Olympics Postponed: What Economic Costs It Means To Japan? – Analysis
The outbreak of coronavirus – COVID-19, a pneumonia-like disease – that broke out in the Chinese province of Wuhan has spread like wild fire and already caused unprecedented damage to human life in as much as 177 countries of the world and their economies. Closer home in Japan where the Olympics was to start from July 24 to August 9, 2020 has been the latest casualty. In a stunning but foreshadowed move, Prime Minister Shinzo Abe announced that Japan had reached an agreement with International Olympic Committee President Thomas Back in Tokyo to this effect. Postponing the games to 2021 due to the coronavirus pandemic has turned for Abe who expected it to be a triumphant celebration into a struggle to stem the outbreak and save the economy. It is unlikely to cost him his job, however.
It goes to the credit of Abe that after a spell of political instability that paralysed policy making and thereby adversely impacting the process of economic revival from a prolonged period of low growth, he has emerged as the longest serving Prime Minister of Japan since returning to office in December 2012 and brought political stability in Japan. Like Donald Trump’s thrust on “America First”, Abe vowed to make Japan a beautiful country in his famous book Towards a Beautiful Country: My Vision of Japan and closely associated himself with the multi-billion dollar Games. When he had bid for the Games, he had announced that the Fukushima nuclear crisis was “under control”.
Abe had hoped to use the Games to lure more foreign tourists to Japan, thereby making it as a pillar of economic growth. Thereby, he hoped to achieve a goal that eluded his grandfather Nobusuke Kishi, who was prime minister when Tokyo won its bid for the 1964 Olympics but resigned before the event. Like in Kishi’s case, the global spread of the virus negated Abe’s aspiration to host the Olympics, at least for the time being. The Games are rescheduled for the summer of 2021 at the latest. Since the Games are not cancelled but postponed, Abe’s job need not be under threat, given that the country has a weak opposition and no suitable successor.
Abe is a great political survivor, despite the accusation at times that he has shown lack of leadership. When he announced abruptly closures of schools in response to the outbreak, he was criticised not to have taken colleagues and families into confidence. Yet his approval rating rose to 49.7 per cent in March from 41 per cent a month earlier. Postponing the Games and not cancelling altogether could go to Abe’s advantage as majorities of people favoured delaying the Games, which is why his political rating is on the rise.
At the time of writing, there have been 2,612 active with 66 deaths. The Governor of Tokyo Yuriko Koike has warned of ‘lockdown’ option if there is an explosive surge in new coronavirus cases in Tokyo. Measures are being taken how to contain its further spread. She also appealed people not to hold large events until April 12. Experts have warned that with the flurry of cases in Tokyo after many tested positive after returning from trips overseas, there could be dramatic surge in infections in the coming days. She pleaded with the private sector to toe the line in the fight against the virus.
How did Abe agree to the postponement of the Games after he had said categorically that the cancellation of the Games was out of the question? As a compromise, Abe and Bach agreed to postpone until summer of 2021 as it was seen as the most appropriate response to the global disruption caused by the coronavirus pandemic. The Games’ fate was essentially sealed after Australia and Canada pulled out their athletes. However, the Olympics Games and Paralympic Games will continue to be called the “Olympic and Paralympic Games Tokyo 2020” even if they are held next year, and the Olympic flame will stay in Japan “as a beacon of hope to the world during these troubled times”.
This marks only the fourth time in 124-year modern history of the modern Olympics that date back to 1896 that the Games have been postponed. The Olympics have never before been delayed, but were cancelled in 1916, 1940 and 1944 during the two world wars. In 1980, the Soviet Union’s boycott of Los Angeles Olympics was politically motivated. Paris is set to host the Summer Olympics in 2024, and Los Angeles in 2028.
In 2013, Tokyo beat out Madrid and Istanbul to win hosting rights for the event. For both Abe and Bach, cancelling the Games was never an option. After so much have been invested, if the event would have been cancelled, other cities would have been discouraged in hosting future Games. The larger message would have been if cities would be unwilling to take on the immense expense and inconvenience that comes with hosting future Games, the Olympics would have ceased to exist. The $10 billion that Japan has invested in the past seven years would have gone waste had the Games been abandoned.
The Summer Olympics are the world’s largest sporting event, attracting more than 10,000 athletes from more than 200 countries, and the I.O.C. prides itself on being a peace movement that brings the world together every two years at the Winter and Summer Games.
What would be the economic costs to Japan because of the postponement? The postponement of the Games is a blow to the host country, which has spent more than $12bn on the event. Huge sums are also at stake for sponsors and broadcasters. Goldman Sachs estimated that Japan would lose $4.5bn (550bn yen) in inbound and domestic consumption in 2020 as a result of the postponement. The Japanese public accepted the inevitable. According to a Kyodo news poll, almost 70 per cent of respondents said they did not expect the Games to go ahead this summer.
Before the outbreak, the Japanese economy was at risk of slipping into recession. Postponing the games will be a further blow to household and corporate sentiment, already souring from event cancellations, slumping tourism and travel curbs. Even next year when the Olympics are held, if the economy tanks just about when he is going to leave office, Abe would face huge embarrassment to justify his legacy of Abenomics. His hallmark mix of easy money, spending and reforms would have gone for a toss.
Earlier, WHO and medical officers for the international sports federations that oversee Olympic events, discussed worse-case scenarios, including the possibility of holding the Games without spectators. The organisers felt that delaying rather than cancelling would allow more time to bring the virus under control. With the Japanese economy already stumbling, even delay could deal a serious blow. The SMBC Nikko Securities Inc. had projected that a cancellation of the Games would have erased 1.4 per cent of Japan’s economic output and would cost Japan $6bn in economic loss. Corporate sponsors and hotels would miss the windfall, while rebooking venues will be difficult.
Analysts have differing views on the economic costs on the event’s postponement. Opinions swing between ‘huge blow’ to ‘relatively limited or modest’. Those who say the impact would be limited are of the view that the games raise economic activity by triggering construction in the years leading up to the event and by boosting inbound tourism and associated consumption at the times of the Games take place but once the construction is complete, that impact is already reflected in past GDP data and would not change. Japan has already seen a depressed consumption spending following a hike in the consumption tax in October 2019. Therefore to say that tourism shall come to a standstill and consumption shall decline could be without justification, they say.
Those who take the opposite view say that postponement of the Games will deal a serious blow to the Japanese economy and plunge the country into recession. According to official figures, Japan has committed 1.45 trillion yen ($13.4 billion) to organizing the Olympics, of which $277 million alone spent on building a new Olympic Stadium in Tokyo. While cancellation would have been a serious blow, suspension to the next year would help cushion the blow. Tourism still shall be affected as visitors shall have concerns about the proximity of China, and any residual effects from the virus. The economy has already contracted in the past two quarters and the postponement will be a further drag to the growth. To take a balanced view, while the postponement may not be a political body blow to Abe, it is no denying that the economic cost of the postponement of the Games would be heavy for Japan.
