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.)
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]