KPMGKPMG
Economic impact study of Economic impact study of thethe
new new 5000-people convention centre at the5000-people convention centre at the
Millennium City CenterMillennium City Center, Budapest, Budapest
Dr. Andrea SartoriDr. Andrea Sartori
Senior ManagerSenior Manager
Travel, Leisure and Tourism Group CEETravel, Leisure and Tourism Group CEE
KPMG ConsultingKPMG Consulting
Travel, Leisure & Tourism Travel, Leisure & Tourism Group CEEGroup CEE
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PresentationPresentation objectivesobjectives
To present a major tourism project (i.e. new Budapest To present a major tourism project (i.e. new Budapest
Convention Center) and the role of KPMG Consulting in Convention Center) and the role of KPMG Consulting in
such a projectsuch a project
Showing the eShowing the economic impact of conomic impact of the the proposed proposed
developmentdevelopment
Questions & AnswersQuestions & Answers
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PProject backgroundroject background
KPMG`s Client: Tourism Division of the Ministry of KPMG`s Client: Tourism Division of the Ministry of Economic AffairsEconomic Affairs
Project scope: determine the Ec. Impact of the new Project scope: determine the Ec. Impact of the new 5000-people 5000-people Budapest Convention Center to be Budapest Convention Center to be developed at Millennium City Centerdeveloped at Millennium City Center, Budapest, Budapest
Project period: April-June 2000 (3 months project)Project period: April-June 2000 (3 months project)
A project`s master plan was not ready at the time the A project`s master plan was not ready at the time the study was performed by KPMGstudy was performed by KPMG
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Millennium City Center: backgroundMillennium City Center: background
The Millennium City CenterThe Millennium City Center is is a mixeda mixed--use developmentuse development
The MCCThe MCC will be realized on will be realized on the Danube waterfront, the Danube waterfront, between the Petőfi and the between the Petőfi and the Lágymányosi BridgeLágymányosi Bridge
Site were the Site were the World Expo was World Expo was originally plannedoriginally planned
Land areaLand area: approx. 10 hct: approx. 10 hct
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The importance of synergies and critical massThe importance of synergies and critical mass
Projects elements:Projects elements:• 4 hotels4 hotels• American style casinoAmerican style casino• CinemaCinema and other entertainment and other entertainment• Two condominiumsTwo condominiums
• Office spaceOffice space• RestaurantRestaurantss• Exhibition centerExhibition center• Hungarian National TheatreHungarian National Theatre• Convention centerConvention center
A place to work, live and play!
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BackgroundBackground
conference tourism industry:conference tourism industry:
trends in Hungarytrends in Hungary
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International associations meetings held in Hungary and number of participants
55,000
46,900
44,250
65,000
50,950
74,250
65,450
68,500
39,350
0
50
100
150
200
250
300
1991 1992 1993 1994 1995 1996 1997 1998 1999
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
International associations meeting
Total number of participants
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Prefered destinations for association Prefered destinations for association meetingsmeetings
Ranking1998
Number ofmeetings
Ranking1999
Number ofmeetings
Vienna 2 75 1 63
Copenhagen 3 65 2 50
Madrid 1 76 3 48
Budapest 13 33 4 46
Helsinki 11 35 5 42
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Seasonality of MICE demandSeasonality of MICE demand
2.72%
3.49%
6.63% 6.43%
9.49%
11.35%
6.81%
14.11%
12.69%
8.35%
3.10%
6.41%
0%
2%
4%
6%
8%
10%
12%
14%
16%
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Conference tourism in BudapestConference tourism in Budapest
In 1999, Budapest hosted 51% of international association In 1999, Budapest hosted 51% of international association meetings held in Hungary (in 1998: 52.5%)meetings held in Hungary (in 1998: 52.5%)
In 1999, 91% of meetings had less than 600 participantsIn 1999, 91% of meetings had less than 600 participants
Average duration of meetings held in Budapest is shorter than Average duration of meetings held in Budapest is shorter than international averagesinternational averages International association meetings/conferencesInternational association meetings/conferences 3.5 days3.5 days
National association meetings/conferencesNational association meetings/conferences 1.7 days1.7 days
Corporate meetings and incentiveCorporate meetings and incentive 2.5 days2.5 days
The majority of meetings tourists to Hungary arrive from Europe, The majority of meetings tourists to Hungary arrive from Europe, mainly from Germanymainly from Germany
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SWOT analysis Budapest
STRENGTHS WEAKNESSES
Geographical location
Transport access
Diversified tourism product
Adequate supply of world class
hotels
High concentration of scientific
knowledge
Favourable cost-benefit ratio
Safety perception
Lack of experience in organizing large
scale convention
Lack of focused promotion of Budapest
as a conference tourism destination
Inadequate supply of international
quality mid-scale hotels
Lost exotic appeal of a post-communist
country
OPPORTUNITIES THREATS
Local job creation
Attract further foreign investment
Improve image of Budapest as a
tourism destination
Word of mouth advertising
Continued strong regional competition
Development of tele-conferencing and
long distance conferencing
KPMGKPMG
Association meetings lost due to lack of capacity
Delegates:General Assembly and Congress of the International Union ofCrystallography
2500
International Congress of Anthropological and EtnologicalSciences
3-4000
International Congress of Biochemistry 6-10000International Congress of Mathematicians 4-5000International Congress of Physiological Sciences 5-6000International Congress of Virology 3000International Nutrition Congress 7000World Congress of Neuroscience 3000General Assembly of the International Astrological Union 3000World Congress of Pharmacology 6000International Geographical Congress 3-4000International Botanical Congress 3500International Union of Radio Sciences 1500World Congress of Sociology 3000
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FinancingFinancing
convention centres:convention centres:
international experienceinternational experience
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Financing the developmentFinancing the development
Experience shows that most international convention centres Experience shows that most international convention centres receive financial support receive financial support fromfrom the the public sector public sector in their initial in their initial developmentdevelopment
In a 1993 survey, it was found that 23 international convention In a 1993 survey, it was found that 23 international convention centres which collectively planned to spend USD 533 million centres which collectively planned to spend USD 533 million on expansions and upgrading, were expected to source for on expansions and upgrading, were expected to source for this capital expenditure as follows:this capital expenditure as follows:
From the capital marketFrom the capital market 25%25% From the public sectorFrom the public sector 46%46% Own fundsOwn funds 28%28% OtherOther 1%1%
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Conference trade is a thin margin businessConference trade is a thin margin business
Profitability of European Conference Centres
(Excluding initial investment)Profitable 44%
Break-even 20%
Loss making 36%
Conference centres benefiting fromsubsidies
52%
Sources of subsidies:
City 76%
Region/Province 24%
State 14%
Source: Horwath Axe Consultant Paris, 1995
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Economic impactEconomic impact
of proposedof proposed
convention centreconvention centre
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Understanding the impactUnderstanding the impact
of the convention centerof the convention center
Type of impacts• Direct ec. effects• Indirect ec. effects• Wider benefits
Timing of impact• During construction• During operation
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Assumptions of the economic modelAssumptions of the economic model(5th year stabilisation of business)(5th year stabilisation of business)
Conservative Optimistic
Nat. delegates paying only registr. fee 70,000 (40%) 84,375 (37.5%)
Nat. delegates staying in hotel 70,000 (40%) 84.375 (37.5%)
International delegates 35,000 (20%) 56,250 (37.5%)
________________________________________________________________
Total delegates per annum 175,000 225,000________________________________________________________________
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Assumptions of the economic model(Average Expenditure)
ConservativeConservative& optimistic& optimistic
Average Spending per delegate- - Nat. delegates paying only registration fee U$ 43
- Nat. delegates with accommodationn U$ 90 - International delegates with partner U$ 200
Percentages of partners (conserv. vs. optim.) 20% 25%
Days spent in Bp by partners (conserv. vs. optim.) 7,000 14,063
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Total estimated construction costTotal estimated construction cost U$ 29.3 ml.U$ 29.3 ml.
Jobs created during constructionJobs created during construction 771 per year771 per year
Total taxes (per year)Total taxes (per year) U$ 2.8 ml.U$ 2.8 ml.
Consisting of : Consisting of : Indirect taxesIndirect taxes U$ 1.9 ml.U$ 1.9 ml.
Labour taxesLabour taxes U$ 0.7 ml.U$ 0.7 ml.
Corporate taxesCorporate taxes U$ 0.2 ml.U$ 0.2 ml.
Economic impact during Economic impact during construction phase (2 years)construction phase (2 years)
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Economic impact during Economic impact during operational phase (fifth year)operational phase (fifth year)
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Conservative scenario
Optimistic scenario
Delegate Expenditure (x000 U$) 17,650 25,212
Total GDP (x000 U$) 14,381 20,542
Total Taxes (x000 U$) 3,856 5,508
Jobs created 1,353 1,933
KPMGKPMG
Share of direct economic impactShare of direct economic impact(based on conservative scenario)(based on conservative scenario)
National delegates -
accommodation36%
National delegates -
Registration Fees16%
Partners8%
International delegates
40%
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Financing by the public sectorFinancing by the public sector(Optimistic scenario excluding construction)(Optimistic scenario excluding construction)
0
4
8
12
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
Operational Phase
Bill
ion
Hu
f
Government Support (100%) Government Support (66%)
Government Support (50%) Government Supprot (33%)
Cummulative Taxes Paid
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Wider benefits (non measurable benefits)Wider benefits (non measurable benefits)
Delivery of social and cultural benefits to the community
Small, Medium and Micro Enterprises development
Facilitation of the interchange of knowledge, technology and know-how
Promoting Budapest and Hungary’s image
Promotion of tourism through word-of-mouth recommenda-tions and repeat visits by delegates and their families
Promotion of Hungary as a tourism destination
Potentially favourable impression on foreign investor perception
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Q & AQ & ATravel, Leisure & Tourism Travel, Leisure & Tourism Group CEEGroup CEE