Bahrain GP Boosts Q4 Services, Financial Impact Key To Assessing Permanent F1 Return -- Economists

By Siti Radziah Hamzah

KUALA LUMPUR, Oct 6 (Bernama) -- The Bahrain Grand Prix in Malaysia provided a boost to tourism and services activity in the fourth quarter (Q4), while its overall financial impact will be important in assessing the economic viability of hosting Formula One (F1) races in Malaysia on a permanent basis, economists said.

Williams Business Consultancy Sdn Bhd economist Dr Geoffrey Williams said the concentration of spending would help support growth towards the end of the year, although Malaysia was already expected to record strong full-year growth.

“The concentration of spending into the Q4 period will help to ensure end of year growth holds up. But we expect strong growth for the full year anyway so this is more of an insurance for good growth at the end of the year rather than anything else,” he told Bernama.

Williams said the biggest multiplier effects would be in tourism, hospitality and retail, along with flights and hotels, with most of the spending remaining in the local economy.

“The extra spending is an additional value-added injection because a lot is tourism related not just redirected local spending. The event is a good addition to the calendar but the economy is growing stronger than expected anyway so it is a bonus helping tourism spending and supporting the ringgit through inflows of foreign currency,” he added.

In a research note in September, Hong Leong Investment Bank Bhd (HLIB) estimated the Bahrain Grand Prix in Malaysia could generate an additional RM1.1 billion to RM1.3 billion in total economic output on an output multiplier of 1.5 to 2.1 times.

Citing a PwC study on the Malaysian Grand Prix, HLIB said every ringgit invested in hosting the event was estimated to generate approximately three times that amount in economic returns.

“Given that F1 attracts a more affluent demographic compared to other sports, we estimate average tourism expenditure of F1 attendees at around RM8,879 per visitor (two times average tourist spending),” HLIB said.

Meanwhile, Juwai IQI global chief economist Shan Saeed said the RM1 billion in economic activity projected from the F1 weekend was meaningful, but its composition mattered more than the headline figure.

“RM1 billion is meaningful but economically, the composition matters more than the headline. Against an economy of that scale, one F1 weekend will not materially change the annual gross domestic product (GDP) trajectory. But its impact is unusually concentrated. Hotels, restaurants, aviation, transport, retail and entertainment receive a high-velocity spending injection over several days.

“So, I would describe F1 as the fourth quarter services accelerator, not a GDP game-changer,” he said.

Shan said the strongest economic multiplier should emerge through the tourism, hospitality and aviation sectors, with the impact determined by international visitor numbers, length of stay, daily expenditure and how much of the spending remained within Malaysia.

“The critical equation is therefore: international visitors × length of stay × daily expenditure × domestic retention. Ticket sales create attendance. Visitor nights create economic multipliers,” he said.

Shan said international visitor spending introduced new external demand, with spending on hotels, restaurants, shopping and domestic transport representing an export of Malaysian services, while domestic spending could involve substitution.

“That is why policymakers should focus not merely on how much was spent, but who spent it, where it originated and how much remained in Malaysia,” he added. 

On the foreign exchange (FX) impact, Shan said foreign spectators generated services-export receipts, although even RM1 billion of gross activity was small relative to Malaysia's wider trade, portfolio and financial flows.

“F1 is therefore an FX tailwind, not a ringgit catalyst. The strategic significance comes from accumulation: tourism, conferences, sporting events and other high-value services collectively strengthen Malaysia's external-services account,” he said.  

Permanent F1 return 

 

On the economic viability of a permanent F1 return, Shan said the economics of this year's race were particularly compelling as Bahrain bore the US$70 million to US$80 million rights fee, while Malaysia and Bahrain shared approximately RM40 million in local preparation costs.

“Malaysia therefore captures much of the tourism, hospitality, transport and international-branding upside without absorbing the largest financial burden. That creates an unusually favourable asymmetry between economic upside and fiscal exposure,” he said.

Shan said if a permanent F1 slot required at least RM300 million annually, a headline three-times gross multiplier alone would not be enough to determine whether it made economic sense.

“I would want to see at least RM900 million–RM1 billion of demonstrably incremental activity, accompanied by substantial foreign visitor spending, high domestic retention, additional tax receipts, SME revenues and employment.

“Then deduct imports, displacement, subsidies, operating costs and the opportunity cost of public capital,” he added.

Shan said policymakers should assess international visitors attributable to F1, average length of stay, hotel occupancy and room rates, foreign-card spending, KLIA passenger traffic, food and beverage and retail receipts, transport demand, small and medium enterprises revenues, employment and incremental tax collections.

“Against those benefits, policymakers must subtract import leakage, displaced domestic consumption and the full public-sector cost. Most importantly, the comparison should be against a normal October weekend, adjusted for seasonality and underlying tourism growth. That provides the economic counterfactual,” he said.

Separately, Williams said the event's organisational success would help gauge whether F1 should return as a regular feature, particularly as Malaysia did not cover the hosting fees.

“The overall financial impact needs to be calculated to ensure that any permanent F1 calendar events will be profitable in future. This can be gauged by tourism, hotels, spending and tax income,” he added.

Williams noted that employment from the event would be sessional, with the potential to offer some new jobs in the longer term.

-- BERNAMA