wales international convention centre (wicc) …...proposed wales international convention centre...

Wales International Convention Centre (WICC)

Economic Impact Analysis

Final Report Welsh Government

March 2016

Lead Author

March 2016

www.miller-research.co.uk | | Twitter: @miller_research

http://www.miller-research.co.uk/

19/12/2016 3

Contents

1 Executive Summary ............................................................................................................ 4

2 Introduction ......................................................................................................................... 6

2.1 Economic Impact Assessment: Overview .................................................................... 6

3 Context ............................................................................................................................... 8

4 Economic Contribution .......................................................................................................11

4.1 WICC Total Economic Contribution .............................................................................11

4.2 Construction Phase .....................................................................................................11

4.3 Operational Phase ......................................................................................................13

4.4 Extension Activity ........................................................................................................14

5 Additional Impacts ..............................................................................................................16

6 Technical Approach ...........................................................................................................17

6.1 Economic Impact Assessment: Methodology ..............................................................17

6.2 Approaches and Assumptions ....................................................................................21

6.3 Calculating Average Salaries ......................................................................................28

Wales ICC Economic Impact Assessment

1 Executive Summary

Economic Impact – Key Facts

Between £225m and £429m contribution to economic activity

between 2016-2025

Between £22m & £64m from extension activity

Between £57m & £89m from construction

Between £146m & £276m from operations

Between 875 and 1,830 FTE jobs supported between 2016-2025

Between 245 and 790 from extension activity

Between 449 and 699 from construction

Between 180 & 341 from operations

This report documents the findings of an independent economic impact assessment of the

proposed Wales International Convention Centre (WICC) at the Celtic Manor Resort

(CMR) which is scheduled to be operational by 1st January 2019.

The Welsh Government and the CMR are working as equal partners on the proposed

WICC which aims to develop a 27,000 square metre convention centre at CMR, with a

4,000 square metre, 10 metres high main hall capable of accommodating 4,000 people.

The proposal also includes an auditorium with fixed seating for 1,500 people, 8 rooms of

varying sizes ranging from 40 to 800 people, and a car park with 1,000 spaces. The WICC

would cater annually for at least 30 events, generating around 90,000 room nights per

year, of which only 18,000 could be accommodated at CMR.

The contribution of the WICC to the economy of Wales over the period 2016 to 2025 is

estimated at being between £225 million and £429 million. This includes a total net impact

of somewhere between £57 million and £89 million from the construction phase (£29-45m

from each year of construction); between £146 million and £276 million from the operation

of the WICC and a further £22 million to £64 million from extension activity resulting from

increased spend of delegates in the wider economy.

Across the whole period, between 875 and 1,830 FTE jobs will be created by the WICC

within Wales. Of this, around 245 to 790 will be created as a result of the operations of the

convention centre. Extension activity of delegates spending in the wider economy1, as a

result of the WICC activities is expected to support around 180 to 341 FTE jobs – around

26 to 49 per year. A net present value (NPV) was calculated by using the HM Treasury’s

recommended figure of 3.5% and also by accounting for the inflation effect (discounting

by 2.5%). The result was that the total net economic impact of between £225 million and

1 For further discussion refer to the extension activity section.


£429 million over the period 2016-2025 has a NPV of between £150 million and £286

million.

The CMR already has a high profile reputation as a conference venue. However, if

developed, the WICC will be Wales’ only facility of its kind or scale, attracting a level of

events which do not come to Wales or SW England at present.

The facility would enable SE Wales to benefit from a level of business tourism not currently

available to the region, especially from the lucrative Association Conference market.

Examples of other cities where facilities have been built, such as Edinburgh and Liverpool,

have shown that large convention centres can bring significant regeneration benefits to

their host communities.

The impacts will come about through the construction phase, the day to day operations of

the WICC and as a result of substantial “extension activities”; including bed nights at other

suitable hotels in the region and delegates and their spouses spending on retail, food and

drink and excursions to local attractions.

The local focus of CMR spend is very strong (95% of all supplier spend occurs in Wales,

mainly in the SE), therefore the multiplier effect is much greater than the Wales average

for the hotel, bars and restaurants industry (2.19 compared with 1.54).

Economic Impact of the WICC – Direct, Indirect and Induced Effects.

Source: Miller Research (UK) Ltd.


2 Introduction

This report documents the findings of an independent economic impact assessment of the

proposed Wales International Convention Centre (WICC) at the Celtic Manor Resort. The aim of

the assessment was to understand the potential impact of the increased investment and revenue

that the WICC would bring, to the Welsh economy. It is expected this report will support on-going

proposals for the WICC.

This assessment builds on investigatory work already carried out for the proposal. This includes

a feasibility study into its potential development, a ‘White Paper’ setting out detailed proposals for

the WICC, and a summary information document which offers updates on the proposal since the

original White Paper.

In short, the proposals are to develop a 27,000 square metres complex comprising:

A main hall of 4,000 square meters and 10 metres high, large enough to accommodate

approximately 4,000 people,

A fixed seating auditorium to accommodate 1,500 people,

Eight meeting rooms of varying size to accommodate between 40 and 800 people,

A car park to accommodate 1,000 cars.

The feasibility study recognises the Welsh Government’s announcement of Autumn 2012 to

support the development of an international convention centre for South Wales as the catalyst for

the proposal from the Celtic Manor Resort. In addition, the Resort recognises that its current

convention centre offer is not sufficient to meet growing demand.

2.1 Economic Impact Assessment: Overview

The WICC contributes directly to Wales’ GDP (Gross Domestic Product) through the GVA (Gross

Value Added) it produces as a result of attracting conventions. This creates new jobs and results

in demand for goods and services in the supply chain (including delegate spend in the wider

economy during their visit) and the wages paid to those people employed in businesses that

supply the WICC. In turn this creates additional spend as the WICC’s suppliers and their

employees consume goods and services in the wider economy.

In economic terms, these impacts are defined in terms of the direct, indirect and induced effects

as explained below:

Direct, Indirect and Induced Effect

The Direct Effect of the WICC’s activity is its contribution to Wales’ GDP and the jobs it

creates.

The Indirect Effect is the increased demand for goods and services in the WICC’s supply

chain.

The Induced Effect is the impact of the WICC’s suppliers and their employees spending in

the wider economy.

This assessment considers the potential impact (direct, indirect and induced effects) of three

distinct phases of activity that will be delivered should the WICC proposals be realised. They are:

Construction Phase – the design and build of the proposed WICC (2016 -2018)


Operational Phase – the year on year running of the WICC (2019 – 2025)

Extension Activity – the spend of delegates in the wider economy during their visit (2019 –

2025)

The full benefit of the activity of the proposed WICC can be estimated by calculating the economic

effects of each phase / activity. The approach taken to measuring the impact – including sources

of information, assumptions and economic modelling used to derive the impact is discussed in

Appendix 1. The subsequent sections of this report present our estimate of these impacts.

In addition to the quantifiable impacts that the WICC might have, it is also expected to have an

impact on wider, less quantifiable factors such as:

An improvement in the profile of South Wales as a place for business, tourism, culture and

leisure;

Support for local facilities and initiatives such as the Newport Science Village, and the Newport

2020 Regeneration Masterplan;

Increase in the competitiveness in the local economy as a result of securing conventions

linked to world class research, business practices and learning.

Some commentary regarding the points above is also offered in this report.


Unique Prospect

WICC – Wales’ only International Convention Centre

3 Context

The WICC White Paper sets out its business case for developing a world leading convention

centre in Wales, capable of attracting conventions from all across the globe. It highlights that there

is no comparable facility in Wales or the South West of England, with the nearest convention

centres being Birmingham and Bournemouth. It also identifies the drive time catchment area

indicating that three quarters of the UK population live within a 2 hour drive of the proposed site.

The opportunity for the Welsh economy to benefit from the WICC by attracting business from

existing conventions as well as generating new international business is identified in the report.

Critically, the report notes that at present there are no facilities capable of hosting large scale

conventions in Wales. Present facilities, including the existing conference centre at the Celtic

Manor Resort, are capable of hosting large conferences but not large scale conventions, which

typically attract significantly more delegates and over longer periods (usually held over several

days).

Although the terms ‘conference’ and ‘convention’ are often used interchangeably to describe

similar events a distinction is typically made on the scale of the operation. Conferences tend to

be meetings of people who confer around a topic and although can be quite large typically do not

reach the same scale as conventions – which can attract thousands of people who share a

common interest.

The White Paper notes its target market for the convention centre identifying three broad types of

clients. The corporate client – who typically hold conventions as part of their annual general

meetings, associations – the not-for-profit or public sector organisations who hold large scale

conventions and which make up 44% of all convention demand, and trade shows – which bring

together and showcase products and services around an industry, theme or topic.

It also notes that the nature of many convention organisers is to operate a rotation system of

events where the location changes each year, to benefit members and widen their reach. As such,

there is an opportunity for Wales to enter the market and capitalise on its potential by developing

an international standard convention centre.

The potential increase in economic activity as a result of the WICC should have particular

importance and interest to the local and regional economies because of the potential for wider

spend of delegates - and those travelling with delegates, in the local area during their stay. The

White Paper notes a number of potential partner attractions in the locality which stand to benefit

from the WICC. They include:

Newport Museum and Gallery;

Caerleon National Roman Legion Museum;

Stately Homes and Castles;

The Riverfront, Newport;


Chepstow Castle;

Shopping at Newport and Cardiff;

Wales Millennium Centre, Cardiff;

Newport International Sports Village;

Brecon Beacons National Park, and

St Fagan’s Natural History Museum.

The following sections set out a detailed approach to measuring an estimate of the impact that

the WICC could potentially bring to the Welsh Economy.


Economic Impact of the Proposed WICC

Construction Phase Total (whole period) Average Annual

Direct Impact £80M £40M

Net Impact^2 Low High Low High Output (£) £52M £80M £26M £40M

Employment (FTEs) 410 638 205 319 Total Net Impact*

Output (£) £57M £89M £29M £45M Employment (FTEs) 449 699 225 350

Output Multiplier 0.72

Operational Phase Direct Impact £147M £21M

Net Impact (direct and Indirect) Output (£) £131M £247M £19M £35M

Employment (FTEs) 167 315 24 45 Total Net Impact3



Extension Activity Direct Impact £70M £10M

Net Impact (direct and Indirect) Output (£) £18M £54M £3M £8M

Employment (FTEs) 221 711 32 102 Total Net Impact*



Total Net Economic Impact Low High Low High Output £225M £429M £53M £93M

Employment 875 1,830 285 511 Net Present Value (NPV) £150M £286M £35M £62M

2 Direct and Indirect effects 3 Direct, Indirect and Induced income effects


£ 225million to £ 429million

The estimated economic impact of the WICC between 2016-2025

4 Economic Contribution

4.1 WICC Total Economic Contribution

The estimated total direct, indirect and induced impact of the proposed WICC between 2016 and

2025 is between £225 million and £429 million – an annual average of around £53 million to £93

million. This includes a total net impact of £57 million to £89 million from the construction phase

(£29m to £45m from each year of construction); £146 million to £276 million from the operation of

the WICC and a further £22 million to £64 million from extension activity resulting from increased

spend of delegates in the wider economy.

Across the whole period, between 875 and 1,830 FTE jobs will be supported by the WICC within

Wales (an average of 285 to 511 every year). Between 180 and 341 will be supported as a result

of the operations of the convention centre. During the two-year construction period, between 449

and 699 FTEs will be supported in the wider economy or 225 to 350 per year. Extension activity

of delegates spending in the wider economy4, as a result of the WICC activities is expected to

support around 245 to 790 FTE jobs.

A net present value (NPV) was calculated by using the HM Treasury’s recommended figure of

3.5% and also by accounting for the inflation effect (discounting by 2.5%). The result was that the

total net economic impact of £225 to £429 million over the period 2016-2025 has the NPV of £150

million to £286 million.

The impact for each phase of activity is discussed in turn below.

£ 57million to £89million

The estimated economic impact of the design and build of the proposed

WICC

4.2 Construction Phase

Output

An estimated net total GDP contribution to the Welsh economy in the region of £57m to £89m

was established - based on estimates from the CMR regarding the design and construction costs

for the proposed WICC (£79m).

4 For further discussion, refer to the extension activity section.


This comprises an expected direct and indirect impact of £52m to £80m along the WICC’s supply

chain (direct and indirect impact) plus an additional £5m to £9m from the additional induced effect

of employees’ consumption in the economy.

Employment

Estimates of the employment effect of the investment suggest that a net total of 449 to 699 FTE

jobs will be supported during the construction phase5, which is around 225 to 350 per year. This

includes all jobs supported by the spend of the main contractors on supplies, as well as the jobs

supported in the wider economy from the induced spend of the employees of companies

supplying the WICC.

This suggests that around £127,500 of construction output is required to support one FTE job.

Sensitivity Analysis

The economic model uses assumptions for the suitable size of deductions. The impact calculation

assumes deadweight of somewhere between fifty per cent and twenty-five per cent. That is, it is

assumed that no more than half and no less than a quarter of all construction activity that takes

place as a result of the build of the WICC would have happened in Wales anyway. For example,

the people employed to build the WICC would have worked elsewhere in Wales, on other

construction projects if the WICC did not go ahead6. The true deadweight figure is unknown and

so the assumed range of between fifty per cent and twenty-five per cent was chosen as the most

conservative estimate. Displacement is modelled at zero per cent for this calculation based on

the assumption that there are no other major construction projects planned during the suggested

timeframe that would mean that the WICC prevents employees in Wales from working on other

projects. That is, there is sufficient capacity in the construction labour market to meet the demand

for labour for the WICC. This value is assumed to remain constant in each scenario. A further

deduction of five per cent is included to account for optimism bias7 which is a fixed figure. The

sensitivity analysis (Table 1) suggests that the impact of construction could be as high as £121m

if there was no deadweight or as low as £26m if the level of deadweight is around seventy-five

per cent. Similarly, employment could range from as much as 949 if there was no deadweight or

200 if deadweight was around 75%. The suggestion in this model is that the true impact is most

likely to lie somewhere within the range shown as scenario’s three and four.

Table 1 Construction Phase - Sensitivity Analysis – Output & Employment

Scenario 1 Scenario 2 Scenario 3 Scenario 4 Scenario 5

Deduction (%)

Deadweight 0% 10% 25% 50% 75%

Displacement 0% 0% 0% 0% 0%

Optimism Bias 5% 5% 5% 5% 5%

Output Multipliers

Type 1 (1.27) £109M £97M £80M £52M £23M

Type 2 (1.40) £121M £108M £89M £57M £26M

Employment Multipliers

Type 1 (1.36) 866 775 638 410 182

Type 2 (1.49) 949 849 699 449 200


5 See detailed methodology in Appendix. 6 A detailed discussion on deductions from deadweight and other factors can be found in the chapter on detailed methodological

approach in the Appendix. 7 That is the demonstrated tendency for evaluators to overestimate the true impact. It is a standard figure as advised by HM Treasury.


£ 146million to £276million

The estimated economic impact of the operational phase of the proposed

WICC

4.3 Operational Phase

Outputs

The expected economic impact to the Welsh economy over the seven-year period of the activities

of the WICC is estimated between £146m and £276m, an average £21m to £39m per operational

year. This figure is calculated by estimating the amount of business that the WICC will generate

from the delegates that it will attract - as forecasted in the White Paper8, and by modelling how

the costs that the WICC will incur in providing the services to meet the demand, will be spent. An

itemised spend profile was established for the WICC – which shows the expected WICC spend

for each year of operation, which was linked to the industry in which the spend will occur, so that

the appropriate multipliers could be used9.

Employment

The operational phase of the WICC is expected to support around 180 to 341 FTEs per year in

the wider economy. This includes the jobs that will be supported by the activity of the WICC in the

companies of the supply chain of the WICC as well as the employment in companies that generate

income from the spend of people employed at the WICC.


The economic model uses assumptions for the suitable size of deductions. It is largely unknown

to what extent the WICC will attract new conferences that would not otherwise have taken place

in Wales. Likewise, it is also unknown to what extent events at the WICC are those which would

have taken place somewhere else in Wales in the absence of the WICC. Given that the WICC is

creating a venue of a size that does not already exist in Wales, a proportion of events will definitely

be new to Wales. Conversely, some of the events that the WICC attracts may be events that are

already taking place at other venues across Wales. Nonetheless, an argument could also be

made that any business that the WICC takes from existing venues will subsequently be filled as

other venues find alternative events to fill gaps in their schedules. Thus, in the absence of a known

value, this model assumes that the true proportion of new events to Wales lies somewhere

between fifty per cent and ninety per cent. It is argued that it is unlikely that the WICC will not

replace some events in Wales. Therefore, the conservative (low) estimate assumes that fifty per

cent of conferences that the WICC attracts would have taken place in Wales anyway. Whilst the

optimistic (high) assumption suggests that only ten per cent of events would otherwise have taken

place in Wales (that is ninety per cent are new to Wales). A sensitivity analysis was carried out to

illustrate the relative impact figures based on the varying degrees of displacement discussed.

This is shown in Table 2. The other deductions remain constant. The amount of deadweight is

considered to be zero as it is argued that without intervention there would be no additional

8 A document produced to support the business case for the WICC. 9 See technical Appendix for further description regarding the methodology used.


outcomes. A further deduction of five per cent is included to account for optimism bias10 which is

a fixed figure. For employment, a similar argument regarding displacement is adopted. That is, a

degree of employment will simply be displaced (or substituted) from employment at other venues

across Wales.

Table 2 Operational Phase - Sensitivity Analysis


Deductions

Deadweight 0% 0% 0% 0% 0%

Displacement 0% 10% 25% 50% 75%


Output Multipliers

Type 1 (1.96) £276M £247M £203M £131M £58M

Type 2 (2.21) £308M £276M £227M £146M £65M


Type 1 (1.11) 352 315 260 167 74

Type 2 (1.2) 381 341 281 180 80


£ 22 million to £64 million

The estimated contribution to economic impact of extension activities

associated with WICC events between 2019 and 2025

4.4 Extension Activity

Extension activity relates to spend of the delegates and their spouses outside of the WICC as

part of their stay. This includes a certain amount of money that will be spent on accommodation

in other hotels - as the WICC will not be able to provide accommodation for all conference /

convention delegates. Further, there will also be an element of delegate (and spouse) spend

outside the WICC as part of their stay - for example on other goods such as food and drink,

souvenirs etc. and services such as visits to tourist attractions and spend on travel outside of the

conference (taxis, trains, to and from attractions and the airport). These additional costs have

been modelled to provide an estimation of the overall impact of delegate spend for people

expected to come to the WICC.

Output

The total direct spend arising from extension activity11 associated with forecast delegate numbers

is calculated to be approximately £70m between 2019 and 2025, or £10m per year going into the

economy. Some of this expenditure will leak out of Wales as people choose to stay in hotels in

England12 (especially considering the proximity of the WICC to the border) and some expenditure

is simply replacing money that would otherwise have been spent in Wales on other things. The

resultant spend is then multiplied, as money is recirculated by suppliers within Wales. Modelling

this impact by considering scenarios (which vary the assumptions of the amount to deduct from

10 That is the demonstrated tendency for evaluators to overestimate the true impact. It is a standard figure as advised by HM Treasury. 11 Wider spend associated with attending events, such as accommodation, shopping, cultural tourism and food and drink. 12 This is estimated at 50%. See appendix for detailed discussion.


the estimations13) suggests that in total, extension spend translates to a net economic impact

somewhere between £22m and £64m over the seven-year period, once supplier effects and the

induced effects of employees’ consumption are taken into consideration.

Employment

In addition, between 245 and 790 jobs are expected to be supported (FTEs) over the whole period

or 35 to 113 per year.


The economic model considers the extent to which the events expected to take place at the WICC

will be new to Wales, or will simply replace events that would otherwise have taken place anyway.

In the latter situation, the economic impact is not new to Wales and should therefore be

discounted. In the estimate provided above, the assumption is that fifty per cent of the events will

be new to Wales – for the same reasons as previously explained. That is, the WICC is expected

to create an event space that Wales does not currently have. It will therefore attract conferences

that would not otherwise have come to Wales. Of course, the true value of the amount of

deadweight is unknown and therefore a sensitivity analysis is considered – which varies the

assumed level of deadweight.

The model also needs to consider whether the people who attend the events are simply spending

money that would have otherwise been spent in Wales. This is because of the assumption that

people’s income is finite and if they choose to spend their money at a WICC event, then they have

less money to spend elsewhere in the Welsh economy. The most suitable method of measuring

this impact is to assume that any money spent by Welsh delegates is simply displacing money

that would otherwise have spent in the Welsh economy. Therefore, an assumption is made, based

on the expected proportion of delegates from the hypothetical diary of events, that come from

Wales. This figure is calculated as twenty-seven per cent14, therefore this proportion of delegate

spend is discounted from the model as displaced expenditure. Given that an estimate of the level

of displacement can be obtained, it is held constant for the sensitivity analysis. As before, the

standard level of five per cent optimism bias is also discounted. The outcome of the sensitivity

analysis is shown in Table 3. It shows that the impact of extension activity could be as high as

£65m if there was no deadweight or as low as £6m if there was 75% of deadweight. The

equivalent employment figures are 926 and 0 respectively15.

Table 3 Extension Activity - Sensitivity Analysis for Output & Employment


Deductions

Deadweight 0% 10% 25% 50% 75%

Displacement 27% 27% 27% 27% 27%


Output Multipliers

Type 1 (1.3) £63M £54M £41M £18M £2M

Type 2 (1.54) £75M £64M £48M £22M £2M


Type 1 (1.17) 833 711 527 221 0

Type 2 (1.3) 926 790 586 245 0


13 See technical appendix for detailed approach. 14 See technical appendix. 15 Zero FTE will be created given that the level of deductions is greater than 100%. This means that no additional jobs are supported

by the WICC than would otherwise be supported in the absence of the WICC. Thus there is no net benefit of FTE jobs supported, if the deadweight is 75%, displacement 27% and optimism bias 5%.


5 Additional Impacts

The extent to which the proposed WICC has impacted on a number of non-quantifiable factors

has also been considered. They include:

An improvement in the profile of South Wales as a place for business, tourism, culture and

leisure – The WICC is expected to attract around 115,000 delegates annually, covering a wide

range of associations, corporations and other interest groups. Being able to host such events

in Wales will undoubtedly raise its profile as a place for business, tourism, culture and leisure.

The CMR actively promotes its associations with a range of local and regional tourist

attractions to its delegates, to both increase knowledge of, and spend within the South Wales

area.

Support for local facilities and initiatives such as the Newport Science Village, and the Newport

2020 Regeneration Masterplan – Newport is in need of regeneration and the development of

the WICC would significantly stimulate the local economy and will in turn lead to increased

economic activity. As a result, the direct and indirect effect of spend at the CMR will support

the aims of the Regeneration Masterplan. By attracting world leading research institutes to

the WICC, the Newport Science Village will surely benefit. The association of Newport as a

place for scientific research – created by attracting such events to the WICC would have a

positive knock on effect for the Science Village.

Increase in the competitiveness in the local economy as a result of securing conventions

linked to world class research, business practices and learning – Previous research has

shown that the UK conference market has been forecast to grow sixteen per cent by 2020.

Without an international convention centre suitable to host large scale events in Wales, the

Welsh economy would entirely miss out on this growing market. By attracting such events to

Wales, the competitiveness of supplier companies would be expected to increase.


6 Technical Approach

This section of the report documents a detailed approach to the methodology adopted and

presented in the main body of the report.

6.1 Economic Impact Assessment: Methodology

This section describes the methodology used to estimate the direct, indirect and induced effects

of the WICC. The model used to estimate the effects is based on the understanding that economic

activities are interconnected through supply chain interactions which transcend sectoral

boundaries. That is, the production of an output of a good or service increases the demand for

additional goods and services from a variety of sectors, so that it can be provided. Therefore, an

increase in demand for one product or service stimulates demand for other goods and services

in the wider economy. Likewise, an increase in output will increase the demand for labour for both

the company producing the final product or service as well as among those companies supplying

the required goods and services.

Input-Output models offer a way of understanding the interaction in an economic system by

determining the relationships between buyers and their suppliers. The Welsh Input-Output

model16 shows the flow of goods and services between industries in the Welsh economy and as

such can be used for economic modelling purposes. Specifically, the model provides analytical

tables that estimate the economy-wide impact of changes to demand (vis-a-vis output) in the form

of multipliers and in doing so allows the calculation of the direct, indirect and induced income

effects of a change in demand. These effects are defined as:

1. A Direct effect arising from the initial increase in economic activity, the GVA it generates

and the additional jobs it creates.

2. An Indirect effect arising from the additional demand of goods and services along an

industry’s supply chain.

3. An Induced effect arising as an effect of households spending a share of the additional

income generated through the provision of labour on the consumption of goods and

services.

As expressed in the Welsh Input-Output model, the ratio of the direct, indirect and induced income

effect to the direct effect is termed a Type 2 multiplier. A Type 1 multiplier excludes the induced

effect. This is shown in Figure 1.

This economic assessment considers two key economic variables:

1. Gross Domestic Product (Output)

2. Employment

Gross and Net Benefits

The increase in gross output as a result of the creation of a WICC has been provided by the CMR

in the form of a seven-year revenue forecast. This was carried out as part of a separate study

16 Welsh Economy Research Unit, ‘The Input-Output Tables for Wales 2007’, July 2010.


used to inform the WICC proposal. It provides expectations of revenue from convention centre

bookings and offers a breakdown of expected spend by activity i.e. payroll, costs of sales, costs

of production etc. This spend has been used to calculate the gross benefit as explained overleaf.

As recommended in the HM Treasury’s Green Book, the net benefit of the intervention has been

calculated by establishing the gross benefit, less the benefits that would have occurred in the

absence of intervention (the ‘deadweight’), less the negative impacts elsewhere (including the

‘displacement’ of activity), plus the multiplier effect. The various assumptions used to derive these

effects are explained below.

Deadweight and Displacement

A general overview of deadweight and displacement is offered below. Further discussion

regarding the specific approach to each phase of activity follows.

HM Treasury guidance recommends that all expenditure by visitors who live locally should be

disregarded as ‘displaced expenditure’. This is based on the assumption that these local residents

only earn a finite amount of money each year. Therefore, if they spend a proportion of this money

during their visit to the WICC, they will have less money to spend in other local businesses over

the course of the year. To derive an estimation of the proportion of people who live locally (within

Wales), we have estimated the proportion of delegates / visitors that come from Wales, based on

a hypothetical diary of events derived as part of the feasibility study. This suggested that 27% of

delegates will come from Wales.

As defined by the HM Treasury, deadweight refers to outcomes which would have occurred

without intervention. With the absence of another WICC in Wales, and no other centres large

enough to support such events, it is assumed that 50% of the hypothetical diary of events would

not be able to be delivered in Wales, without the WICC. That is, they are new to Wales. The rest

of the events, would, in theory, be able to be delivered by other venues in Wales.

The deadweight effect on the creation of employment has been estimated by considering the

type of jobs created and the level of unemployment in the area. In the Newport area and in Wales

as a whole, unemployment levels are relatively high (unemployment rate in Wales: 6.6%17).

Considering that many of the jobs being created by the WICC will be low skilled jobs (63%18), it

is reasonable to assume that a high proportion of the gross employment created will be occupied

by unemployed people and thus for the purpose of this impact assessment we have assumed a

conservative 50% deadweight rate. That is, half of the gross jobs created will be taken up by

unemployed people, the other half would have been employed anyway.

Defining the Multipliers

Type 1

The Input-Output model uses industry wide data and as such provides an estimation of the

interaction between buyers and sellers. With a company’s individualised spend profile it is

possible to gain a better understanding of the interaction along the supply chain and thus more

accurately model the direct and indirect effect of an increase in output – i.e. the Type 1 effect.

17 Labour Force Survey estimates for the 12 months to September 2015. 18 Taken from http://www.wates.co.uk/sites/all/modules/filemanager/files/PDF/L.E.K._Construction_in_the_UK_Economy.pdf


This is particularly important for companies who have a policy to source a high proportion of

supplies from the local / regional economy. For such companies, a greater proportion of the direct

effect will be felt in the local / regional economy.

For this analysis, data on the source of the Celtic Manor Resort’s (CMR) spend on suppliers was

provided. This data was categorised by industry and location so that a detailed understanding of

where CMR supplier spend occurs was achieved. Making the assumption that existing CMR

spend will reflect the future spend of the WICC (i.e. assuming that CMR continues to source its

goods and services from the same suppliers that it currently does) it is possible to use this data

to formulate a customised Type 1 multiplier for the WICC.

Figure 1 Direct, Indirect and Induced Effect: Type 1 and 2 Multipliers


Type 2

To derive the Type 2 effect, the ratio between Type 1 and Type 2 multipliers from the Wales Input-

Output tables was applied to the customised CMR Type 1 multiplier to provide the most accurate

approximation of the Type 2 effect from the available data. Within the scope of this project it was

not possible to survey the suppliers of the CMR to establish where their spend and that of their

employees ends up, therefore the best approximation would be to apply the Type 2:Type 1

multiplier ratio to CMR’s Type 1 multiplier.

Additional employment has been calculated by establishing the proportion of direct investment

allocated to employees – by using an estimate of the payroll to revenue ratio provided by CMR,


and calculating the number of FTEs created based on average industry salaries using ONS

statistics. Subsequently, the Type 2 impact of this employment creation was calculated using

Wales Input-Output multipliers.

Optimism Bias

The HM Treasury ‘Green Book’ guidance recommends that all forecasts should incorporate an

adjustment for optimism bias. This is defined as “the demonstrated systematic tendency for

appraisers to be over-optimistic about key project parameters”. The basis of this analysis is

derived from forecast figures of expected levels of revenue, based on a hypothetical diary of

events (provided by the CMR). Despite the fact that this diary considers business turned away in

previous years of operation, we acknowledge that there is potential for some degree of optimism

bias in these figures.

Meanwhile, some of the impact assessment effects are based upon observed past performance

– specifically the supplier spend, which has led to the establishment of a relatively unbiased

interpretation of the direct and indirect effects. Although a subsequent assumption is made that

the same spend profile for CMR will be retained for the WICC (which is likely i.e. current suppliers

will be retained) we believe that there is little scope for over-optimism in these figures.

Therefore, taking into account potential bias in forecast figures, we have incorporated a 5%

optimism bias adjustment for caution.

Discounting

The Green Book defines discounting as a technique used to compare costs and benefits that

occur in different time periods. The rationale for this is to account for the time value of money.

That is that generally, people prefer to receive goods and services now rather than later. In this

analysis, the time period 2016 to 2025 was modelled using forecasted data and thus future

benefits should be discounted so that the initial investment can be justified. The recommended

discount rate is 3.5%.

Inflation

This model is attempting to measure the impact in future time periods and therefore expected

changes in price should be considered. Generally speaking19 prices are expected to rise over

time (inflation). In this model, inflation is estimated at the Bank of England’s target rate of 2% per

annum. Therefore, prices are inflated by 2% each year, on the previous year’s prices. For

example, the average hotel room price in 2015 is £81.84 in Cardiff, which is estimated at being

£88.59 in 2019.

19 In normal economic times the level of inflation is expected to be positive although during a recession the inflation level may be

negative.


6.2 Approaches and Assumptions

6.2.1 Construction Phase

Forecasted costs for the design and build of the proposed WICC were provided by the Celtic

Manor Resort. They included costs broken down by item. These costs were categorised into

standard industry classifications (SICs) to derive appropriate multipliers – by matching with

industry classifications in the Welsh Input-Output model. Based on the existing spend profile of

the CMR, and making assumptions regarding the destination of spend, customised Type 1

multipliers were established. See discussion on defining the multipliers above.

To calculate the increased employment as a result of the construction phase, the direct

investment (cost of design and build) and an approximation of the amount of investment that is

required for labour (20%) was used to derive the allocation of direct spend for labour.

Subsequently, an average wage for a typical construction project was established using known

proportions of standard occupation and the ONS’ average occupational salaries20. Applying the

average salary for the construction industry to the employment allocation of total spend derived,

a gross number of jobs was established. Deducting for optimism bias and the displacement effect

yielded a net number of jobs created. Adding the multiplier effect to the net number of jobs (based

on the Wales input-output table employment multiplier for construction) yielded the total net

number of jobs created (Type 1 and 2).

Figure 2 Calculating Employment for Construction Phase

Direct Investment £79,968,000

Payroll allocation 20%

Amount of turnover to employment £15,993,600

Average industry salary (FTE) £23,863

Gross No. of FTEs 670 Scenario 1 2 3 4 5

Optimism bias 5% 5% 5% 5% 5%

Deadweight 0% 10% 25% 50% 75%

Displacement effect 0% 0% 0% 0% 0%

Net No. of FTEs

Total After deductions 637 570 469 302 134

Type 1 (1.36) 866 775 638 410 182

Type 2 (1.49) 949 849 699 449 200


It is assumed that half of all construction activity that takes place as a result of the build of the

WICC would have happened in Wales anyway – thus deadweight was fifty per cent. For example,

the people employed to build the WICC would have worked elsewhere in Wales, on other

20 See section 6.1.1 Calculating Average Salaries.


construction projects if the WICC did not go ahead21. The true deadweight figure is unknown and

so the assumption of fifty per cent was chosen as a conservative estimate. Displacement is

modelled at zero per cent for this calculation based on the assumption that there are no other

major construction projects planned during the suggested timeframe that would mean that the

WICC prevents employees in Wales from working on other projects. That is, there is sufficient

capacity in the construction labour market to meet the demand for labour for the WICC.

6.2.2 Operational Phase

The estimated economic impact of output generated as a result of the operational phase of the

WICC was estimated using forecast revenue and spend statistics derived by CMR as part of the

feasibility and White Paper studies. They show expected revenue based on an achievable

hypothetical diary of events, that is informed by the existing conference centre data held by CMR

as well as data of potential conventions turned away in previous years – either because the date

wasn’t available (more demand than supply i.e. not enough convention centre facilities) or

because existing facilities were too small. Expectations of how that revenue will be spent –i.e.

budget items were also provided.

This data was used to understand where the spend occurred by profiling spend of the previous

year at the CMR as a whole, and making the assumption that the same profile of spend would be

carried out by the WICC (i.e. they would use the same suppliers). This provided a clear picture of

how much money would be spent with the suppliers, by type of supplier (industry classification)

and location. From this, customised Type 1 multipliers were developed from which, using Wales

input-output model Type1:Type2 ratio’s – it was possible to derive tailored Type 2 multipliers. A

breakdown of the cost items, the assigned category and multipliers are shown in Table 4.

Table 4 Operational Phase - Categorising Spend, Regional Distribution and Multipliers

Spend Item Category Multipliers

Type1 Type2

Cost of Sale (purchases)

Food COS Wholesale and retail 1.91 2.2

Beverage COS Wholesale and retail 1.91 2.2

Equipment Hire COS Other professional services 1.975 2.2

Operating Payroll

Kitchen CMR (payroll) 2 2.23

Pastry Kitchen CMR (payroll) 2 2.23

Stewards CMR (payroll) 2 2.23

F&B Staff CMR (payroll) 2 2.23

Conference Porters CMR (payroll) 2 2.23

Public Area Cleaners CMR (payroll) 2 2.23

Food & Beverage Management CMR (payroll) 2 2.23

Technical Services CMR (payroll) 2 2.23

Other Expenses

Uniforms Wholesale and retail 1.91 2.2

Linen Hire Other professional services 1.975 2.2

Crockery & Utensils Other professional services 1.975 2.2

21 A detailed discussion on deductions from deadweight and other factors can be found in the chapter on detailed methodological

approach in the Appendix.


Cleaning Supplies Wholesale and retail 1.91 2.2

Guest Supplies Wholesale and retail 1.91 2.2

Stationery Wholesale and retail 1.91 2.2

Contract Cleaning Other professional services 1.975 2.2

Unform Laundry Other professional services 1.975 2.2

Music & Entertainment Recreation 1.98 2.31

Flowers & Decoration Wholesale and retail 1.91 2.2

Traditional Festivities Recreation 1.98 2.31

Telephone & Fax Postal and telecommunications services 1.64 1.89

Equipment Rental Other professional services 1.975 2.2

Staff Travel Other professional services 1.975 2.2

Travelling Expenses Other professional services 1.975 2.2

Motor Expenses Other professional services 1.975 2.2

Training Education and health 1.96 2.34

Miscellaneous Expenses Wholesale and retail 1.91 2.2

Kitchen Smalls Wholesale and retail 1.91 2.2

Kitchen Equipment Replacement Wholesale and retail 1.91 2.2

Equipment Replacement Wholesale and retail 1.91 2.2

AV Smalls Wholesale and retail 1.91 2.2

Front of House Sundries Wholesale and retail 1.91 2.2

Kitchen Sundries Wholesale and retail 1.91 2.2

Kitchen H&S Wholesale and retail 1.91 2.2

Supercheques Other professional services 1.975 2.2

Overheads - Payroll

Administration CMR (CMR) 2 2.23

Sales and Event Management CMR (CMR) 2 2.23

Marketing CMR (CMR) 2 2.23

Security CMR (CMR) 2 2.23

Maintenance CMR (CMR) 2 2.23

Other CMR (CMR) 2 2.23

Overheads - Other costs

Administration CMR (CMR) 2 2.23

Sales and Event Management CMR (CMR) 2 2.23

Agents’ Commissions CMR (CMR) 2 2.23

Marketing CMR (CMR) 2 2.23

Maintenance CMR (CMR) 2 2.23

Other CMR (CMR) 2 2.23

Fixed Costs

Business Rates Population Profile 2 2.23

Insurance Other professional services 1.975 2.2

Energy Electricity, gas and water 2 2.07

Profit/loss Population Profile 2 2.23


Accounting for deadweight, displacement and optimism bias, and applying the multipliers led to

the calculation of total net impact.


Spend that was expected to take place between the WICC and CMR (i.e. the provision of existing

staff and other resources – thus primarily overheads) was determined to be realised 100% in

CMR.

Employment estimates for the operational phase were based on the provided payroll to revenue

ratio from the forecasted financial figures of 21.2%. The annual direct investment over the whole

operational period was used to derive the allocation of spend on wages. Subsequently, the

average salary for the broad industry group wholesaling, retailing, hotels & restaurants (SIC 2007

sections G & I) was used to determine the gross number of jobs created. Reducing this figure for

optimism bias, displacement and deadweight effect (see discussion elsewhere) and then

multiplying by the Wales input-output multipliers (type 1 and 2) for the hotel and catering industry

yielded the indirect and direct (type 1) and indirect, direct and induced (type 2) net impact on job

creation.

For operational activity, the assumption was made that between fifty per cent and ten per cent of

conferences that the WICC attracts would have taken place in Wales anyway – that is if the WICC

did not exist.

The amount of deadweight is considered to be zero as it is argued that without intervention there

would be no additional outcomes.

6.2.3 Extension Activities

Extension activity comprises the collective income and outputs associated with WICC events, but

external to the WICC itself. These include:

Accommodation. A full-year forecast for WICC activity suggests that it will create demand

for additional bednights in the area. Celtic Manor Resort can only supply a proportion of these

additional places and so the majority of demand will be satisfied by partner hotels, mainly in

Newport and Cardiff. The demand will arise from both delegates and spouses22.

Non-Accommodation Spend. Whilst staying in the area, delegates and their partners will

spend on food and drink, shopping and entertainment. Some of this will be packaged by the

conference organisers or by Celtic Manor, whilst much of it will be undertaken independently

by delegates.

The extension activity is especially important in terms of the strategic value of a project such as

the WICC, as the majority of spend occurs away from the site, in the neighbouring local

economies.

The calculation of the impact of extension activities takes place as follows:

Accommodation Spend

The total number of forecast bednights generated by conference activities is used as the starting

point. In the first full year of operation (2019), this was forecast at 125,000. Each year, the number

of bed nights is forecast to increase by five per cent.23

22 For example, the Delegate Expenditure Survey (UK National Tourist Boards and Failte Ireland, 2006) showed that 12% of

international association conference delegates brought a spouse with them for the period of their conference stay. 23 This is in line with the forecasts in the WICC feasibility study.


Celtic Manor Resort enjoys high occupancy rates and can accommodate only a further 10,000

bednights per year, on average. An assumption was made that fifty per cent of external

accommodation requirements would take place in Wales and fifty per cent outside Wales. Given

the proximity and ease of travel from the WICC to England, this is a reasonable assumption.

Conference delegates have a range of requirements and personal budgets and so it was

necessary to estimate a demand profile for rooms at different grades and cost. For this exercise

we have assumed a profile as follows:

2 Star: 20%

3 Star: 40%

4 Star: 30%

5 Star: 10%

If the required bednights are distributed in line with this profile and in proportion to the

representation of hotels at each grade in each area, an accommodation forecast can be

generated as in the table below.

Table 5 Forecast Bednight Distribution across Partner Hotels

Additional Bednight Distribution – Star Rating Wales Outside Wales Total

2* 11,500 11,500 23,000

3* 23,000 23,000 46,000

4* 17,250 17,250 34,500

5* 5,750 5,750 11,500

Total 57,500 57,500 115,000 (Forecast: 100% year basis)

The average hotel room price was calculated using the available industry data24 and inflating to

2019 prices (2% per annum). The modelled distribution of the additional bednights by star rating

and the average price by star rating was used to derive a total external accommodation cost.

Table 6 Calculating Average Room Price – 2015

Edinburgh 2012 Edinburgh 2015 Cardiff 2015

£68 £74 £55.51

£79 £86 £64.49

£103 £112 £84.09

£151 £164 £123.27

Average Room Cost £81.84

24 Hotels.com 2012 prices for Edinburgh. Assumed Cardiff prices were 75% of Edinburgh.


Table 7 Potential Income to External Hotels - 2019

Star Rating Wales Outside Wales Total

2* £691,030 £691,030 £1,382,061

3* £1,605,629 £1,605,629 £3,211,259

4* £1,570,062 £1,570,062 £3,140,123

5* £767,247 £767,247 £1,534,494

Total Gross accommodation spend £4,633,968 £4,633,968 £9,267,937 (Forecast: 100% year basis)

This gross figure was discounted to take account of deadweight and displacement. The

assumption is made that between fifty per cent and ninety per cent of the events will be new to

Wales (deadweight). That is, the WICC is expected to create an event space that Wales does not

currently have. It will therefore attract conferences that would not otherwise have come to Wales.

The model also needs to consider whether the people who attend the events are simply spending

money that would have otherwise spent in Wales. This is because of the assumption that people’s

income is finite and if they choose to spend their money at a WICC event, then they have less

money to spend elsewhere in the Welsh economy. The most suitable method of measuring this

impact is to assume that any money spent by Welsh delegates is simply displacing money that

would otherwise have spent in the Welsh economy. Therefore, an assumption is made, based on

the expected proportion of delegates from the hypothetical diary of events, that come from Wales.

This figure is calculated as twenty-seven per cent25, therefore this proportion of delegate spend

is discounted from the model as displaced expenditure. The standard level of five per cent

optimism bias is also discounted.

This net spend will be leveraged to the extent that income is spent with local suppliers (indirect

spend) and the induced income effects arising from more money becoming available in the

economy as a result. Applying the multiplier for hotels, restaurants and bars from the Welsh Input

Output tables, (Type 1 = 1.3, Type 2 =1.54), derived a total net amount. A sensitivity analysis was

applied to this data and is discussed in the main body.

Non-accommodation Spend

As noted above, WICC delegates will also spend significant sums on food and drink during their

stay, along with retail shopping and visits to historic attractions or other places of interest. This

spend is more difficult to forecast, as there is a dearth of up to date information on the topic, the

most recent industry survey being the 2006 Delegate Expenditure Survey (UK National Tourist

Boards and Failte Ireland). This provides some guidance on the average daily delegate

expenditure of conference visitors and their spouses, including accommodation. If we take these

figures and subtract any expenditure relating to accommodation and other spend that would occur

at the WICC (this spend is included in the model via the operational income), namely, registration

fee, food and drink at the conference, and evening entertainment at the conference venue; we

can estimate the non-accommodation spend of visitors for each conference type as follows:

25 See technical appendix.


Table 8 Estimated Delegate Spend by Conference Type

Conference Type Average Expenditure Per Delegate

Average Expenditure

(2006) Per Delegate Excluding

Accommodation26 (2006)

Per Delegate Excluding

Accommodation (Inflated to 2016)

Domestic Association Day Conference

£ 170.00

£ 13.60

£ 18.25

Domestic Association Multi-Day Conference

£ 461.00

£ 57.63

£ 77.34

International Association

£ 364.00

£ 40.04

£ 53.74

Corporate Multi-Day £

459.00 £

45.90 £

61.60

Corporate Day £

120.00 £

18.00 £

24.16 Based on 2006 Delegate Expenditure Survey and Miller Research data

The feasibility study for the WICC contains an example diary of events for a single year of

operation, by conference type. Using this as a basis, the proportion of expected delegate days by

conference type can be estimated. By subsequently applying this to the total number of expected

bednights27, a forecast spend profile can be achieved.

Table 9 Forecast Delegates by Conference Type

Conference Type Proportion of Delegate Days

National Association 73%

International Association 20%

National Corporate 4%

International Corporate 4%

Multiplying the non-accommodation spend by the number of expected delegates derives a direct

amount of spend. Discounting for deadweight, displacement and optimism bias – using the same

assumption as per the accommodation spend – and then multiplying by industry Type 1 and Type

2 derives an overall non-accommodation spend.

Adding the accommodation and non-accommodation impact derives an overall impact figure for

extension activity.

Employment In addition to the economic impact of the extension activities associated with delegate spend,

there will be an employment effect, arising from the increase in demand for goods and services.

The extension activities as a whole bring a total investment of £70m across the study period.

Assuming that the CMR’s payroll allocation of twenty per cent applies to extension activity, and

using an average industry salary as explained below, the gross number of FTEs supported can

26 And other spend that would occur at the WICC (this spend is included in the model via the operational income), namely, registration

fee, food and drink at the conference, and evening entertainment at the conference venue. 27 As a proxy for delegates.


be estimated. Applying the discounts and multipliers as explained above, the net FTEs supported

are calculated.

6.3 Calculating Average Salaries

Average salary estimates were obtained from the Office of National Statistics Annual Weekly

Earnings (AWE) data. AWE by region and by broad industry group is not available online so an

estimate was obtained as follows.

An average AWE (gross) of full-time employees by region28 for the UK and Wales during 2015

was obtained. They were £577 and £515 respectively. Then, an average AWE of regular pay

during 2015 for the broad industry groups wholesaling, retailing, hotels & restaurants, (SIC 2007

sections G & I) and construction (SIC 2007 section F) were obtained. They were £310 and £557

respectively. The ratio of average AWE in Wales compared with UK was obtained by dividing the

AWE of Wales (£515) by the equivalent for the UK (£577). Thus, on average, AWE in Wales is

.89 of the AWE across the UK as a whole. Applying that proportion to the average AWE by broad

industry group provides an estimate of that industry’s AWE in Wales. This approach makes the

reasonable assumption that the relative difference between the whole economy AWE and that of

each broad industry group is the same in the UK as it is in Wales.

Having obtained an estimate of Wales AWE by broad industry group using the approach above,

estimations for monthly and then annual salary were obtained by firstly multiplying by 4 (assuming

4 weeks on average in a month) and then by 12 (for each month of the year).

The result of this approach generated the following average salaries:

Wholesaling, retailing, hotels & restaurants = £13,281

Construction = £23,863

The wholesaling, retailing, hotels & restaurants average was used to inform the estimation of

employment for operations and extension activity – assuming that most jobs would be created in

this industry. Whilst the construction salary was used to estimate the employment creation for the

design and build of the WICC.

The calculations of this approach are shown below.

Jan-Dec2015

UK Wales EARN05 - Average Gross weekly earnings of

full-time employees by region £577 £515 Whole economy

EARN01 - EARN01 Average Weekly Earnings - regular pay1

£310 n/a

Wholesaling, retailing, hotels & restaurants, SIC 2007 sections G & I

£557 n/a Construction, SIC 2007 section F

Wales proportion of UK AWE 0.89

28 EARN05 published 17th February 2016.


Estimating Wales AWE by Broad Industry Group Adjusting UK broad industry AWE to Wales

(multiply UK industry AWE by result of Wales AWE / UK AWE) 276.69

Wholesaling, retailing, hotels & restaurants, SIC

2007 sections G & I

Adjusting AWE for monthly salary (multiply by 4) 1106.76

Adjusting monthly salary for annual salary (multiply by 12) 13281.11

497.15

Construction, SIC 2007 section F

Adjusting AWE for monthly salary (multiply by 4) 1988.60

Adjusting monthly salary for annual salary (multiply by 12) 23863.15

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