South Africa Takes Aim at Both Short and Long-Term Goals with World Cup Bid

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Not everyone cheered when South Africa was awarded the 2010 World Cup. Skeptics cited security concerns and poor infrastructure as potential pitfalls for the young democracy.

But now a month before kickoff, South Africa is set to silence its critics. The country has put the requisite work into launching the event and is poised to deliver on one of the world's grandest stages.

Just as the 2008 Olympics in Beijing shone a spotlight on China, this event will serve as a vibrant demonstration that South Africa, more than any other African nation, has arrived.

"Some people were saying it was a stupid decision to organize the World Cup in South Africa," Jerome Valcke, secretary-general of FIFA, told the Financial Times. "We will show the world that it was the right decision to organize the World Cup in South Africa and South Africa was able to provide, not only to FIFA but the world, with the best organization possible."

Better, even, than Germany provided as host in 2006, he claims. That's setting the bar awfully high, considering the 2006 World Cup was a resounding success.

That event drew more than 2 million visitors, earning the tourism industry close to $400 million in revenue and generating some $2.7 billion in retail sales. However, Germany had the advantage of being within driving distance for roughly half of the participating teams' fan bases.

Convincing soccer fans to board a plane to Africa is more of a challenge, but despite some early reluctance ticket sales and flight bookings have accelerated. Almost 95% of the 2.8 million tickets have already been sold out.

Many of those tickets (about 130,000) ended up going to Americans who wasted no time making their purchases and scheduling their flights. In fact, FIFA even leaned on Emirates airlines, one of the event's sponsors, to slash the price of its New York-Johannesburg roundtrip flights to $2,000 from $3,000 to take advantage of soccer's growing popularity in the States.

That's good news for South Africa, which has poured $4.6 billion into the event hoping it will catapult the country, and the continent, to a higher global standing.

"We have said continuously that this is an African World Cup," South African President Jacob Zuma told parliament last week. "We have an opportunity to promote foreign investment, tourism and trade."

South Africa spent a total of $3.7 billion on infrastructure improvements, including a new international airport in Durban and a high-speed train between the Johannesburg airport and the city center, the Miami Herald reported.

Five stadiums were refurbished and five more were built to accommodate the matches. Some $1 million has gone towards replacing old taxis with new ones. And $135 million was spent on security.

"The most significant issues people were concerned with were security and infrastructure - how ready the country will be," Kurian Thomas, Grail's managing director of the Middle East and Africa, told The Herald. "Those concerns definitely diminished some from last March to this March. South Africa has met its targets as far as infrastructure and construction, and their efforts in regards to security also seemed to have helped improve their image. Ultimately, the proof is in the pudding, but all indications are that concerns are decreasing as the Cup gets closer."

FIFA, which invested $1.2 billion in the tournament, - including some $700 million spent in South Africa - says it expects $3.3 billion in revenue from the event. Roughly half of that will go to development programs and financial assistance to national associations, leaving the group with about a $1 billion surplus.

Analysts estimate that the World Cup will rake in $2 billion for South Africa's tourism industry, and $1.1 billion for retailers. But the real hope is for longer lasting effects to emerge.

"We all need to grab this opportunity to show our visitors what South Africa is all about. We need to work together with creative insight and energy after the World Cup to maintain arrivals to South Africa," Thandiwe January McLean, CEO of South African Tourism told the Economic Times. "This World Cup offers our industry and nation a rich legacy. We should not see World Cup as one event that solves all economic issues, but rather an opportunity to refine the way we do things and create a legacy for the future."

Nearly 30 billion people worldwide are expected to watch the World Cup, with more than 18,000 different media companies reporting on the event. That's in addition to the 500,000 foreign visitors expected to be on hand.

"The evidence from previous host countries - such as Argentina - suggests that all the publicity should add at least 10% to tourist arrivals over the next 10 years," Richard Middleton, a portfolio manager at STANLIB, the Johannesburg-based asset management operation of the Standard Bank of South Africa, wrote in Forbes.

The short-term boost to retail and tourism will be "substantial and timely" as South Africa emerges from its first recession in 17 years, said Middleton. However, those benefits will be overshadowed by the "the longer-term structural benefits of hosting the World Cup."

"The championship has telescoped into five-year projects that might otherwise have taken two decades to complete," he said.

Middleton noted that his company - Standard Bank's South Africa Equity Fund - has its principal exposure in the South African Tourism sector through City Lodge Hotels, a budget operator with outlets across the country, and lower cost retailers Massmart Holdings Ltd. and Mr. Price Group Ltd.

South Africa As A Business Destination

There's also the potential the World Cup will bring more foreign businesses to South Africa.

President Zuma is set to visit India just before the World Cup to invite investors to the event. Already, more than 100 Indian companies, including Tata Motors Ltd. (NYSE ADR: TTM) and Mahindra and Mahindra Ltd., have displayed interest in doing business in the African country.

India's trade with Africa soared to more than $30 billion in 2008 from just $967 million in 1991. And it could reach $70 billion in the next five years. Sudan and Mauritius are among the top five investment destinations for India, with both accounting for about 18% of India's foreign direct investment (FDI) flow.

South Africa also will be courting Chinese interests. The China Africa Development Fund and Jidong Development Group earlier this month agreed to build a new cement plant worth at least $220 million. The two Chinese entities will team with Continental Cement and Women Investment Portfolio Holdings, a South African company dedicated to empowering black women, to build the new plant in the Gauteng province outside of Johannesburg.

The cement plant is in part aimed at making up a shortfall of domestic products that have been drained by World Cup preparations. It is also a symbol of growing economic ties between African countries and China.

Chinese carmaker FAW Car Co. Ltd. last month announced a $100 million investment in South Africa and the Commercial Bank of China in 2007 invested $5.5 billion in Standard Bank.

China last year surpassed the United States and Germany as South Africa's largest trading partner, in part because of its ravenous appetite for diamonds.  Diamond sales in China rose 16.9% to $1.5 billion in 2009.  South Africa-based De Beers Group's diamond sales in China quintupled to 2.3 million stones.

Total trade value between China and South Africa was $14.29 billion in 2009 - down 1.19% from 2008, according to statistics recently released by South Africa Customs. Those statistics also showed that trade value between South Africa and Germany fell 27.88% year-over-year, and trade with the United States fell 34.8% from 2008.
However, China is most interested in Africa's oil resources, such as those found in Nigeria, Sudan, and Uganda. About 13% of Africa's total oil exports go to China.

Just last week, China State Construction Engineering Corporation Limited (CSCEC) signed a $23 billion oil deal to build three oil refineries in Nigeria.

Nigeria, which is competing at the World Cup, plans to open an exhibition on the sidelines of the tournament to promote investment in the oil-rich nation.

"We wish to showcase Nigeria and its enormous potentials via a Nigeria village at the World Cup," Sani Lulu, head of the Nigeria Football Federation, told AFP.


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