sky-garden - waitomo district · the sky-garden is a significant operation and, by year three, it...

SKY-GARDEN

Final Report

Economic Impact Analysis

26 November 2019

Commercial In Confidence

CONTENTS

Executive Summary 1

Introduction 4

Context 4

Approach 4

Format of the report 5

Sky-Garden 6

Sky-Garden 6

Study area 7

Strategic alignment 9

Economic Benefits 11

Construction benefits 11

Operation benefits 13

Visitor benefits 15

Summary of the economic impacts 18

Wider Economic Benefits 19

Wider economic benefits 19

Realising the benefits 20

Appendix 1 : Economic Impact Analysis 22

Appendix 2 : Interview List 25

TABLES

Table 1: Industry classification of capex 11

Table 2: Local and national capital expenditure 12

Table 3: Economic impacts of capital expenditure 12

Table 4: Local and national operational expenditure 13

Table 5: Economic impacts of operating expenditure 13

Table 6: Projected Unique Visitor Volumes Year 3 16

Table 7: Visitor stay and spend 17

Table 8: Total estimated visitor spend Waitomo and

Otorohanga 17

Table 9: Economic impacts of visitors’ expenditure 17

Table 10: Summary of economic impacts 18

Table 11: Addressing the limitations of regional I-O multiplier

analysis 24

FIGURES

Figure 1: Study Area - Waitomo and Otorohanga 8

Commercial In Confidence

PREFACE This report has been prepared for Waitomo Bungy Limited by Jason Leung-

Wai, Harvey Brookes, and Jessica Black from MartinJenkins (Martin,

Jenkins & Associates Limited).

MartinJenkins advises clients in the public, private and not-for-profit sectors.

Our work in the public sector spans a wide range of central and local

government agencies. We provide advice and support to clients in the

following areas:

• public policy

• evaluation and research

• strategy and investment

• performance improvement and monitoring

• business improvement

• organisational improvement

• employment relations

• economic development

• financial and economic analysis.

Our aim is to provide an integrated and comprehensive response to client

needs – connecting our skill sets and applying fresh thinking to lift

performance.

MartinJenkins is a privately-owned New Zealand limited liability company.

We have offices in Wellington and Auckland. The company was established

in 1993 and is governed by a Board made up of executive directors Kevin

Jenkins, Michael Mills, Nick Davis, Allana Coulon and Richard Tait, plus

independent director Sophia Gunn.

1 Commercial In Confidence

EXECUTIVE SUMMARY

The Sky-Garden is a unique attraction that will attract

visitors to the Southern Waikato.

Waitomo Bungy Limited is seeking to build a 68.5 metre bungy ‘tree-like’

tower and water feature attraction on the outskirts of Waitomo Village, in the

Waitomo District, in the Waikato Region. The attraction will include a 55-

metre Bungy, 50-metre jungle swing, a set of ziplines, a dry slide, lagoon,

viewing tower, retail outlet and café. Spearheaded by local entrepreneur

John Heskett, this tourist attraction is likely to be known as the ‘Sky-

Garden1’.

The Sky-Garden aligns with regional and local

economic development and tourism strategies.

The Sky-Garden is supported by Te Waka, the Waikato Region’s regional

economic development agency. It also aligns well with the economic growth

and tourism aspirations of the Waitomo and Otorohanga districts, as well the

wider Waikato region.

1 This name may be modified following further engagement with Iwi

An economic impact analysis is needed to quantify the contribution the Sky-

Garden development will likely have on the study area in terms of

employment and GDP.

Benefits to the study area accrue from the capital, operational and visitor

expenditure that occurs in the study area as a result of the Sky-Garden.

Multiplier analysis, using regional input-output tables, is applied to estimate

the direct and flow-on impacts of this expenditure.

The study area for this economic impact analysis is made up of the Waitomo

and Otorohanga Districts.

Benefits from construction

Capital expenditure for the total build is estimated to be $20 million. A

resource consent for the attraction is currently being lodged. If approved,

construction will begin in July 2020 and the Sky-Garden will be open for

business by the end of 2021. Hamilton-based Form Building and

Developments will be overseeing and completing the build.

Due to the base of the main contractor and the nature of the build, most of

the construction services and resources will be sourced from outside

Waitomo and Otorohanga. Of the total cost of $20 million, about $1.25

million is expected to be spent in the study area.


Construction of the Sky-Garden could directly

contribute $414,000 to GDP and employ 5 people in

the Waitomo and Otorohanga districts. Including

indirect and induced impacts, construction could

contribute $705,000 to GDP and employ 8 people in

the study area.

Benefit from operations

The Sky-Garden is a significant operation and, by year three, it is estimated

that Waitomo Bungy Limited will be spending $6.9 million on operations. Of

this, about $4.4 million is estimated to be spent in Waitomo and Otorohanga.

A significant portion of this expenditure will be for the wages of 59 full time

equivalent (FTE) staff. By year three, it is anticipated that most staff will be

living in the Waitomo and Otorohanga districts. A small portion of staff may

be employed from outside the area and will not relocate. These staff

members are likely to be temporary summer staff and higher salaried staff,

such as managers and jump masters.

2 As estimated by Horwath HTL in their “Proposed Sky Garden at Waitomo, Market Demand and

Feasibility Study.”

Operating the Sky-Garden could directly contribute

$2.13 million to GDP and employ 69 people in the

Waitomo and Otorohanga districts. Including indirect

and induced impacts, operating expenditure could

contribute $3.04 million to GDP and employ 90 people

in the study area.

These benefits will occur each year and increase as activity increases.

Benefit from visitors

The Sky-Garden is expected to attract 149,000 unique visitors in year three

of operations.2

Of these 149,000 visitors:

• About 90 percent are expected to spend an additional half day in the

area as a result of the Sky-Garden

• About 8 percent will stay for a full day

• About 2 percent will stay overnight.

The total spend in Waitomo and Otorohanga from visitors attributable to the

Sky-Garden is estimated to be $4.4 million.


Visitor expenditure attributable to the Sky-Garden

could directly contribute $2.55 million to GDP and

employ 46 people in the Waitomo and Otorohanga

districts. Including indirect and induced impacts, visitor

expenditure could contribute $3.35 million to GDP and

employ 53 people in the study area.

These benefits will occur each year and increase as activity increases.

The direct benefits from ongoing operations and visitor

expenditure in year three is estimated at $4.68 million

in regional GDP and 115 full-time equivalent jobs.

Adding indirect and induced impacts increases GDP to

$6.39 million and jobs to 143.

Wider benefits of the Sky-Garden

As well as the direct benefits attributable to the Sky-Garden, its existence

and operation can provide wider economic benefits to Waitomo and

Otorohanga and the wider Waikato region. These include:

• Widening the visitor offerings in the area beyond the Waitomo Caves.

The Sky-Garden increases the potential activities in the area,

encouraging visitors to visit and stay longer.

• Building a visitor ecosystem. Increasing the number of visitors to the

area will improve the feasibility and sustainability of other visitor-based

investments in the area.

• Increasing investment in local infrastructure such as roads. This is

achieved as part of the development of the Sky-Garden and the

impacts of increasing visitor numbers to the area.

• Employing locals, which will reduce unemployment rates, increase

incomes and strengthen the local economy.

• Increasing the civic pride of the local community, playing on the positive

reputation the Sky-Garden will bring to the area as a unique attraction.


INTRODUCTION

This report estimates the economic impacts of the proposed Sky-Garden

development on the Waitomo and Otorohanga districts.

Context

Waitomo and Otorohanga are rural districts whose economies have a strong

primary sector focus.

Tourism is a small but growing sector. The majority of visitors come to the

area to visit the Waitomo Caves, which is a one of the Waikato’s major

attractions. There are other local attractions, such as the Otorohanga Kiwi

House and the Waitomo Big Bird and Miniature Animal Petting Farm, which

attract small numbers of visitors.

Waitomo Bungy Limited is proposing to build a ‘tree-like’ bungy attraction in

the area. This attraction is likely to be known as the ‘Sky-Garden’. Situated

less than one kilometre from the Waitomo Caves (and close to an

anticipated hotel development), the Sky-Garden will serve as a second

major attraction, which will boost tourist numbers, spend and stay in the

Waitomo and Otorohanga districts.

Waitomo Bungy seeks to better understand the economic impacts the Sky-

Garden will have on the Waitomo and Otorohanga districts. A clear

understanding of these impacts will support Waitomo Bungy’s engagement

with stakeholders, particularly in funding, investment and resourcing

activities.

It will also inform other stakeholders in their strategic planning, consenting

and funding activities. This is likely to include the Waitomo District Council,

Otorohanga District Council, the Waikato Regional Council, relevant regional

development and tourism groups such as Te Waka and Hamilton Waikato

Tourism, and private investors.

Approach

Economic Impact Analysis

Economic impact analysis estimates the effect that the project will have on

the study area in terms of expenditure, jobs and GDP. To determine these

impacts, details on the direct expenditures generated as a result of the

development are collated. These include capital expenditure for the build

itself, operational spend and the spend of visitors attracted to the area due

to the Sky-Garden.

As well as the jobs and GDP generated in the study area by the direct

expenditure, it is possible to calculate the flow-on benefits to the area.

Multiplier analysis using regional input-output tables is employed to

accurately calculate the total impacts, which includes indirect and induced

activity. See Appendix 1 for a detailed description on the technical

methodology of this economic impact analysis.

Study area

Given that the Sky-Garden will be located on the outskirts of Waitomo

Village, Waitomo district is the natural study area for this analysis.

Otorohanga District is on the northern border of the Waitomo district and

hosts the closest township in the area. State Highway Three, one of the

main roading routes in the Waikato region, runs through both districts and

acts as the gateway for visitors to Waitomo Village.


Together the Waitomo and Otorohanga districts form the study area for this

analysis. This study area is consistent with other studies produced for the

feasibility of the Sky-Garden development.

Wider regional impacts the development is likely to have on the Waikato

region have also been explored. This has been undertaken through a review

of literature and activity, and discussions with key stakeholders to better

understand how the Sky-Garden will contribute to the region’s economic

growth aspirations.

Format of the report

This report is split into three parts. The first introduces the Sky-Garden

project and this study. It provides information on how the Sky-Garden

development aligns with regional economic development and tourism

aspirations.

The second provides the assumptions of the analysis and a discussion of

the economic impacts the Sky-Garden will have on the Waitomo and

Otorohanga districts.

The third discusses the wider benefits the Sky-Garden brings to the study

area and the wider region. This is informed by desk-based research and

discussions with key stakeholders.

The technical methodology used to conduct this economic impact analysis is

provided in Appendix 1.


SKY-GARDEN

Sky-Garden

The project

The Sky-Garden will be a tourist attraction based on the outskirts of

Waitomo Village. The attraction’s key feature will be a 68.5 metre ‘tree-like’

tower with a 55-metre bungy and a lagoon below. The tower itself will have

one 700 square metre platform with a coffee stall and a viewing platform on

the roof. A dry slide, a 50-metre jungle swing and a series of six ziplines will

also be based off the tower. At the ground level a visitor amenity centre will

include a reception and ticketing area, a retail outlet, a video and photo room

and a café.

With its distinct features and natural setting, the Sky-Garden will be a unique

tourist attraction in Waikato and New Zealand. The design itself has been

recognised internationally and the structure will be the first of its kind in the

world.

The project is currently in its development stage. A site to build the attraction

has been purchased just outside Waitomo Village, less than a kilometre from

the Waitomo Caves. Construction plans, technical reports, feasibility

assessments and other various reports are being developed. The resource

consent process is underway and consultation with stakeholders is ongoing.

Construction is anticipated to begin in July 2020.

3 Our analysis assumes the build will be completed in one year as the impacts of extending the analysis

over a two year timeframe are immaterial.

Capital expenditure

Capital expenditure for the development is estimated to be $20 million.

Hamilton based, Form Building and Developments will be overseeing and

completing the build. Construction is expected to take 1.5 to 2 years with an

anticipated start date of July 2020. This would see the build completed by

the end of 20213.

Operational activity

Operations will centre around maintenance and operating the adventure

activities the attraction provides. Operational activity and visitor forecasts

have been prepared by Horwath HTL, a professional services firm with

strong experience in visitor attractions.4 By year three, it is estimated that

Waitomo Bungy Limited will be spending $6.9 million on operations. This

expenditure consists mainly of wages. Other operating expenditure covers

maintenance and general business expenses.

Averaged over the course of a year, the Sky-Garden is expected to employ

59 Full Time Equivalents (FTEs). More will be employed in the summer

months and fewer in the winter months. It is anticipated that most staff will

be employed from within the Waitomo and Otorohanga districts.

The Sky-Garden is expected to attract 148,998 unique visitors in year three

of operations. While the activities the Sky-Garden provides will suit a range

of visitors, the attraction is most likely to appeal to free independent

travellers under the age of 35.

4 Horwath HTL https://horwathhtl.co.nz/. Information used in this report is sourced from “Proposed Sky

Garden at Waitomo, Market Demand and Feasibility Study, 24 September 2019.”

https://horwathhtl.co.nz/


Study area

Waitomo/Otorohanga

The study area for this economic impact assessment is the Waitomo and

Otorohanga districts, in the southern part of the Waikato region. Hamilton

City is (at the furthest) 1 hour north of the districts. Otorohanga District

borders Waitomo to the north. The collective land area of the districts’ cover

over 5,520 square kilometres of rural farmland, forest, river, coast-line and

urban areas. State Highway 3 runs through both districts connecting key

townships of Te Kitui (in Waitomo) and Otorohanga. State Highway 3 also

connects the area to Hamilton.

The current population of Waitomo and Otorohanga is estimated to be

19,443, about 0.4 percent of New Zealand’s population5. Waitomo and

Otorohanga have a relatively older population with roughly 16 percent over

65 years of age.

Approximately 60 percent of the population in Waitomo and Otorohanga is

working age (between the ages of 15 and 64)..Reported employment rates

have been low for Waitomo with just 49.8 percent of the working age

employed as of June 20196. This figure is 68.7 percent for Otorohanga. For

context the overall New Zealand employment rate is 67.6 percent.

There is a current local focus to upskill and retain youth and Māori

population to reduce unemployment rates and increase incomes in the area.

5 9,303 Waitomo and 10,104 Otorohanga. Resident Population Numbers, Census 2018

6 Statistics New Zealand Household Labour Force Survey, June 2019, indexed to 2007 figures

7 This is $651.2 million for Waitomo and $446 million for Otorohanga. Statistics New Zealand Regional GDP

and MBIE Modelled Territorial Authority GDP release 2019.

GDP for the Waitomo and Otorohanga area was $1.1 billion in the year

ended March 20187. The most significant contributors to GDP in Waitomo

are forestry, fishing, mining, electrical, gas and water supply services,

agriculture, and manufacturing. Key contributors to GDP in Otorohanga are

agriculture and the public administration and safety sector.

While agriculture dominates the area, local councils have recognised

diversification is needed to spur economic growth and create a resilient local

economy. Tourism has been identified as a sector to support by the

Waitomo District Council, Otorohanga District Council, Waikato Regional

Council and Te Waka8.

With the Waitomo Caves and the Otorohanga Kiwi House (among a small

number of other attractions), Waitomo and Otorohanga already attract over

half a million visitors per year. Visitor expenditure in the area was $103

million in the year ended August 2019. $77 million of this was spent in

Waitomo with the remaining $26 million spent in Otorohanga9.

Planning for significant visitor-based developments in the area is underway.

Developments include an accommodation complex and cycles trails.

The main challenge for growth in Waitomo and Otorohanga is the limited

housing stock and the increasing cost to the community to support related

infrastructure. This is particularly pressing in Waitomo but actions to address

these challenges are underway.

A skill shortage also provides challenges for new businesses, but it is hoped

the establishment of employment skills hubs in the area will overcome this10.

8 See Waitomo District Councils Economic Development Strategy (adopted 29 October 2019) and their

Long Term Plan 2018-2028. Also Otorohanga District Council’s Long Term Plan 2018-2028 and Te

Waka’s Regional Economic Development Plan 2018-2022.

9 MBIEs monthly regional tourism estimates, August 2019.

10 See the sources listed in footnote nine. Noted also by Michael Bassett Foss, CEO of Te Waka and

Travis Donoghue from Tourism Holdings Ltd, during stakeholder interviews.


Figure 1: Study Area - Waitomo and Otorohanga

Source: Local Government New Zealand, amended by MartinJenkins

The wider region

The Waikato region is not the study area for this assessment, but the Sky-

Garden will provide benefits to the region. Over 468,800 people live in the

11 Estimate as at June 2018, Statistics New Zealand Subnational Population Estimates.

12 Have a GST turnover of 30k+, Statistics New Zealand business demography statistics at February

2019.

Waikato making it the 4th largest region in New Zealand by population11.

There are ten territorial authorities that form the region, which has a total

land area of 25,000 square kilometres. The main centre is Hamilton just one

hour south of southern Auckland. Hamilton airport also provides a gateway

to the Waikato, providing domestic connections to and from New Zealand’s

other major city centres. To the south, the Waikato borders four other

regions Bay of Plenty, Hawke’s Bay, Manawatū-Whanganui and Taranaki.

Over 57,000 businesses12 operate in the Waikato employing roughly

200,000 people. Approximately 65 percent of the population is working-age

and the region’s reported employment rate is 69.3 percent. Median annual

household income is in line with the New Zealand median at $87,500.

In terms of GDP, Waikato is the fourth largest region, contributing $23 billion

in the year ended March 201813. Key sectors for the region are

manufacturing, agriculture and rental, hiring and real estate services.

Tourism is an increasingly important sector in the region. Visitor spend was

$2.7 billion for the year ended August 201914.

The most significant visitor destinations in the Waikato region are the

Hobbiton Movie Set, the Hamilton Gardens and the Waitomo Caves. The

region also boasts many high-quality sporting and adventure-based activities

and events such as motor sport events at Hampton Downs, cycling

competitions, rowing regattas, pro-surfing competitions and balloons over

Waikato. These events attract both international and domestic participants

and attendees. Regional economic development aspirations continue to

support new and existing tourism activities.

13 Statistics New Zealand Regional GDP and MBIE Modelled Territorial Authority GDP release 2019.



Strategic alignment

Regional economic development

The Sky-Garden investment is expected to provide economic benefits to the

region, mainly through employment and various expenditures. It is a venture

that contributes to the strategic outcomes of the region’s councils and

economic development agencies to advance economic development across

the Waikato.

At the regional level, the Waikato Regional Council has specific targets to

increase household median incomes to above the New Zealand average

and to increase the value added per capita at 2.8 percent growth per annum

by 203415. One focus point to achieve this is for the region’s councils and

economic development agencies to support local businesses and tourism

opportunities.

Te Waka is the Waikato regions’ economic development agency. It sets and

helps implement economic development goals for the region. It also

supports new and existing businesses and promotes the ‘Waikato story’.

Tourism is seen as a cross-cutting sectorial priority for the region. Within this

priority, the Sky-Garden is a supported project in Te Waka’s 2018-2022

programme of actions.

At the local level, Waitomo and Otorohanga district councils’ community

objectives are to promote and support sustainable economic development

and increase community resilience. This involves improving the housing

supply, supporting new and existing businesses and promoting the area. A

15 See Waikato Regional Councils community outcomes listed on their website

16 Tourism New Zealand: About the tourism industry

17 Statistics New Zealand International Travel: February 2019


means for building community resilience is through diversifying businesses

and providing greater employment opportunities for locals.

The Sky-Garden will provide and facilitate these regional economic

development priorities. Large impacts will be achieved through employment

and additional expenditure, especially if local youth and Māori are upskilled

and employed.

The Sky-Garden will broaden the activity offerings in the area aiding

economic resilience. Its’ uniqueness will help to promote the area and

increase visitor spend.

Tourism

Tourism is a significant contributor to New Zealand’s economy. As our

biggest export industry, tourism contributed 21 percent of foreign export

earnings for the year ended March 201816. Almost 4 million visitors arrived in

NZ in 201917 and the outlook for visitor numbers and spending remains

positive. The Waitomo and Otorohanga districts attract over half a million

visitors annually, who collectively spent $103 million for the year ended

August 2019. Spend across the Waikato was $2.7 billion, about nine percent

of New Zealand’s total visitor spend18.

The Sky-Garden development aims to capture increasing visitor numbers

and to extend visitors length of stay and spend in Waitomo and Otorohanga

by providing a unique visitor experience. The development aligns with key

strategic tourism objectives at national, regional and district levels.


Nationally, the Government has recognised the importance of developing

new and innovative attractions, especially within the regions19. Success

factors across national tourism strategies include:

• increasing the regional and seasonal spread of visitors

• growing the skills and capability of the workforce and

• generating ‘game-changing’ ideas and initiatives in the industry.

A key focus of the strategies is on increasing value in the industry rather

than just volume. This means encouraging greater spend from existing

visitors and increasing the number of community-based and owned

ventures.

Regionally, Hamilton and Waikato Tourism has set a goal of increasing

visitor expenditure to $1.35 billion by 202520. One of the enablers of success

underpinning the plan is the need to cultivate new authentic visitor

experiences, of which the Sky-Garden is one.

Many adventure- and nature-based activities exist across the region and

there is an opportunity to both strengthen and extend on this market. There

is a specific need to have more large-scale visitor attractions in the region.

There are currently only three major attractions in the region - the Waitomo

Caves, the Hamilton Gardens and the Hobbiton Movie set.

Hamilton and Waikato Tourism also aim to target high-value visitors and to

create 2,000 new jobs across the region by 2025 by supporting tourism

ventures. Waitomo district is identified as an ‘heroic’ visitor destination in the

region on which to springboard these aims. Leveraging visitor numbers from

the Waitomo Caves can be used to increase the length of stay and spend

within the area. Investing in accommodation is key to achieving this, but the

existence and benefits of another activity in the area, such as the Sky-

19 See New Zealand-Aotearoa Government Tourism Strategy (2019) and Tourism New Zealand’s Four

Year Strategic Plan (July 2018- June 2022).

Garden, will contribute to achieving this aim. An attraction in its own right,

and the employment benefits the Sky Garden will provide, support these

regional opportunities and aims.

At the district level, Waitomo and Otorohanga District Councils are

positioning themselves to support tourism projects to capture increasing

visitor numbers to increase economic growth in the area. The Sky-Garden is

one of these projects.

With its recent growth, the tourism industry faces challenges including

strains on infrastructure, environmental impacts and overcrowding. These

challenges impact both the visitor experience and the quality of life of local

community members. The Sky-Garden will not be exempt from these

challenges so consideration of them is needed.

20 Hamilton and Waikato Tourism Visitor Strategy 2014.


ECONOMIC BENEFITS

This section provides detail on the assumptions made during the analysis

and discusses the expected economic impacts of the Sky-Garden. Technical

details on the economic impact assessment methodology are in Appendix 1.

Construction benefits

Waitomo and Otorohanga will benefit from the activity generated by

constructing the Sky-Garden.

Timeframes

Construction is anticipated to take 1.5 to 2 years to complete and cost $20

million. For simplicity of calculation this analysis assumes construction will

be completed in one year. This assumption has an immaterial impact on the

conclusions drawn from the analysis.

Categorisation of expenditure

A significant amount will be spent on the construction of the tower structure,

which requires engineering as well as non-residential construction resources

and services. Based on budgets developed by Form Building and

Developments, and additional information provided by Waitomo Bungy,

capital expenditure items are assigned into four main industry classifications.

The following table shows the percentage of total capital expenditure

attributable to each industry:

Table 1: Industry classification of capex

Industry Classification of Construction activity % of total activity

Construction services 40.5%

Non-residential building construction 28.9%

Heavy and civil engineering construction 25.5%

Scientific, architectural, and engineering services 5.2%

Source: MartinJenkins

Construction services includes activities such as land development and site

preparation, landscaping, scaffolding, concreting, plumbing and electrical

services and interior finishing, installation and decorating services. Most of

the Sky-Garden’s construction costs fall under this classification.

The structural and exterior build of the attraction falls under non-residential

building construction while the tower frame and roading infrastructure will

require heavy and civil engineering construction services.

Allocation of spending

Technical- and construction-related businesses are limited in Waitomo and

Otorohanga, especially for a build of this nature. Small businesses from the

area will likely be employed to assist in site preparation and provide some

plumbing, electrical and carpentry services. The lack of large construction

and engineering businesses in Waitomo and Otorohanga means most of the

capital expenditure will happen in the wider Waikato region. The main

contractor is Hamilton-based. It is expected that they will source most of the

material and labour needs from their own suppliers in the wider Waikato

rather than directly from Waitomo and Otorohanga.


Given this, of the $20 million estimated construction costs, $1.25 million is

estimated to be spent directly in the Waitomo and Otorohanga districts. This

equates to 6.3 percent of total capital expenditure.

The design and construction of the build is expected to be entirely

completed in New Zealand. No specific machinery or materials need to be

imported (other than what is typical of a non-residential build). This means

all capital expenditure will occur within New Zealand. Table 2 provides a

breakdown of the portion of capital expenditure expected to be made locally

and nationally.

Table 2: Local and national capital expenditure

Area Capital Expenditure

Waitomo and Otorohanga $1,254,465

New Zealand $20,000,000


Economic impact of construction

Applying this expenditure and breakdown to the Waitomo and Otorohanga

districts suggests the following economic impacts.

Table 3: Economic impacts of capital expenditure

Waitomo/Otorohanga Direct Direct + Indirect

Direct + Indirect +

Induced

Output $1,254,000 $1,687,000 $1,862,000

GDP $414,000 $597,000 $705,000

Employment (FTEs) 5 8 8


Expenditure of $1.25 million in the Waitomo and Otorohanga districts will

directly contribute $414,178 to GDP and support 5 full-time jobs.

Considering indirect and induced impacts, expenditure of $1.25 million will

contribute $705,325 to GDP and support 8 full-time jobs.

There is an opportunity for Waitomo Bungy to increase these impacts

through purchasing more materials and services locally than is currently

anticipated.


Operation benefits

Waitomo and Otorohanga will benefit from the activity generated by the

expenditure on operating and maintaining the Sky-Garden.

Categorisation and allocation of expenditure

By year three the Sky-Garden development is expected to have moved from

its establishment phase into a period of relatively stable operating activities.

Operating expenditure at this stage is expected to be $6.9 million21.

Operating expenditure is assigned across 13 industry classifications. The

main industries are:

• Sport and recreation services (66%)

• Repair and maintenance (7%)

• Other store-based retailing (6%).

Salaries, wages and staffing related costs make up most operating

expenditure. Despite concerns of being able to employ appropriately skilled

staff locally, by year three it is expected that the Sky-Garden will be fully

staffed by mostly locals. Of the estimated 59 FTE’s required, we anticipate

53 will live in Waitomo and Otorohanga. This is 90 percent of total staff.

Those who are likely to live outside the area are higher salaried staff (jump

masters and managers) and some seasonal staff who live outside of the

area and will choose not to relocate to Waitomo and Otorohanga.

Nine percent of all other operating expenditure is expected to be spent

locally. This is because we expect most repair and maintenance of

equipment will require specialist knowledge not available in Waitomo and

21 Operating expenditure estimates used are those estimates provided in Appendix A by Horwath HTL of

the “Proposed Sky Garden at Waitomo, Market Demand and Feasibility Study, 24 September 2019.”

Otorohanga. Financial and legal services as well as telecoms and electricity

businesses will not be locally based companies.

Considering these assumptions, $4.4 million of the $6.9 million total

operational expenditure is expected to be spent directly in the Waitomo and

Otorohanga districts. This equates to 64.7 percent of total operational

expenditure.

Table 4: Local and national operational expenditure

Area Spend

Waitomo and Otorohanga $4,450,248

New Zealand $6,877,494


Economic impact of operations

Applying this expenditure and breakdown to the Waitomo and Otorohanga

districts suggests the following economic impacts.

Table 5: Economic impacts of operating expenditure


Direct + Indirect +

Induced

Output $4,450,000 $5,438 $6,089,000

GDP $2,126,000 $2,634,000 $3,044,000




Expenditure of $4.45 million in the Waitomo and Otorohanga districts will

directly contribute $2.13 million to GDP and support 69 full-time jobs.


contribute $3.04 million to GDP and support 90 full-time jobs.


Visitor benefits

Waitomo and Otorohanga will benefit from the spending of visitors attracted

to the area by the Sky-Garden

Visitor numbers

The Sky-Garden is expected to attract 148,998 unique visitors by year three

of operations. Many of these visitors will also visit the Waitomo Caves, the

main attraction in the area.

Although the range of activities at the Sky-Garden appeals to a wide range

of visitors, young free independent travellers under age 35 are expected to

make up most of the visitors to the attraction.

International visitors are predicted to make up 88 percent of total visitors to

the Sky-Garden. Their reasons for visiting the area, primarily the Waitomo

Caves, are closely aligned with the activities the Sky-Garden attraction

provides. Domestic visitors (made up of holiday makers and those visiting

friends and relatives) are expected to form 12 percent of visitor volumes.

Just 0.2 percent of total visitors are expected to be Waitomo and

Otorohanga locals.

Visitor numbers, type and profile information is based on feasibility and

market studies for the Sky-Garden prepared by Horwath HTL.

Table 6 sets out the projected unique visitor volumes to the Sky-Garden for

the third year of operations. Total visitor volume is expected to grow by

roughly 2.7 percent each year from year three.


Table 6: Projected Unique Visitor Volumes Year 3

Visitor Type Total

International visitors 131,593

Domestic visitors 17,146

Sub Total 148,739

Locals 259

Total visitors 148,998

Source: Table 5.5 Horwath HTL Market Demand and Feasibility Study

Length of stay and expenditure

To determine the additional visitor spend in the area, it is necessary to

understand how long they visit for and how much they spend.

Length of stay

Currently visitors spend an average of 4.5 hours in Waitomo and

Otorohanga. Their main reason for visiting is the Waitomo Caves. Many

arrive on bus tours specifically put on for the Caves. Given this, it is

expected that the majority (90%) of visitors to the Sky-Garden will be

spending an extra half day in the area after visiting the Waitomo Caves.

There will also be a portion of Sky-Garden visitors that will choose to spend

a full day in Waitomo and Otorohanga. These are likely to be free

independent travellers and domestic travellers, some who may have already

visited the Caves. It is assumed they will be drawn to the area because of

the Sky-Garden and that these visitors will likely complete another activity

during their day in the area. Eight percent of total Sky-Garden visitors are

expected to fall into this category.

Currently there is very limited accommodation in Waitomo and Otorohanga

compared to the volume of visitors that visit the area. According to MBIE’s

Commercial Accommodation Survey, in August 2019 the Waitomo and

Otorohanga districts daily accommodation capacity was 885 units. With the

low levels of accommodation and low volume of attractions in the area we

estimate that just two percent of total visitors visiting the Sky-Garden will

consequently decide to stay overnight in Waitomo and Otorohanga.

Spend

Daily spend in the study area is estimated. No official daily spend numbers

exist for the Waitomo and Otorohanga districts. Our estimates for spend are

based on an assessment of other likely activity undertaken by visitors to the

Sky-Garden and well as other regional studies in which we have estimated

daily spend.

Half-day visitors (full day but half attributable purely to the Sky-Garden), are

expected to spend $25 in this time. This could be for food and beverages,

fuel and other small items outside of the attractions visited. It is a relatively

low figure because of the lack of amenities in Waitomo and Otorohanga.

This may change over time as the visitor eco-system develops.

Average spend for full-day is expected to be $50. This covers the cost of an

additional activity in the area, as well as spending on food, fuel and gifts.

Those who do stay overnight are estimated to spend $160. This is based on

$110 for a night’s accommodation in the area in addition to $50 spending as

a full-day visitor.

A summary of these assumptions on additional visitor stay and spend is

provided in Table 7.


Table 7: Visitor stay and spend

Length of stay Share of Total Visitors Spend

Half-day 90% $25.00

Full-day 8% $50.00

Overnight 2% $160.00

Average spend $29.70


Our analysis suggests that, on average, each visitor will spend an additional

$29.70 in the study area. Note that this does not include spend within the

Sky-Garden, as this is already captured in the Sky-Garden’s operational

expenditure.

Economic impact of additional visitors

Based on the above assumptions, the additional visitor expenditure in

Waitomo and Otorohanga as a result of the Sky-Garden is $4.42 million. A

breakdown of this is given in the table below. Note that spending by locals is

zero because there is no additional benefit to Waitomo and Otorohanga from

locals visiting the Sky-Garden. It is assumed locals would have spent this

money in the area anyway.

Table 8: Total estimated visitor spend Waitomo and Otorohanga

Visitor Type International Domestic Local Total

Half Day $2,960,843 $385,785 0 $3,346,628

Full Day $526,425 $68,584 0 $595,009

Overnight $421,140 $54,867 0 $476,007

Total Spend $3,908,407 $509,236 0 $4,417,643


The impact of this $4.42 million in additional visitor spend in the Waitomo

and Otorohanga area on the Waitomo and Otorohanga economy is shown in

Table 9.

Table 9: Economic impacts of visitors’ expenditure


Direct + Indirect +

Induced

Output $4,418,000 $5,192,000 $5,829,000

GDP $2,551,000 $2,952,000 $3,345,000



Visitor expenditure of $4.42 in Waitomo and Otorohanga will directly

contribute about $2.55 million to GDP and support 46 full-time jobs.


contribute $3.35 million to GDP and support 53 full-time jobs.


Summary of the economic impacts

A summary of the economic impacts the Sky-Garden has on the Waitomo

and Otorohanga districts is provided in the table below.

Table 10: Summary of economic impacts

Direct Impact Total Impact

Capital Expenditure

Output $1,254,000 $1,862,000

GDP $414,000 $705,000

Employment (FTEs) 5 8

Operational Expenditure (annual)

Output $4,450,000 $6,089,000

GDP $2,126,000 $3,044,000


Visitor Expenditure (annual)

Output $4,418,000 $5,829,000

GDP $2,551,000 $3,345,000


Total Ongoing Expenditure (annual)

Output $8,868,000 $11,918

GDP $4,677,000 $6,389,000



Capital expenditure is one-off during the construction of the Sky-Garden.

The direct benefits of capital expenditure is estimated at $414,000 in

regional GDP and five full-time equivalent jobs. Adding indirect and induced

impacts increases GDP to $705,000 and jobs to eight.

Operational expenditure is for year three. This is expected to continue to

increase each year as visitor numbers to the Sky-Garden are projected to

grow and as spend increases as the visitor eco-system develops. The direct

benefits of operations expenditure is estimated at $2.13 million in regional

GDP and 69 full-time equivalent jobs. Adding indirect and induced impacts

increases GDP to $3.04 million and jobs to 90.

Visitor expenditure is for year three. Visitor expenditure is expected to

increase as a result of increased visitors to the study area and increased

spend over time as the visitor eco-system develops. The direct benefits of

additional visitor expenditure is estimated at $2.55 million in regional GDP

and 46 full-time equivalent jobs. Adding indirect and induced impacts

increases GDP to $$3.35 million and jobs to 53.

Total ongoing expenditure is for year three of operations. It is the total of

operational and visitor expenditure. The direct benefits from ongoing

operations and visitor expenditure is estimated at $4.68 million in regional

GDP and 115 full-time equivalent jobs. Adding indirect and induced impacts

increases GDP to $6.39 million and jobs to 143.


WIDER ECONOMIC BENEFITS

This section discusses the wider economic benefits the Sky-Garden could

provide to Waitomo and Otorohanga and the wider Waikato region. It also

notes ways in which to realise these wider economic benefits. The

discussion points were informed by desk-research and interviews with key

stakeholders. Those interviewed are listed in Appendix 2.

Wider economic benefits

Widening of tourist offerings

Currently Waitomo is seen as a single purpose destination with the Waitomo

Caves as the main attraction. Most visitors arrive on a dedicated bus tour

and spend, on average, 4.5 hours in the area.

Operators, councils and regional development agencies would like to see

the breadth and depth of experiences in the area enhanced for two main

reasons. One is to attract a wider range of visitors that will be inclined to stay

for longer and the other is to disperse current visitor numbers across the

region to reduce infrastructure pressures surrounding heavily visited

attractions. The Sky-Garden will contribute to this.

Being a high-quality, unique and large-scale attraction, the Sky-Garden is

anticipated to become a well-known attraction in the Waikato region. If this

reputation is achieved, visitor itineraries will reflect a longer stay in the area,

as well as greater numbers that will travel to and throughout the Waikato

region. This will help to achieve the dispersion benefits sought by the region.

Building a visitor ecosystem

As a unique, high-quality attraction, the Sky-Garden will attract large visitor

numbers to the area and encourage visitors, who currently spend a limited

time in the region, to stay longer. This increases the feasibility and

sustainability of other investments in the area. This analysis does not

assume any other investments or developments would be developed in the

area in the foreseeable future directly as a result of the Sky-Garden.

However, a hotel complex in Waitomo, and cycle trails in the Waitomo and

Otorohanga area are planned. While these attractions might create

competition for the Sky-Garden and existing attractions, the co-existence of

such developments will provide compounding benefits to the area. There will

be more reasons for visitors to be attracted to the area, to stay for longer

and to spend more. Having more visitors makes the development of visitor

amenities and services more economic, encouraging investment and

development.

Improved local infrastructure

Larger tourist numbers and investment has flow-on impacts for increasing

the feasibility of, and opportunity to upgrade, local community infrastructure.

Waitomo Bungy Limited is set to spend over a million dollars on roading as

part of the Sky-Garden development. It is likely other investments (made

more sustainable by the existence of the Sky-Garden) will also require

further investment into infrastructure, which will benefit the study area.


Employment

Employment will provide some of the greatest impacts by increasing

incomes and spending in the area.

Employing staff from the local labour pool will be particularly beneficial.

Waitomo and Otorohanga currently have relatively low employment and

labour skill levels, especially for youth and Māori populations. Direct

employment by the Sky-Garden is relatively small regionally but, given the

high levels of deprivation and unemployment in the area, employment will

have a very significant impact on the local community. Employing locally

reduce unemployment and increase employment rates in the area. Given

the technical skills needed to run its activities, the Sky-Garden will also

improve the skillset of the local labour force.

Civic pride

Set to be a world-class, one-of-a-kind attraction, the Sky-Garden is expected

to advance the reputation of Waitomo and Otorohanga as a visitor

destination. The design of the build has already been internationally

recognised and interest in the attraction is building. Many in the community

will take pride in the reputation the Sky-Garden brings. Local businesses will

also be able to reap the benefits that a greater awareness of the area brings.

Realising the benefits

Building relationships

Developing partnerships and collaborating with local iwi, the Waitomo

District Council, the Otorohanga District Council, the Waikato Regional

Council, Te Waka and Hamilton Waikato Tourism will be needed to realise

the full benefits of a tourist attraction of this size. Utilising the expertise and

contacts of these will ensure the Sky-Garden is strategically marketed and

supported by operators.

Engaging with the local community will also be essential. Building

relationships and providing opportunities for locals to participate in the

development, through ideas, promotion of the area and employment, will

provide direct local benefits and ensure the long-term sustainability and

support of the attraction.

Developing partnerships with other local businesses and attractions may

provide wider benefits. As it is a large attraction, the Sky-Garden could work

to promote smaller operators by developing package deals for visitors to

Waitomo and Otorohanga.

Employing locals

In order to realise the full benefits of employment, Waitomo Bungy must

work with local organisations to upskill locals and employ from the local

labour pool. Ninety percent of staff are expected to live locally in Waitomo

and Otorohanga. If staff were employed from the local labour pool rather

than relocated this will result in greater benefits for the area. It will also

reduce any anticipated pressures on the local housing stock.

Other tourism operators in the area commented on the difficulty of

employing suitability trained and skilled staff, especially from the local labour

pool. Limited housing in the area adds to this difficulty. Current initiatives

such as the Waikato Plan Housing Stock-take have made some progress in

addressing these limitations. The development of a youth employment hub

and a local employment hub are underway (by different parties) in Waitomo

to improve the skills of the local workforce.

An opportunity exists for Waitomo Bungy to work closely with these

employment hubs and with the local marae to support the youth and Māori

workforce. Internships or other training opportunities could be provided. If

the Sky-Garden was involved in facilitating a solution to these skill and


housing limitations, this would result in significant wider economic benefits

for the area.


APPENDIX 1: ECONOMIC IMPACT ANALYSIS

This study uses economic impact analysis to quantify the benefits of the

Sky-Garden to the Waitomo and Otorohanga economy.

What is economic impact analysis?

Economic impact analysis estimates the quantifiable contribution that an

activity makes to a geographical area in terms of output, GDP and

employment.

The economic impacts are those that occur directly as a result of the Sky-

Garden being in operation on the Waitomo and Otorohanga economy. As

noted earlier in this report, this includes the:

• capital and operational activity of the Sky-Garden

• economic activity generated by the expenditure of visitors to the

Waitomo and Otorohanga districts where the Sky-Garden was the main

reason for their decision to visit or made them stay longer in the area.

22 There is no official set of regional input-output tables. Regional tables are calculated by several private

providers. The input-output tables and multipliers used in this analysis were generated by Butcher and

Partners limited and are based on the latest national input-output tables. Butcher and Partners are

Methodology

Multiplier analysis

The underpinning method for economic impact analysis is Input-Output (I-O)

Multiplier Analysis, which estimates the economy-wide effects that an initial

change in activity has on GDP and employment in a geographic area.

Regional I-O tables and multipliers are constructed from a detailed set of

industry accounts that measure the commodities produced by each industry

and the use of these commodities by other industries and final users within a

defined geographic area (region). An initial change in economic activity

results in diminishing rounds of new spending as leakages occur through

saving or spending outside the region.

The economic impact analysis follows the accepted practice of identifying

the impact from the direct expenditure associated with the project and then

applying regional multipliers22 to determine the indirect and induced effects

of that initial expenditure in terms of gross output, value added (GDP), and

employment.23

Direct impacts are those that are initially generated by the initial expenditure

with businesses. Indirect impacts occur when those initial businesses

purchase materials, goods and services from supplier firms, who in turn

make further purchases from their suppliers and so forth. Induced impacts

occur when employees in those businesses providing the materials, goods

acknowledged and respected providers of regional input-output tables, which have been used in

numerous economic impact studies in New Zealand over the years.

23 Gross output, value added and FTE employment are defined in the appendix on page 24.


and services are paid wages and the enterprises generate profits that are

then spent on consumption within the region.

Operational expenditure is assigned to the appropriate industry category and

ratios and multipliers are applied. The totals for each industry are

aggregated to provide the direct, indirect and induced economic impacts in

terms of gross output (expenditure), value added (GDP) and employment

(FTEs). Where estimates of direct employment are known, these are

incorporated directly into the model (the employment to output ratio is over-

ridden).

Regional I-O tables

I-O tables are an analytical tool that show the relationships between

industries, the goods and services they produce, and who uses them.

National input-output tables are produced by Statistics New Zealand, the

latest are for the year ended March 2013. Statistics New Zealand does not

produce regional input-output tables.

The regional I-O table used in this analysis was supplied by Butcher

Partners and reflects inter-industry activity in the Waitomo and Otorohanga

economy for the year ended March 2013, the latest year available.

Employment to output ratios have been revised to 2019 to reflect changes in

prices.

Study area

The economic impact analysis measures the economic impacts on the

Waitomo and Otorohanga districts only. There are likely benefits beyond the

two districts. While they are discussed in the qualitative analysis, we have

not attempted to capture them in the economic impact analysis.

Time period

This report aims to capture the latest available information. For operational

and capital expenditure, the expenditure is for the financial year to June,

whereas for visitor impacts, the expenditure is for the calendar year.

Regional I-O multiplier analysis

Underlying logic

The underlying logic of Regional I-O Multiplier Analysis is that enterprises

create flows of expenditure (direct impacts) that are magnified or ‘multiplied’

as they flow on to the wider economy. This happens in two ways:

1 indirect impacts - the enterprise purchases materials and services from

supplier firms, who in turn make further purchases from their suppliers

and so forth

2 induced impacts - employees in the enterprises and in firms supplying

services are paid a wage and the enterprises generate profits, which is

then spent on consumption.

The total impact is then the sum of the direct, indirect and induced impacts.

Multipliers

Regional multipliers are used to capture the indirect and induced impacts at

a regional or national level. They are also used to calculate GDP. Multipliers

are derived from the national I-O tables published by Statistics New Zealand

and the regional (Waitomo and Otorohanga) I-O tables supplied by Butcher

Partners Limited.

The size of the multiplier depends upon the degree of economic self-

sufficiency. The more self-sufficient a region or nation is, the higher the

multiplier is likely to be. Initial expenditure is assigned to the industry where


it occurs. Each industry has a different multiplier based on the average

pattern of purchases of goods and services, capital formation, profits, wages

and salaries.

Measures of economic activity

An analysis allows for the determination of three measures of economic

activity – Gross Output, Value Added and Employment.

Gross Output is the value of production, which is built up through the

national accounts as a measure of gross sales or turnover. It is essentially

the initial expenditure incurred by the activity.

Value Added is the increase in output generated along the production

process, which when aggregated totals GDP. Value Added is the sum of:

• compensation of employees (salaries and wages)

• income from self-employment

• depreciation

• profits and

• indirect taxes less subsidies.

Employment is generally expressed as full-time equivalents (FTEs) to allow

for comparison. FTEs is the number of full-time employees and working

proprietors. FTEs provide a measure of total labour demand associated with

gross output for one year. For example, four full-time jobs running for three

months would be shown as one FTE.

Limitations of regional I-O multiplier analysis

There are acknowledged limitations of regional I-O multiplier analysis. The

limitations and our responses are shown in the following table.

Table 11: Addressing the limitations of regional I-O multiplier analysis

Limitation Application in this analysis

Additionality and displacement

– the I-O multiplier analysis

assumes that the activity or event

being analysed is new activity and

does not displace existing activity.

Considerations for additionality and displacement have

been made separately before inputting the activity into

the model.

This is particularly relevant when looking at visitor

activity, where visitors have alternative activities they

can choose to do in Waitomo and Otorohanga.

Static model - It is assumed that

an activity will not have an impact

on relative prices.

Due to the volume and types of inputs purchased by

the Sky-Garden from the Waitomo and Otorohanga

districts, it is unlikely that the Sky-Garden will influence

prices for either products or services in the area.

Aggregation and accuracy of

multipliers - Each industry has its

own unique inputs and outputs

and thus multipliers. The more

aggregated the level of analysis,

the less accurate these inputs and

outputs become. It is therefore

important to apportion the initial

expenditure to the industry where

it occurs.

With regards to aggregation limitations impacting on

accuracy, expenditure has been broken down into

individual expense areas and then allocated to the

most relevant industry. The current analysis allocates

activity across separate industries, which provides a

higher level of accuracy.

Visitor expenditure is assigned to industries based on

the breakdown of spend identified through the

Regional Tourism Estimates and the assignment of

activity in the Tourism Satellite Accounts.

Regions and boundaries - The

smaller or less defined a region

and its boundaries, the less

accurate the multiplier analysis will

be. Similarly, the easier it is to

move across boundaries, the less

accurate the analysis will be.

The Waitomo and Otorohanga Districts are well

defined territories overseen by two Territory

Authorities. That the study area is small and

intertwined with surrounding economies means this

limitation is not able to be overcome in this analysis. In

a best attempt to mitigate this limitation we have been

conservative when attributing any estimated spend to

the local area.


APPENDIX 2: INTERVIEW LIST

Thank you to the people who contributed their time to inform this report:

• Horwath HTL - Stephen Hamilton

• Tourism Hamilton Limited - Travis Donoghue

• Waikato Regional Council - Blair Keenan, Principal Economist

• Te Waka – Michael Bassett Foss, CEO

sky-garden - waitomo district · the sky-garden is a significant operation and, by year three, it...

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