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Analyzing the Economic Effects of the 2012 London Olympics

Jun 17, 2023 | 0 comments

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Jun 17, 2023 | Essays | 0 comments

The tourist or the visitors to the Olympics create the most important economic benefit to the hosting cities of the Olympics. Unlike infrastructure investments, tourism expenditure is not centrally controlled or recorded. This makes it difficult to do an assessment o its contribution to the economy of the host country. To better understands the economic contribution to the host country by Olympic tourism, answers need to be found for the question of how much, who, and when? The pre-Olympic tourism is dominated typically by visits linked directly with the event preparation. The event time tourism consists of officials, athletes, spectators, media representatives, and volunteers. On the other hand, post-Olympic tourism comes from two significant sources; that is private leisure tourism that is prompted by games and others such as incentives, meetings, events, and conventions.


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Initially, the tourism industry of the United Kingdom appeared to be contributing significantly to the country’s economic bounce. The data released by the Office for National Statistics suggested that the country has recorded a big increase of foreign visitors coming to the United Kingdom since London city hosted the 2012 London Olympics. Spilsbury (2011p.447) indicated that statistics showed that in 2013, the first seven months the number of foreign visitors increased by 4% compared to 2012 in the same period, and spending also increased by 12%. Similarly, foreign visitors in 2013 July spent 30% more compared to 2012 July (New Zealand 2013p.61).

Nationwide attractions and hotels said that their industry was benefiting from the boost in tourist trade that was unexpected. () highlighted some data produced by the STRGlobal that showed that occupancy of hotels rose in almost every region of the united kingdom in the first half of the year 2013.in particular, London has s in a high upsurge in foreign visitors since the end of the Olympics. The hotel occupancy rose by 7% points to 89% in 2013 June compared to the year before.

Bardgett (2013p.57) noted that the government was quick in attributing the boom in tourism to the 2012 Olympics to justify the $14.3 billion spent in organizing and staging the event. Hunter (2012p.229) pointed out some truth in it because most of the visits came from countries that are keen on the Olympics. For instance, there was an increase in Latin America by 24%, China by 11%, as compared to a 4% decrease from north America, and a 1% increase from Europe (Fussey 2014p.291).
The net tourism impact on output depends on how much money the foreign tourists spent and what also the British spend abroad. Although high amounts are being spent in the United Kingdom by foreign tourists, the Britons have increased their expenditure while on foreign holidays by the same amount. By 2013, the gap between what the British earns and spends on tourism has remained the same since 2011(Girginov 2012). Despite the increase of the cash of tourists from 2012, the tourism deficit is still higher compared to during the Olympics.

Economic effects of tourism: 2012 London Olympics analysis

According to (), the industry of tourism generates significant economic benefits to the host country. In an analysis of the economic effects of the 2012 London Olympics, both positive and negative economic effects will be analyzed.

Negative economic effects of tourism in 2012 London Olympics

Boyle (2012p.77) indicated that as much as the 2012 London Olympics was being hailed as a logistical and sporting success, the economic impacts were far less certain. For instance, World Tourism Organization (2014p.17) pointed out that some tourist attractions, hotels, and businesses in London city reported that actually, businesses fell when the games were on. However, different independent analysts reported that the economy of the United Kingdom, in general, was looking for long-term economic impacts.

Hosting of the Olympics is usually seen as a giant economic boom for the hosting city and the country at large. That is the tourists and the giant new facilities for sports and therefore different cities lobby very hard for them to be picked. However, depth analysis of historical records of the actual economic impacts of the Olympics to their hosting countries and regions has shown mixed results. Therefore, Girginov (2012) stated that there are tangible reasons to believe that the benefits London city got from hosting the Olympics will be short-lived. Well, so what is the source of worry? Well, Oxlade et al (2014p.384) indicated that hosting the Olympics is a very costly exercise. For instance, the infrastructures that are existing need to be upgraded, more new sporting facilities need to be built, the security needs to be beefed up and therefore, in the long run, it invariably ends up very costly, and even much more than what was expected. An example was the 2008 Beijing Olympics which was budgeted to cost $1.6 billion but the government of china ended up spending almost $40 billion (Wallechinsky & Lucky 2012p.85). Similarly, the 2004 Athens Olympics was expected to cost $1.6 billion but in the end, it spends almost ten times the budgeted cost, and further contributing to the current debt crisis of Greece (Weed 2013p.129). Furthermore, most f the sports facilities in Athens that were built for the games are already falling apart because they are being underused. According to Tzanelli 2013p.396), London was not expected to go over their budget extremely, although Olympics are always pricier than the $5billion originally promised by the government. The estimated cost for the 2012 Olympics from the public accounts committee was $17billion (Gammon & Ramshaw 2013p.48).

The direct income to a country or a region from tourism is the amount of expenditure from the tourists that remains locally after profits, taxes, and wages are paid and after purchasing the imports (Great Britain 2012p.28). The subtracted amounts are referred to as the leakage. In most of the all-inclusive package tours, about 80% of the expenditures of the travelers go to the hotels, airlines, and other international companies, and not the local workers and businesses. Additionally, significant amounts of income that have been retained actually at the level of destination can again leave through the leakage. From the study on the 2012 London Olympics, it is estimated that about 40% of all the money spent by the tourists during the games ended up leaving United Kingdom (Perryman 2012p.91).

Poynter & Macrury (2013p.184) elaborated that there were two major ways in which leakage takes place. The import leakage occurs when the tourists demand certain equipment standard, foods, and other necessitated products that the host country could not provide especially foods and drinks, construction equipment among others. Therefore, these products must be imported since the local products are not up to the tourists or hotels standards or even the country does not have supply. Therefore, Horne & Whannel (2012p.592) noted that much of the income gotten from expenditures of tourism again leaves the country to pay for the imports. During the London Olympics, United Kingdom imported some of the goods used in the construction of new sporting facilities to meet the required standards. Similarly, most of the hotels that targeted different cultures from Asia, Africa, and Latin America had to import some of the food ingredients to satisfy their clientele. This indicated an import leakage that is a negative impact on tourism. Through export leakage, a country uses capital in the construction of infrastructures and facilities. Although most of the construction work was done by the local British firms, few international construction firms that participated in the construction of the sporting facilities during the 2012 London Olympics took their profits back home to their home countries.

The cost of infrastructures is another area that forms a negative effect of tourism. Kenyon & Bodet (2014p.223) indicated that the development of tourism can cost the local taxpayers and the local government a significant amount of money. For instance, the developers may want the government to improve the roads, airports, and other needed infrastructures, and if possible provide other financial advantages and tax breaks, which are very costly to the government. Euromonitor International (2012p.446) pointed out that that the public resources spent on infrastructures subsidized or even tax breaks, may reduce the investments of the government in other crucial areas such as health and education. According to, Maennig & Zimbalist (2012p.310), it is estimated that the government of the united kingdom spent a total of £11.9 billion in the construction of game-related facilities between the years 2005 and 2017.

Another negative economic effect of tourism is an increase the in prices of goods and services. The increasing demand for basic goods and services from tourists often results in hikes in prices that affect negatively the residents whose income does not proportionately increase. Similarly, tourism development and the rise in demand for real estate may increase dramatically the land values and building costs. This makes it even more difficult for the local population to meet their daily basic needs. Humphreys, a sports economist noted that “once the games are over and leave a town, often there is not much to celebrate.” Even the hotels in London which expected massive profits from the floods of tourists loaded with money did not do work as expected. For instance, Spilsbury (2011p.93) noted that after the hotels raised their rates in anticipation of the influx of visitors, they still had problems filling their rooms. During the games, roughly a third of their hotel rooms were yet to be booked. Moreover, some potential tourists stayed away from London deliberately to avoid the hassles of the Olympics that accompany invariably the games (New Zealand 2013p.27). The expectations of the United Kingdom world travel and tourism council was that the total spending of the tourists in the United Kingdom this year alone will be a little bit higher compared to the previous years.

Jobs problems for the seasonal workers who work in the tourism industry include job and income insecurity, and no employment guarantee from the seasons. Because of the low tourists’ number during the 2012 London Olympics, there was high job and income insecurity for many workers including the people in the transport industry. Organizing and throwing a party that is of Olympic size cost the United Kingdom about 15million dollars (Bardgett 2013p.176). However, the spectators flocked to the Olympic park, east of London leaving central London to be quiet than normal. Hunter (2012p.682) observed that the restaurants were some of the businesses that reported lower takings at the time of the year than normal. One tourism trade association that surveyed its members found that the games of the 2012 London Olympics had negative economic impacts all over the United Kingdom. However, during the period of difficult recession, the officials of the United Kingdom still insisted that the London Olympics games were worth it (Fussey 2014).

From the advertisement of the 2012 London Olympics, the entire globe eagerly waited for the games and focused their eyes on the upcoming international event. One would think that the games were a big fundraising event for London city. However, instead of the event luring money to London from the tourists, it did actually drive away from the usual spenders in the city and even decreased tourism significantly and drastically reduced revenue for the local businesses in the city (Girginov 2012p.160). Boyle (2012p.278) stated that London city was not able to recoup immediately the costs spend in preparation for the Olympic Games.

According to World Tourism Organization (2014p.33), London city usually sees approximately 300,000 foreign tourists and 800,000 domestic tourists daily during August. However, during the time of the Olympics, the number of tourists drastically went down. Girginov (2012p. 58) even noted the quote of Tom Jenkins, the chief executive of European tour operators association to AFP, “these people have been implicitly been told to stay away and that’s what they have done. The current numbers are down dramatically. How far down will further be determined by low long London transport maintains the campaign of ‘Do not come to London city’”

On a survey done before the games by TripAdvisor company, Out of the 2500 owner of hotels in London surveyed, 58% said that the 2012 Olympic games would have no impact at all on businesses, while 35% thought that they will see either long term or short term positive effects (Oxlade et al 2014p.103).

The industry of transport also did have a more severe take on London city hosting the games because their businesses suffered already. Wallechinsky & Lucky (2012p.339) indicated the quote of the general secretary of Licensed taxi Drivers Association, Steve McNamara to the AFP, “our businesses have dropped by about 20% to 40% depending on the time of the day. In normal cases, 90% of our clients are always London residents but they have all left the city but there is no replacement by the tourists. I do not understand where all the tourists are, or how they are getting their way through the city, but London is now like a ghost town.” Not only the decline in tourists hit the city of London revenue, the city was already in debt due to the high costs of hosting the Olympics from the bidding stage

Positive economic effects of tourism in 2012 London Olympics

According to Weed (2013p.109), tourism creates jobs for the local people both through direct people within the industry of tourism and indirectly in other sectors such as transportation and retail (Tzanelli 2013p.481).  The rapid expansion of international tourism according to Gammon & Ramshaw (2013p.229), has led to massive employment creation. For instance, the sector of hotel accommodation alone in 1995 provided about 11.3 million employments globally. Tourism can create jobs directly through restaurants, hotels, nightclubs, souvenir shops, and taxis. Similarly, it can generate jobs indirectly through goods and services supply by the businesses that are related to tourism. When these people again spend their income on services and goods locally, it leads to a multiplier effect, which creates more jobs. Great Britain (2012) stated that the industry of tourism also provides opportunities for small-scale business enterprises which generated extra tax revenues for the government which can be used in housing, schools, and hospitals. According to Perryman, M. (2012p.26), the expenditure of LOCOG to stage the 2012 London Olympics was estimated to generate a total contribution of £1 billion to the GDP of the United Kingdom. This contribution consists of £497 million from LOCOG spending directly, with a multiplier effect in the supply chain, and through consumer spending of staffs supporting another contribution of £547 million elsewhere in the economy. According to Poynter & Macrury (2013p.501), the total spends to stage the 2012 London Olympics is estimated to support an equivalent of 26,000 employment years. The total number of employed people will be greater significantly as some of the jobs were temporary during and was during the 2012 games. Horne & Whannel (2012p.467) observed that small firms were also successful in winning the contracts of LOCOG. Analysis of the LOCOG’S United Kingdom contractors by size suggested that 28% were large firms and 72% were SMEs.

The foreign exchange earnings are also another positive effect of tourism. Expenditures of the tourists generate income to the hosting country and economy, and this can stimulate the necessary investment to finance growth in other sectors of the economy (Kenyon & Bodet 2014p.69). Some countries desire to accelerate economic growth by requiring their visitors to bring in a certain required amount of foreign currency for every day they stay. Euromonitor International (2012) asserted that an important indicator of the international tourism role is its foreign exchange earnings generation. Data reveals that the United Kingdom saw a 5% fall in numbers of visitors year-on-year during the august 2012 games. The regular tourists of London stayed away and were replaced by the ticket-holding Olympic visitors, majorly from the United Kingdom, who spend much of their time at the venues of games watching the actions of Olympic. However, Moennig & Zimbalist (2012p.361) indicated that these victors motivated by the Olympics spent more and United Kingdom realized a 9% increase in overseas spending of the visitors during the period.

Another positive economic impact of tourism is the stimulation of investment in infrastructure. Spilsbury (2011p.310) argued that tourism can induce private investors, national or state governments to improve infrastructures such as better sewage systems and water, electricity, roads, public transport networks, and telephone. This can improve the life quality of the residents in addition to facilitating tourism. New Zealand (2013p.19) pointed out that TFL invested about £6.5 billion in upgrading the infrastructures of transport, and concentrated on making sure that the holders of tickets get to their venues. Moreover, Tube during the games transported over 101 million passengers, and this includes the most ever transported on a single day, that is 4.52 million. This was an increase of 28% on the normal levels (Bardgett 2013p.358). The tube continues to operate more reliably and carry more visitors and Londoners than any time before in its entire history. Moreover, there are other new physical projects of the legacy that were constructed because of the games. For instance, Hunter (2012p.300) mentioned the queen Elizabeth Olympic park which hosted two events to mark the Olympic Games anniversary. Those were the Sainsbury Anniversary Games, and the Open East Festival, similarly, the venue has hosted musical festivals and events such as Ride London, Hard Rock Calling and Wireless, cycling events of mass participation, cultural events, The Orbit. Other scheduled sporting activities include the world’s athletic championships to be held in 2017 and the 2015 rugby world cup.
The contribution of tourism to the local economies is another positive economic impact of tourism. Because the environment is a primary element of the assets of the tourism industry, revenues of tourism are often used in measuring the economic value of the areas protected. Fussey (2014p.109) pointed out that other local revenues are not easy to quantify since not all expenditures of the tourists are registered formally. Money is also gotten from tourism through informal employments such as rickshaw drivers, informal guides, and street vendors among others. The positive side of informal employment according to Girginov (2012p.56) is that money gets returned to the local economy of the areas, and therefore has a significant multiplier effect because it is spent repeatedly. During the London Olympics, local revenues got into the local economy of London and resulted in a multiplier effect in the area. Moreover, many people benefitted informally as informal tour guides, taxi operators, street vendors among others.

The Tourism Alliance, which is an umbrella union that represents about 200,000 business in the united kingdom have a belief that sports tourism during the 2012 Olympic games largely replaced the normal business travel and leisure that is always the order of the day during that particular period of the year. Boyle (2012p.595) described it as a substitution effect. Furthermore, the forecast of Tourism Alliance during that time was that there would be a decrease by 5% in the usual visitor traffic that would lead to a decrease in the expenditure of tourism of £1.1 billion. Furthermore, a decrease of 5% in the United Kingdom domestic visitors would reduce the expenditure of tourism further by £1.35 billion (World Tourism Organization 2014p.68).
The concerns of a likelihood of revenue fall because of the substitution effect was also echoed by the Tourism Management Institute, and the Tourism South East, which both relayed their fears that the tourists might be scared of traveling to London during the period of games because of the general perceptions of overpriced hotels, and overcrowding in London. Girginov (2012p.31) asserted that positive effects forecast on the British tourism are much more positive compared to the game-time forecasts, with the estimate of DCMS indicating that 80% of economic benefits of legacy derived from hosting Olympic games are gained through post games tourism increases. This is attributed partly to the significant international exposure of the media to London because of their position as hosts of the Olympic Games. However, Oxlade et al (2014p.113) noted that the Tourism Alliance believed that such goals of legacy will not be realized unless the preparation of the DCMS was done to invest in media support and adequate marketing for the tourism industry of the British

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