National

What would it cost Japan to cancel the Olympics?

by Etienne Balmer

AFP-JIJI

While Japan and Olympic organizers are at pains to insist the Summer Games are still a go despite the coronavirus outbreak, some are wondering what a cancellation would cost the world’s third-biggest economy.

With a dearth of reliable figures, opinions vary, yet experts all agree on one point: Games or no games, the main risk to the domestic economy this year is a prolonged global COVID-19 epidemic.

What have the games cost Japan so far?

At the end of 2019, organizers estimated the total cost of the 2020 Tokyo Games to be around ¥1.35 trillion ($12.6 billion).

That price tag is divided between Tokyo, which is paying ¥597 billion, the Japanese organizing committee, which is contributing ¥603 billion and the central government, which is paying ¥150 billion.

But the actual costs for the country have been hotly debated, with a widely publicized audit report estimating national government spending from the bid from 2013 to 2018 at ¥1.06 trillion.

Businesses have also poured money into the event through sponsorships, paying out a record ¥348 billion.

And that figure doesn’t include the partnerships signed between major companies and the International Olympic Committee for rights to sponsor multiple games. Among those are domestic giants including Toyota, Bridgestone and Panasonic.

Which sectors would be hardest hit by a cancellation?

According to analysts at Capital Economics, one key factor to consider in terms of how a cancellation might affect the economy is that most of the spending has already happened.

That means the effects of outlays, most notably on construction of new sporting venues, has already been factored into GDP in recent years.

But a cancellation would be a drag on tourism, as well as general consumption in the country, already under pressure after a controversial sales tax hike last year.

Even before the virus, tourism in Japan had already suffered amid a diplomatic dispute with South Korea that prompted calls for boycotts. Visitors from South Korea previously made up the second-largest contingent of tourists to Japan, behind only China.

And with the virus spreading, Japan has seen a further fall in South Korean numbers, as well as a plunge in travelers from China, which together accounted for nearly half the 31.9 million foreign visitors to the country in 2019.

Japan has an industrialized and diversified economy that is not heavily reliant on tourism, with foreign visitor expenditures making up just 0.9 percent of GDP in 2018, according to economic research organization CEIC.

But with domestic spending already weak, the hit from a cancellation could cause bigger ripples and further depress local purchasing.

What would be the impact on GDP?

Economists at research firm Nomura already predict a 0.7 percent contraction in GDP for the 2020 calendar year, but warn that could be up to 1.5 percent if the games are canceled.

Takashi Miwa, an economist at the firm, said the main impact would be on domestic spending, because a cancellation of the games “would badly affect Japanese consumer confidence.”

It could also deprive the country of ¥240 billion in spending from foreign spectators expected to attend the games, he added.

The Tokyo 2020 organizers have declined to say how many foreign visitors they expect to visit the nation specifically for the Olympics.

So far 4.5 million tickets have been sold in Japan, with around 7.8 million expected to be sold overall, 20 to 30 percent of them internationally.

In 2018, the tourism ministry projected around 600,000 foreign spectators would come for the games.

Using a more modest projection of 300,000 foreign visitors, economists at SMBC Nikko Security have forecast that a cancellation and continued spread of the virus would shrink the nation’s GDP growth by 1.4 percent.

That forecast assumes the virus is still spreading globally in July. But the group estimates a smaller, 0.9 percent drop to GDP growth if the outbreak ends in April.

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