Impact of FIFA World Cup on Economy - Essay Example

Impact of FIFA World Cup on the Economy Contents Contents 2 0 Introduction 3 2.0 Theoretical framework 3 2 Revenue generation 5 2.2 Infrastructure development 5 2.3 Image 6 3.0 Findings 6 3.1 Revenue generation 6 3.2 Infrastructure development 8 3.3 National Image 10 4.0 Conclusion 12 References 13 Nene, N, M. (2010). After the final Reflections on South Africa’s soccer World Cup. OECD Observer. Retrieved on January 8, 2015 from http://www.oecdobserver.org/news/fullstory.php/aid/4181/After_the_final.html#sthash.PmwUEfdK.dpuf 15 Trevisani, P. (2014 September, 29). Brazil Central Bank Slashes 2014 Growth Forecast 16 Concerns About Economy Mount Ahead of Presidential Election. The Wall Street Journal. Retrieved from http://www.wsj.com/articles/brazil-central-bank-slashes-2014-growth-forecast-1412018130#livefyre-comment 16 Impact of FIFA World Cup on Economy 1.0 Introduction This paper offers an evaluation on the impact of the FIFA World Cup on the hosting country’s economy. Last year world Cup was estimated to have added the GDP to Brazil of at least $ 30 billion, and (Baumann, Engelhardt & Matheson (2012), argues that the world cup results in temporary upsurge in real employment, while Pillay & Bass (2008) point out that perhaps they are motivated by the need to reduce poverty. There is a great debate on the real economic potential for the host nation of the FIFA World Cup; critics of its economic potential argue that the 32-day tournament results in costs that outweigh the real economic benefits (Lee & Taylor, 2005). Conversely, proponents point out that the tournament has an impressive quantifiable real economic plus to the economy (Baade, & Matheson, 2004). Obviously, high number of travelling fans contributes to tourism, which will ead to sufficient infrastructures, security as well as the boost of morale brought by the good feeling of hosting the World Cup (Crnelissen, 2014). At the end of 2010 the organization had generated 4.189 billion dollars and addition 3.6 billion dollars from World cup not directly related to world Cup (Federation Internationale de Football Association, 2007). This paper by concentrating on some of the most significant economic aspects that greatly contributes to the growth of a country (Andreff, 2012). The paper further relates these aspects to the World Cup and the impact it has on them. The paper is divided into three sections; theoretical framework, the methodology and the findings of the study. 2.0 Theoretical framework In this section, the paper proposes four major economic indicators, which are used to determine the upturn or downturn of an economy. Further, FIFA’s impact on the economy will be defined from point of view of these indicators. An intricate discussion on the four indicators shall ensue below in this section. A number of macroeconomic models have been proposed to be effective in the study of the real economic benefits of the FIFA World Cup to the host nation economy. Alhert (2001) used the input-output model to forecast the economic plus that could be generated from the 2006 world cup in Germany (Ahlert, 2001). Under this observation, the real economic benefit would be realized as the predicted additional 7300 jobs provided as well as a net gain of $10 billion realized in a four year period from 2006 to 2010 (AECOM, 2009). In determining the economic impact of World Cup to the economy investments made, potential trade returns, employment opportunities and human capital that accrue can be used as standards of measure (Ali-Knight, 2009). What is required of a country, viable of hosting FIFA event, is well stipulated under FIFA terms and conditions (Federation Internationale de Football Association, 2007). It is a fact that countries try to outdo one another when bidding to host this event, and most research attribute the economic profit that shall accrue to be the major motivating factor (Fizel, 2006), and other factors include infrastructure development, nation building, economic gains and national branding. The gross domestic product (GDP) is one of the foremost measures of the economic health of a country, and it represents the total value of goods produced in the country annually or within a specified period. Other economic indicators used in the economy, include inflation rates, consumer price index (CPI), employment growth. CPI measures the retail price level in the economy given a basket of common consumer goods, and it is used to evaluate inflation as well as the currency strength. The third indicator is employment opportunities since they indicate the overall health of a country, through the number of jobs created or destroyed during a specific period in a help in understanding the state of a country’s economy. Additionally, the rate of increase of wages contributes in measuring the inflation levels, and lastly, retail sales indicator is recorded within a certain period (Rodríguez, PKésenne & García, 2006). It shows in general consumer’s spending power as well as the impact of retail shops, and this information specifies consumers spending patterns which in turn are used in adjusting to situations such as seasonal variables accordingly. In summary of the framework, we can say that there are four major indicators of upturn or downturn of any economy to focus on in determining the impact of FIFA events. In the methodology, the paper examines to what extent the above indicators define the economy of a country hosting a FIFA event. In this case, the four indicators are used to evaluate the most common economic target influenced by FIFA. 2.1 Revenue generation Revenue generation is core reason as to why a country would consider hosting FIFA extravaganzas with hope of an economic upturn. Retail sales made during the World Cup that would be obtained from consumer spending records such as international credit card record, provides a way of calculating the revenue generated from the total expenditures. 2.2 Infrastructure development The potential of a country infrastructure development and the rate of developing them depend on human capital (jobs) and the country’s GDP. The number of jobs created in the construction of required infrastructure defines the economy status since people’s purchasing power is empowered. The development plans are also based on the GDP of the entire country at large in relation to the value brought by host FIFA. The paper compares the GDP before the World Cup and after putting into account the cost incurred. 2.3 Image One of the major determinants of consumer spending strength and pattern is image of the hosting country. Retail sales are also achieved in relation to the perception of the consumers to the production and services provided in the country. Factors such as security, religion believes, culture and norms of a country greatly influence the service provision and consumption rates (Shipway & Fyall, 2012). Analyses of these three economic targets are hoped to create a clear picture of the benefits brought by hosting FIFA. 3.0 Findings The estimated economic impact in Germany was estimated at about $ 2 billion dollars, $ 5 billion in South Africa and $ 9 billion in Japan and South Korea (Allmer and Maennig, 2009). The three targets mentioned above are analyzed under this section using the criteria stipulated above. 3.1 Revenue generation Research by different article writers, blog writers, as well as, academic researchers acknowledge that for the hosting nation World Cup is not only a game, but an opportunity to shape their economic position and less of athletic superiority (Szymanski, 2014). The hosting country focuses more on the trade activities (retail sales) that will take place during the World Cup than on winning the tournament (Crnelissen, 2014). For instance the 2014 World Cup in Brazil was referred by most economists to be Brazil’s cash cow (Pflüger, Quitzau & Vöpel, 2014).  The country expected to make at least 70 billion dollars from direct and indirect taxes of all retail sales related to the world cup (Federation Internationale de Football Association, 2007). The tourism sector during the Germany 2006 FIFA World Cup was expected to have an overwhelming rise in numbers during and after the event, consequently would be the sales made (Preuss, 2007). Economists expected more sales based on speculative conclusion influenced by data of other countries that have generated enormous revenue there before (Szymanski, 2003). Good and services provided in sectors such as transport and hotels will increase significantly thus the revenue generated (Siu, 2014). Brazil expected 600,000 tourists that would generate $2.5 billion and additional $3.5 billion if during their stay they decided to visit different parts of the nation (Berg, 2010). The increase in the economy brought about by tourism-related spending is far beyond any upturn as a result of economic recovery on its own (Florek, Breitbarth & Conejo, 2008). Figure 1 trend in purchasing power before and after the world cup. Retrieved from http://usa.visa.com/download/corporate/_media/mega-sporting-events-report.pdf This is also possible by collecting data on how international visa credit card were used during the FIFA event and then comparing it to the data collected during the same period in a different year (Deery & Jago, 2011). This data provides the place, time, amount spent, and product or service acquired. With such information it is easy to compare the expenditures, before, during and after the event. The analysts can further, provide revenue produced from single product. For instance, in South Africa during the 2010 FIFA world cup, an upward trend in use of visa credit card was also recorded (Bohlmann & Van Heerden, 2008). Using this information, the impact on the economy was easily determined. Figure 2: Visa Payment card daily expenditure of international visitors in 2010 and 2009 the same month. Retrieved http://usa.visa.com/download/corporate/_media/mega-sporting-events-report.pdf 3.2 Infrastructure development The major drive of a country deciding to bid for a chance to host FIFA World Cup is the GDP expected by the end of tournament. South Africa after the World Cup in 2010 had its GDP increased by 0.4%, which approximately 4.9 billion (Nene, 2010). Brazil economy was estimated by economists to rise by 0.7% (Trevisani, 2014). According to FIFA (2007), the host countries are required to have no less than 12 modern stadiums with a seating capacity of 40,000 people. One of the stadiums must have a seating capacity of 80,000 or more for the opening occasion and the final games. The government spent about 4.81 dollars on building those stadiums, new airport, roads, hotel spaces, new railway stations, as well as, coming up with for rapid bus transits(FIFA, 2007). In addition to meeting conditions set by FIFA, it is the responsibility of the government to ensure there are sufficient means of transportation, accommodation, security, and at least four means of communication, and as Spaaji and Knijnik (2014), put it, that the World Cup cannot be held in a social vacuum, there is need for prior, present and future plans for all the commodities to be used. Brazil on the other had private sectors expand its airports, roads, railways, hotels. The projects involved the construction of 13 airports, 37 transport facilities, 7ports and 12 stadiums (Kahane & Shmanske, 2012). Infrastructure development can also be measured on some indirect incidences such as job creation and rise of trade union formed by the constructors (Preuss, 2013).  In South Africa the construction of new stadiums and transportation sector generated 1,117,000 formal and informal jobs (Deery & Jago, 2011). South African construction workers also recorded the legacy of the first biggest strike that lead to the construction sector the whole world coming up with global polices (Gaffney, 2014). This also led to the entry of trade union into the construction sector. In South Africa alone 15000 construction workers joined the union (Spaaji and Knijnik, 2014). The paper feels that unions pressured the government to implement the globally agreed policies and standards in the construction sector. Figure 3. Modern Stadium. Adopted from http://www.planetizen.com/node/44124 3.3 National Image Hosting the World Cup plays a big role in transforming the image of a country (Kahane & Shmanske, 2012). A positive image will benefit the country in the future days. People will tend to spend more if they feel safe and feel to make their own choice on the product. Hosting FIFA can also be considered a national branding exercise that marks the nation as a tourist destination (Bauder, 2014). This also increases the country’s popularity globally, making it an attractive tourist destination even after the event. The large number of tourist implies more foreign money spent, and transitively means an impact on the economy at large (Kim, Gursoy & Lee, 2006). Brazil during the World Cup tournament, there were estimates of 3 billion facebook updates and 672 million tweets about the event within that month. During the final match more than 1 billion viewers, with 750,000 people watching the most typical minutes of the game online (Deery & Jago, 2011). The 2010 World Cup the lead to generation of 2.4 billion dollars in the host country and 3.6 billion dollars total revenue from television receipts (ibid). The 2010 World Cup placed South Africa in a much better position in the eyes of the entire world. It is no longer referred as a third world country or the land of racialism and apartheid but the first African country to host FIFA. The element of being the being the first African country to host FIFA attracted about 310,000 international fans that spent 532.94 million dollars in average during their stay (Berger, 2010). Having been in violence and apartheid discrimination for 49 years, the unity portrayed during the World Cup to the whole world, is the best image of a transformed nation South Africa. The opportunity awarded to Brazil to host the World Cup this year opened the inflow millions of tourists into the country. This was mostly as a result of the awareness created and assessment done before, during, and after the tournament. The rich culture of the Brazilian people had never before been exposed this much to the world (Conway, 2014). A lot of information about Brazil was researched and share with the whole world. With the World Cup in mind, all this information was read by a very big fraction of the world’s population. The country earned from the utilization of technology and means of communication. For example, very small number of people knew of a Brazil oldest town built in 17th centenary has been the same ever since. A good image that is made know to the world through hosting a FIFA event will in long term impact on the economy. Additionally, good image also boosts the value of goods produce from that country which may have the price of those things increased, hence earning twice the normal income (Fama, 1970). 4.0 Conclusion This paper has explored the influence of the FIFA World Cup to the economic plus of the host country with a myriad of arguments. FIFA, a mega sporting experience, is no doubt one of the greatest contributors of the hosting country’s economy. This is because, it comes with its unlimited subsidies characterized by overconsumption, surplus employment opportunities, rapid infrastructure development, massive production of goods and services in a very short time. The event provides a platform for execution of investment projects that do necessarily have to be linked directly to the World Cup the country needs them accomplished. For instance, projects such as roads, hotel and services, hospitals, and transportation network. Further, it influences a fast implementation of those projects, acting as a deadline, hence job security and prompt results. It is also important to note the sectors that benefit more when a country hosts FIFA or such related events. They include civil construction sector, food and beverages, tourism and hospitality, general businesses, information service, electricity, gas, sanitation, water and city cleaning. This explains why currently even the developing countries are competing with developed countries for the opportunity of hosting FIFA tournaments. It is therefore; arguably right to say that FIFA brings an economic upturn in countries hosting the world cup. 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