INVESTING IN TOURISM TO REALISE JOBS & GROWTH

INVESTING IN TOURISM TO REALISE JOBS & GROWTH Mid-Term Government Review of Capital Plan Submission by The Irish Tourist Industry Confederation The Need For Increased Tourism Capital Investment April 28 th 2017

CONTENTS Page No. EXECUTIVE SUMMARY & RECOMMENDATIONS... 3 1. CONTEXT... 5 2. EXISTING ARRANGEMENTS... 8 2.1 Position of Tourism in the Irish Economy... 8 2.2 The Case for State Investment in Tourism... 9 2.3 Tourism Capital Investment Programme 2016-2021... 10 2.4 Observations... 16 3. TOURISM ENABLING INFRASTRUCTURE INVESTMENT... 17 3.1 The Scope of Tourism Capital Investment... 17 3.2 Tourism Enabling Infrastructure Investment... 19 4. INTERNATIONAL REVIEW... 22 5. TOURISM GROWTH OUTLOOK... 25 5.1 Irish Tourism Performance and Outlook... 25 5.2 Key Drivers of Tourism Growth and Risk Factors... 26 5.3 Observations... 27 6. FUTURE INVESTMENT PRIORITIES... 29 6.1 A Framework for Future Tourism Investment... 29 6.2 Priorities Identified by the Industry... 33 7. INVESTMENT REQUIRED... 37 7.1 Right-Sizing Future Tourism Investment... 37 7.2 Implications of an Expanded Tourism Investment... 40 8. TOURISM INVESTMENT - PLANNING & IMPLEMENTATION... 42 8.1 A Framework for Future Tourism Investment... 42 8.2 Human Resources... 44 8.3 Organisation and Structure... 45 8.4 Funding Channels... 45 9. SUMMARY & RECOMMENDATIONS... 47 ITIC Submission: Mid-Term Capital Review Page 2

Executive Summary & Recommendations ITIC Submission: Mid-Term Capital Review Page 3

ITIC Submission: Mid-Term Capital Review Page 4

1. Context In February 2017, the Irish Tourist Industry Confederation (ITIC) engaged CHL Consulting Company Ltd. to carry out a review of the tourism dimension of the public capital expenditure plan Building on Recovery: Infrastructure and Capital Investment 2016-2021. This review was commissioned following the announcement by the Government in late January 2017 of its intention to conduct a mid-term review of the 6 year capital plan. In his statement on the matter, the Minister for Public Expenditure and Reform noted that the capital plan is now being reviewed to ensure that capital spending is fully aligned with national economic and social priorities, consistent with the Programme for Partnership Government objectives. Given the importance of the capital programme for tourism development, ITIC wishes to be in a position to contribute to this review process. ITIC represents some 30 individual tourism member representative organisations. There has long been a belief among this membership that the tourism industry is not adequately served by the capital allocation of 106 1 million for enterprise supports awarded to it by Government under the current public capital programme. ITIC has estimated (as per section 7 of this document) that a more appropriate capital allocation for tourism development should be in the order of 350 million over a 6 year period, committed in a multi-annual fund. ITIC believes that this is necessary to create the environment to enable the industry to grow, sustain jobs, and support the regional distribution of the economic gain associated with tourism. ITIC is of the view that, given the appropriate policies and investment strategies, Irish tourism can generate 7 billion annually in overseas earnings by 2025 and a further 50,000 jobs. The scope of this review covers: the existing arrangements for public capital investment in tourism the comparative position in competitor tourism destinations future investment priorities the level of investment required. The findings and conclusions of the review on each of the above areas are based on extensive research and consultations with industry leaders. The context within which the 1 The official figure referenced for tourism in Building on Recovery: Infrastructure and Capital Investment 2016-2021 is 106m (p29). Subsequent to the publication of the capital programme however, a further 20m was allocated to tourism through an additional funding allocation for 2022. This raised the tourism allocation to 126m over the seven-year period from 2016 through to 2022. The figure of 106m though is used primarily in this report as it is within the 6 year Capital plan timeline. ITIC Submission: Mid-Term Capital Review Page 5

review has been undertaken is Irish tourism s return to growth over the past three years. According to the Central Statistics Office (CSO) overseas tourist arrivals rose from 6.7 million in 2013 to 8.8 million in 2016. Overall, therefore, the number of overseas tourists has increased by circa 30% since 2013. This return to growth represented a marked comeback by the tourism sector from the global recession that characterised the period from 2008 to 2013. One of the more notable features of this period was the manner in which Irish tourism responded to the slump in international demand by reappraising its position in international markets, and reevaluating its core product offering. Among the insights to emerge from this process were the following: As an island destination at the North-West of Europe, Ireland does not offer a universal tourism product of sun, sea and sand. It offers instead a specific product essentially consisting of three principal tourism assets its natural heritage, its built heritage and its cultural heritage. This asset base is authentic and unique to Ireland. Its potential as a source of economic value is this uniqueness it cannot be replicated and commoditised. This is reflected in Fáilte Ireland s (the National Tourism Development Authority s) approach to capital investment where visitor experience and innovation outcomes is one of the two categories of criteria used for project evaluation 2. A more granular approach to market segmentation has been a notable feature of recent tourism development in Ireland. In addition to greater product clarity there now exists a greater consumer clarity, where more is known about the particular consumer segments that could be interested in Ireland as a leisure destination. Particular interest has focused on those segments known as the Culturally Curious, the Great Escapers, and the Social Energisers. The practical outcome of these insights is that Ireland, within an Ireland-brand destination umbrella, now promotes its tourism offering by leveraging off three principal brand experiences the Wild Atlantic Way, Ireland s Ancient East, and Dublin A Breath of Fresh Air. 2 Fáilte Ireland: Grants Scheme for Large Tourism Projects 2016-2020. ITIC Submission: Mid-Term Capital Review Page 6

These four observations are at the core of contemporary tourism development strategy in Ireland. As the two principal tourism agencies, both Fáilte Ireland and Tourism Ireland work to this script, it seems reasonable to believe therefore that tourism capital investment should have regard to these considerations, and most particularly the first one concerning the nature of the tourism asset base. This point has already been made as an element of government tourism policy 3 where it has been stated: The provision of future State supports for capital investment in tourism shall be designed to support development that fits within the brand architecture and consumer segmentation model, and will require that supported projects are compliant with the requirements of relevant European and national environmental regulations. 3 People, Place, and Policy: Growing Tourism to 2025, p30. ITIC Submission: Mid-Term Capital Review Page 7

2. EXISTING ARRANGEMENTS 2.1 Position of Tourism in the Irish Economy Travel and Tourism is recognised as an important contributor to the economy in most countries, providing direct and indirect sources of revenue and employment, as illustrated in Figure 2.1 below, and having a low import content relative to other sectors of the economy (e.g. manufacturing). In Ireland, tourism generates the additional benefit of stimulating rural and local economies, as well as supporting the appreciation and conservation of the natural and built heritage. Figure 2.1: Defining the Economic Contribution of Travel & Tourism Source: Travel & Tourism, Economic Impact 2015 Ireland, WTTC Tourism in Ireland has the following specific economic benefits 4. In 2016, a total of 9.6 million overseas trips (including day trippers) were made to Ireland compared to 8.6 million trips in 2015 (+10.9%). Overseas travel to Ireland generated earnings of 6.1 billion in 2016 compared to 5.5 billion in 2015 (+9.5%). 4 CSO Release 23 March 2017 and Tourism Facts 2015 ITIC Submission: Mid-Term Capital Review Page 8

For every 1 spent on tourists, Fáilte Ireland estimate that 23 cents is generated in tax: in 2016, the Exchequer earned an estimated revenue of 1.8 billion though taxation - 3.5% of all tax revenue. Fáilte Ireland estimate that every 1 million of tourist expenditure helps to support 29 tourism jobs: according to the CSO there are approximately 220,000 jobs in the tourism sector, representing about 10% of all employment in Ireland in 2016. In recognition of this value, the Government states that, It will place tourism as a key element of its economic strategy, with development in the tourism sector reflecting the highest standards of environmental and economic sustainability, and the role of tourism in promoting peace and political co-operation on the island of Ireland will continue to be recognised and encouraged. 5 2.2 The Case for State Investment in Tourism Tourism is an ever-changing business and to stay ahead requires constant investment in the product. Product maintenance, quality improvements, capacity expansion, new product development and innovation all demand continuous attention. However, since 2008, the level of investment in the tourism product by both the private and public sectors has been much reduced as a direct consequence of the public finance retrenchment. The consequences of almost 9 years of under-investment are becoming apparent as capacity issues and a tired product risk impacting on Ireland s competitiveness and on its ability to take full advantage of its rising popularity as a tourist destination. One of the distinguishing features of tourism is that it relies heavily for its international appeal on assets that are beyond the industry s direct control. Fáilte Ireland s market research over the years (e.g. the Overseas Holidaymakers Attitudes Survey) has consistently shown that the main attractors for visitors to Ireland - and our principal competitive advantages with regard to product - are Irish people, scenery, the natural environment and our cultural heritage. These attractors constitute the primary tourism product. The national responsibility is to protect and preserve these assets, to enhance them if possible, to educate residents and visitors about them, and to enable access. They are the foundations of the tourism industry and Ireland s ability to compete is threatened by any damage to, or diminution of, these assets. 5 People, Place and Policy - Growing Tourism to 2025, Department of Transport, Tourism & Sport, March 2015 ITIC Submission: Mid-Term Capital Review Page 9

A failure to address threats to our primary product risk resulting in their steady deterioration with serious consequences for Ireland in terms of the quality of its tourism offering. Furthermore failure to develop new and exciting tourism experiences will undermine the sector s growth potential. State intervention is essential to underpin the quality of the primary product asset so that the private and commercial tourism industry can prosper and grow. Sustained State investment in the primary product, including Ireland s natural and built heritage, and arts and culture, is necessary and fully justified in terms of the economic benefits that accrue see Section 2.1. Moreover, such investment is not only in the interests of tourism. Perhaps more importantly, there is a national imperative in the interests of the people of Ireland to maintain and enable physical and intellectual access to the national patrimony of the country s natural and built heritage. A further point is that certain types of tourism products that are based on the primary product are difficult to develop and sustain on a purely commercial basis. For products such as interpretative centres, walking routes and historic attractions, financial sustainability will always be a challenge. Thus, tourist attractions and activity and infrastructure projects with low financial returns will struggle to compete for private capital with sectors where there are greater returns to be had. If private sector and community organisations are to develop such products, which are critical to the creation of distinctive tourist experiences, State support is required. 2.3 Tourism Capital Investment Programme 2016-2021 2.3.1 Capital Investment by Sector The current public capital expenditure programme - Building on Recovery - Infrastructure and Capital Investment 2016-2021 - was published by the Department of Public Expenditure and Reform in September 2015. It sets out a total planned Exchequer Capital Investment of 27 billion over the lifetime of the plan, the annual breakdown of which is shown in Table 2.1. The programme includes a capital provision of almost 8.1 billion for Transport, Tourism and Sport over the period. Almost 95% of the allocation to Transport, Tourism and Sport is assigned to Transport roads and public transport. The 106 million referenced for tourism in the Capital Investment Programme represents just 0.4% of the total capital envelope and 1.3% of the ITIC Submission: Mid-Term Capital Review Page 10

allocation to Transport, Tourism and Sport. Table 2.1: Planned Government Investment, 2016-2021 ( m) 2016 2017 2018 2019 2020 2021 Total Total Exchequer Capital Envelope 3,800 3,970 4,230 4,600 5,000 5,400 27,000 Total Transport, Tourism & Sport 1,039 1,015 1,167 1,238 1,607 2,000 8,065 Of which: - Roads 591 622 743 832 996 1,082 4,866 - Public transport 348 321 368 358 533 845 2,773 - Tourism & Sport 100 72 56 48 78 73 427 Enterprise Supports 712 733 698 708 708 708 4,267 Of which: - Jobs, Enterprise & Innovation 495 525 490 500 500 500 3,010 - Agriculture, Food & the Marine 217 208 208 208 208 208 1,257 - Tourism 14 13 13 15 25 26 106 - Tourism as % of Enterprise Supports 2% 1.8% 1.9% 2.1% 3.5% 3.7% 2.5% The allocation to tourism - 106 million is termed Enterprise Supports, and the annual distribution of this amount is also shown in Table 2.1. Tourism represents just 2.5% of the total amount assigned to Enterprise Supports, and is less than 10% of the allocation for enterprise support in the agriculture, food and marine sector alone. Moreover, as stated this allocation of 106 million represents a mere 0.4% of the total Exchequer-led capital envelope sum of 27 billion. In short, investment in tourism Ireland s largest indigenous employer - accounts for less than one-half of 1% of the Exchequer-led capital programme. This analysis is based on the capital programme over the period 2016-2021, and it is not expected that the extension of the programme to 2022 will materially alter this interpretation. The following comments are prompted by this allocation to tourism: The amount allocated to tourism enterprise capital supports is a small fraction of the amount allocated to Agriculture, Food & the Marine despite the fact that tourism is a larger employer (220,000 jobs compared to 165,700 in the agri-food sector). Exports by the agri-food sector amounted to around 12 billion in 2015, which was double the export earnings of tourism, however agri-food is set to receive 10 times the capital investment allocated to tourism. ITIC Submission: Mid-Term Capital Review Page 11

It is clear that no significant increase in investment is planned for the sector until after 2019 which is a concern, not only because of the significant growth levels being achieved by the sector (as highlighted in Section 2) but also due to current capacity constraints already highlighted by the tourism industry. In addition current levels of investment are lower than those at points in the last decade exchequer allocations for example in 2012 and 2013 were 21 million and 20 million respectively. This is despite the assertion that: It would make little sense to cut the funding while the tourism numbers are on the increase which is supporting the economic recovery. Transport, Tourism and Sport Vote Analysis, DTTAS, June 2014 2.3.2 Grants Scheme for Large Tourism Projects Fáilte Ireland administers the Grants Scheme for Large Tourism Projects, 2016-2020. This grants scheme is designed to support large tourism experience development projects applying for grants in excess of 200,000. A Grants Scheme for Small Tourism Innovation Projects was scheduled to open for applications in 2016, but this has yet to happen. The Scheme incorporates the 106 million referred to in Section 2.3.1. However, the Department of Transport, Tourism and Sport extended the timeline of its capital investment programme to 2022, and the total available for capital spending on the tourism product over the 7 years, 2016-2022, is 126 million. This is distributed through four separate channels as shown in Table 2.3 with the Grants Scheme for large projects expected to be allocated nearly 50% at 66 million. The balance is spread across the other 3 channels with the area of strategic partnerships anticipated to receive most. Table 2.3: Distribution of Funding Under the Tourism Capital Grant Programme, 2016-2022 Delivery Channel Total ( m) Grants Scheme for Large Tourism Projects 66m Strategic Partnerships (with OPW, NPWS and Coillte) TBC Experience Development Plans* TBC Direct Investment (initiatives led by Fáilte Ireland) TBC Total 126m * Area-based tourism development strategies and small grants. ITIC Submission: Mid-Term Capital Review Page 12

The Grants Scheme for Large Tourism Projects has been designed in accordance with the objectives and priorities of Fáilte Ireland s tourism investment strategy, Tourism Development and Innovation: A Strategy for Investment 2016-2022. The four objectives of this strategy are: to successfully and consistently deliver a world class visitor experience. to support a tourism sector that is profitable and achieves sustainable levels of growth and delivers jobs. to facilitate communities to play an enhanced role in developing tourism in their locality, therefore strengthening and enriching local communities. to recognise, value and enhance Ireland s natural environment as the cornerstone of Irish tourism. In preparing a framework to guide the investment of the 126 million capital fund allocated to tourism, Fáilte Ireland emphasised that the strategy will be outcomes based and will identify the types of projects to invest in that will achieve these outcomes, rather than specific projects or locations for investment. In identifying priorities for investment, it was noted that there are also a number of specific outcomes which will be sought and prioritised. 6 These outcomes are presented in Table 2.4 below. Table 2.4: Outcomes to be Sought & Prioritised in Tourism Investment No. Prioritised Outcomes 1. Orientation & Navigation 2 Distribution of Traffic and Spend 3. Engaging with the Outdoors 4. Engaging with Heritage 5. Improving Interpretation 6. Innovation and Product Development 7. Capacity Building and Operational Sustainability 8. Strengthening the role of Digital 9. Facilitating Touring Visitors Source: Fáilte Ireland The presentation of these outcomes is consistent with the points made in the introduction to this review relating to experience development, market segmentation, and a primary focus on delivering the consumer experience as promised in the Ireland tourism brand 6 Fáilte Ireland: Tourism Development & Innovation. A Strategy for Investment 2016-2022 (p14) ITIC Submission: Mid-Term Capital Review Page 13

architecture. It also suggests that while these outcomes are undoubtedly tourism direct, they are nevertheless considerably more nuanced than a previous vocabulary of shovel ready tourism projects. A call for grant applications was issued by Fáilte Ireland in June 2016, with a deadline for applications extended to the latter part of August 2016. A total of 115 applications were received by the deadline, a larger number than had been expected by Fáilte Ireland. By November, some 35 had been deemed ineligible or invalid, leaving 80 to be assessed. This process was completed by March 2017 when 23 of the projects exactly 20% of the original number of applications were selected to proceed to the next stage of the process. It is anticipated that the Scheme will reopen for fresh applications in due course after an internal review of its effectiveness and efficiency. A number of observations may be made about the Grants Scheme for Large Tourism Projects, based on industry and stakeholder consultations: - The strategy is based on the tourism brands and consumer segmentation: The strategy underpinning the Grants Scheme is well thought through and the emphasis on the visitor experience is appropriate as this is an area in which standard commercial investment criteria can be challenging. - There has been a significant number of applications: The large number of applications in 2016 is indicative of pent-up demand for investment in the tourism product, which stems from the extended period of under-investment since 2008. - The Scheme is burdensome to administer: The scale of response and the complexity of the two-stage Scheme has created a very large workload for the administrators in Fáilte Ireland which inevitably increases the bureaucratic nature of the Scheme. It is recommended that an earlier screening stage for product concepts be introduced (with less information having to be submitted by the applicant), which would facilitate a quicker and earlier turnaround on decisions in principle. This may better suit private sector projects which require a quick decision in principle on the project concept. - The Scheme is complex and can be slow-moving: The complexity of the current Scheme, the time it takes to move projects through it and the uncertainty of outcomes for applicants are less conducive to private sector projects where planning and the sourcing of finance can be time sensitive. ITIC Submission: Mid-Term Capital Review Page 14

- The Scheme must be seen to be equitable: it is important that all grant applicants are treated on the merits of their tourism initiative and that both public bodies and private sector entities are treated equitably. Certain industry feedback suggests a perception that many grants paid from the fund may amount to transfers between public sector bodies and that it can be more difficult for private sector applicants to be supported. - Regionality issues: It would seem fair that a regional perspective is taken into account but equally the sustainability and feasibility of applicants must be kept to the forefront of the decisions. Although projects in less developed tourism areas may understandably require funding, it is important that project promoters from popular tourism hubs (for example Dublin or Killarney or Galway) are not at a disadvantage. It is vital that the Dublin brand experience as well as projects in Ireland s Ancient East and the Wild Atlantic Way are fully supported. Projects should be viewed on their attributes as anything else risks obstructing development in areas that tourists actually want to visit and where there is a need to expand capacity. - The Scheme is a series of annual budgets, not a true multi-annual programme: The budget for the Scheme has been spread over the period 2016-2022, with specific amounts allocated to each year - see Table 2.1. In the event of an underspend in any year, the unspent amount must be returned to the Exchequer and it is thus lost to tourism. This system of annual allocations is inappropriate for capital project development where the timing of project completion and grant claims can change considerably during the course of development for a wide variety of reasons. A multiannual scheme with flexibility from one year to the next is vital to allow for the appropriate development of new tourism infrastructure. - The available fund is reduced by claims from previous grant schemes: in practice, the amounts allocated to 2016 and 2017 are being spent on projects approved under previous schemes, but which are only now reaching maturity in grant draw-down. These schemes include the Tourism Capital Investment Programme, 2007-2013, the Ireland s Ancient East Scheme, and the Wild Atlantic Way Scheme effectively this means that a sizeable portion of the monies allocated to tourism under the national capital investment programme 2016-2021 is being consumed by projects approved for funding under earlier schemes thus reducing the amount available for new projects. ITIC Submission: Mid-Term Capital Review Page 15

2.3.3 Other Funding Schemes It should be noted that in addition to the Grants Scheme for Large Tourism Projects, administered by Fáilte Ireland, funding is available for small scale tourism initiatives from local development agencies: - The Rural Development (LEADER) Programme 2014-2020 has a total budget of 250 million of which 33 million has been allocated to tourism. The scheme is administered through 28 Local Action Groups, and the maximum grant available is generally 200,000, although non-commercial community projects can access up to 500,000. - Local Enterprise Offices in County and City Councils have a small budget for tourism micro-enterprises amounting, in total, to about 2.35 million. It is possible that special funding initiatives may be introduced for certain types of project currently under consideration, including greenways. 2.4 Observations The planned capital allocation to 2021 for Transport, Tourism and Sport is significant at almost 8.1 billion but the tourism element accounts for a derisory share at 106 million (1.3% of Department share, and only 0.4% of overall Capital Plan). Tourism s share of the planned Enterprise Supports allocations is just 2.5% - this compares with 29% for Agriculture, Food & Marine - despite tourism s higher value in terms of employment and more significant growth levels. Current levels of State capital investment are now lower than at times earlier in the decade. Despite growth that is well ahead of targets and significant capacity pressures, no significant increase in investment is planned for the tourism sector until after 2019. While founded on a solid strategy, the present Capital Grants Scheme for Large Tourism Projects has flaws which will impact on its benefits. The Scheme requires ongoing review and improvement and this is hoped for in its next launch. ITIC Submission: Mid-Term Capital Review Page 16

3. TOURISM-ENABLING INFRASTRUCTURE INVESTMENT 3.1 The Scope of Tourism Capital Investment Continuing capital investment is a prerequisite for economic growth. It provides the physical and organisational building blocks and enablers that society, and the people and enterprises within it, need to function. It also builds connectivity between these people and enterprises, and facilitates commercial and transactional exchange among them. Infrastructural investment is therefore a fundamental requirement of a modern society, and as such it is most frequently planned, developed, and led by the state. As a leading industrial sector, planning for tourism infrastructure investment requires careful attention. This is particularly the case today as our understanding of tourism capital infrastructure is becoming somewhat more fluid. Recent government policy has noted this development and commented as follows 7 : A further issue is the scope of activities that are considered to be capital investment. Previously, supports for capital investment in tourism have focused on physical construction activity and other fixed, physical assets. While the quality of Ireland s tourism physical assets is quite strong, it is recognised that the experience is now the primary focus for the worldwide tourism industry. Therefore, the full range of tourism investments, that can improve the overall visitor experience, must be considered in the design of any future Tourism Capital Investment Programme. Therefore, support for capital investment may encompass additional types of expenditure, for example information technology projects that enhance the quality of the visitor experience, and expenditure on the development of experiences that animate a destination for visitors. Traditionally therefore, a narrow definition of tourism infrastructure referred to the physical plant needed in order to attract, facilitate, and entertain visitors. This has been presented as Tourism Service Infrastructure in a model developed by the World Economic Forum (WEF) which was designed to present a range of factors that impact on the competitiveness of a particular tourism destination. This model is presented in Figure 3.1 and is comprised of fourteen individual elements, three of which relate to infrastructure resources. Of these, two relate to transport infrastructure and one relates more directly to 7 People, Place and Policy Growing Tourism to 2025, p29 ITIC Submission: Mid-Term Capital Review Page 17

infrastructure that supports tourism service delivery. It is notable, however, that eleven of these elements relate to factors other than infrastructure. Figure 3.1: The Travel & Tourism Competitiveness Index Framework 2015 8 (World Economic Forum) This definition excludes other fundamental enablers and organisational factors that are critical to the tourism industry and a broader view of tourism infrastructure is more appropriate. The World Travel and Tourism Council (WTTC), in its assessment of infrastructure 9 (see Figure 3.2 below), also includes other aspects such as ICT and environmental sustainability investments - factors that are captured by the WEF under the Enabling Environment and Travel & Tourism Policy & Enabling Conditions indices. Therefore, in addition to this narrow view of tourism infrastructure, there is also a broader view which merits some attention. This is referred to as tourism-enabling infrastructure investment. 8 In its ongoing measurement of international travel and tourism competitiveness, the World Economic Forum has recently separated infrastructure as a sub-index in order to allow it to be assessed more clearly. And within that sub-index, several key areas are identified that are critical to a sustainable tourism sector: transport infrastructure (air, port and ground) and tourism service infrastructure. 9 European Travel & Tourism: where are the greatest current and future investment needs, WTTC, April 2015 ITIC Submission: Mid-Term Capital Review Page 18

3.2 Tourism-Enabling Infrastructure Investment It is noteworthy that while the World Travel and Tourism Council (WTTC) appears to exclude investment in roads and transport from tourism capital investment on the basis that it is not exclusively required for tourism, the WEF includes it as a key measure within its tourism competitiveness framework. In the particular context of Ireland as an island nation, access transport has a critical role to play in tourism development and it would be difficult to exclude it from a comprehensive discussion of tourism investment. This broad interpretation of tourism infrastructure is considered further in this section as a way of understanding the components of tourism development. The WTTC, in its assessment of infrastructure 10, also includes other aspects such as ICT and environmental sustainability investments - factors that are captured by the WEF under the Enabling Environment and Travel & Tourism Policy & Enabling Conditions indices. Figure 3.2: WTTC Assessment of Travel & Tourism Investment Infrastructure comprises the buildings, structures and equipment which are essential to providing goods and services to society, yet are not immediately used up in the process of producing and delivering them. Infrastructure can be provided publicly as governments do regularly as well as privately. Travel & Tourism investment often includes: accommodation development and major maintenance, including provision of new building structures and furniture and equipment to fit-out or refurbish existing hotels and holiday homes; passenger transport, such as aircraft and cruise ships for specific tourism use; capital projects and refurbishments designed to attract visitors; information technology (ICT) projects; and green and other sustainability-oriented investments within the industry, such as solar and retrofit schemes, designed to enhance energy efficiency. Government Travel & Tourism investment does not include government investment in multiuse infrastructure such as roads or public transport, even though this may be used, in part, for Travel & Tourism as well as for other uses. 10 European Travel & Tourism: where are the greatest current and future investment needs, WTTC, April 2015 ITIC Submission: Mid-Term Capital Review Page 19

Such infrastructural investment can contribute to tourism development on a number of levels. It can expand capacity. Investment in airports, accommodation, attractions and other facilities provides capacity to handle a greater number of visitors. Insufficient capacity leads to price increases and also affects visitor satisfaction. It can stimulate demand. Investment in new tourism facilities and attractions can attract additional visitors to a destination (national or regional) and/or maintain market share in a competitive environment. It can maintain and enhance current infrastructure. It is necessary to continually invest in existing infrastructure in order to maintain quality, adapt to changing consumer needs and extend the life of assets. It is important to acknowledge that capital investment in areas nominally outside tourism can also have a significant impact on tourism performance in Ireland. Some of these areas are summarised in Table 3.1 below. Table 3.1: Tourism-Enabling Investment Sector Tourism-Enabling Investment Transport Air route expansion, new runway at Dublin Airport, fixed rail link from Dublin Airport to city centre, motorway development, enhanced coach parking facilities, rural transport and bus network, airports and ports development. Communications High speed broadband, wifi. Environment Clean air, clean water, clean landscape, clean townscape, public realm investment, local signage and interpretation. Justice, Security Safe towns, safe destinations. Heritage Investment made by the OPW, National Parks & Wildlife Service, Coillte, and Local Authorities. Table 3.1 lists examples of tourism-enabling investment. While such investments are not undertaken for primarily tourism reasons, they can nevertheless have a very significant impact on the visitor experience, and on visitors perceptions of the quality of that experience during their time in Ireland. For example, in March 2007 the mains water supply in Galway City and the surrounding areas became contaminated by cryptosporidium. The problem originated in the aging water ITIC Submission: Mid-Term Capital Review Page 20

infrastructure in the city, and the water supply remained contaminated through the tourism high season. Both Galway residents and tourists visiting Galway City had to use bottled or boiled water for drinking, washing uncooked foods (e.g. salads), and brushing their teeth. Therefore, sustained under-investment in Galway city s water treatment infrastructure generated unanticipated negative impacts upon tourists visiting the city that summer. The WTTC reference in Figure 3.2 identified the role of multi-use infrastructure, noting that while such infrastructure is normally developed primarily for domestic residential use, it will also have a significant impact on the visitor experience during their trip. Because this infrastructure is multi-use it is not typically captured in tourism specific capital investment data. Rather it represents a tourism-enabling investment which supports the wider quality of the visitor experience, but which is not considered (or counted) as a direct investment in tourism services infrastructure. Consequently, it can be difficult to quantify the specific economic impact of such investment on tourism. As a result the economic significance of tourism-enabling infrastructural is largely unreported and, for all practical purposes, is likely to remain so into the future. The reason to refer to the issue in this report is to acknowledge that tourism-enabling infrastructure can play a very significant part in the visitor experience. It is therefore important to acknowledge the tourism relevance of such investment and to support its continuance even though these matters are decided upon and planned outside the tourism policy domain. ITIC Submission: Mid-Term Capital Review Page 21

4. INTERNATIONAL REVIEW Across Europe, and globally, tourism destinations have a variety of approaches to, and levels of funding for, tourism infrastructural development. As discussed, infrastructure plays a number of different roles in tourism and therefore the strategic needs of a destination should, and do generally, determine the amount of tourism capital investment and the manner in which it is distributed. In addition, as previously shown, tourism is a unique industry in that it is highly reliant on a diverse range of other factors outside of its immediate control, such as landscape, heritage, people, entertainment and environmental issues. It is also heavily dependent on people, both formally through employment in the service industries and informally, in the guise of volunteers and, indeed, members of the general public will whom tourists interests. These factors also play a part in the directing of capital investment towards tourism. Not surprisingly, therefore, there are striking differences from one country to another in terms of tourism capital allocations and administrative frameworks. Central government provides funding for tourism development in most countries, for the reasons discussed in Sections 2 and 3 - although some countries in early stages of tourism development also rely on EU Structural Funds (as Ireland has in the past). In addition, tourism-related taxes and charges remain a source of revenue for governments to support public investment - although, revenue raised through those mechanisms are not necessarily channelled directly back into tourism. And tourism-related tax incentives are also frequently used to encourage investment and/or expenditure in the sector that might not otherwise happen (this is the case in Denmark, Iceland, France, and further afield, as well as in Ireland). However, with economic uncertainty still a reality and many countries still dealing with the aftermath of the global recession, ensuring adequate levels of tourism capital investment remains a challenge - as noted by the WTTC: ITIC Submission: Mid-Term Capital Review Page 22

At a time when the global economic recovery remains fragile, many countries continue to face a fiscal consolidation challenge, requiring action on both the revenue and spending sides; often necessitating trade-offs against policy objectives, including short and long-term growth and equity. This has led to increased pressure not only on tourism and supporting infrastructure, but also on the budgets with responsibility for: 1) marketing and promotion; 2) providing the necessary services and facilities to cater for tourists; 3) ensuring visitor safety and security; and 4) maintaining the natural environments that often attract them. Budgetary pressure has resulted in a reduction in funding for tourism in some countries, with cuts in core tourism budgets (Austria, Canada, Czech Republic, Denmark, Ireland, Italy, Mexico, Netherlands, Norway). This national-level pressure to trade off one fiscal area against another often results in relatively low levels of investment in tourism by comparison with the more traditional state investment in manufacturing, as Table 5.1 indicates. Table 4.1outlines the sectoral investment in tourism by the public and private sectors for a variety of European countries. The data in Table 4.1 can be difficult to interpret in view of the considerable differences between the countries listed in terms of the scale and structure of their respective economies, and the relative importance of tourism. Definitional variations also impact on the comparability of data. The share of total investment by the public and private sectors in travel and tourism varies widely, from 3% in the Netherlands to 13% in Greece. While the comparative data sourced from Eurostat for the WTTC does not include Ireland, we have previously seen (in Table 3.1) that the Tourism proportion of the total public capital programme, 2016-2021, investment amounts to a mere 0.4%. ITIC Submission: Mid-Term Capital Review Page 23

Table 4.1: Sectoral Investment Share of Economy-Wide Investment, 2000-2013 Country Travel & Tourism as a % of Economy-Wide Investment Austria. 5% Czech Republic 4% Denmark 5% Estonia 6% France 5% Germany 4% Greece 13% Hungary 4% Italy 4% Luxembourg 6% Malta 11% Netherlands 3% Norway 4% Slovakia 3% Slovenia 6% Spain 6% Source: European Travel & Tourism: where are the greatest current and future investment needs, WTTC, April 2015. Making comparisons across inter-country data such as that set out in Table 4.1 above is notoriously uncertain, given differences in methodologies and definitions (for example, what precisely is included by each country in the category Travel and Tourism ). Mean values can also be misleading at times. The mean value of the sixteen countries in the above table is 5.6, and this is undoubtedly (upwardly) influenced by the high scores reported for Greece and Malta. Some confirmation of this position is offered by the World Economic Forum which ranks Ireland a lowly 49 th in terms of Tourism and Travel government expenditure as a percentage of Government budget 11 11 http://www3.weforum.org/docs/wef_ttcr_2017_web_0401.pdf ITIC Submission: Mid-Term Capital Review Page 24

5. TOURISM GROWTH OUTLOOK 5.1 Irish Tourism Performance and Outlook There is little doubt that Irish tourism is experiencing strong growth at the moment, with 13% growth in overseas visitor numbers in 2015, and a further 11% in 2016. According to the CSO, there were over 9.6 million overseas trips to Ireland in 2016, including same-day trips, and a further 9.2 million domestic trips - which is almost three million more visitors than in 2012. This makes it a sector of significant scale, but the volume and rate of growth also represent a considerable challenge, in terms of planning and development, for a country with a resident population of almost 4.8 million. Revenue from overseas tourists has been increasing significantly yielding a substantial 6.1 billion in foreign exchange earnings (including carrier receipts), as well as an additional 1.7 billion in revenue from domestic trips. Figure 5.1: Visitor Numbers in Ireland (000s), Figure 5.2: Tourism Revenue in Ireland 2012-2016 & 2025 Target ( m), 2012-2015 & 2025 Target Source: Fáilte Ireland In addition to the challenge posed by the considerable growth and volume of the sector, it is also clear - as pointed out in previous recommendations by ITIC - that the original targets set in People, Place and Policy - Growing Tourism to 2025 are now significantly dated and have been overtaken by events. These targets set the parameter for planning and investment in the tourism sector but given that they have almost been reached at this stage, it is vital that more realistic targets are now set in order to provide an appropriate framework for development in the short and medium term. ITIC Submission: Mid-Term Capital Review Page 25

5.2 Key Drivers of Tourism Growth and Risk Factors A broad range of factors influence tourism demand, including social, economic, political, marketing and emotional factors. Many of these are outside the control of any individual business or, indeed, destination - such as a destination s inherent strengths (e.g. climate, landscape), international economic climate and lifestyle trends. This places a greater importance on the key factors that are within the control of the industry and state. The World Economic Forum has developed a model to compare travel and tourism performance across 136 different countries. In its most recent report (published March 2017), it presents a tabular assessment of Irish Travel and Tourism performance This is reproduced in Table 5.1: Table 5.1: The Travel & Tourism Competitiveness Index for Ireland 12 Rank (out of 136) Score (1-7) Travel and Tourism Competitive Index 23 4.5 Enabling Environment Business Environment Safety & Security Health & Hygiene Human Resource and Labour Market ICT Readiness 11 21 55 15 25 5.5 6.1 5.7 5.5 5.7 T&T Policy and Enabling Conditions Prioritisation of Travel & Tourism International Openness Price Competitiveness Environmental Sustainability 17 7 121 25 5.4 4.5 4.0 4.7 Infrastructure Air Transport Infrastructure Ground & Port Infrastructure Tourist Service Infrastructure 28 21 15 4.2 4.7 5.8 Natural & Cultural Resources Natural Resources Cultural Resources and Business Travel 77 2.8 12 http://www3.weforum.org/docs/wef_ttcr_2017_web_0401.pdf ITIC Submission: Mid-Term Capital Review Page 26

The Competitiveness Index is built across fourteen different criteria which are considered to determine a destination s capability to perform as a tourism destination. These criteria are clustered under four main headings. Adding to the detail of the analysis, each of the fourteen criteria is broken down into a number of sub-criteria which are further measured to arrive at the aggregate scores shown in Table 5.1. For example, Prioritisation of Travel and Tourism (where Ireland scored 17/136), consists of six further sub-criteria. One of these is effectiveness of marketing and branding to attract tourists, where Ireland scored 3/136 reflecting considerable Irish success in its marketing/branding campaigns. Overall in the 2017 report, Ireland s capacity to perform as a properly functioning tourism destination was ranked 23 rd out of 136 countries reviewed (down from 19/141 in 2015). Unless the underlying conditions in each of these areas are addressed, Ireland s international attractiveness as a tourism destination is likely to deteriorate, with accompanying economic loss to the country. To further illustrate this point, the WTTC also warns about Ireland s growth potential, grouping it among destinations that are at risk of being overwhelmed by demand. Well-placed but with key risks: Denmark, Finland, France, Greece, Ireland, Italy, Latvia, Slovenia, and Switzerland should be wary of complacency and relying on existing infrastructure capabilities. Several of these countries risk Travel & Tourism investment growth in the next decade being overwhelmed by growth in Travel & Tourism demand. 13 It is worth stating here that this assessment by the WTTC of Ireland s position is based on existing tourism targets (see also the investment to demand ratio in Table 4.2, Section 4), which we have already referred to as requiring revision. It is likely that the situation is weaker than stated here. 5.3 Observations Growth in Irish tourism is well ahead of the targets on which development plans were initially based. They require immediate revising in line with current prospects. Ireland s planned level of capital investment in tourism will not be sufficient to meet current growth patterns. 13 Ref. footnote 2. ITIC Submission: Mid-Term Capital Review Page 27

New development plans are necessary to support more realistic forecasts of demand. Significant tourism revenue provides an opportunity for greater re-investment in capital development. There are concerns regarding some of the key drivers of tourism competitiveness: the prioritisation of tourism at government level, ground and air transport infrastructure, price, and ICT readiness. These all require attention and investment to prevent further loss of competitiveness and to deliver a quality experience for visitors. The WTTC specifically identifies Ireland as a tourism destination that risks being damaged by a lack of investment and attention. ITIC Submission: Mid-Term Capital Review Page 28

6. FUTURE INVESTMENT PRIORITIES 6.1 A Framework for Future Tourism Investment Tourism is a wealth creating economic activity. Consequently to the extent that further opportunities for additional wealth creation exist, but are not currently being realised, then there exists a prima facie case for the sector to invest in further growth. The introduction of measures to secure these growth opportunities must ultimately demonstrate that any proposed projects are socially, environmentally, and economically sustainable. Subject to these tests however, it is reasonable to believe that the default position of the tourism industry must be to expand so as to deliver more wealth creating economic activity, more jobs, and more sustainable rural communities. Conventional business strategy suggests that it is the responsibility of the managers of an enterprise to maximise value returned to the investors. It is not the case that some suboptimal level of value creation will do, but rather that value creation must be maximized within the given trading circumstances. In an equivalent sense, there is a responsibility on the part of those guiding tourism development in Ireland to ensure that all Exchequer-led tourism investment maximises value creation for the State and the taxpayer. This focus on value maximisation applies not only to the assessment of investment projects currently under review, but also to actively searching for new projects that could contribute further to the required value maximisation outcome. For example, when it is observed as it has been recently that the Cliffs of Moher Visitor Centre has reached its maximum capacity, the response could simply be to accept this as a reality that cannot be changed. Or a better response would be to invest to increase capacity at the Cliffs or indeed to consider whether an opportunity might exist for new investment in a similar experience elsewhere in the country (for example Sliabh Liag in Donegal). This could then assist in meeting the consumer demand currently being choked off by the carrying capacity constraint at the Cliffs of Moher. This approach would be more consistent with the value maximisation strategy referenced above, and would imply that the default option for Irish tourism is an expansionary one, subject always to the three tests referenced above of social, economic, and environmental sustainability. ITIC Submission: Mid-Term Capital Review Page 29

Table 6.1: Visitor Data from Selected Countries Country 1995 Visitors, (000s) 2014 Visitors, (000s) % Change Austria 17,173 25,291 47 Denmark 2,124 10,267 383 Estonia 530 2,918 451 France 60,033 83,767 40 Iceland 190 998 425 Ireland 4,818 8,813 83 Netherlands 6,574 13,925 112 New Zealand n/a 2,772 n/a Norway 2,880 4,855 69 Sweden 2,310 5,660 145 Switzerland 6,946 9,158 32 UK 21,719 32,613 50 Source: WTO Some background data relevant to this consideration of increased tourism investment, and the associated expansion of the industry, are presented in Table 6.1 above. 14 The table presents percentage growth rates in visitor arrivals over the period 1995 to 2014. The data indicate that over the period in question, visitor numbers to Ireland grew by 83% - five countries experienced a higher rate of growth. In relation to the growth in visitor numbers, if the reported growth rate for Ireland of 83% (over a twenty year period) is extrapolated out further over another twenty years to 2034, then the impact of this additional tourism growth needs to be analysed further. Although Irish tourism numbers are unlikely to grow as significantly in the coming years particularly in light of events such as Brexit, the long-term growth forecast published by the UNWTO 15 offers the following view in its outlook to 2030. International arrivals in emerging economy destinations are expected to continue growing at double the pace (+4.4% year) of advanced ones (+2.2% a year). In absolute terms, the emerging economies of Asia, Latin America, Central and Eastern Europe, Eastern Mediterranean Europe, the Middle East and Africa will gain an average 30 million arrivals 14 WTO Year book of Tourism Statistics, Compendium of Tourism Statistics and data files (2015) 15 http://media.unwto.org/en/press-release/2011-10-11/international-tourists-hit-18-billion-2030 ITIC Submission: Mid-Term Capital Review Page 30

a year, compared to 14 million in the traditional destinations of the advanced economies of North America, Europe and Asia and the Pacific. If this more cautious growth rate of 2.2% is adopted, then the projected visitor arrivals to Ireland would be forecast at 13.62 million by 2034. In adopting a 10-year planning framework therefore, the tourism industry needs to invest in its asset base in order to respond to projected increased demand. In a sense it matters little which particular forecast figure is realized. The available intelligence on the future of international tourism suggests that the industry internationally is on a growth trajectory. Therefore, in the absence of further investment in its core asset base - things to do and things to see - it is likely that Ireland in 10 years time could find that it is offering visitors an increasingly congested and constrained experience. Moreover, if tourists continue to visit sites and locations in a manner that exceeds the carrying-capacity of those locations, then the integrity and functionality of the national tourism asset base could be compromised. Appropriate planning and investment should therefore be put in place now to avoid such an outcome. While it may be a statement of the obvious, it is nevertheless important to note that future tourism capital investment must align with anticipated consumer demand. In order to do so such investment must in turn align with the following key pillars of contemporary national tourism policy. It must: Align with the three prevailing brands (Dublin, Wild Atlantic Way, and Ireland s Ancient East), and their associated product proposition. Equally should the Midlands/Shannon corridor be developed as a brand experience this needs to be supported by product investment. Work to the platform provided by the recently completed market segmentation analysis, and the identification of three principal target segments Social Energisers, Culturally Curious, and the Great Escapers. Recognise that Irish tourism is now deliberately trading off its core asset base, which is comprised of three key elements - Natural Heritage, Built Heritage, and Cultural Heritage. Recognise that Irish tourism could also leverage further economic value of a growing international business travel sector. ITIC Submission: Mid-Term Capital Review Page 31

Existing European Union competition policy has effectively determined that investment by government in tourism has typically been made in non-commercial projects. Such projects (e.g. Sliabh Liag, Mayo Greenway, Wild Atlantic Way), and the facilities delivered by these projects, are typically free to enter and/or free to use. Almost by definition therefore, Exchequer-led capital investment in tourism is focused on the provision of public good facilities and public good outcomes. In other words, a project is considered to have merit if it generates economic gains for Ireland as a whole, even though from the perspective of an individual private-sector business, the project might never be considered to be viable within itself on a strict P&L basis. The rationale behind this approach is based on an understanding of tourist/consumer behaviour, and the demand motivators that prompt tourists to travel. This can be summarized as follows: Primary Demand: this is driven by things to see and do in a given destination. The market segmentation exercise undertaken in recent years has confirmed this position. Secondary (or Derived) Demand: these represent support services which visitors will avail of in a destination, once they have (firstly) decided there is enough to see and do in that destination to go there. In terms of EU Statistics collection, these services are references as NACE 16 Code 55 (Accommodation) and NACE Code 56 (Food and Beverage Service Activities). In effect NACE codes 55 and 56 represent what we more familiarly refer to as the hospitality sector, which represents the largest and most important sub-sector within the wider tourism industry. While the hospitality sector does not of itself constitute the totality of the tourism industry, it is unsurprisingly the part of the industry where visitors spend most of their money and where most jobs are created. Research suggests that visitors to Ireland spend as much as 70% of their money in the hospitality and entertainment sectors 17. On this understanding therefore, Exchequer-led investment in tourism is a classic response to the old challenge which economists refer to as market failure. While the private sector might fail to invest in a particular tourism venture (because at its narrow-level assessment, it is inherently non-viable), the State (at its wider macro-level assessment) might decide that such an investment will serve as an engine for additional primary demand, and that 16 NACE, is the classification of economic activities in the European Union (EU); the term NACE is derived from the French Nomenclature statistique des activités économiques dans la Communauté européenne 17 Fáilte Ireland: Tourism Facts 2015 (How did overseas tourists spend their money in Ireland). ITIC Submission: Mid-Term Capital Review Page 32

70% of the expenditure associated with that demand will end up in the cash registers of the secondary-demand hospitality sector. ITIC is of the opinion that this focus on alleviating market failures, and investment in public goods, should continue to be the focus of the state s tourism investment over the next ten years. Such a strategy would help resolve seasonality and regionality concerns too. This investment focus should however be executed in accordance with the guiding principles noted on page 31. As an additional and final point on the framework for investment, ITIC is also of the opinion that some more creative solutions need to be developed that would allow the State and the private sector to act in common purpose in tourism capital investment while at the same time remaining compliant with EU competition policy. There may be occasions where a public private partnership (PPP), would provide the best and most appropriate instrument for the State and the private sector to act jointly in the development and operation of a tourism asset. A good example of a successful PPP is the Convention Centre Dublin and there is a case to deploy such a technique to develop a unique banqueting facility in Dublin to support the growing MICE sector. This is discussed further in the following section of this report. The state and industry playing a role in identifying a product gap is of significant interest. The state could be tasked with carrying out an in-depth feasibility and viability study and committing funds to the development of the project before outsourcing its running to a private sector player to take on the operational risk and reward. This is an observation which has been made by industry leaders who believe that future infrastructure development should include the construction of new facilities of scale, and that the private sector should be more incentivised to participate in such ventures. 6.2 Priorities Identified by the Industry During the course of this report, CHL consultants sought the opinions of a representative sample of tourism leaders, to ascertain their views on how well the industry is being served by State investment in the sector. This survey resulted in a limited qualitative research exercise with a number of key industry players reflecting the sentiments of their representative members. The main findings from these consultations are summarised as such: ITIC Submission: Mid-Term Capital Review Page 33

Figure 6.1: In your opinion is the current capital investment committed by the State in tourism enough? Figure 6.2: What in your opinion are the product gaps within Irish tourism? (Note multiple answers possible) ITIC Submission: Mid-Term Capital Review Page 34

Figure 6.3: In what regions should greater State investment be made? (Note multiple answers possible) Figure 6.4: in your view, how best could the State incentivise the private sector to support public capital investment in tourism product? (Note multiple answers possible) ITIC Submission: Mid-Term Capital Review Page 35

Observations from this small representative industry qualitative survey, as well as feedback from a series of face-to-face interviews, indicate that respondents consider that: the present level of State investment in tourism is much too low. Dublin and the Midlands are the regions most in need of investment, followed by the South-West, West and Shannon regions. the Capital Grants Scheme for Large Tourism Projects could be improved. the priorities for increased investment are - walking, cycling and equestrian greenways - visitor attractions - the quality of the public realm in tourist areas - appropriate coach-parking facilities - conservation, interpretation and visitor facilities at heritage sites - a gala banqueting venue in Dublin - improved access to and within national parks. ITIC Submission: Mid-Term Capital Review Page 36

7. INVESTMENT REQUIRED 7.1 Right-Sizing Future Tourism Investment In attempting to frame an investment strategy for the further development of the Irish tourism industry, it is useful to adopt a ten-year planning period. Indeed the Government has asked for this to be a consideration of current submissions. In effect such a period represents two five-year iterations, which is the timeframe presented in the Government s investment strategy. It is not possible within the ambit of this report to be make forecasts for future tourism investment that will prove to be perfectly accurate and definitive. However, three broad propositions are put forward which are considered to represent a basis for an expanded capital investment in the tourism industry. These are: 1) The Irish tourism industry has the potential to grow its economic footprint and to serve as an even greater engine for wealth creation within the national economy. 2) While knowing the detail of every potential tourism project over the next decade is not possible, it is evident from wide consultation with the industry where principal focus areas for investment could usefully be made. 3) Drawing upon the analysis and commentary presented earlier in this report, these focus areas are firmly rooted in Ireland s three principal tourism assets of the natural heritage, built heritage, and cultural heritage. The development of strategic alliances between Fáilte Ireland and relevant agencies with responsibilities in these sectors, represents a practical expression of the emphasis being placed in these areas. With input and consultation from industry leaders, Table 7.1 presents these focus areas, and provides some supporting narrative on the type of investment that could be made in each case. ITIC Submission: Mid-Term Capital Review Page 37

Table 7.1: Indicative Tourism Investment Profile 2018-2027 Focus Area Wild Atlantic Way Ireland s Ancient East Total Investment Investment p.a. Narrative 60m 6m There has been some debate over the feasibility of developing a greenway cycle/walking route along the Wild Atlantic Way (WAW). This could prove prohibitively expensive, and not all areas along the WAW might be tourism centric to the same extent. A fund of 60m would allow for the development of ten cycle tracks along the WAW one each year for the ten year period from 2018 to 2027. It is considered that one kilometer of cycle track requires a capital investment of 200,000 18, and therefore a 30 kilometer coastal trail would require an investment of 6m. This will require more detailed consideration and evaluation, but an indicative plan might be to focus on ten locations as follows West Cork, Beara Peninsula, Ring of Kerry, Dingle Peninsula, West Clare, Clifden to Westport (Killary Harbour), Mulrany- Ballycroy- Belmullet, Ballina- Ballysadare, West Donegal (Sliabh Liag), Inishowen Peninsula. Further monies could be allocated to the completion of interpretation points along WAW and particularly improve the tourism offering in the North West perhaps the development of a Medieval/Castle banqueting facility. 70m 7m Ireland s Ancient East will require investment to make the stories and history of the region accessible to visitors. A programme of refurbishment and upgrading of certain (non OPW) facilities, such as Great Houses & Gardens, Castles, and Visitor Attractions could be introduced to ensure that the fabric of this built heritage is secure, and that the appropriate systems and technologies are available to support communication, story-telling, and entertainment. Dublin 50m 5m There is a strong view among those involved in business tourism that Dublin needs a gala dining venue. For business consumers, their visit to Dublin might not stand out as being different or unique thereby limiting the opportunity for repeat visits. Yet an important element of the convention market is the main delegate dinner event, where a city has the opportunity to show its distinctive character. This has long been a gap in the Dublin business tourism offering. An appropriate investment in a unique city centre heritage property could address this issue. There is also an urgent requirement for enhanced and appropriate coach parking facilities to enable easy movement of visitors around the city. Although a thriving tourism destination, Dublin cannot afford to stand still and a pipeline of new things to see and do, of international appeal, must be developed. It is noted that Edinburgh, in research, often scores higher than Dublin in terms of culture, a perception that needs to be reversed by the development of significant new experiential cultural tourism product in the capital city. 18 http://www.sustrans.org.uk/sites/default/files/images/files/migrated-pdfs/17%20costs%5b1%5d(1).pdf ITIC Submission: Mid-Term Capital Review Page 38

Focus Total Investment Narrative Area Investment p.a. Public Realm Improvement 150m 15m The appearance and presentation of some of Ireland s regional towns and villages can, on occasion, present the visitor with the sense of a shabby and badly-maintained urban core. This is an important issue, and it is one that is owned by different agencies. Consequently because it is owned by many it can be attended to by few. For example, it could be argued that this is a matter for the tourism authorities or the local authorities. Within the context of a revised and extended national approach to tourism investment it needs to be addressed. OPW 200m 20m The Office of Public Works, in conjunction with the Department of Housing, Planning, Community, and Local Government, is the principal custodian of much of Ireland s built heritage. On the principle that Ireland has three primary tourism assets its natural heritage, built heritage, and cultural heritage the OPW must therefore be understood as a core agency in the mid to long term planning of Irish tourism development. This reality has been underlined in recent collaboration between Fáilte Ireland and the OPW, where a strategic alliance has been formed to support tourism investment and development. The investment envisaged in this report is one that would refurbish facilities and bring them up to a high visitor standard, open sites which are currently inaccessible to visitors, and develop certain sites with a view to offering the visitor an alternative to facilities where carrying capacity constraints limit further growth. The major investment envisaged in this report will be required to secure these outcomes. NPWS 50m 5m A similar strategic alliance has been developed between Fáilte Ireland the National Parks and Wildlife Service. Five of Ireland s six national parks are on the Wild Atlantic Way (Ballycroy, Burren, Connemara, Glenveagh, and Killarney). The sixth is the Wicklow Mountains National Park. All six national parks are clearly in tourism-centric locations and the investment envisaged in this report is intended to support the provision of information, interpretation, and orientation in a non-obtrusive manner. Coillte 50m 5m A strategic alliance between Fáilte Ireland and Coillte has been established in order to provide recreational and other facilities for visitors to our forests and woodlands. This represents an investment in Ireland s natural heritage, and enhances the visitor experience by providing access to forest areas in a safe and sustainable manner. ITIC Submission: Mid-Term Capital Review Page 39

Focus Total Investment Narrative Area Investment p.a. Access to the Coast 25m 2.5m For those living in Ireland with an interest in marine activities, access to the coast might not appear to present any particular difficulty. For the visitor however, accessing the coast might not always be so easy. This investment is designed to support the leisure visitor in accessing the coast and coastal activities, such as coastal walks, boating, fishing, boat tours, and wildlife sightseeing. The expansion of public slipways to the water would also support greater access. Midlands & Shannon Corridor 30m 3m The development of a brand experience for the Midlands/Shannon corridor must be explored and is part of the current Programme for Government. ITIC urges this part of the country - not well served by Ireland s Ancient East nor part of the Wild Atlantic Way to be developed with a viable and well-researched brand experience and new product initiatives, This should include heritage and cultural offerings and infrastructural works to support access to river ways and Lakelands. Developing the Beara to Breifne Way would also represent a compelling natural visitor experience of note stretching 500 kms from Cork to Leitrim. Total 685 million 69 million ITIC Submission: Mid-Term Capital Review Page 40

7.2 Implications of an Expanded Tourism Investment The expanded tourism capital investment programme outlined in Table 7.1 above will have implications at a number of different levels. In the example presented, tourism investment would increase from 106 million to circa 350 million over the timeframe of the current Capital Plan (effectively a three-fold increase), and it is proposed that this level of investment would continue for a second period to complete a ten year cycle (totaling circa 685 million as per Table 7.1). This represents a significant expansion of the tourism capital investment programme. Section 7.1 is by no means definitive. It should be noted that it would be beneficial were strategic partnerships to also be formed by Fáilte Ireland with the likes of Waterways Ireland and Inland Fisheries Ireland. In addition an annual allocation to a University secured by competitive pitch - to conduct tourism research projects that would benefit capital projects should be explored. Delivering the outcome as outlined within this section will have particular implications for how candidate projects are sourced, planned, evaluated and funded. It will also have implications for how they are processed through the evaluation and development channels, and how they are managed and operated once they open to the public. This latter point is particularly important. It is essential that tourism infrastructure projects supported by the State are operated on a commercial basis, that they are managed by people with direct commercial, marketing, and sales experience, and that they prove sustainable and viable into the longer term. Investment should future-proof tourism and not just be a means of maintaining the status quo. These matters are considered further in the following section. ITIC Submission: Mid-Term Capital Review Page 41

8. TOURISM INVESTMENT - PLANNING & IMPLEMENTATION 8.1 A Framework for Future Tourism Investment Taking a tourism investment project from inception to execution is a complicated process. Quite frequently this process is characterised by mandatory requirements to conduct various studies and reports in order to ensure that the proposed developed complies with good practice in areas such as environmental management, value for money, and procurement arrangements. Compliance with these requirements is essential if tourism is to be planned and developed in a manner that is both sustainable and in accordance with good governance practice. Figure 8.1 presents a schematic of the steps and timeline involved in bringing a capital investment project through from initiation to completion. Figure 8.1: Capital Investment Process and Timeframe Whilst these measures are essential for good practice purposes, they can have the effect of elongating the project development process, and occasionally of introducing unexpected delays into the process itself, for example when items of archaeological significance are discovered during development, and work must be suspended to allow for investigation by the appropriate authorities. As indicated in Figure 8.1, a tourism investment project could require anything from 18-24 months to progress from inception to execution. Depending on the nature of the project, it ITIC Submission: Mid-Term Capital Review Page 42

could then take anywhere from one to three years to complete the work and open the facility to the public. The implication of these observations is that tourism investment projects are by their nature, and for the most part, multi-annual projects. Yet, under prevailing Exchequer funding arrangements (which continue to have a focus on annual funding allocations), there continues to be an emphasis on what can be spent on the project this year. Capital funding allocated to a particular year, which remains unspent in that year, can be returned to the central Exchequer, where it may be retained to be reissued in due course to the executive agency in question, or it may simply be transferred to an entirely different area of economic activity. This can introduce an element of uncertainty into project planning and project funding. It is recognised that more recently, Exchequer-led capital support is disbursed in funding envelopes which are associated with a defined period of time (typically, three, four, or five years). This introduces a greater element of clarity into funding arrangements in that a block of funding is allocated for a multi-annual period. Nevertheless it remains the case, that within that envelope of funding, there is still an expectation that a defined block of work will be completed each year, and that the associated quantum of funding will be drawn down in a twelve month period. It is notable that the Minister for Transport, Tourism, and Sport alluded to this question of multi-annual allocations following the Budget last October: The Department spends almost a third of the Government s capital programme. For that reason, my key focus is on securing a step change in funding levels for transport, tourism, and sport in the mid-term review of the Capital Plan which was flagged in the budget speech today. This is where we start to make real change on a more sustainable multiannual basis 19. This importance of a multi-annual approach was also noted by the Irish Government Economic and Evaluation Service (IGEES) at the Department of Public Expenditure and 19 http://www.dttas.ie/press-releases/2016/budget-2017-nearly-%e2%82%ac2bn-transport-tourism-and-sport-bewelcomed-%e2%80%93-ross-o%e2%80%99donovan ITIC Submission: Mid-Term Capital Review Page 43

Reform. Given its task to review expenditure and improve management practice in relation to public expenditure, it noted: 20 While there are some technical design aspects of the review process that may need to be reviewed to better align it with the new fiscal and economic context, the focus now should shift to promoting the main principles supporting spending reviews within the expenditure management process and wider, reformed, multi-annual framework. In an expanded tourism capital investment programme, it will be necessary to secure a much greater alignment between a truly multi-annual funding programme, and the scheduled pipeline of activity being planned by the responsible government agency. 8.2 Human Resources A key feature of an expanded tourism investment programme will be the requirement to staff it with the appropriate levels of human resources. Moreover, it will not merely be a matter the right quantum of staff, but equally importantly the right levels of knowledge, competencies, and skills to manage such a programme. This will include both technical and management skills. This will immediately and most particularly be the case for Fáilte Ireland. It will however also be the case for those partner agencies that work with Fáilte Ireland on tourism capital development. This includes agencies such as the Office of Public Works, the National Parks and Wildlife Service, Coillte, and others with a role to play in tourism product development. This work will need to be underpinned by clear Service Level Agreements (SLAs) that set out the responsibilities of all parties, and where appropriate, guidelines for the commercial operation of the services available on site. It is certainly the case that, without a specific accompanying programme of human resource support, any expansion of the capital funding base alone will fail to deliver the declared tourism outcomes. A related factor will be the skill sets required to operate, manage, and market facilities once they are opened. As these facilities are increasingly operated on an out-sourced (private operator) basis, some regard must be had to the degree of readiness of that industry subsector to engage with an expanded volume of tourism facilities. 20 Department of Public Expenditure and Reform, Spending Reviews in Ireland: Lessons for the Future (p19) October 2016 ITIC Submission: Mid-Term Capital Review Page 44

8.3 Organisation and Structure The principal focus of an expanded capital programme must be the further development of the Irish tourism industry. In other words, the targeted beneficiary cannot be any particular government agency or industry sector. The focus must be on the industry itself, with the clear expectation of additional wealth creation and jobs in communities around the country. As the National Tourism Development Authority, Fáilte Ireland is the national agency tasked with supporting the achievement of these outcomes. Nevertheless, a significant expansion of the tourism capital investment programme could have the effect of strengthening the position and profile of tourism as a core industry within the national economic fabric. As the principal strategic agency concerned with tourism development, Fáilte Ireland will continue to lead this process. However recognising the national importance of tourism, and building on the key alliances already developed, a Tourism Product Development Forum might be established comprising, OPW, NPWS, Coillte, CNCI, Local Government, Tourism Ireland, ITIC, and an independent external expert member. This Forum would be led and chaired by Fáilte Ireland and could support project development and project execution in line with the strategic direction mapped out by Fáilte Ireland. 8.4 Funding Channels At present, the principal funding channel is the Capital Grants Scheme for Large Tourism Projects, 2016-2021, which is administered by Fáilte Ireland. This is discussed in some detail in Section 2.3.2. Grants for small scale projects under the LEADER programme administered by Local Action Groups, and grants for micro-enterprises administered by Local Enterprise Offices were described in Section 2.3.3. All of these schemes would benefit from some increase, because the demand is clearly greater than available funds and some good projects are being rejected as a result. Moreover, because of the system of annual allocations, projects approved for grant support under previous schemes but only reaching completion in 2016/17, are drawing down allocations under the new scheme, thereby reducing the amount available for new project applications. As this review has emphasised, the primary product - natural heritage, built heritage and cultural facilities and activities - is the area most in need of increased support. Agencies ITIC Submission: Mid-Term Capital Review Page 45

with specific responsibilities in these areas - the OPW, National Parks & Wildlife Service and the National Cultural Institutions should receive increased capital funding awarded to them directly by government against sets of specific project proposals which are informed by national tourism policy and Fáilte Ireland s investment strategy. ITIC Submission: Mid-Term Capital Review Page 46

9. SUMMARY AND RECOMMENDATIONS 9.1 Summary This report was commissioned in order to explore the level of Exchequer-led capital investment committed to tourism infrastructure development, and identify whether the existing level of commitment is adequate to support the importance and the growth trajectory of the tourism industry. The conclusion reached is that, at 0.4% of total Exchequer- led capital investment, the tourism industry is significantly under-funded in terms of capital investment and development. As a result the tourism sector in Ireland will not achieve its full economic potential. It is suggested therefore that this is a matter requiring serious attention within the context of the planned mid-term review of the capital programme. 9.2 Recommendations 1. In order to realise the future potential of the Irish tourism industry as an engine of economic growth, the level of capital support to the industry needs to be significantly increased. The recommendation in this report is for a ten-year planning framework characterised by two iterations of a five-year period, the first period working on an allocation of some 350 million (representing a total investment of circa 685 million over the ten year period). 2. A structured multi-annual funding programme, reflecting the time-lines and planning cycles inherent in the development of large infrastructure project, should be introduced to support the orderly implementation of tourism infrastructure development. 3. Private sector investment in tourism infrastructure assets should be more actively incentivized. New generation Public Private Partnership mechanisms need to be developed to support this, and to facilitate a more active role by the private sector in developing the country s infrastructure assets 4. Ireland s tourism infrastructure investment ranking must be improved compared to other countries as the industry is in danger of losing international market share if this situation is not addressed. 5. The Fáilte Ireland Grants Scheme, and more widely the channels through which Fáilte Ireland allocates capital support to development projects, needs to be streamlined and enhanced. The recent initiative of developing strategic alliances with institutional partners appears to offer a good model for further development. It is also a model which ITIC Submission: Mid-Term Capital Review Page 47

supports a wide-angle view of how multiple agencies can cooperate in order to develop the national tourism industry. 6. An expansion of the tourism capital infrastructure fund as presented in this document will require increased resources and evaluation techniques within Fáilte Ireland that can best support such a development. This relates most particularly to the staff, skills, and systems that Fáilte Ireland will require to support and implement such an expansion. 7. In addition to direct capital investment in the tourism sector, enabling and related investment in tourism supporting services such as transport, water and communications should be prioritised. 8. A Tourism Product Development Forum should be established and placed under the strategic direction of Fáilte Ireland this forum to look at the medium to long term capital and investment needs of Irish tourism and to include the tourism industry and other agencies and local government stakeholders. ITIC Submission: Mid-Term Capital Review Page 48

Report by the Irish Tourist Industry Confederation 28 th April 2017 Ground Floor Unit 5 Sandyford Office Park Dublin 18 T: 01 2934950 E: info@itic.ie W: www.itic.ie Prepared in consultation with CHL Consulting Co. Ltd CHL Consulting Company Ltd 70b Patrick Street, Dun Laoghaire Co. Dublin T: 01 2844760 E: mail@chl.ie W: www.chl.ie