RS/2017/02 - Creating Mechanisms to Increase Private Sector Capital Investment in Growing Tourism

Thinking about what makes tourists visit a destination, their main interest is often driven by a motivating and compelling set of things to see and do. A motivating and compelling set of things to see and do is the primary generator of demand. Once a destination has a strong set of primary generators of demand, other considerations come into play, such as places to stay and eat. These can be thought of as secondary, or derived, demand. When it comes to spending by tourists in Irish destinations, opportunities are generally much easier to commercialise at the derived demand level (e.g., hotels and restaurants) than they are at the primary demand level (e.g., visitor centres and national parks). In the language of economists, there is a ‘market failure’ to be addressed. A purely private sector funding approach leads to under investment in wealth creating opportunities in the primary demand space for private sector players to commercialise in the derive demand space. Tourism businesses at the secondary demand level benefit from a ‘positive externality’ which comes from investment in primary demand level tourism assets. Irish governments have long recognised this issue and the traditional approach to resolving the market failure is via Exchequer funded capital grants. This is justifiable because just as tourists’ spending is heavily concentrated at the derived demand level, so too is the Exchequer’s tax take from the sector. The core objective is to develop innovative funding mechanisms to build a bridge between the more financially robust derived demand level and the more tourist-motivating primary demand level.

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18/07/2017 16:00:00

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