Russia’s hosting of the FIFA World Cup 2018 could boost the profile of the host country and lead to a long-term spike in tourism receipts or spending but in previous editions, the hosts did not benefit from a spike in tourist spending
Russia’s total expenditure for the football World Cup that began this week is likely to be USD 11.6 billion, almost one percent of its GDP. Officials hope at least 1.5 million people will visit Russia during the event, which according to an analyst quoted in The Moscow Times could add USD 3 billion to the country’s economy.
But a number crunching shows that previous hosts did not benefit from a spike in tourist spending. A justification for high spending is that such big-ticket sports events boost the profile of the host country and lead to a long-term spike in tourism receipts or spending. So in theory, it is even more sensible for a non-advanced economy to host such events.
The last two countries to host the football World Cup were South Africa (2010) and Brazil (2014), both members of Brics, a group of emerging economies. Russia is the third country in this group (the other two members are India and China) to host the tournament.
An HT analysis shows the last two World Cup hosts have been less successful in exploiting the tournament’s long-term tailwinds to tourism receipts than their predecessors, which happened to be advanced economies.
The analysis is based on a counterfactual scenario-building of tourism receipts for the host country and comparing them with actual post-tournament trends. The counterfactual trend tries to capture the tourism receipts trend if the country had not hosted the tournament. We use a technique called synthetic control, often used to do impact analysis of government policies.
The counterfactual trend is estimated by calculating a weighted average of tourism receipts in similar neighboring countries in a way that the sum almost coincides with the host country’s tourism receipts in the period before the tournament. A mathematical technique called constrained optimization is used to calculate the weights.
Post-tournament tourism receipts or spending seem to be doing better from the counterfactual trends in France, Japan, and Germany, while the opposite seems to be happening in South Africa and Brazil.
This suggests there was no long-term boost to tourism for the two BRICS countries despite hosting the World Cup. What explains this divergence in trends? Institutional factors eroding tourist friendliness of emerging economies might be at play. The 2017 edition of Travel and Tourism Competitiveness Report by The World Economic Forum shows Brazil and South Africa ranked much below their predecessors that hosted the World Cup on.
The rankings are based on things such as homicide rates, tourist visa norms, flight connectivity, and government spending on tourism. It shows risks to a foreign tourist visiting South Africa and Brazil is much bigger than what it will be in Japan, Germany or France.