Feel it! Is it here?

I moved to South Africa late in 2009 to work as an economist for the National Treasury: an exceptional piece of timing which meant that I was in SA for the FIFA World Cup 2010. And what an experience it was! The world’s most-loved sporting event united South Africans across this incredibly diverse and often divided country. As government employees, all of us were offered free classes in the diski dance, we wore football jerseys to work every Friday and there was a running competition as to which department had the best football-theme decorated workspace. You couldn’t walk through a mall without tripping over banners and balls and dancers. In the final days leading up to the Opening Ceremony, there were spontaneous parades of excited people down the streets of each major city blowing vuvuzelas and singing football songs – calling to everyone to feel it because it was here!

And then we come to the Commonwealth Games in Delhi. I haven’t seen the buzz firsthand because I am still in Pretoria but the newspaper coverage suggests the event lead-up is downright awful. So many terrible issues have been raised: poor management, lack of organization, outrageous levels of corruption, ugly accusations of being unpatriotic for daring to criticize the event. Some of the stories of profligacy border on the ludicrous: have you heard the one about how Rs30cr has been spent on buying potted plants which can no longer be placed near any stadium because of security concerns?  

Estimating the economic impact of a mega-event

The whole business of estimating the economic impact of mega-events is inelegant, at best, and totally deceptive, at worst. Governments routinely bid for huge sporting events on the basis of multi-billion dollar budgets which anticipate huge returns. In estimating these returns, first, consultants estimate the number of visitors, the days they stay for and the amount they spend each day. This direct spending effect is then scaled up by a multiple which captures the movement of money through multiple rounds of spending in the economy. Ideally, the multiple should be estimated after constructing an accurate economic model and shocking it with the initial spending effect to see how spending travels through the model. More practically, the organizing committees make wild claims in an attempt to pick up bigger public subsidies.

In SA, the direct spending effect was estimated at $1.5bn (373,000 visitors spending approximately Rand 30,000 per trip, according to a local daily, Financial Mail). There was a temporary boost to employment (130,000 temporary jobs were created), construction, tourism and real GDP (an expected 0.4 percentage point boost in 2010). But how many of these effects are likely to persist?

On the liabilities side, the expenditure on World Cup-related infrastructure (such as stadia) in SA was a whopping $4.5bn. I wonder if many of these stadia – outside of the largest few – will be used much now that the World Cup is over. Will even Soccer City team with 90,000 people on a regular basis?

In these years of global recession, FIFA’s prediction of tourist inflows of 500,000 during the world’s biggest tournament turned out to be too high. The Indian government, however, is not holding back in its own estimates of the seemingly wild popularity of the Commonwealth Games. ASSOCHAM has predicted that 2mn foreign tourists will descend on Delhi in October (all of India saw 2.6mn tourists between Jan-June 2010) and FX from tourism in 2010 will be a stunning $16.2bn ($11bn in 2009). I wouldn’t hold my breath.

Investing in infrastructure

Beyond, immediate returns, however, it can be argued that in developing countries, such mega-events can sometimes provide a unique opportunity for cities or countries to mobilize the political will necessary for much-needed expenditure on public infrastructure. So, in South Africa, Johannesburg was able to invest in public transport, of which, before the World Cup, it had precious little. The country as a whole spent over $1.5bn on new transport systems, $0.5bn on airports and several millions on upgrades to telecom and broadcasting infrastructure. The returns to these investments should be estimated independently of the tournament itself.

The context of the CWG, however, may be slightly different. That evergreen loudmouth of Indian politics, Mani Shankar Aiyar, made what I thought was a pretty valid point: infrastructural investment in Delhi would never have been difficult to motivate in the absence of the CWG. As the centre of the Indian growth engine, Delhi had already seen the marvelous metro and its airport was always going to get a glitzy new T3. Sports infrastructure, sure; Delhi would never have received as much in stadium and facility investment in the absence of the CWG. But what are the returns on these investments likely to be? Corruption is endemic to sports administration in India. The jump from CWG spending to sustained investment in sports development and making India a country that sort of competes on the global stage, is a very big one indeed.

Distributing the benefits

A final word on estimating the returns (negative or positive) from mega-events: they rarely take into account questions regarding the distribution of development expenditure. The beneficiaries of public subsidies are not likely to remain the same in the presence of a mega-event. The alleged diversion of Rs744cr from a dalit fund to the CWG would suggest a dramatic change in priorities on the part of the government. Are these priorities where we want them to be?

It’s hard to make a convincing case for mega-events to have a long-lasting economic impact. At least South Africa saw an immense pool of goodwill created by the successful hosting of the World Cup, against steep historical odds. The way things are going, Delhiites and Indians will not even have that to fall back on.