Annex_D_-_Economic_Model_for_Tourism_Marketing_Activity.pdf

User's Guide

Tourism Sector Project Marketing Activity

SPREADSHEET VERSION -

AMOUNT OF MCC FUNDS $8.3 million for marketing activity project.

PROJECT DESCRIPTION MCC funding will be used to increase tourist arrivals to Namibia.

BENEFIT STREAMS INCLUDED IN ERR Increased tourism visits, value added from overseas tourists.

COSTS INCLUDED IN ERR (OTHER THAN

COSTS BOURNE BY MCC)

Direct foreign and domestic marketing expenditures

ESTIMATED ERR AND TIMELINE 17.8% over 6 years*

ERR & Sensitivity Analysis A brief summary of the project's key parameters and ERR calculations.

PROJECT NAME

Namibia: Tourism Marketing Activity

WORKSHEETS IN THIS FILE

LAST UPDATED:8/5/2013

* The ERR was calculated over a six year time horizon because the MCC-funded marketing expenditures are expected to generate benefits over this time frame.

Value added of new tourists by origin

MILLENNIUM CHALLENGE CORPORATION

A brief summary of the project's key parameters and ERR calculations.

Value Added per Tourist

Activity Description One should read this sheet first, as it offers a summary of the project, a list of components, and states the economic rationale for the project.

ERR Calculation

Activity Description

COMPONENTS

1. Destination marketing to North America

2. Development and marketing of local and regional tourism routes

3. Interactive website

4. Implementing entity support

MILLENNIUM CHALLENGE CORPORATION

The Namibia tourism sector has grown at a steady rate since independence in 1990. However, it has underperformed relative to regional competitors and it remains especially susceptible to seasonal fluctuations. Diversification of source markets for tourists is a key element to increasing tourist arrivals and reducing seasonal fluctuations. The primary objective of this activity is to increase tourist arrivals to Namibia by ramping up marketing to North American tourists, developing and marketing local and regional tourism route packages, and developing a fully interactive website for Namibia's Tourism Board. In modeling the impact of MCC’s tourism investments on economic growth and incomes, we include the expenditure on trips due to increase of arrivals, which is estimated at an average of 4,000 additional tourists per year and incremental (present) value added by overseas tourists of approximately 7 million USD as a result of the project. Based on a recent study, the benefits will be shared in proportions similar to the wider tourism economy, in which approximately 24% of the benefits will accrue to the poor or near poor.

Namibia: Tourism Marketing Activity

ECONOMIC RATIONALE

SUMMARY

MCC funding will be used to enhance the revenue production possibilities of the Namibian tourism sector by focusing on marketing, management and investment capacities of communal conservancies.

Specifically, MCC Funding will support:

LAST UPDATED: 8/5/2013

ERR & Sensitivity Analysis

NOTES:

All summary parameters set to initial values? Y Y

User Input MCC Estimate Plausible range Values used in

ERR

computation

Summary Actual costs as a percentage of estimated costs 100% 100% 100% 100%

Summary Actual benefits as a percentage of estimated benefits

100% 100% 100% 100%

Specific Value added ratio1 0.38 0.38 0.29 - 0.48 0.38

Specific N$ - US$ exchange rate 7.0 7.0 5.6 - 8.4 7.0

Specific Factor to reduce estimated impact: (endogeneity and diminishing returns)2 0.5 0.5 0.4 - 0.6 0.5

Specific Expenditures per trip (US$) 2260 2260 1808 - 2712 2260

Economic rate of return (ERR): 25.5% More Info Activity Description

MCC Estimated ERR: 17.8% User's Guide

MILLENNIUM CHALLENGE CORPORATION

1Fraction of expenditures per trip that constitute value added by participants.

Namibia: Tourism Marketing Activity

LAST UPDATED: 8/5/2013

ERR and Sensitivity Analysis

Parameter type

Parameter Values

Description of Key Parameters

Change the "User Input" cells in the table below to see the effect on the compact's Economic Rate of Return (ERR) and net benefits (see chart below). To reset all values to the default MCC estimates, click the "Reset Parameters" button. Be sure to reset all summary parameters to their original values ("MCC Estimate" values) before changing specific parameters.

-15000000

-10000000

-5000000

5000000

10000000

15000000

20000000

25000000

30000000

0 1 2 3 4 5 6

U S

Year

Total Net Benefits

Distribution of ERR Given Uncertainty in Key Parameters (as of 7/15/2008)

ERR CALCULATION

Ratio of new tourists by origin1 Overseas: 0.45 South Afr.: 0.40 Namibian: 0.15 N$ - US$ exchange rate 7.00

Expenditures per trip (US$)2 Overseas: 2,260 South Afr.: 873 Namibian: 509

Value added ratio3 0.38 Overseas: 0.38 South Afr.: 0.38 Namibian: 0.38 Direct value added per trip (US$) Overseas: 859 South Afr.: 332 Namibian: 193

Blended direct value added per new trip, foreign tourists NAD: 4290 Factor to reduce estimated impact: (endogeneity and diminishing returns) 0.5

Additional visitors per Namibian dollars spent on marketing4 0.00045 Added Value per Namibian dollar spent on NTB tourism marketing5 1.93 Added Value per Namibia dollar spent on route and website6 0.5 Residual effect of additional visitors post compact (spillovers, word of mouth) 0.1

Year 0 1 2 3 4 5 6 Direct value added from additional trips 0 12,839,168 14,460,957 19,808,464 23,022,675 TOTAL BENEFITS 90,209,657 0 2,447,550 14,510,580 16,753,300 22,694,509 25,602,839 8,200,878 COSTS Totals Destination Marketing to North America 0 6,650,000 7,490,000 10,259,722 11,924,511 Development / Marketing of Tourism Products 0 0 171,041 2,802,092 5,168,885 Interactive Website 5,439,000 3,714,248 4,923,055 3,611,342 564,813 Implementing Entity Support 214,954 814,018 831,831 986,722 0 Total Costs 5,653,954 11,178,266 13,415,926 17,659,878 17,658,208 0

TOTAL NET BENEFITS -5653954 -8730716 1094653 -906577 5036301 25602839 8200878

Economic rate of return (ERR): 25.5%

MILLENNIUM CHALLENGE CORPORATION

4Regression analysis of arrivals to Namibia on country dummies, a trend, and annual NTB marketing expenditures by country. Statistically significant coefficient shows $N1 of marketing expenditure produces .0009 additional arrivals. Here I have assumed some diminishing returns to this marketing.

5Product of regression coefficient and blended direct value added per new trip, foreign tourists 6Evidence is not available on the effectiveness of these activities.

*All values are Namibian dollars unless otherwise specified.

*Economic benefits from Namibian tourists are excluded to focus on the attractiveness to foreigners.

1World Travel and Tourism Council: Namibia, the impact of travel and tourism on jobs and the economy. London, 2004 p.26 2Turpie et al. Economic Value and Financing of Namibia's Protected Areas. Anchor Environmental Consultants CC. 2004. p.10 3Turpie et al. Economic Value and Financing of Namibia's Protected Areas. Anchor Environmental Consultants CC. 2004. p.38

Namibia: Tourism Marketing Activity

LAST UPDATED:8/5/2013

ERR CALCULATION FOR DESTINATION MARKETING, NAMIBIA

Notes:

Value Added per Tourist

Overseas: Southern African: Namibian:

Ratio of new tourists by origin 0.45 0.40 0.15

N$ - US$ exchange rate 6.87 - -

Expenditures per trip per person (US$) 3,130 873 509

Value added ratio 0.48 0.48 0.48 0.48

Direct value added per trip (US$) 1502 419 244

Income multiplier 1.00 1.00 1.00 2.21

Total value added per trip (US$) 1502 419 540

Consumer surplus per trip (US$) 0 0 143

Blended direct value added per new trip (US$) 884.85216 - -

Blended total value added per new trip (US$) 928.9006128 - -

Blended total economic value per new trip (US$) 928.9006128 - -

LAST UPDATED:8/5/2013

Namibia: Tourists by Origin

MILLENNIUM CHALLENGE CORPORATION