It has been a year since the kick-off of the 2010 football World Cup in South Africa. Claude Harding looks at the economic impact of the event and what it meant for business on the continent.
From a fan’s perspective, the World Cup was largely a great success, with everything running relatively smoothly. But was the event worth the R40 billion (US$5.9 billion) price tag, is South Africa seeing a decent return on investment and did it benefit the rest of the African continent at all?
Advisory firm Grant Thornton recently did a study on the World Cup’s impact. Its general conclusion is that hosting the tournament was money well spent.
For South Africa, one of the greatest benefits was the upgrading of its infrastructure. Besides the building of new stadiums, the government improved national roads and airports. It also invested in public transport like the Gautrain and rapid bus transport systems. ICT upgrades included over 128,000 kilometres of new fibre installed across the country.
“Improvements such as these offer huge benefits to people and they give great support infrastructure to underpin economic and tourism growth,” said Gillian Saunders, head of advisory services at Grant Thornton.
Much of the short-term economic gains from the World Cup came before the first kick-off whistle as the government spent billions on infrastructure, benefitting construction firms and creating employment. “The most important of these effects was the fact that preparing for the tournament helped boost economic activity in South Africa and muted the effects of the recession in other parts of the world. In aggregate, the preparations for the World Cup helped offset some of the weakness in the South African economy and provided an infrastructure boost that will remain in place long after the event,” wrote economist Nouriel Roubini in an article for Forbes.
Other sectors that prospered from the event include tourism and retail. Grant Thornton estimates that South Africa saw up to 350,000 arrivals specifically for the World Cup, and many more from people who changed their itineraries to coincide with the event. June 2010 retail sales were up 7.4% on June 2009. South African restaurant group Famous Brands recorded a 24% increase in sales in June 2010 compared to the same month the previous year.
There was, however, unhappiness in South Africa about the fact that FIFA outsourced the manufacturing of World Cup merchandise, such as the official mascot Zakumi, to China, rather than awarding the contracts to local manufacturers.
More important than the temporary economic boost is the World Cup’s long-term impact on business on the continent.
Africa has in recent years attracted considerable interest from international investors and multinationals. However, deals such as Walmart’s purchase of a 51% stake in South African retailer Massmart, was probably rather motivated by the African growth story than by South Africa’s successful hosting of the World Cup.
But it does seem that perceptions about the continent as a business destination have been positively affected by the event. German printing company Rako Labels recently made a R77 million (US$11.3 million) investment in a new facility in Cape Town. Speaking during an announcement ceremony, the firm’s MD Uwe Bögl said the interest of German companies to invest in South Africa was assisted by the successful hosting of the World Cup.
Another post-World Cup development was South Africa’s invitation to join Brazil, Russia, India and China in the BRIC group of economies. “Since hosting the FIFA World Cup in 2010 – an event that surprised the country’s many critics with its success – South Africa has scored another goal with its inclusion in the economic group,” wrote Sven Richter, head of frontier markets at Renaissance Asset Managers.
One industry that is likely to experience long-term benefits is the tourism sector. According to Grant Thornton, 96% of visitors to the World Cup confirmed that they would visit South Africa again, while 92% said they would recommend it to friends and relatives.
A study by TNS Research Surveys estimated that brand South Africa received R2 billion ($294 million) of free advertising during the tournament. According to SA Tourism, total awareness of South Africa as a leisure destination increased by 9% following the event. Intentions to visit the country in the short term increased by 35%.
Saunders said that while the post-World Cup tourism boom still have to materialise, a large number of tourist businesses would not have survived the economic recession were it not for the boost provided by the event. “We think the slow growth currently being experienced in [South Africa’s] tourism industry following last year’s event is a result of the international economy taking longer than expected to recover from the global recession and this is significantly curtailing international travel,” noted Saunders. Cape Town in particular saw a number of new hotels opening before the tournament, which has resulted in a current oversupply of rooms.
South African concert promoter, Big Concerts, indicated that the availability of world-class stadiums in the country is the main reason behind the latest influx of performers such Coldplay, U2, Kings of Leon and The Script to South Africa.
“But long term profitability of our stadiums is dependent on usability for a wide range of activities which will certainly need private sector involvement and structures which create a profit motive,” said Saunders.
Time for Africa
The event was widely hailed as Africa’s World Cup. But did the rest of the continent benefit?
The tourism industries of South Africa’s neighbouring countries did not see much of an increase in visitors. According to Grant Thornton’s statistics, only 5% of World Cup tourists visited other Southern African countries, translating to a total of 17,500 visitors.
Many people in developed nations still view Africa as one homogenous market. However flawed this viewpoint might be, it certainly doesn’t hurt the rest of the continent when one country gets it right. Some investors and multinationals also view South Africa as a springboard into the rest of Africa. Greater confidence in South Africa could therefore mean more investment into the rest of the continent.
The World Cup showed international business people that something good can indeed come out of Africa. Despite this, issues such as rule of law, property rights, infrastructure and corruption will continue to play a crucial role in influencing investment decisions. It is now up to the continent to ensure that the goodwill created by the World Cup does not go to waste.