Introduction
On 6the July 2005, the International Olympic Committee, London was granted the right to stage the 2012 Olympic and Paralympics Games after a competitive bidding process. The competitive biding for London to host the games was represented by various parties; these include British Olympic Association (BOA), government through the Department of Culture, Media and Sports (DCMS) and Government office for London (GOL) (Olympic games impact study’, 2005, p.1). Over the past years, there has been increased importance by the host city to analyze the economic impact of holding Olympic Games. This is through consideration of the economic worth or value that the games will bring to the region or country. The analysis enables effective promotions of the Games within the country’s local context. The analysis also provides comprehensive information to the organizing committee on the extent of benefits which forms the basis of determining the cost of bidding and hosting the games. There are diverse benefits that results from hosting Olympic Games apart from financial benefits. In analyzing the bid to host the games, the organizing committee must consider the wider economic benefits such as the effects of the visitors on the local economy through their spending. According to Massey and Brown, Olympic Games held in 1972 in Munich and Montreal in 1976 resulted into a loss of 178 million pounds and 692 million pounds respectively (2001, P.26). On the other hand, the 1992 Barcelona Olympics and 1984 Los Angeles Olympics resulted into a surplus of 215 million pounds and 2 million pounds respectively (Massey & Brown, 2001, p. 26). The discussion of this paper entails an examination and analysis of the economic impacts of the London 2012 Olympics on the UK economy. It also considers the measures that should be taken to ensure that long term economic benefits are sustained.
Macroeconomic impact
The 2012 Olympic Games will greatly stimulate UK’s economic activities culminating into an increase in the country’s Gross Domestic Product (GDP). According to a research conducted by Dr Adam Blake of Nottingham University on the impact of the Olympic Games on UK’s economy, it is estimated that the games will result into an increase in the country’s GDP by £ 1.9 billion. The impact is expected to be witnessed during the period ranging from 2005 to 2016. It is also forecasted that London’s GDP will increase with to £5.9 billion. However, a certain proportion of these benefits will trickle down to other residents who are non-residents.
The increase in GDP will occur within three periods. These include the pre-event period (2005-2011), during the event (2012) and post event or legacy period (2013-2016). The change in GDP is illustrated in the table below.
From the table above, the greatest economic impact on the GDP will occur in London with a £ 3,362 million change in GDP. This is expected to occur during the pre-event period which will entail the construction of the stadiums and other preparations for the Olympic Games. As a whole, the UK’s GDP will greatly increase during the Olympic Games with a magnitude of £1,067 million. It is assumed that the difference in the change in GDP among the various regions arise from the fact that there will be displacement of resources. According to Olympic Games impact study (Anon., 2005), during the Olympics periods, there will be increased displacement of resources from UK to London in comparison to the pre-event and legacy period. Overall, the greatest economic impact on GDP will be experienced in London with an average change of £5,900 million.
In examining the economic impacts of the 2012 Olympic Games in London on GDP, a sensitivity analysis was conducted by considering the impact on UK and London respectively. The results of the study are illustrated in the table below.
From the table above, it is evident that there is an 84.4% probability that Olympic Games will positively result into an increase in UK’s GDP during the period ranging from 2005-2016. Overall, there is a 10% probability of UK losing an average of £ 517million in its GDP.
Impact on infrastructure
According to economic impacts of Olympic Games (Anon., 2009), the 11% and 12% change in UK’s and London’s GDP is greatly attributed to the development in infrastructure. This will mainly be experienced during the pre-event period. The infrastructural developments that will result into an increase in UK’s GDP include construction of Olympic Parks, Venues and transport infrastructure. The preparation for the Olympic Games will result into an improvement of London’s infrastructure. This has been witnessed in other countries that have previously staged the Olympic Games. For instance, by hosting the 2004 Olympic Games, there was increased development in Athens city infrastructure such as the airports, railway, metropolitan tram system and the metro system (‘Economic impacts of Olympic Games’, 2009, p.4).According to a study by Adams, the largest contributor to the country’s GDP will be the construction sector. It is forecasted that the construction sector will add a gross value of £ 506 million to the country’s GDP. The change in GDP due to development in infrastructural developments will result from an increase in the level of real wage. This means that consumer’s purchasing power will be increased culminating into an increase in personal consumption. Personal consumption forms a significant proportion of UK’s GDP. Apart from contribution of the stadium infrastructure to the country’s GDP, the venues constructed in various regions will result into an improvement in the regions legacy.
Increase in inward investment
From previous studies conducted on impact of Olympic Games on investment, the findings indicated that there has been an increase in inward investment. Inward investment refers to the injection of finances from foreign sources into a given region. The attractiveness of a given region to foreign investors to conduct investment depends on a number of factors. Some of these factors include the level infrastructural development. Increase in inward investment results into creation of job opportunities within the given region. This culminates into an increase in the country’s level of employment and hence its economic growth (Olympic Games impact study, 2005, p6). For instance, the increase in construction investment will result into employment of 3,000 workers during 5 year period ranging from 2006-2011. Investments will also be conducted in other sectors such as restaurants, bars, hotels and air transport. This will result into further result into an increase in the country’s level of employment. According to Adams (p.44), it is estimated that 2,554 new jobs will be created through the hotels, 1,811 in restaurants and 2,094 in bars. In addition, findings from these studies have revealed that preparation and hosting of Olympic Games has resulted into an increase in the host city’s profile.
Currently, London is an already established city which makes it to be a prominent global inward investment destination in UK and Europe in general. However, the city faces intense competition from other emerging cities around the globe. Through the 2012 Olympic Games, London will be promoted internationally as investment and business destination. This will result into an increment in the country’s Foreign Direct Investment (FDI) as a result of additional investments in relation to construction of the necessary infrastructure. According to Olympic Games impact study (Anon., 2005), it is estimated that one of the regions which will greatly benefit from increased inward investment is East London.
Increase in the volume of tourism
By hosting the 2012 Olympic Games, there is a high probability of an increase in the number of visitors touring London and other parts of UK. In addition, London will be greatly promoted as an attractive tourist destination. The effect is that there will be an increase in both international and domestic tourism to London. This will greatly stimulate the country’s GDP due to sustained increase in the number of visitors touring the country and also through an increase in their level of spending. For instance, according to London 2012 Olympic Games and Paralympics games; funding and legacy ( Anon.,2007),it is estimated that the overseas tourism during the 2012 Olympic Games will contribute an approximately £ 2billion to the country’s GDP. The table below illustrates the expected impact of the Olympic Games on the country’s tourism.
From the table above it is evident that during the 2012 Olympic Games, there will be a reduction in UK’s domestic tourism with a margin of £ 2 million while foreign tourism in UK will increase by £ 66 million during the event. However, there will be an increase in both domestic and foreign visitors touring London. According to London 2012 Olympic Games and Paralympics games; funding and legacy (Anon., 2007), this is mainly associated with the fact that a large percentage of tourism will be related to the Olympic Games. This means that the country will experience a decline in business and leisure-related tourism. To counter the decline in tourism in relation to other sectors, the UK government should instill confidence to tourists that UK as a tourist destination will still avail value for their money during this period. For instance, the decline in the amount of tourism to other sectors will result from a perception that the price of tourism packages will be hiked and that there will be a scarcity of accommodation facilities during this period. To promote London as a tourism destination, the UK government must ensure that London has a sufficient capacity, set acceptable prices and ensure that the quality of accommodation is high. This will result into an increase in the number of tourists who will visit London during the Games period (London 2012 Olympic Games and Paralympics games; funding and legacy’, 2007, p.41).
After the games, it is expected that there will be an increase in the volume of tourists visiting UK. This is due to the fact that the Olympic Games will form a ‘shop window’ for UK. According to a memorandum by Britain’s DCMS, it is expected that tourism will greatly increase across UK after the Olympic Games event. This is due to the fact that the Olympic Games present a classic opportunity for raising UK’s profile and promoting it as a tourism investment destination. According to London 2012 Olympic Games and Paralympics games; funding and legacy (Anon., 2007), this means that the Olympic Games will result into long term rather than short term economic gains ( In addition, the Tourism Alliance asserts that the growth in UK’s tourism will result from increased media exposure of UK as a tourist destination. However, to sustain the growth in tourism, it is paramount for the UK government to formulate a comprehensive investment strategy aimed at creating exposure.
Impact on trade
According to economic impacts on Olympic Games (2009, p.11), hosting mega events such as World Cup or Olympic Games has positive impacts on the country’s volume of trade. For instance, such events result into an increase in the country’s volume of export trade. The increase in the volume of trade for the country hosting the Olympic Games is not only associated with the infrastructural development but increase in trade liberalization in the country bidding to host such a mega-events (Rose & Spiegel, 2009, p. 5). Liberalization results into opening up of a country to trade with other countries such as formation of trading blocs. By bidding to host mega-event such as World Cup and Olympic Games, a country is able to attract other investments that boost the country’s trade. Rose and Spiegel (2009, p. 6) asserts that this is due to the fact that the bid sends signals of the country’s commitment to liberalize its trade. This has is evident in other countries which have previously hosted such mega-events. For instance, in 2001, Beijing was awarded the chance to hold the Olympic Games and within a period of few months, China became a member of World Trade Organization (WTO). According to findings of a study conducted by Rose and Spiegel, countries which have ever held Olympic Games increased their level of export trade by a margin of 30%. This is due to the fact that liberalization results into an increase in the degree of a country’s openness which enhances it rate of macroeconomic growth.
Increase in business support, diversification and innovation
The Olympic Games will also result into an increase in London’s and UK’s business activity. According to Olympic Games impact study (Anon., 2005), it is estimated that approximately 119 additional firms will be established across UK while 439 new firms will be established in and London during the period ranging from 2005 to 2016. The largest increase in the number of firms established will be experienced during the event. This is illustrated in the table below.
It is expected that the largest growth in the country’s business will be experienced in land passenger transport and construction (‘Olympic Games impact study’, 2005, p.7). On the other hand, London will experience increased growth in three main sectors. According to Olympic Games impact study (Anon., 2005), these include businesses related to sporting facilities, business services and passenger land transport. Growth in these sectors will greatly support the development of new firms and improve the supply chain. The Olympic Games will greatly support UK’s Small and Medium Enterprises (SME’s). This is due to the fact that Olympic Delivery Authority (ODA) has contracted a number of firms to supply the Olympic Games facilities.
According to UK businesses winning London 2012 economic gold (Anon., 2009), 801 companies have been successfully contracted. Of these, 68% are SMEs and 98% of them have their origin in UK. This means that the country’s economic activity will be boosted from the effects of the current economic recession. In addition, the Olympic Games will greatly benefit UK’s firms in that they will acquire expertise in relation to supplying of products and services. This means that the firm will become more innovative in their supplying processes so as to attain a high competitive edge.
Considering the fact that, there is a high probability of the Olympic Games contributing into positive economic impacts, it is paramount that there are strategies to ensure that these benefits are maximized. To attain this, London Development Agency (LDA) and other public sector agencies are increasingly being concerned with how to maximize creation of new employment opportunities to be occupied by local residents. This has resulted into formation of New Olympics’ Club for the suppliers. The association will ensure that the wage level for products and services that are supplied to the Games are consistent with the living standards in North East Region (‘Olympic Games impact study’, 2005, p.8).
Conclusion
Hosting Olympic Games results into both short and long term economic impact to the city and the entire region in which the games are held. UK will greatly benefit by London hosting the 2012 Olympic Games. The event will result into macroeconomic growth to the UK. The country’s GDP will be stimulated enabling the country to recover from the current economic recession. The economic growth will be stimulated before the event, during the event and after the event. The Olympic Games will result into an increase in local investment. By supplying Olympic Games facilities, UK’s SME’s will be regenerated. This is due to the fact that they will benefit from increased business opportunity as a result of being awarded the contract by the ODA. In addition, UK’s companies will also benefit from acquisition of expertise in relation to supplying goods and services.
UK will also benefit from an increment in the level of inward investment. This is due to the fact that the development in infrastructure will result into an increment in the number of foreign investors who will be attracted to invest in London. The Olympic Games will expose London and UK in general as an attractive investment destination due to increased publicity of London through the media. Increase in the level of domestic and Foreign Direct Investment (FDI) will result into an increase in the level of employment and hence the individual’s disposable income. Increase in individual’s disposable income will culminate into an increase in the consumer’s purchasing power. This will increase the country’s GDP since personal consumption forms a significant component of GDP.
In addition, the country’s domestic and foreign tourism industry will also be stimulated. Increase in the number of tourist will stimulate other economic sectors due to an increase in the level of spending.
However, there is a probability of a reduction in the volume of tourism in relation to business and leisure. To ensure that this does not negatively impact the country’s GDP, the government should ensure that it promotes these tourism sectors during the Olympic Games event. It should also ensure that the price of tourism facilities and quality of services are not negatively impacted. This will instill a positive perception amongst the potential tourists resulting into sustained economic growth in the country’s tourism. The Olympic Games will also result into an increase in the volume of UK’s trade. This is due to the fact that by bidding to host the Olympic Games, the country will be signifying a high level of commitment towards liberalization.
Reference list
Adam, B. 2005. The economic impact of the London 2012 Olympic Games (On- line). Nottingham; Nottingham University Business School. Web.
Locate In Kent. 2009. Economic impacts of Olympic Games. (On-line). Kings Hill: West Malling Kent. Web.
Massey, J& Brown, A.2001. Literature review: the impact of major sports events ( On-line) Manchester: Manchester Metropolitan University. Web.
PriceWaterHouseCoopers.2005. Olympic Games impact study. (On-line). London: Department of Culture Media and Sports. Web.
Rose, K &Spiegel, M. 2009. The Olympic Effect. (On-line). San Francisco: Federal Reserve Bank of San Francisco. Web.
The House of Commons. 2007. London 2012 Olympic Games and Paralympics games: funding and legacy. (On-line). London: The Stationery Office Limited. Web.