By Elissa Burack
With so much attention expected to be on the country during this summer’s World Cup, Russia is scrambling to make sure it’s well prepared to play host. This means trying to finish building stadiums, hotels, and transportation infrastructure to be certain that the event will go off without a hitch. Russia has prior experience with this, having hosted the 2014 Winter Olympics in Sochi. However, unlike the Olympics, which take place in one city, the World Cup will occur in eleven cities across Russia, multiplying costs and hurting profitability.
Unfortunately for Russia, not everything is going according to plan. Less than four months before the event, Kaliningrad, Nizhny Novgorod, Rostov-on-Don, Samara, Saransk, and Volgograd still have not completed their stadiums. And construction on every stadium is over budget by hundreds of millions of dollars. Most notably, the cost of St. Petersburg’s Krestovsky Stadium has ballooned from its budget of $248.9 million by 540% to $1.5 billion.
Judging from the Sochi Olympics, Russia’s costs, which are now at $11.8 billion, $600 million over-budget, will only continue to sky-rocket both in the run-up to the main event and afterward, when the country has to deal with maintaining unused facilities and the devastating pollution that results from rapid, large-scale construction projects. It is increasingly clear that hosting the World Cup this summer will not be economically profitable for Russia.
Despite the grim outlook, many Russians nevertheless believe that the World Cup, as FIFA promises, is “a tool to develop whole countries, give momentum to investment, and create a better life for millions of people”. Regional governments see the event as an opportunity to modernize by gaining access to federal funds for development projects they would not be able to finance on their own.
For example, Saransk plans to use federal funds to upgrade its airport, while Rostov-on-Don hopes to hasten moving the city center to its less-developed eastern half by building its stadium there. But the federal government has only allocated $6.7 billion for the World Cup. Regional governments must collectively contribute $1.5 billion themselves and find the last $3.4 billion from private investors. While host cities are responsible for less than 13% of the World Cup budget, it’s still a tall order for financially-struggling regions, whose debt has quintupled since 2007.
Apart from development projects, host cities embrace the World Cup as an opportunity to generate revenue and spur job creation through an anticipated uptick in tourism and retail spending during the tournament. However, economists warn that Russians are overestimating the magnitude of a positive economic impact from the World Cup. The government is not considering the costs of the event’s negative effects, including crime, construction inconveniences, pollution, and traffic. Furthermore, income will be lower than promised because FIFA requires host countries to grant tax exemptions for all activities related to the organization. Job growth will also be minimal and temporary. In fact, Sochi only gained 1,500 new hospitality jobs after the Olympics, though officials promised 150,000.
Though it is unrealistic to expect that the World Cup will benefit Russia economically, it can still provide reputational benefits. Host cities are motivated by the chance to advertise themselves as tourist destinations to foreigners, while the Kremlin is not using the World Cup to get closer to the rest of the world, but rather to become further isolated. Moscow seeks to improve its reputation among its own citizens, emphasizing Russian sovereignty and superiority by showing that Russia, as a great power, is capable of holding a world-class event without help from the international community that has rejected it.
Additionally, the World Cup, as a major international sporting event, has the ability to build national pride and foster patriotic feelings among Russians. This is especially important after Russia was banned from this year’s Winter Olympics, though a poor showing by its low-ranked national soccer team may counteract this effect. Putin is using this reinvigorated patriotism to glorify himself and profit from the resulting domestic support. This was previously observed in the year leading up to Sochi, when Putin’s approval rating increased by 7%, reversing a three-year long decline.
Additionally, the central government uses the World Cup to maintain power and reward elites. Hosting the World Cup creates a “circus” to distract Russians from their own “social and economic turmoil”. It minimizes dissent by taking its citizens’ attention away from the government’s deficiencies, like its failure to make structural reforms that could improve Russia’s economic stagnation, and focusing it on the World Cup instead. It’s also an opportunity for the government to reinforce loyalty among Putin’s inner circle and local elites by awarding them lucrative construction contracts, including Krestovsky Stadium’s lighting contract, which awarded a former St. Petersburg vice-governor $351,000.
After the Sochi Olympics, whose costs spiraled out of control from $12 billion to $50 billion, the central Russian government is likely not counting on economic gain from the World Cup, though its host cities are. Moscow takes advantage of these cities’ need to modernize and profit economically, even though the center knows that the World Cup will bring greater problems than profits. The Kremlin uses the state of perpetual competition for resources among its regions as a way to induce host cities’ compliance with investing in the World Cup, a means of further consolidating Putin’s power.
If the World Cup goes well, Putin will have proven that his government is capable of pulling off a major event despite the West’s attempts to undermine Russia’s success. This distracts his citizens and regions from a four-year decrease in real wages and the economy’s sluggish 1.2% average annual growth rate, which only major reforms, not the World Cup, can improve. Once the final match has been played, the only real beneficiaries will not be the Russian people, but Putin, his inner circle, and corrupt local elites.
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