World Cup Economics: FIFA’s Impact on South Africa

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Are foreign investors interested in South Africa in the long term, or will they shift away from the country after the tournament is over? Do they see growth opportunities there or simply a chance to make money in the short term?

Foreign investors appear to be making long-term commitments to South Africa. South Africa is on the cutting edge in the development of several environmental-friendly technologies that have the potential to attract large-scale foreign  investment. The World Cup has served as an incentive for South Africa to reassess its heavy dependence on coal generation for electric power.  As indicated in the Deloitte report, there is an unprecedented “opportunity for South Africa to position itself as a leader in clean coal.”

South Africa’s government relied heavily on foreign investment to pay for its extensive program of infrastructure construction and modernization for the World Cup. Were foreign investors as forthcoming as the government had hoped?

I have no direct information that would allow a comparison of the government’s original projections of FDI with actual investments.  However, it is reasonable to expect that potential investors were cautious because of negative perceptions regarding, for example, crime rates, infrastructure, and social problems.  Prior to the World Cup, South Africa was perceived as embodying a mix of the developed and developing world. While it was recognized as having a strong technological and economic base on a par with developed nations, South Africa’s infrastructure and social development shortcomings were also well known to constitute barriers to realizing its full economic potential.

 

Has South Africa’s government demonstrated commitment to long-term development programs with its organization of the World Cup, or were most of the improvements designed as mere stop-gap measures to tide the country over until the tourists and athletes take their leave?

In this regard, I think the long-term plans associated with the new Durban Airport are a useful case study.  South Africa’s nine principal airports are operated by Airports Company South Africa (ACSA), which was formed in 1993. ACSA was partially privatized in 1998 when a 25% stake was sold to foreign and South African private sector shareholders. In 2005, the 20% foreign shareholding was sold to a South African investment company. ACSA is working on a plan to encourage international airlines to fly into the new airport, which has longer runways and more modern facilities. The airport will be integrated with the 35-acre Dube trade port and agricultural shipping zone that is being developed at a nearby site. This complex will offer a cargo terminal, an integrated logistics platform, an agricultural export zone, manufacturing space, and opportunities for property development such as hotel, retail, and conferencing space.

Can Africa’s first World Cup strengthen investor confidence in the continent as a whole and South Africa specifically, or is it bound to be seen as a fluke, with foreign investors remaining wary of Africa?

I think that investor confidence will be shaped primarily by South Africa’s economic fundamentals. Unemployment remains high, reaching more than 25% in the first quarter of 2010, a level that is a persisting warning signal regarding threats to social stability.  Government debt now accounts for approximately 30% of GDP.  On the other hand, South Africa’s banking system was not heavily affected by the global financial crisis.

With respect to the continent as a whole, I think that Western investors should take note of China’s growing involvement in many African countries. According to the International Monetary Fund, exports from Africa to China increased with more than 40 percent between 2001 and 2006. Imports from China to Africa increased 35 percent. The total trade from China to Africa is currently estimated to be around $55 billion per year and is expected to grow to $100 billion dollar this year.

Has the success of South Africa’s bid and its drive to prepare for the World Cup been able to successfully pave over some of the country’s major divisions, whether they be across economic, racial, or political lines?

As noted in the Deloitte Report, one of the greatest lasting legacies of the 2010 FIFA World Cup on South Africa may be “an increased sense of national pride brought by the event and the effect it has had to unify the country.” The report notes the important role that sports has played in overcoming some historical tensions, as depicted, for example, in the film, Invictus. If Bfana Bfana performs well the unifying effects are likely to be more lasting.

In the end, however, overcoming historical racial, economic, and political divisions will require aggressive interventions targeting major social ills including widespread poverty, unemployment, the shortage of low-cost housing, HIV/AIDS, and violent crime.

 

Overall, would you characterize South Africa’s preparation for the World Cup and its outcome a success or a failure for the young democracy?

I consider the preparation for, and outcomes of, the World Cup to be successes. A February 2010 report by UBS Investment Research estimated that preparation for the World Cup added between 0.5% and 2.2% to South African GDP and created in excess of 300,000 jobs since 2006 – a 2.7% contribution to total employment.  I concur with the assessment offered in the Deloitte Report that “Increased cooperation between many levels of government, the country’s renewed sense of national pride, and a higher profile as an attractive tourist destination should also allow South Africa to remain a strong player on the world stage even after the glare of the global spotlight fades.”

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