The Economics of World Cup 2014, and Lessons for Qatar

The Economics of World Cup 2014

  • The month long football bonanza in Brazil is now over, and fans and administrators worldwide have now their eyes set on the next two versions in Russia (2018) and Qatar (2022). While Germany have stamped their authority on-filed, we analyze the off-field economics and events to see what the future hosts can learn from the Brazil experience.
  • The key learnings from Brazil include moderate expectations on investment, higher knowledge and skill transfer, increased tourism, importance of the climate control technology, among others.
  • However, Qatar also faces unique challenges in the form of corruption charges related to the World Cup 2022 bid, and reports of  inhumane working and living conditions for thousands of expat workers involved in the infrastructure development activities in the country.

The month long football bonanza in Brazil is now over, and fans and administrators worldwide have now their eyes set on the next two versions in Russia (2018) and Qatar (2022). While Germany have stamped their authority on-filed, we analyze the off-field economics and events to see what the future hosts can learn from the Brazil experience. 

How much did Brazil spend to prepare itself for FIFA 2014?

The Brazilian government is estimated to have spent $11 billion on stadium and infrastructure development, in addition to another $2 billion spent on security arrangements.

Now that number may seem a huge jump from the $2.3 billion spent by South Africa in 2010, but it pales in comparison to the whopping $200 billion that Qatar plans to spend on infrastructure development in the run-up to FIFA 2022 World Cup. Now, not all of this amount will be spent on direct World Cup infrastructure like stadiums, as a large part (~85%) will be spent on additional infrastructure required (new airport, a new seaport, a rail and metro system, etc.) to make the nation ready for the expected influx of international tourists and create a global brand for Qatar.

Infrastructure Spend by Host Nations on FIFA World Cup Preparations

The Economics of World Cup 2014-1

 Source: Arab Business Review Research

Now that we know the amount invested, let’s look at who earned what from the FIFA 2014 World Cup

Well, on-field, it’s safe to say that Brazil did not earn anything more than anguish and disappointment. The story off the field is not much different, though not as disappointing as the performance on the pitch.

Brazilian government claims that the 2014 World Cup has added $15 billion to the economy and created a one million jobs. However, $15 billion is less than 1% of Brazil’s $2.2 trillion GDP, and seems an inadequate return on time and investment spent by a nation battling low growth and high inflation. Further, most of the one million jobs created are temporary (infrastructure, tourism, etc.), and are unlikely to be sustained once the festivities are over.

The impact on the tourism industry is unclear and is a matter of debate. The government claims that 1 million foreign tourists visited Brazil during the World Cup, beating expectations of 600,000 international visitors. In addition, 3 million Brazilian nationals traveled around the country (slightly lower than the expected 3.1 million). Combined, these are expected to have added $3 billion to Brazil’s economy. However, as per the Wall Street Journal and Brazilian Airline Association, total air travel in Brazil is estimated to have declined by 11-15% during the World Cup, and domestic tourism went down by 35-40% in June and July as compared to last year.

FIFA, on the other hand, is estimated to have earned $4 billion in revenues from marketing rights, television broadcasting rights, and other sources like sales of sport merchandise. The profit earned by FIFA is expected to be $2.6 billion, up from $2.3 billion in South Africa 2010.

Profit Made by FIFA in Various World Cup Editions

The Economics of World Cup 2014-2Source: Arab Business Review Research, Visual Capitalist

So what can Qatar learn from Brazil 2014?

Qatar and Brazil are culturally, economically, and geographically different, but some of the learnings from the Brazil experience are still relevant for Qatar. We discuss these below.

  1. The return on investment will be low and slow. Qatar has the world’s highest per capita income, and money is not a big concern, but with $200 billion being invested, return considerations will be high. However, as shown by the case of Brazil and other host countries, the return on investment on hosting large sporting events like Olympics and the football World Cup is always very low, and expenditure usually exceeds the initially planned amount. Qatari’s and the Qatar government – most notably the Supreme Committee for Delivery and Legacy (SCDL)that is planning the 2022 event – will need to be mindful of this fact, and have moderate return expectations. Long-term infrastructure development will perhaps be the biggest positive to emerge out of this exercise.
  2. Intangible returns (knowledge transfer, global brand building) will be higher, and will drive economic diversification and help build a stronger non-hydrocarbon economy. Like all its GCC peers, Qatar has also been trying to reduce its dependence on oil and gas revenues and build  stronger services sector, and the social and physical infrastructure development efforts will further this cause. The knowledge gain and transfer in the field of infrastructure-related technological issues and in the field of hospitality/tourism, will enhance the overall skill levels in the nation. Also, the 2022 event will be used by the Qatari authorities to enhance the brand value of the nation in the eyes of investors, tourists, sporting bodies, and among other nations worldwide.
  3. Tourism will be boosted; however, Qatari’s will need to go the extra mile and break cultural barriers to make foreign nationals feel at home. An influx of tourists can be expected during the World Cup period. However, sustenance of tourist volume post the World Cup will depend on how the foreign nationals are treated during their stay. Unlike Brazilian nationals, Qatari’s are not known to mingle with tourists and foreign nationals, and it will require conscious effort on part of the people to break down cultural barriers and extend hospitality beyond the grandiose of their larger-than-life hotels.  This point also assumes higher importance in light of the fact that Qatar currently doesn’t have an international tourist destination like Rio de Janeiro.
  4. Climate control technology will be critical. The second half of the Brazil World Cup saw players battling with heat, which has led to increased concerns about hosting the 2022 edition in Qatar, where temperature can cross 50 degrees Celsius during summer months. While moving the tournament to winters is one option, SCDL’s promise to develop carbon-neutral cooling technology for the venues, training pitches and fan zones will be critical.
  5. Security arrangements will need to be world class, as in Brazil. Another area where Brazil came out on tops. Despite the poor performance of the host nation in the semi-finals, there were no untoward incidents and the cup was by-and-large peaceful. Qatar will need to ensure that security arrangements are similar or of higher standards, and emotions emanating from on-field performance don’t have any impact on the streets.
  6. Project delays must be avoided. This is perhaps the one area where Brazil didn’t measure up to expectations, as some stadiums weren’t completed until a few days before the kick-off. Now some of this delay was due to protest by Brazilian nationals over the extravagant expenditure on preparations, but most of it can be attributed to poor planning and execution, an area which SCDL should start monitoring right away. 

In addition, Qatar 2022 faces some unique challenges as well.

The above learnings were based on the Brazil experience. However, Qatar 2022 also faces additional challenges, which are specific to Qatar.

  1. Charges of corruption could result in bid-loss and will have serious financial implications. Charges of corruption related to World Cup bid have surfaced, and could result in Qatar losing the right to host the 2022 edition.  Apart from the huge damage to Qatar’s credibility, this will negatively impact the $16 billion currently earmarked for development of 12 new state of the art football stadiums, and will also delay other infrastructure development efforts, which are currently being expedited to get Qatar in shape by 2022.
  2. Human rights issues related to poor working conditions need to be addressed immediately. Qatar’s workforce, especially workers in the construction sector, is made up of expats from Nepal, India, and other Asian countries. However, as per a report by the International Trade Union Confederation, more than 1,200 such workers have lost their lives due to inhumane working and living conditions. The report goes on to say that while the influx of such workers will increase as infrastructure developments gathers pace; however, continuing poor working conditions could result in a loss of more than 4,000 lives through 2022. This issue is gathering steam in the global human rights circle, and Qatar will need to fix this situation soon to protect its workers and brand.

It is important that the Supreme Committee for Delivery and Legacy (SCDL) in Qatar takes cognizance of the above learnings and challenges, and addresses them promptly as the nation prepares to host the beautiful game in the magnificent stadiums currently being designed by leading architects like Zaha Hadid.

Design of one of the New Football Stadiums in Qatar

The Economics of World Cup 2014-3

 Source: Dezeen, Zaha Hadid Architects

The article was originally published at: Arab Business Review

To read more thought-leadership stuff by leaders from Arab Region, please visit Arab Business Review

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