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The vast sums the country is spending to prep for Euro 2012 might pay long-term dividends but they will almost certainly mean a sea of short-term debt.by Ksenia Korzun 12 April 2012
KYIV | Ukrainian chefs are vying in official contests to prepare the best of the national cuisine. Hotels are patching things up, preparing to throw open doors to tourists. New roads and gift shops are opening. Buildings are popping up like mushrooms.
The frenetic activity is to get ready for the Euro 2012 soccer championship, which Ukraine will co-host with Poland in June. Many hopes for the country’s economy and prestige are pinned on the games, but their legacy will likely be mixed.
Already, there has been a rocky start, from the mass killing of stray dogs to clean up the streets for foreign visitors, to reported multimillion-dollar construction kickbacks.
So far, Ukraine’s public and private sectors have spent a combined 35 billion hryvnya ($4.3 billion) preparing the infrastructure for Euro 2012, and receipts from the soccer championship are not likely to pay for the work, President Viktor Yanukovych has acknowledged. Still, officials say it will leave a network of new infrastructure that will serve generations to come.
Indeed, infrastructure development was one of the selling points for those who worked to get the championship in Ukraine. The country has for years neglected investment in roads and railways, power grids and airports. Euro 2012 has become the starting point for a general upgrade.
So far, the government has spent 7.1944 billion hryvnya on construction of new and reconstruction of existing stadiums; a further 344.4 million hryvnya went for reconstruction and construction of team training camps.
The government also plans to spend 418.47 million hryvnya to fix up theaters, museums, and concert halls.
Most of the funds, however, have been invested in transport. The host cities of the event have spent 10 billion hryvnya on municipal airports; road construction cost the state 18 billion hryvnya.
In addition to improving the quality of life, Ukrainian entrepreneurs view Euro 2012 as a potential boon for business, with the government predicting it could boost tourism by 30 to 40 percent.
Overall, as much as $1 billion could be brought into the country’s economy, according to Alexander Dubihvost, managing director of foreign exchange reserves for the National Bank.
Many businesses are counting on this influx and are using Euro 2012 as a marketing opportunity. Some national food and drink manufacturers are packaging their goods in soccer-ball shaped gift boxes.
Rima Narushevskaya has risked a lot to open a restaurant just in time for the games. She serves traditional Ukrainian food, beer, and snacks – good for a soccer match – at a location in the center of Donetsk, near a stadium that will host games.
She said she knows the business will “sink or swim” during the event. “Analysts are afraid that there won’t be as many visitors as expected, but I’m hoping for good business from the championship,” she said.
Among the clear winners of the games will be job-seekers. Service workers, health workers, and law enforcement personnel will all be needed, receiving tens of millions of hryvnya in wages. The government estimates the games will create more than 1,000 temporary jobs.
Further, the sporting event will boost Ukraine’s international profile, said Oksana Bayunets, who works on domestic tourism for the Ukrainian Tour company.
But it could also be a long-term drag on the national economy.
Spending on the games will add to Ukraine’s groaning combined public and private debt load of $126.2 billion, which amounts to 76 percent of GDP.
Despite the additional spending, indicators of the overall development of industry are not encouraging. Construction in the country decreased by 0.5 percent, and the amount of cargo handled by 5.6 percent in 2011 compared with 2010. In general, industrial activity has grown over the last two months at a sluggish 2 percent, compared with 10 percent in the same period last year. The sporting event has not made up for a slow recovery in Ukraine and its markets abroad, as well as low purchasing power and a growing shadow economy, said Basil Yurchishin, an economist at the Razumkov Center.
Maxim Panchenko, an economic analyst with the Tender Plus consulting firm, said countries have tended to lose money on major international sporting events in recent years.
“For example, the last European football championship in Austria and Switzerland paid for little more than half of the invested funds, and losses from the World Cup in South Africa in 2010 amounted to more than 4 billion euros,” Panchenko wrote in a recent report. “Greece in particular is having enormous problems because of excessive costs for the organization of the 2004 Summer Olympics. That event was largely financed by credit funds and created a budget deficit, which later was very difficult to overcome."
Likewise, the DaVinci AG economic analysis firm warned in a quarterly report that the championship could result in long-term losses to Ukraine of $6 billion to $8 billion. Even the number of tourists expected by the Euro 2012 promoters is overstated, perhaps by a factor of three, DaVinci said.
Perhaps reflecting the strong cases that can be made both for and against Euro 2012, public opinion on the event has been closely divided. Almost 60 percent of respondents to a Research & Branding Group poll in February said they were glad that Ukraine had won the right to host Euro 2012. The same percentage believes that Ukraine will actually be able to pull it off.