The Economic Impact of the 2012 Olympics on London - Essay Example

The Economic Impact of the Olympics on London Introduction The history of Olympics Games could be traced back to 776 BC. After going on for about 12 centuries, they were banned in 393 AD only to be revived about 1,500 years later by Pierre de Coubertin as documented by the Olympic Movement (2014). Athens was chosen as the venue for revival with the International Olympic Committee being in charge of planning. In 2005, London won the bid to host the 2012 Olympic Games, closely beating its rival Paris. However, this bid faced so much political contentions with arguments on the benefits of such a mega event and the possibilities of detrimental effects gaining and lacking support in equal measure (Girginov 2014). As such, examining the economic benefits of the 2012 London Olympics would be critical. It has become critical for nations to evaluate the benefits of Olympic Games at the early bidding stages, referred to as economic impact assessment by Oxford Economics (2012). This enlightens the host city on the economic benefits resulting from hosting these games and subsequently promotes the local context of bringing significant gains to the local economy. Indeed, it would be appreciated that the Olympics 2012 greatly benefited London’s tourism, labour market and retail economy. To understand these economic benefits to London, it would be appropriate to consider the cost of hosting the Games. Every four years a city hosts the Olympics, massive sums of money would be spent on facilities, housing and maintenance and transport infrastructure. According to the Department for Culture, Media and Sport, DCMS (2012), the British government had set a budget of £9.325 billion for hosting the 2012 Olympic Games. Of this, £5.975 billion was to be sourced from the central government, £2.175 billion from the national lottery, £925 million from the Greater London Authority and £250 million from the London Development Agency. This was much higher than the £5.906 billion budget at the time of bidding. Core Olympic costs were to consume £3.081 billion including transport infrastructure, venue, programme management and site security. The other amount was to be shared among tax costs, policing and wider security and contingency among others. Even so, as the even neared, there were reports of the government running far beyond the budget, King (2012) estimating this at £2 billion some fifty days to the event. Finally, the government spent between £14 billion and £20 billion (Greyser & Kogan 2013), security provisions having escalated the budget significantly. With such massive expenditure, it would be critical to understand the economic reward. Tourism Before the 2012 Olympics, London experienced increased domestic business tourism as enterprises sought to undertake contracts related to the Games. However, a year prior to the event, there was a decline in international tourist arrivals as a majority of people postponed their visits so as to coincide with the Olympics or avoid the inconveniences associated with the major constructions. There were over 15 million people from communities around the UK that witnessed the Torch Relay with some more Cultural Olympiad attendances spanning over 43 million (DCMS 2012). During the event, residents opted to move out of the crowded host city thus promoting domestic tourism. Even visitors visited other non-host regions to avoid the purported congestion and escalated prices. The number of outbound and inbound flights increased as people flew in to watch different games and fly back. With Oxford Economics (2012) estimating that 95% of the athletes, technical officials, Olympic Movement officials and members numbering 16,500, 4,000, 4,000 and 21,000 respectively visited from abroad, there was already a significant number of tourists coming into the city. Olympic Movement (2013) seconds the economic benefits brought in by tourists during the 2012 Olympic Games, citing figures from the Office of National Statistics that indicated that 590,000 of such visitors spent £1,290 during the visit while the others spent about £650 on average. Therefore, the tourism that resulted from the Games contributed significantly to the economy. Labour Market Perhaps the labour market stands out as one of the major beneficiaries of the 2012 London Olympic Games. The games created massive jobs for people drawn from the larger Great Britain causing the number of Britons without work to fall to its lowest within a year. Specifically, Kollewe (2012) cites the International Labour Organisation statistics which indicated that unemployment had been cut by 46,000 three months prior to the event. This was of significant benefit to the labour market which was facing recession then. The total number of people who directly worked on the Olympic Village and Olympic Park were about 46,000, 10% of whom had no employment previously. When the Games hit the peak, 39% of the people who had been employed directly by the London Organising Committee of the Olympic and Paralympic Games, LOGOG had no employment before. Additionally, there were programmes put in place to ensure that these unemployed prospects gain professional skills, not just to benefit them during the event, but even for the benefit of their employment prospects after the Olympics (Olympics Movement 2013). Even after the Games, the impact still remains greatly felt. It is expected that between the years 2012 and 2015, the Games would create additional 17,900 jobs annually, with 70,000 jobless Londoners already having secured Games-related employments. Additionally, DCMS (2013) observes that the Games have encouraged volunteerism, halting the steady decline that had been witnessed since the year 2005. Therefore, the Games have had significant effect on the labour market legacy. Retail Sector It was largely anticipated that retail sales in London would increase significantly with the 2012 Olympic Games. In fact, Woodman (2012) had predicted a £200 million increase in retail sales in the third quarter of 2012. This was informed by the anticipated increased tourism as international visitors stay in London throughout the period of the games. The then weakness of the sterling was also noted as a critical factor that would have boosted retail sales. Footwear and clothing, grocery and gift related items were postulated to be the major beneficiaries. Furthermore, it was expected that the event would boost the profile of London retail brands in the long run. Indeed, the retail sector greatly benefited from the 2012 Olympics. According to Woodman (2012), there was a great increase in footfall across London, specifically in areas of Shaftesbury Avenue, St. James’s, Haymarket and Piccadilly. Greyser and Kogan (2013) observe that the immediate economic impact had consumer spending increase by £750 million. Of this, the high street retailers, hotels, banking and supermarkets posted a £184.8 million, £122.6 million, £199 million and £79.9 million increase in business respectively. Entertainment was also a critical beneficiary having raised £77.5 million. Other retail sectors of the economy that significantly benefited from the Games include car hire, travel, health and the food industry. The great gains in the retail sector could also be attributed to the summer weather which encouraged consumption of FMCGs. Soft drinks, confectionary and snacks reported 10%, 8% and 7% sales increase respectively. In fact, the price growth was much higher than the volume growth, indicating the willingness of buyers to spend during the event. Even online retailers including MyWardrobe and Very reported surge in sales. However, King (2012) observes that because of LOCOG and TFL (Transport for London) preventing people from being around the capital to avoid travel chaos, retailers in Central London reported 30% sales decrease two weeks into the Games. This could have deterred the retail sector from attaining full potential from the event. Even so, the London economy had much to benefit from in the retail sector from the Olympics. Indeed, the 2012 Olympic Games was economically rewarding to London with immediate gains of £9.9 billion into the economy, rising to over £28 billion secured out of the resultant inward investment, trade and tourism as of July 2013 (DCMS 2013) noting that). This could rise to figures spanning £41 billion by 2020 with the regeneration of East London developing, coupled with further securing of investments. Furthermore, the Games have had major social legacy with many people getting inspired to join local sports clubs (Cameron 2013). As such, a cost-benefit analysis indicates that the about £14 billion spent in preparation for hosting the 2012 Olympics and the associated costs was worth. Conclusion The British government spent a massive amount of money exceeding £14 billion to host the 2012 London Olympics on facilities, housing and maintenance and transport infrastructure. In fact, this was much higher than its budgeted £9.325 billion. However, this paper indicates the worth of this engagement. Even though the 2012 London Olympic Games lasted only slightly above 16 days, the event was noted to have had significant impact on London’s economy. There was a massive surge in tourists and tourism related activities before and during the event. The London labour market also benefitted from reduced unemployment with a legacy that would benefit the people even in future. The retail sector also benefitted from increased sales and increased publicity of its retail brands. Therefore, despite the politics that criticised London of hosting the 2012 Olympics for fear of detrimental effects, the city boasts of massive economic gains since winning the Olympics bid in 2005, during the Games and further in the years to come. References Greyser, SA and Kogan, V 2013, NBC and the 2012 London Olympics: unexpected success, 15 September, viewed 29 March 2014, http://www.hbs.edu/ Department for Culture, Media and Sport 2013, Olympic Games legacy boosts economy by billions, 19 July, viewed 29 March 2014, https://www.gov.uk/ Oxford Economics 2012, The economic impact of the London 2012 Olympic and Paralympic Games, Lloyds Banking Group, London. King, R 2012, ‘‘White elephant’ London 2012 Olympics runs £2bn over budget as security costs double due to ‘poor planning’ since 7/7’, Mail Online, 9 March, viewed 29 March 2014, http://www.dailymail.co.uk/ Kollewe, J 2012, ‘UK unemployment falls due to temporary Olympics jobs boost’, The Guardian, 15 August, viewed 29 March 2014, http://www.theguardian.com/ Woodman, P 2012, ‘London 2012: Olympic boost to retailers and tourism new figures show’, The Independent, 6 August, viewed 29 March 2014 http://www.independent.co.uk/ Girginov, V (ed.) 2014, Handbook of the London 2012 Olympic and Paralympic Games, Routledge, Oxon, OX. Olympic Movement 2014, Olympic Games, accessed 29 March 2014 from http://www.olympic.org/ Read More