11 January 2022 • 21 min read
How Olympics boost host countries trade ?
‘Olympic Trade Effect’: Countries bidding to host the Olympics send a signal that they are ready to open up trade. Leading economists believe that there was strong evidence of the Olympics having a large positive effect, north of 30 percent, on exports of hosting nations. This points towards that the China Winter Olympics 2022 will boost export and import from the nation.
There is abundant literature and commentary on the short-term economic demerits of holding Olympics, which end up colossally expensive for host cities and countries. At the same time, the long-term benefits of mega sporting events are generally overlooked. Read on to know how humongous sporting spectacles catapult host countries economically in the long run.
According to Investopedia.com, a leading global financial literacy portal, the economic impact of hosting Olympics for a country is gauzed to be less positive than expected, with even the bid submission costing millions of dollars. Incidentally, Tokyo burned $150 million just to unsuccessfully bid for 2016 Olympics, followed by another $75 million to bag the 2020 games hosting rights, which highlights that the very first step is so exorbitantly expensive. It cost $14.6 billion for London to host the 2012 Olympics and Paralympics. It was estimated that Beijing spent $42 billion for 2008 games and Athens $15 billion to conduct 2004 Olympics. Similarly, Sydney spent $4.6 billion for the first Olympics of the new millennium in 2000 and Rio De Janeiro $20 billion to host 2016 games. Montreal city in Canada ended up paying its 1976 Olympics debts of $1.6 billion for 30 long years until 2006 while some economists trace Greece’s economic woes to the costs incurred in 2004.
Experts reason that direct net economic benefits are hardly any while non-economic benefits are difficult to quantify and raise the fundamental question if there is actually good use of public money in funding sports events of Olympic scale. Yet, several countries fiercely compete to win the hosting rights of mega events such as the Olympics, revived by Baron Pierre de Coubertin after several centuries, FIFA world cup and et al, prompting a few experts to probe if economists are missing to identify the long term benefits which are immediately intangible.
Despite these mind boggling costs, a few pundits differ with the view that the most ancient and largest carnival of sports is an unnecessary extravagance, spanning just a fortnight.
In the ‘Olympic Trade Effect’ paper shared by the International Monetary Fund (IMF) in 2010, Andrew K. Rose, dean and distinguished professor of the National University of Singapore’s (NUS) business school and Mark M. Spiegel, senior policy adviser of the Federal Reserve Bank of San Francisco note that countries bidding to host the Olympics send a signal that they are ready to open up trade.
The advantages of hosting Olympics can be broadly categorized under four heads of economic benefits in the long term, infrastructural transformation, international limelight, soft power, and tourism among others:
· Economic benefits in the long term
· Unsuccessful Olympics bids are profitable too
· Infrastructural transformation
· International limelight
· Soft power
Economic benefits in the long term
According to Andrew K. Rose and Mark M. Spiegel, the International Olympic Committee (IOC) believes that multitudes of visitors from across the globe will be attracted to the host city’s venues and products through the Olympic games, translating into the event promoting the host country’s exports, especially tourism.
In their studies, Rose and Spiegel found out that there was strong evidence of Olympics having a large positive effect, north of 30 percent, on exports. They vouched that permanent ‘Olympic trade effect’ on exports is large and positive while skepticism is unwarranted. The expert duo underscored that Olympic trade effect remains positive and significant throughout, including similar effects emanating from other mega events such as world cups and world fairs, once of which is currently underway in Dubai, EXPO 2020.
In fact, the 1889 Paris Universal Exposition, which attracted 32 million visitors served as a platform for Pierre de Coubertin to organize the first congress on physical education and scholar competitions, including assembling a network of educators, politicians, aristocrats and leaders in commerce, culture and sport who later enabled him to found the modern avatar of Olympics. In other words, one mega event, Paris world exposition, helped a visionary, Coubertin, to give birth to another regular super global event, the quadrennial Olympics, whose five rings logo emerged to be one of the most recognizable symbols across the word.
Connecting hosting Olympics to trade liberalization aspect, Rose and Spiegel highlighted that Beijing won the rights to conduct 2008 Olympic in July 2001 and two months later, the economic powerhouse successfully negotiated its commitment to trade liberalization with the World Trade Organization (WTO), a global body which deals with the rules of trade between nations. After being awarded the 1960 Olympics for Rome in 1955, Italy took steps towards currency convertibility, joined the United Nations a couple of years later and commenced parleys for the Treaty of Rome and carving out of the European Economic Community (EEC), which later evolved into the present day European Union.
Similarly, Tokyo Olympics in 1964 synced with Japan’s admission into the IMF, followed by membership into the Organization for Economic Cooperation and Development (OECD), an international institution which works to build better policies for better lives. Likewise, Spain joined the EEC in 1986, the same year 1992 summer games were awarded to Barcelona while awarding the 1988 Olympics to Seoul enabled South Korea to embrace democracy.
Further, Rose and Spiegel note that the correlation between hosting mega sporting events and trade boosting developments have a precedent beyond the Olympics, citing the award of 1986 FIFA world cup to Mexico and the North American country’s admission into the General Agreement on Tariff and Trade (GATT), which later transformed into the WTO.
Inferred from their studies, both the economists strongly endorse that countries hosting massive sporting events such as the Olympics simultaneously liberalize their trade, manifesting the Olympic trade effect.
Unsuccessful Olympics bids are profitable too
As per their study methodologies, not only successful bidders stand to profit from the Olympics but also unsuccessful bidders. Rose and Spiegel found that the very act of bidding for the games had a positive impact on trade which was almost equal to hosting the games. According to the economists, donning the role of a serious bidder, whether fruitful or not has the advantage of signaling impact as these bids are followed by moves aligned to trade liberalization. An Olympic bids sends across a message that the interested country is in favor of liberalizing trade.
The economists drew a parallel that mega events and big trade liberalizations are rare expensive developments with long lead times but the ensuing future economic benefits outweigh the short-term bidding and hosting costs. Besides bidders and successful hosts, manufacturing industries which produce electrical gadgets like modern televisions, cameras, security equipment and hospitality players among others also stand to rake in a lot of business.
Cities hosting the Olympics experience massive transformation infrastructure-wise. Out of the $42 billion, Beijing was believed to have expended $22.5 billion to construct roads, airports, subways and railways, including another $11.2 billion to clean up the environment.
Thousands of new temporary jobs will be created in the run up in to building infrastructure of Olympic scale. According to Investopedia.com, Rio de Janeiro constructed 15,000 new hotel rooms to lodge the arriving tourists and Sochi spent $44.3 billion to build non-sports infrastructure for the 2014 games.
Similarly, thousands of spectators, media contingents, athletes, sponsors and other visitors descend on the venues, resulting in more revenues for the host.
From the time of bidding to the culmination of Olympic games, the host city and country will be keenly tracked by global media. Over the decades, cities which hosted Olympics basked in global limelight with unique recognition to emerge as Olympic cities. They join a rare club of truly world class cities: Tokyo 1964, Barcelona’ 92, Sydney 2000, Rio 2016, Tokyo 2020.
Since the advent of modern Olympics in 1896, only 49 cities organized or will go on to host the games till 2026. A few select cities managed to host the games two times and a few three times as well. Athens hosted the inaugural modern games and the 2004 Olympics. So did Tokyo, 1964 and 2021. London did thrice, 1908, 1948 and 2012. So will Paris, 1900, 1924 and 2024 and Los Angeles, 1932, 1984 and 2028. After hosting the games twice in 1956 and 2000, Queensland capital Brisbane preparing for Australia’s third Olympics.
Why some cities never miss a chance to host the Olympics? Because the long term economic benefits and the lofty global standing are the pull factors here. Olympic torch relay, mascot, venues and other aspects will occupy prime space in the media world, bringing in global attention and incessant fame for a long time before and after hosting the games.
Opportunity to host Olympics has emerged as a proving ground for capable cities and countries with an aspirational element attached as the infrastructural requirements are quite demanding. Though not as large as the Olympics, this is a little akin to hosting a Formula 1 race too. It signals the economic coming of age of a country.
Attracted by the international appeal, many national leaders aspire to organize events like the Olympics, especially several emerging nations have also set some domestic goals to host the games in so many years. China hosting the 2008 Beijing Olympics was an opportunity for the second largest economy in the world to showcase its economic might to the world. National stadium with the moniker Bird’s Nest and the national swimming center dubbed as the water cube symbolized the steep economic ascent China made in a few decades.
Decades earlier, Los Angeles flaunted that the city was ever ready for host a mega event like Olympics as its already had existing infrastructure which was sufficient for the conduct of the games. Olympic cities derive a great deal of goodwill by associating with the IOC, whose Olympics logo outperformed several global brands, evoking the values of ‘inspirational’, ‘heritage and tradition’, ‘diversity’, ‘optimistic’, ‘excellence’, ‘global’ and ‘inclusive’.
Jean-Noel Kapferer, an international brand consultant and author of ‘The New Strategic Brand Management’ observed that the Olympic brand is a unique and powerful identity which transcends sport and termed the Olympic rings logo as the first global, universal, non-religious sign wielding enormous power.
Ability to host Olympics instills a sense of national pride in the citizens of a country. Residents of Olympic cities cheer and welcome the prospect of hosting Olympics as they will reap multifarious benefits.
Tourism and Olympics generally go hand in hand - One of the major goals of a host country is to present the Olympic cities as major tourist destinations open for business. The games give an opportunity to showcase the already existing attractions to thousands of visitors and billions of viewers on television, considering Olympics is one of the most televised sporting pageants with extremely valuable advertising spots.
According to the United Nations World Tourism Organization (UNWTO), France received 89.4 million visitors in 2018. Many people do not know that Eiffel Tower in Paris, one of the highest visited monuments and a French icon was that it was actually conceived and built in preparation for the mega event of World Expo in 1889 to celebrate the 100thanniversary of the French Revolution.
The 2016 Olympic games in Rio de Janeiro powered Brazil to log record tourism figures, 6.2 percent more than 2015. It was estimated that 56 percent of the foreign visitors to Brazil for the 2016 games were new visitors, enabling the Latin American country to set a tourism record of 6.6 million foreign tourists and $6.2 billion in revenues.
As many as 1.2 million visitors marked their presence during the Rio games, occupying 94 percent of the city’s hotel rooms, even as 70 new hotels and residences were opened, strengthening the city’s hospitality sector’s quality and capacity. The games also gave thrust to Rio’s other major event such as the carnival, renowned for samba dances.
China Winter Olympics 2022
After successfully hosting the summer games in 2008, China is eager to host the winter Olympics in February, 2022. Chinese capital Beijing will soon emerge as first city to have the distinction of hosting both the summer as well as winter Olympics. During the winter games scheduled from February 2nd to 20, 2022, Beijing will showcase its ingenuity and bask in the glory of repurposing several sporting facilities to meet the need of winter games which were originally built for the 2008 summer Olympics. The Water Cube, which hosted swimming, diving and synchronized swimming events in 2008 will now become the ‘Ice Cube’ to conduct curling competition. China aims to flaunt this as a dual purpose facility depending on the season.
Despite a diplomatic boycott of the winter games in China by the Five Eyes alliance of United States of America (USA), United Kingdom (UK), Canada, Australia and New Zealand for some political reasons, the Dragon (China) shrugged off their boycott as ‘no big deal’ and ‘nobody cares’ is raring to ride the wave of international limelight by successfully hosting the winter games soon.