Qatar World Cup Economic Impact. The Effects of Hosting the Cup

The effect of the world cup 2022 on Qatar’s economy

Introduction:

Qatari government continuously seeks to diverse the economic growth and one of the ways is hosting international events and conferences. The World Cup is one of the important global events that have an impact on economic of the hosting country. Although there was a lot of doubts from some that Qatar could not hosts this global event especially after the economic blockade imposed by: Saudi Arabia, UAE and Bahrain. Since most of the projects were monitored by Saudi Arabia and UAE. The Qatari government rectified the situation and contracted with other suppliers and contractors to continue implementation of the projects. It is expected that Qatar will make a significant economic gains from hosting this event.

The main factor is the Qatari GDP will shows a noticeable rises. The increases in GDP of Qatar means that there will be increases in productions, incomes, and expenditures. According to World Bank reports: “The economy is expected to expand by 3% over the medium term, helped by continued investments related to hosting the football world cup.” The hosting country will be able to produce more and increase the GDP, which mean that the consumption, investment, government purchases and net exports will increase. The average of consumption will increase as there will be many tourists who will attend this event. As the number of the tourists increase it will be noticed that the number of spending on goods and services will increase. In addition, the investments in Qatar will increase.

By hosting 2022 Qatar will attract many local and international companies to invest in different new projects. Many local firms will open to provide the local market with required supplies that be used to finalize the projects. These companies will have a chance to increase their production. The number of production will be changed in 2022. Moreover, the government purchases will shows increases as well. They will focus on to spend more percentage of the growth on related projects such as; stadiums, hotels and infrastructures. They need to pay salaries of workers who will hired to implement these projects.

Theory:

Unemployment Rate:

Unemployment is one of the major problems that effects any economy. There are three types of unemployment: Frictional, structural, and cyclical. It’s clearly known that the unemployment rate effected by the business cycle, as it increase in recession and decrease in expansion. The Trading Economics reported about the unemployment in Qatar that, “Unemployment averaged 0.93 percent from 2001 until 2019.” The unemployment rate in Qatar has record a highest rate in fourth quarter of 2010 and lowest rate at first quarter of 2017. In Figure (1) it shows that the unemployment rate is stable until 2019 in average 0.10. it is expected that with the increasing of GDP in Qatar the unemployment rate will fall down. The firms will hire more people to implement the new projects. As there will be many opportunities of jobs for people especially for entrepreneurs contribution in establishing starts-ps. The firms will offer higher wages than the market wages. The higher wages motive the workers to be more productivity.

Figure 1: unemployment rate of Qatar

Inflation Rate:

One of the facts in economic that the percentage of prices increase from year to year. The rises in price level is result of increase in the cost of product or increase in the quantity of GDP demand. The inflation average does not affect the ability of goods and services’ production. Inflation affects the distribution of incomes. Some people may affected more than others. Some people find that their incomes rate is raising faster than the inflation rate, so the purchasing power is rising. Some other finds that their incomes rate is raising lower than the inflation rate, so the purchasing power is falls. The people with fixed incomes such as; retired workers they usually affected more than from inflation, because it reduce the purchasing power of the payment.

Figure 2: Inflation rate

The figure (2) shows the average of inflation over last 10 years in Qatar. The chart shows that the average of inflation rate in 2018 is 0.23 percent. It’s expected that the inflation rate in 2022 will increase in Qatar, as the quantity demand in GDP will increase. There will be increase in the number of tourists, which leads to increase in demand and productivity, so the price level will increase.

Qatar Population:

Currently Qatar’s population is at 2.639 million people with only 10% constituting for Qatari’s and the remaining 90% expats. Qatar’s government is estimated to spend $200 billion for many infrastructure, housing and expenses made for the FIFA world cup players and the immense number of foreigners it will continue to attract.

Y=C+I+G+NX

AD-SRAS-LRAS Model

Government spending is a component of aggregate demand. since the Qatari government is spending a lot of money of the development for the FIFA world cup 2022. An increase in government purchases will shift the aggregate demand curve to the right. This rightward shift in aggregate demand will cause an increase in the real GDP. The economy will have risen in quantity of demands and suppliers. When the number of quantities increase it will help to reduce the number of unemployment, as there will be new projects that create opportunities to hire more people.

As firms and workers adjust to a higher price level, this causes a shift in the SRAS to the left since prices and the price level increase. Resulting in an equilibrium point above the previous equilibrium with a higher price level.

1. Aggregate demand = aggregate supply = Long run aggregate supply (producing at capacity) => point A

2. Increase in government purchases -> increase in aggregate demand -> AD curve shifts right => point B

3. As firms and workers adjust to a higher price level, this causes a shift in the SRAS to the left since the price level increases.

This results in the intersection of AD, AS and LRAS with a higher price level.

Application:

Qatar:

To Further discuss this study and the economic effects of hosting the 2022 World Cup in Qatar. This section will analyze how the developments and preparations made in advance of the World Cup have a substantial positive effect on both short-term and long-term growth for the economy.

To start, one characteristic of Qatar’s economy is its intense use of its labor force as the unemployment rate in 2009, when Qatar was selected to host the Cup, was 0.31% which is remarkably low (The Global Economy, n.d.). As we have discussed, we would expect the unemployment rate for Qatar to substantially decrease in the years up to the Cup, due to an increased demand for developmental projects and a high need for labor. The unemployment rate in Qatar decreased quite dramatically between 2011 and 2018, from 0.56% to 0.14% (The Global Economy, n.d.). This correlates directly with Qatar’s increase in government spending which almost doubled from $15.29 billion in 2009 to $28.39 billion in 2018 (The Global Economy, n.d.). Furthermore, capital investments have rapidly increased from $42.02 billion in 2009 up to $74.46 billion in 2017 (The Global Economy, n.d.). These factors are a result of Qatar’s plans to develop it’s infrastructure and tourism facilities to meet the expected demand (Henderson, 2014); which is why the construction sector in Qatar saw an average 18% growth per-quarter since 2012 until 2019 (Fattah, 2019). In general, what we are seeing is, again, demand-pull inflation as the heavy investment has vastly increased aggregate demand, whereas the aggregate supply is lagging. The inflation rate of -4.88% increased quite rapidly up 3.2% in 2014 (Statista, n.d.), however, the rate has decreased to 0.23% which is most likely caused due to the fact that a majority of the development and infrastructural construction has been done (Fattah, 2019). This is consistent with Qatar’s exports which saw a tremendous decrease in 2014 from $140.23 billion to $85.2 in 2017. Overall, the effect of hosting the World Cup has been significant as Qatar’s GDP has increased from $97.8 billion in 2009 up to $192.01 billion in 2018 (38% of which is investment) which is an almost doubling of the country’s GDP which will no doubt reap long-term benefits through the work of the multiplier effect and infrastructure investment (Hurley & Solow, 2018).

Figure 4: The GDP of Qatar over the years.(The Global Economy, n.d.)

The projections of the GDP after the 2022 Games:

The projected gross domestic product (GDP) of Qatar is relatively higher, and the trend is expected to be on the rise even after the games are over. In 2022, the games will create a boom in the economic activities, with the country registering high numbers of tourists, who will bring a significant amount of income to the country’s economy (Deliga, 2019). Like any other mega-event, the FIFA World Cup games in Qatar will push the GDP of the country to a higher value. Even with other mega-events having turned to cause a less significant increase in the GDP of host nations, the GDP of Qatar will significantly be high, at least compared to years from 2007 (Deliga, 2019). Even after the end of the games, the GDP is likely to remain up. This probably because of the increased publicity of the nation through the mega event and the economic developments that are associated with it. There is an expected increase in investment in the country, a high number of tourists revisiting Qatar, and an increased rate of employment with continuous improvement in the living standards of the citizens of the nation (Deliga, 2019). Since these are some of the factors that contribute towards the growth of a country's GDP, it is, therefore, reasonable to argue that Qatar's GDP will maintain high consistency in its growth.

Figure 5: The GDP of Qatar, before and after 2022. Retrieved from https://www.statista.com/statistics/379978/gross-domestic-product-gdp-in-qatar/

Furthermore, the expected benefits from hosting the World Cup will be not only from the event itself but also due to the potential for marketing Qatar’s tourism sector. Tourism increased in Qatar from 1 million in 2007 to 2.8 million in 2014 (Henderson, 2014). The expected number of tourists is forecasted to reach over 3.5 million after the World Cup and potential 7.4 million by the year 2030 (Henderson, 2014). As we can see there is a lot of potential for economic growth to be attained from the development of the service and sports sectors. Investments in service facilities and 12 stadiums to be ready by 2021 can help diversify Qatar’s economy and move it away from its current dependence on petroleum and gas and instead towards its service, tourism and sports industries (Willis, 2004). Finally, inflation for Qatar is forecasted to reach a steady level of 2% by 2022 and 2023, up from its current level of 0.23% (Statista, n.d.). Needless to say, there is clear potential and expected growth that can be reaped from the current development plans and investment that Qatar has put into its infrastructure, service, and sports industries and so we can expect growth to be particularly centered around these industries in both the short- and long-term.

Brazil:

South Africa:

This section will analyze the economic impact of the changes that occurred in the Republic of South Africa (RSA) from 2004, after RSA was assigned the bid to host the World Cup, and the years following the event. I will discuss how the economic activity for the World Cup changed certain economic indicators for South Africa and the overall changes that occurred as a result of RSA’s actions.

The economic changes that occurred between 2004-2010 were quite substantial as they took the form of a large number of investments, heavy infrastructural changes for tourism facilities, private and public partnerships to adequately meet the supply of equipment and resources, future income for similar events after the Cup and the potential for marketing opportunities (Thornton & Feinstein, 2003). This is supported by the GDP change from 2004-2010: from $228.59 billion (2004) which increased consecutively up to $375.35 billion in 2004 (The Global Economy, n.d.). Furthermore, capital investments almost doubled from $42.21 in 2004 to $73.24 in 2010 (The Global Economy, n.d.). Finally, the unemployment rate markedly shows how the demand for jobs increased as the rate decreased from 29.58% to 24.69% (The Global Economy, n.d.). This all represents demand-pull inflation as the unemployment rate decreased as the demand surpassed supply (due to heavy government spending) and the inflation rate increased remarkably from a record-low of 1.43% in 2004 steadily up to 4.26% in 2010 (Statista, n.d.). All these changes accrued accumulatively in the years up to the World Cup, indicating the strong positive effects that it had on the economy; over $750 million of benefits were created for households, of which $228 million was received by lower-income families (OECD Observer & Nene, 2013). Furthermore, over 100,000 jobs were created in construction (Sport & Recreation South Africa, 2012).

With regards to the changes after 2010: in 2011 tourism grew by 3.3% (SATSRU, 2012) and GDP increased by 10.9% (The Global Economy, n.d.). The unemployment rate did not significantly change between 2010 and 2012, however, exports increased from $82.6 billion to $107.41 and $126.85 million respectively, which may potentially be related to the increased economic partnerships that were developed through the World Cup preparation (The Global Economy, n.d.). All this evidence and data clearly seem to point to the fact that the economic impact of the investments and development that were made for the World Cup have positively affected the economy of South Africa, and this is partially due to the “multiplier of the direct spending” that helped allow South Africa to reap large benefits from its investments (Makgabo, 2006).

Figure 8: Detailed GDP of South Africa before and after the FIFA World Cup 2010 (The Global Economy, n.d.)

Conclusion:

In conclusion, with these three case studies, we have observed a few similarities and trends that were a direct result of hosting the World Cup. Firstly, the level of unemployment in the years up to the event itself decreased quite substantially due to the sudden influx of demand for changes to infrastructure and tourism facilities. The jobs that were created were not just temporary as the long-term demand for jobs in the service sector and tourism sector increased in each of these countries. Furthermore, we also can see the trend that the heavy capital investments and government spending has had in producing demand-pull inflation. The inflation rate gradually increased, while unemployment fell and each countries’ GDP increased by a substantial amount, which was sustained even in the years following the World Cup. As we saw with South Africa, the tourism industry grew by 3.3% in the years after the Cup and it maintained its increased GDP. Brazil increased its socio-economic standing with the world and created over 700,000 permanent jobs. And, currently, the data for Qatar all seem to point towards the same conclusion, as we are seeing the same indicators that both Brazil and South Africa had. Overall, the economic effect of the World Cup on Qatar is expected to be even more pronounced due to the tremendous increase in its GDP that occurred as a result of its current preparation for the Cup and the projections for its GDP after the Cup are expected to be sustained, if not higher. With all of this in mind, it seems to be the case that hosting the World Cup creates a lot of potential for a country to differentiate its industries and to develop its infrastructure and service sectors, and as such, it paves the way towards providing substantial growth for a nation.

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