EC565 Economics Extended Essay

Economics of FIFA World Cup

What are the economic implications of 2010
World Cup in South Africa following 2006 World
Cup in Germany?
Fazan Habib-Sajid

2010
Fazan Habib-Sajid EC565 Extended Essay 2010

Contents
Introduction ....................................................................................................................................3
FIFA (Fédération Internationale de Football Association) .............................................................. 4
Germany 2006.................................................................................................................................7
South Africa 2010............................................................................................................................ 9
Travel and Tourism South Africa...................................................................................................13
CGE Model - Economic Impact of 2010 World Cup ......................................................................15
Grant Thornton Economic Impact of 2010 World Cup .................................................................20
Conclusion.....................................................................................................................................21
Bibliography ..................................................................................................................................23

Figure 1- FIFA Revenue 2007-2010 .........................................................................................................5

Figure 2 - Expenditure by FIFA ................................................................................................................ 6
Figure 3 - Stadium Investment for Germany 2006 FIFA World Cup .......................................................8
Figure 4- Sectoral Composition of South African Economy ..................................................................10
Figure 5 - Population in South Africa 1998-2008 ..................................................................................10
Figure 6 - Unemployment from 2000-2008 in South Africa .................................................................11
Figure 7 - Inflation (Consumer Price Index) 2000-2008 in South Africa ...............................................12
Figure 8 - GDP annual percentage change 2000-2008 in South Africa.................................................13
Figure 9 - Foreign tourist arrivals 1997-2007 in South Africa ...............................................................13
Figure 10 - AS/AD Diagram to show Table 1 effects.............................................................................16
Figure 11- Summary of Costs and Benefits of 2010 World Cup on South African economy................20

Table 1 - Macroeconomic Variables......................................................................................................16

Table 2- Contributions to changes in GDP (Expenditure) .....................................................................17
Table 3 - Percentage change in basic export demands of selected commodities................................18
Table 4 - Macroeconomic Variables......................................................................................................18
Table 5 - Overall impact Macroeconomic Variables .............................................................................19

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Economics of FIFA World Cup

What are the economic implications of 2010 World Cup in South Africa following 2006
World Cup in Germany?

Introduction

The FIFA (Fédération Internationale de Football Association) World Cup is arguably the
largest international sporting event around the globe. There is always a carnival like ‘feel-
good’ atmosphere surrounding the host nation from the moment the decision is made to
allocate the World Cup to a nation. It is often easy to get caught up in and become blinded by
the excitement of the occasion, and with the media attention ambushing the host nation, the
economic effects linked with the considerable investment associated with hosting such a
prestigious event are almost totally ignored. However, those involved in the detailed
background work required to make the World Cup a massive success expect a positive return
on the expenditure associated with the tournament. The 2006 hosts Germany possess the
largest economy in Europe, but even then, there was a fear that a net benefit might not have
been achieved by hosting the World Cup (Plessis & Maennig, 2007).

In May 2004, FIFA awarded the hosting of the FIFA World Cup to an African country for the
first time in the 101 years of FIFA’s existence. As the host, South Africa stands not as a
country alone – but rather as a representative of Africa and as a part of an African family of
nations (www.sa2010.gov.za/node/1079, 2010). The need for a positive net benefit from
hosting a successful football World Cup is an urgent necessity for South Africa. Within South
Africa the challenges of economic development are acute because even though South Africa
is the largest economy in its region, it is located in the world’s poorest region.

In terms of assessing the impact of the world cup on South Africa’s economy, this paper will
look at two key literatures. One is an economic assessment by Grant Thornton Kessel
Feinstein but it is a little dated from 2003. Some potential benefits to the economy are
highlighted and the 2003 study found that the staging of the 2010 FIFA World Cup would
create significant direct and indirect economic benefits for the country’s economy, with
minimal tangible and intangible costs (Mabagu & Mohamed, 2008). According to the Grant
Thornton study, the event was expected to contribute R21.3 billion to the economy,
generating an estimated 12.7 billion in direct spending, creating 159,000 new jobs and raising
an additional R7 billion in government revenue (Mabagu & Mohamed, 2008). Although the

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cost-benefit analysis approach used in the study is limited in its application, it remains the
simplest and most easily understood method of measuring potential economic impacts.
(Bohlmann and Van. Heerden, 2008)

The other piece of literature I will look to assess is Heinrich R. Bohlmann and Jan H. Van
Heerdens’ study on predicting the economic impact of the 2010 FIFA World cup in South
Africa. They used a CGE model to derive the likely economic implications of the world cup.
They simulated an increase in government expenditure on construction and found a positive
impact on most macroeconomic variables, including GDP and employment. These gains were
found to be driven mainly by unskilled unemployed resources that were drawn into economic
activity by the demand injection (Mabagu & Mohamed, 2008).

Due to the institutional structure of the World Cup the financial consequences of hosting the
tournament can be analysed separately for FIFA and for the host country (Plessis & Maennig,
2007).

FIFA (Fédération Internationale de Football Association)

Often said that FIFA’s vision is what makes it such an influential power in the world of
football and as a business federation around the globe. It is believed by many that the FIFA
federation can only be successful if football is being developed on a global scale, is touching
the world everywhere and is also used as a tool to achieve beneficial social change worldwide
(build a better future). Joseph S. Blatter, the President of FIFA, also foresees a world where
the language of football unites people from every background. (FIFA Communications,
2008)

Astonishingly FIFA spends over 2 billion USD every 4 years on its football events, football
development programmes and Corporate Social Responsibility (CSR) activities. All the FIFA
events (including 11 other ‘minor’ World Cups) run up a deficit except the World Cup Finals
which are held every four years.

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Figure 1- FIFA Revenue 2007-2010

TV Marketing Hospitality Licensing

4% 2%

31%

63%

Source: FIFA Communications (2008)

FIFA’s revenue created during the period 2007-2010 amounts to US$3.2 billion. As the
figure above illustrates majority of this revenue is generated through the sale of media rights
sold to television, radio and other media for the World Cup. Currently, about 2 billion USD
has been generated from the rights. In detail, revenue generated through sales of rights for
2010 FIFA World Cup and all events included in the 2007-2010 period are: Total of 3.2
billion USD where of 2 billion TV (63%), 1 billion marketing (31%), 120 million USD
Hospitality (4%) and 80 million Licensing (2%).

In the 2008 calendar year, FIFA invested 72% of its generated revenue directly back into
several development projects and used the generated revenue to fund the expenditure
payment of the 2006 World Cup in Germany. A total of 133 million USD was spent on
FIFA’s development projects equating to 26% of the total expenditure.

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Figure 2 - Expenditure by FIFA

Operational
, 17%

Football
2006 FIFA Governance, 6
World %
Cup, 40%
Exploitation
of rights, 5%

Additional FIFA
Development Events, 6%
Projects, 26%

Source: FIFA Communications (2008)

The figure above indicates the allocation of expenditure by FIFA. Along with the major
expenses mentioned earlier, breaking down the other outgoing payments for FIFA, we have
to include the payment to the 32 participating teams of the World Cup in the form of prize
money and compensation for travel and preparation costs which equated to around €222
million. Reported FIFA’s costs for the 2006 World Cup were about €530 million.

In economic terms FIFA is a business powerhouse. The amount of capital they invest in
projects is enormous, even on a global scale. This investment leads to several opportunities in
employment and evidently has many economic benefits. The use of resource allocation and
productivity enhances the federation’s reputation, and also indirectly looks to help global
objectives such as poverty and crime.

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Germany 2006

The key macroeconomic indicators for the German economy in 2006 were pretty good, which
is expected considering it is the “largest” economy in Europe and subsequently one of the
biggest in the world. The population of Germany was just over 82 million in 2006. According
to the Economy Watch website (2006), GDP growth was 3.176%, inflation levels was a fairly
sustainable and healthy 1.784%, unemployment rate was 9.833%(% of labour force) and
there was around 39 million people in employment.

A substantial budget of approximately €430 million was granted to the organising committee
of the FIFA World Cup in 2006. Even on a relatively hefty budget such as this, a surplus was
able to be produced by the organisers of the event. The public sector was provided more than
sufficient support in addition to the cost incurred by the Local Organising Committee (LOC),
as it raised €1.4 billion to finance investment for only the stadiums alone, and arranged €2
million for other related infrastructure (Maennig & Plessis, 2007).

From the very beginning, the LOC for the 2006 World Cup in Germany had very clear
objectives, but it was concerning that several external issues were surrounding the event at
the time. The main objective was to deliver a well organised event, hoping to result in a long
lasting legacy left behind for the football community and general population of Germany.
Prior to the world cup, there was an abundance of negativity surrounding the host nation.
Most of the sceptics came within the host nation, as the media was dominated by negative
reports directed towards Germany, the population and even the national football team itself.
All this pessimism led to security and hospitality concerns and overall doubts about the
success of the event and presented early difficulties to justify the large investments made for
the tournament. (FIFA Communications, 2008)

The world cup was a mega success, which was helped by near perfect weather conditions,
along with a great performance by the heavily criticised (prior to the event) German National
Team which helped unite the nation and kept the atmosphere buzzing throughout the
tournament.

The final report by the German government from 6th December 2006 (FIFA
Communications, 2008) indicates some of the extent of the impact on the host country,
Germany. They analysed overall figures, and not surprisingly approximately €8-10 billion

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was spent in total association with the world cup in terms of investment. Also, in terms of
growth, the tourism and hospitality industry both increased by 19.3% and 4% respectively.
The retailing business generated around €2 billion and direct tax income from ticketing,
players’ fees and profit equated to an estimate of €104 million. In addition to all these
benefits, approximately 40,000 additional long-term jobs were generated. All these effects
deemed to have boosted GDP by 0.3% purely down to the FIFA world cup. (FIFA
Communications, 2008)

To host a global international sporting event, it is certainly vital to obtain new and attractive
infrastructure. The figure below shows the capacity and costs of new or upgraded stadiums
for the 2006 World Cup and further indicates the magnitude of hosting such a prestigious
event.

Figure 3 - Stadium Investment for Germany 2006 FIFA World Cup

City Stadium Capacity Costs (€ million) Inhabitants

Upgraded/Reconstructed
Berlin Olympiastadion 74,000 242 3,390,000
Cologne RheinEnergy-Stadion 50,374 117.5 1,000,000
Dortmund Signal Iduna Park 83,000 36 590,000
Hannover AWD - Arena 49,000 63 525,000
Kaiserslautern Fritz-Walter Stadion 48,500 48.3 107,000
Nuremburg easyCredit-Stadion 46,780 56 490,000
Stuttgart Gottlieb-Daimler Stadion 55,986 51.6 590,000
New
Frankfurt Commerzbank-Arena 51,500 126 650,000
Gelsenkirchen Velfing-Arena 61,524 192 278,000
Hamburg HSH-Nordbank-Arena 57,000 97 1,700,000
Leipzig ZentralStadion 44,193 90.6 494,000
Munich Allianz Arena 69,901 280 1,300,000
Total 691,758 €1.4 billion

Source: Maennig & Federsen &.. (2008) Investment in Stadia and Regional Economic Development

We can see from Figure 1 how the €1.4 billion was allocated amongst the stadiums. Maennig
& Federsen (2008) argue that the ‘positive effect of new stadiums claimed by many sport
protagonists are not true’. It is not necessarily correct to say stadium investment doesn’t
provide economic benefits; nevertheless, it is entirely complicated to measure the associated
benefits. A proposed justification of heavy investment for stadiums could be the excitement
and ‘feel-good’ effect it produces for the host nation, as well as positive image effects created
by new infrastructure. However, even these benefits are difficult to quantify.

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South Africa 2010

South Africa is regarded globally and by UN classification as a middle income nation,

emerging market with a rich supply of natural resources; newly-developed financial, legal,
communications, energy, and transport sectors; a stock exchange ranked amongst the top 20
in the world; and modern infrastructure supporting an efficient distribution of goods to major
urban centres throughout the region. (Central Intelligence Agency, 2010)

The South African economy experienced constant and stable economic growth from 2003 to
2007 (3.11% to 5.1% in terms of GDP) as South Africa reaped the benefits of
macroeconomic stability and a global commodities boom, but began to slow in the second
half of 2008 due to the global financial crisis. GDP fell nearly 2% between 2007 and 2008,
from 5.1% to 3.06%. Unemployment remains high and outdated infrastructure has restricted
further growth. South Africa's former economic policy was fiscally conservative, focusing on
controlling inflation, and working towards a budget surplus. Unresolved economic difficulties
remain an issue from the apartheid era - especially poverty (with 50% of the total population
underneath the ‘poverty line’). The current government largely follows the same cautious
mentality towards certain policies, but must assert itself and dominate against the impact of
the financial global crisis. (Central Intelligence Agency, 2010)

The figure below (fig 4) exemplifies how the South African economy is composed of
different sectors, and their overall contribution to the economy. Noticeably you can see there
is no single outstanding sector they heavily rely on, they have a number of growing industries
but not one substantial enough which the whole economy relies on. As you will see later,
travel and tourism is a main component of South Africa’s economy and we will see how it
will be affected by the world cup.

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Figure 4- Sectoral Composition of South African Economy

Agriculture Community
Mining 3% Services
7% 8%

Manufacturing Financial &

19% Business Services
25%

Electricity & Water

3%
Construction Trade &
3% Accomadation
18%
Transport &
Communication
14%

Source: Mabugu & Mohamed (2008) The Economic Impacts of Government Financing of the 2010 FIFA World Cup

According to the World Bank (2008) and Statistics South Africa (SSA) (2009) the total
population of the country was just below 48.7 million in 2008.

Figure 5 - Population in South Africa 1998-2008

60000000
48,687,000
50000000

40000000
Population

30000000

20000000

10000000

0
1960 1965 1970 1975 1980 1985 1990 1995 2000 2005 2008
Year

Source: World Bank (2008)

The SSA mid 2009 estimates indicate that the South African population has increased further
to approximately 49.32 million people. In 2008, around 31% of South Africa’s population

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was younger than 14 years of age, 65% between the ages of 15 and 64 years, and 5% older
than 65 years. According to the SSA 2001census statistics almost 18% of South Africa’s
population, aged 20 years or more, have had no schooling and a further 16% have only had
primary education. Only 8% of South Africa’s population older than the age of 20 years have
had a tertiary or higher education.

In 2008, South Africa had around 18.6 million economically active people of which
approximately 4.3 million (23%) were unemployed. However, the accuracy of these statistics
is questionable as the CIA World Factbook (2010) has published 17.32million economically
active in 2009 which is a massive decline to have over a year.

Figure 6 - Unemployment from 2000-2008 in South Africa

35 31.20
29.50 30.50
Unemployment, total (% of total labor

30 26.70 26.20 26.70 25.50

25.00 25.40
25 23.00 22.90

20
force)

15

10

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year

Source: World Bank (2008)

The participation rate was 55.3% in 2008. According to the 4th quarter 2009 Labour Force
Survey report (2010) published by SSA, unemployment for the 4th quarter in 2009 was
around 24.3%. The quantity of population in the labour force increased slightly by 61,000
between the third and fourth quarter of 2009. This resulted in the unemployment rate
remaining virtually unchanged between the two quarters at 24.5% in the third quarter of 2009
and 24.3 in the final quarter of 2009. Compared to final quarter of 2008, there was an annual
decrease of 6.3% (870 000) in employment; an increase of 292,000 in the number of
unemployed population along with an increase of 947,000 in the quantity of people who are
not economically active – 518 000 being discouraged work-seekers.

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South Africa’s inflation has been up and down in recent years with the rate of inflation nearly
reaching double figures in 2008 (9.93%).

Figure 7 - Inflation (Consumer Price Index) 2000-2008 in South Africa

12
9.93
10 9.16
Inflation CPI (annual %)

8 6.88
6.09
5.70 5.60
6 5.18 5.34

4 3.19
2.11
2

0 -0.88
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
-2
Year

Source: World Bank (2008)

Latest SSA statistics show the level of inflation as of February 2010 is 5.7%. The figure
above illustrates that there has been a high level of inconsistency in the inflation rates over
the past 10 years or so in South Africa.

The Gross Domestic Production for South Africa in 2008 was around 3.06%. Latest stats
indicate that the GDP figure for the 4th quarter in 2009 is approximately 3.2%. (SSA GDP,
2010)

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Figure 8 - GDP annual percentage change 2000-2008 in South Africa

6 5.32
4.97 5.10
4.86
5

GDP growth (annual %)

4.15
4 3.67
3.12 3.06
2.74
3 2.36

1 0.52

0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Year

Source: World Bank (2008)

The Figure above illustrates how economic growth was constant before a large fall in 2007-
2008 from 5.10% to 3.06%.

Travel and Tourism South Africa

A major component of the South African economy is tourism. International tourism to South
Africa has surged since the end of apartheid. In 1994, the year of South Africa’s first
democratic elections, only 3.9 million visitors arrived in the country.

Figure 9 - Foreign tourist arrivals 1997-2007 in South Africa

Source: Department of tourism. http://www.southafrica.info/about/416367.htm#tourism

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Grant Thornton Kessel Feinstein (2003) in their report use 2002 statistics provided by the
World Travel and Tourism Council to measure the contribution made to the South African
economy by both industry sectors. Back then, tourism contributed 7.1% to South Africa’s
GDP; 12.5% of total exports; tourism represents 10.3% of total investment; and the tourism
industry contributed 6.9% (1,148,000 jobs) to total employment.

Latest 2010 World Travel and Tourism Council stats show that the contribution of travel and
tourism is around 7.7% (26.4billion USD) to overall GDP. The real GDP growth for the
travel and tourism industry is expected to increase by 0.4%. Total employment remains the
same as 2002, with 6.9% contributing to work force (869,000 jobs). Export earnings from
international visitors are expected to generate 10.1% of total exports (9.5billion USD) in
2010. Travel & Tourism investment is estimated at (9.7billion USD) or 13.0% of total
investment in 2010.

All these statistics evidently indicate that tourism is a key component along with one of the
fastest growing sectors of South Africa’s economy, and the outlook for the industry is
extremely bright. The exposure the country will receive due to the FIFA World Cup can only
promote South Africa’s travel and tourism industry, leading to an enhancement of the
economy.

Foreigners arriving for the World Cup will be the major proportion of the tourism during the
World Cup, in the main; it will generate additional economic impact for the South African
economy. It is important to keep in mind though that even though the FIFA World Cup is a
global event it is not watched by everyone. This causes displaced tourism, meaning that
tourists may not travel to the country in the immediate period proceeding, during and
succeeding the event. Displaced tourism doesn’t just relate to the average tourists but also to
the lesser events which are no match for the world cup and hence are not taking place.
Nevertheless, luckily for the South African economy the World Cup is being held in the “low
season” which minimises the problem, but there will still be some displaced tourism and the
industry has to be aware and plan to mitigate displaced tourism. (Grant Thornton, 2010)

It is estimated by many that around 2.7 million spectators will watch the football world cup in
South Africa and a television audience of up to 2.8 billion people will witness the final
showpiece (Swiss Business Hub South Africa, 2007). To cope with this massive influx of

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visitors attracted by the prestigious mega-sports event, great emphasis has been placed on
upgrades in infrastructure especially for travel and tourism.

To improve transport standards and efficiency, a Canadian-French-South African consortium

known as Bombela invested around R25billion for the Gautrain. Its purpose is to link
Johannesburg, Pretoria and/or Tambo International Airport. Significant investment like this
suggests the South African economy is progressing already, even at this early stage before the
event has even begun. The Department of Transport further announced that there are three
more Gautrain-type rapid-rail proposals on the cards (Swiss Business Hub South Africa,
2007). A point to now is that the only city with two football stadiums, which of one has been
chosen to host the final game, is also the base for the International Broadcast Centre, which
will accommodate around 2,000 journalists.

The tourism industry is expected to be one of the main beneficial aspects of hosting the
World Cup in South Africa. A few cities negotiated with nearby towns to help support the
accommodation of the visitors to South Africa. An example of this is Bloemfontein, which
has approximately 7,000 beds but forecasts around 20,000 will be needed (Swiss Business
Hub South Africa, 2007).

CGE Model - Economic Impact of 2010 World Cup

Heinrich Bohlmann and Jan H.van Heerden (2008) use a Computable General Equilibrium
model to observe the possible economic implications for South Africa following the 2010
FIFA World Cup. In their paper they used a 32-sector CGE model to give more accurate and
detailed results. There are fewer equations and more variables in a CGE model so the
variables have to be categorised into exogenous and endogenous variables. Nominal
exchange rate is exogenous along with capital stocks, technical change, tax rates and
investment. Employment is the only endogenous variable. The CGE model responds to
various shocks applied to the economy and Bohlmann & Heerden (2008) created different
scenarios for the simulation to generate alternative outcomes. The first scenario assumes that
capital stock of the communication and hotel industries are both increased by 1%. It also
assumes the capital stock of the transport and construction industries are both increased by
2%. The second scenario assumes technical change has improved productivity by 5% each in
the transport industry, and 2% in the construction and communication industries. Scenario 3

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assumes a marginal increase in tourism because of the presence of the world cup and takes
into account the ‘crowding out’ effect caused by it.

Table 1 - Macroeconomic Variables

Source: Heinrich Bohlmann and Jan H.van Heerden (2008), Predicting the economic impact of the 2010 FIFA World Cup
on South Africa

The table above summarises the effects of the various shocks presented by the scenarios. The
increase in capital stock in the first scenario leads to growth in GDP, higher employment,
lower inflation levels, cheaper labour, higher exports which causes competitiveness to also
increase resulting in a positive impact on the balance of trade payments.

Figure 10 – AS/AD diagram to show Table 1 effects

Price AS
Level AS

P1
P2

AD
0 Y1 Y2 Real GDP

The diagram above shows the effect of an increase in supply of capital stock. It clearly
illustrates a decrease in price and the subsequent increase in real GDP and employment while
demand is held constant. At lower prices there is an increase in the demand for domestic

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goods leading to a rise in domestic exports, increasing its competitiveness and improving the
real exchange rate. If this were the case then this provides a significant benefit to the South
African economy, which has been suffering from large indifferences in inflation levels over a
prolonged period of time.

The second scenario generates identical effects to that of the first scenario, but to a greater
extent. This is due to the fact that it offers a larger percentage increase in the technical change
which improves the productivity of the transport, construction and communication industries.
The increase in productivity due to technical progress results in higher outputs in proportion
to the inputs. Technical progress causes more efficient and arguably cheaper production, thus
increasing employment which leads to growth in GDP again leading to prices falling.
Subsequently, the real exchange rate drops and the countries competitiveness enhances.

For the effects of the third scenario it is important to remember that the percentage change in
all exogenous variables that were not directly shocked obtained the value of zero. The result
of a marginal increase in tourism shows no effect on real GDP or employment, and indicates
a slight increase in inflation which reduces the real exchange rate and consequently the
domestic country’s competitiveness declines.

Table 2- Contributions to changes in GDP (Expenditure)

Source: Heinrich Bohlmann and Jan H.van Heerden (2008), Predicting the economic impact of the 2010 FIFA World Cup
on South Africa

The table above illustrate the expenditure side of contributions to changes in GDP. All three
scenarios yield similar results. It is important to remember that a negative value for imports is
an increase because Y = C + I + G + (X-Z). Again, all the exogenous variables yield a result
of zero if they are not directly involved in the shock. For the first two scenarios, there are
larger increases for both consumption and exports than that of the results from the third

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scenario. This is due to scenario 3 just being a marginal increase in tourism whereas the first
two scenarios generate lower prices and increased competitiveness due to an injection in the
supply of capital goods and related productivity.

Table 3 - Percentage change in basic export demands of selected commodities

Source: Heinrich Bohlmann and Jan H.van Heerden (2008), Predicting the economic impact of the 2010 FIFA World Cup
on South Africa

Table 3 only deals with scenario 3: a slight increase in the level of tourism. Naturally, an
increase in tourism would cause a consequent incline in demand for hotel accommodation,
communication and transport services. This scenario will logically shift the curve for demand
to the right for these services on an AS/AD diagram. The result of this will be increased
levels of output, and the marginal increase in tourism would also lead to higher price levels.
The inflated price levels for these three services leads to an overall increase in prices of all
other merchandises. As the law of demand defines, this increase in prices would lead to a
decrease in the quantity demanded for these services, and subsequently, reduce the output
produced. Furthermore, some industries would shift production to those services for which a
higher demand exists. This would also contribute to the lower levels of output in other
industries.

Table 4 - Macroeconomic Variables

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Source: Heinrich Bohlmann and Jan H.van Heerden (2008), Predicting the economic impact of the 2010 FIFA World Cup
on South Africa

In table 4 a new scenario is used where the demand for capital expenditures increases during
the world cup. The first three scenarios measure only the impact caused by the benefits
associated with the various shocks. Scenario 4 measures the impact of the increased demand
for the relevant goods and services. The table above shows the most significant changes to
macroeconomic variables thus far due to the scenario presented. An increase in demand for
capital goods and services would clearly shift the demand curve to the right, increasing
inflation levels, output and employment. This increase in inflation would devalue the
currency, reducing the country’s international competitiveness, resulting in reduced exports.

Table 5 - Overall impact Macroeconomic Variables

Source: Heinrich Bohlmann and Jan H.van Heerden (2008), Predicting the economic impact of the 2010 FIFA World Cup
on South Africa

The table above provides us with two different scenarios that would impact the main
macroeconomic indicators. To fund the world cup it is fairly assumed the South African
government would use taxation to finance majority of the expenditure. A high tax scenario
indicates a very slight increase in the real GDP growth levels, a decline in overall
employment and increased inflation levels. A low tax scenario is evidently much more
beneficial but not at all feasible for the South African government as they need to use
taxation as a main tool to generate funds for the World Cup. According to effect caused by an
increase in taxation for these indicators, the economic cost of hosting the mega event seems
to outweigh the economic benefits for South Africa.

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Grant Thornton Economic Impact of 2010 World Cup

Grant Thornton (2003) compiled an economy impact assessment of South Africa’s 2010
World Cup bid which highlighted potential benefits to the economy, and found from their
results that hosting the World Cup in South Africa will generate significant direct and indirect
economic benefits for the nation’s economy, with bare minimal costs, both tangible and
intangible.

Figure 11 - Summary of Costs and Benefits of 2010 World Cup on South African Economy

Costs Benefits
Government
Tangible Tangible
- R2,3 billion upgrade of stadia - R7,2 billion paid in taxes
and infrastructures
- R 21,4 billion contribution to GDP
- 159,000 jobs created (estimated)
Intangible Intangible
- Negative impact on traffic - Interest generated and profile raised of country (maybe
flows even continent)
- Negative impact on residents - Increase in tourism and direct foreign investment
living close to stadiums
- Negative impact on Local - Other events maybe held in South Africa
governments
- Possible fan hooliganism -> - Relieve pressure on welfare system and current economy
Increase in Crime -> More
security
- Displacement of normal
tourism
Private Sector
Tangible Tangible
- Expenditure due to increased - R12,7 billion in revenues earned from spectator spending
demand
Intangible Intangible
- Over expenditure on facilities - Marketing opportunities
- Public/Private partnerships for supply of world cup related
goods/merchandise
- Increase in demand for tourism facilities
- New direct foreign investment
- Additional revenues from similar events
Source: Grant Thornton (2003)

The figure above illustrates the cost-benefit analysis approach used by Grant Thornton
(2003). It is argues that the approach is limited in its application, nevertheless, evidently it is
the simplest and most easily understood method of measuring potential economic impacts. As
seen above, the study estimates around 160,000 jobs being created and a R21.4 billion

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contribution to the overall growth of the economy (GDP). It also expects heavy investment of
over R2 billion for new stadia and infrastructure. As we will discuss later on, this figure is
way above the actual amount of investment. Updated projections by Grant Thornton (2009)
suggest they expect around 48,000 foreign visitors for the event only, and expenditure of
R8.5 billion, worth R11.5 billion in additional impact on the South African economy and
sustaining the equivalent of 144,000 jobs. They also suggest the total impact from the event is
an enormous sum of R55.7 billion.

Conclusion

From entirely an economic perspective, there is a lack of hard evidence provided by the CGE
Model that would force us to believe there would be any significant overall impact for South
Africa in hosting the FIFA World Cup. However, the long-term effects are unknown and
depend purely on whether the success of the World Cup can attract a vast amount of direct
foreign investment and aggravate further domestic productivity, which could see key
macroeconomic variables such as GDP and employment to potentially increase by
considerable amounts in the future (Bohlmann, 2008).

However the projections developed in 2007 by Grant Thornton, and the pre-event numbers
have probably been surpassed with South Africa hosting global events such as the Indian
Premier League, the ICC Champions Trophy, the Miss World 2008 pageant and a number of
international conferences (Grant Thornton, 2009). So this is not a new occurrence for South
Africa, as they have hosted global events before but never to the extent of this magnitude.

After the World Cup in Germany, there was a lot of talk of how the event had a quite positive
re-branding effect, which goes a lot further than just simply the impact on GDP. Also the
embassy in Abu Dhabi was quoted to saying “The FIFA World Cup was without doubt the
best PR activity for Germany since its inception”. Positive quotes like these just further argue
the point that the potential benefits of the World Cup are very difficult to quantify because it
is extremely difficult to measure positive externalities and the ‘feel-good’ factor related with
the World Cup. The German embassy in Stockholm was also quoted following the 2006
mega-event, “The World Cup has improved the Brand Germany more than a million political
media campaigns could have done.” So it is fairly predictable that events of this nature can
be viewed as a massive marketing campaign for the host country and hosting a successful

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world cup does not necessarily imply bombarding the country with the most expensive
infrastructure and merchandises, nor does it imply that hosting a successful world cup means
hosting the most expensive World Cup with regards to stadiums and supporting infrastructure
(Bohlmann, 2008).

It is important not just for South Africa, but for the whole African continent that they
maximise the opportunity that has been given to them to deliver a memorable and successful
World Cup. It is the biggest stage on which they can showcase their country and hospitality.
Some sceptics may argue that the opportunity to host the world cup comes at too great a cost
and too early for the nation. However, given the detailed long-term planning and vision that
has been devoted to the event, the FIFA 2010 World Cup could turn out to be a defining
piece of history for South Africa.

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