By Sam Doo
Within the tumultuous geopolitics of the Middle East, Qatar stands as an oasis of relative calm. Thanks to a stable government, vast oil reserves, and favorable investment climate, FDI has been pouring into the country.
In 2010, Qatar reached another milestone in announcing itself to the world by securing the right to host the 2022 FIFA World Cup, which is arguably the most popular sporting event around the globe. However, rising concerns over corruption, human rights abuses, and public health risks have rendered Qatar’s attempt to host the World Cup into one of the most contentious event planning endeavors of all time.
Project Financing Spree
Qatar is looking to spend roughly $200 billion — this is a staggering figure on its own, but comparing it to other World Cup hosting ventures renders it all the more extravagant.
Russia’s proposed budget for the 2018 World Cup is $20 billion. Brazil, South Africa, and Germany spent $11.2, $3.5, and $6.2 billion, respectively. It is also worth noting the price tag for Qatar’s World Cup is close to its GDP, which currently stands at about $203 billion.
From a country perspective, hosting a World Cup tends to provide more of a PR benefit than it does an economic one. While tourism revenues may rise greatly, the boost is fleeting and tends to be offset by the decline in domestic productivity due to traffic, crowding, and lost work days.
In contrast, the World Cup provides a windfall for foreign investment. While the most obvious image that comes to mind is the construction of stadia, the real investment lies in the secondary infrastructure needs. In Qatar’s case, the government is looking to significantly revamp its public transit system, construct a new airport, port, hotels/entertainment venues, and residential towers.
All of this demand has resulted in secretive lucrative deals for investment banks, multinational construction firms, and a myriad of third-party contractors.
Rising Concerns Over Hosting
Labor rights abuse has also been a major issue. The vast majority of physical labor in Qatar is composed of migrant workers from SE Asia, who have been working under conditions that are akin to modern slavery. Since late 2010, over a thousand migrant workers have died due to the abysmal conditions and several more thousand casualties are expected as construction ramps up in preparation for the event.
In May, a team of BBC journalists were briefly detained by Qatari police. The reporters, who were investigating the condition of migrant workers, later learned that they had been under surveillance for quite a while. While they were eventually released, their confiscated equipment was not returned, and there have been more instances of foreign journalists being targeted by local authorities.
The prospect of a massive public event in the sweltering summer of a desert country led many influential voices, including the current president of FIFA, to consider scheduling the tournament in the winter instead. Eventually, FIFA confirmed that Qatar would be able to host an unprecedented winter World Cup.
The decision sparked outrage as it would disrupt the season for European domestic soccer leagues. Likewise, one of the reasons that the US does not send a baseball team composed of professional players to the summer Olympics is that the event occurs right in the middle of MLB season.
One can imagine the fallout from the teams, corporate sponsors, and other moneyed interests having to adjust to a mid-season disruption.
What Lies Ahead?
Qatar faces considerable risk to its reputation in the face of increased media exposure linking public officials to the ongoing FIFA corruption scandal. The resulting fallout could spark a capital flight as foreign and local investors decide to move their money into safer places.
In addition, real estate investors could also take a painful financial hit if Qatar loses its hosting rights. So far, property values near the stadiums and venues have soared alongside the construction of luxury residential units.
Foreign stakeholders involved in all levels of the infrastructure deals will have to contend with the possibility that the Qatari government could breach their lucrative contracts if the latter decides that moving forward on the projects is financially untenable. Qatar has managed to establish a good reputation among high-profile engineering firms and investment banks and this would certainly fall by the wayside, just like the abandoned projects.
More alarmingly, FIFA was just recently the subject of a US Department of Justice probe. At the FIFA headquarters in Zurich, several high-profile officials arrested for bribery and racketeering, and the Swiss Attorney General has agreed to extradite the individuals for prosecution.
Amid an ongoing criminal investigation, the embattled FIFA president Sepp Blatter has chosen to resign, a move that has shocked the sporting world given that he has held the post since 1998. Blatter was one of the most prominent supporters for Russia and Qatar keeping their rights to host, and his decision to step down greatly increases the potential for the Russian and Qatari hosting mandates to be reexamined.
US officials are now expanding their investigation to see how banks may have potentially been involved with money laundering. As a result, FIFA’s stance on the Qatar’s right to host is still very much up in the air.
When Swiss authorities issued a statement that there were irregularities in the process of awarding the Russian and Qatari bids, Qatar’s stock exchange index fell by 1.45% and, in particular, the Qatar Real Estate index dropped by 2.14%.
For now, it seems the case is a perfect illustration of how fast political risks can change the prospects of working within an emerging market.
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