Soon after the ICC World Twenty20 last year I wrote this post about the economics of cricket, particularly major sporting events. The CHOGM 2013, one of the biggest and most high-profile events Sri Lanka has held since the Non-Alligned Movement Summit in 1976, made me think once again along similar lines – the economics of major international summits could be an interesting area of economic analysis.
Any literature out there?
Very little has been written about the economics of major international summits held in other countries either. A simple Google search throws up an interesting study conducted by the consulting group Deloitte on the economic impact of a 2012 NATO Summit on its host city, Chicago. In my view, it was a groundbreaking study in that it set out a basic framework of analysis (albeit a rather narrow one, in keeping with Deloitte’s own priorities and focus areas). The study estimated impacts across four “elements” – direct economic impact, tax revenues generated, employment generated, hotel nights generated. The latter is probably the easiest to observe and quantify of these four. Yet, one of the key criticisms against it was that it did not adequately account for the “loss of business” aspect of a major event like this (due to road closures, traffic restrictions, shop and office closures, etc during the time of the event). Two important caveats are also important to note. Firstly, the study was conducted ex-ante. The actual outcomes may have been different to those initially estimated, so an ex-post evaluation could provide instructive insights. Secondly, and probably more importantly, the Deloitte study was commissioned by the Chicago committee tasked with organizing the Summit, so questions may arise of its objectivity.
Another study conducted by a group at the University of Toronto looked at ‘Economic Benefits of Hosting G8 and G20 Summits’. In this study, the authors note the following possible benefits:
1) the immediate, visible short-term stimulus of higher spending at hotels, restaurants and shops; creation of temporary jobs;
2) longer-term economic benefits such as increased tourist traffic and investment resulting from increased global name recognition thanks to media and advertising coverage;
3) new, permanent, public infrastructures and upgrades; and
4) the training for security forces and other first responders to prevent and respond to mass emergency events, such as terrorist attacks, infectious disease outbreaks, ….
I think these four resonate very clearly and to a great extent with the CHOGM in Colombo too. Interestingly, the authors assert that “the benefits are much greater for the smaller communities and cities that lack the global visibility and infrastructure that the capital cities of the imperial powers of the past several centuries have”.
A worker prepares colourful decorations ahead of the CHOGM 2013 summit in Colombo, Sri Lanka (image courtesy theaustralian.com.au)
Colombo forums attempt to evaluate CHOGM benefits, but nothing specific
Colombo witnessed a slew of ticketed private sector forums discussing the economic benefits of CHOGM for Sri Lanka. (Maybe someone should write about the “economics of forums on the economics of CHOGM in Sri Lanka”!) That not withstanding, these forums seem to have generated some useful insights. Not so much on the potential of CHOGM itself, but on the potential of the Sri Lankan economy and the challenges in harnessing it. As far as I can tell (from the media reports on them – I didn’t attend any), none of the private sector speakers at any of these forums hazarded a guess on a realistic estimate of the economic benefits of CHOGM. The most interesting, albeit very general, overview came from the ‘CIM Talking Point’ event where many of the leading personalities in several sectors chimed in. Their insights are incisive and policymakers needn’t go any further to get a clear agenda for action. Meanwhile, veteran economist Dr. Nimal Sanderatne too has provided a useful, but again general, view on the subject in his recent piece on ‘Economic expectations from C’wealth Summit’. If nothing else, his article expertly puts the CHOGM opportunity within the context of the current performance of the Sri Lankan economy. Now if you want the official line, the government’s expectation of the Summit ex-ante, this article provides a good overview. Among the many government officials who spoke at this event - ‘Economic Benefits for Lanka from CHOGM’ – organized by the Board of Investment (BOI), was a private sector personality Sujeewa Rajapakse (President, Institute of Chartered Accountants). He is reported as saying that “the hospitality and hotel industry will reap a lot of benefits as room occupancy will be at full capacity during the next few weeks and up to 7,000 rooms will be utilised by the delegates participating in the meeting and the parallel forums”. I bet he’s wishing now that he hadn’t gone out on a limb for the government and made such predictions. Because the numbers are in, and they are far from peachy.
The case of Colombo city hotel revenues
As I mentioned earlier, the hotel nights pillar is probably the most observable and quantifiable from the other pillars that go into estimating the economic impact of a major international event. The Daily Mirror reports today that city hotel occupancy in Colombo has been at best 50%. Far below what was expected. M. Shanthikumar, President of the City Hotels Association (and GM of Ramada, former Holiday Inn), has provided the most direct numbers yet:
“At the peak, from November 15th to 16th, the average occupancy rate was 55 percent. The average occupancy during 10th to 13th was at 30 percent and during 13th to 14th it was around 40 percent. This was far below our expectations”. According to him, the original expectation was that a minimum of 4,000 city hotel rooms will be occupied. “I don’t want to comment on the reasons, but only 2000 to 2100 rooms were occupied during the event.”
During this time of year, city hotels usually run at above 65% capacity. Among all the sector, the hotels sector was set to receive the biggest boost of all from the CHOGM Summit, so these numbers are indeed disappointing.
Maybe we should ask – did the higher per night charge help offset the lower volume? For the duration of CHOGM, the government had mandated room charges for different hotel classes – 5 star – US $571 nett, 4 star – US $431, 3 star – US $343 and so on. If you assume that all city hotel rooms are at least 3-star and above (probably not entirely accurate, but just for the sake of argument), then the average charge is about US$ 450 nett. For 2100 rooms (the upper level quoted by Shanthikumar), this is US$ 945,000 in total revenue per room night. Now lets assume the non-CHOGM scenario. The room charge at the Cinnamon Grand in October was around US$ 180 a night . Even if all the city hotel rooms were of the same category as Cinnamon Grand (i.e., 5-star) and therefore all charged US$ 180 a night and if all 4,000 estimated rooms had been sold, total revenue would have come to US$ 720,000. So, prima facie, one can argue that the hotels weren’t worse off, and higher minimum charges compensate for the lower volume. (Of course, this is just demonstrative and no doubt ignores various nuances and a range of other factors like cost of CHOGM-specific room refurb on one hand and spin-off revenues like hall and banquet charges, etc).
Yet, here are some of the ways we can begin to take a look at the economics of major international summits like the one just concluded in Colombo. The outputs and supply chains are numerous, but insufficient or opaque information may hinder any meaningful analysis. Moreover, as the authors of the G8/G20 point out, “many of these benefits are difficult to quantify, especially before or immediately after the summit ends”.
Yet, I do believe it’s an area that a researcher would find interesting and challenging – not so much to fuel any political ‘finger-pointing’, but rather to get a better understanding the economics at play, the various value chains that operate in a big event like this, and add to economic knowledge. In that process, if it creates a public debate and influences future actions, then that’s a definite bonus.