Will 2010 World Cup Be Economic Boom or Bust for South Africa?

Jan. 8, 2010— -- When South Africa kicks off the 2010 World Cup against Mexico in Johannesburg this June, the host nation hopes that their squad can score a big victory. But on a much larger scale than the global soccer showcase the country is hoping the event will shower the country's economy with cash.

"It must contribute to long-term economic growth and the creation of decent jobs," South African president Jacob Zuma said in a New Year's Eve statement.

"It is an event of significant and far-reaching economic impact," said Rejoice Mabudafhasi, South Africa's Deputy Minister of Water and Environmental Affairs, at an event last November.

But how significant will it ultimately prove to be?

Analysts are divided on whether the tournament will be as significant as some South Africans seem to expect.

A 2008 report from consulting firm Grant Thornton predicted that the month-long soccer event could inject about $7.6 billion into the country's economy, with around 490,000 foreign tourists flocking to the country and approximately 415,000 annual jobs sustained and created by the tournament.

"And our projections, I would say, are conservative," Lee-Anne Bac, director at Grant Thornton Strategic Solutions, told ABC News.

But that was before the global recession ravaged countries around the world, including sending South Africa into its first downturn in the last 17 years. As Africa's largest economy now emerges from the slump, a great deal of hopes rest on this summer's soccer tournament. The country has built or renovated 10 world-class soccer stadiums, but not without considerable cost – the price tag for Cape Town's Green Point stadium was four times what was originally anticipated.

Some analysts argue that expectations that the tournament will prove to be a cash cow for the Rainbow Nation are sorely mistaken. Rob Baade, policy advisor on economic issues for the Heartland Institute and chairman of the economics department at Lake Forest College in Chicago, has done numerous studies on "mega-events" in the sporting world such as World Cups and Olympic Games.

Critics Say Africa Should Be Spending on Poverty, Not Soccer Stadiums

"You've got this image of people descending on a country and that's going to provide a significant economic boost to the country," he told ABC News. "The reality is something quite different."

Baade cited a variety of factors that can counteract the economic boost of these sporting spectacles, such as potential tourists deciding not to go to a host country because of the event and residents deciding to leave a host country during that timeframe.

Before the Summer Olympics in 2004, the excitement among business owners in Athens, Greece was palpable, Baade recalled. After the Games? Not so much.

"They all told me they wouldn't do it again," he said, "because the infrastructure that is so critical to creating something in the way of an economic legacy was really disruptive to the normal flow of economic activity, so much so that some business owners said their revenues were down by 80 to 90 percent as a games…When you disrupt commercial activity, you've got to consider that as a cost."

"When you put all those things together, that's a pretty lengthy list," he cautioned. "We really found that mega-events do not provide the kind of boost that apologists for the games argue will occur as a consequence. Things don't materialize as a lot of people hope and think."

In fact, only Barcelona – host of the 1992 Summer Olympics – was listed by Baade as a city that has greatly benefited financially from a mega-event.

"I think it's reaching a bit to say that any city has experienced a substantial change in economic activity as a result of a mega-event," he stated.

Critics also claim that South Africa should be spending money not on expensive soccer stadiums but on more pressing issues such as widespread poverty and the highest number of people infected with AIDS in any nation worldwide.

"People argue that you're going to create enough in the way of economic impact from the mega-event that it will enable you to finance other things that you're not otherwise able to do, but the evidence does not support that idea," said Baade.

The World Cup a Safety Hazard?

On Friday a group of assailants attacked a bus that was transporting Togo's national team to the African Cup in Angola, a tournament featuring the continent's top teams. The attackers killed the driver and wounded four people, according to reports.

Any economic boost will depend on the tournament not being marred by crime or terror, as the 1996 Summer Olympics in Atlanta were by a bombing that killed two people and injured over one hundred others.

"On the security front, we believe in a justice system that can respond to the breaking of law and order," said Danny Jordaan, chief organizer for the World Cup, in December. "The government is giving us strong backing with regards to security measures and we will have a safe and secure World Cup tournament. The government is hiring an additional 55,000 police officers, boosting the force by 15 percent. I am satisfied fans, teams, and the public will be safe during the 2010 World Cup finals."

While the world may emerge from the tournament viewing South Africa as a safe and spectacular destination, the alternate risk is that crime or terror could leave people believing that the nation is in fact an unsafe place to visit.

"That's the concern," Baade said. "A city can be a surprise either positively or negatively and any host city really runs the risk of turning people off rather than turning them on…The likelihood of some kind of terrorist activity increases as a result of hosting an event."

It is all part of the risks in playing host to the rest of the world. With the United States pushing to host either the 2018 or 2022 World Cup, some Americans might want to pay close attention to South Africa's successes or failures later this year.

"At the very least I think U.S. officials need to be cautious and they need to think about what it's going to provide economically," said Baade.

But Lee-Anne Bac at Grant Thornton contends that South Africa will eventually reap big benefits from this summer's tournament, noting that the Rainbow Nation already experienced a huge financial boost after hosting the Rugby World Cup in 1995.

"That event on a smaller scale did astronomical things for our tourism industry," she pointed out.

In 1994 – a year before the tournament – the nation was visited by 3.7 million foreign tourists. Two years later 4.9 million foreigners flocked to the country, with part of that uptick undoubtedly due to the 1994 election of Nelson Mandela and the end of apartheid.

Legacy Worth More Than Financial Gain?

Bac believes the financial fruits of this year's World Cup can already be seen in South Africa.

"I would say that South Africa has come through the recession period probably better than we would have because of the soccer World Cup, because people are employed and there's a focus on improving safety and security in this country," she said.

But the real boost, she predicted, will come in the years following the tournament.

"The real benefit of the event is the long-term legacy that comes with it, not the event itself. It really starts to put South Africa on the map."

"Excitement is becoming very high," she observed. "Everybody's talking about it. They're talking about how this is the year for South Africa. This is the second-biggest thing that's ever happened to this country behind the 1994 democratic elections."

That sense of the tournament's importance is shared by the country's leaders.

On New Year's Eve, the nation's president Zuma declared, "Together as all South Africans, we must make this one of the most successful projects we have ever undertaken as a nation."

But while financial success may be possible for South Africa, such a boost is not necessarily borne out by the lessons of history.

"They're operating under mistaken assumptions," Baade said of the officials. "They're hoping for economic impact but the reality is quite different."

Time will tell, but for now one thing is clear: there's a lot resting on this summer's World Cup for South Africa, a lot more than just the success of their soccer team.