Thomas White Global Investing
South Africa
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January 15, 2010
A Postcard from Africa
South Africa: Spinning Economic Dreams on a World Cup

World Cup South Africa

The 2010 World Cup is being held in Africa for the first time in the tournament’s history.

It’s one of the biggest tournaments in the world. A soccer extravaganza that often matches or even exceeds the Olympics spectacle. When South Africa kicks off the 2010 FIFA World Cup in Johannesburg in June, it will mark the beginning of what will undoubtedly be an exciting and frenzied soccer tournament. But for the Rainbow Nation, it will bring to the test its long-held belief that the World Cup will promote the country’s economic growth.

South African President Jacob Zuma has been cautious about the country’s economic progress this year, warning that a recovery from recession may be slow. But like most South Africans, he also understands that one of the potential economic money spinners could be this year’s World Cup. “It must contribute to long-term economic growth and the creation of decent jobs,” he said, referring to the World Cup as the “greatest marketing opportunity of our time,” in a New Year’s message to the nation. Brand South Africa certainly needs the boost. The country’s economy shrank around 1.9% last year, but is expected to grow a mere 1.5% this year, according to the National Treasury.

There are various sectors that could gain from this World Cup. Tourism is of course, the most obvious industry likely to profit as an estimated three million soccer fans will throng to the African continent for this once-in-four-years sports pilgrimage. The country’s construction industry is another sector that has already benefited, aided by a sizable government investment in stadium construction and renovation, upgrades to airports, and improvements to the country’s road and rail network. South Africa has also faced problems in electricity supply over the past year and more –and providing power supply to all the stadiums would be a drag on its resources. In Cape Town, a new electrical substation is being constructed and state energy company Eskom is spending billions towards a new generation of power stations.

Housing prices have only recently started to recover, but property remains still a worrisome asset class for investors scarred by the recent recessionary plunge in prices, and it remains doubtful if visitors would also become impulsive home buyers. Recent estimates by Grant Thorn, an auditing firm, point towards an injection of $7.4 billion into the South African economy, with an addition of around 415,000 jobs. Add to that spending by soccer fans on tickets, accommodation, and memorabilia, and South Africans feel they have a winning Cup already. Apart from that, the government is hoping to rake in around $2.6 billion in tax revenue. Are these expectations too much? Germany, the previous host of the FIFA World Cup in 2006, failed to realize any major economic miracle, apart from an immediate spurt for the tourism and retail sectors. This was especially true considering that two years later, in 2008, the global economy came tumbling down along with Lehmann Brothers.

That hasn’t stopped South Africa from hoping though. “2010 is our next critical moment,” proclaimed Zuma, urging the nation to make this ‘one of the most successful projects’ ever. Indeed, not only is it a critical and crucial year for South Africa, millions of hopes, millions of dollars, and a lot more rest on a simple football.

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