Paul Donovan - Managing Director of Global Economics at UBS
Most cities seeking to host the Olympics offer some story of economic regeneration as part of their bid – to win support from the domestic population, as well as the IOC. The success of these regeneration attempts in past Olympiads has been mixed. Indeed, relatively few Olympiads have had an enduring positive economic effect.
Creating economic regeneration in the host boroughs of London was going to be a challenge. There was a risk that the benefit of the Olympics would accrue to London as a whole, with the host boroughs being lost in the larger city. There were also considerable structural problems to overcome in a region that has been the economic ‘poor end’ of London for half a millennium or more.
However, the early signs from the economies of the five boroughs suggest that hosting the Games has brought economic benefits, and these benefits could very well endure. The key economic benefit of hosting an Olympics is the massive global media focus on a city or an area, causing people and businesses to rethink their attitude towards that location. The success of London 2012 does appear to have changed attitudes towards East London.
One of the most impressive statistics for the host boroughs is the inward migration of skilled workers. A significant proportion of people moving to the host boroughs in the run up to the Games have NVQ level 4 qualifications or higher. This means that the average skills level of the host boroughs’ population has risen. The fact that the host boroughs have been able to attract skilled workers brings direct benefits like employment security and income. There are also indirect benefits – such people can serve as role models for younger people in the community. The influx of skilled workers helps to explain why the host boroughs had the fastest employment growth in London in recent years (though unemployment remains high, as more people are entering the labour force). Of course, much of the employment of residents will take place outside of the five boroughs, but economically that is not necessarily a problem for East London.
The other fact signalling economic success for the host boroughs has been a rapid growth in the number of active businesses. The number of active business grew markedly in advance of London 2012, and the pace of growth was substantially higher than in the rest of London. Local businesses do not necessarily mean local employment, but local businesses provide demand for other local services (anything from staff using nearby shops during their lunchtime, to local firms supplying goods and services into the business itself).
By putting East London on the economic map London 2012 has supported the local economy. Moreover, trends like increasing skilled residents and increasing the number of local businesses are a structural boost – less likely to fade over time. Provided the momentum behind improving infrastructure and housing is maintained, the five host boroughs should be able to outperform the rest of London, and by doing so converge with the London average in terms of economic performance.