Public spending and the goals of the World Cup
Local government used to buzz with the term “unfunded mandate” (especially in relation to provincial functions such as health or housing that local government, especially in cities, started to take on).
But perhaps the most serious current example is the 2010 World Cup, where local government is embroiled in an area in which, arguably, it ultimately has very little business, especially given pressing basic infrastructure needs.
At the inauspicious time of SA’s embarrassing Olympic performance, the national government has made it clear that local government will shoulder the costs of expenditure overruns for 2010 infrastructure. These overruns are estimated to represent a further 20% above the substantial original budgets, with cities blamed for planning unnecessary “bells and whistles” that have escalated costs. A case of unnecessary outlays is evident in the steel roof that is being constructed in Kuwait for Nelson Mandela municipality, which will need to be shipped out to SA — clearly not the sort of job-creating project that was in mind to create local economic spin-offs.
While it is entirely reasonable for national policy makers to make clear that there will not be any bale-outs for unreasonable expenditure (and soccer stadiums are often a particular temptation to politicians), what does this mean for local residents and ratepayers?
While preparations for the World Cup are said to be on schedule for December next year, according to recent government report-backs, this has been at a cost. Overruns are estimated to be at least R2bn (over and above the R28bn provision for new stadiums and refurbishments, as well as related projects, with R9,8bn allocated to stadiums directly). Additional costs are blamed not only on grandiose designs, but also on the increased cost of capital equipment, material, oil and labour. Many of these latter input costs have been adversely affected by the weakening value of the rand and, to this extent, municipalities are left saddled with the negative effect of exogenous macroeconomic variables, compounding poor planning choices around stadium design.
Even if municipalities are granted permission to hike tariffs to cover the shortfalls, or approach the Development Bank of Southern Africa for assistance, is it fair for local government to carry the can for Fifa and South African soccer bodies?
Sadly, there is nothing unusual in this seeming inequity. Sporting events around the world are often highly problematic for the public purse (and therefore the taxpayer). Barcelona’s 1992 Olympic Games, while successful for property developers and many private-sector participants, proved to be financially onerous for the
The beneficiaries of large sporting functions are most easily identified by reviewing the sponsors of bids — hotel chains, car-hire companies, airlines and the like, and to be sure, these tourism and hospitality industries are all crucial for the South African economy. But should these role-players be the de facto focus of local government capital expenditure, when its constitutional mandate is to deliver basic services? The issue then is one of opportunity cost and suboptimal spending, especially where ratepayer funding needs to supplement national grants (which could also have been alternatively deployed).
No doubt the 2010 World Cup is a valuable catalyst for many projects, and it does present an opportunity to showcase the country and boost patriotism and investment. In addition, South African city administrators will talk of how the legacy benefits of projects are designed to ensure that the spill-over results of investments continue to support residents’ lives long after the event. But not so often discussed is the legacy of maintenance spending and questions about whether the quanta allocated to these projects merit such prioritisation on a continuing basis.
While the infrastructure spending of 2010 may prove a valuable capital boost to the construction industry (one of the rare outperformers in the latest gross domestic product results) and is likely to boost areas in which stadiums and related infrastructure are centred at a particularly important time in the economic cycle, residents in host cities may well be footing some of the bill for this spending, especially over the longer term. With this unbalanced redistribution in mind, although closer to home than most international sporting events, the 2010 World Cup may represent some of the most expensive tickets ever bought by those host-city residents lucky enough to attend the games.