World Cup. World of Problems.

(This special report will appear in the Monday March 31, 2008 edition of the Business Mirror.)

How economically viable is the World Cup for a struggling nation?
by rick olivares

(thanks to my sources in South Africa & Switzerland)

The challenges that Carlos Alberto Parreira faces as he tries to mold a South African team to make a decent showing in the 2010 FIFA World Cup are daunting. And that is an understatement of an understatement.

The former Brasil coach has bemoaned South Africa’s lack of a coherent grassroots program, the lack of unity between the professional league and the national association, and the attitude of players towards playing for flag and country. “I am afraid that unless something drastic happens then all the money coming into the game here will be used ineffectively,” bemoaned Parreira whose contract runs until the culmination of the 2010 World Cup finals.

Were South Africa’s problems confined to its performance on the pitch!

Into the Lion’s den
The BUSINESS MIRROR was able to obtain a report to FIFA about the current state of readiness and progress of the preparations for the South Africa games and in the words of our source who refused to be named, “It doesn’t look good.”

No sooner had Germany turned over the reins of the World Cup to the new host nation when various sectors scored FIFA for awarding the rights to a country that isn’t only ill-prepared to host but can ill afford to spend for the games.

The United Nations classifies South Africa as a middle-income country yet in many respects, it is actually akin to a developing one. Pretoria, Durban, Port Elizabeth, Johannesburg, and Cape Town are as advanced as any of the major Western cities. But outside of that the impoverished conditions – a legacy of apartheid -- will be a glaring sight bound to cause even more problems.

The gap between the income of the minority white household and the average black family is literally heaven and earth – six times more.

The wave of optimism that came with Nelson Mandela’s presidency has long since dissipated. The current political situation inspires no confidence and a feeling of hopelessness, cynicism, and fear. As Thabo Mbeki prepares to step down as president in 2009, the specter of disgraced Deputy President Jacob Zuma assuming the office fills many South Africans with trepidation.

Granted, Mbeki is no Mandela. His style of politics is non-confrontational, but at the same time, he is viewed as indecisive, and some say, rigidly short-sighted. He is regarded as a technocrat whose policies have been controversial and thus, have adversely affected one of the world’s top 20 economies. Mbeki has been roundly scored for his insistence on HIV as not being the cause of AIDS, his appeasement of Zimbabwe’s long-tenured and vilified leader Robert Mugabe, his slow reaction to the worsening crime situation and his coddling of police chief Jackie Selebi, and his anti-Western stance as he openly condemns colonialism as the roots of Africa’s evils.

In a situation eerily reminiscent of the Philippines, immigration specialists report that South Africa’s skilled white middle class and as well as the other ethnic groups previously labeled as “economically disadvantaged” are choosing to emigrate to the United Kingdom, New Zealand, Australia, and Canada.

There was genuine country pride when the nation was awarded the rights to host football’s biggest event. Sadly, it has since evaporated into fear that it might be the worst-managed and hosted international sporting event of modern times and the country will be irreparably shamed.

Opening Pandora’s Box
Consider the cost of the major refurbishing of existing stadia and the new builds that comes at a staggering total of ₤ 805.9. In American dollars? Try $1.6 billion.

Existing venues like Bloemfontein, Pretoria, Ellis Park, Soccer City, and Rustenburg will receive significant upgrades while new ones will go up at Cape Town, Durban, Nelspruit, Port Elizabeth, and Polokwane. Critics have pointed specifically pointed their pens to these as white elephants much like those left in the wake of the Japan and Korea games. South African officials on the other hand hope to use the new structures as venues when they bid to host the 2016 or 2020 Olympics.

With South Africa close to panic mode what will the myriad concerns and problems of hosting the World Cup, what madness, many ask, has afflicted the national leadership to consider hosting the Olympics which is plenty which is dozens of times more an arduous and challenging undertaking?

There is no sophisticated rail and road network in place and the state of public transportation is deplorable. As such it begs the question, how will tourists and football fans get around? Visitors may be conned into thinking the shared taxis are legitimate and safe forms of transportation when they could be prey to but unscrupulous drivers who may be all too willing to take advantage of unwitting fans.

The Gautrain underground rail system only links Pretoria and Johannesburg in Gauteng province, and provides easy access to the country’s main airport, Oliver Tambo International Airport. However, the Gautrain, which was expected to be completed in time for the World Cup, will only be ready in 2011. In the meantime, construction has caused road closures and road diversions, as well as congested traffic conditions particularly in high-density areas like Rosebank and Sandton.

Apart from Oliver Tambo International Airport, Cape Town and Durban have adequate airport facilities for both international and domestic flights. The other airports however are small and provincial. It is doubtful that they have the capacity to accommodate the many local chartered flights expected to fly in and out of the venues as fans travel from one city to another to attend the matches.

There is the option of car rentals for visitors, but this also poses various problems. While the national highway network does boast good roads, local drivers are notorious for speeding, despite strong reminders of zero tolerance for traffic violations. Road-related deaths are unfortunately very common throughout the country, as are hijackings, both at night and in broad daylight.

The government has earmarked another $1.6 billion for the upgrade of the airports and other forms of related development causing local officials to wonder aloud where the money will come from. Cape Town’s Mayor Helen Zille has said that she’d rather see the money go into the development of badly needed community services than a new football stadium.

And there’s the matter of the power outages that have nearly crippled South Africa’s economy. Eskom, the state-owned electricity supplier has been unable to meet the demand for power and recently came under fire for a series of unannounced power outages.

The ongoing power crisis has had consequences on the economy as well as public safety and security.

When Deputy President Phumzile Mlambo-Ngcuka rose to give a speech at Parktown High School for Girls in Johannesburg last 24 January, the unexpected happened – the power went out, and the school was plunged in darkness. Mlambo-Ngcuka had to deliver her speech by candlelight. She took the opportunity to apologize to her audience for the government’s failure to react adequately to the grave power crisis facing the country at present.

While the stadium may be fully lit, the situation in the streets is different. Many of them are poorly lit. In Johannesburg alone, the suburbs of Parkview, Rosebank, Craighall and Parkwood continue to be plagued by darkness because street lights have been left unattended for years. Even equipment to test for cable faults on the underground cables linking the street lights are broken, and have not been repaired or replaced since. Based on the government’s timetable to service the entire South Africa’s power needs it will be 2017. Seven years too late. Some have even wondered if its best that matches be played in the afternoon under the searing heat.

Power might be one of South Africa’s most pressing concerns but right behind it is their dwindling potable water supply. There have been reports of water supply being cut off to certain towns in the Free State (Bloemfontein) for as much as five days and the quality of drinking water receiving a code red classification, which was cause for alarm.

And there’s the matter of broadcasting the games to a world-wide audience. The South African Chief Executive of energy efficiency consulting company Sentech Sebiletso Mokone-Matabane says a multibillion dollar investment in the country’s 30-year old broadcasting transmission is needed to properly serve a worldwide television audience.

Of paramount concern is the matter of crime. South Africa has one of the highest crime rates in the world. Some 50 homicides are reported everyday – seven times higher than that of the United States. Tourists are sometimes robbed upon their exit from the airport or in broad daylight while riding taxi cabs.

The murder of former Salzburg goalkeeper Peter Burgstaller on a Durban golf course as well as the theft of the briefcase of Germany Manager Oliver Bierhoff from his hotel room still stand out as examples of crimes in supposedly safe confines. While FIFA has tried to distance themselves from both incidents, it should be noted that both Burgstaller and Bierhoff were in South Africa on the World Cup Draw business.

To ensure the security of the games, South African Finance Minister Trevor Manuel said that the government will release $80 million to equip and pay some 31,000 police personnel who are being assigned specifically to the games. The ironic thing there is by the government’s own admission there isn’t enough security for the locals then what more for the tourists?

King Solomon’s mines
The Olympics and the World Cup are undoubtedly catalysts for development as they bring in a windfall of publicity and cash for the local economy. And if hugely successful it bolsters national confidence. But at what price?

There are three million tickets available for 64 games for the 2010 World Cup. That’s one million for local fans, another million for international fans, and the remaining third for FIFA officials, players, families, and corporate sponsors. If the cheapest game ticket costs $150 and there are two million available for sale, then at the very least that should gross $300,000,000.

For the Germany games, 15 official partners and local sponsors paid €642 million. That’s $1 trillion-something.

For South Africa (and Brasil in 2014) the number has been cut to six yet a 25% profit increase is expected. Visa paid $200 million, adidas $350 million, Sony $305 million, Emirates $195 million, Coca Cola $500 million all the way to 2020, and although Hyundai declined to say how much it paid, estimates placed it at $250 million. That’s roughly $ 1.3 billion just for South Africa. In addition there will also be eight World Cup sponsors and four to six national sponsors. Entry level sponsorship is likely to be around $40 million Add the ticket sales that fetches now $1.6 billion. Wait we haven’t even counted television and cable rights.

No wonder building a new headquarters for the South African Football Association was paid for by FIFA. Whatever that amount costs is chump change, bru!

“The market trusts Africa,” glowed FIFA President Sepp Blatter who promised the next football finals on African soil for the first time should he be re-elected. "The contracts we have already signed for 2010 are higher than the contracts for 2006 in Germany by about 25%."

But does South Africa stand to make a tidy profit from all these sponsorships, local tourism, and ticket sales? In a perfect world, the answer will be a resounding yes. As it is, South Africa’s situation is grossly imperfect.

There’s an ongoing debate here – should these huge events be awarded to developing countries or should they be the exclusive domain of the rich nations?

When FIFA awarded to South Africa the opportunity to host the 2010 World Cup (and Brasil, another country mired in debt and poverty secured the rights to the 2014 football finals) quite a few quarters scored the lack of preparedness and capabilities of developing nations to host the quadrennial event. It sounds good initially because it gives South Africa a chance to capitalize on the games’ high profile and the available financial opportunities as tournament organizer Danny Jordaan likes to point out. But this is South Africa where public transportation, hotels, and security are a nightmare. Local businesses are worried about the stiff licensing fees that FIFA will levy on them making it somewhat impossible to recoup investments.

Right now the South African government is footing the bill for the creation of stadia that will seat the FIFA mandated 50,000 people per game. You can be sure people will watch, but what’s left afterwards? New arenas for white elephants. The domestic football league is a joke as for supposedly the richest nation in Africa, they lag far behind their neighbors in skill and game despite being ranked #71 in the world by FIFA. As a result, many of the country’s top players choose to ply their trade abroad where it is more lucrative.

So saying that Parreira and Jordaan have their work cut out for them is an understatement of an understatement.

A high-level diplomat speaking under anonymity made the following observation: “The World Cup will push through, that seems to be the conventional wisdom going around. However, South Africa will manage to host the games through the skin of their teeth; in other words, they will wing it and just cut it. They will pull together at the last minute and make it happen. However, instead of giving 100 per cent effort, they will only be giving 70 per cent, because of poor planning, lack of initiative, and general complacency.”

But Blatter ever the fount of optimism declared that “This will be the greatest games ever.”

Let’s hope it is for South Africa’s sake because it already comes at a heavy price.