The Hindu Business Line : Football World Cup: Economic rewards may fall short of goal for Germany

Germany, the host, is not fancied to win the Football World Cup, beginning today — Friday, June 9. But German businesses, economists and politicians are hoping for a kick, to the economy that is, after four years of stagnation that has pushed the unemployment rate above 12 per cent and completely stalled growth in the last quarter of 2005. The World Cup would be a chance to show off Germany's vaunted order and efficiency to potential investors. Will the mega event score for the economy or prove a damp squib as the humiliating 4-1 loss to Italy in a warm-up match in March?

But hope runs as high as captain Michael Ballack's kick. Indeed, an Economist report quoted the German Chancellor, Mrs Angela Merkel, as saying that "the last time the world paid so much attention to Germany was 16 years ago when the (Berlin) Wall came down." Certainly, her government sees the championship as a way to promote Germany not only as a tourist destination, but as a business one as well.

And Germany has, according to Marco Bargel, chief economist of Germany's PostBank, already spent $5 billion to ready the 12 cities for the event, billed as one of the biggest soccer tournament ever. From 16 finalists in the early years, rising to 24 in Spain in 1982, World Cup 2006 will feature 32 teams (as from the 1998 edition) from all six continents.

A boost for tourism

Apart from creation of fixed assets, a major leg up is expected for the tourism industries with a million soccer fanatics descending on Germany and spending an expected euro 1.8 billion. Petra Hedorfer, chief executive of the German National Tourist Board, was quoted by an AP report as saying that the World Cup would boost the domestic economy by $11-12 billion and that many thousand hotel rooms will be needed to accommodate visitors.

In some areas of the German economy, a positive effect has already been noticed. Television manufacturer Loewe reported sales climbing 38 per cent in the first quarter of 2006, according to the German DPA news agency, mostly through sales of flat-screen TVs. Philips expects sales of flat-screens to double. Adidas is anticipating {euro}1.2 billion worth of World Cup related sales.

A concerted effort has also been mounted to use the World Cup to promote investment in Germany. The government, said an AP report, has launched a "Land of Ideas" television ad campaign stressing the country's reputation for innovation and technology. A medium-size country of 82 million people, it is known for its hi-tech industry and exports. As The Economist report says, many of its global companies have never been more competitive. With exports of nearly $1 trillion in 2005, Germany sells more goods in the world market than any other.

Corporate Interest

Yet, the term "Made in Germany" does not carry the same impact it once did, according to Dr Stefan Chatrath, an economist at Berlin Free University, quoted by AP. But if Germany can host a successful World Cup and reap the benefits from the free publicity of an event that is expected to draw hundreds of millions of viewers worldwide, it could generate some corporate interest. "If you want to get companies to your countries, then there is an investment campaign you have to mount, along with the image campaign," he said.

Germany's infrastructure, efficient train and subway networks and a government trying to make it easier to hire and fire workers can help, but equally important is the need to foment development, new ideas and innovation.

That, Dr Chatrath said, is still lacking, noting that the country ranked No 15 in the World Economic Forum's Global Competitiveness Report this year. "I wish we were a land of ideas. All the major inventions they talk about in the campaign are from 50 or 60 years ago," he said.

But considerable optimism has been generated with Germany's six leading economic institutes in their annual spring forecast for the economy raising the growth rate from 1.2 per cent to 1.8 per cent. That would be the best showing since 2000 and would help Germany's budget deficit sink to 2.9 per cent, falling below the EU limit of 3 per cent for the first time in years, reported Spiegel Online.

Japan, Korea experience

Germany can also take heart from the experience of the 2002 World Cup hosts Japan and South Korea. Both the economies were ailing, and had banked on the tournament to help spark a revival and increase their global stature. And this did happen.

According to the AP report, South Korea estimated the World Cup brought the nation about $4.1 billion in direct economic benefits in 2002 from increased consumer spending, which accounted for about 0.74 per cent of the country's GDP in 2001.

Indirect economic benefits were estimated at $15.1 billion as the World Cup improved the image of South Korea and its companies, the government said. Mr Toshihiro Nagahama, an economist with Dai-Ichi Life Research Institute in Tokyo, said that the World Cup gave Japan's economy a boost.

"Sales of digital electronic appliances such as TVs and DVDs went up, and constructing stadiums also was good for the economy. Visitors from abroad went to the countryside in Japan and the occupancy rate in hotels went up."

Jobs, the key

But more important would be the jobs created. According to a study by the German Chamber of Commerce (DIHK), reported by Deutsche Welle, the World Cup is expected to create 60,000 new jobs and every third job so created is expected to be a permanent one.

According to the DIHK study, based on a survey of around 20,000 companies, most jobs will be created in the areas of hospitality management, advertising, professional security and short-term employment services. Small businesses expect an increase of 2.2 billion euros ($2.6 billion) in turnover during the World Cup. This is particularly good news in view of the unemployment data. Deutsche Welle reported the preliminary statistics for 2005, according to which the number of employed Germans fell by 0.3 per cent last year to about 38.7 million.

The overall slight decline in employment, however, does not reveal the extent to which individual economic sectors were hit by recession. Construction, agriculture and manufacturing jobs contracted by 5.0 per cent, 2.2 per cent and 1.7 per cent respectively. The overall unemployment rate is 10 per cent-plus.

A pessimistic note

But as Germany dribbled to the D-day, a pessimistic note crept in, with Spiegel Online reporting of mounting concerns that while Germany may play host to fabulous football, the economic rewards may turn out to be minimal.

High on the list of the disillusioned is the German hotel industry. Hotels in Munich, Berlin, Hamburg and in the state of North-Rhine West Palatinate are reporting many more beds still available for the four-week tournament than had been expected.

Reservations, in fact, are not much above what they would normally be for this time of year, says Stefanie Heckel, a spokeswoman for Germany's association of hotels.

Especially affected are hotels where FIFA, international soccer's governing body, blocked rooms for the tournament, rooms it was hoping to sell through its room finding service on its Web page.

While the FIFA contract allowed it to hand back unneeded rooms on April 30, hoteliers have been unpleasantly surprised at the number of rooms now being freed up. Of the 45,000 rooms originally blocked, 16,000 are now not needed.

The mood is cautious elsewhere too according to the Spiegel Online report. A recent report by the German Institute for Economic Research warned not to expect much of a macro-economic effect from the World Cup tournament.

There likely won't be "any appreciable economic effect," it said. The report says that at most, German economic growth can hope for a bump of 0.25 per cent from the World Cup.

This will disappoint the policymakers as much as a goal not saved by Oliver Kahn. But that is perhaps football and economy.

Compiled by J. Srinivasan