With the start of the London Olympics now only a matter of days away, it seems timely to take a quick peek at the likely economic effect of the games, particularly on the UK economy but also further afield.
Is it worth the aggro……..?
With the UK economy falling back in double dip recession and austerity still the name of the game (at least for the government), some are now wondering if the whole thing is worth the aggravation, and perhaps, more importantly, the cost! A quick glance would suggest there is good reason for concern.
The record is mixed…….
Hosting the Olympics is generally seen as a giant boon for the host city thanks to the expectation of a mass influx of tourists, huge capital expenditure on new sporting facilities and infra-structure and associated consumer spending spinoffs. But if you look at the historical record, the actual economic impact of the Olympics on their host cities and countries has been decidedly mixed. And there are good reasons to think that whatever economic benefits London gets from hosting the Olympics will be short-lived at best.
So what is there to worry about? Well, hosting the Olympics is an extremely costly business: the infrastructure costs fantastic amounts, as do the new sports facilities; security needs to be tight. And it almost invariably ends up costing much…… MUCH more than expected.
Take a look at the numbers associated with the last two Games -
The 2008 Olympics in Beijing takes first prize for cost overruns. Budgeted to cost a mere $1.6 billion, the Chinese ended up shelling out a staggering $40 billion for what ultimately was propaganda extravaganza. The 2004 Olympics in Athens was also expected to cost $1.6 billion, and ended up costing ten times that, contributing in no small way to the current debt crisis. Meanwhile, many of the sports facilities built for the Athens Games are underused and already falling apart.
London not immune……..
Despite what our balanced press would have you believe, London isn’t expected to go quite so far over budget, but the Olympics are turning out to be a lot pricier than the frugal affair the government originally promised.
A Public Accounts Committee report earlier in the year suggested that the eventual Olympic budget could rise to £11billion, £1.7billion more than the public sector funding package agreed by ministers five years ago. Bear in mind also, that in 2003, Tessa Jowell, the then Secretary of State for Culture Media and Sport, proposed that the total cost of hosting the 2012 Olympics would be £3.6bn, requiring a net public subsidy of £1.1bn……..some chance!
…….and the benefits?
So much for the costs, but surely there must be benefits? In May, Moody’s issued a report suggesting that London’s Olympics boom may come to an end not long after the event’s closing ceremonies. “Overall, we think that the Olympics are unlikely to provide a substantial boost to the UK economy and believe that the impact of infrastructure developments on UK GDP has probably already been felt,” a Moody’s statement said.
Even London’s hotels – which you would expect to profit massively from a flood of tourists with money – aren’t doing as well as expected. After raising their rates in anticipation of a flood of visitors, London’s hotels are having trouble filling their rooms, with roughly a third of their rooms as yet unbooked for the period of the Games.
Tourists stay away…….
Indeed, with some potential tourists deliberately staying away from London in order to avoid the Olympics-sized hassles that invariably accompany the Games, the U.K’s World Travel & Tourism Council expects that total tourist spending in the U.K. this year will only be a tiny bit higher than last year.
No chance of a medal…….
Back in 2009, as London began preparing in earnest for the Games, one government minister boasted that the event would
“provide economic gold at a time of economic need.”
With costs rising and benefits shrinking, it’s looking like the London might even struggle to win a medal…..economically speaking.
23rd July 2012