2010 Stadium Escalation Costs

South Africa’s building costs for 2010 stadiums has escalated to well over the initial amount budgeted. It currently stands at a total of 9.8 billion rand, up from the 6.7 billion rand which South Africa initially agreed to spend when it won the right to host the tournament back in 2004. (Africa news, 2008) This means a further 3 billion rand would be needed to cover the rising costs of these World Cup showpieces. The reasons for this seem to lie predominantly in the form of technical and managerial errors on the part of those directly responsible in the execution of the work.

In general, where host cities are found to be responsible for these avoidable cost escalations, they would have to pay for them. Therefore, escalation evident as a result of errors in technical design, would have to be covered by the host cities themselves. With the enormous amount of spending involved, government has engaged the “Development Bank of Southern Africa” to provide low interest loans in accommodating the shortfall. In turn, a window period has been given where national agencies will initially take responsibility for the loan, but ultimately, the host cities will pay it back.

Further costs have been allocated to very poor project management practices. This was largely due to the fact of an open-ended tender being evident, where there is a huge figure for provisional sums involved in the total project cost. It is said that 60% of projected costs for World Cup stadiums was based on provisional sums, meaning that 60% of the cost had not yet been quantified. This, in construction terms is a huge risk in any situation, let alone that of multi-million rand stadiums.

It has been acknowledged however, that not all cost overruns can be put down to the fault of host cities. Factors which are beyond their control and those which could not have been reasonably foreseen at design stage, will be the responsibility of government. Inflation rates and the cost of steel are the major factors under this heading. Inflation rates shot up to 10.9 percent at one stage, which was far more than the 3-6 percent estimate set by government. The rand has also fallen significantly against other major currencies in the last year, meaning that imported raw materials are that much more expensive. Furthermore, this came at a time of growing political uncertainty, as well as falling economic growth caused mainly by the energy crisis. (Hill, 2008) (Africa news, 2008)

The problem for government is that this increased amount of spending has further added to an already outrageous bill of 15.1 billion rands for the World Cup. This includes upgrades to public transportation and security, which account for an estimated 40% of this figure. (Roy, 2006) However, many are arguing that the situation has gone beyond their control, and that government is no longer thinking of the economic welfare of our country, but rather is blind sighted by the fact that it has promised to deliver a ground-breaking event. This is especially the case because of the fact that these stadiums may serve no purpose for our country in the long term. They may turn out to be expensive “white elephants”.

Bibliography

Africa news. (2008, July 06). 2010 World Cup to cost South Africa much more than initial budgeted. Retrieved October 12, 2009, from monstersandcritics.com: http://www.monstersandcritics.com/news/africa/news/article_1415241.php/2...

Hill, M. (2008, August 13). 2010 Fifa World Cup stadiums to cost extra 2bn rand. Retrieved October 12, 2009, from engineeringnews.co.za: http://www.engineeringnews.co.za/article/2010-fifa-world-cup-stadiums-to...

Roy, S. (2006, October 29). South Africa World Cup 2010 costs escalate. Retrieved October 10, 2009, from soccerblog.com: http://www.soccerblog.com/2006/10/south-africa-world-cup-2010-co.htm