KPMG Consulting

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

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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)


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

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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

KPMG Consulting

Documents

tourism division

june1 tourism

major tourism project

dayscorporate meetings

new budapest convention

themillennium city center

majority of meetings

association meetingstravel