THE BLOG
07/11/2010 10:47 am ET | Updated May 25, 2011

The Other Side of the World Cup

With today marking the end of the World Cup, assessing the legacy of the World Cup for South Africa can now begin. In other words, will this event attract more investment and usher in greater economic growth that can begin to make a dent in the huge levels of poverty?

South Africa is a country of dualities. It is a country with a dark past, yet judging by the World Cup it has a bright future. It is a country that is the richest of sub-Saharan Africa, yet is plagued by poverty and an exorbitantly high rate of HIV/AIDs. It is country that struggles with crime, yet is one of the most friendly and warm countries I have experienced.

While South African cities, like Port Elizabeth, where I stayed, have beautiful beach fronts and safe neighborhoods, on the outskirts sit black South African townships that mainly developed during apartheid. It is in these townships were the challenges confronting South Africa are clearly visible. Government neglect and denial of the AIDS crisis has led to a public health catastrophe, where in some townships 40 percent struggle with HIV/AIDs. Unemployment is also rampant and estimated to be as high as 80 percent in some areas. City services like electric, water, sewer are often absent, as are quality access to education.

Government corruption, negligence, and incompetence are problems -- as they are everywhere -- but the scope and size of the challenge in arresting poverty is so huge and resources are so stretched that narrowing the two worlds of South Africa will be a long term process dependent on continued economic growth. Critics of hosting the World Cup have noted the absurdity in spending millions in constructing beautiful new stadiums -- many of which will go unused after the World Cup -- when so many live in poverty. Yet while the long term economic benefits remain unclear, it is certain that this tournament has done a tremendous amount in giving the world a different view of a more prosperous Africa. And in that is one of the keys to tackling poverty -- creating a virtuous circle of growth that attracts significant foreign investment into the country.

Large global companies have long been investing in South Africa -- as it is Africa's most vibrant economy -- and while the jobs and training provide direct benefits many have also become important players in anti-poverty efforts. I was fortunate enough to have traveled to South Africa for the World Cup in a program through Volkswagen and was able to see the impact first hand. Volkswagen has a major auto factory outside Port Elizabeth -- one of the World Cup host cities -- where they employ about 7,000 people. As one of the largest companies in the region, Volkswagen invests millions annually in social investment projects of all types.

The types of projects vary considerable. VW invest in local seamstresses from a nearby township, whose entrepruenerial spirit led them to pool their activities and produce reusable grocery bags for use at the South Africa's largest grocery chain. They are building an education center for children in an impoverished township and contributing to the Ubuntu education fund, which seeks to provide an educational learning center for orphaned and disadvantaged kids after schools. Some projects come from the initiative of VW, on others VW invests in programs that are already up and running and are looking for capital.

VW has also long been involved in soccer. They own a club in the German Bundesliga -- Wolfsburg -- which started from VW autoworkers, and they sponsor other clubs such as DC United and clubs in the South African league. VW also invests in soccer in South Africa through the "A Chance To Play" initiative. The South African government due to budget restrictions largely abandoned spending on arts and sports as part of their school curriculum. A 'Chance To Play' helps provide sports competition, but also ensures that anyone that participates in the program is also taught about HIV/AIDs. The program therefore is not just about sports, but about providing a safe alternative for children to spend their time while simultaneously important life lessons at the same time.

Now VW, and companies like it, often claim, perhaps legitimately, that it is making such investments due to altruistic concerns. But there is also a cold hard capitalist logic to reinvesting in the communities in which they have such an out-sized presence. Henry Ford for instance, not one for altruism, greatly increased his employees wages so that they too could buy cars. For companies doing business in countries with strong democratic institutions, ensuring that the local community has a favorable view of the company is a clear strategic interest. There is a real interest in consumer based companies -- i.e. companies that are dependent on people to buy things -- to help make those people richer. And Volkswagen doesn't just export its cars from the port at Port Elizabeth -- it sells the most cars to the South African market and is looking to grow further. To do so, it is dependent on South Africans getting richer.

But whatever the motivation, VW's investments are creating positive social outcomes, that while not filling the gap by any means, are providing services and opportunities to many who would otherwise not get them. For instance, VW has emphasized worker training and health. In a country with such a high HIV/AIDS rate ensuring proper medical care and treatment is a must. VW has a clinic within its factory and requires employees to visit. This is also not altruism. Autoworkers have to be trained and the longer workers they are there the more valuable they become -- it is bad business not to take care of the health of people you have spent money and years investing in.

Volkswagen is also a among a number of other auto companies in South Africa and their presence, while in many ways due to cheaper labor than they would find in Germany and convenient shipping routes to markets in the east and west, is also due to the stability and strength of South Africa's democracy. While labor might be cheaper in South Africa, it is by no means the cheapest source of labor on the continent and the country also has very robust labor unions. There has long been a fear that global companies would continue to search for countries with cheaper and cheaper labor and weaker and weaker regulations. While this is no doubt the case for some industries, for capital intensive industries that are dependent on a skilled work force, the key is stability. Car companies that build capital intensive factories are investing for the long haul and need to be assured of a level of political and economic stability. Therefore stable democratic countries that have relatively strong institutions are a must for many large multinationals.

No one doubts that VW's first focus is on making a profit for its shareholders. But what is in a company's core interest can be interpreted broadly (or narrowly) and Volkswagen chooses the broader interpretation, as do most companies that believe they are going to be around for a while.