How the World Cup will influence Russian markets

Russian President Vladimir Putin will be hoping that the soccer World Cup, which starts on Thursday and puts his country in the international spotlight, will bring an economic boost – but experts are downbeat about any long-term benefit.

Russia will host the largest event on the footballing calendar from June 14 to July 15, with the tournament being held in a handful of cities including Moscow, St. Petersburg and Sochi. It is the first time that Russia will host the Cup and, having reportedly spent over $14 billion on hosting the tournament, this competition is the most expensive in its history.

Russia will kick the tournament off Thursday by playing Saudi Arabia, another nation known more for its oil fields than soccer fields. Despite the home advantage, the Russian team is not expected to progress that far in the tournament. Unfortunately, the economy is not expected to get a big boost either.

“Russia will only experience a short-lived economic benefit from hosting the 2018 FIFA World Cup tournament,” Moody’s Investor Service said in a report published last month that analyzed spending and projected gains from the tournament.

“Much of the economic impact has already been felt through infrastructure spending, and even there the impact has been limited. World Cup-related investments in 2013-17 accounted for only 1 percent of total investments,” Moody’s added.

Kristin Lindow, a senior vice president and analyst at Moody’s, explained that the event will last just one month and the associated economic stimulus will pale in comparison to the size of Russia’s $1.3 trillion economy.

Russian media report that Russia will have spent a total of 883 billion rubles ($14.2 billion) on hosting the event. This is much more than the official cost of 683 billion rubles ($11 billion) with transport infrastructure ($6.11 billion), stadium construction ($3.45 billion) and accommodation ($680 million) being the most expensive items, according to the Moscow Times last week.

It added that the official budget for the tournament had been amended 12 times since Russia won the bid to host the Cup in 2010.

The eleven Russian cities that are hosting matches have seen an improvement in transport and utility infrastructure but that has come at a cost.

“For the Russian regions, new infrastructure will generate additional tax revenue and decrease future capital spending,” Moody’s said, but World Cup spending had negatively impacted government finances in other regions, such as the city of St. Petersburg and the region of Samara Oblast.

Russian President Vladimir Putin said that infrastructure spending had to pay off and that stadia were not allowed to become “flea markets” after the tournament ended.

“With regards to the infrastructure, these eleven stadiums. Of course, we spent a lot of money on this and it is imperative that all of this infrastructure, I completely agree, it must work and above all work toward the development of sport on a large scale,” Putin said during his annual phone-in with the public last week.

“I would like right now to address my colleagues in the regions, to ask them to not allow, under any circumstances, for flea markets and the like to appear at these stadiums, as appeared in other sport-related buildings in Moscow during the middle of the 1990s,” he said.

Tourism, not hooliganism

The World Cup organizers are expecting 570,000 foreign fans and 700,000 Russians to attend World Cup matches in Russia, giving the tourism sector, ranging from hotels to restaurants, a boost, albeit a short-term one.

“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 noted.

One former national footballer who’s in Russia for the tournament told CNBC that Moscow is a hive of activity.

“Hotels are all sold out and … last night, I was out and restaurants and bars were packed. You can only start to imagine how much money the economy will make hosting such a major event,” R. Susikumar, who used to play for Singapore, told CNBC Street Signs Asia on Thursday.

“(The tournament) is about showing the world what Russia is. I had a totally different view about Russia, and especially Moscow, but it’s probably one of the best cities I’ve been to in my life,” he said.

Russia’s best-known cities Moscow and St. Petersburg are the main fan hubs and the latter is expected to host 400,000 visitors during the World Cup. These cities are also the main hubs for tourists. Market research company Euromonitor believes the World Cup could put Russia on the map for more tourists after the tournament ends.

“The number of inbound arrivals in Russia is expected to record a compound annual growth rate of 4 percent by 2022, reaching 37.5 million trips,” Euromonitor’s sports industry manager Alan Rownan said in a note on Tuesday. Euromonitor forecast a 1.4 percent increase in the number of total arrivals to Russia in 2018, as a direct result of hosting the major sporting event.

“However, 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,” he added.

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

Russia is still operating under economic sanctions imposed by the U.S., the European Union and several other countries following its annexation of Crimea in 2014 and its perceived role in a pro-Russian uprising in eastern Ukraine that same year.

The Kremlin’s alleged meddling in the 2016 U.S. election and suspected involvement in a nerve agent attack on a former Russian spy in the U.K. has put a further strain on relations with the West.

There are concerns that violence off the pitch could mar the tournament with hooliganism a problem (particularly between Russia and England fans) at the last major European soccer tournament, Euro 2016.

Understandably, given the current state of relations and wanting to promote his country, Putin is keen to keep the tournament apolitical. He thanked FIFA (the international governing body for soccer) Wednesday “for keeping politics out of sport,” Reuters reported.

Whether football fans — Russian or otherwise — hear that message is uncertain.

Used with permission of Bloomberg Finance L.P.

Source: CNBC

 Trader Aleksandar Kumanov

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