World Cup proves no simple fix for poor nations

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As the dust around the pomp and ceremony of the World Cup closing ceremony settles, the question must be raised why poor countries like South Africa and Brazil are mesmerised by the allure of hosting the tournament, despite a cost that can never be recouped.

The simple answer is that football is as healthy as ever. During the Brazil-Chile penalty shoot-out, tweets per minute reached 390 000, topping the record of 382 000 for the Superbowl in February. True, football’s reward-for-effort ratio is low, unless you’re a defender, making it boring for many. Germany’s thrashing of Brazil was mesmerising, but an outlier. However, Fifa remains unworried. For the World Cup 2010 it reaped a profit of more than $600 million (R6 billion) and Brazil 2014 looks to be another money-spinner.

With the Brazil World Cup having prompted nostalgic memories of South Africa’s own World Cup glory, inevitable comparisons are made between the two emerging markets. The economic and political similarities between South Africa and Brazil are numerous, including almost identical average gross domestic product growth since 1994 (3 percent annually), while their inflation rates match each other at between 6 percent and 7 percent.

Both used the 2000s commodity price boom to boost social grants to the poor and have suffered a ratings downgrade this year from Standard & Poor’s, to an identical BBB-, just one notch above so-called junk status. Both are on a stable outlook, meaning that the rating agency is prepared to grant limited time to each to implement essential economic reforms.

However, the similarity ends when it comes to the respective World Cup outlays. Far from being deterred by the cost of hosting the tournament, the Brazilian show reached new excesses in spending. The cost for South Africa’s hosting of the tournament was about $4.5bn, of which about 40 percent was spent on stadiums and the balance on infrastructure.

White elephants

Understandably there are gripes about white elephants and middle-class privilege. Cape Town’s stunning stadium lies idle for most of the year. While some of the stadiums host high-profile events, these are often out of the range of the pockets of the majority of people.

The Brazilian World Cup is in another ball park. The cost is running at $14bn plus. The stadium cost alone is approaching $5bn against a budget of $1.1bn. Of the 12 newly built or refurbished venues, at least four will be white elephants.

The pressure on Brazil to meet the stadium and infrastructure deadlines left it open to corruption, as unscrupulous developers took advantage of the desperate need to comply with Fifa directives.

And Brazil’s financial burden does not end with the World Cup. By 2016, at least $15bn more will have been laid out for Rio de Janeiro to host the Olympic Games.

It would be unfair to label all the money spent gearing up for the World Cup as poorly spent. In both South Africa and Brazil the positives include boosts to ancillary sports infrastructure, municipal upgrades, bus rapid transit systems, rail transport, airport upgrades, broadcasting technology and improvements to public health care. Some of these would have occurred without the World Cup, but the tournament probably served as a catalyst.

In addition, at a macroeconomic level the fixed investment ratio for both countries has moved up a notch. For South Africa it reached a high of 21.9 percent in 2009 and, after a post-World Cup dip, has stabilised at close to 21 percent. Similarly, in Brazil it hit a high of 21 percent in 2011 and looks set to stay above 20 percent as the Olympics spend comes through.

But these rates are still relatively low compared with many Asian and even most sub-Saharan African nations. It is this that limits their ability to grow at the pace needed to move up to middle-income status. Hosting World Cups cannot solve this. Only committed political leadership can.

The question remains, is it all worth it? Fifa goes from strength to strength, giving aspiring young footballers across the globe hopes for their futures. Maybe that is all that is really important. Is the magic of the beautiful game enough to justify the huge expense? Over to Russia in 2018.

* Graham Bell is the equities strategist for Old Mutual Investment Group’s Equities Boutique.


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