World Cup's Economic Impact On South Africa Likely Muted In Short-Term

A report by UBS Investment Research (from February 2010) estimated that preparation for the World Cup – which commenced four years ago – has added between 0.5% and 2.2% to South African GDP (depending on which infrastructure projects one considers); and overall had created in excess of 300,000 jobs since 2006 – a 2.7% contribution to employment figures.

UBS research also indicated that the three previous World Cup hosting-countries saw their GDP grow by 1.8% on average during the year of the tournament – although determining how much of the growth was associated with the tournament itself is very difficult to ascertain and likely falls well below this number.

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As an emerging market, the economic backdrop in South Africa remains fragile and somewhat risky, but filled with great potential.

According to Marie Antelme, an analyst for UBS in Cape Town,
South Africa emerged from recession in the third quarter of 2009; and real GDP growth accelerated to 4.6% in the first quarter of 2010 from 3.2% in the fourth quarter of last year.

“Inflation continues to fall, driven mainly by easing food inflation,” she said. “A widening government primary deficit has put pressure on government debt levels, which are now at about 30% of GDP. This remains low on global comparisons.”

However, unemployment remains high, having climbed to more than 25% in the first quarter of 2010, with over 800,000 jobs lost since the year-ago period.
The country's benchmark Johannesburg Stock Exchange All Share index has fallen just under 1.0% year to date.

While many outsiders associate South Africa with the mining industry, that sector is diminishing in overall importance and presently accounts for only 5% of the economy. Of that portion, South Africa's world famous gold mining operations represent only 2% of total employment.

“South Africa is predominantly a services-driven economy, with 62% of GDP coming from the tertiary sector,” Antelme noted. “The services sector dominates employment, accounting for 60% of total employment – including domestic workers.”

Manufacturing -- largely oil, vehicles and basic metals -- accounts for another 15% of the economy.

With respect to the global financial crisis that ignited in 2008, South Africa's banking system was not heavily affected by the crunch, as existing exchange controls limited both the banks' and households' exposure to international financial markets and loans.

“The banks did, however, aggressively grow their loan books during the 2004-2007 credit boom, and this resulted in a sharp increase in non-performing loans over the past year,” Antleme noted.
As for how some young men playing soccer will affect the nation's economic long-term; the answers may not be readily apparent.