The cost of a World Cup

Hosting the World Cup will cost South Africa more than it had initially anticipated. Added to the effects of the global crisis, the country is nevertheless hoping the competition will stimulate sectors of its economy.

The announcement on 15 May 2004 that South Africa had been selected to host the 2010 World Cup, provoked, in addition to the pride of hosting the most popular competition in the world, important economic expectations at the heart of the Rainbow Nation. In the aftermath of the nomination, a euphoric Danny Jordaan, president of the Local Organising Committee (LOC), calculated that it would create an additional 159,000 jobs, thanks to public investment of more than R7.2bn ($944m).

Six years and a severe economic crisis later, the optimism and enthusiasm seem to have remained intact. South Africa was indeed ready to welcome the first World Cup on the continent. But the challenge of footing the bill has turned out to be more difficult than expected and a lot steeper for the South African taxpayer.

In total the World Cup will have cost R33bn ($4.3bn), according to official figures. The initial planned expenditure for stadium construction and renovation has practically doubled to reach R13bn ($1.7bn).

“We have been confronted with an escalation in costs,” explains Jordaan. According to Pravin Gordhan, South Africa’s finance minister, the budget for all the stadiums is $267m in deficit.

“There is a lot of vagueness when it comes to the figures, with suspicions of corruption and overcharging,” said one local observer. By way of comparison, the cost of the 16th World Cup in France in 1998 was estimated at around €2bn, half the costs of South Africa.

Cost of security

As well as installing sports and other infrastructure, security represents an important expense for South Africa. To persuade visitors worried about the high crime rate in the country, the authorities have invested heavily to ensure the event goes off without problem. More than R1.5bn ($197m) has been invested in material, training and increasing the workforce of the police services.

“When we say we are ready for the World Cup, that includes security,” said President Jacob Zuma in March 2010, maintaining that the crime rate in the country had already come down.

If the costs of preparing for the Africa’s first World Cup have soared, does that mean that the benefits will measure up to the investment?

Jordaan doesn’t doubt it. “The 2010 World Cup will be the most profitable in history,” he claimed in March. The LOC president once again calculated a revenue of more than $3bn, an amount that would give a serious boost to an economy forced into recession in 2009 by the world economic crisis.

The economy shrank by 2.2% last year, but the United Nations’ latest growth forecast is optimistic and increases the growth figure to 3.1% in 2010. The World Cup, which takes place between 11 June and 11 July, is expected to contribute between 0.5% and 0.7% of the total.

This optimism is shared by specialist research institutions, who are sometimes wont to exaggerate. “Everyone comes away from their predictions with figures that are all as unrealistic as each other,” says Eric Barget, an economist at the Centre for Sports Law and the Economy in Limoges, France.

Barget participated in a conference on the economic benefits of the World Cup in Johannesburg in February 2010. He maintains that experience has shown that the short term benefits of large sporting events, like the World Cup, are always overestimated.

A few weeks before the event kicks off, the situation appeared to prove him right. FIFA recently that the figure of 450,000 to 500,000 visitors who according to initial predictions should have brought in more than $2bn during the event, will not be reached. And the tickets have hardly been a sell out.

But Barget points out: “It’s not the short-term benefits that count. We can only judge the 2010 World Cup’s success over the long term, when there will be more evidence of its role in the improvement of the country’s economic landscape.”

The Real Challenge

According to analysts, South Africa’s real challenge lies in its capacity to capitalise on the World Cup by making a profit from the infra-structure put in place for the competition and to not find itself with ‘white elephants’. “South Africa should think ahead about ways to spur on development and have a strategy to gain credibility in the eyes of foreign investors,” adds Barget.

Ten stadia over budget

The one sector to benefit the most from investments made in the World Cup is undoubtedly construction. As well as developing transport infrastructure, South Africa has built six brand new stadiums and renovated four others. Amongst these is the ultramodern Soccer City in Johannesburg, which will host the opening match and the final of the competition. The 95,000 capacity stadium in the shape of a calabash was built by the South African group, Avengroup, and cost €311m instead of the planned €214m.Black Economic Empowerment legislation has encouraged authorities to support local businesses. But in reality, says an observer in Cape Town, international groups are backing the local companies that landed the deals. The French group Bouygues, for example, who had given up their stake in Basil Read and left South Africa, returned via a co-enterprise with the same business to construct the 46,000 capacity Mbombela Stadium in Nelspruit, with a generous contract of more than €150m.

Nothing is in the bag yet for the Rainbow Nation. However, FIFA’s 2009 financial results, published in mid-March, give cause for hope. For the first time, the federation that organised three out of the five competitions on the continent last year reached record revenues of $1.06bn. This, according to FIFA president Sepp Blatter, is proof that “investors trust Africa”.

For the whole of 2009, the federation’s net profit was $196m, compared with $184m the previous year. Thanks to the African World Cup, FIFA expects revenues of $3.8bn for the 2011–2014 period.

A large proportion of this sum ($2.2bn) will come from the TV rights to the 2010 World Cup. The rest will come from marketing rights paid by sponsors and official partners. FIFA indicates in its 2009 financial report that 74% of this revenue will be reinvested in the development of football on the continent.

Another factor that points to positive prospects for the South African economy, and the continent as a whole, is the impact of previous World Cups on the financial position of their host countries.

According to the German financial group DWS, based on statistics from previous tournaments, the benefits of this competition will be particularly felt a year after the event takes place, thanks to the new infrastructure.

For example, in France in 1998, the stock exchange index jumped 33% a year after the World Cup. Similarly, the Kospi (South Korea) and Nikkei (Japan) indexes progressed 29% and 30% respectively in 2003 compared with 2002. And the DAX (Germany) saw an increase of 36%.

So the Johannesburg Stock Exchange (JSE), which represents 80% of the continent’s capital, is expecting a real World Cup effect, which will make it one way in – if not the principal route – for foreign investment in Africa.