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  • Sep 16, 2014
  • Updated: 9:06pm
Monitor
PUBLISHED : Friday, 25 January, 2013, 12:00am
UPDATED : Friday, 25 January, 2013, 4:56am

Government overstates cruise terminal benefits by 25 times

With only 16 ships due to call at the new Kai Tak facility in its first 11 months, the contribution to the local economy comes to only HK$27m

The front page of yesterday's South China Morning Post carried a story warning that the Hong Kong government is overstating the economic benefits of its new cruise ship terminal at Kai Tak by a factor of four.

I've got some bad news. The government's over-estimate is far bigger than that.

I'm not quibbling here with my colleagues' projections for how many ships will call at the new terminal, or how much their passengers will spend when they step ashore.

But I am taking issue with how much that spending will add to Hong Kong's economy.

Government officials reckon the Kai Tak terminal will contribute around HK$1 billion to the city this year.

However, according to yesterday's article, only 16 ships are booked to berth at the new terminal in the 11 months after its June opening. Based on past spending patterns, the 34,000 passengers they will disgorge are likely to spend around HK$100 million during their run ashore.

Factoring in a multiplier effect of 2.5 times, Terence Chong, associate economics professor at the Chinese University, said all that extra spending will add HK$250 million to the city's economy.

No it won't. First, we have the question of additionality. Cruise ships already call at Hong Kong. According to the Tourism Board, their passengers spent just over HK$70 million here in 2011.

So if all visiting liners berth at the new terminal, the extra spending will be just HK$30 million, not HK$100 million. Even assuming that half the ships that called before continue to tie up at their old berths while the other half switch to Kai Tak, the additional spending attributable to the new terminal will be only HK$60 million.

Next, we have a question of how much that spending actually contributes to Kong Kong's economy.

Existing visitors devote three-quarters of their non-hotel expenditure to shopping, and a quarter to meals, tours, nightclubs and so on.

Now, most visitors these days are mainlanders who come here with the express purpose of going shopping. So let us assume our new cruise ship passengers are a mixture of Japanese and Europeans, who between them spend half their money on shopping and half on eating out and other entertainments.

Here's the catch. Let's imagine Hans-Peter from Hamburg gets off his ship, wanders into a shopping arcade and spots an Apple iPad for sale at its standard price of HK$3,088.

"Grüss Gott! That's cheaper than back home," he says and promptly buys one.

However, his new iPad was imported into Hong Kong, which means Hans-Peter hasn't pumped HK$3,088 into the local economy. Typically, around 80 per cent of the sale price goes to Apple, its assembler Foxconn, and various component manufacturers. Just 20 per cent goes to local distributors and retailers. So, in fact, Hans-Peter has injected just HK$618 into Hong Kong's economy.

Obviously, the local value-added component of tourist spending on meals, tours and the like is higher. But it is still a lot less than 100 per cent, especially as the cruise operators typically charge local restaurants and tour guides a 30 per cent commission for steering business their way.

As a result, we can estimate that for every HK$1 spent by visiting cruise ship passengers, just 45 HK cents actually goes to the local economy.

Suddenly, the extra value of our new cruise passengers' spending no longer looks like HK$100 million, or even HK$60 million, but just HK$27 million.

Now we come to that pesky multiplier effect. I don't know where Professor Chong got his figure of 2.5 to three times from, but I assume he must be estimating the "indirect" or even the "induced" benefits of tourist spending. The first typically includes investments by government and businesses to serve the tourist trade. The second includes spending by local employees of the tourism industry.

However, according to the standard Tourism Satellite Accounts methodology by which tourism's contribution to the local economy is calculated, neither indirect nor induced value-added count towards gross domestic product.

Tourism lobby groups often complain this is unfair. But even if you allow that there may be indirect benefits from tourism, a multiplier effect of 2.5 to 3 times looks absurdly high by international standards.

A recent study by Hawaii's Department of Business, Economic, Development and Tourism, for example, put the local multiplier effect of the indirect benefits of tourist spending at just 1.34 times.

If we assume the same multiplier for Hong Kong, the economic benefits to the city of the extra tourist spending attributable to the Kai Tak cruise terminal in the first year of its operation will not be HK$1 billion as the government claims, or even HK$250 million as yesterday's paper warned, but just HK$40 million.

That means the government has overestimated the terminal's economic benefits by 25 times. Now that's optimism.

tom.holland@scmp.com

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This article is now closed to comments

keresearch
Why should any shops be open for just 16 days a year
cymrulad
I remember Jake van der Kamp writing that if the terminal was such a good idea, such a money spinner, then let the Cruise Liner industry pay for it. They wouldn't of course as there is no money in for them, just as there is no money in it for HK. Just think what we could have built. I think HK was better served when it was a golf course.
keresearch
We actually suggested that, as Bloomberg did in New York, Cruise Lines paid ten years berthing fees upfront to fund construction,
John Adams
Assuming that the cost of building the cruise terminal has been underestimated by a factor of 4 x ( which is par for the course for any govt concrete-laying project these days , because the "cost of construction" always seems to go up 300- 400% between getting budget approval for a project and the time of its completion) that means the benefit/cost ratio was over-estimated by a massive factor of 4 x 25 = 100 !
Well , I guess that's also par for the course for Donald's concrete-lined nest eggs
caractacus
but the property developers will make an absolute killing on the other construction projects at Kai Tak, which is what this was all about in the first place.......
rpasea
Yes and isn't it SHKP as the lead developer on the adjacent residential sites? I am waiting for the Kwok/RafaelHui case to reach up to Donald. Donald was in the pocket of SHKP from his days as FS when he bought 14 floors of IFC2 for the HKMA above market rates to "boost the market", as was claimed at the time. Boosting SHKP was more like it. And then there is the West Kowloon high speed rail terminus...located to bring more mainland shoppers to SHKP's Elements Mall.
Donald's father was a cop when the HKPD was rife with corruption. Did the young Donald learn to put the squeeze on at his father's knees? Has he been corrupt his entire career? Inquiring minds would like to know. The yacht trips and free hotels may be just the tip of the iceberg. Is there a link to Donald and the massive destruction of govt records since 1997?
keresearch
You do talk ****. Elements is owned by MTR, whilst major owner of IFC was the Lee Shau Kee Group.
megafun
one must find it most disturbing that our Gov on one hand promotes more vistors via sea, while on the other hand is facing a major crisis on mainland vistors' arrival - and the shortage of milk powder. Does Mr. Tien, from the Tourist Board knows that ship shoppers will be able to carry alot of milk powder onto their ships? I, for one, is glad the terminal is not operational now. As I am sure if it is, the entire Kowloon Bay / Kwun Tong area will not have any milk ppowder left!
likingming
Nothing could be comparable to our third runway.
mankydanky
The ICAC/Ombudsman should be looking into the decision process and following the money flow - quid pro quo for the hos/private jet/ yacht rides

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