Category Economy
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Is this the economic blessing we hoped for?

07 July 2008 Gareth Stokes

Someone recently asked us why South Africa was teetering on the brink of recession with the prospect of the 2010 World Cup just two years away. The question highlights the difficulty many of us have in separating the country’s economy and a single event. Of course the economic activity generated by an even of this magnitude is impressive; but it remains only a small percentage of South Africa’s total GDP.

The real problems in our economy at the moment stem from a slowdown in consumer activity on the back of repeated interest rate hikes. This has led to a significant slowdown (and even declines) in growth in a variety of the country’s core economic sectors. Latest motor vehicle sales figures show a 21% year-on-year decline in June 2008 – confirming a serious recession in the domestic market for vehicles.

And things are likely to get worse. Recent reports suggests that major banks and vehicle finance houses are taking back (repossessing) 5 000 motor vehicles a month. We spoke to someone in the motor industry who told us that many vehicle owners weren’t even waiting for the banks to take their vehicles back. They were simply asking the banks to take them back – resulting in a huge increase in second hand motor vehicles stocks.

The real advantage stems from marketing opportunities

Can the Soccer World Cup halt South Africa’s consumer led recession. The answer is a resounding no. In reality this event was never going to result in a net profit at ground level. The real benefit from the event is the opportunity to broadcast your country to the largest audience in the world. We need to leverage this event and take advantage of every single opportunity to broadcast South Africa to the rest of the world. And if we can avoid front page pictures of burning foreigners, so much the better!

We’ll see a short-term spike in revenues in the tourism & travel industries. Company’s operating in the hotel, restaurant and entertainment industry will prosper too. But you cannot expect an influx of people over a period of three months to help the housing market or the market for cars – or even retailers for that matter.

If – and this is a big if – we manage to run a world class event and host the tournament without incident we’re going to generate strong future revenues for the industries mentioned above.

Costing an absolute bomb!

Something else we shouldn’t lose sight of is the cost associated with hosting an event of this size. To secure the World Cup government had to commit to infrastructure upgrades that go way beyond just building and improving soccer stadiums. They’ve had to consider transport (especially airport terminals and roads) and safety and security. The private sector has a huge task to ensure that .... ample accommodation is built to handle the influx of foreign visitors.

Sunday paper City Press estimates that the eventual price tag for the construction of soccer stadiums will be R3bn more than the R9.18bn budget. To give you an idea of how quickly building input inflation can wreck even the most carefully planned budget, consider the following. The Nelson Mandela Bay municipality (PE) has already upped its budget from R711m (as set in 2006) to R1.5bn... Just imagine if every one of the 10 projects has to double their budgets! That would bring the total cost of stadiums only to in excess of R18bn! But the stadiums have to be completed. Work cannot be halted just because costs are on the rise. And that means activity on the country’s five new soccer stadiums and five stadium upgrades is continuing at a furious pace.

The challenge for South Africa is to host a world class tournament. If we do that, and ensure all visitors to this country safe passage, then the long-term benefits will outweigh the sunk costs. But if we make a mess of it the World Cup expenditure will just become another burden we all have to share.

Editor’s thoughts: It’s difficult for a country to make money from massive sporting events. Most host the events for the peripheral benefits to image and goodwill. Do you think South Africa will maximise the economic opportunities afforded it by the 2010 World Cup? Add your comments below, or send them to


Added by JH, 08 Jul 2008
Almal maak somme oor 2010.Wat gaan gebeur as die situasie ontstaan dat die Stadions agv stakings nie betyds voltooi word nie? Wat gaan gebeur as die wet en orde in duie stort soos nou duidelik navore gekom het met die aanvalle op vreemdelinge? Ek dink baie toeriste gaan Suid Afrika juis vermy agv 2010,veral as jy dink aan die sokker boewe wat na hierdie toernooie vanaf die hele wereld toesak. Die veilgheid van niemand kan gewaarborg word nie.Die vreemdelinge aanvalle was niks anders as n proeflopie om die Polisie en dalk weermag te toets tot hoe n mate hulle paraat is.Dus duidelik dat hulle die toets hopeloos gefaal het. Voor dat die Regering nie daadwerklik sy opregtheid wys en daadwerklik iets doen om
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Added by Anon, 07 Jul 2008
I don't think so, because of the crime situation as well as a lack of accommodation. Less building work being done because of high interest rates will exacerbate the lack of safe accommodation problem. South Africa has a very poor image due to the Zimbabwe catastrophe right now, which will take years to repair. There could be worse constitutional problems on the horizon which could lead to even more loss of goodwill and international standing.
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Added by Curious Onlooker, 07 Jul 2008
I would sincerely hope the the Worl Cup will contribute to South Africa's Growth and Economy, however I have serious reservations about that. South Africa is lacking Leadership at all levels more especially in Poltics. Corruption and Crime (including white collar) at all levels will lead to our downfall. The performance and Integrity of our presnt govenment is appalling. The proposed incoming govenment's leadership qualties leaves much to be desired. The resumes' of most makes one squirm. The current Youth leadership does not have the expertise nor understanding of the various spheres of the economy, governance and judicial systems. Just last week a disgruntled member of the public stated that
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Added by Jan, 07 Jul 2008
I wish the best for our country, but I do not have much faith in us hosting the 2010 events for the plain and simple reason of safety concerns. I and many South Africans simply don't understand how the level of VIOLENT CRIMES can be tolerated! If our own people (and children) don't feel safe on almost any street, how can we host a world class event? Visitors are definitely going to be attacked and robbed and most problably even murdered! Who, in his/her right mind would want to risk their life to come to such a country? If a drastic plan of action is not speedily implemented by government, we may just as well forget about 2010!
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Added by Iona, 07 Jul 2008
Concern should be given to the Corporates laying off staff. Front page of The Weekender dated 5/6 July 2008
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