Ben­e­fits over­stated

Event not the an­swer to SA’s eco­nomic prob­lems

Finweek English Edition - - Economic trends & analysis - GRETA STEYN

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

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