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FRONT KONTRA IL GOLF KORS

THE EIA: 10 FIGURES��AND FACTS

THE ECONOMIC "BENEFITS" OF THE GOLF COURSE PROJECT AS CLAIMED IN THE EIA

These comments summarise the contributions to the Front by professional economists.

Introduction:

The EIA states that "although Malta, with only one international standard course plus the Royal Marsa would not become a premium golfing destination, it is anticipated that the combination of current tourist attractions (including 5-star accommodation) plus a quality course would enhance the range of opportunities available to existing visitors and attract a modest number of new tourists". (EIA Vol. I 'Assessment' chapter Par. 3.6 )

This 'modest' number is not compared to alternative tourism activities for attracting the same 'modest' number of tourists which would not involve the sacrifice of 7.2 square kilometers of scarce agricultural land, the livelihoods of its farmers, the violation of the Church-State Agreement and of the Structure Plan.

No reason is given why, how or by when a single new golf course in Malta could successfully compete to attract even a 'modest' number of golfers against established Mediterranean golf venues with numerous courses, often by the sea and/or luxury holiday resorts, in particular in the present difficult economic climate (falling tourist arrivals worldwide).

However, the central rationale for the golf course emerges in paragraph 1.136 of the Assessment Chapter " It is anticipated that the golf course would assist the Verdala hotel in attracting specific golfing visitors. This would offset the hotel's disadvantage in the leisure and tour operator market segment in view of its non-coastal location".

Key forecasts and projections made in sections relating to the 'economic benefits' are not technically valid in terms of statistical theory, and in many cases the basic underlying assumptions are not spelt out at all. The numbers are found in the EIA chapters entitled "Assessment of Demand for a Golf Course" and "Socio-Economic Impacts". (Volume I) Moreover, a number of so-called projections and forecasts are merely presented as "it is assumed that".

FIGURE 1. 21,600 additional tourists ('latent demand') could be attracted to Malta to play golf.

FACT 1. That would be 1.8% of total annual tourist arrivals of 1.2 million. The key assumption is that because 44 out 1000 British citizens are registered golfers, therefore the same proportion of golfers prevails amongst tourists arriving in Malta ('latent demand'). A similar formula is applied to arrival from some other countries(Germany, other European, other) to arrive at 21,600 'golfers' (of which 19,7121 Britons) out of a total of 1.1 million tourists in 1998. "estimates of rounds played by 21,600 golfing visitors are derived from the application of the respective national golf participation rates" : the EIA thus excludes that golfers might visit Malta for non-golf activities, prefer to play golf at home or at other, better endowed Mediterranean locations. A national golf participation rate cannot be just assumed when a golfer goes abroad; it must be observed (by statistical survey). This has not been done.

Moreover, it is a statistical impossibility that the composition of a universe of tourists arriving in any country is absolutely identical to that of the entire population of their own country.

The only statistically acceptable basis for any projection of additional tourists who MIGHT play golf at the proposed course is a) a sampling survey of arriving tourists (how many are golfers + golfing intentions re:the proposed course) completed by b) a sampling survey of major golf holiday operators in the Mediterranean to assess the potential competitive position of a single new golf course in Malta.. This was not done.

FIGURE 2. A golf course at Rabat will attract more conference and incentive travel, and 50% of C&I participants will play 1 round of golf on their single free day.

FACT 2.   "in the absence of specific studies relating to the effects of a golf course on C& I tours to Malta it is assumed that the Deloitte Touche estimates (rounded to 10,000 for C&I) represent the total increase in five star C&I tourist arrivals as a result of the golf course"". (Par 3.15 Assessment Chapter) The DT forecasts (made in 1999) are tabulated in Table 3.4 "Grand Hotel Verdala: Predicted Tourist Arrivals" and related to annual predicted arrivals (total 17,000) to the hotel itself. (par 3.14)

The basis for this assumption (other than the absence of studies) is not given. It is not a technically valid forecast. A single unidentified C&I organisers' conference in Malta is referred to (par. 3.13) where 95% of attenders reportedly stated that 'the presence of a good quality golf course was a very important factor' (but not a/the DETERMINING factor) in deciding conference venues. This does not constitute a formal survey of such organisers' views about the Tal Virtu project. The reason why Malta attracts numerous C&I travellers and is an established and competitive conference venue without the projected course are not given.

According to industry sources, C&I arrivals in Malta increased from 31,000 to 55,000 between 1994 and 1999 (+77%). This happened without Malta possessing a world class golf course. A survey conducted in 1999 by the Ministry of Tourism of destination management companies showed that these operators considered that Malta's good points were:quality hotels with competitive prices and facilities, proximity to Europe, and short airport transfer times. Bad points were: poor roads, lack of VIP arrival/check in facilities at the airports, poor air connections with a number of European and other capitals, overpricing of certain conference services (projectors etc), rude and inefficient hotel staff, lack of a venue for very large gatherings, and lack of access to many historic venues and sites for organising events for conference participants. The absence of a world class golf course was not mentioned.

Two large new conference centres will open shortly at the Hilton (1500 places) and the Intercontinental (700 places). An industry source indicated that Malta needed no additional conference venues to the 30 existing one and the two new ones about to open, but "more business for the existing stock of facilities".

The EIA forecast that the golf course could attract an additional 10,000 C&I visitors in year 1, based on the Deloitte Touche study of 1999, does not appear to be supported by the above facts, or have been related by the EIA authors to the actual situation in the Malta C&I sector let alone world market trends at present..

FIGURE 3. "The additional tourist expenditure expected as a result of turning Malta in to an acceptable golf tourism destination is LM 2.8 million. the impact on GDP from this expenditure is around LM 1.8 million."(Par 1.161 of the Socio-Economic Impacts chapter)

FACT 3. This assumes a) that adding a single golf course to Malta will turn "Malta into an acceptable golf tourist destination" (let alone a successfully competitive one) and that b) directly and indirectly the proposed golf course would "attract annually 10,000 new C&I five star tourists (with a stay of 3.5 days) and 2000 five star tourists on a golfing holiday."

The expenditure and impact figures are derived from these arrivals and tabulated in Table 5.17 entitled "Economic Impacts of 5 Star Tourists" (The table relates to impacts of expenditures in a year by 12,007 five star tourists spending an average of LM 237 per visit = total expenditure LM 2,845,800 ). Expenditure figures are based on MTA data for 2000, arrivals figures on the Deloitte Touche study re: the Verdala Hotel, 1999.

LM 2.8 million equals 0.18% of Malta's total foreign exchange earnings on goods and services of LM 1,490 million for the period October 1999 to September 2000 or 0.28% of expenditures by Maltese households (LM 980 million NSO, Household Expenditure Survey, to be published). It is considerably below the LM 9.7 million put forward in AXH's October 2001 summary document.

The LM 1.8 million impact on GDP is considerably below the impact of LM 5.4 million put forward in a document circulated by AXH to decision-makers in October 2001. Malta's GDP at factor cost reached LM 1,384,906,000 in 2001. (NSO) Therefore, the speculative impact of LM 1.8 million addition to GDP of "this expenditure", if it took place, would be +0.13% This percentage would be even smaller at the end of Year 1, (whenever that would be) should GDP continue increasing meanwhile.

FIGURE 4. "the impact on government revenue is expected to reach LM LM 814,000 per annum. " (par. 1.153, Socio-Economic Impacts chapter).

FACT 4 "this originates not only from taxes on tourist expenditure such as VAT but also from direct taxes on income earned within the industry, its suppliers and those affected directly and indirectly by it.") (. Par 1.163 of the Socio-Economic Impact chapter) The figure is also derived from Table 5.17 Economic Impact of 5 Star Tourists (see above) .

LM 814,000 is equivalent to 0.158% of the total government revenue of LM 514million reported by NSO for 2000. Again, this figure is below the number put forward in the October 2001 document of LM 2.7 million, (0.49% of the total 2000 government revenues in the same period).

The figure excludes any consideration of what the construction and operation of the golf course might cost the Government each year.

FIGURE 4. The golf course project will create an additional 194 jobs

FACT 4. "By adding the various employment multiplier effects for each tourist expenditure category the overall effect on the labour force is an additional 194 jobs. These jobs include those that will be employed on the golf course and its related facilities, in its vicinity and in the overall tourism industry in Malta." ( par 1.162 of the chapter on Socio-Economic Impacts ) This figure is also taken the subsequent Table 5.17. "Economic Impacts of 5 Star Tourists"

The main employment generators are given as:: Meals in accommodation establishment + 25 jobs, Meals in restaurants +36; Ferry crossings +37; Tour operators' Transfers +34 Other accommodation +41 (total for these categories = 173: out of a grand total of 194) How many full-time jobs would be created at the golf course and 'related facilities and in the vicinity' cannot be determined from this table. Will golfers using the proposed course need an additional Gozo ferry to themselves?

194 is 0.13% of the total number of the 145,182 Maltese in employment in 2001 (NSO)

FIGURE 5. 7100 visitors to the golf course and additional guests staying at the Grand Hotel Verdala are expected to generate LM 529,000 additional expenditures in Rabat and Mdina. (Table 15.16, "Rabat and Mdina: Estimated average spending per tourist by category".Socio-Economic impacts chapter)

FACT 5. This figure is based on the idea that 1 out of 7 golf course visitors 'will' visit Rabat/Mdina (i.e. 49,700 'will' visit the golf course - but an undetermined number will be repeat visitors, i.e. playing more than one round of golf a year). Why 1 in 7, not 17 or 27, is not clarified, and obviously mere speculation. These visitors, the table says, will comprise 'latent' tourists, C&I, golf tourists, members and local green fee players for Year 2 of operation, plus Verdala hotel guests (10% of 204 per day) and visitors from other 5 star hotels @ 5% of five star hotels.

'Latent tourists' and golf playing C&I participants are dubious notions. Even more dubious is the idea that locally based members and green fee players, who may have been the Rabat/Mdina many times, will go there yet again�because of the golf course.

The average 'spend' in a single visit is put at LM 74.51�(main items: meals in restaurants LM 21.37, snacks/tea rooms LM 6.60, car hire LM 9.25, taxis LM 7.50, souvenirs/gifts/duty free LM12.50). Other items are listed as groceries, newspaper/stationery, public transport, culture, popular entertainment, other recreation, other expenditure. These daily spends are much higher than the figures given in Table 15.17 (Socio-Economic Impacts Chapter) relating to expenditures of 5 star tourists. i.e. for the main items: meals in restaurants LM16.96, car hire LM 4.73, Taxis LM 1.02, "shopping" LM 8.64.

Would Malta residents hire cars AND taxis? Would tourists need BOTH, or just one or the other? Also, many of the latter might hire cars via their hotel, or a car-hire company in their home country.

Would Malta residents buy souvenirs? Would tourists necessarily buy them in Rabat/Mdina?

Suppose many of these visitors prefer to eat in one of the 5 restaurants of the Verdala hotel, or at the Golf Club's restaurant? Or prefer to buy goods at the hotel and golf club boutiques?

In fact, 'golf course visitors to Rabat/Mdina may only generate a modest fraction of the LM 529,000 forecast by the EIA.

Thus, the 'economic benefits' claimed by the EIA for the golf course i.e. projected additions to tourist flows, expenditures, GDP and taxes are negligible in percentage terms; indeed, the supposed 'benefits' of the project in no way outweigh the environmental and social costs of the proposed golf course.

FIGURE 6. Golf course membership will rise from 300 in Year 1 to 800 in Year 5.

FACT 6. This figure is not based on any sampling survey of the sporting preferences of Maltese, or at least those in income brackets able to afford the LM 1000 entry fee + LM 500 annual dues. Instead Par 3.20 merely states that "assuming that the current potential golf participation rate for Malta is at the European level ,"adding that : "over time, as the game gains in popularity, as it is doing worldwide, the Maltese participation rate is expected to increase" and continues "It is assumed that as a result of the existence of a championship course at Verdala and a marketing campaign encouraging local residents to take up the sport, interest in the sport would increase�"

An increase in popularity in Malta to reflect worldwide trends is not a foregone or self-evident conclusion. It may, or may not happen. It cannot just be 'assumed', any more than the application of the European level in Malta. Maltese have less income than Europeans (Malta's GDP is 53% of the EU's) but a broad range of sporting activities, in particular water based, available at prices well below European levels. They may not wish to switch to higher priced golf.

FIGURE 7. Total golf revenue of the club will increase from LM 1,003,250 to LM 1,277,800 by Year 5. This comprises revenue from visitors (LM 418,250 to LM 432,800) and revenue from members (health and golf - LM 585,000 to LM 845,000). Net total golfing/health club revenues (ex direct costs) would increase from LM838,750 to LM1,077.849. (Table 3.7, Assessment chapter).

FACT 7. No basis for these assumed figures are given.. However, The EIA indicates that by Year 5, 55% of golf rounds and 68% of the club's golf revenue would be generated by members, AND NOT BY FOREIGN PLAYERS. YET THE PROJECT IS BEING PROMOTED AS A MAJOR FOREIGN EXCHANGE EARNER.

FIGURE 8. The Golf Club's food and beverage revenues will increase from LM 491,352 in Year 1 to LM 655,816 in Year 5. Net of direct costs this would be LM 156, 449 and LM229,796 respectively.

FACT 8. No justification for the high level of earnings as from Year 1 is given, e.g. by comparing results from comparable restaurants, whether in Malta or abroad. The competitive attraction of the golf course restaurant vs. other possibilities throughout the island is not assessed.

FIGURE 9. Net profits of the Golf Club before tax will rise from LM 35,935 in Year 1 to LM 155,646 in Year 5. (net profit ratio = 8%)

FACT 9. No risk assessment appears to have been carried out on the results of this venture. Profit margins are critically vulnerable to a much lower number of people becoming members and restaurant sales below the very high levels foreseen.

While the EIA attempts to demonstrate that devoting the Tal Virtu area to vineyards would generate a loss (see below), it does not compare these speculative profit figures with what might be earned in the area by a combination of agri-tourism and high value organic farming.

FIGURE 10. If the 7.2 sq. km area were planted to vineyards, this venture would show net losses of LM -262,116 (year 1) - LM 302,649 *year 2) - LM 144,866 (Year 3), LM - 136,866 Year 4) and - 128,866 (Year 5). (pars 3.74 et seq and Table 3.10, Assessment Chapter)

FACT 10. The price of water delivered by WSC is computed at LM 1.1 per cu.m., the price paid by private consumers, rather than the 0.15 or 0.20c paid by farmers in the area to-day.

Underlying assumptions are an output of 12 tonnes/ha. with a farm gate price of 0.25c/kg for grapes. However, according to the Progressive Farmers' Union higher yields are possible viz. up to 16 tonnes/ha as well as higher prices for top quality organic grapes e.g. up to 0.50c at constant prices. No sensitivity analysis is made for alternative assumptions.

However, if water is priced at 0.20c per cu.m. instead of LM 1.1, this reduces the water cost projected in the EIA from 23,375LM in Year 2 LM 46,750 in Years 3,4 and- 5 to LM 4250 and 8454 LM respectively. A number of the other EIA direct costs may be overestimated. For example, the model is based on high rates of application of agro-chemicals, and does not contemplate the alternative technology of organic agriculture. The basis for the impressive depreciation costs (68.800LM p.a. and Finance costs of LM 119,000 in Year 1 declining to 87 000 in Year 5) are not given.

If output is assumed at 14 t/ha with a sale price of 0.35c/kg. this would generate a sales revenue of LM352,800 as compared to the EIA's projection of LM 210,000. Leaving other costs as projected by the EIA, apart from water, would then give the following Gross profit/loss for years 3 .4 5       + 218,030 LM p.a. The net profit/loss under the alternative sale price, yield and water price assumptions as suggested above would be:

Year 3    +46,230
Year 4    +54 230
Year 5    +62 230

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*According to the 'Contributors' Section of the EIA the following persons, organisations were responsible for the above sections:'

Economics    AX Holdings, Professor Edward Scicluna and Planning Services Consultancy

Socio-Economics    Planning Services Consultancy and LUC (acronym not identified)

Professor Edward Scicluna was at time of writing the Chairman of the Malta Council for Economic and Social Development.