Alternative Form of Investment: Ecotourism - Assignment Example

Assignment 2: Tourism Industry Name Course Name and Code Date Table of Contents Executive Summary 3 Introduction 4 Historical and Present Economics Associated with Sand Mining on North Stradbroke Island 4 Alternative Form of Investment: Ecotourism 4 Investment Requirement and Analysis 4 ‘Flow-on-Benefits’ from Ecotourism Enterprise 6 Employment opportunities 6 Third party stakeholders/suppliers 6 Taxation and Government Revenue Streams 6 Conclusion 7 References 8 Executive Summary The paper discusses the appropriateness of economic activities on North Stradbroke Island. The current economic activities are based on the mining industry, which includes the equipment and tools. The proposed alternative investment is ecotourism and a requirement of $1 billion at less than 9% suffices the development requirements. The construction process will create more than 1,000 employment opportunities and after the completion of the project, a permanent 500 opportunities would be created. Additional benefits of the project include supporting the government roles and responsibilities and creating additional welfare and opportunities to the community, society, and stakeholders. Introduction The aim of the paper is to analyze the effectiveness of implementation of another economic investment rather than the sand mining industry. North Stradbroke produces volumes of sand for the mining industry in Queensland, but numerous complaints and problems from the community and stakeholders require abolishing of the sand mining industry. The paper utilizes net present value to determine the effectiveness of alternative investment proposal. The paper starts with historical and present economies taking place on North Stradbroke Island. The second section discusses an alternative industry and the appropriate one is tourism through development of appropriate infrastructure and supporting facilities. The third section utilizes NPV strategy to determine the effectiveness of the proposal while the last section addresses the benefits of the proposed investment. Historical and Present Economics Associated with Sand Mining on North Stradbroke Island The primary economic activity taking place on North Stradbroke is sand mining. The major company involved with the sand mining is the Sibelco (Queensland Government, 2015). However, the mining activities will end in 2019 affecting more than 153 full-time employees. Other economic activities include the opportunities for suppliers and other processes associated with the mining industry. The targeted supply requirements in terms of food and support to the local community are indirect economic activities but aimed at advancing the requirements of the community (Everard, Jones, and Watts, 2010). Therefore, the primary activity was mining, which direct economic support is acquisition and maintenance of equipment and tools used in the mining. From a wider perspective, the economic activity on North Stradbroke did not generate numerous economic activity within the Island. Alternative Form of Investment: Ecotourism The proposed alternative investment is tourism. Some of the proposed development areas include the Toondah Harbour and other facilities that would attract tourists. For example, incorporating high standards of environmental concerns, the development of hotels and different harbors would attract more visitors resulting in an eco-tourism industry (Queensland Government, 2015). The development of the Toondah Habour enhances the waterfront community and creation of gateway to North Stradbroke Island and Moreton Bay. The development will include mixed use with targets on medium and low-density residential development aimed at retail based and tourism development, with specifics on public open space, terminal and prospective development of marinas. In addition, the developments will result in whale watching platform, which is located at Point Lookout with other tourism focused activities such as the Quandamooka Festival. Investment Requirement and Analysis The Queensland State has to introduce the tourism industry to address the requirements of changing investment activities. The government will have to invest an estimate of $1 billion, at the time (t) = 0. It is imperative to note cost is a negative aspect of the outgoing cash flow, and therefore, the cash flow in the Excel documented is indicated as -1 billion. The proposal is to assume the product will provide an estimated equal benefits of $100 million for each of the next ten years beginning at t = 1. It is assumed that the government (or stakeholders) will not have additional outgoing cash flows after the investment of $1 billion. It is also assumed the government already has the $1 billion to invest in the development of eco-tourism. For simplicity purposes, it is assumed the returns and payments are “made in lump-sum” at the last day of each year. The proposed investment requirements are $1 billion, and the estimated yearly returns are $100 million. The investment return period for the investment is ten years, and it is expected within the next 50 years, the returns will be more than $4,000 billion. From the analysis of the data, Table 1 and Table 2 (in red) presents some important information in determining the effectiveness of the investment proposal. Table 1 presents the incoming cash flows for each percentage rate. The data is tabulated below Cumulative incoming cash flows 2572.98 1576.19 1096.17 830.45 666.05 555.41 Percentage 0.03 0.06 0.09 0.12 0.15 0.18 Table 2 also presents important information about the investment proposal 76500 29901 6064 -7624 -16254 -22107 -26308 Percentage 0 0.03 0.06 0.09 0.12 0.15 0.18 The first table illustrates that there is a positive return on the investment, but it is important to rearrange the NPV formulae. The normal formula is: NPV = PV (Benefits) – PV (Costs) Rearranging the formula becomes: NPV = -PV (Costs) + PV (Benefits) Substituting the data from Table 1 under the 3% (0.03): NPV = -$1 billion + 2572.9 million = +1572.9 Which indicates it is a right investment. However, when the interest is more than 9%, the investment is not viable. It also applies to the second Table where the negative values begin at 9% (0.09). The proposal for the effectiveness of the project is to determine the cost of investment should be less than 9%. ‘Flow-on-Benefits’ from Ecotourism Enterprise The alternative enterprise creates numerous benefits to the socioeconomic environment. Some of the benefits include employment opportunities, third party stakeholders/suppliers, taxation, and government streams. Employment opportunities In the formulation and implementation of the project proposal, different employees with different skills and experiences will be required to complete the project. Some of the employees including masonry, plumbers, electricians and project managers among others. These different opportunities would create employment for more than 1,000 construction workers. In addition, the completion of the project would offer permanent opportunities. The opportunities include for cleaners, hospitality providers, security and customer care. It is estimated that more than 500 people will be employed. Third party stakeholders/suppliers More likely ‘flow on benefits’ would be capitalized by suppliers and other stakeholders supporting the construction and management of the project (Queensland Government, 2015). The suppliers of the building materials will create indirect employment opportunities. These opportunities will be in terms of transportation and disposal. Such process creates an economic multiplier effect reverberates throughout the economy (Cooper et al. 2011). These suppliers and associated stakeholders are not viewed only during the construction period but also during the running or management of the business. For example, the customers visiting the facility will require water and other products and services. Therefore, the suppliers will continue supplying different products and services depending on the requirements of the customers. Taxation and Government Revenue Streams The aim of any government is to create opportunities that translate into an improvement of citizen’s welfare. The formulation and implementation of the project proposal will generate different forms of income to the government especially on taxation and related deductions (Temper and Martinez-Alier, 2013). The opportunities created will reduce instances of communities and societies participating in criminal or other behaviors because of lack of employment opportunities (Kallesoe, 2008). The government will also be able to improve the infrastructure because of the socioeconomic appropriateness of the project. Therefore, the government benefits through indirectly creating employment and advancing the welfare of the citizens. Conclusion In conclusion, the sand mining activity does not support the community directly because of the economic activity and also the size of employment opportunity. The change to the ecotourism industry and associated infrastructure would create more opportunities, support the local community and improve the welfare of the citizens. The proposed investment is $1 billion, and it is estimated to generate a direct economic benefit of $100 million yearly. However, it is important to ensure the cost of the investment should be less than 9% because of more than this percentage; the project does not make economic sense. The benefits of supporting ecotourism on the Island include the creation of employment opportunities, championing economic multiplier effects, and advancing the roles and responsibilities of government such as an increase in tax revenues and improvement of the welfare of citizens. References Barr, C., Tibby, J., Marshall, J.C., McGregor, G.B., Moss, P.T., Halverson, G.P., and Fluin, J., 2013. Combining monitoring, models, and palaeolimnology to assess ecosystem response to environmental change at monthly to millennial timescales: the stability of Blue Lake, North Stradbroke Island, Australia. Freshwater Biology, 58(8), pp. 1614-1630. Cooper, M.A.L.C.O.L.M., Erfurt-Cooper, P., Carlsen, J. and Butler, R., 2011. From sand mining to sand bashing in about 30 years: a difficult journey towards sustainable tourism for Fraser Island. Island Tourism: Sustainable Perspectives, CAB International, pp. 26-37. Cristescu, R., Ellis, W., De Villiers, D., Lee, K., Woosnam-Merchez, O., Frere, C., Banks, P.B., Dique, D., Hodgkison, S., Carrick, H., and Carter, D., 2011. North Stradbroke Island: An Island ark for Queensland's koala population? Proceedings of the Royal Society of Queensland, 117, p. 309. Everard, M., Jones, L. and Watts, B., 2010. Have we neglected the societal importance of sand dunes? An ecosystem services perspective. Aquatic Conservation: Marine and Freshwater Ecosystems, 20(4), pp. 476-487. Gravina, A., McKenna, P. and Glenn, V., 2011. Evaluating the success of mineral sand mine rehabilitation on North Stradbroke Island, Queensland: comparisons with reference eucalypt communities. Proceedings of the Royal Society of Queensland, 117, p. 419. Kallesoe, M., 2008. Linking Coastal Ecosystems and Human Well-Being: Learning from conceptual frameworks and empirical results. IUCN. Marshall, J.C., Negus, P.M., Steward, A.L. and McGregor, G.B., 2011. Distributions of the freshwater fish and aquatic macroinvertebrates of North Stradbroke Island are differentially influenced by landscape history, marine connectivity, and habitat preference. Proceedings of the Royal Society of Queensland, 117, p. 239. Queensland Government. 2015. Media statements. The Queensland Cabinet and Ministerial Directory. Available at: http://statements.qld.gov.au/Statement/2015/12/3/strategy-offers-new-future-for-straddie [Access on: 4th September 2016]. Temper, L., and Martinez-Alier, J., 2013. The god of the mountain and Godavarman: Net Present Value, indigenous territorial rights, and sacredness in a bauxite mining conflict in India. Ecological Economics, 96, pp. 79-87. Read More