006 World Cup and further indicates the magnitude of hosting such a prestigious

event.

Figure 3 - Stadium Investment for Germany 2006 FIFA World Cup

City Stadium Capacity Costs (€ million) InhabitantsUpgraded/Reconstructed

Berlin Olympiastadion 74,000 242 3,390,000Cologne RheinEnergy-Stadion 50,374 117.5 1,000,000Dortmund Signal Iduna Park 83,000 36 590,000Hannover AWD - Arena 49,000 63 525,000KaiserslauternNuremburgStuttgart

Fritz-Walter StadioneasyCredit-StadionGottlieb-Daimler Stadion

48,50046,78055,986

48.35651.6

107,000490,000590,000

NewFrankfurt Commerzbank-Arena 51,500 126 650,000Gelsenkirchen Velfing-Arena 61,524 192 278,000Hamburg HSH-Nordbank-Arena 57,000 97 1,700,000Leipzig ZentralStadion 44,193 90.6 494,000Munich Allianz Arena 69,901 280 1,300,000Total 691,758 €1.4 billion

Source: Maennig & Federsen &.. (2008) Investment in Stadia and Regional Economic Development

We can see from Figure 1 how the €1.4 billion was allocated amongst the stadiums. Maennig

& Federsen (2008) argue that the ‘positive effect of new stadiums claimed by many sport

protagonists are not true’. It is not necessarily correct to say stadium investment doesn’t

provide economic benefits; nevertheless, it is entirely complicated to measure the associated

benefits. A proposed justification of heavy investment for stadiums could be the excitement

and ‘feel-good’ effect it produces for the host nation, as well as positive image effects created

by new infrastructure. However, even these benefits are difficult to quantify.


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South Africa 2010

South Africa is regarded globally and by UN classification as a middle income nation,

emerging market with a rich supply of natural resources; newly-developed financial, legal,

communications, energy, and transport sectors; a stock exchange ranked amongst the top 20

in the world; and modern infrastructure supporting an efficient distribution of goods to major

urban centres throughout the region. (Central Intelligence Agency, 2010)

The South African economy experienced constant and stable economic growth from 2003 to

2007 (3.11% to 5.1% in terms of GDP) as South Africa reaped the benefits of

macroeconomic stability and a global commodities boom, but began to slow in the second

half of 2008 due to the global financial crisis. GDP fell nearly 2% between 2007 and 2008,

from 5.1% to 3.06%. Unemployment remains high and outdated infrastructure has restricted

further growth. South Africa's former economic policy was fiscally conservative, focusing on

controlling inflation, and working towards a budget surplus. Unresolved economic difficulties

remain an issue from the apartheid era - especially poverty (with 50% of the total population

underneath the ‘poverty line’). The current government largely follows the same cautious

mentality towards certain policies, but must assert itself and dominate against the impact of

the financial global crisis. (Central Intelligence Agency, 2010)

The figure below (fig 4) exemplifies how the South African economy is composed of

different sectors, and their overall contribution to the economy. Noticeably you can see there

is no single outstanding sector they heavily rely on, they have a number of growing industries

but not one substantial enough which the whole economy relies on. As you will see later,

travel and tourism is a main component of South Africa’s economy and we will see how it

will be affected by the world cup.


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Figure 4- Sectoral Composition of South African Economy

Source: Mabugu & Mohamed (2008) The Economic Impacts of Government Financing of the 2010 FIFA World Cup

According to the World Bank (2008) and Statistics South Africa (SSA) (2009) the total

population of the country was just below 48.7 million in 2008.

Figure 5 - Population in South Africa 1998-2008

Source: World Bank (2008)

The SSA mid 2009 estimates indicate that the South African population has increased further

to approximately 49.32 million people. In 2008, around 31% of South Africa’s population

Community Services

8%

Financial & Business Services

25%

Transport & Communication

14%

Trade & Accomadation

18%

Construction3%

Electricity & Water3%

Manufacturing19%

Mining7%

Agriculture3%

0

10000000

20000000

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40000000

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1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008

Pop

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48,687,000


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was younger than 14 years of age, 65% between the ages of 15 and 64 years, and 5% older

than 65 years. According to the SSA 2001census statistics almost 18% of South Africa’s

population, aged 20 years or more, have had no schooling and a further 16% have only had

primary education. Only 8% of South Africa’s population older than the age of 20 years have

had a tertiary or higher education.

In 2008, South Africa had around 18.6 million economically active people of which

approximately 4.3 million (23%) were unemployed. However, the accuracy of these statistics

is questionable as the CIA World Factbook (2010) has published 17.32million economically

active in 2009 which is a massive decline to have over a year.

Figure 6 - Unemployment from 2000-2008 in South Africa


The participation rate was 55.3% in 2008. According to the 4th quarter 2009 Labour Force

Survey report (2010) published by SSA, unemployment for the 4th quarter in 2009 was

around 24.3%. The quantity of population in the labour force increased slightly by 61,000

between the third and fourth quarter of 2009. This resulted in the unemployment rate

remaining virtually unchanged between the two quarters at 24.5% in the third quarter of 2009

and 24.3 in the final quarter of 2009. Compared to final quarter of 2008, there was an annual

decrease of 6.3% (870 000) in employment; an increase of 292,000 in the number of

unemployed population along with an increase of 947,000 in the quantity of people who are

not economically active – 518 000 being discouraged work-seekers.

25.00 25.40 26.7029.50 30.50 31.20

26.20 26.70 25.5023.00 22.90

0

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008Une

mpl

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South Africa’s inflation has been up and down in recent years with the rate of inflation nearly

reaching double figures in 2008 (9.93%).

Figure 7 - Inflation (Consumer Price Index) 2000-2008 in South Africa


Latest SSA statistics show the level of inflation as of February 2010 is 5.7%. The figure

above illustrates that there has been a high level of inconsistency in the inflation rates over

the past 10 years or so in South Africa.

The Gross Domestic Production for South Africa in 2008 was around 3.06%. Latest stats

indicate that the GDP figure for the 4th quarter in 2009 is approximately 3.2%. (SSA GDP,

2010)

6.88

5.18 5.34 5.70

9.16

5.60

-0.88

2.113.19

6.09

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1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Infla

tion

CPI (

annu

al %

)

Year


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Figure 8 - GDP annual percentage change 2000-2008 in South Africa


The Figure above illustrates how economic growth was constant before a large fall in 2007-

2008 from 5.10% to 3.06%.

Travel and Tourism South Africa

A major component of the South African economy is tourism. International tourism to South

Africa has surged since the end of apartheid. In 1994, the year of South Africa’s first

democratic elections, only 3.9 million visitors arrived in the country.

Figure 9 - Foreign tourist arrivals 1997-2007 in South Africa

Source: Department of tourism. http://www.southafrica.info/about/416367.htm#tourism

0.52

2.36

4.15

2.74

3.67

3.12

4.86 4.975.32

5.10

3.06

0

1

2

3

4

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6

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

GD

P g

row

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annu

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)

Year


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Grant Thornton Kessel Feinstein (2003) in their report use 2002 statistics provided by the

World Travel and Tourism Council to measure the contribution made to the South African

economy by both industry sectors. Back then, tourism contributed 7.1% to South Africa’s

GDP; 12.5% of total exports; tourism represents 10.3% of total investment; and the tourism

industry contributed 6.9% (1,148,000 jobs) to total employment.

Latest 2010 World Travel and Tourism Council stats show that the contribution of travel and

tourism is around 7.7% (26.4billion USD) to overall GDP. The real GDP growth for the

travel and tourism industry is expected to increase by 0.4%. Total employment remains the

same as 2002, with 6.9% contributing to work force (869,000 jobs). Export earnings from

international visitors are expected to generate 10.1% of total exports (9.5billion USD) in

2010. Travel & Tourism investment is estimated at (9.7billion USD) or 13.0% of total

investment in 2010.

All these statistics evidently indicate that tourism is a key component along with one of the

fastest growing sectors of South Africa’s economy, and the outlook for the industry is

extremely bright. The exposure the country will receive due to the FIFA World Cup can only

promote South Africa’s travel and tourism industry, leading to an enhancement of the

economy.

Foreigners arriving for the World Cup will be the major proportion of the tourism during the

World Cup, in the main; it will generate additional economic impact for the South African

economy. It is important to keep in mind though that even though the FIFA World Cup is a

global event it is not watched by everyone. This causes displaced tourism, meaning that

tourists may not travel to the country in the immediate period proceeding, during and

succeeding the event. Displaced tourism doesn’t just relate to the average tourists but also to

the lesser events which are no match for the world cup and hence are not taking place.

Nevertheless, luckily for the South African economy the World Cup is being held in the “low

season” which minimises the problem, but there will still be some displaced tourism and the

industry has to be aware and plan to mitigate displaced tourism. (Grant Thornton, 2010)

It is estimated by many that around 2.7 million spectators will watch the football world cup in

South Africa and a television audience of up to 2.8 billion people will witness the final

showpiece (Swiss Business Hub South Africa, 2007). To cope with this massive influx of


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visitors attracted by the prestigious mega-sports event, great emphasis has been placed on

upgrades in infrastructure especially for travel and tourism.

To improve transport standards and efficiency, a Canadian-French-South African consortium

known as Bombela invested around R25billion for the Gautrain. Its purpose is to link

Johannesburg, Pretoria and/or Tambo International Airport. Significant investment like this

suggests the South African economy is progressing already, even at this early stage before the

event has even begun. The Department of Transport further announced that there are three

more Gautrain-type rapid-rail proposals on the cards (Swiss Business Hub South Africa,

2007). A point to now is that the only city with two football stadiums, which of one has been

chosen to host the final game, is also the base for the International Broadcast Centre, which

will accommodate around 2,000 journalists.

The tourism industry is expected to be one of the main beneficial aspects of hosting the

World Cup in South Africa. A few cities negotiated with nearby towns to help support the

accommodation of the visitors to South Africa. An example of this is Bloemfontein, which

has approximately 7,000 beds but forecasts around 20,000 will be needed (Swiss Business

Hub South Africa, 2007).

CGE Model - Economic Impact of 2010 World Cup

Heinrich Bohlmann and Jan H.van Heerden (2008) use a Computable General Equilibrium

model to observe the possible economic implications for South Africa following the 2010

FIFA World Cup. In their paper they used a 32-sector CGE model to give more accurate and

detailed results. There are fewer equations and more variables in a CGE model so the

variables have to be categorised into exogenous and endogenous variables. Nominal

exchange rate is exogenous along with capital stocks, technical change, tax rates and

investment. Employment is the only endogenous variable. The CGE model responds to

various shocks applied to the economy and Bohlmann & Heerden (2008) created different

scenarios for the simulation to generate alternative outcomes. The first scenario assumes that

capital stock of the communication and hotel industries are both increased by 1%. It also

assumes the capital stock of the transport and construction industries are both increased by

2%. The second scenario assumes technical change has improved productivity by 5% each in

the transport industry, and 2% in the construction and communication industries. Scenario 3


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assumes a marginal increase in tourism because of the presence of the world cup and takes

into account the ‘crowding out’ effect caused by it.

Table 1 - Macroeconomic Variables

Source: Heinrich Bohlmann and Jan H.van Heerden (2008), Predicting the economic impact of the 2010 FIFA World Cup

on South Africa

The table above summarises the effects of the various shocks presented by the scenarios. The

increase in capital stock in the first scenario leads to growth in GDP, higher employment,

lower inflation levels, cheaper labour, higher exports which causes competitiveness to also

increase resulting in a positive impact on the balance of trade payments.

Figure 10 – AS/AD diagram to show Table 1 effects

The diagram above shows the effect of an increase in supply of capital stock. It clearly

illustrates a decrease in price and the subsequent increase in real GDP and employment while

demand is held constant. At lower prices there is an increase in the demand for domestic

ASAS

Y1 Y2

P2

P1

AD0 Real GDP

Price Level


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goods leading to a rise in domestic exports, increasing its competitiveness and improving the

real exchange rate. If this were the case then this provides a significant benefit to the South

African economy, which has been suffering from large indifferences in inflation levels over a

prolonged period of time.

The second scenario generates identical effects to that of the first scenario, but to a greater

extent. This is due to the fact that it offers a larger percentage increase in the technical change

which improves the productivity of the transport, construction and communication industries.

The increase in productivity due to technical progress results in higher outputs in proportion

to the inputs. Technical progress causes more efficient and arguably cheaper production, thus

increasing employment which leads to growth in GDP again leading to prices falling.

Subsequently, the real exchange rate drops and the countries competitiveness enhances.

For the effects of the third scenario it is important to remember that the percentage change in

all exogenous variables that were not directly shocked obtained the value of zero. The result

of a marginal increase in tourism shows no effect on real GDP or employment, and indicates

a slight increase in inflation which reduces the real exchange rate and consequently the

domestic country’s competitiveness declines.

Table 2- Contributions to changes in GDP (Expenditure)


on South Africa

The table above illustrate the expenditure side of contributions to changes in GDP. All three

scenarios yield similar results. It is important to remember that a negative value for imports is

an increase because Y = C + I + G + (X-Z). Again, all the exogenous variables yield a result

of zero if they are not directly involved in the shock. For the first two scenarios, there are

larger increases for both consumption and exports than that of the results from the third


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scenario. This is due to scenario 3 just being a marginal increase in tourism whereas the first

two scenarios generate lower prices and increased competitiveness due to an injection in the

supply of capital goods and related productivity.

Table 3 - Percentage change in basic export demands of selected commodities


on South Africa

Table 3 only deals with scenario 3: a slight increase in the level of tourism. Naturally, an

increase in tourism would cause a consequent incline in demand for hotel accommodation,

communication and transport services. This scenario will logically shift the curve for demand

to the right for these services on an AS/AD diagram. The result of this will be increased

levels of output, and the marginal increase in tourism would also lead to higher price levels.

The inflated price levels for these three services leads to an overall increase in prices of all

other merchandises. As the law of demand defines, this increase in prices would lead to a

decrease in the quantity demanded for these services, and subsequently, reduce the output

produced. Furthermore, some industries would shift production to those services for which a

higher demand exists. This would also contribute to the lower levels of output in other

industries.

Table 4 - Macroeconomic Variables


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on South Africa

In table 4 a new scenario is used where the demand for capital expenditures increases during

the world cup. The first three scenarios measure only the impact caused by the benefits

associated with the various shocks. Scenario 4 measures the impact of the increased demand

for the relevant goods and services. The table above shows the most significant changes to

macroeconomic variables thus far due to the scenario presented. An increase in demand for

capital goods and services would clearly shift the demand curve to the right, increasing

inflation levels, output and employment. This increase in inflation would devalue the

currency, reducing the country’s international competitiveness, resulting in reduced exports.

Table 5 - Overall impact Macroeconomic Variables


on South Africa

The table above provides us with two different scenarios that would impact the main

macroeconomic indicators. To fund the world cup it is fairly assumed the South African

government would use taxation to finance majority of the expenditure. A high tax scenario

indicates a very slight increase in the real GDP growth levels, a decline in overall

employment and increased inflation levels. A low tax scenario is evidently much more

beneficial but not at all feasible for the South African government as they need to use

taxation as a main tool to generate funds for the World Cup. According to effect caused by an

increase in taxation for these indicators, the economic cost of hosting the mega event seems

to outweigh the economic benefits for South Africa.


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Grant Thornton Economic Impact of 2010 World Cup

Grant Thornton (2003) compiled an economy impact assessment of South Africa’s 2010

World Cup bid which highlighted potential benefits to the economy, and found from their

results that hosting the World Cup in South Africa will generate significant direct and indirect

economic benefits for the nation’s economy, with bare minimal costs, both tangible and

intangible.

Figure 11 - Summary of Costs and Benefits of 2010 World Cup on South African Economy

Costs BenefitsGovernmentTangible Tangible

- R2,3 billion upgrade of stadia and infrastructures

- R7,2 billion paid in taxes

- R 21,4 billion contribution to GDP

- 159,000 jobs created (estimated)

Intangible Intangible- Negative impact on traffic

flows- Interest generated and profile raised of country (maybe

even continent)

- Negative impact on residents living close to stadiums

- Increase in tourism and direct foreign investment

- Negative impact on Local governments

- Other events maybe held in South Africa

- Possible fan hooliganism -> Increase in Crime -> More security

- Relieve pressure on welfare system and current economy

- Displacement of normal tourism

Private SectorTangible Tangible

- Expenditure due to increased demand

- R12,7 billion in revenues earned from spectator spending

Intangible Intangible- Over expenditure on facilities - Marketing opportunities

- Public/Private partnerships for supply of world cup related goods/merchandise

- Increase in demand for tourism facilities

- New direct foreign investment

- Additional revenues from similar eventsSource: Grant Thornton (2003)

The figure above illustrates the cost-benefit analysis approach used by Grant Thornton

(2003). It is argues that the approach is limited in its application, nevertheless, evidently it is

the simplest and most easily understood method of measuring potential economic impacts. As

seen above, the study estimates around 160,000 jobs being created and a R21.4 billion


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contribution to the overall growth of the economy (GDP). It also expects heavy investment of

over R2 billion for new stadia and infrastructure. As we will discuss later on, this figure is

way above the actual amount of investment. Updated projections by Grant Thornton (2009)

suggest they expect around 48,000 foreign visitors for the event only, and expenditure of

R8.5 billion, worth R11.5 billion in additional impact on the South African economy and

sustaining the equivalent of 144,000 jobs. They also suggest the total impact from the event is

an enormous sum of R55.7 billion.

Conclusion

From entirely an economic perspective, there is a lack of hard evidence provided by the CGE

Model that would force us to believe there would be any significant overall impact for South

Africa in hosting the FIFA World Cup. However, the long-term effects are unknown and

depend purely on whether the success of the World Cup can attract a vast amount of direct

foreign investment and aggravate further domestic productivity, which could see key

macroeconomic variables such as GDP and employment to potentially increase by

considerable amounts in the future (Bohlmann, 2008).

However the projections developed in 2007 by Grant Thornton, and the pre-event numbers

have probably been surpassed with South Africa hosting global events such as the Indian

Premier League, the ICC Champions Trophy, the Miss World 2008 pageant and a number of

international conferences (Grant Thornton, 2009). So this is not a new occurrence for South

Africa, as they have hosted global events before but never to the extent of this magnitude.

After the World Cup in Germany, there was a lot of talk of how the event had a quite positive

re-branding effect, which goes a lot further than just simply the impact on GDP. Also the

embassy in Abu Dhabi was quoted to saying “The FIFA World Cup was without doubt the

best PR activity for Germany since its inception”. Positive quotes like these just further argue

the point that the potential benefits of the World Cup are very difficult to quantify because it

is extremely difficult to measure positive externalities and the ‘feel-good’ factor related with

the World Cup. The German embassy in Stockholm was also quoted following the 2006

mega-event, “The World Cup has improved the Brand Germany more than a million political

media campaigns could have done.” So it is fairly predictable that events of this nature can

be viewed as a massive marketing campaign for the host country and hosting a successful


22 | P a g e

world cup does not necessarily imply bombarding the country with the most expensive

infrastructure and merchandises, nor does it imply that hosting a successful world cup means

hosting the most expensive World Cup with regards to stadiums and supporting infrastructure

(Bohlmann, 2008).

It is important not just for South Africa, but for the whole African continent that they

maximise the opportunity that has been given to them to deliver a memorable and successful

World Cup. It is the biggest stage on which they can showcase their country and hospitality.

Some sceptics may argue that the opportunity to host the world cup comes at too great a cost

and too early for the nation. However, given the detailed long-term planning and vision that

has been devoted to the event, the FIFA 2010 World Cup could turn out to be a defining

piece of history for South Africa.


23 | P a g e

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