FIFAnomics 2010 style

The party will be fun.  The hangover, not so much fun.

The FIFA 2010 Bubble

From day one of the bidding process back in 1999 the public has been sold the lie that hosting a world cup here would be a major fillip to economic growth and development.  When we finally got awarded the event in 2004, our political masters believed they had pulled off a masterstroke in socio-economic progress. 

To make matters worse, the myth was able to be perpetuated since during the 2004-2008 period the world was frittering around in a credit funded consumption orgy that kept local economic growth misleadingly frothy.  But the divergence of perceptions and reality can never last indefinitely, and so we’re all just beginning to realise that Keynesian magic is truly of the illusory kind and not the miraculous.  

And so, sadly, what we’re going to have is an overpriced party rather than an economic saviour.  But it actually goes a bit deeper than that because the world cup is going to be a bit like a small economic bubble that will pop and leave a lot of entrepreneurs ruing their decisions. 

The most expensive entertainment on the planet

Here are some quick numbers: 

Together the Mbombela stadium in Nelspruit and the Peter Mokaba stadium in Polokwane cost R1.4 billion.  A total of 8 matches will be played at these stadiums (4 at each). Australia v Serbia, Italy v New Zealand, Korea DPR v Cote d’Ivoire, and Honduras v Chile in Nelspruit (horribly low-profile matches), and in Polokwane France v Mexico, Greece v Argentina, Algeria v Slovenia, and Paraguay v New Zealand (a marginally better offering). 

So that’s 8 matches of 90 minutes each, or a total of 720 minutes of football, for R1.4 billion. 

That’s just under R2 million per minute of on-field action.

It has become regarded as almost unpatriotic to criticise the preparations for the World Cup.  But in this case, blind optimism and more than a sprinkling of Keynesian nonsense is the enemy of economic wisdom in what, we cannot forget, is still a very poor country.  I’m excited about the FIFA 2010 World Cup, but the level of wastage has been sad.  Add to the sorry tales above a R400 million dud in Rustenburg and a totally superfluous (albeit beautiful) R3.5 billion stadium in Durban. 

Durban has the perfectly adequate Kings Park a chip ‘n a put away from the newly constructed architectural eye-candy that is Moses Mabhida.  At a tiny fraction of the cost Kings Park could have been turned from a 55,000 seater into a 70,000 seater by barely breaking a sweat.  Instead SA Inc. paid R3,500 million for 650 minutes of World Cup fiesta. 

That’s about R5.5 million per minute.  Now that’s what I call expensive entertainment. 

Those penalty shoot-outs better be good.

Eskomflation and FIFAflation are a myth

500,000 foreigners are expected to visit these shores for month from mid-June to mid-July.  They will be wanting rands in their wallets as by and large their dollars, Euros and pounds will be of little use to most local vendors.  Unless the government grows the monetary base at the same rate as the growth in new money demand arising from foreigners, there will necessarily arise a relative scarcity of currency in 2010.  This would be compounded if foreign investors keep buying up SA assets in 2010 at even a fraction of the fast pace they have been accumulating in 2009.  The relative scarcity of currency near to, during, and just after the World Cup will act to force goods and services prices down not up.

FIFA 2010: It’s our party and we’ll spend if we want to

To make a case that the FIFA World Cup is growth positive you would have to show that a soccer stadium can generate more GDP for every rand invested to build it than could be generated from investing in any other productive asset.  In other words, you have to show that building stadia and upgrading transport networks around stadia is the best use of productive capital.  Here’s the quick answer: It isn’t, especially not stadia built in remotesvilles like Rustenburg, Polokwane, and Nelspruit, or built next to perfectly good recreational sporting capital such as in Durban.  (remember, the overall transport network upgrade isn’t related to the World Cup and could be undertaken at any stage regardless of the tournament).

The World Cup should be called what it really is.  Not a growth generating bonanza but an expensive fiesta.  The World Cup if anything is growth negative, especially in a developing country where the return on genuinely productive capital is high.

There’s nothing wrong with partying, but let’s not kid ourselves into thinking the party will make us money.