World Cup Economics: FIFA’s Impact on South Africa

June 24, 2010  |  

by Anton Polouektov

When South Africa’s World Cup bid outpaced other contenders and the country went on to win the right to host one of the world’s most important sporting events, economic commentators and news publications around the globe unleashed a whirlwind of speculation over what effects the World Cup may have on the economy of South Africa, as well as the perception of the African continent as a whole in business circles.

Some argued that South Africa’s fortunes were finally turning and the embattled young democracy would emerge as a major center for foreign investment, while others brushed off the success of South Africa’s bid as a mere fluke that would do nothing to alleviate the country’s multitude of social and economic problems, pointing to the relatively small splash made by major sporting events in the economies of other host countries.

Now that the World Cup is in full swing, economists are in a better position to gauge the effects of the world’s largest football tournament on South Africa’s economy, assess South Africa’s performance in preparing for and hosting the event, and predict the path of the country’s future economic development.

To that end, the Atlanta Post interviewed Dr. James B. Stewart, Professor Emeritus of Labor Studies and Employment Relations at Penn State University, who is the author of “Flight, In Search of Vision,” which chronicles the evolution of African studies, and who is the leading advocate for sustainable development on the African continent.

Did South Africa’s World Cup bid attract much attention from potential foreign investors before the country was chosen to host the tournament? Did their perceptions change significantly after South Africa was selected as the venue for the World Cup?

South Africa was chosen to host the World Cup in 2004.  Subsequently, Foreign Direct Investment (FDI) in South Africa has clearly outpaced the performance reported by any other African country for several years.   In fDi Magazine’s 2009/10 competition South Africa was named the top African Country of the Future for the third time.  The United National Conference on Trade and Development (Unctad) World Investment Report  for 2008 indicated that South Africa recorded FDI inflows of $9 billion during 2008, compared to $5.7 billion in 2007.  Although this figure was distorted by one large transaction, Unctad still forecast that flows into South Africa could rise in 2009, despite the country’s retreat into its first recession in 17 years.  However, FDI inflows were only $1.2-billion in the first quarter of 2009, a 79% drop from the first quarter of 2008.

Numbers aside, there is clearly a growing interest in FDI in South Africa.  The completion of the first section of the Gautrain, the first high-speed rail line in Africa is a useful case in point. This is a collaborative effort undertaken under the auspices of The Bombela Consortium, an international group that includes Bouygues, Canadian firm Bombardier and two South African companies. The Gautrain, when completed, will significantly enhance the attractiveness of the industrial corridor between Johannesburg and Pretoria to potential foreign investors.

Has South Africa been able to make good on the promises it made to FIFA during its bid to host the World Cup?

Yes, South Africa has been able to make good on promises regarding the venues in which the games are being held, infrastructure support, security, and other matters.  Much of the estimated $40 billion spent on infrastructure for the World Cup was for stadia enhancements and transportation improvements. The Deloitte report dated June 11, 2010 entitled, “2010 FIFA World Cup: A Turning Point for South Africa,” notes that South African authorities have been able to implement “well-planned policies to hire new workers to improve highways, construct a new airport [in Durban], expand existing airports, and build new stadia.”  The report also describes “an unprecedented level of international cooperation involving South Africa in the area of security” as well as Joint Operation Centers at each World Cup venue location and 56 courts around the country designed to hear and try cases related to the World Cup.

What sectors of the South African economy were of primary interest to foreign investors? How do foreign companies’ investment decisions contrast with those made by South Africa’s government in preparation for the tournament?

As one example, consider India-based vehicle manufacturer Tata Motors.  In May 2010, Tata announced plans to establish an assembly unit in South Africa for a range of vehicles. Currently Tata Motors operates a technical center for skill development for dealers and their team at Johannesburg.  Another interesting example is provided by a recent mission by the Western Cape Investment and Trade Promotion Agency (Wesgro) to seek a partnership with Belgium to market the frozen fruit and vegetable sector in the Western Cape.

Wesgro is also exploring opportunities to partner with Indian and Zimbabwean operations for other products.  More generally, The Department of Trade and Industry’s (DTI) Trade and Investment South Africa (TISA) division provides various types of assistance to foreign investors. According to its website, the DTI concentrates on sectors in which research has indicated that the country has a comparative advantage.

Does the influx of investment, both foreign and domestic, stimulated by the World Cup have a good chance of rejuvenating the country’s struggling economy, or is it likely to end up an overall disappointment like many other similar events?

Although investments in stadia in particular are known to have limited long-term development benefits, the Deloitte report, mentioned previously, suggests that overall South Africa will be able to avoid many of the disappointments that have followed the experiences of many other countries that have hosted the World Cup.  The report acknowledges that “much of the beneficial activity will likely decrease” following the end of the World Cup competition, “leading, for example, to a possible decline in some areas of employment.”

At the same time, the report strikes an optimistic tone noting that “many major construction projects, including rail and highway improvements, will likely continue unabated, and human resource development undertaken for the 2010 FIFA World Cup will also likely continue to provide beneficial effects.”  This optimistic tone is buttressed, in part, by the fact that Consumer confidence in South Africa is at its highest level in two years, which should aid in ameliorating the lingering impacts of the recent recession.

The report also notes likely continuing positive effects from “increased cooperation between many levels of government, the country’s renewed sense of national pride, and a higher profile as an attractive tourist destination.” Businesses that hope to get a boost from the World Cup include Volkswagen, Toyota, and General Motors – three of the seven major car makers that have plants in Port Elizabeth, South Africa.  South African automobile sales were down by more than 25% last year and should benefit directly from highway improvements.

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