With Winter Olympics knocking at the door, most eyes will turn to South Korea for obvious reasons. After all, hosting such gala events often makes a country’s fortune and sometimes breaks it. Let’s take a look at the economic condition in which the country is stepping into the Olympic arena.
South Korea’s GDP contracted 0.2% sequentially in the October-December quarter compared with 1.5% in the previous period and missed expectations of a 0.1% increase, per the Bank of Korea.
GDP grew 3.0% year over year compared with 3.8% in the previous quarter, missing expectations of a 3.1% increase. This was the first shrinkage in nine years as manufacturing and construction fell (read: ETFs in Focus on Weak South Korea GDP Growth).
Against this faltering scenario, let’s see how costly or profit-making the Olympics event will be over the long term.
How Profitable Will Olympics be for South Korea?
Reportedly, South Korea spent more than $12 billion to prepare for the 2018 Pyeongchang Winter Olympics that will run from 9-25 February. Expenses will be targeted at new hotels, housing projects, venues and infrastructure. Now the concern is if the $109-million stadium is worth the cost for cities that lack standing infrastructure to even host the event.
The stadium will be used only four times during the course of Winter Olympics in February and then in March for Paralympics. After that, it will be destroyed. There will be plenty of other facilities including the Gangneung Speed Skating Center, the Gangneung Ice Arena, the Gangneung Hockey Center and Olympic Sliding Center, most of which will have no use after the event is over.
The International Olympic Committee warned the organizers in August that the infrastructure may pose the risk of being “white elephants” after the games. And this is a common problem with all Olympics venues. Previously, Rio de Janeiro and Athens, saw empty and crumbling sports’ complexes. A city (in case of South Korea) that has only 40,000 people cannot fill a stadium that seats 35,000 on a regular basis.
As per the article published on npr.org, Athens’ $15-billion expenditure to stage the Summer Games in 2004, contributed to the country's debt, Rio de Janeiro is still concerned about $40 million in debt incurred during the 2016 summer games.
Are There Any Laurels Awaiting?
Still, the best thing about Pyeongchang Winter Olympics that South Korea is investing relatively less than what we saw in the case of Russia Winter Olympics. Russia reportedly layed out about $50 billion to prepare for the 2014 Sochi Olympics. Secondly, many of South Korea’s facilities will be temporary in structure.
The event will definitely give a thrust to South Korea’s tourism. As per a source, local authorities are expecting the event to promote the province’s stand as an Asian hub for winter sports, which in turn should draw a flock of Chinese skiers who normally head to Japan.
As per an analyst, “apartment prices in the area have gone up 38.6 percent on average over the last ten years compared to the nation-wide average of 17.5 percent; deal volumes have risen significantly with new supply coming online.”
The government also intends to increase the number of residents in the Olympic province by constructing multiple projects in the residential and hospitality sectors over the next 10 years so that population growth materializes.
Already, United Arab Emirates plans to invest nearly US$1 billion in real estate including the accommodation sector while the Korean conglomerate Samsung SDS is planning to develop a hydro-thermal data center in Chuncheon.
Knowing the past failed records of several events, South Korea seems to be proceeding with a careful approach. So, a huge loss is less likely, if massive gains are not realized. Things will likely leave a moderate impact on the economy in the medium term. So, investors should keep a tab on South Korea ETFs like iShares MSCI South Korea Capped ETF (EWY - Free Report) , First Trust South Korea AlphaDEX Fund (FKO - Free Report) and Deutsche X-trackers MSCI South Korea Hedged Equity Fund (DBKO - Free Report) (see all Asia-Pacific (Developed) ETFs here).
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