Will World Cup 2018 Boost Russia’s Economy?

BusinessWill World Cup 2018 Boost Russia's Economy?

Will World Cup 2018 Boost Russia’s Economy?

Not long ago, Russia appeared isolated from the international community and its economy potentially on course to be in tatters after crippling sanctions were imposed over the poisoning of former Russian spy Sergei Skripal in the UK city of Salisbury.

But when the World Cup kicked off in Russia on Thursday last week, the country was handed a month-long opportunity to show western leaders that attempts to isolate it have faltered, and that its economy can weather and defy economic sanctions.

Russia Splurges $14 billion On World Cup Upgrades

Russia has spent more than $14 billion, reportedly, on hosting the tournament – the most expensive in the history of the World Cup. And the world’s greatest sporting spectacle, arguably, will net global football governing body FIFA hundreds of millions in profit.

Billions of people are expected to tune into this year’s competition and view Russian president Vladimir Putin present the trophy to football’s top superstars, among them, perhaps, Argentine Lionel Messi or Cristiano Ronaldo, who is Portuguese.

The World Cup began with Russia, the lowest-ranked side at the start of this year’s contest, trumping Saudi Arabia, the next worst team, 5-0 in Moscow’s Luzhniki Stadium on Thursday. Putin attended the game with Mohammed bin Salman, the powerful Saudi crown prince.

Such networking opportunities will not be lost on Putin, who already has forged a pact with bin Salman that has raised oil prices, advantaging the two resource-rich nations.
The Russian president is widely believed to view the World Cup as an opportunity to show the world that his country is open and progressive after bitter condemnation of its alleged malevolence overseas.

A successful tournament, free from violence and hooliganism, free from diplomatic incidents and scandal, would be a huge political triumph for an isolated Putin. The World Cup is, among many other things, a month-long Russian propaganda campaign.

World Cup to Deliver Faltering Russian Economy a Boost

But there is more to it than that. Russia will be hoping that staging the contest will deliver its faltering economy a boost after an international coalition led by the US and UK imposed harsh sanctions that have already crippled one of Russia’s top metals producers, Rosul, and in effect barred Europeans from doing business with targeted Russian companies and their oligarch owners.

Russia blew its estimated budget of $11 billion for hosting the World Cup, and splurged billions more on expensive transport infrastructure, stadium construction and accommodation. FIFA will receive over $6 billion for the four-year commercial cycle of the 2018 World Cup, it’s main source of income.

But the 11 Russian cities hosting the tournament have seen an improvement in transport and utility infrastructure (though at a cost), which could generate additional tax revenue and decrease future capital spending, according to a recent report from Moody’s Investor Service.

Yet much of the limited economic impact has already been realised through infrastructure spending. “Russia will only experience a short-lived economic benefit from hosting the 2018 FIFA World Cup tournament,” Moody’s said.

Kristin Lindow, a senior vice president and analyst at Moody’s, added that the event is only one-month-long, and any associated economic stimulus will pale in comparison to the size of Russia’s $1.3 trillion economy.

A Tourism Bonanza

Putin has said that infrastructure spending must pay off and that stadia would not become “flea markets” after the tournament ends and World Cup tourists fly home. World Cup organisers expect 570,000 foreign fans and 700,000 Russians to attend matches in the country, boosting the tourism sector in the short-term, from hotels to restaurants.

“Moscow-based airports are among the key beneficiaries in the transport sector because upgraded facilities will support higher passenger flows, even after the event,” Moody’s said.
Euromonitor, the market research group, added that the World Cup could put Russia on the map long after the contest wraps up.

The group estimated a 1.4% increase in number of total arrivals to Russia in 2018 because of the competition. “The number of inbound arrivals in Russia is expected to record a compound annual growth rate of 4% by 2022, reaching 37.5 million trips,” Alan Rownan, Euromonitor’s sports industry manager, wrote in a recently-published note.

But he added: “Negative factors, such as lack of mid-tier accommodation facilities, safety concerns, relatively high visiting costs and burdensome visa regulations for non-ticket holders will have an impact on the incoming tourist flows.

“Furthermore, recent political tension between Russia and US is also likely to undermine tourist flows from the latter.”

Political Tension is one Headwind Facing Russia

Russia is reeling from recent economic sanctions but it’s economy has been isolated from the west since its annexation of Crimea in 2014. The Kremlin’s alleged meddling in the 2016 US election and suspected hand in the attack on former Russian spy Skripal on British soil have also contributed to the icy relations between Russia and the west.
And the bidding process for hosting the 2018 World Cup was part of a series of events that ultimately exposed allegations of corruption among FIFA officials. Prominent western politicians, including UK foreign secretary Boris Johnson, called for a boycott of this year’s World Cup, while Russia claimed such calls were merely “propaganda”.

Youths play with a ball as Russian President Vladimir Putin is seen on a screen delivering a speech before the opening match
Image: Youths play with a ball as Russian President Vladimir Putin is seen on a screen delivering a speech before the opening match. REUTERS/Alexander Ermochenko

But the bigger concern for Russian tourism is potential violence that could blight the tournament, as hooliganism was a problem at the Euro 2016 European football tournament, at which Russian and English fans clashed in Marseille, France. Russian authorities have tried to play down the risk of violence at the 2018 World Cup, giving fans assurances they will be safe and banning hundreds of people linked to the Euro 2016 clashes from attending the tournament.
Police in the UK have also in effect barred known hooligans from visiting Russia by remanding their travel documents in a bid to ensure they remain at home during the World Cup.
Russia will undoubtedly be thrust back into the international limelight as a result of the World Cup after the withering of relations between Putin and western presidents after the spy poisoning attack. But any economic or political boost is likely to be short lived.