South Africa nets own goal in World Cup ‘rip-off’

By Eddie Cottle, Cape Town, South Africa

ONE YEAR ago, South Africa became the first African country to host the World Cup. There is no disputing that the event itself was a huge success with few technical hitches and little crime against tourists, two key ingredients for the hosting of a world class event. But what were the costs and benefits associated with hosting this great sporting spectacle?

Despite overwhelming evidence provided by the volumes of academic studies on the negative impact of mega-sporting events such as the World Cup, South Africans were sold the converse.

According to the organisers of the World Cup, the government, Fifa and the Local Organising Committee and its praise singers, as well as economic think tanks such as Grant Thornton, there would be a huge injection of finance contributing to increased gross domestic product, massive tax revenue for the state and the creation of thousands of jobs.

These were bald lies, wrapped up in the haze of developmental spin. There was no serious study of the opportunity cost of the investment to be made by the government; the impact on the environment; nor the contribution of the event towards the country’s debt position or the social costs of hosting the event. Like all other bids for megasporting events, the official economic report is kept secret and far from public scrutiny precisely because these reports are so flawed.

In 2003, Grant Thornton estimated that the government’s expenditure on the World Cup would be “minimal”. It would come at a cost of R2.3 billion, but with taxation income from the Cup marked at R7.2bn South Africa would turn a huge profit. The current expenditure figure is estimated at R39.3bn, a whopping 1 709 percent increase on the original estimate.

Even so, we do not as yet have the final tally for the costs of hosting the World Cup and we likely never will.

The Reserve Bank has indicated far higher costs to the state, including through state-owned enterprises spending R129.7bn on capital formation mostly related to the World Cup and incurring a financing deficit of R63bn as a result.

Further, there is now complete silence on the taxation income for the government. The exception is an open admission by the South African Revenue Services (SARS) that the World Cup was never going to be a revenue-raising exercise. layman’s terms it was a huge financial loss. After all, Sepp Blatter’s corrupt Fifa mugged us and walked away with R25bn profit, tax-free, the most money Fifa has made in World Cup history.

One of the key mischievous ways to create general acceptance of the World Cup was through churning out exaggerated figures of job creation. In terms of the World Cup impact on jobs, the figures looked very encouraging.

The number of annual sustained jobs was estimated to be 695 000 in total for both the pre-and post-World Cup periods. Of these, 280 000 annual jobs would be sustained in 2010. What actually happened? In the second quarter of 2010, annual employment decreased by 4.7 percent, or 627 000 jobs. In the construction sector, where one would have thought the good times would be felt by one and all, employment declined by 7.1 percent (54 000 jobs). In fact, year-on-year, 2010 saw 111 000 jobs shed from the construction sector.

Yet, the construction companies, who were involved in bid-rigging, a euphemism for grand theft, had artificially raised the costs of the contracts and thus the public paid more in taxpayers’ money for World Cup projects, including the overpriced white elephant World Cup stadiums. Unlike the unfortunate young man who was sentenced to a five-year jail term for stealing a cellphone from a tourist, the construction directors will not even see the inside of the courts.

The five large JSE-listed heavy construction companies – the “Big Five”: Aveng (owner of GrinakerLTA), Murray & Roberts, Wilson Bayly Holmes-Ovcon (WBHO), Group Five and Basil Read benefiting from the world’s third largest infrastructure programme, posted tremendous pre-tax profits averaging 100 percent between the period of 2004 to 2009. With the concomitant increase in profits we observe an increase in the wage gap between construction CEOs and general construction workers from 166 in 2004 to 285 in 2009. The World Cup most certainly helped to make us a more unequal society.

As if paying for over-inflated costs for the five white elephant stadiums (Peter Mokaba, Mbombela, Moses Mabhida, Cape Town and Nelson Mandela Bay) and related infrastructure was not enough, foreign visitors only spent 16 percent of the total estimated R55.3bn spent on the World Cup including Fifa’s expenses. Not only were South African taxpayers subsidising the tournament at inflated costs, locals were also going on a no-holds-barred, mindless spending spree due to the excitement and patriotic effect of the World Cup. Local and foreign tourists dramatically hiked their credit card spending and thus, the financial services sector, manufacturing and retail sectors were cashing in on the personal debt growth of the World Cup fans as part of a globalised village of capital accumulation, with Fifa’s commercial partners at the centre of that strategy.

At the same time South Africans were being hoodwinked into believing that the benefits of the World Cup would trickle down to a wide range of communities struggling to survive.

Actual effect was accumulation through dispossession as host city by-laws ensured there was no trading near the stadiums and Fifa copyright and agreements remained firmly in the hands of big business. According to StreetNet International, more than 100 000 informal traders were displaced and lost incomes due to the notorious Fifa by-laws. The estimated arrival of some 40 000 sex workers being trafficked into South Africa did not happen, but the World Cup was a difficult time for South Africa’s sex workers and the evidence suggests that they received, on average, less income during the World Cup, but faced an increased level of repression and brutality from members of the police force.

The harshest truth about the World Cup is represented in the colonial-like dispossession of the Matsafeni community in the Mbombela municipality of their 6 000 hectares of land to make way for the Mbombela Stadium at a price of just R1. Later came the assassination of Mbombela council Speaker Jimmy Mohlala, who stood up against the World Cup corruption within the municipality by what is considered to be a political mafia.

The positive legacy of the 2010 World Cup for South Africa’s economic development has been grossly exaggerated. Indeed, a considerable negative impact has been left through higher levels of both public and individual indebtedness, the high opportunity costs associated with the event, the displacement of local spending and the reinforcing of already high social inequalities in income among and within cities.

A few weeks ago, the government declined to bid for the Olympic Games. Given the experience of the World Cup, this was surely a wise decision.

Cottle is editor of South Africa’s World Cup: A Legacy for Whom? to be published by the University of KwaZulu-Natal Press in September, and regional policy and campaign officer for the Building and Wood Workers International, a global trade union federation.