the Hong Kong-Shenzhen Airports Link, which is a service to make it more convenient to travel via HKIA or Shenzhen Bao’an Airport. Such efforts are however different from directing to other GPRD airports traffic which would have chosen Hong Kong due to market forces if there had been sufficient capacity at HKIA. In the context of HKIA – (a) “Direct” contribution refers to employment and income generated by the aviation sector in Hong Kong, including the direct operation of the airport, such as airlines, air cargo terminal operators, catering operators, aircraft maintenance and other services operators, and Airport Authority Hong Kong (AAHK), etc., as well as non-aviation businesses at HKIA, including retail, food and beverage, hotels and convention and exhibitions; (b) “Indirect” contribution refers to employment and income generated by the suppliers of goods and services to the direct activities of the aviation sector in Hong Kong and non-aviation businesses at HKIA, such as utilities suppliers, fuel suppliers, construction and cleaning companies, food and retail goods suppliers, etc.; and (c) “Induced” contribution refers to the employment and income generated by the spending of income by the direct and indirect employees on local goods and services, such as spending of airline employees, utilities supplier employees, AAHK employees, etc. CONSIDERATION 2 : ECONOMIC BENEFITS Experience overseas has shown that investment in airports provides very handsome economic return and that airports produce significantly higher economic impact than other transport infrastructure to the local economy13. In order to understand precisely the economic implications of expanding HKIA, Enright, Scott & Associates (ESA) was tasked to conduct an Economic Impact Analysis to assess the potential impact of such an investment on Hong Kong’s economy. In general, an investment’s economic impact is measured by its direct, indirect, and induced contributions to the economy, usually expressed in terms of “value added”14 and percentage contribution to gross domestic product (GDP) in a certain year. In estimating the relevant economic contribution components of airport investment, ESA has quantified the direct value added (VA) impact of airport-related activities, as well as those indirectly generated VA impact arising from a change in airport activities. ESA has also adopted a set of VA “multipliers”15 for selected sectors related to the airport in its calculations and estimated the VA generated from additional spending due to the income projected from the direct and indirect impacts mentioned above. To ascertain whether an investment is worthwhile, analyses were conducted based on two widely used investment analysis tools: Economic Net Present Value (ENPV) and Economic Internal Rate of Return (EIRR). However, based on the options presented for analyses, Option 1 involves leveraging mainly on existing assets to serve additional demand, and Option 2 involves heavy investments in building up new assets to serve additional demand. Given the significant difference in investment profiles and the noted shortcoming of EIRR (that it tends to favour projects with short-term paybacks at the expense of projects with longer paybacks regardless of the overall value generated by the project), ESA recommended to use ENPV as the tool to assess the relative merits of the two options. 7 COMPARISON BETWEEN THE TWO OPTIONS 13 According to Economic Impacts of Hub Airports, a report commissioned by British Chamber of Commerce in July 2009, the wider economic benefits of hub airports can be two to five times that of rail. “Value added” is defined as the value of gross output less the value of intermediate consumption (the value of goods and services used up in the course of production). The VA multipliers comprise the sectors’ own ability to generate VA and the spillover effect to other sectors. The multipliers relating direct plus indirect VA to gross output or business receipts were provided by the Economic Analysis and Business Facilitation Unit of the Hong Kong SAR Government as broad working assumptions for the current economic impact analysis. These are produced based on the observed linkages between sectors and the resultant pattern of intermediate consumption, import leakages of the various economic activities, gross margin of external trade and the ratios of VA to gross-output and business receipts for the affected sectors in recent years. As these impact estimates are largely judgmental, they should only be taken as working assumptions for the current economic impact analysis, and should not be regarded as “official estimates” of the Government. HKIA MASTER PLAN 2030 41 14 15