"FIFA World Cup" 
Economic Impacts in Developing Countries
Introduction
Hosting mega events has traditionally been a privilege for developed nations ,  but since 2008 developing countries have successfully obtained the right to host such events. For example, China hosted the 2008 Summer Olympics, India the 2010 Commonwealth Games, South Africa the 2010 World Cup, Russia the 2014 Winter Olympics and Brazil the 2014 World Cup. In addition, Brazil hosted the 2016 Summer Olympics, Russia is now hosting the 2018 FIFA World Cup and Qatar will host the 2022 FIFA World Cup. Although this seems to be a positive step for the developing nations, there are speculations concerning the real benefits and costs  incurred by these games and this will be shown in this report.
Question 1: Why do countries compete to host the FIFA World Cup and other sporting events?


Question 2: Brazil 2014 FIFA World Cup case study: Economic impacts, infrastructure and tourism

When Brazil was confirmed as a host in 2007, the economy was performing satisfactorily. The real GDP growth was 6.1% and inflation averaged about 3.6%. A year later, the country's economy was affected by the 2008 financial crisis. The government expenditures continued to rise and so did the inflation. By 2014, the Brazilians became furious with the costs incurred by the World Cup. Even with the high expenditure the event generated and the negative opinion from the population, the government believes the 2014 World Cup was a success.
Economic Impact
  • The Brazilian government spent more than 11 BN USD for the World Cup, while the revenues secured by FIFA were 4.65 BN USD. It was expected that the World Cup would inject 13.43 BN USD into the Brazilian economy. It was also estimated that the World Cup would create close to 1 million jobs; 50,000 of which actually contributed into the tourism workforce.
  • Hosting the World Cup was essential to put the country on the international spot. Between 2003 and 2013, Brazil jumped 10 positions from 19th to 9th in the ranking of the International Congress and Convention Association (ICCA). The total number of events held in Brazil increased from 62 to 315 during that period, the result of a decentralization policy adopted to attract international events.

Infrastructure Impact
  • According to FIFA, hosting country needs to provide either eight, ten or twelve stadiums. Despite the tremendous costs, Brazil chose to have twelve stadiums as it is the country of football. The choices for the host cities were also debatable. For example, Brasilia, the country's capital, reconstructed its stadium and increased its capacity to 71,000 people. Despite the incurred costs, the stadium was most likely to be underused.
  • Regarding the airports, only 10 out of 26 of the constructions were completed, there were still airports under construction. As for the transportation infrastructure projects, most of them were delayed. From the 34 proposals, 20 of them did not even have 50%of its expenses paid for.
  • It is important to also notice that in most of host cities, the area where the stadium is located is already considered to be safe and well developed. In other words, the investments were not efficiently allocated.

Tourism Impact
  • Brazil was expecting to welcome around 600,000 foreign visitors. Preliminary data shows that 484,483 foreign tourists entered the country between June 1 and 20, which represents 121%increase comparing to the first 20 days of May. This number also reflects an increase of 42% compared to June 2012. The Central Bank estimated that those tourists spent 365 MM USD. Also on the positive side, the hotel sector in the 12 host cities witnessed an increase of 45% on the expected occupancy rate for the first week of the World Cup.
  • The revenue generated through tourism represented only 2.5% of the 11 BN USD invested by the government. Brazil forecasted that it might receive more international tourists in the next few years, but the return on tourism investment was low, specially gains from tourism were only in the three years immediately after the event.

 
Question 3: What are the costs for hosting the World Cup? (Russia 2018 Case)
Usually, the host country for the World Cup incurs enormous costs for the arrangements of such a huge, international event. However, the current tournament held in Russia is the most expensive one in the entire history of the competition with a cost of 13 BN USD , followed by Brazil with a total spending of 11 BN USD then comes south Africa with 3.9 BN USD spent as the least among the group.

Thus, there are several questions that arise while observing such figures: why did the World Cup set up in Russia required such an amount? is it because football has an underdeveloped infrastructure in Russia or is it an attempt to improve the investment appeal?
  • The Russia hosting cost was allocated at 4.1 BN USD for construction of sport facilities, 6.8 BN USD for transport improvement and 2.1 BN USD channeled towards support activities. These amounts were covered as 30%from private investors and 70% from the various levels of public budget.
  • The cost structure proves that the preparation of the 2018 World Cup was more about enhancing the transportation infrastructure in Russia than upgrading sport facilities.
 
Question 4: Russian Economy in 2018: Will it score a goal?

World Cup 2018 in Russia is expected to bring around 500,000 visitors to Russia from all around the world where each visitor is expected to spend between 5,000 and 8,000 USD with the majority spent directed towards restaurants and retailers. It is estimated that tourism revenues are boosted usually within 2 years from the event, similar to Brazil case. This phenomena is historically related to the positive impact on the country's reputation and tourism attractiveness.

Despite all the costs incurred by Russia to get ready for such major event, the macroeconomic indicators are expected to experience a slight boom within the next two years:
  • Effect on GDP: An expected cash inflow from 2.5 BN USD to 4 BN USD coming from the championship travelers will increase internal consumption leading to around 0.2% increase in the GDP.
  • Effect on inflation: The inflow of foreign currency and the increased demand for consumption are expected to heat up prices; however, it was argued that this effect is temporary and that inflation will remain below the Russian Federation Central Bank rate of 4%.
  • Effect on employment: It is expected that the World Cup in Russia will provide 220,000 new job, specially in the transport, trade and service sectors.
Tourism Revenues (%)


The Opposite Side

Although hosting the World Cup event is seen to be worth competing for, the Russian economy may face major drawbacks:

Question 5: What is the impact of 2018 World Cup on Russia balance of payments and local currency?

Russia Balance of Payment (BoP)

A moderate positive impact is expected on the Russian balance of payments ( BoP ):
  • The overall cash inflow from Championship-related travelers may directly increase the internal consumption with an amount reaching 2.5 BN USD to 4 BN USD.
  • As observed from the graph below, Q3 of each year is experiencing a significant decrease in netcash flow reaching a deficit of almost 3 BN USD in 2017. The reasons behind this decline are the lower oil and gas exports and the higher tourism flows from Russia. Thus, this is expected to extend for this year due to the ongoing salary growth (6.2% y-o-y in early 2018) along with the relatively stable ruble resulting active travelling.
  • The 2018 World Cup will help slightly seasonal fluctuations rather than completely erase them, helping to avoid significant current account deficit in Q3-2018 without guaranteeing significant surplus.

Russia Local Currency

Although hosting the World Cup event is seen to be worth competing for, the Russian economy may face major drawbacks:  h compe
  • From the experiences of previous World Cups, it is suggested that host countries' currencies tend to appreciate during the event but the magnitude of the movement is quite moderate. When the currency of the host country is compared to the day at which the World Cup starts (0), there is a strong evidence that it will appreciate on average by 3%. Based on this historical trend, it is expected that it will apply similarly on the current host Russia.
  • However, as we observed Russia economic situation before the World Cup and its weak current account, the expectations might change. Russia local currency, the ruble was expected to depreciate around 65 per dollar during this period. But the 2018 World Cup will nearly offset the weakening of the ruble by having a positive effect on the local FX market (appreciation on average by 3%).
Conclusion
As shown in the report, Russia  spent a lot on specialized sports infrastructure and on operations for the event but the World Cup is not yet able  to generate enough financial gains specially that the increase in tourism will be realized only for the following three years which will not be a sustainable impact . Probably the most significant impact on a developing country is the opportunity cost  related to the World Cup. The investments incurred in sport infrastructure are always huge, and it could have been invested in education or health which need significant improvement. In general, the World Cup can bring benefits to a developing country, especially in terms of speeding investments and project management know-how for the government. On the other hand, the realized benefits are not sustainable specially in cases of corrupt and inefficient governments.
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