When South Africa won the contest to host the 2010 games, the first to be held in a developing country, the mood of euphoria that swept the nation engulfed everything and everyone in its path. This was South Africa’s moment, a chance to show the world what the young multi-racial democracy was made of and what it could do.
The forecasters and public relations consultants went to work immediately and came up with some heady predictions. The diversity of its people and its breathtaking landscapes would be broadcast all around the world. More than half a million foreign tourists would descend on South Africa. Billions of rand would flow into the country as a result of the tourist spend. Hotels and restaurants would register record occupancy rates.
New football stadiums would spring up all over the place. Business opportunities would mushroom, and economic growth would get an injection of steroids. Thabo Mbeki, the former president, predicted that not only would the tournament show South Africa at its best, but would also have a knock-on effect across the whole continent and “send out ripples of confidence from the Cape to Cairo.”
Eager to exploit the opportunity, the government drew up ambitious spending plans. Five new state of the art stadiums were to be built: Soccer City in Johannesburg, Green Point in Cape Town, Nelson Mandela Bay in Port Elizabeth, Peter Mokaba in Polokwane, and the so-called Giraffe Stadium in Nelspruit, whose roof supports were designed to resemble giraffes, complete with lights for eyes that blink at night. Five other stadiums in Johannesburg, Durban, Bloemfontein, Pretoria and Rustenburg would get multi-million rand face-lifts.
Plans to build a new high speed railway between Pretoria and Johannesburg, linked with the newly renamed O.R. Tambo International Airport in Gauteng province, the industrial, commercial and demographic heart of South Africa, would be accelerated, and be ready in time to ferry the flood of tourists between the country’s two principal cities.
South Africa’s much neglected public transport system would receive a capital boost the like of which had never yet been witnessed in post-apartheid South Africa, including 418 new and refurbished train sets and more than 1,000 new buses to ferry FIFA officials, competitors, fans and tourists from city centres to their hotels. Billions of rand were earmarked for road improvements, including 23bn for the highway network in Gauteng alone, along with airport upgrades in most of the host cities.
Policing, too, was a priority. More than 40,000 dedicated officers were assigned to World Cup duties, in addition to the 86,000 security guards employed across the stadiums, hotels, bars, restaurants and parks in the 10 host cities.
More than 650m rand was ring-fenced to provide the police with new helicopters, extending the long arm of the law all over the skies of the Rainbow Nation.
Expectations for job creation – a prime consideration in a country where the unofficial unemployment rate is about 40 percent – were also optimistic. Forecasters calculated that upwards of 400,000 new jobs would flow from the stadium construction programme, the road and rail infrastructure projects, and the extra demand across the hospitality trade that the avalanche of foreign tourists would generate.
Hosting the World Cup tournament has always been a loss-leader: a proposition that will lose money in the short term but which holds the promise of putting the host nation on the global map, thereby generating additional long-term revenue. South Africa’s commitment has been no exception; estimates vary as to how much South Africa has actually spent in preparation for the tournament, but the sums are indisputably substantial.
Grant Thornton, the British business consultancy, estimates that South Africa’s total spend for the World Cup is in the region of 55.3bn rand. That figure includes government investment in stadiums, airports, roads and other infrastructure – much of which would have been spent anyway but which was accelerated to be ready in time for the 2010 event – and therefore somewhat overstates the scale of the investment.
Forecasts of the benefits likely to flow from such a colossal economic stimulus vary too, but they are tiny by comparison. Foreign tourists are expected to inject about 13bn rand into the South African economy, boosting economic growth by about 0.5 percent. Other potential benefits include an anticipated increase in tourist numbers arriving in the country over the next five years, who would probably not have returned had the tournament not attracted them in the first place.
By any stretch of the imagination this is like moving a mountain to bring forth a mouse. The search for an explanation as to why countries compete to host the World Cup tournament lies in the prestige it confers, the impetus it can bring to bear on infrastructure development, and the sense of pride and well being its generates in the host nation. It is certainly not justified by the narrow economic and financial returns it generates.
In any event, South Africa was to find itself hosting the games in an economic climate far less optimistic than when the decision to host the tournament was first made. The global economic downturn triggered by the reckless lending practices of mostly Western financial institutions brought world economic growth shuddering to a halt.
In South Africa, the impressive growth rate of around five percent notched up in recent years was transformed into a near two percent contraction in 2009 – the worst recession since 1992 – and layoffs and redundancies, especially in the mining sector as commodity prices tumbled, began to accelerate. It took the South African economy 10 years to create 2.2m jobs, and it lost half of them in just 18 months.
The euphoria that accompanied the awarding of the games rapidly evaporated. Estimates of the number of foreign arrivals crashed from as many as half a million to as few as 200,000, as the combined effects of South Africa’s long-haul destination status, the high and rising cost of air fares, a rapidly appreciating rand, rising unemployment in Germany and Britain (two of the most important sources of football fans) and anecdotal perceptions of South Africa as a country grappling with race, crime and violence took their toll.
It got worse. Ticket sales were at best sluggish, and it became apparent soon after the onset of the financial crisis that demand for high-end tickets and hospitality was going to take a hit as corporate hospitality budgets were ruthlessly paired back, and high net-worth individuals scaled back on spending plans.
Demand for tickets from other African countries – never expected to be high but anticipated to be significant in the football-mad continent – was less robust than had originally been forecast, while the sale of the final tranche of over-the-counter tickets in South Africa were hit by computer glitches, leading to long queues, frayed tempers, and very uncharitable foreign press comments about South Africa’s ability to host the tournament successfully.
While tickets for the big games in the major urban centres were holding up reasonably well in difficult circumstances, those for more marginal games in more peripheral cities were not. In Nelspruit, Rustenberg and Polokwane, which will each host only four of the 64 matches that will be played in the competition, fixtures including Slovakia versus New Zealand and Honduras versus Chile made the prospect of half empty stadiums seem inevitable.
The scale of the investment – the Nelspruit stadium alone cost around one billion rand to build – seemed even harder to justify by the diminishing returns. Many of these regions were poor. Many inhabitants still have to walk miles to haul water out of streams, live in poor housing with no electricity, and find any sort of employment hard to come by.
Critics who insisted the money could have been better spent were gaining traction, and revelations of corrupt tendering procedures for local government construction contracts, enriching a few at the expense of the many, added to the furore.
Even as the clouds of recession began to lift, South African officials were forced to concede that earlier projections of the number of foreign visitors and the scale of the boost to gross domestic product were overly optimistic. “They are lower than we expected,” said Kagiso Mosue, spokesman for the Tourism Business Council of South Africa.
“Of course we cannot compare with Germany [host of the runaway success of the 2006 tournament which attracted in excess of two million foreign tourists] because it sits in the middle of Europe,” said Danny Jordaan, head of the South Africa’s World Cup local organising committee: “Reality in the world has changed.” He stressed that Britain and Germany, two of the biggest exporters of travelling football fans, had been hit by the global crisis “in a major way.”
But the mood was already beginning to improve by April when Grant Thornton published its study into the likely impact of the World Cup on the South African economy. The study found that the number of foreign tourists likely to arrive in South Africa had now gone up from earlier pessimistic estimates of around 200,000 to 373,000; 230,000 of whom would be World Cup ticket holders. The new forecasts of foreign tourist arrivals compared very favourably with the 250,000 that visited Japan and South Korea when they were joint hosts in 2002.
Moreover, while the number of foreign tourists would be lower than the total attracted by Germany in 2006, they would stay longer and spend more. While most visitors to Germany had flown in and out over a couple of days, the bulk of visitors to South Africa would stay an average of 18.7 days, and spend 30,200 rand each, the study said. In addition, South African Tourism, the state-owned tourism development agency, said that it was now expecting more than 10m foreign tourists to arrive in South Africa, up from the nine million who visited in 2009.
Things were now really beginning to pick up. A study by banking giant HSBC found that historically, while holding the World Cup had little impact on a country’s GDP, the host’s stock market almost always outperformed during the six months in the run up to the tournament, before dropping off thereafter.
The HSBC study found that in all but two of the last nine tournaments over the past 50 years, the local exchanges outperformed global rivals, with Japan and South Korea outperforming the outperformers with local stock market increases of 10 percent and 24 percent respectively when they were joint hosts in 2002. Only in Spain in 1982, and the US in 1994, did stocks perform in a lacklustre way.
Acknowledging that spending by the influx of tourists and the economic stimulus of building stadiums is negligible compared to the costs of hosting the tournament, HSBC sought to find out what could possibly explain such surprisingly consistent behaviour in stock market performances. And it all came down to sentiment. Hosting the World Cup may not make you rich but it certainly does lift the spirits.
In each of the nine cities where the World Cup has been hosted over the past five decades, happiness indexes have risen and suicide rates have fallen – excluding Spain and the US. But correlation is not necessarily causation. What is it that links stock market rises with overall increases in happiness?
HSBC found the evidence to be compelling. Local investors become more optimistic as excitement builds, while foreign investors look harder at the potential attractions the host country offers because the international media spotlight casts its glare more intensely than normal. It’s a clear-cut case of all publicity being good publicity.
Sure enough, the Johannesburg Stock Exchange has seen a six percent rise in the value of equities traded on the bourse in the year to March, while foreign investors have been net buyers of South Africa equities, accounting for 75bn rand in inflows for the year. Moreover, it’s not only the rising stock market that is providing evidence of improving sentiment.
This year’s annual PriceWaterhouse-Coopers Global CEO Survey, the first to include South Africa, said that after months of relentless gloom and doom, South African CEOs “have emerged from the shadows of the last 18 months feeling largely optimistic about the prospects for a bright future.”
The survey found that a thumping 93 percent of CEOs, all from JSE-listed companies, believed that South Africa would begin to rebound markedly from the recession during 2010 – 25 percent higher than the global and African average – a recovery which was expected to strengthen during 2011. Admittedly, there were significant anxieties about currency volatility, over-regulation, the skills shortage, the rising cost of energy, and infrastructure gaps, but there was no doubting that the overall mood was markedly more buoyant than in other economies around the world.
Improved sentiment is also benefiting from and contributing to the sharp rise in the level of mergers and acquisitions recorded in the first quarter of 2010 compared to the last quarter of 2009, which was valued at 6.8bn rand – the highest level recorded since the fourth quarter of 2008 when the downturn first hit.
Eleventh-hour efforts to boost the number of foreign visitors, including the abolition of South Africa visa requirements for tourists arriving with World Cup tickets, and revitalised marketing efforts by hotels and tourist promoters to drive up low occupancy rates, could see an unexpected last-minute surge in foreign arrivals as the countdown to June 11 approaches. That may not increase numbers to the 500,000 foreign visitors originally expected, but it will leave lots more room for those who do turn up.
It will be winter in South Africa when the tournament takes place, and it can get very cold at night on the country’s high altitude interior, and very wet in Cape Town when the rains arrive. But it is still significantly warmer than the British summer.
It also has a lot more attractions, from the legendary Kruger National Park in Limpopo and Mpumalanga provinces, to the Indian Ocean beaches along the east coast, the Karoo semi-desert region in the South African heartland and Table Mountain in the Western Cape. South Africans also know how to enjoy themselves, and are now busily preparing for the biggest party since Nelson Mandela’s release from prison.