Indonesia will have to do some serious cost-benefit analysis if it is to host the 2032 Olympics and bring the world’s biggest multi-sport event to Southeast Asia for the first time. Officially submitting their application at the International Olympic Committee’s (IOC) headquarters in Switzerland this week, a successful bid would be a major coup for the region’s largest economy.
Indonesia was praised by the IOC for the smooth execution of the 2018 Asian Games and is using that platform to bid for the Olympics, following the example of China, Japan and South Korea.
Whether the bid is a ploy by Indonesian president Joko “Jokowi” Widodo ahead of April’s elections remains to be seen, but the fact that the country is even considering hosting the Olympics has come as a surprise. The cost of hosting the Games is substantial to say the least and more often than not is underestimated by the host nation.
While the Olympics has generally been seen as a way to reach an audience of two billion people, boost tourism and create lasting infrastructure, countries around the world are increasingly wary of the hosting this mega event due to cost overruns, the risk of debts and unsightly white elephants.
Cost overruns
A report by the University of Oxford’s Saïd Business School in 2016 found that the average cost of hosting the Summer Olympics from 1960 to 2016 was US$5.2 billion, with the figure rising to US$8.9 billion for the six most recent Games – including the Winter Olympics – held from 2004 to 2014. The sum does not include road, rail, airport, and hotel infrastructure, which often costs more than the Games itself.
More worryingly, the report titled ‘The Oxford Olympics Study 2016 - Cost and Cost Overrun at the Games,’ found that all Olympics, without exception, have cost overrun. In fact, it has the highest average cost overrun of any type of megaproject at 156 percent in real terms. By comparison, the average cost overrun of major transportation projects such as roads is 20 percent, bridges and tunnels 34 percent, railways 45 percent and dams 90 percent.
Take for example the Tokyo 2020 Olympics. Hosting costs for the Games were projected at US$7.3 billion when the Japanese capital won the bid in 2013. This figure now stands at US$25 billion. Japanese taxpayers are expected to pick up 80 percent of the final bill in what is expected to be the most expensive Olympics in history.
Hosted during the country’s worst recession in 25 years, organisers of the 2016 Rio Olympics still owe suppliers and other third parties up to US$159 million and have tried to settle some of its debts by offering creditors building materials, air conditioners and electric cables. The cuts on healthcare, education and security during and after the Olympics made it a hugely unpopular event for Brazilians. From an initial cost of US$3 billion, Brazil ended up having to fork out US$13 billion for the Games. The IOC contributed just US$1.5 billion in contrast.
Barriers to organising the Olympics
With the rupiah reaching a record-low late last year at levels not seen since the Asian financial crisis, Indonesia’s volatile currency combined with the ongoing US-China trade war and rising oil prices will all be concerns for private and public investors.
Infrastructure in the country of 17,000 islands was described as “inefficient” by Indonesian presidential candidate Prabowo Subianto earlier this week, and critics of Indonesia’s Olympic plan will argue that there are better ways to spend money than on the megaproject – especially with the current backlog of airports, railroads, highways and dams yet to be completed.
Jakarta’s notorious traffic gridlock will make logistics a nightmare, although the Mass Rapid Transit (MRT) system which will begin its first stage of operations next month is expected to provide a respite to the problem.
Natural disasters have placed Indonesia firmly in the limelight over the past few years. Faced with failing warning systems for tsunamis and earthquakes and a lack of education on evacuation procedures, the money used for the Olympics could instead be diverted to humanitarian assistance. Extremism, radicalism and terrorism are also some of the other threats Indonesia has to consider seriously.
Red tape and corruption have long been hallmarks of developing countries. Allegations of vote-buying, doping and corruption are recurrent themes for the IOC. A stringent system of checks and balances should be enforced to prevent such issues from repeating itself if Indonesia is to win the bid.
Transparency, strict control over spending and a strong legacy plan for sustainable development will go a long way in easing Indonesians’ fears of mismanagement if the Olympics is to be hosted in the country.
If such measures are not introduced, Indonesia risks joining the long list of countries wondering whether hosting the Olympics was worth the cost.
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