Pwc Realizing the Value of Your Project Economic Impact Analysis (1)

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Transcript of Pwc Realizing the Value of Your Project Economic Impact Analysis (1)

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    2012 Americas School ofMines

    www.pwc.com

    conom c mpac na ys s ay ,

    Janice Plumstead

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    Agenda

    Section one Economic impact analysisdefined

    Section two Economic impact

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    met o o ogy

    Section three Using economic impactoutputs

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    Section one

    Section one Economic impact analysisdefined

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    Welcome!

    Course description

    Mining companies generate significant economic benefits forcommunities that may not be well understood by local, government andother key stakeholders.

    Economic impact analysis provides a quantitative method to estimatethe economic benefits that a particular project or industry brings to the

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    economies and surrounding communities where the specific project orindustry is located.

    Typically, economic impact studies use financial and economic data togenerate estimates of output, GDP, employment and tax revenues

    associated with changes in the level of economic activity resulting fromthe project or industry being analyzed.

    In general, economic impacts can be estimated at the direct, indirectand induced levels.

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    Objectives of todays session

    Understand how capital and operating expenditures contribute tolocal, regional, and national economies as measured by grossdomestic product (GDP), employment and tax revenue.

    Understand how economic impact analysis can provide more robust

    analysis to support business cases and inform the decision making

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    process on matter such as the construction of a new project, or theexpansion of existing facilities.

    Understand how economic impact outputs can contribute to national/state / local economies.

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    About economics at PwC

    Our practice members conduct statistical and economic studies for awide range of clients located in Canada, USA, UK, Australia,Netherlands and China.

    Based on our local and international experience, we have acted as atechnical resource for clients in various sectors including natural

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    resources and the public sector.

    Comprised of members with advanced degrees in economics and otherquantitative disciplines our team provides the following services:

    Economic impact analysis, socio-economic impact

    Benchmarking , industry analysis, and market research

    Statistical and econometric models

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    Direct

    What is economic impact analysis

    The total economic impact is comprisedof the direct impact and indirect impact.

    Direct impactsresult from expendituresassociated with constructing and

    operating a mine labour, materials,

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    Indirect

    Induced

    otaeconomic

    impact

    , .

    Indirect impacts result from thesuppliers of the mine purchasing goodsand services and hiring workers to meetdemand these 2nd round impactswould not occurbut formine operations.

    Induced impacts results from theemployees of the mine purchasing goodsand services at a household level.

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    The audience for economic impact analysis

    Outputs of an economic impact analysis are typically used todemonstrate the economic importance of mining operations to:

    Government stakeholders that generally approve miningoperations and establish royalty regimes.

    Community stakeholders that can control and approve the

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    issuance of permits.

    Other stakeholders such as NGOs (and other non-profitorganizations) that want to ensure that mining operationsbenefit local communities.

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    The audience for economic impact analysis

    Economic impactanalysis can bepowerful tool to buildstakeholders support,

    which is critical to the

    GovernmentStakeholders

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    establishment of a mineand ongoingoperations.

    EconomicImpact

    Analysis

    OtherStakeholders

    CommunityStakeholders

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    Why needed in the mining sector?

    Mining companies face considerable challenges and take onconsiderable risk in establishing and operating a mine.

    Gaining and maintaining stakeholder support by demonstrating

    economic benefits on a proactive and periodic basis can help limit

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    .

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    Why needed in the mining sector?

    Building and maintaining stakeholder support is essential tosuccessfully establishing a mine and ongoing operations.

    Mining, which generally occurs in rural and/or less developedregions of a country, provides significant economic opportunities forlocal communities that would not otherwise occur.

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    stakeholders, which can hinder developing and maintainingstakeholder support.

    It is important that mining companies proactively communicateeconomic benefits to set the agenda and frame discussions withstakeholders.

    Mining companies should also revisit economic impact estimates ona periodic basis to ensure economic benefits estimated at projectoutset materialize.

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    Where is economic impact analysis reported?

    Corporate Sustainability Reporting(CSR) guidelines: (GRI) indicators foremployment and taxes paid, local procurementestablished.

    Industry associations report on

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    Environmental Impact Assessments canrequire proponents to provide number ofdirect and indirect jobs , expenditures made,and taxes paid.

    economies to demonstrate importanceof industry to support of overalleconomy.

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    Section two

    Section two Economic impactmethodology

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    Economic impact methodology

    Economic impact analysis is based on the use of national or provincialinput-output tables.

    At the national level, Statistics Canada or the Bureau of EconomicAnalysis (BEA) collects data from establishments in each industry at thenational and provincial level.

    The purpose of economic impact analysis is to:

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    Define whether the value of the benefits of a project or policy canbe defined in an economically valid and systematic way.

    Estimate the economic impacts of projects, events or policies

    Measure the overall contribution to the economy at regional,state/provincial, national levels providing estimates of industrieswhose activities would otherwise be aggregated into a broaderindustry category

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    Input-Output models

    In Canada, we build input-output models with Excel using the input-output tables from Statistics Canada.

    In the USA, our colleagues have access to IMPLAN (generally used)and REMI software which facilitates the analysis.

    The IMPLAN and REMI software is more flexible in that it can

    provide regional and local analysis.

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    In Canada, we use proxies, usually employment, to model regionalimpacts.

    Other countries have input-output models based on their system ofnational statistical accounts, however, in developing countries,

    robust data may not be available for modeling purposes.

    The OECD produces a set of input-output tables for their membercountries as do other global organizations such as the InternatioalFood Policy Research Institute.

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    What are input-output multipliers

    Three types of multipliers are used to measure the potential impact atvarious levels of an economy:

    1. Direct

    2. Indirect

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    3. n uce

    Controlling for leakage occurs in the calculation of multipliers.

    Leakage is typically measured as the share of imports in a project /industrys supply chain purchases.

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    What are input-output multipliers

    Direct multipliers measure direct impacts which are changes thatoccur in front-end businesses that would initially receive expendituresand revenue as a direct consequence of the operations and activities of a