Infographic of the Day: Using the World Cup, South Africa Bets Big on Its Future

South Africa has spent $52 billion preparing for the World Cup, but it'll only bring in $2.7 billion. What gives?

The World Cup is right around the corner, and you'd assume that it'll be an economic bonanza for the host country, South Africa. But the South African government looks at the event differently: They've essentially used the event to mortgage their future.

As this infographic by Menainfra shows, South Africa is spending a whopping $52 billion on the Cup--even though it's only expected to add about $2.7 billion to the country's GDP.

What gives? Those excess investments have gone toward massive new infrastructure projects, which the country hopes will sustain its growth for decades to come. Included, for example, is $9.1 billion on roads, $2.3 billion on airports, $2 billion on rail systems (including a high-speed link between Johannesburg and Pretoria), and, of course, $2.2 billion on sports stadiums. (The irony is that the stadiums are perhaps the most necessary investments--and the ones least likely to yield dividends in the future. And that's why past Olympics have been often been an economic curse, for the host cities.)

World Cup infographic

All of which makes you realize: A big event such as the World Cup or Olympics is, for the host country, perhaps the only excuse out there for going on a massive, unprecedented shopping spree. Where the public might usually quail when the government takes on tens of billions in debt, they can just say, "Hey! It's the World Cup! Don't you like football?!"

Whether it pays off in future economic growth all depends on how intelligently that money is deployed--whether, for example, the infrastructure that the country builds up happens to correspond with the infrastructure it will actually need in the future. The danger, of course, is that when you spend that much money that quickly, you don't have time to spend it wisely.

Think of it like spending way too much on a new suit for a job interview. Will you really end up wearing that suit in the future, and getting the job? If not, that suit is going to sit in the closet, mocking you for years.

We'll see whether it all pays off. As Goolam Ballim, a Standard Bank economist, said shortly after South Africa won the hosting rights, "There will be a big direct injection for the economy. But the indirect impact may be more meaningful for a sustainable economic lift in subsequent years ... it will help change the perceptions that a large number of foreign investors hold of Africa and South Africa."

[Click here for the full-size graphic]

 

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2 Comments

  • Will Gerstmyer

    I see the $52B mentioned but only a third of that ($17.7B) is actually itemized - what are the other expenditures? Since 2/3 are missing, it doesn't even seem to be that the biggest categories are included! Is this because these other major infrastructure costs are improvements that few could find fault with, or are long overdue for a prosperous nation, or have so many advantages that have little to do with football and so provide long-term benefits for a great portion of the population?
    The expenditures then are offset, to some exact degree (though again, not itemized) as "growth in the GDPof $2.7B". But plusses are measured in many ways, including immediate extra income above the norm as well as long-term perceptions. Such long-term perceptions include the notion that most all cities that have hosted an Olympics become world-recognized and create positive perceptions for people considering visiting them.
    Graeme Codrington's comment could use some figures on the other side of the equation: just how "much of the $52B is already paid for"? His comment is perhaps a good sign (once we know the facts) but there were obviously other choices the money could have been spent on - how would we know if it was money well spent without more comment? The money, though, should not necessarily be seen as a zero-sum game, because a city with a heightened reputation may catapault itself into a whole new economic level which might never happen with more commonplace spending.
    Having worked inside a movement for an Olympic host city, it is very true that it is difficult to nail down the financials and easy to take pot-shots at the claims - both immediate and long-term. It is typical that cities want these events for other reasons than immediate financial gain since only L.A. '84 has made money (at the outset) and that was because they stepped in at the tenth hour to bail out an initial host city and by doing so got permission to use existing facilities (whether wonderful or not), create many "temporary" and "facade-only" improvements, were the beneficiaries of favorable worldwide TV contracts (which creates the vast majority of the income at events such as these) and run the Games the way they wanted. No other city before or since is likely to get such concessions once they win the "election" and therefore it is unlikely that we will ever see a host make (initial) money.
    Any population that is considering hosting should be wary of any money-making hype, and would do well to dig very deeply into a full understanding of the potential long-term advantages as compared with where the same money could be spent instead.

  • Graeme Codrington

    South Africa has used the World Cup very well to do government-led infrastructure spend. But what many people forget is that not all of this was done on debt financing. In fact, for most of the years from 2000 to 2008, South Africa ran a huge surplus and collected billions of excess tax revenues. They have had to take some debt, but much of $52 billion is already paid for. Good governance is part of this story!