Event not the answer to SA’s economic problems
REMEMBER THE EXCITEMENT when it was announced that South Africa would host the Soccer World Cup in 2010? The decision was presented as a solution to many of our economic problems. Vuvuzelas blared.
Initial estimates of the benefits to SA’s economy sounded impressive. However, a Pretoria academic has criticised those estimates, conducted by Grant Thornton in 2003. Grant Thornton found that the event would contribute more than R21,7bn to the economy, create in excess of 150 000 new jobs and generate around R7bn in taxes for Government.
Heinrich Bohlmann, a researcher at the University of Pretoria’s economics department, has some criticisms of the findings, which he says were based on a cost-benefit analysis. He says the multipliers used in order to achieve some results on the benefit side are questionable. The multiplier is the effect that spending causes on the overall economy as it ripples through. The effect on the total economy is more than the initial spending.
“The income and employment multipliers used were probably over-optimistic compared to estimates from other studies… Another concern was the inclusion of domestic residents’ expenditures at the event as direct benefits. Domestic tourism simply implies a reallocation of expenditure and would not directly add to the overall gross domestic product of the country,” says Bohlmann.
Grant Thornton’s Gillian Saunders cautions against people misinterpreting the consulting firm’s findings. She says the firm found a contribution of R21,7bn to GDP – which is different to saying the event would add the amount to GDP. When GDP comes out, the amount attributable to the Soccer World Cup will be R21,7bn – but some of that would have happened anyway. She says Grant Thornton’s last calculations showed R12,7bn of direct spending will occur.
“But that amount will go up significantly, due to the increased spending on stadiums and the larger number of tickets expected to be sold. We’re currently reworking our estimates to come up with a new picture of the effect the event will have on the economy,” Saunders says.
A crucial issue when deciding on the benefits of the event is the question of the longterm sustainability of the stadiums. “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 afterwards,” Bohlmann says.
He quotes a study into the 2002 Soccer World Cup in Japan and South Korea, where substantial spending on stadiums took place. Infrastructure spending was estimated at US$5bn. Bohlmann says Japan and South Korea perhaps fell into the trap of trying to go one better than the previous host country with regard to hi-tech stadiums and facilities. Building iconic stadiums, such as the Stade de France in Paris, is only feasible if there’s a sustained market for the product that it hosts.
After the 2002 Soccer World Cup, the under-use of most of South Korean and Japanese state-of-the-art stadiums raised concerns regarding their financial sustainability. Due to the soccer market’s emerging status in Japan and South Korea, those countries were unable to fully utilise so many large stadiums on a regular basis and some had to be demolished.
Another study of South Koreans’ perceptions before and after the event showed they were disappointed in the scale of the benefits.
Bohlmann doesn’t make any judgements as to the financial viability of the stadiums being built in SA. However, it’s gratifying to note that the Treasury recently shot down stadium builders’ claims that they needed about R3bn more in extra funding to build the planned stadiums. Less luxurious stadiums are more appropriate for SA.
According to last year’s mini-budget, Government has budgeted R15bn for the 2010 Soccer World Cup. Of that, it’s set aside R12bn for the construction and refurbishment of stadiums. That’s a far cry from the initial investment of around R3bn expected in stadiums.
If you consider the old figures used by Grant Thornton, it was calculated that new direct spending of R12,7bn would take place. Against annual gross domestic expenditure of R1,8 trillion, that’s a drop in the ocean.
Another question that needs to be asked is whether the R15bn for the 2010 Soccer World Cup wouldn’t be better spent on other infrastructure that SA badly needs. Wendy Watson, project manager at the SA National Roads Agency, says SA has a 30- to 40-year-old road system that isn’t adequately maintained. It would cost R11bn/year to maintain SA’s roads – against current spending at all levels of government of R4,8bn/year. Watson estimates the road rehabilitation backlog at between R23bn and R35bn.
It’s exciting that the Soccer World Cup is coming to SA and that it’s benefiting the economy. But there might have been better ways to spend the money than on stadiums that might turn out not to be worth it.
Stadiums must be used profitably in future. Heinrich Bohlmann