Will the World Cup change South Africa?

Last Updated: Thursday, June 17, 2010 - 17:26

Anil Kumar Satapathy

With big opportunities, come huge risks too. The FIFA World Cup-2010, the world’s biggest extravaganza, could be an example of what a big sporting tourney can do for a country’s economy. It can give a much-needed boost for the nation – prompting the government to spruce up its infrastructure, boosting tourism and industry sectors and creating employment for the poor. It can also leave a country struggling with huge fiscal deficit, rising inequalities and a host of scandals.

How is South Africa, which according to Newstatesman is the ‘most unequal country in the world’, going to benefit from the FIFA World Cup-2010? Will it transform the largest economy in Africa? Or, will it leave the country struggling with more economic problems?

Well, it is unfair to compare this year’s World Cup event with any other past sporting extravaganza. South Africa is hosting the tournament at a time when the world economy is still struggling to offset the effects of the Great Recession. A debt crisis in Europe is threatening the fragile economic recovery and the global markets are yet to return to their pre-crisis level highs.

In an article titled “It’s the first recession World Cup”, the UK’s Independent daily aptly summarised: “The World Cup will after all prove a relative economic success, be a timely boost, both to the people of South Africa and to businesses back in the UK.”

Like many other emerging economies, South Africa was also hit badly by the global slowdown. The country, after a brief spell of recession, returned to growth in the third quarter of 2009. The country’s economy is heavily dependent on its minerals, making it susceptible to the global demand for gold, coal and minerals. The economy contracted 1.8 percent in 2009 when global demand plunged and financial markets in the western countries collapsed.

Thanks to the global recovery and the higher spending due to the World Cup, the country is expected to grow 3.3 percent in the current year, and 5 percent in 2011. According to the government, the World Cup would add about 0.5 percent to GDP this year. Since 2006, the South African government has spent whopping USD 5.5 billion (43 billion rand) in building stadiums and infrastructure to attract investors and tourists – pushing up the fiscal deficit to 6.7 percent of the GDP.

This is apart from the expenditures on airports (17 billion rand, or USD 2.2 billion) and Gautrain rapid rail network (USD 3.3 billion).

A big sporting event usually brings tens of millions of dollars in the forms of tourism, hotel, bar and restaurant businesses, to name a few. The tourism sector will be the top gainer. The World Cup would be the single biggest opportunity for the government to promote South Africa as a destination point of global tourism. Notably, the rugby World Cup in 1995 shot up the number of tourists visiting the country by 60 percent. Industry analysts expect a bigger push during the World Cup season would make over the country’s tourism industry. South Africa expects about 370,000 foreign visitors during the event.

Companies related with the tourism industry have also done well in recent times. According to industry data, shares of wine, spirits and beer companies such as Distel and SABMiller outperformed the all-share index on the local bourses over the past year partly in anticipation of a World Cup boost.

Besides, local businesses could gain from the spending of visitors. According to accounting firm Grant Thornton, this will see infusion of at least USD1.7-billion cash into the economy. Construction is another booming sector. The building of new stadiums and other infrastructure created thousands of jobs over the past few years. It has also infused billions of dollars into the economy.

South African currency - rand - has also gained against the dollar in recent times on increased foreign exchange flows. The World Cup event, according to many, would be the most commercially successful event in the history of Football World Cup in 76 years.

Not all is well

However, there are criticisms too. The South African government was criticized by various quarters that it was diverting the money, meant to spend for the country’s millions of poor, to build infrastructure and other facilities for the World Cup.

South Africa, which has a very uneven social composition, saw violent protests in the past year for the same reason. The government has also been criticized for “forcibly” moving the impoverished out of cities to present a good image of the nation during the World Cup. According to the Southern African regional Poverty Network’s estimates, close to 60 percent of the total populations are still living in poverty. Though the World Cup preparations have changed the face of major cities, the people living in interiors have hardly benefited. The jobs created by the construction sector started vanishing as the preparations wound up. Employment in the sector fell by 9.3 percent to 1.085 million in the first quarter of 2010, compared with the same period last year.

The real fight will emerge once the World Cup is over. More retrenchments and other economic hardships will follow, as it was seen in China after the 2008 Olympics. The government will be left with the stark social realities of the country. It seems there is no World Cup short cut for the myriads of problems South Africa faces today.



First Published: Thursday, June 17, 2010 - 17:26

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