WHY THE WORLD CUP DIDN'T MAKE SA R93BN RICHER

by Terry Bell

The recent claim by government that R93 billion was “pumped into the domestic economy” was probably correct — and downright misleading. The implication was that the country is now R93 billion richer. It is not. Far from it.

This proclaimed boost to the economy is an estimate of the total amount spent on mounting the World Cup. Some of this was in infrastructure upgrades that were essential and would, in any event, have been necessary; at least a third of the amount is accounted for by the cost of building new stadiums and in stadium upgrades, something that is highly controversial in the sense of necessity or future viability.

But in proclaiming this expenditure as a massive boost to the national economy, the government was merely following the standard — and frankly crazy — method of relating economic growth to both income and expenditure. As a result, for example, an increase in insurance company revenues — the consequence of a rise in the levels of crime — counts on the credit side of the economic growth balance sheet. Crime should, therefore, be listed as a significant contributor to our modern concept of economic growth.

So, if economic growth is inherently good, should we not be encouraging crime, at least of the non-violent variety?

But then, increased retail purchases, often on credit and for goods imported from abroad, also go down to boost the positive side of the balance sheet. So, when deeply indebted individuals and households get deeper into debt, that too counts as a positive. At least until the debts can no longer be serviced. At which point they become “bad” or, to the banks and institutions owed the money, “toxic assets”.

It is against this background that the upbeat statements about the “R93 billion World Cup injection” to the economy must be judged. It was, in the words of trade unionist Lesiba Seshoka, a case of “taking most of the family budget and blowing it on one big party”.

That the party was enjoyable and widely enjoyed, there is no doubt or quibble. There is also no doubt that it helped to change media perceptions about South Africa, especially in countries such as Britain. At this level, the staging of the World Cup was a successful — if very expensive — branding exercise.

But such branding, we have also been assured, results in indirect benefits such as greater numbers of tourists in future, and greater levels of foreign investment. In fact, within days of the final World Cup game, it was proudly broadcast that there had been a surge of interest in foreign buying on the Johannesburg Securities Exchange (JSE).

This was along the same lines as the massive fanfare that accompanied the R30 billion “investment” by British-based Barclays Bank when it bought a majority stake in Absa in 2005. This was hailed as another “boost” to the economy and few commentators mentioned that all it amounted to was the purchase of a going — and highly profitable — concern; that dividend payments flowing out of the country over the following decade, would probably amount more than the purchase price, with Barclays still in control of Absa.

Equity investment, the purchase of shares on the JSE, is not investment in the sense that most people on the ground understand it to be. It is not a commitment to build something new, to create jobs and products: it is a gamble on future profits from existing enterprises — and the stakes can be withdrawn at the touch of a computer keyboard. This is money effectively on loan — provided it guarantees suitably large payments in dividends that actually add to the outflow of wealth.

If we get back to basics, we could perhaps take the example of Mr. Micawber, in Charles Dickens' David Copperfield. He famously noted: “Annual income twenty pounds, annual expenditure nineteen nineteen six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

Not that this latest bout of big spending has depleted the nation’s coffers. Rather it is a matter, summed up by the aphorism: Robbing Peter to pay Paul. In other words, paying hefty sums — including an estimated R25 billion to the Fifa party planner — when the money may have been better spent in providing desperately needed services to an increasingly impatient majority.

But, as the government has already pointed out, it did not have to borrow in order to pay for the World Cup. True. However, it is admitted that the tax base in the country has diminished, courtesy of growing unemployment. And this month it was announced that there had been a record surge in the number of households unable to service their debts. All of this at a time when the world — to quote the Nobel laureate economist, Paul Krugman — is probably on the brink of the third economic depression in history.

With a reduced tax base, insufficient funds to meet the ambitious promised infrastructure rollout, together with commitments to social welfare payments, government will have to borrow unless massive largesse, in the form of bricks and mortar investment, floods in. In the present, global, circumstances, this seems extremely unlikely.

So, rather than building up hopes for a better life for all over the next few years, perhaps it is advisable to plan for how to deal with demands for a bout of serious belt-tightening.