73757 Knowledge PAPERS INVESTMENT IN Urban HERITAGE Economic Impacts of Cultural Heritage Projects in FYR Macedonia and Georgia Urban Development The World Bank & Local Government Knowledge PAPERS Investment in Urban Heritage Economic Impacts of Cultural Heritage Projects in FYR Macedonia and Georgia David Throsby Macquarie University, Sydney September 2012, No. 16 Urban Development Series Produced by the World Bank’s Urban Development and Local Government Unit of the Sustainable Development Network, the Urban Development Series discusses the challenge of urbanization and what it will mean for developing countries in the decades ahead. The Series aims to explore and delve more substantively into the core issues framed by the World Bank’s 2009 Urban Strategy Systems of Cities: Harnessing Urbanization for Growth and Poverty Alleviation. Across the ï¬?ve domains of the Urban Strategy, the Series provides a focal point for publications that seek to foster a better understanding of (i) the core elements of the city system, (ii) pro-poor policies, (iii) city economies, (iv) urban land and housing markets, (v) sustainable urban environment, and other urban issues germane to the urban development agenda for sustainable cities and communities. Copyright © World Bank, 2012 All rights reserved Urban Development & Local Government Unit World Bank 1818 H Street, NW Washington, DC 20433 USA www.worldbank.org/urban This publication is a product of the staff of the World Bank Group. It does not necessarily reflect the views of the Executive Directors of the World Bank or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. This note is provided for information only. The World Bank has no responsibility for the persistence or accuracy of URLs and citations for external or third-party sources referred to in this publication, and does not guarantee that any content is, or will remain, accurate or appropriate. Cover: Upgraded Erekle II Street in Old Town, Tbilisi. The photographs used throughout the document were provided by the Fund for Preservation of Cultural Heritage of Georgia, GDRC-Georgia and the PCU from FYR Macedonia. Table of Contents Sioni Street, Tbilisi, Georgia Acknowledgements vi Executive Summary viii Chapter 1. Introduction 1 Chapter 2. The Economics of Cultural Heritage 3 2.1 An Analytical Framework 3 2.2 Review of the Empirical Literature 6 2.3 An Empirical Framework for Analysis 8 2.3.1 Overall Considerations 9 2.3.2 Economic Indicators 10 2.3.3 Cultural Indicators 11 2.3.4 Ex Post Cost-Benefit Analysis 12 2.4 Conclusion 14 Chapter 3. The Economic Impacts of a Cultural Heritage Project: Skopje, FYR Macedonia 15 3.1 FYR Macedonia: Geography and Economy 15 3.2 Project Background 15 3.3 Methodology 17 3.4 Stakeholders 18 3.5 Time Period Covered 19 3.6 Capital Costs of the Heritage Rehabilitation 20 3.6.1 Bank Investments 20 3.6.2 Flow-On Investments 20 3.7 Tourism Impacts 21 3.7.1 Tourism in the Macedonian Economy 21 3.7.2 Tourism in the Skopje Old Bazaar 22 iv Urban DEVELOPMENT SERIES – knowledge paperS 3.8 Impacts on Businesses: Restaurants, Cafés, and Shops 23 3.8.1 Customer Numbers and Expenditure 23 3.8.2 Employment Effects 23 3.8.3 Property and Rental Prices 24 3.8.4 Business Expansion Plans 25 3.9 Impacts on Museums and Galleries 25 3.10 Cultural Indicators 26 3.11 Non-market Benefits 28 3.12 Conclusions 29 Chapter 4. The Economic Impacts of a Cultural Heritage Project: Tbilisi, Georgia 30 4.1 Georgia: Geography and Economy 30 4.2 Project Background 32 4.3 Methodology 34 4.4 Stakeholders 34 4.5 Time Period Covered 35 4.6 Capital Costs of the Heritage Investments 35 4.7 Tourism Impacts 36 4.7.1 Tourism in the Georgian Economy 36 4.7.2 Tourism in Tbilisi Old Town 36 4.7.3 Impact of the Heritage Restoration on Tourism 37 4.8 Impacts on Businesses: Restaurants, Cafés, and Shops 38 4.8.1 Business Conditions 38 4.8.2 Employment Effects 38 4.9 Impacts on Households 39 4.10 Impacts on Museums and Galleries 40 4.11 Cultural Indicators 40 4.12 Non-market Benefits 41 4.13 Conclusions 42 Chapter 5. Conclusions and Lessons 43 References 46 Investment in Urban Heritage v List of Tables Table 3.1 Non-Bank Investments in Cultural Heritage Restoration in the Old Bazaar in Skopje: 2006–2010 21 Table 3.2 Non-Bank Investments in Cultural Heritage Restoration in the Old Bazaar in Prilep: 2000–2010 21 Table 3.3 Number of Nights Spent by Tourists in Skopje 21 Table 3.4 Foreign Tourists Visiting Restaurants, Cafés, Shops Before/After 2005 22 Table 3.5 Visitors (Foreign and Local) to Restaurants, Cafés, Shops Before/After 2005 23 Table 3.6 Employment in Restaurants, Cafés, Shops Before/After 2005 24 Table 3.7 Average Visitor Numbers per Year for Three Museums/Galleries in the Skopje Old Bazaar 25 Table 3.8 Numbers of Adult Visitors to Three Museums/Galleries in the Skopje Old Bazaar: 2000– 2009 25 Table 3.9 Perception of Cultural Benefits by Visitors to Skopje Old Bazaar 27 Table 3.10 Agreement with Statements about Cultural Value of Heritage in Skopje and Prilep 27 Table 3.11 Visitors’ Willingness to Make a One-Time Contribution to Heritage Restoration in the Old Bazaars in Skopje and Prilep 28 Table 4.1 Survey Respondents by Area and Types: Old Tbilisi 35 Table 4.2 Usage of Hotels and Guesthouses in Zemo Kala and Metekhi Plateau: 2010 36 Table 4.3 Visitors to Shops in Zemo Kala and Metekhi Plateau Before/After Project 36 Table 4.4 Visitors to Restaurants in Zemo Kala: In-Season and Off-Season: 2010 37 Table 4.5 Employment in Businesses in Zemo Kala and Metekhi Plateau: 2010 38 Table 4.6 Trends in Real Estate Values in Zemo Kala and Metekhi Plateau: 1998–2010 39 Table 4.7 Residents’ Perceptions of Change in their Housing Conditions in 2010 Compared to 1998 in Zemo Kala and Metekhi Plateau 40 Table 4.8 Perception of Cultural Benefits by Visitors to Zemo Kala 41 Figures Figure 3.1 Map of FYR Macedonia 15 Figure 3.2 Map of the Old Bazaar in Skopje 17 Figure 3.3 Map of the Old Bazaar in Prilep 18 Figure 4.1 Map of Georgia 31 Figure 4.2 Map of the Historic Core of Tbilisi 32 Figure 4.3 Historic Districts Evaluated for Project Intervention 34 vi Acknowledgements Old Town Tbilisi, This study was made possible by a Cultural and The study was carried out under the leadership of Chardin Street Sustainable Development Trust Fund grant fi- Janis Bernstein, World Bank senior urban devel- nanced by the Government of Italy. The author opment specialist. Marina Djabbarzade, heritage wishes to express his gratitude to the Projects Co- management consultant, prepared the original ordination Unit (PCU) of the former Yugoslav Re- study proposal, carried out preliminary fieldwork public of Macedonia and the Center for Business in the target cities, and prepared background ma- Support and Development of Georgia (GDRC– terial on both projects for inclusion in this report. Georgia) whose staff gathered primary and sec- Dr. Benoit Laplante prepared an earlier draft of ondary data in the target cities, and conducted the Georgia chapter. Field support was provided preliminary analyses of the findings in their respec- by the following World Bank staff: Bekim Ymeri, tive countries. The research in FYR Macedonia social scientist, in Macedonia; and Tatyana Kan- was led by Ana Efremova, PCU director; Profes- delaki, financial specialist, in Georgia. Ahmed sor Biljana Angelova, director of the Institute of Eweida, country sector coordinator of the South Economics Research Department, conducted the Caucasus, provided invaluable support, insights, preliminary economic analysis for the PCU. The and photographs. Additional Bank staff who pro- core research team in Georgia included Ekaterina vided comments on an earlier draft include Mark Kimeridze and Tamar Labartkava of GDRC, and Woodward, sustainable development leader; Ste- Lasha Labadze, research associate at the Interna- fano P. Pagiola, senior environmental economist; tional School of Economics of Tbilisi. and Ethan Yeh, economist. Investment in Urban Heritage vii The author and project team also would like to City Hall; Vano Vashakmadze, deputy director thank the following institutions and individuals. of the National Tourism Development Agency; In FYR Macedonia, the team wishes to express Nino Mataradze, chief of International Relations its gratitude to the City of Skopje and to Krsto Office, Tbilisi City Hall; Irakli Gaprindashvili, Andonovski, director of finance, City Hall of counsel of the Tbilisi Development Fund; Ana Skopje; and Lovren Markic. The team also would Natsvlishvili, architect at the Tbilisi Development like to thank the following individuals at the Fund; and Tengiz Tsekvava, deputy executive Ministry of Culture of Macedonia who welcomed director of the Georgian Statistics Department. them: Darko Stefanovski, state secretary; and Kristina Biceva, from the Department for At the World Bank, the team is especially grateful for Documentation, International Cooperation and the ongoing support provided by Asad Alam, Jane Administrative Affairs, at the Ministry of Culture Armitage, Lilia Burunciuc, Caroline Kende-Robb, of Macedonia. Abha Joshi-Ghani, Guido Licciardi, and Anthony Bigio. Finally, we would like to acknowledge the In Georgia, the team is grateful to those institutions contribution of those who brought the report to its and individuals who generously shared their final published form: Kerri Rubman (editor), Miki valuable time, insights, and data to realize this Fernandez (graphic design), and Global Printing. study; namely, Marika Didebulidze, director of the Cultural Heritage Center; Zviad Archuadze, All errors, omissions, and interpretations remain director of the Economic Policy Agency, Tbilisi solely the responsibility of the author. viii Urban DEVELOPMENT SERIES – knowledge paperS Executive Summary Although World Bank projects in the cultural heri- The study confirms the positive impacts of the tage field are subject to the usual assessments that investments. In the Macedonian case, the proj- are applied to any project implementation, little is ect helped to stimulate an ongoing investment of known about the subsequent performance of these US$2.5 million in the project site, the Skopje Old projects in the years post-completion. This study Bazaar. Tourist numbers increased compared to the was undertaken to provide some empirical evi- control site in Prilep; between 2005 and 2010, daily dence for the economic impacts of cultural heritage tourist numbers in the Skopje Old Bazaar increased investment. Two case studies were chosen for this by 90 percent compared to a slight decline in Prelip. purpose, in the historic town centers of Skopje, for- Employment also grew more rapidly in the target mer Yugoslav Republic of Macedonia, and Tbilisi, site than in the control area. There was a 73 percent Georgia, respectively. growth in employee numbers per business between the pre- and post-project periods in the Skopje site The economic principles that are important for the compared to a 21 percent increase in Prelip. In ad- analysis of cultural heritage investment decisions dition, 42 percent of the businesses in the Skopje make use of concepts such as scarcity, opportunity site have expansion plans for the future compared cost, and public preferences. The relatively new to only 15 percent in Prilep. economic theory of cultural capital interprets heri- tage as assets that yield both economic and cultural Foreign visitors to the three main museums in the value in the flow of services they generate. An im- Skopje Old Bazaar area rose from 7 to 13.5 thou- portant component of the economic benefits of cul- sand between 2000 and 2007, while local visitors tural heritage investment arises as public goods, and increased from 5 to 10.5 thousand over the same a considerable amount of empirical research has period. In a random sample survey of visitors to the been carried out to develop means for measuring Old Bazaar in Skopje, 84 percent of respondents these cultural benefits and the community’s willing- agreed that they would be willing to contribute ness to pay for them. something to continue the restoration work. Ideally, a retrospective economic impact evaluation In the case of the Georgia project, this study com- should apply rigorous procedures to measuring the pared the target area of Zemo Kala with the control incremental trends in relevant variables as a means site of the Metekhi Plateau within Old Town Tbili- of quantifying a full ex post cost-benefit analysis of si. The indicators assembled pointed to an increase the project’s effects. However, in most borrowing in tourism in the target area since the heritage reha- countries and for most heritage investment projects, bilitation. For example, the daily number of visitors such data will not be available. Thus, this study uses to shops in Zemo Kala has increased by around 40 a simplified methodology involving the assembly of percent over the past 10 years, compared with an a series of economic and cultural indicators that can apparent decline in the control site. Foreign tourists be used to infer before-project/after-project trends, in 2010 spent- 90 GEL per person per day in shops and/or compare the project site with an alternative in Zemo Kala, three times as much as locals, and area that has not benefited from heritage invest- more than twice as much as did foreign tourists in ment. Metekhi shops. Investment in Urban Heritage ix In regard to housing, 42 percent of residents in This study leads to some lessons for the design of Zemo Kala thought that their conditions had im- heritage projects and for the conduct of an ex post proved since 1998 compared with only 30 percent economic impact evaluation. The most important in Metekhi Plateau; 16 percent in the target site felt lesson for project design relates to the need to build their conditions had worsened, whereas 30 percent in sound monitoring and evaluation mechanisms, in in the control site believed they were worse off. The particular to track economic variables such as out- cultural and social benefits arising from the heritage puts, incomes, tourist numbers and expenditures, revitalization were apparent in the survey of visitors induced investments, and so on. If such mechanisms to the Zemo Kala area. For example, 92 percent of are in place, they should yield appropriate data so respondents felt that restoring Kala had improved that a rigorous retrospective impact evaluation can Tbilisi as a place to live, and 97 percent saw benefits in due course be undertaken. In the absence of of social cohesion generated in the area. The major- such information, a retrospective study must rely, ity (89 percent) disagreed with the proposition that as in the present case, on newly collected primary the old buildings of Zemo Kala should be demol- data. Apart from surveying businesses affected by ished to make way for new development. Most re- the project, data collection may include surveys to spondents to this survey (92 percent) indicated they establish the extent to which beneficiaries perceive would pay something towards a fund for financing any cultural value flowing from the investment, and further heritage restoration in Zemo Kala. whether or not they are willing to pay for these ben- efits. In assessing the economic impacts on the proj- Overall, although there were insufficient data to ect site, it is also important to ensure that a valid make a reliable and comprehensive estimate of the counterfactual is chosen (for example, a control site realized rate of return on the original investment that is very similar to the target site but where no in either of the case study cities, it can certainly be heritage investment has occurred) to allow the in- concluded that the economic, social, and cultural cremental effects due to the project to be inferred. effects of the heritage investment as exemplified in both cities have been significant, and can be taken as the types of impacts that might be achievable from similar investments elsewhere. Old Town Tbilisi, Sioni Street renovation x Urban DEVELOPMENT SERIES – knowledge paperS Old Town Tbilisi, Chardin Street Investment in Urban Heritage 1 Introduction The Europe and Central Asia Region of the World ond included investments to revitalize the historic Bank (ECA) has a rich and diverse cultural heri- core of Tbilisi, Georgia, as part of the Georgia Cul- tage. However, in numerous instances, this portfo- tural Heritage Project (1998/2003). In both cases, lio of cultural resources has been perceived as an the initial Bank investment was followed by fur- impediment to development (in which case restora- ther heritage-related investments from a variety of tion and maintenance of them is considered as an sources. Because it is impossible to disentangle the expenditure of resources that would best be used separate effects of the different heritage-related in- otherwise), as opposed to contributing to develop- vestments, the assessment for each case study in this ment (in which case restoration and maintenance is report evaluates the impact of the heritage-related considered as an investment in support of develop- investment program overall in the relevant target ment). In this context, the World Bank has financed site; these programs were initiated in both cases by a variety of investment projects aimed generally at the original Bank funding. supporting the conservation, restoration, and main- tenance of physical heritage in ECA countries. The Strictly speaking, a retrospective economic impact overall objective of these investments is to promote evaluation of an investment program should use a employment, poverty reduction, and economic de- rigorous methodology to identify the actual impact velopment more generally using cultural heritage of the program compared to what would have hap- resources as an asset. A review of the project portfo- pened to the beneficiaries if the program had not lio implemented during the period FY1997 through taken place. Such an assessment requires a scien- FY2010 reveals that the size of the investments tifically valid counterfactual (constructed scenario ranged from US$150,000 to US$240 million, with assumed to indicate what would have happened Learning and Innovation Loans (LILs) averaging had the project not been implemented) against approximately US$5 million. which actual experience can be compared. It will also depend on the availability of comprehensive During the preparation stages of most World Bank and reliable data to which appropriate analytical projects, the project’s expected net present value methods can be applied. In the two case studies and internal rates of return are typically calculated. reported here, the quantity, quality, and reliability Of course, these are based on projections of project of the data available were insufficient to allow such outputs, many of which will have only just begun to a rigorous approach to be followed. Local statisti- be realized by the time the project’s Implementa- cal services could not supply the needed microlevel tion Completion Report is written. In the case of data relevant to the project sites over a reasonable cultural heritage investments, the economic impacts amount of time to enable a time series analysis to be are seldom felt within this time frame. The aim of undertaken, and the collection of primary data was this study is to reassess the economic impacts of cul- constrained by the time and the resources available tural heritage investments several years after project for the study. completion. Two projects were selected as subjects for an ex post economic impact analysis. The first Therefore an alternative approach was adopted to project studied targeted heritage investment in the produce the sought-after results. It used a simplified Old Bazaar of Skopje, FYR Macedonia, which procedure involving both an assessment of before- formed part of the Macedonia Community Devel- project/after-project trends in relevant economic opment and Culture Project (2002/2006). The sec- indicators, and a comparative analysis juxtaposing 2 Urban DEVELOPMENT SERIES – knowledge paperS economic data from the project area (target site) values were addressed in the surveys so as to better with an alternative area (control site) that possesses understand the broader impact of investments. As very similar characteristics but that had not ben- noted above, this study does not conform to the re- efited from a cultural heritage investment project. quirements of a rigorous impact analysis; it is more Focusing on employment- and income-generation appropriately described as an “assessmentâ€? of the effects, a set of indicators to measure the impact of economic effects of the investment projects under cultural heritage investments on local economic de- consideration. Nevertheless, it is possible to use the velopment was devised. Aside from observing trends word “impactâ€? in a somewhat looser sense to refer in employment levels and wages, data were also simply to the outcome of particular interventions, compiled pertaining to growth of the private sector and such is the use adopted in this report. through the volume of business start-ups and profit- ability of affected businesses, real estate values, visi- The report is structured as follows: The next section tor numbers and expenditures, the value of output provides a brief overview of the existing literature of goods and services, and other variables. on the economics of cultural heritage and sets out an ideal analytical framework for the conduct of an The existing quantitative data received from local analysis such as the present one. This framework authorities were complemented by new quantita- puts forward several possible approaches for a ret- tive and qualitative data obtained through on-site rospective assessment of the economic impacts of a surveys and in-depth interviews of targeted stake- cultural heritage project in an urban area. Chapters holders including providers of local tourism goods 3 and 4 present the findings of the Macedonian and and services. In addition to assessing use values, an Georgian case studies respectively. Finally, Chapter attempt was made to capture some of the less easily 5 provides a number of lessons and recommenda- quantifiable values attributed to cultural heritage; tions that may be used to guide similar analyses of Tbilisi, Georgia issues pertaining to non-use values such as existence this nature. Photo: Thinkstock.com Investment in Urban Heritage 3 The Economics of Cultural Heritage The disciplinary field in which this study is placed is ence of economics highlights the phenomenon of the economics of cultural heritage, an area that has scarcity and the choices it necessitates. Accordingly, only recently attracted the attention of economists. economists point to the scarcity of material and hu- This chapter presents some of the underlying the- man resources available for allocation to heritage ory of cultural heritage economics, and provides a conservation. Not everything can be conserved and brief overview of some relevant empirical literature thus choices must be made. Second, resources are in the field. It then outlines an idealized approach to costly; if they are used for the maintenance and an ex post assessment of the economic impacts of preservation of heritage and so are not available for cultural heritage investment. other uses, they incur opportunity costs. The types of tangible and intangible costs that may result from 2.1 An Analytical Framework heritage decisions are extensive and multifaceted. The evaluation of cultural heritage has numerous Third, the preferences of potential “consumersâ€? of important economic dimensions. The first point of the cultural heritage matter; experts and enthusiasts intersection between economics and heritage relates may value a building, a site, or a monument highly, to decision-making on what is to be preserved and but if public funds are used in its restoration or up- what is not. Arguments for heritage preservation are keep, a question arises as to whether those provid- generally based on historical, archaeological, and ing the funds (that is, taxpayers) are willing to do so. cultural assessment. Hence conservation decisions There can be difficulties if taxpayers’ preferences have been largely the province of archaeologists, ar- are out of line with those of the heritage experts chitects, urban planners, and others, either in their who are making decisions and spending money on own right as cultural workers on heritage projects, their behalf. or as expert advisers to governments or other agen- cies. Yet it is undeniable that there are significant Recent research in the application of economics economic dimensions to heritage decisions, even to the analysis of cultural heritage is concerned if one uses the word “economicâ€? simply to denote mainly with providing a theoretical foundation for “financial.â€? Resources for the maintenance of heri- the economic interpretation of heritage (Rizzo and tage buildings and sites are by no means unlimited. Throsby 2006). This work has included the develop- Choices must often be made when the demands ment of the concept of heritage as cultural capital of cultural conservation conflict with those of eco- (Throsby 1999, 2001; Ulibarri 2000; Cheng 2006; nomic development. Whatever financial revenues Wang 2007), which can be defined in the follow- are brought in by tourism, for example, must be ing way. Consider the case of a historic building. offset against the problems caused by overcrowding It is appropriate to regard any building, historic or and by the threat of damage to culturally significant otherwise, as a capital asset that gives rise to a flow property. of services over time, and that will deteriorate (and hence depreciate) if the property is not maintained. Several issues and concepts that are fundamental to But if the structure is a heritage building, it can be economic analysis are helpful in looking at the con- suggested that it embodies not just economic value servation or restoration of cultural heritage (Schus- (which could be realized by putting the building up ter et al. 1997; Hutter and Rizzo 1997; Peacock for sale) but also cultural value, some intrinsic or as- 1998; Getty Conservation Institute 1999; Rypkema signed quality that stands apart from the property’s 1999; Benhamou 2003; Mason 2005). First, the sci- financial worth and reflects some evaluation of its 4 Urban DEVELOPMENT SERIES – knowledge paperS cultural significance. It is this cultural value attrib- investment can also be evaluated as an essential utable to such an asset that allows it to be classi- component of the project’s overall effects. fied as an item of cultural capital, as distinct from “ordinaryâ€? physical capital whose value can be fully In other words, an assessment of the impacts of an captured in economic terms. investment project involving cultural capital should account for both the economic and the cultural di- To put it more formally, one can define an item mensions of the project’s benefits. How are these ef- of cultural capital as being an asset that embod- fects observed? Turning first to the economic value ies or yields cultural value in addition to whatever of heritage, a distinction is usually made, as with en- economic value it embodies or yields. The phrase vironmental assets, between use and non-use value. “embodies or yieldsâ€? is used here to emphasize the Use value refers to the direct valuation of the asset’s distinction between the capital stock and the flow services by those who consume those services as pri- of capital services to which that stock gives rise, a vate goods—the entry fees paid by visitors to his- distinction that is fundamental to analysis of any toric sites, for example, or the imputed rent paid by sort of capital in economics. In the case of a heri- tenants of historic properties. Non-use value refers tage building, the asset embodies value as a piece of to the value placed upon a range of non-rival and capital stock, where that value is expressible in both non-excludable public-good characteristics typically economic and cultural terms. In turn, the building possessed by cultural heritage (Serageldin 1999). In yields a continuing flow of services over time, such brief, these non-use values may relate to the asset’s as the accommodation it provides for tenants or the existence value (people value the existence of the benefits accruing to tourists who may visit it as a cul- heritage item even though they may not consume its tural site; these flows also generate both economic services directly themselves), its option value (peo- and cultural value, which can, at least in principle, ple wish to preserve the option that they or others be identified and measured. Moreover, these flows might consume the asset’s services at some future may include non-use benefits; that is, the building time), and its bequest value (people may wish to may be valued by people who do not use or visit it bequeath the asset to future generations). Non-use but who would nevertheless like to see it preserved, values may also arise as beneficial externalities to be as discussed below. enjoyed, for example, by people passing by or travel- ing through a heritage site. None of these non-use Identifying cultural heritage as cultural capital in values is observable in market transactions because this way gives us a concept that can provide a co- no market exists for which the rights to them can be herent and rigorous framework within which both exchanged. the economic and the cultural contributions of the cultural resource can be analyzed and assessed. For A classification of the economic benefits of heritage example, the restoration of a historic town center, as along the above lines parallels the interpretation of in the two case studies discussed in this report, can the benefits of environmental amenity and natural be interpreted as a process of investment in the cul- resources as studied in the field of environmental tural capital of the respective cities that is expected economics. Accordingly, much of the methodology to yield a flow of services with both economic and developed for assessing environmental benefits has cultural value. The economic impacts of the invest- been directly adaptable for application to the evalu- ment can be analyzed both ex ante and ex post us- ation of the economic benefits of cultural heritage ing the familiar tools associated with cost-benefit (Pagiola 1996; Bennett 2001; Navrud and Ready analysis, and the cultural benefits generated by the 2002). Work in this field has expanded rapidly in recent years. Given that the non-market benefits Investment in Urban Heritage 5 are often likely to outweigh the use benefits from gible and intangible, play a key role in social capital the heritage under study, numerous studies have formation, providing shared connections that pro- focused on the measurement of intangible benefits, mote the long-term continuity of the community using contingent valuation or discrete choice mod- (Throsby 2010: 44–45). eling methods to assess willingness to pay for the preservation or enhancement of specific heritage Finally it should be noted that the concept of sus- buildings, locations, and sites, as discussed further tainability is fundamental to any analysis of the in the next section. long-term management of cultural capital, and so is integral to any assessment of heritage in the urban Although these types of studies have thrown consid- context. Cultural capital makes a contribution to erable light on the economic and cultural benefits long-term sustainability that is similar in principle of heritage projects, existing methodologies are sub- to that of natural capital (Throsby 2003b). It is now ject to criticism on the grounds that they do not fully well understood that natural ecosystems are essen- capture the range of benefits that heritage proj- tial to supporting the real economy and that neglect ects typically generate (Massimo 1995; Bille Han- of natural capital through overuse of exhaustible sen et al. 1998; Avrami et al. 2000; Seaman 2002; resources, or unsustainable exploitation of renew- Throsby 2003a). Little progress has yet been made able resource stocks, may cause such systems to by economists in taking a broader view of heritage break down. A parallel proposition can be applied values that may not be expressed in monetary terms to cultural capital. Neglect of cultural capital—by — in other words, in identifying the precise dimen- allowing heritage to deteriorate, by failing to sustain sions of the cultural value that gives heritage and the cultural values that provide people with a sense other forms of cultural capital their distinctive char- of identity, and by not undertaking the investment acter. If it were possible to assess cultural value in needed to maintain and increase the stock of both objective terms, the relevant trade-offs between the tangible and intangible cultural capital—is likely to achievement of economic and cultural objectives place cultural systems in jeopardy and may cause of a heritage investment project could be assessed. them to break down, with consequent loss of wel- For example, in evaluating a development project fare and economic output. where heritage is threatened with destruction, a sys- tematic assessment of the cultural value lost could The link between cultural heritage and sustainabil- be set against the measured economic gains from an ity is particularly important in the context of devel- alternative use of the site. In this way, the trade-offs oping countries, where the contribution of culture between the two sources of value, economic and to sustainable development has been recognized by cultural, could be quantified, indicating the cultural the United Nations World Commission on Culture price that would have to be paid to achieve an eco- and Development (UNESCO 1994, 2000) and by nomically desired outcome, or vice versa. the World Bank (Serageldin and Martin-Brown 1999; Wolfensohn et al. 2000). These concerns ex- Moreover, taking a broader view of value also in- tend to cultural heritage in both tangible and in- volves a consideration of the social benefits of tangible forms and at all levels of significance, from heritage. It is well established in sociology that com- the preservation of local cultural expressions to the munity cohesion develops from the formation of management of World Heritage sites as classified social capital (Dasgupta and Serageldin 2000)—the by the United Nations Educational, Scientific and networks of social interrelationships and trust that Cultural Organization (UNESCO). Much of the bind community members together and help to ex- attention, however, has focused on the renovation press their shared identity. Heritage assets, both tan- and restoration of heritage in historic town centers, 6 Urban DEVELOPMENT SERIES – knowledge paperS in pursuit of goals of urban renewal and poverty ment in cultural heritage. Most research of this alleviation in the developing world (Taboroff 1992; nature has focused on the economic valuation of Serageldin 1999; Rojas 1999; Cernea 2000, 2001). historic or archeological sites. As is clear from over- views of this research, such as those compiled by 2.2 Review of the Empirical Noonan (2003) and Mason (2005), the scope of Literature these studies is vast. Projects reviewed range from As noted earlier, cultural heritage has only recently the restoration or preservation of local sites to the attracted the attention of economists; a brief ex- valuation of UNESCO World Heritage sites, and amination of recent cultural heritage valuation from the conservation of individual buildings or studies reveals only a decade or so of empirical re- monuments to the rehabilitation of entire heritage search. One type of empirical research pertains to districts such as historic towns centers. Some stud- estimating the impacts of a cultural heritage invest- ies look at the valuation of cultural landscapes and ment on visitors’ overnight stays, on employment, at environmental assets defined as cultural heritage and on incremental local fiscal revenues that may (Lockwood et al. 1996; Laplante et al. 2005; Lou- result from the increased economic (mostly touris- reiro et al. 2008). tic) activities. A prime example of this approach is offered by Plaza (2006) who estimated the impacts Empirical assessment of the use benefits of heritage of the Guggenheim Museum Bilbao on overnight is usually straightforward, being based on measure- stays, employment, and fiscal revenues for the city ment of observable financial flows generated by of Bilbao. Based on a time series model (ARIMA), market transactions. Revealed preference data can the author estimated that monthly overnight stays also be used to determine a range of use and non- increased by 0.64 percent (representing approxi- use benefits through the application of travel cost mately 61,000 additional monthly overnight stays) and hedonic price methods. Examples of the for- due to the presence of the museum, and that the mer include the studies by Poor and Smith (2004), investment created approximately 900 new full-time Bedate et al. (2004), and Alberini and Longo (2005), jobs. The author estimated a rate-of-return on in- which apply travel cost analysis to evaluate the ben- vestment of approximately 11 percent for the Mu- efits of sites in the United States, Spain, and Arme- nicipality of Bilbao. nia, respectively. Hedonic price studies of heritage values focus on real estate prices for listed property Along similar lines of research, Greffe (2004) esti- to ascertain the extent to which the heritage char- mated a model that developed a functional relation- acteristics influence the market valuation; examples ship between the number of visitors to museums include studies by Deodhar (2004) in suburban Syd- and the number of new jobs created that are di- ney, Ruijgrok (2006) in the Netherlands, and Noon- rectly or indirectly due to the museum. According an (2007) in Chicago. to these estimates, 10,000 visitors create 1.15 direct jobs (persons employed in the museum itself), and Many empirical studies have used stated preference every direct job generates 0.62 indirect jobs (in the methods such as contingent valuation (CVM) and fields of interior architecture, conservation, and res- discrete choice modeling (DCM) to evaluate the toration), 3.84 induced jobs, and 2.59 jobs in the welfare effects of cultural heritage investments by tourism sector (hotels, restaurants, tourist guides, assessing the willingness of visitors, local residents, and so on). or other stakeholders to contribute toward the costs of preserving the site of interest. An example A different type of empirical research is that aimed of a CVM application is the well-known study of at assessing the economic value (benefits) of invest- the benefits of a proposed project to preserve and Investment in Urban Heritage 7 restore the Fez Medina, a site in Morocco recog- of heritage sites in its neighborhood is provided by a nized in 1980 by UNESCO as a World Heritage study of residents’ willingness to pay for the redevel- city (World Bank 1999). A survey of 600 adult visi- opment of the Prinsep Ghat, a nineteenth-century tors was designed to determine the views of both landing place on the banks of the River Hooghly tourists and those visiting for business or other in Calcutta (Dutta et al. 2007). A CVM study was purposes. Respondents were presented with infor- carried out that showed a median willingness to pay mation about the condition of the Medina as it among the local population of around US$10 per stood before the project and were told rehabilita- head to restore the cultural capital of the site, an tion would accomplish three things: improve the amount that, the authors note, would be more than Medina’s appearance by repairing and cleaning up enough in aggregate to finance the redevelopment buildings, streets, infrastructure, public spaces, and project, assuming some means of benefit capture monuments; preserve the Medina’s traditional char- could be found. acter and cultural heritage for future generations; and ensure that the Medina would continue to be Other recent examples of the application of CVM a productive and vibrant living city. To help pay for to cultural heritage assets include a study of the the proposed rehabilitation activities, visitors would economic value of Changdeok Palace in Korea, be charged a special fee when they registered at a World Heritage site (Kim et al. 2007), an assess- their hotel. For non-visitors to Fez, the fee was pre- ment of the benefits of a nationwide conservation sented as a departure fee. Visitors to Fez were found program for heritage sites in Armenia (Alberini and to be willing to pay as much as US$70 each for ef- Longo 2009), and an evaluation of historic sites forts aimed at preserving and improving conditions in the city of Valdivia in Chile (Montenegro et al. in the Medina. Given the number of visitors each 2009). These studies provide further evidence on year, this is equivalent to an annual total of about the usefulness of CVM as a means of assessing the US$11 million. Other visitors to Morocco share an non-use values of cultural heritage investments. overall appreciation for the Fez Medina and their willingness to pay for its preservation is based on the A considerable amount of methodological research value they place on its existence, and to some extent over the last decade or so has led to improvements in as an option value of a future visit. These visitors experimental choice methods, resulting in an expan- were found to be willing to pay about US$30 each, sion of interest in the use of DCM as a technique resulting in a total annual benefit of about US$47 for determining demand for different attributes of million (Carson et al. 2002). a heritage site, such as its beauty, its amenity, its en- try price, and so on. For example, in a survey of Another study of a similar nature was conducted in Belfast residents, Alberini et al. (2003) applied con- the context of a project to restore the historic core joint choice experiments to assess the public’s valu- of the Croatian city of Split, listed as a UNESCO ation of the aesthetic characteristics of alternative World Heritage site (Pagiola 1999). In this study, the regeneration projects in a historic quarter of the analysis showed that tourists were willing to pay on city. Most applications have related to the demand average US$44 for a project to restore the historic by tourists for various characteristics of particular core of the city, with a 95 percent confidence interval sites that can be the subject of tourism management between US$37 and US$51. It was also found that plans. Recent examples include a study of prefer- local residents had a significantly higher willingness ences for two heritage sites in Crete (Alexandros and to pay, ranging between US$117 and US$198, with Jaffry 2005), a contingent rating study of demand a mean of US$158. A further illustration of a local for different attributes of tourism products in a town community’s non-use demand for the preservation in Sicily (Cuccia and Cellini 2007), an assessment of 8 Urban DEVELOPMENT SERIES – knowledge paperS preferences for aspects of a visitor’s site on Hadri- of historically important buildings, other structures, an’s Wall in the U.K. (Kinghorn and Willis 2009), and streetscapes. The World Bank projects provided and a choice modeling study of visitors’ valuation funds for restoration and renovation of the heritage of attributes of a heritage attraction in Canberra and for other improvements to the two sites. When (Choi et al. 2010). the projects commenced, the sites were generating a certain level of use and non-use benefits for the Whether CVM or DCM is chosen as the methodol- community. The objective of the economic impact ogy for an empirical investigation aiming to value analysis is to evaluate the net increase in these ben- the non-use benefits of a specific cultural heritage efits over time brought about by the initial project site depends on a range of theoretical and practi- investment. cal considerations, including the cost and feasibility of survey administration. How do these evaluation From an economic point of view, the most appro- techniques relate to one another? In a recent study, priate methodology for assessing the economic de- Tuan and Navrud (2007) applied both CVM and sirability of a cultural heritage investment project, DCM to estimate the social benefits derived from as for any other project, is a cost-benefit analysis the restoration and preservation of the same heri- (CBA) in which the aggregated present value of tage site, the My Son complex of religious temples the net benefits yielded by the investment project in the Quang Nam province of central Vietnam. is compared to the present value of the project’s They found that both methods produced very simi- capital costs. When undertaken ex ante, the im- lar willingness-to-pay estimates, a result that the au- pacts of the project—and therefore the project’s thors interpreted as a test of convergence validity. costs and benefits—are estimated by constructing and comparing a future hypothetical scenario with Earlier examples of the empirical evaluation of the project against a future hypothetical scenario the non-market benefits of cultural heritage using without the project. When undertaken ex post, the various methodological approaches include studies economic analysis of the project’s impacts are esti- by Mourato and Danchev 1999; Kling et al. 2000; mated by comparing the current situation as it now Santagata and Signorello 2000; Pollicino and Mad- exists (with the project) with a constructed hypothet- dison 2001; contributors to Navrud and Ready ical scenario which it is assumed would have existed 2002; and Salazar and Marques 2005. All of the had the project not been implemented (sometimes studies discussed in this section demonstrate that referred to as a counterfactual). cultural heritage restoration and preservation con- tribute significantly not only to human welfare but However, a serious constraint on any attempt to un- also to economic activities and financial sustainabil- dertake a comprehensive ex post CBA is likely to ity of local authorities. be a lack of data to make possible the identification of the full range of market and non-market ben- 2.3 An Empirical Framework for efits and costs over every year previous to and since Analysis project implementation. In these circumstances, a The present study applies the analytical approaches more practical approach may be to assemble a set deriving from the economics of cultural heritage, as of indicators of the economic impacts of the proj- discussed above, to identifying and measuring the ect, in which an indicator is defined as any statistic economic impacts of the cultural heritage invest- that bears on some aspect of the possible economic ment projects undertaken in the old town centers effects of the project. Because the cultural impacts of Tbilisi and Skopje respectively. In both of these of the project are likely to be an important consider- centers, there has built up over a long period a stock ation affecting the post-project sustainability of the Investment in Urban Heritage 9 investment, a set of cultural indicators can also be markets for cultural goods and services, compiled. Indicators do not impose stringent data churches, mosques, shrines, archaeological demands because their measurement and coverage sites, heritage buildings or sites open to the can be tailored to suit whatever data are available. public, and cultural centers â– â–  Public and semipublic authorities such The following sections outline an approach to eval- as municipal or local government, and uating the impacts of cultural heritage investment regional and national government by considering first the sorts of economic indicators that are relevant to the evaluation, followed by a dis- â– â–  Heritage experts with a professional interest cussion of selected cultural indicators. The section in the project outcomes from a cultural then summarizes the methodology that can be ap- perspective. plied if a more formal ex post cost-benefit analysis of a particular project were to be possible. In some cases, it may not be possible to determine indicators that relate to all potential stakeholders, 2.3.1 Overall Considerations but it would be expected that at least those con- (i) Stakeholders sidered to be the major beneficiaries of the project The first step in considering which indicators might (and, if necessary, the major groups adversely af- be sought in any given case is to identify who might fected) should be covered. have some interest in the heritage rehabilitation program, and who were or are its intended and/ (ii) Counterfactuals or actual beneficiaries. The range of stakeholders is The impact of a project must be judged in marginal likely to include some or all of the following: terms, that is, the additional net benefits yielded over and above what would have been expected to â– â–  Commercial businesses located in the happen had the project not been undertaken. To target area (the area where the heritage have a benchmark for assessing changes in econom- assets are located that were the object of ic variables brought about by the project, two ap- the investment) such as shops, restaurants, proaches are possible, both of which might be used hotels, guest houses, and tour and transport in a particular case. operators â– â–  Commercial businesses located elsewhere, First, indicators can be measured for time peri- for example, in other parts of the urban ods both before and after project implementation. area Before-project trends, in particular, can be used to judge likely post-project trends that can then be re- â– â–  Residents, employees, and trades people in moved from post-project data to obtain an indica- the target area tion of the net change attributable to the project. â– â–  Residents, employees, and trades people in Alternatively other data may indicate trends that the urban area generally can be netted out of any project-specific time series; for example, increases in tourist numbers in a tar- â– â–  Tourists, both domestic and foreign get site may be moderated by reference to growth â– â–  Public and nonprofit cultural institutions, in tourist numbers in the city or country as a whole. enterprises, or nongovernmental organiza- tions in or near the target area, such as Second, as a counterfactual, a control site might museums, galleries, theaters, cooperative be found in an area in the city or in another city 10 Urban DEVELOPMENT SERIES – knowledge paperS that has similar characteristics to the target site in around its heritage-related objectives would be a all respects except for the fact that heritage invest- valid approach. ment has not been undertaken there. In these cir- cumstances, it can be inferred that trends in relevant 2.3.2 Economic Indicators economic indicators, as experienced in the control site over the period of time since the project in the (i) Examples of Indicators target site was undertaken, are indicators of what The primary economic impacts of an investment the trends in the same variables in the target site project in urban cultural heritage are likely to re- would have been if the project had not been imple- late to the generation of new or additional outputs mented. For example, if employment in the target of cultural goods and services. The goods involved site rose by 10 percent in the period following the might include traditional works of art or craft such project, and over the same period employment in as paintings, ceramics, jewelry, leatherwork, and the control site rose by 3 percent, the net increase fabrics, while cultural services are those provided by in employment in the target site due to the project museums, galleries, performing arts venues, cultural could be assessed at 7 percent, assuming everything sites, cultural festivals, and so on. Relevant indica- else was constant. tors covering these aspects of the economic impacts of a project may thus include (iii) Heritage Versus Non-heritage Components â– â–  volume or value output of goods and It is notable, and of special interest to the interna- services; tional community, that this assessment centers on investment in cultural heritage. In other words, the â– â–  gross or net revenues, or profitability of investment under study here is not just in a conven- affected businesses; and tional urban improvement project involving upgrad- â– â–  visitation/revenues to museums, cultural ing or renewal of water supply, sewerage, housing, sites, and events. transport, or other infrastructure, but rather is one in which rehabilitation of the cultural heritage in the city is the driver of urban development. In view of the significance that generally is attached to tourism as a revenue source to justify this sort of Some heritage projects focus solely on the restora- investment, a series of tourist-specific indicators is tion and maintenance of the heritage assets them- likely to be relevant, including selves; others may include associated nonheritage â– â–  overall number of tourists visiting the area; components -- for example, infrastructure renewal in the target area to improve the area’s livability. In â– â–  number of visitor nights in accommodation these circumstances, it may be impossible to distin- facilities such as hotels, guest houses, and guish between the separate impacts of the heritage bed-and-breakfast establishments in the and nonheritage components of the project. None- target area and beyond; and theless, it still would be appropriate to regard the project as a single entity for the purpose of gauging â– â–  tourist expenditures. its impact; project design is likely to have foreseen the fact that the various components would be in- It would be appropriate to distinguish as far as terrelated and thus support each other, such that possible between foreign and domestic visitors in regarding the project as a complete package built specifying the above indicators; further division of domestic tourists into locals and out-of-town visitors may also be necessary. m Investment in Urban Heritage 11 In addition to the contribution to output growth in the government caused by the existence of the urban economy, policy-makers are usually concerned project and its aftermath. with employment, in particular with job creation and skill transfers. Appropriate indicators may include There may also be changes in staffing levels and â– â–  numbers of employees in different types of structures in different areas of public administration businesses; brought about by the project. â– â–  wage and salary levels; (ii) Measurement of Indicators â– â–  improved training and skill development; Some indicators discussed above can be derived and from secondary data sources such as official statis- â– â–  labor migration issues such as inflow of tics; others must be gathered as primary data. In the workers from other areas. latter case it is necessary first to identify the prin- cipal stakeholders of interest, and then to design Indicators relating to real estate prices and rentals survey questionnaires to be administered to random in the target area must be treated with caution. It samples drawn from a particular group and/or to is necessary to distinguish, in principle at least, be- conduct structured interviews with representative tween increases in property values and associated personnel from the group. Businesses that partici- rental rates that arise as a purely pecuniary effect pate in such a survey may be asked to provide details resulting from short-term increases in demand, and of growth in output, revenue, turnover, staffing lev- increases reflecting the capitalization of longer term els, and other indicators over the period since before real improvements in value driven by prospects of future productivity growth. the heritage project was implemented. A heritage investment project may act as a stimu- The use of sample surveys to collect past time-series lus to further investment. Relevant indicators may data is subject to the problem that respondents may include not have kept accurate records over time, or may â– â–  further investment in heritage rehabilitation not be able to recall past events clearly. Thus it may by public or private donors, lending institu- be impossible to gather data for a complete series. tions, aid agencies, and so on, induced Instead respondents may need to be given an alter- directly or indirectly by the existence of the native, by asking them to supply items of data for original project; a “before-projectâ€? year and a “post-projectâ€? year â– â–  investment in business expansion by (probably the present) rather than the full annual private-sector enterprises in the target area series. or beyond; and 2.3.3 Cultural Indicators â– â–  new business start-ups. A heritage investment project will have cultural im- pacts that parallel the economic impacts described Finally, one can point to a range of indirect indica- tors relating to public-sector revenues and expendi- above. As well as being important in its own right, tures affected by the project. These may include the cultural significance of the heritage resource (whose care was the project’s original motivation) is â– â–  changes in local tax receipts; and likely to be important in ensuring the sustainability â– â–  changes in budget outlays by local of the project in the post-completion period. 12 Urban DEVELOPMENT SERIES – knowledge paperS The cultural benefits flowing from a heritage project perts are by no means irrelevant, the focus of an can be described as an increase in the cultural value impact evaluation such as the one under discussion embodied in or generated by the site in question. here should properly be the effects as judged by the Measurement of cultural value is problematic in the full range of stakeholders, among whom heritage economics of heritage because no convenient unit professionals are just one group. Accordingly, it is of account is available that can be interpreted in the appropriate to assess the extent to which individu- same way as a monetary metric is used for represent- als actually perceive benefits to themselves and the ing economic value. In practical terms, this means community from heritage-related urban renewal. that it is necessary to rely on indicators, in this case These benefits, if they exist, may have a significant any piece of quantitative or qualitative information economic dimension if they are translated into posi- that compares pre- and post-project assessments of tive willingness to pay (WTP) for continued heritage any cultural dimension of the project’s effects. conservation. Cultural benefits accrue as 2.3.4 Ex Post Cost-Benefit Analysis â– â–  Immediate benefits to local residents and As noted earlier, ideally, a full retrospective cost- visitors arising through increases in benefit analysis (CBA) of a heritage project should â?? â?? aesthetic values—improved visual be undertaken if a comprehensive view of its eco- environment; nomic impacts is to be obtained. Applying standard â?? â?? symbolic values—contribution of CBA methodology to a cultural project is, in prin- heritage to sense of identity; ciple, no different from applying it to any capital â?? â?? social values—increases in community investment project, although the detail of what is cohesion/tolerance/diversity/dialogue; included will be specific to the cultural heritage- and related nature of the project. â?? â?? educational values—usefulness in educating people about the past. As with any rigorous investment appraisal using â– â–  Long-term benefits for present and future CBA, the extent of the economy to which it relates generations arising from the conservation must be defined. An analysis applied in an urban of heritage through setting may take the urban or regional economy as â?? â?? preservation of buildings/objects for its base; in this case, financial and resource flows posterity; in and out of the region relative to the rest of the â?? â?? maintenance of traditional skills, rituals, country or the rest of the world must be identified. and cultural customs; For most World Bank projects, the primary focus is â?? â?? increased understanding of likely to be on the national economy, meaning that architectural/archaeological significance input and output movements between the project and scientific values for research; and area and the rest of the country are regarded as â?? â?? promulgation of narratives of identity transfers, and the only benefits of interest are those and intercultural dialogue. that can be counted as net additions to national output, incomes, exports, and other variables of in- There is some debate in the academic literature terest. Nevertheless, the objectives of some projects regarding whose judgment should count in the as- might include the revitalization of a depressed re- sessment of the cultural significance of heritage— gion by bringing unused or underutilized resources those of experts or those of the general public. In into productive use; in such cases, the regional- and the present context, while opinions of heritage ex- national-level effects would need to be distinguished. Investment in Urban Heritage 13 In the standard CBA framework, the present value (iii) Indirect, Induced, or Secondary Benefits of the time stream of benefits generated by the proj- Some proportion of the increased incomes resulting ect is compared with the present value of the time from an investment project is likely to be respent, stream of costs to calculate the net present value generating further rounds of respending through of the investment project. For a cultural heritage the economy. These impacts can be summarized investment, the main components of the CBA are as multipliers. Their effects can only be included as a net regional or national benefit under certain outlined in the following sections. conditions. It is usually assumed, for example, that investment in an alternative project would gener- (i) Capital Costs ate similar multiplier effects. Thus, in comparing Project financing generally comes from several project A with project B, it would be valid only to sources, including the World Bank, the national count additional multiplier effects as a net benefit government, and aid donors, among others. The if it were known that the multiplier values were important elements to be included as capital costs greater in one case than in the other. For example, include all such amounts, together with any directly sometimes it is claimed that tourism multipliers are induced follow-on investments in the target area greater than those of other activities, and employ- that have contributed to generating the impacts ment multipliers flowing from investments in the cultural sector are occasionally thought of as being to be measured. The final capital cost used in the greater than those in other sectors because of the analysis should be an aggregate of all these invest- high labor content of most cultural production. The ments; any incurred after the project’s commence- use of multiplier effects in particular empirical situ- ment date should be discounted to the initial year ations will vary from case to case depending on the (year zero) using an appropriate discount rate. individual circumstances. Economists have pointed to a wide range of circumstances under which the (ii) Direct Benefits use of multipliers is inappropriate. The main direct economic benefits of a cultural heritage investment project are likely to encompass (iv) Public-Good Benefits/Externalities a range of effects, including It was noted earlier that the non-market benefits arising from a heritage project are likely to be signif- â– â–  increased net value of output of cultural icant; accordingly, it is appropriate to include them goods such as artifacts, handicrafts, and in any comprehensive analysis of a project’s costs other objects for sale, and of cultural ser- and benefits, assuming their value can be measured. vices such as admissions to cultural sites; These benefits arise as public goods enjoyed in vari- â– â–  increased net value of services to local resi- ous ways by businesses, residents, and visitors both in the target area and in the wider urban environment. dents and businesses through improvements They may be related directly to the heritage assets in amenity provided by the heritage project; themselves, or they may derive from a more general â– â–  increased net value of associated goods sense of improved amenity as a result of the project. and services whose output is increased as a In the former case, the non-market demand is likely result of the project; and to be based on perceptions of the existence, option, and bequest values of the heritage in question. In â– â–  value placed on previously underutilized the latter case, the increased liveability is likely to be resources brought into productive use as a more diffuse in its origins; some of it might simply result of the project. reflect the casual enjoyment of passers-by, in which 14 Urban DEVELOPMENT SERIES – knowledge paperS case it could be classified as a beneficial externality of the estimated costs and benefits based on numbers rather than strictly as a public good. Whatever the from earlier studies carried out elsewhere. source of these benefits, however, the demand for them can be assessed as willingness to pay among There have been few applications of benefit trans- the relevant group of stakeholders. fer methods to the evaluation of cultural heritage. This is partly because there are insufficient reliable The standard approach for measuring the demand primary valuation studies in this area from which for public goods is to use contingent valuation or transfer estimates can be made, and partly because choice modeling methodology, involving the design the apparently wide variability of monetary values of a questionnaire to be administered to a group of obtained for cultural projects makes the derivation of stakeholders through a sample survey. The extent to precise estimates for transfer hazardous (Riganti and which respondents perceive the benefits in question Nijkamp 2007; Provins et al. 2008; Tuan et al. 2009) is usually assessed by establishing their agreement or disagreement with a series of statements describing (vi) Aggregation of Results the relevant effects. The nature of their demand is The first stage of any ex post cost-benefit analysis is then established through questions about their will- to place the data collected under the above headings ingness to pay via some appropriate payment ve- into the standard appraisal format. This allows cal- hicle, such as an increase in their tax payments or a culation of the conventional statistics that indicate contribution to a voluntary fund. An aggregate ben- the economic viability or other aspects of the proj- efit can be calculated for the entire population of ect, including net present value, the benefit-cost ra- the regional or national economy by using the mean tio, internal rate of return, and payback period. For willingness to pay, given the assumptions about the the calculation of present values, an appropriate dis- sample from which the mean was derived. count rate must be chosen which would normally be the standard rate used in Bank project evaluations; (v) Using the Benefit Transfer Methodology however, it might be advisable in the case of cultural Benefit transfer methodology has been used in envi- heritage projects to use a somewhat lower rate than ronmental economics to estimate economic values of normal in view of the noncommercial nature of some environmental goods or services by transferring avail- of the projects’ benefits and the extended period over able information from studies already completed in which the benefits can be expected to accrue. other sites and using these values, moderated if nec- essary, to apply to the problem under examination. 2.4 Conclusion The benefit transfer methodology is often used when As noted earlier, the actual methodology that can be it is too expensive or there is too little time available applied in any retrospective economic impact anal- to conduct an original valuation study, yet some mea- ysis of a cultural heritage investment will be deter- sure of benefits is needed. mined by the availability of data. In many cases, it is probably not feasible to carry out a fully articulated The benefit transfer methodology will never yield ex post cost-benefit analysis along the lines described better estimates than original (primary) studies. How- above. Nonetheless, a compilation of the types of in- ever, it may quickly provide some estimates which dicators discussed earlier should be able to provide a may be sufficient to make some decisions. If the origi- useful picture of the project’s effects, assuming that nal studies from which benefit or cost numbers are data relating to at least the most important impacts being transferred are not good or reliable, then the can be captured. Given the likely significance of methodology will not yield reliable estimates of the non-market benefits in the overall pattern of heritage costs and benefits for the site under study. A key ob- project impacts, particular attention should be paid jective should therefore be to increase the reliability to measuring them if possible. Investment in Urban Heritage 15 The Economic Impacts of a cultural Heritage Project: Skopje, FYR Macedonia 3.1 FYR Macedonia: Geography and official unemployment figure is estimated to have   Fig. 3.1 Economy reached nearly 35 percent. However, as the world Map of FYR Macedonia With the collapse of the former Yugoslavia, the economy recovers from the financial crisis that be- market available for Macedonian goods shrank gan in 2008, FYR Macedonia is expected to gen- from nearly 70 million people to its current domes- erate high economic growth, benefiting from its tic market of 2 million. Coupled with the unrest in relatively low costs of production. Kosovo, and an embargo levied by Greece over its claim to the name of Macedonia, the 1990s were a 3.2 Project Background very difficult time for FYR Macedonia. In 2000 the Government of Macedonia asked the World Bank for assistance in improving the manage- The first decade of the 2000s showed positive eco- ment and conservation of its cultural assets. These nomic results, as shown by data from the World resources were deteriorating due to lack of invest- Bank and government sources. Growth averaged 4 ment in their conservation and management, over- percent per year during 2003–2006 and 5 percent reliance on the public sector to maintain them, and per year during 2007–2008. FYR Macedonia has lack of experience in transforming these resources sustained economic stability with depressed infla- into marketable assets. In an attempt to improve its tion rates, but it has so far lagged in attracting for- operations and as part of the overall public-sector eign investment and creating jobs, despite making restructuring process, the Ministry of Culture re- extensive financial- and business-sector reform. The duced the number of staff in 1999, thereby ad- 16 Urban DEVELOPMENT SERIES – knowledge paperS dressing pressing financial matters. However further for priority investments, conservation measures, improvement was needed, notably in building the and local-level capacity building including teaching institutional capacity of the Ministry, which did not business management skills. The second component have the tools and resources necessary both to pro- was dedicated to building the capacity of the Min- tect and to market its national heritage. istry of Culture and its six Institutes responsible for the protection of cultural heritage. In addition to From the Bank’s perspective, however, it was es- making the national inventory of cultural sites more sential that investments target poverty reduction. operational and supporting the formulation of an Consequently, rather than emphasizing cultural effective cultural strategy, this component focused heritage conservation per se, a community develop- on assessing the handicrafts and tourism sectors, ment dimension was introduced that encouraged and on developing an action plan for each to im- the use of cultural assets as an engine for private- prove their performance in a market economy con- sector growth. As a result, in May 2001, the Bank text. approved a credit in the amount of US$5 million (equivalent) for the Community Development In the original design of the project, Skopje had and Culture Project in the FYR Macedonia. The not been included as a beneficiary entity. However, project aimed to establish conditions that facilitate about halfway through the project, a decision was community-based socioeconomic development by made to conduct improvements in the area of the leveraging the country’s cultural assets (an untapped Old Town of Skopje known as the Old Bazaar for resource) to create culture-based industries (notably several reasons. For one thing, it provided visible ev- handicrafts and community-based tourism) in areas idence of the project’s implementation in the most adjacent to cultural heritage sites, while improving densely populated city and most important adminis- the management of cultural assets. trative center of FYR Macedonia. In addition, it was thought that project interventions would improve The primary monetary benefits of the project were security perceptions in a neighborhood traditionally expected to come from increased tourist visits and populated by a majority of ethnic Albanians, revive expenditures on food and lodging (for example, new the city center suffering from noticeable emigration bed-and-breakfast establishments serving tradition- as a repercussion of the 2001 conflict, and maintain al cuisine), new activities (for example, guided mon- the multicultural quality of Skopje while enhancing ument tours), and new or revived production and peace-building efforts. sale of handicrafts and local products (for example, wood carving, engraving, knitting, leatherwork). The World Bank project was key to raising stake- Visits by both domestic and international tourists holders’ awareness of the cultural resources in this were expected to increase as site management plans part of the city. In the succeeding years, this has re- were put in place and site promotion was enhanced. sulted in a wide range of new activities financed by national and municipal entities as well as by other The project essentially comprised two interlinked donors that stimulated the private sector and re- components designed to reinforce one another. The vived small retail and commercial enterprises, nota- first component intervened at the local municipal- bly in the hospitality sector. ity level, while the second targeted national cultural institutions. The first, the Integrated Site Develop- 3.3 Methodology ment component, was designed to develop sets of The economic impact analysis was undertaken to cultural industries in communities possessing assets identify the socioeconomic benefits arising from the of cultural importance; financing was earmarked investments in cultural heritage in the target area Investment in Urban Heritage 17 of the Old Bazaar in Skopje. Some background As noted earlier in this report, a control site (serv- data were collected from various government and ing as a counterfactual) was required as a baseline municipal sources, but the primary data for this from which to assess changes in the target site. Ide- project were derived from field research involving ally this should have been an alternative site that the conduct of a series of sample surveys adminis- was similar to the target site in all respects at the tered to selected groups of stakeholders, as well as project commencement date, and that had not ex- in-depth interviews with representatives from the perienced any heritage investment in the period municipalities, museums, and cultural protection under study. No such site could be found anywhere organizations. in Skopje, so it was necessary to look elsewhere. The control site chosen was the Old Bazaar in To gauge the impacts of the investments, data Prilep, a city of approximately 75,000 inhabitants were collected covering periods before and after located about 125 kilometers (80 miles) from Sko- the project dates. In some instances, time series pje. The Prilep Old Bazaar is quite similar in size, covering the period before and after the project’s character, and usage to its counterpart in Skopje, starting date of 2005 were available, but in most but there has been no significant investment there cases full-time series could not be obtained. Thus, in restoring its heritage assets. Maps of the Old it was necessary to rely on (a) identifying a given Bazaars in both Skopje and Prilep are shown in date just prior to the rehabilitation to indicate the figures 3.2 and 3.3, respectively. pre-project situation, and (b) assuming that the current period was representative of the post-proj- ect circumstances (see further below). Fig. 3.2 Map of the Old Bazaar in Skopje Skopje Old Bazaar Contact zone “Dukandzikâ€? Contact zone “Mavrovkaâ€? Contact zone “Skopska tvrdinaâ€? (Skopje Fortress) Contact zone “Mostâ€? (Bridge) 18 Urban DEVELOPMENT SERIES – knowledge paperS Fig. 3.3 Map of the Old Bazaar in Prilep Prilep Old Bazaar Contact zone south Contact zone north Contact zone “Mala Carsijaâ€? (Small bazaar) Contact zone “Kejâ€? Contact zone “Pazarâ€? (Bazaar) 3.4 Stakeholders â– â–  Restaurants, cafés, souvenir shops, hand- Investment in rehabilitating the cultural heritage of crafts and jewelry makers the Skopje Old Bazaar can be expected to have had â– â–  Hotels, guest-houses, hostels impacts on several groups of stakeholders, including â– â–  Museums, galleries, exhibition halls â– â–  Domestic and foreign visitors. â– â–  Commercial businesses such as shops, restaurants, cafés, and hotels in the Old In the surveys of businesses in the first two of these Bazaar area categories, a random sample was used, stratified â– â–  Cultural organizations such as museums, to ensure sufficient representation of each type of mosques, and churches business. The questionnaires were designed to es- â– â–  Residents in the Old Bazaar area and in tablish the following indicators for before and after Skopje more generally the heritage rehabilitation: â– â–  Tourists and visitors from elsewhere in FYR Macedonia and from other countries â– â–  Customer numbers â– â–  Public and semipublic authorities, and â– â–  Revenue or turnover nongovernmental organizations. â– â–  Employment â– â–  Wage levels Taking into consideration the characteristics of the â– â–  Property and rental prices project site and the expected range of project ben- â– â–  Business expansion plans eficiaries, the surveys carried out to obtain primary â– â–  Perceived cultural benefits of the heritage data for this project focused on collecting informa- investment. tion from samples drawn from four separate stake- holder groups: Investment in Urban Heritage 19 For museums and galleries, information was col- past years or to recall distant facts and figures. In lected on some institutional characteristics as well as the present case, it would have been ideal to have data for before and after the rehabilitation on been able to compile an annual time series of major indicators for the businesses over a roughly 10-year â– â–  visitor numbers; period (2000–2010). Although the templates for the â– â–  employment and salaries; and questionnaires allowed for annual data series to be â– â–  admission prices. supplied, it was necessary to give respondents an al- ternative; instead of filling in figures for each year in In regard to domestic and foreign visitors to the the period, respondents could fill in only a figure for sites, the random sampling was carried out in dif- one specific base year. The “base yearâ€? was defined ferent areas of the site on different days. In these as any year in the period before restoration of the surveys, the questionnaire sought information on cultural heritage in the Old Bazaar in Skopje. The â– â–  perception of the cultural value of the base year could be the year of the establishment of heritage improvements; the business, the year of starting the business in the â– â–  willingness to contribute financially to target area, the year of renovating facilities and/or further heritage conservation work in the purchasing equipment, or any other specific event area and, if so, how much. before 2005, the year in which the district was reno- vated. In the case of the control site, the base year 3.5 Time Period Covered was defined as simply pre-2005. The team conduct- The use of sample surveys to collect data covering ing the interviews clearly explained these options to a long period of time is subject to the problem that respondents. respondents may not be able to access records from   Skopje 2000 20 Urban DEVELOPMENT SERIES – knowledge paperS Old Bazaar, Skopje, 2010 3.6 Capital Costs of the Heritage zaar, conservation and restoration of several individual buildings and monuments, and some infrastructure Rehabilitation works. A summary of these investments is given in ta- 3.6.1 Bank Investments ble 3.1. Although it may not be valid to attribute all of The total amount of financing for the Commu- this flow-on investment to the stimulus provided by the nity Development and Culture Project in the For- Bank project, there can be no doubt that, as the initial mer Yugoslav Republic of Macedonia at the close driver of heritage-based urban renewal in the Skopje of the project in 2005 was approximately US$5.9 Old Bazaar, the Bank played a crucial role in setting million: US$4 million from the World Bank, with the scene for further development. the remaining contributions coming from the gov- ernments of the Netherlands and FYR Macedonia. Moreover, the stimulus continues to have an impact, Of the total project funding, the amount directed to with further projects scheduled in the area in 2011– works in the Skopje Old Bazaar that are the subject 2013. Restoration projects will be carried out during of the present study was US$311,899. that time at several sites in the Old Bazaar, financed by the Macedonian government, the European Union, 3.6.2 Flow-On Investments and other authorities. As noted above, the World Bank project that provided the initial financing for cultural heritage rehabilitation It should be noted that the rehabilitation of cultural in the Skopje Old Bazaar was completed in 2005. In heritage in the control site in Prilep has not been en- each of the subsequent years, further heritage invest- tirely neglected over the period covered by this study, ments totaling almost US$2.5 million have been made although the amounts of investment are small. In the in the area by a range of organizations and institutions. year 2000, the Municipality of Prilep financed the These investments included funding for reconstruction restoration of a plaza and monument, and in 2008– in one of the most important streets in the Old Ba- 2009 it made further infrastructure improvements in Investment in Urban Heritage 21 the area, all of which totaled less than US$241,000 as tourism earnings contributed just over 3 percent of the shown in table 3.2. In parallel with this public-sector gross domestic product (GDP) in 2010. In September investment, there has also been some private invest- 2010, the country recorded tourist numbers of almost ment in the reconstruction and revitalization of old half a million, comprising 43 percent foreign visitors handicraft shops. Overall, however, it can be conclud- and 57 percent domestic. Foreign tourists tended to ed that the amount of activity has not been sufficient stay only a relatively short time during that month, av- to affect the usefulness of the Prilep Old Bazaar as the eraging only around two nights per person compared control site for the present study. to almost five nights for domestic tourists. 3.7 Tourism Impacts In regard to tourism in Skopje itself, the number of 3.7.1 Tourism in the Macedonian Economy visitors has fluctuated over time. Table 3.3 shows the In common with most heritage investment projects number of visitor nights spent in the capital from financed by the World Bank, a significant economic 2005 to 2009. Foreign tourists predominated and justification for the Macedonian cultural development their numbers increased sharply in 2008 and 2009 project was the prospect of increased revenue from compared to earlier years. These data provide the tourism. The tourism industry plays only a relatively context in which the survey results of this study can small part in the Macedonian economy as a whole; be interpreted. Total amount Table 3.1 Year of of investment Total US$ Non-Bank Nature of investment investment Donor/Investor (incl. VAT) Currency equivalent Investments in Cultural Heritage Heritage 2006 USAID 118,000 USD 118,000 Restoration in Infrastructure 2006 ANVPAH & VSS 20,054 USD 20,054 the Old Bazaar in Heritage 2007–2009 ANVPAH & VSS 11,000 EUR 14,706 Skopje: 2006–2010 Heritage 2007–2010 TIKA 1,500,000 EUR 2,000,000 Heritage 2008 Municipality of Chair 40,000 EUR 53,478 Infrastructure 2009 IPA 112,000 USD 149,739 Heritage 2009–2010 US Embassy 54,000 USD 54,000 Heritage 2010 Handicrafts Associations 25,000 EUR 33,424 Total: 2,443,401 Notes: ANVPAH & VSS: Association Nationale des Villes et Pays d`Art et d`Histoire et des Villes à Secteurs Sauvegardes et Protégés. TIKA: Turkish Government Agency. IPA: European Union Funds for Pre-assistance Total amount Table 3.2 Year of of investment Total US$ Non-Bank Nature of investment investment Donor/Investor (incl. VAT) Currency equivalent Investments in Cultural Heritage Cultural heritage 2000 Municipality of Prilep 33,000 EUR 44,112 Restoration in the Infrastructure 2008–2009 Municipality of Prilep 74,000 + 73,000 EUR 196,533 Old Bazaar in Total: 240,645 Prilep: 2000–2010 2005 2006 2007 2008 2009 Table 3.3 Number of Nights Domestic 35,341 34,366 35,133 31,155 31,503 Spent by Tourists Foreign 166,639 161,308 187,541 227,096 215,052 in Skopje Total 201,980 195,674 222,674 258,251 246,555 22 Urban DEVELOPMENT SERIES – knowledge paperS 3.7.2 Tourism in the Skopje Old Bazaar in the off-season, although the off-season numbers There are no separate official data on the numbers are consistently less than in-season numbers. Some of tourists specifically visiting the Old Bazaar, al- part of the annual increase is explained by the in- though it can be assumed that, because it is a major creased numbers of foreign visitors to the city as a cultural site in the city, many if not most tourists whole over the period under study; these numbers would visit it at some time during their stay. De- have risen by roughly one-third over this period, as spite the lack of official data, one can nevertheless can be inferred very approximately from the data in gain some impression of tourism impacts on the table 3.3. Table 3.4 also shows the average daily ex- Old Bazaar because respondents to the surveys of penditure of foreign visitors per business enterprise businesses in this study were asked to distinguish both before and after the rehabilitation. The daily between domestic and foreign customers when pro- amounts do not vary between the in- and off-season. viding data on visitor numbers and expenditures. There is evidence of some improvement in nominal These data are mainly relevant to foreign tourism terms in Skopje; note that the large increase in Pri- impacts because the category “domesticâ€? included lep comes off a low base. both residents of and visitors to Skopje, although the pedestrian survey data indicate that most of the Overall, it is not unreasonable to conclude from domestic visitors were locals. these results that the improved conditions for tour- ism in the Skopje Old Bazaar have had a positive The number of foreign visitors to restaurants, ca- net impact on the numbers of foreign tourists and fés, and shops in the Skopje Old Bazaar appears to on their expenditures in the area. Because of its have almost doubled in the period since the reha- heritage characteristics, the site is currently featured bilitation works, as shown in table 3.4. By contrast, prominently in tourist guides to Skopje, and foreign the numbers of foreign visitors in the control site in visitors are drawn there by the social ambience of Prilep declined marginally over this time. Much of the locality and the cultural experiences it offers. the tourism growth in Skopje Old Bazaar has arisen Table 3.4 Skopje Old Bazaar Prilep Old Bazaar Foreign Tourists Visiting Restaurants, Pre-2005 Post-2005 % change Pre-2005 Post-2005 % change Cafés, Shops Before/ Number of foreign tourists per business per day After 2005 (1) In-season Minimum 5 10 – 4 5 – Maximum 25 35 – 22 20 – Mean 13.7 21.6 58 11.5 10.4 -10 (2) Off-season Minimum 1 5 – 1 1 – Maximum 15 45 – 3 4 – Mean 5.5 15.4 180 2.1 2.2 Average for yeara 9.6 18.5 93 6.8 6.3 -7 Mean daily expenditure (USD) b 24 37 28 16 31 94 Note: a. Assuming in-season and off-season are both six months b. Daily expenditure was the same in-/off-season For explanation of the time period covered in this and subsequent tables, see text. Investment in Urban Heritage 23 3.8 Impacts on Businesses: were the pleasant environment, the availability of Restaurants, Cafés, and Shops handicraft products, and the proximity to cultural 3.8.1 Customer Numbers and Expenditures monuments. It is thus apparent that the site’s cul- The daily number of customers per business estab- tural heritage must be having a positive influence lishment in the Skopje Old Bazaar has increased by on the economic circumstances of these businesses. about 50 percent in the period since the heritage rehabilitation, as shown in table 3.5. Numbers in 3.8.2 Employment Effects the off-season were less than in the busier times of Has the heritage investment in Skopje had any ef- year, but the seasonal difference appears to be di- fect on job creation and on wage and salary levels minishing over time. Daily customers to businesses for workers in businesses in the area? It can be ex- in the control site in Prilep show the same pattern of pected that the expansion in business activity over seasonal variation, but numbers have increased very the period since rehabilitation, noted above, will in- little over time. Daily expenditures by both locals deed have had some positive effect on employment. and foreigners in Skopje have been broadly similar, This expectation is confirmed by the data in table with similar rates of growth. Combining the data 3.6, which compares the years defined in the data for increased customer numbers and increased ex- collection process as “pre-projectâ€? with the situation penditure per customer during the study period sug- at the time of the survey in 2010. There has been gests that daily turnover of businesses in the Skopje an expansion in staffing levels that is more or less Old Bazaar increased in nominal terms by about 80 commensurate with the increase in business activity percent in this period. since the heritage rehabilitation. Employment in the control site in Prilep has increased in the same time When businesses were asked what they thought but by a much smaller percentage. Likewise wage were the main reasons why visitors came to the Old and salary levels in the Skopje businesses have risen Bazaar in Skopje, the three most frequent responses in nominal terms more rapidly than in Prilep. Note Skopje Old Bazaar Prilep Old Bazaar Table 3.5 Visitors (Foreign Pre-2005 Post-2005 % change Pre-2005 Post-2005 % change and Local) to Number of visitors per business per day Restaurants, (1) In-season Cafés, Shops Before/After 2005 Minimum 15 25 – 14 20 – Maximum 70 95 – 57 55 – Mean 41.5 57.9 40 37.7 38.9 3 (2) Off-season Minimum 6 15 – 12 12 – Maximum 50 60 – 37 42 – Mean 21.4 37.9 77 26.3 28 6 Average for yeara 31.5 47.9 52 32.0 33.5 5 Mean daily expenditure (USD)b Foreigners 24 37 28 16 31 94 Locals 25 33 32 16 26 63 Note: a. Assuming in-season and off-season are both six months b. Daily expenditure was the same in-/off-season 24 Urban DEVELOPMENT SERIES – knowledge paperS Table 3.6 Skopje Old Bazaar Prilep Old Bazaar Employment in Restaurants, Cafés, Pre-2005 Post-2005 % change Pre-2005 Post-2005 % change Shops Before/After Employee numbers per business 2005 In-season 3.1 5.3 – 2.6 3.0 – Off-season 2.8 5.0 – 2.2 2.8 – Average for year 3.0 5.2 73 2.4 2.9 21 Average monthly wage/salary levels (US$) Managerial/admin 270 515 91 315 445 41 Service/selling staff 185 380 105 175 250 43 that businesses in both areas do not vary their staff- 3.8.3 Property and Rental Prices ing levels significantly between seasons, despite the Among survey respondents in Skopje, just over half variation in numbers of customers as noted above. of the business space is rented by local entrepre- neurs and the rest is property owned by the business. Data for individual enterprise types show that the By contrast, in the Old Bazaar in Prilep only about employment increases in Skopje Old Bazaar have one-quarter is rented space, the majority there be- come particularly from the effects of expansion of ing inherited property. These figures suggest that accommodation facilities in the three hotels located entrepreneurial dynamism is likely to have been in the area; the number of employees in these enter- somewhat higher over recent years in Skopje Old prises has risen more than fourfold since pre-2005. Bazaar, where entrepreneurs have rented space in Employment in souvenir and handicraft shops in order to develop a business and stay in the area, and the area has doubled in the same time, in response where institutional and private investors have put to increased demand for their products particularly their capital in order to make the district attractive from tourists. In the control site, by contrast, there for tourists and visitors. In contrast, the Prilep Old has been no change in the number of employees Bazaar is predominantly inhabited by residents who in souvenir and handicraft shops and only small have owned a space for generations and whose main increases in cafés and tea rooms; note that unlike occupation is related to an inherited tradition of in Skopje, there are no hotels in the Old Bazaar in handicraft activities; since the area of the Old Ba- Prilep. zaar in Prilep has not experienced much investment, entrepreneurs do not perceive it as an attractive des- Respondents to the survey of businesses were asked tination for business. It is uncertain how much of whether they had invested in improving the relevant the entrepreneurial spirit in the Skopje Old Bazaar skills of their employees since the heritage rehabili- can be traced to the improvements brought about tation. A majority of the businesses surveyed in Sko- by the heritage restoration. However, evidence on pje Old Bazaar (84 percent) indicated that they had business expansion plans discussed below suggests made such investments, whereas only about half the at least that a favorable climate for commercial ac- businesses in the control site had done so. Although tivity has existed in the area since the rehabilitation details of these skill improvements are not available, program commenced. it can be assumed that at least some will have related to the handicraft skills involved in local production A positive outlook for business is reflected in proper- of cultural goods for sale in the shops. ty values and prices for rental space. Data from the surveys together with the results of interviews with Investment in Urban Heritage 25 local personnel in both the project sites indicate sub- 3.9 Impacts on Museums and stantial growth in both property prices and rental Galleries rates in the Skopje Old Bazaar over the study pe- Three important museums located in the Old Ba- riod, compared to a largely static situation in Prilep. zaar in Skopje were surveyed as part of this study: Detailed statistics on real estate prices in the Skopje Old Bazaar area are not available, although indica- â– â–  Museum of Macedonia tive data suggest that the price rose from about 700 â– â–  Museum (Gallery) Daut Pasin Amam euros per square meter pre-2005 to about 1100 eu- â– â–  Museum (Gallery) Cifte Amam. ros per square meter in 2010. Such an increase no doubt reflects some capitalization of future returns The last two are part of the National Gallery of based on favorable growth prospects in the area. Macedonia. The numbers of visitors to these insti- tutions before and after the cultural heritage invest- ments is shown in table 3.7 where the years referred 3.8.4 Business Expansion Plans to as “beforeâ€? and “afterâ€? are 2000 and 2007, re- Business owners in the surveys in both areas were spectively. Trends in adult visitor numbers from asked whether they intended to expand their op- 2000 to 2009 (not including school children) are erations. In Skopje, 42 percent of those questioned shown in table 3.8. Substantial increases in numbers said they would like to expand, compared with 15 are apparent across all customer groups, especially percent in Prilep. The main avenues for expansion foreign visitors, responding to the improved visibility were identified as increasing staff numbers, buy- of these institutions as venues offering opportunities ing or renting additional space, or opening a new to learn something about Macedonian culture. The business. To some extent, the positive plans for the time trend shows a jump in overall visitor numbers future among businesses in the Old Bazaar may re- after 2005. Note that there is no museum in the Old flect a more general optimism about business pros- Bazaar in Prilep, although the city does have a mu- pects in the city of Skopje as a whole. Nevertheless, seum nearby which has experienced only gradual there is doubtless some effect that could validly be increases in its visitation in recent years. attributed to the heritage rehabilitation program’s impact on the Old Bazaar area. Admission prices in the Skopje museums also in- creased from approximately US$1 before the heri- tage rehabilitation to about US$2 in 2010, with Foreign Scientific School Table 3.7 tourists researchers children Local citizens Students Others Average Visitor Numbers per Year Before cultural heritage for Three Museums/ 7,000 400 12,000 5,000 1,000 300 investments (2000) Galleries in the After cultural heritage Skopje Old Bazaar 13,500 600 15,000 10,500 1,500 300 investments (2007) Table 3.8 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Numbers of Adult Local visitors 5,000 5,300 6,000 6,500 7,500 7,500 9,500 10,500 11,500 12,000 Visitors to Three Foreign visitors 7,000 7,500 8,000 8,500 9,500 9,500 12,500 13,500 14,500 25,000 Museums/Galleries in the Skopje Old Total number of visitors 12,000 12,800 14,000 15,000 17,000 17,000 22,000 24,000 26,000 27,000 Bazaar: 2000–2009 26 Urban DEVELOPMENT SERIES – knowledge paperS half-price admission for children. As in most cul- time and resource constraints, no pilot testing of the tural organizations, prices are kept as low as pos- questionnaire was possible; however the survey in- sible so as not to deter visitation. During the period strument was based on questions that were adapted studied, these organizations had expanded their from previously validated studies. Respondents were operations considerably, reflecting the substantial asked the reasons for their visit, the amount of time increase in the demand for their services. Staffing and money spent, their perception of the cultural increased from a total of 13 employees in the period value of the site, their willingness to contribute fi- before revitalization to almost 50 in 2010, with a nancially to help restore the heritage further, and corresponding increase in the organizations’ wages their sociodemographic characteristics. The sample bill. However, these increased expenditures have size for the Skopje Old Bazaar was n = 183. been offset by a substantial growth in revenues, as implied by the rising trends in numbers and prices To obtain a benchmark from an unrenovated site, a noted above. similar questionnaire was administered to a random sample of visitors to the Prilep Old Bazaar. The 3.10 Cultural Indicators sample size for this survey in Prilep was n = 42. The Implementation Completion and Results Report for the project under review (Report No. ICR000074) notes The great majority of the people visiting the Skopje that although the World Bank is not interested in cul- Old Bazaar (89 percent) were residents of Skopje, tural heritage preservation for its own sake, it is con- the remainder being domestic or foreign tourists. cerned about the instrumental value of heritage as The main reasons for their visit were social -- that is, a contributor to economic and social development. meeting friends, going to a café or restaurant, and Apart from the sorts of business enterprises consid- shopping. About 7 percent had come specifically ered above, the ultimate beneficiaries of such devel- to visit a cultural site. The mean amount of time opment are members of the immediate community spent in the area was approximately 1.5 hours and where heritage is located and others in the wider the mean level of expenditure per person was about community whose well-being is improved in some US$10. way. To understand how heritage rehabilitation can have beneficial effects on communities, it is impor- With regard to the respondents’ perception of the tant to assess the extent to which individuals actually value of heritage in the Skopje case, measuring the perceive benefits to themselves and the community cultural value of heritage is currently a matter of from heritage-related urban renewal. These benefits, particular interest in the economics of heritage. One if they exist, may have a significant economic dimen- of the most useful approaches to this task involves sion if they are translated into positive willingness to disaggregating the concept of cultural value into pay (WTP) for continued heritage conservation. its constituent elements—which might include aes- thetic, historical, symbolic, social, and educational One component of the research was aimed at assess- values—and then assessing respondents’ valuations ing these perceptions among visitors in the Skopje of these attributes. Assessment is conventionally Old Bazaar and integrating these perceptions with effected according to a Likert scale measuring the their measured WTP. This procedure was undertak- strength of respondents’ agreement or disagree- en to seek some indicative value for the public-good ment with a series of statements reflecting different component of the benefits arising from the heritage elements of cultural value as they relate to the asset investment. The survey to quantify these effects was or assets in question. In adopting this procedure in administered to a random sample of visitors in dif- the present study, the following statements were pre- ferent parts of the site on different days. Because of sented to respondents: Investment in Urban Heritage 27 â– â–  The Old Bazaar is an important part of The respondents were then asked to indicate Macedonian culture whether they agreed or disagreed. Table 3.9 shows â– â–  Restoring the Old Bazaar improves Skopje the proportions of respondents agreeing or dis- as a place to visit or live in (improvement in agreeing with each statement. Table 3.10 summa- liveability) rizes the proportions agreeing with these statements â– â–  Investing in improvements in the Old (“Strongly agreeâ€? plus “Agreeâ€?) as indicators of the Bazaar is a waste of money cultural value of heritage assets in the Old Bazaars â– â–  The Old Bazaar is a place that helps people of both Skopje and Prilep. come together (social value) â– â–  The renovated buildings of the Old Bazaar The results for Skopje in tables 3.9 and 3.10 indi- are beautiful (visual/aesthetic value) cate a positive attitude toward the heritage charac- â– â–  The Old Bazaar gives me a sense of teristics of the Old Bazaar. The role of the area and Macedonian cultural identity (symbolic value) its heritage as important elements in defining and â– â–  The Old Bazaar should be demolished and celebrating Macedonian culture is clearly implied replaced with modern buildings by the responses. Correspondingly, investing in im- â– â–  I have learnt something about my cultural provements in the area is viewed as a sound use of heritage from being here (educational resources. It appears that the strongest sense of the value). Old Bazaar’s importance derives from its cultural Strongly Strongly Table 3.9 Agree Neutral Disagree Total Perception of agree disagree Cultural Benefits by The Old Bazaar is an important part of Macedonian culture 79.2 13.1 5.5 2.2 0 100 Visitors to Skopje Restoring the Old Bazaar improves Skopje as a place to visit or live in 23.0 61.2 10.9 4.9 0 100 Old Bazaar Investing in improvements in the Old Bazaar is a waste of money 0 1.1 2.7 23.0 73.2 100 percent The Old Bazaar is a place that helps people come together 33.9 30.1 21.9 12.6 1.6 100 The renovated buildings of the Old Bazaar are beautiful 41.0 29.5 23.0 5.5 1.1 100 The Old Bazaar gives me a sense of Macedonian cultural identity 24.6 63.9 7.1 4.4 0 100 The Old Bazaar should be demolished and replaced with modern buildings 0 0 0 6.0 94.0 100 I have learnt something about my cultural heritage from being here 31.1 48.1 14.2 6.6 0 100 Skopje Old Bazaar Prilep Old Bazaar Table 3.10 Total proportion agreeing (%) Total proportion agreeing (%) Agreement with Statements about Positive statements Cultural Value of Part of Macedonian culture 92.3 83.4 Heritage in Skopje Improvement in liveability 84.2 83.3 and Prilep Visual/aesthetic valuea 70.5 – Social value 64.0 95.2 Identity/symbolic value 88.5 78.6 Educational value 79.2 59.6 Negative statements Heritage investment a waste of money 1.1 9.5 Should be demolished 0 21.5 Note: a. This statement not included in Prilep survey 28 Urban DEVELOPMENT SERIES – knowledge paperS relevance rather than from its visual appeal or its valid random sample is drawn, if necessary livability, although the latter factors are nevertheless stratified according to variables of interest; seen in a positive light. There is unanimous agree- â– â–  designing a questionnaire that provides ment among survey respondents that the Old Ba- necessary information and realistic scenari- zaar is worth maintaining and that it should not be os to respondents; demolished to make way for modern development. â– â–  including questions that yield objective data on respondents’ perceptions of the strength The value of heritage is also felt by visitors to the of the external or public-good effects under control site in Prilep, although given that it has not consideration; been subject to significant restoration, the sense of â– â–  controlling for biases in soliciting respon- its importance is somewhat more muted than for dents’ willingness to pay; and Skopje. Indeed about one in five visitors to the Prilep â– â–  specifying a feasible payment vehicle com- Old Bazaar agreed with the statement that it should prehensible to respondents. be demolished, although this still leaves a sizeable majority (76 percent) in favor of its retention. If it is Carrying out such a study requires research resourc- true that the Old Bazaar areas in the two cities were es that typically are unavailable or cannot be easily more or less comparable in character in the period mobilized in borrowing countries. In these circum- prior to the Skopje heritage rehabilitation project, stances the question arises as to whether it is pos- one can infer that the apparent increase in cultural sible nevertheless to undertake a purely exploratory value now placed on the heritage characteristics of exercise to identify whether or not any public-good the Skopje Old Bazaar compared to Prilep can be effects are perceived and, if so, whether there is a taken as a broad indication of a net positive impact positive or negative attitude toward paying for them. arising from the Skopje restoration. For the Skopje case, this study used the visitor sur- vey described above to assess respondents’ willing- 3.11 Non-market Benefits ness to contribute to further restoration work in the As noted in Chapter 3, the non-market or public- area. Altogether 90 percent of respondents said good benefits of an urban heritage restoration they would be willing to contribute; the majority project can form a significant component of the indicated an amount of up to 500 MKD (roughly economic benefits of the project. Rigorous estima- US$10), as shown in table 3.11. When visitors to tion of these benefits requires a carefully controlled the Old Bazaar in Prilep were asked a similar ques- contingent valuation or choice modeling study that tion, a smaller though still significant proportion pays attention to said they would contribute to heritage restoration â– â–  defining the population of beneficiaries; there, again with a majority of them nominating an â– â–  using appropriate procedures to ensure a amount of up to 500 MKD. Table 3.11 Proportion of respondents Visitors’ Willingness to Make a One-Time Amount willing to contribute Skopje Prilep Contribution to Zero 9.8 28.6 Heritage Restoration Up to 500 MKD 67.2 59.5 in the Old Bazaars in Skopje and Prilep 1000 MKD 16.4 11.9 percent 1500 MKD 5.5 0 More than 1500 MKD 1.1 0 Total 100.0 100.0 Investment in Urban Heritage 29 The surveys that yielded these results and those con- the management of cultural assets particularly at cerning cultural impacts discussed earlier clearly do the local level. In so doing it furthermore raised lo- not meet the strict methodological requirements of cal communities’ awareness of the economic value a full contingent valuation study. Although a mean of their heritage by demonstrating that [its] preserva- per capita willingness to pay can be calculated from tion could be efficiently associated with income gen- these data under certain assumptions (around US$6 eration.â€? The report further records internal rates of per head for Skopje and about half that for Prilep), return of between 10 and 30 percent for all but one the range of variability attaching to such estimates of the subprojects, pointing out that these rates are is so wide that they could not be used as a means of based on financial returns only and do not account deriving an aggregate non-market benefit. for non-market benefits. This assessment of overall project success can be seen to apply in all respects to Nonetheless, the results can be used as a basis for the Skopje component. Although investments were drawing at least some broad conclusions about the limited to street lighting improvements and the resto- non-market effects of the project. The question- ration of the building known as the “French Bank,â€? naires used in the surveys provide some indication of the transformation of the Old Bazaar from a largely relevant stakeholders’ perceptions of cultural ben- derelict urban core to a vibrant social space in less efits and of their willingness to contribute to further than half a decade is remarkable. heritage restoration, even if the amounts involved could not be taken as valid estimates of willingness In this study, it was not possible to carry out a com- to pay. The questions covered some important cul- prehensive ex post cost-benefit analysis of the cul- tural outcomes and were comprehensible to respon- tural heritage investment project in the Skopje Old dents. The samples, though small, were randomly Bazaar, but at least it was possible to assemble data drawn from a defined group of beneficiaries. The on several indicators of the economic impacts of results indicate an overall positive economic impact the investment. All of the indicators discussed in this arising from the project’s non-market benefits. chapter point to positive economic, social, and cul- tural benefits arising from the project, particularly As a tentative conclusion concerning the usefulness the impacts on tourist numbers and expenditures, of the empirical approach adopted here, it would which have grown significantly in comparison to the appear that a simple data-gathering exercise such control site. This is a reassuring result, given the em- as this can demonstrate with reasonable confidence phasis on tourism, and given the fact that Skopje it- whether a project delivered some level of public- self is not the most important destination for tourists good benefits and whether these benefits can be visiting FYR Macedonia (Ohrid has twice as many positively valued in economic terms. Such an ap- tourist beds as Skopje). proach, however, is no substitute for a full-scale con- tingent valuation or choice modeling study. The study findings also point to the improvement in the economic circumstances and outlook for busi- 3.12 Conclusions nesses in the Old Bazaar area. These expanded The Implementation Completion and Results Report for the commercial opportunities have resulted in increases Community Development and Culture Project in the in employment, skills, and salaries for workers in the FYR Macedonia (ICR 000074, June 12, 2007) notes site. The enterprises particularly benefitting from the that the overall project “successfully established con- heritage investment have been accommodation facili- ditions to facilitate community-based socio-economic ties as well as handicraft and souvenir shops, reflect- development by leveraging [the area’s] cultural assets ing the tourism impacts discussed above. The other to create culture-based industries, while improving businesses that have expanded operations as a result 30 Urban DEVELOPMENT SERIES – knowledge paperS of the increase in the number of visitors (both local market benefits of the project are important enough and foreign) have been cafés and restaurants. The for them to be taken seriously in weighing up the private investment in these facilities since the project’s overall economic impact of the Bank’s investment. completion is some indication of achievement of the government’s objective to use the heritage rehabilita- Altogether it can be concluded that the economic tion in the Skopje Old Bazaar as an instrument for and social effects of cultural heritage investments social change, replacing the previous unrest with a as exemplified by the Macedonian case study have sense of multicultural harmony and peace-building. been significant. The Bank played a critical role in ensuring this outcome through the immediate pay- This case study has also provided some quantita- off to its initial investment and the stimulus that that tive evidence of the cultural benefits perceived by investment provided to the further commitment of stakeholders and their WTP for heritage conserva- funds from other sources to continue the heritage tion through voluntary contribution. While there rehabilitation program. For the future, the Old Ba- were not sufficient data to estimate the aggregate zaar in Skopje has potential to grow as a site for monetary value of the benefit accruing to the Mace- business and cultural activity, with benefits for mu- donian population as a whole, one can at least say nicipal budgets, economic effects on employment, that, even on conservative assumptions, it is a sub- improvements in standards of living, growth in en- stantial amount. Of course the relevance of this for trepreneurial incomes, and expansion in business the municipal authorities depends on the possibili- opportunities, as well as considerable positive social ties for benefit capture. Suffice it to say that the non- impacts to the community at large. Aerial view of Skopje, FYR Macedonia Photo: Thinkstock.com Investment in Urban Heritage 31 The Economic Impacts of a Cultural Heritage Project: Tbilisi, Georgia   Fig. 4.1 Map of Georgia 4.1 Georgia: Geography and Economy After the Rose Revolution in 2003, a new govern- Georgia is a small country (69,700 square kilome- ment with pro-Western orientation came to power ters) located south of the Caucasus Mountains, and embarked on a large-scale mission of radical re- with the Russian Federation to the north and east, forms encompassing every sphere of public activity. Azerbaijan to the southeast, Armenia to the south, GDP growth, spurred by gains in the industrial and Turkey to the southwest, and the Black Sea to the service sectors, remained in the 9–12 percent range west (figure 4.1). The country is divided into nine in 2005–07. In 2006 and 2008, the International regions, nine cities, and two autonomous republics Finance Corporation (IFC) named Georgia the top (Abkhazia and Adjara). The country has a diverse reformer in the world. However, as a result of in- terrain and is rich in natural resources. The popu- ternational political and economic events, Georgia lation of Georgia is estimated at approximately experienced a severe economic downturn in 2008 5.0 million with the following ethnic composition: and 2009, with the real GDP rate falling to 2.3 and Georgians (83.8 percent), Azeri (6.5 percent), Arme- -4.0 percent, respectively, in those years. As a result nian (5.7 percent), Russian (1.5 percent), and oth- of the economic recession, the unemployment rate ers (2.5 percent). With net outward migration, the reached more than 16 percent in 2008 and 2009, country’s annual population is in decline (at a rate from the earlier average rate of approximately 13 of -0.33 percent). Most of the Armenian and Azeri percent. minorities live in the Samstkhe-Javakheti and Kve- mo-Kartli regions in the south and southeast parts of the country. 32 Urban DEVELOPMENT SERIES – knowledge paperS 4.2 Project Background To capitalize on this positive trend, the Government Georgia’s climate, ecological diversity, and ancient of Georgia requested assistance from the World cultural sites, as well as its rich traditions in art, mu- Bank to provide a stronger cultural heritage dimen- sic, and cuisine, have made tourism a significant sion to its economic and social development pro- contributor to the country’s economy. Prior to the gram. Subsequently, on January 29, 1998, the Board disintegration of the Soviet Union, many of the of Directors of the World Bank approved a credit of republics of the South Caucasus were choice tour- US$4.49 million to the Government of Georgia for ist destinations, mostly for citizens from the other the Georgia Cultural Heritage Project in the form republics in the Soviet Union. It is estimated that of a Learning and Innovation Loan (LIL). Building the numbers of visitors to Georgia was in excess of on the success of an earlier Institutional Develop- 800,000 in the late 1980s. However, the collapse of ment Fund (IDF) grant from the World Bank, the the Soviet Union in 1990 and the ensuing turmoil project consisted of an investment component and in the region brought tourism almost to a standstill. a technical assistance component. The former com- Nonetheless, by 1998 the political climate had sta- ponent was designed to address urgent repairs need- bilized and the country experienced an influx of ed to prevent further damage to priority cultural tourists, particularly from Europe; the number of heritage sites. It financed a nationwide Emergency tourist arrivals to the region increased from 200,000 Rehabilitation Program (US$1.3 million) that pro- in 1995 to more than 460,000 in 1998. In the lat- vided up to US$75,000 in financing for subprojects ter year, approximately 68 percent of arrivals to through a competitive grant mechanism. In addi- the South Caucasus were in Georgia, 25 percent in tion, the component funded interventions designed Azerbaijan, and 7 percent in Armenia. to help revive the once-flourishing tourism indus- try through activities aimed at the preservation/   Fig. 4.2 Map of the Historic Core of Tbilisi Kala in Magenta Investment in Urban Heritage 33 restoration of four pilot sites that were to serve as prototypes for future cultural heritage investments and public-private partnerships. The four pilot sites were Old Town Tbilisi, Sighnaghi, Uplistsikhe, and Shatili. Collectively these sites received US$1.9 mil- lion. Of these four sites, it is Old Town Tbilisi that contains the area of Kala that is the subject of this evaluation (see figure 4.2). Targeted investments undertaken to revitalize Old Town Tbilisi and preserve its architectural legacy included funding to renovate historic buildings and museums, restore facades, reset the cobblestone pave- ment, install street lights, and landscape public parks. By the end of the project, the conservation and res- toration interventions included work undertaken at the National Baratashvili Museum, the Tbilisi His- tory Museum, the Gobelin (Tapestry) Museum, and establish conservation and cultural heritage preser- Chardin Street, the Jvaris Mama Church. In particular, the project vation planning principles and guidelines. The plan before (inset) and after restored the facades, strengthened buildings, replaced was to serve as a blueprint for all future development roofs, and rehabilitated underground communication in the heritage zone of Old Town Tbilisi. This in- connections on several streets in Kala, notably those tervention proved to be especially valuable because on Chardin Street (18 buildings), Erekle II Street (13 it initially raised public authorities’ awareness of the buildings), and Sioni Street (8 buildings). Old Town (one of the city’s most valuable assets), and subsequently allowed them to establish a framework To protect and prevent further deterioration of pri- for its development. In turn, the Conservation Mas- vately owned historic homes included in the registry ter Plan set the stage for the 2005 Rehabilitation of of historic homes, the investment component also in- Old Tbilisi Program, which was cofinanced by the cluded the Neighborhood Fund, which financed up Municipality of Tbilisi and the private sector. to US$1,500 of exterior improvements for a single- family dwelling and US$4,500 for a multiple-family The 2005 program expanded on the work under- dwelling. The Neighborhood Fund provided the fi- taken in the context of the World Bank project. An nancing to facilitate the repair of balconies, facades, additional US$10 million was leveraged through roofs, staircases, windows, and doors of 36 historic homes in Old Town Tbilisi; an additional 42 such direct funds from the U.S. president’s cabinet dedi- interventions were undertaken through the pilot sites cated to the rehabilitation of Old Town Tbilisi’s in- investments mentioned above. Thus, by the end of frastructure. Since 2007, the presidential program the project, 78 buildings in Old Town Tbilisi had has financed the rehabilitation of the water supply, benefited from exterior and interior repairs. sewerage, and drainage systems and other restora- tion work there. Finally, in 2010, the mayor of Tbilisi The project to revitalize Old Town Tbilisi simulta- launched the New Life for Old Tbilisi Program to neously included a Technical Assistance component boost the construction industry, which was severely that funded the drafting of an Integrated Conserva- affected by the conflict with Russia and the global fi- tion Master Plan of Old Town Tbilisi, intended to nancial crisis. 34 Urban DEVELOPMENT SERIES – knowledge paperS   Fig. 4.3 Historical Districts Evaluated for Project Intervention Showing the Chosen Target and Control Sites: Zemo Kala and Metekhi Plateau 7 0 Sololaki 8 1 Metekhi (Darejani) 2 Metekhi (Plateau) 6 3 Abanotubani 1 4 Kvemo Kala (Tsikhis ubani) 5 12 11 9 5 Zemo Kala (Sanapiro) 2 6 Kvemo Kala (Centraluri) 4 7 Zemo Kala (Erekles Moedani) 0 10 8 Zemo Kala (Vercxlis Qucha) 9 Kvemo Kala (Gudiashvilis Moedani) 3 10 Kldis Ubani 11 Sololaki (kvemo) 12 Sololaki (Zemo) 4.3 Methodology intervention (control site). The terms of reference To finalize and validate the selection of the areas to suggested that the Avlabari district (also a historical be studied in this project, the local research team ac- part of Old Town Tbilisi) be used as a control site. cessed data from the National Agency for Cultural Following a careful comparative analysis of the data, Heritage Preservation of Georgia. This dataset com- the research team narrowed its focus down to the Me- prised an evaluation of various historical districts of tekhi Plateau district because it shares more cultural Tbilisi as depicted in figure 4.3. The terms of ref- heritage characteristics with Zemo Kala than any erence for this study suggested that the entire Kala other district of Tiblisi but has not yet benefited from district could be used as the target site. However, the any cultural heritage investment project. Although systematic investigation of almost all streets of Kala the Metekhi Plateau district is noticeably smaller revealed that the target area needed to be more nar- compared to the target area, it was considered to be rowly defined because Kala itself is so heterogeneous. of sufficient size for a comparison with Zemo Kala. It comprises a rehabilitated section (Zemo Kala), which has experienced significant development, and 4.4 Stakeholders The same categories of stakeholders were identified Kvemo Kala, where most of the residential proper- for the Georgia case study as were specified for the ties (with few individual exceptions) are still in very evaluation carried out in FYR Macedonia. These poor condition and where no significant economic stakeholders in both the target and the control sites activity has been observed. Therefore, Zemo Kala included businesses, residents, and visitors. The main was selected to be the target area of interest. types of businesses involved were restaurants, cafés, shops, hotels, museums, and galleries. As in the Macedonian case study, the assessment of the economic impacts of the cultural heritage project The research team developed draft questionnaires for in Georgia compared the socioeconomic develop- the following groups of stakeholders: ment of the target area with one having similar char- acteristics but not subject to the World Bank project â– â–  Households (target/control area) Investment in Urban Heritage 35 â– â–  Pedestrians (target area) series to be supplied, it was necessary to give respon- â– â–  Museums (target area) dents an alternative. As in the Skopje study, instead of â– â–  Hotels (target/control area) filling in figures for each year in the period, respon- â– â–  Restaurants and cafés (target/control area) dents could fill in a figure for one specific base year. â– â–  Shops (target/control area) “Base yearâ€? was defined as any year in the period â– â–  Business centers (target/control area) before restoration of the cultural heritage in Zemo â– â–  Tourist agencies engaged in inbound Kala. The base year could be the year of establish- tourism regardless of their location. ment of the business, the year of starting business in the target area, the year of the renovation of facilities The draft questionnaires were tested with potential and/or purchase of equipment, or any other specific stakeholders and modified accordingly. The surveys event before the project was completed. However, in both the target and control areas were conducted in practice, few survey respondents in Zemo Kala by means of personal interviews during the period were able to provide even approximate data for the December 9–16, 2010. A total of 225 respondents pre-investment years, limiting sample sizes for earlier were surveyed, as shown in table 4.1. statistics and making before/after comparisons in most cases impossible. Thus, greater weight rested on In terms of businesses, the surveys targeted comparisons with the control site as a means of es- tablishing indicators of relevant variables within and â– â–  All hotels/guesthouses located in Zemo Kala and Metekhi Plateau outside of the project parameters. â– â–  All restaurants and practically all shops in Zemo Kala and Metekhi Plateau 4.6 Capital Costs of the Heritage â– â–  All museums located in Zemo Kala. (Note Investments that there are no museums in Metekhi As noted above, the World Bank investment in the Plateau.) four pilot sites, one of which was Old Town Tbilisi, amounted to US$1.9 million. In Zemo Kala alone, 4.5 Time Period Covered the total amount of World Bank funds invested was The use of surveys to collect data covering a long pe- US$898,948; the amount for the small repair pro- riod of time (in this case an approximately 15-year gram was US$86,223. However, the research team period covering 1995–2010) is subject to the prob- was unable to access the exact amounts of non-Bank lem of respondents not being able to access records funding invested specifically in Zemo Kala in heri- from past years or to recall distant facts and figures. tage restoration that might have been associated with Although the questionnaires allowed for annual data or stimulated by the Bank’s contribution. Zemo Kala # of interviews Metekhi Plateau # of interviews Table 4.1 Survey Respondents Households 80 Population 38 by Area and Types: Pedestrians 36 Pedestrians 0 Old Tbilisi Museums 4 Museums 0 Hotels 6 Hotels 6 Restaurants 18 Restaurants 1 Shops 24 Shops 6 Business centers 1 Business center 0 Total 169 Total 51 36 Urban DEVELOPMENT SERIES – knowledge paperS 4.7 Tourism Impacts 4.7.2 Tourism in Tbilisi Old Town 4.7.1 Tourism in the Georgian Economy The tour operators interviewed as part of this re- The increases in tourist numbers in Georgia during search indicated that most tourists in Tbilisi visit the 1990s, which were noted above as an important both Kala (including Zemo Kala) and Avlabari stimulus to the establishment of the Georgia Cul- (including the Metekhi Plateau and the Holy Trin- tural Heritage Project in 1998, continued during the ity Cathedral) during their time in the capital, and ensuing decade. Georgia had about 500 thousand many stay overnight at one of the hotels in the area. visitors total in the year 2000; this grew to just over Data on the usage of hotels and guesthouses in the 1.5 million by 2006 and more than 2.7 million in target and control sites are shown in table 4.2. It is 2010. The tourism business in Georgia is seasonal, apparent that accommodation facilities for tourists with the high season lasting on average for seven are broadly comparable between the two areas. months, from April to October. Shops in Zemo Kala that provide goods and ser- Statistics provided by the Georgia Department of vices for tourists include souvenir shops, bakeries, Tourism indicate that more than three-quarters of religious shops, and commercial art galleries. The all visitors to Georgia spend some time in Tbilisi. surveys of shops in the target and control areas that Average length of stay in Georgia in 2010 was 11.2 were undertaken as part of this study provided data days, with an average daily expenditure of US$181. on the importance of tourist demand in the opera- Table 4.2 Zemo Kala Metekhi Plateau Usage of Hotels and Guesthouses in Zemo Number of of hotels 8 8 Kala and Metekhi Estimated total numbers of beds 224 208 Plateau: 2010 Average length of stay (days) In-season 3 3 Off-season 3 2 Average occupancy rates (%) In-season 57 67 Off-season 47 34 Double room average daily rate (GEL) In-season 94 95 Off-season 88 84 Table 4.3 Average number of visitors per shop per day Average daily expenditure Visitors to Shops in Zemo Kala and Metekhi 1998–2002 2010 2010 Plateau Before/After (no.) (%) (no.) (%) (GEL) Project Zemo Kala Foreign 22 37 31.3 38 99 Local 38 63 52.1 62 33 Total 60 100 83.4 100 – Metekhi Plateau Foreign 20 40 9.3 33 44 Local 30 60 19.2 67 34 Total 50 100 28.5 100 – Investment in Urban Heritage 37 tion of these businesses. Table 4.3 summarizes some percent on average for the year) are more sensitive of these results. The proportions of foreign and to seasonal variation than are the number for locals. local visitors to the two areas are quite similar. A little more than one-third of the income of shops in 4.7.3 Impact of the Heritage Restoration on both the target and control areas comes from tour- Tourism ism, and this proportion has not changed greatly in Can one draw any inferences from the various the period since the heritage project’s implementa- items of survey data regarding the impact of the tion. However, there are two differences between heritage restoration on tourism in the Zemo Kala the two study areas based on the data in the table. area? The data assembled are incomplete and can First, although the ratio of foreign to local custom- therefore be only indicative. Nevertheless, some ers remained similar over the last 10 years for the general points can be made. First, tourism is clearly target and the control areas, the absolute numbers a significant source of revenue for all the businesses of visitors per day, both foreign and local, increased in this study, and tourist numbers have apparently markedly in Zemo Kala but appear to have declined been increasing more rapidly in the target area than in the Metekhi Plateau area. Second, the average in the control zone. One cannot say how much of spending per person in the target area was three the differential growth rate can be attributed direct- times higher for international tourists than for lo- ly to the effects of the project, but it is possible to cals; in the control area, foreigners spent only about show that the heritage characteristics of the Zemo 30 percent more per person than did locals. Kala area are influential in attracting tourists. For example, the survey data indicate that location in Restaurants also benefit from the presence of tour- a historic setting was second only to the quality of ists. Table 4.4 summarizes data for restaurants food as a factor in attracting restaurant customers in Zemo Kala only, averaged over the three years to Zemo Kala. With regard to shops, historical loca- 2008¬–2010. Note that only one restaurant was in- tion and tourist concentration were cited alongside terviewed in the control area, so a comparison is not proximity of the city center as reasons influencing possible; moreover almost all of the 18 restaurants decisions to open a shop in this area, whereas these surveyed in Zemo Kala commenced operation after factors were scarcely mentioned by shops in the project implementation, so before/after compari- control area. More directly, three of the six hotels sons could not be made. The data in table 4.3 show surveyed indicated specifically that the rehabilita- a similar foreign/local visitor pattern to that noted tion project had improved the infrastructure in the for shops above. However, whereas foreigners spend target area, increased the number of tourists, and considerably more per person than locals in shops, stimulated employment, as well as making the area they spend slightly less in restaurants. It is also note- more beautiful. Likewise when restaurant owners worthy that the foreign visitor numbers (about 40 were asked about the impact of the project on their Average number of visitors per restaurant per day Table 4.4 Visitors to In season Off season Mean for yeara Average daily expenditure Restaurants in Zemo (no.) (%) (no.) (%) (no.) (%) (GEL) Kala: In-Season and Foreign 38 44 17.1 29 29.3 39 41 Off-Season: 2010 Local 49 56 42.4 71 46.3 61 45 Total 87 100 59.5 100 75.6 100 — Note: a. Assuming in-season of seven months 38 Urban DEVELOPMENT SERIES – knowledge paperS business, the increased number of tourists was the cation, the concentration of cathedrals, and (for re- most frequent of the positive responses recorded. ligious shops) proximity to the patriarchate. 4.8 Impacts on Businesses: 4.8.2 Employment Effects Restaurants, Cafés, and Shops Employment data from the surveys are shown in 4.8.1 Business Conditions table 4.5. These statistics relate to the most recent Business conditions in Georgia have fluctuated year available, 2010. No reliable data could be ob- over the years in line with economic and political tained for growth in employment for the surveyed trends. The number of business licenses issued de- businesses over earlier years. It appears that shops clined during the latter years of the 1990s, but in- are somewhat larger in terms of employee numbers creased rapidly thereafter, to reach a peak of just in Zemo Kala than in the control area, whereas the over 50,000 in the year 2007. In the following years reverse is true for hotels. Wages and salary data for numbers fell back. These national trends were mir- restaurants in Zemo Kala indicate a monthly wage rored in broad terms in the specific area of Old of about 460 GEL for administrators/managerial Tbilisi. In this overall context, the hotels and res- staff and about 300 GEL for service staff. The cor- taurants sector has performed reasonably well, with responding figures for shops show a smaller differ- employment levels and the turnover rising steadily ential between administrative and service staff; for during the decade up to 2009. Most of this growth both areas the amounts are approximately 275–300 occurred in the capital. This sector accounts for a GEL and 230–250 GEL, respectively. Statistics are significant proportion of foreign direct investment not available to compare wage levels before and af- (FDI) in Georgia; the average annual proportion of ter the project. hotels and restaurants in aggregate FDI in 2007– 2009 was 10.9 percent. It can also be noted that the heritage restoration project in Old Town Tbilisi (which, as noted before, Survey data assembled for this project appear to in- restored facades of old buildings, reset cobblestone dicate a faster growth rate for both hotels and res- pavements, installed street lights, and landscaped taurants in the Zemo Kala area than in Tbilisi and public parks) encouraged private investors to reno- Georgia generally; as noted above, the attractive vate several of the city’s most important old build- environment created by the heritage characteristics ings. Many of the workers executing these private of the area contributed to the establishment of new developments received their training from working businesses over the period since project completion. on project-financed activities. By employing many Likewise the decision to open a shop in the area has workers with special skills, the project has helped been influenced by factors such as the historical lo- to revitalize knowledge of traditional crafts and the Table 4.5 Average number of employees per business enterprise Employment in Businesses in Zemo Admin/management Service Total Kala and Metekhi Zemo Kala Plateau: 2010 Hotels 4.0 7.0 11.0 Restaurants 2.3 8.8 11.1 Shops 2.2 2.6 4.8 Metekhi Plateau Hotels 4.0 15.0 19.0 Restaurants n.a. n.a n.a Shops 1.0 1.4 2.4 Investment in Urban Heritage 39 workmanship needed for preservation efforts. The Data on property movements and real estate prices spillover of this training to other activities is a par- in the target and control sites are shown in table ticular external benefit generated by the original 4.6 for the period from 1998 to 2010. To smooth project. out short-term fluctuations, three year averages are shown for the beginning, middle, and end of the pe- The heritage qualities of the Zemo Kala area con- riod. It is apparent that there is little significant dif- tinue to make it an attractive place for commercial ference both in the absolute levels and in the trends businesses to establish and for existing businesses over time in the two areas. It would appear that the to expand. In the latter respect, 44 percent of res- rehabilitation project has not significantly affected taurants in Zemo Kala indicated that they would real estate values one way or the other. expand, mostly by increasing staff. A smaller pro- portion of shops were contemplating expansion (17 On the other hand, more limited data series for percent). None of the shops surveyed in Metekhi rental prices do show some differences between the Plateau had plans to expand. two areas. Between 2005 and 2010, the rental price per square meter for housing rose by 21.8 percent in In conclusion, although it is clear that the heritage Zemo Kala and by 12.3 percent in Metekhi Platea. qualities of the Zemo Kala area make it an attrac- These growth rates (in current price terms) corre- tive location for businesses serving the local and visi- spond to annualized growth rates of 4.0 percent tor population, there is insufficient data on which and 2.3 percent, respectively. These figures suggest a to base a definitive judgment as to the effects of the somewhat stronger demand for rental housing space heritage project on employment, wage levels, or in Zemo Kala than in Metekhi Plateau, a result at business performance. least plausibly related to the improved attractiveness of the former area because of its heritage qualities. 4.9 Impacts on Households The survey team identified the population on se- In fact these speculations were tested somewhat lected streets in Zemo Kala and Metekhi Plateau, more directly in the surveys when respondents were counting about 3,700 persons and 1,200 persons, asked to rate their perceived benefit (if any) from the respectively. These people have experienced chang- restoration project. On a scale from zero to 10 (in es over time in real estate values and rental prices which zero = no benefit and 10 = maximum ben- for housing. The study tried to determine whether efit), the highest mean score (5.7) was recorded for any such changes in the target area have been influ- the benefit that the area became more prestigious enced by the heritage rehabilitation, and whether as a place to live as a result of the restoration proj- the living conditions of households in this area have ect. The next most significant reason, with a mean been affected. score of 2.7, was the general proposition that the area became more attractive. These are essentially noneconomic or quality-of-life benefits; outcomes Average value per square meter (USD)a Table 4.6 Trends in Real Zemo Kala Metekhi Plateau Estate Values in 1998–2000 604 508 Zemo Kala and 2003–2005 1024 1078 Metekhi Plateau: 1998–2010 2008–2010 1624 1674 Note: a. In current prices 40 Urban DEVELOPMENT SERIES – knowledge paperS relating to financial benefit accruing to households but it does not show up in the Kala figures above (increased income, employment opportunities for because of renovation works in the Historical Mu- family members) rated close to zero. seum (Caravanserai). Further evidence for the effect of the heritage proj- Of the four Zemo Kala museums, three are financed ect is provided by perceptions of housing condi- by the Municipality and also receive private dona- tions in the target and control areas at the time of tions, while one is privately funded. Only one is able the survey in 2010 compared with what they were to supplement its revenues through a café/souvenir in 1998. Table 4.7 shows that significantly more shop; the other three hope to launch similar busi- people saw an improvement in their housing condi- nesses on their premises in the future. Three of the tions in Zemo Kala than in Metekhi Plateau, and museums in Zemo Kala indicated that the World significantly fewer felt conditions had deteriorated. Bank’s cultural heritage project had had positive ef- It is not unreasonable to conclude that the heritage fects on their operations, while one did not recog- rehabilitation project had had some influence in nize any particular impact. Of the positive effects bringing this outcome about. stemming from the project, the main ones identified were the increased numbers of tourists and visitors 4.10 Impacts on Museums and drawn to the area by its improved heritage quali- Galleries ties, and a general sense of optimism in the com- Data from Georgia’s National Statistics Office for munity generated by the project. In addition, one 2009 indicate that there are 112 museums in Geor- museum (the N. Baratashvili Memorial Museum) gia, 28 of which are located in Tbilisi. There are benefited directly from the Bank’s investment be- five museums in the Kala district, four of which are cause the project funded repair of the foundations in the target area. All of the latter museums were of the building. surveyed as part of this study. 4.11 Cultural Indicators In 2009 Georgia museums in aggregate attracted As in the Macedonian study, the evaluation project 616,200 visitors, of which 286,800 visited museums in Tbilisi was concerned with assessing to what ex- in Tbilisi. For the years 2007 to 2009 the numbers tent the heritage restoration had provided cultural of visitors to the Kala museums were: benefits for the community. Accordingly a random 2007 36,851 sampling of visitors to Zemo Kala were interviewed 2008 38,420 using a survey instrument similar to that used in 2009 34,557 Skopje. Respondents were questioned about the time and money spent during their visit to the area, In 2009 the Georgia museums as a whole, including their perception of the cultural value of the heri- those in Tbilisi, experienced a sharp increase in at- tage, and their willingness to contribute financially tendance. This increase was also noticeable in Kala, toward further restoration of the site. Because of Table 4.7 Zemo Kala Metekhi Plateau Residents’ Perceptions of Change in their Proportion of residents believing that their housing conditions had Housing conditions Improved 42 30 in 2010 Compared to Stayed the same 42 41 1998 in Zemo Kala and Metekhi Plateau Worsened 16 30 percent Total 100 100 Investment in Urban Heritage 41 the relatively small sample size (n = 36), the results 4.12 Non-market Benefits presented below must be interpreted with caution. The account of the Skopje study in the previous sec- Note that time and resources did not permit the ap- tion of this report outlined the ways in which meth- plication of a similar survey in the control area. ods such as contingent valuation could be applied to the measurement of the public-good benefits aris- The majority of visitors to the Zemo Kala site were ing from a heritage restoration project, and why a residents of Tbilisi (70 percent), while 10 percent rigorous application of such methods could not be came from elsewhere in Georgia. The remaining carried out in that study. The same arguments apply 20 percent were foreign tourists. The average total in the case of the Georgia study. As before, one can amount of money spent during all these visits was simply assess whether or not there is some positive about 80 GEL, of which about 50 GEL was spent willingness to pay among visitors to the site, but one on food. The mean and median amount of time cannot use these results to derive an aggregate valu- spent was 1.5 hours, with a minimum of 10 minutes ation of these benefits covering the full population and a maximum of 150 minutes. of potential beneficiaries. The findings of the survey of visitors clearly indi- When asked whether they would be willing to con- cate that the respondents considered Kala to be an tribute to a fund to support further heritage reha- important part of Georgian culture and national bilitation in the Kala district, the great majority (92 identity, as well as being a place where there was percent) responded in the affirmative, although it the possibility for bringing people together. None was not possible to measure the actual willingness to of the respondents agreed that investments in Kala pay in this case. Nevertheless, these results do pro- rehabilitation were a waste of money. With few ex- vide a broad indication that, among the population ceptions, the respondents considered the renovated of Tbilisi at large, there is a recognition of positive buildings of Kala to be beautiful, and disagreed cultural benefits flowing from the heritage rehabili- with the idea of replacing them with modern build- tation, and some evidence of a willingness among ings. Table 4.8 shows details of the perception of the population to express their valuation of these cultural benefits arising from the site, following the benefits in financial terms. same methodology as was described for the Skopje study earlier.   Neutral/ Table 4.8 Mean Perception of Agree No opinion/ Disagree Total ratinga Cultural Benefits Can’t say by Visitors to Zemo Kala is an important part of Georgian culture 88.9 5.6 5.6 100 1.17 Kala percent Restoring Kala improves Tbilisi as a place to visit or live in 91.7 5.6 2.8 100 1.11 Investing in improvements in Kala is a waste of money 0 2.8 97.2 100 2.97 Kala is a place that helps people come together 97.2 2.8 0 100 1.03 The renovated buildings of Kala are beautiful 86.1 2.8 11.1 100 1.25 Kala gives me a sense of Georgian cultural identity 77.8 2.8 19.4 100 1.42 Kala should be demolished and replaced with modern buildings 8.3 2.8 88.9 100 2.81 I learnt something from my visit 55.6 19.4 25.0 100 1.69 Note: a. Scale 1 = agree; 2 = neutral; 3 = disagree 42 Urban DEVELOPMENT SERIES – knowledge paperS 4.13 Conclusions Comparing the target area of Zemo Kala with the The World Bank’s Georgia Cultural Heri- control site of Metekhi Plateau, one can make the tage Project had the objectives of improving the following general observations: management and promotion of the country’s rich â– â–  The numbers of tourists in Zemo Kala cultural heritage to revive the once-dynamic tourism have increased over the past 10 years com- industry and engender social cohesion and national pared to the control site identity during the difficult economic transition. The â– â–  The expenditure of foreign tourists visit- project’s objectives reflected the importance of Geor- ing the site is three times more than that of gia’s cultural heritage to citizens of the nation as they locals sought to recapture a national identity based on the â– â–  Customers for restaurants and shops are country’s diverse ethnic and cultural traditions. attracted to Zemo Kala by its historic loca- The Implementation Completion Report of March 2004 tion, and the heritage characteristics have concluded that the project had satisfactorily achieved been a positive inducement to the establish- its overall objectives. The report noted particularly ment of new businesses in the area (page 9) that the project had had a positive impact â– â–  Relatively more people in Zemo Kala than on the revitalization of Old Town Tbilisi through its in Metekhi Plateau believe their housing stimulus to economic development, its encourage- conditions have improved since the period ment of private investment in heritage conservation, before the project and its effect on public awareness of the significance â– â–  Most of the museums in the Zemo Kala of cultural heritage to community life. district noted a positive impact on their operations arising from the heritage reha- The present research has assembled some evidence bilitation on the economic and cultural benefits generated by â– â–  The majority of residents surveyed the heritage rehabilitation in one area of Old Town recognized significant cultural benefits Tbilisi. Although it has not been possible to carry out arising from the heritage rehabilitation, and a comprehensive ex post cost-benefit analysis of the there is evidence of a positive willingness to project, some economic and cultural indicators have pay for further restoration work. been evaluated that enable some broad conclusions to be drawn. Overall it can be concluded that the economic, cul- tural, and social effects of the heritage revitalization initiated by the Bank’s investment have been positive, although data limitations do not allow for precise quantification of the full range of impacts. Bambis Rigi (Cotton Row) 2003 left; 2010 right Investment in Urban Heritage 43 Conclusions and Lessons It has been known for some time that cultural heri- The results confirm the positive economic impacts tage can play a significant role in economic devel- of both case study projects. In the Macedonian opment in many countries. Studies published by case, the initial impact of the Bank investment was the World Bank more than a decade ago pointed in the stimulus it helped to provide for the allocation to the importance of heritage in sustainable devel- of further funds from non-Bank sources for heritage opment and the potential role of heritage assets in restoration in the Skopje Old Bazaar in succeeding contributing to the economic revitalization of his- years. About US$2.5 million was generated in this toric urban centers (Serageldin and Martin-Brown process, which continued the process of rehabilita- 1999; Cernea 2001). Since that time, the Bank has tion initiated by the original Bank project. financed numerous heritage investments aimed at physical heritage conservation, community develop- In comparison with the control site in the Prilep Old ment, and institutional capacity building in heritage Bazaar, tourist numbers and expenditures in the management. Particular attention has been paid to Skopje target site have increased; between 2005 and the integration of heritage buildings and sites into 2010, the daily number of foreign tourists visiting urban development projects, often involving adap- businesses in the Skopje Old Bazaar increased by tive reuse of historic buildings rather than their de- more than 90 percent compared to a slight decline molition and replacement with modern structures. in Prelip, and even though the mean expenditure In many cases, tourism is seen as an important per person increased more rapidly in the control site, source of revenue, providing an economic payoff the absolute levels of expenditure by both foreigners to the original investment. Promotion of local cul- and locals has been greater in the target area. tural industries has also been important, generating opportunities for commercial initiatives, business Employment and skill levels have also been en- expansion, and employment growth as well as pro- hanced. For example, there has been a 73 percent viding increased incomes and widespread commu- growth in employment numbers per business be- nity benefits. tween the pre- and post-project periods in the Sko- pje site compared to a 21 percent increase in Prilep. Although Bank projects in the cultural heritage field Moreover, 42 percent of the businesses in Skopje are subject to the usual assessments that are applied have expansion plans for the future, compared to to any project implementation, little is known about only 15 percent in Prilep, reflecting the optimistic the subsequent performance of these projects in the mood created by the rehabilitation of the target site. years post-completion. Accordingly, this study was In regard to museums and galleries located in the undertaken to provide some empirical evidence of Skopje Old Bazaar, the number of foreign visitors the economic impacts of heritage investment. Two in the three main museums almost doubled, from case studies were chosen for this purpose, in the 7 to 13.5 thousand, between 2000 and 2007, out- historic town centers of Skopje and Tbilis, respec- stripping the growth in tourism numbers in Skopje tively. This report has reviewed the disciplinary field as a whole; during this period, visitation by locals of heritage economics, put forward a procedure for increased from 5 to 10.5 thousand. conducting an ex post economic impact analysis, and quantified a series of indicators and other mea- The Skopje Old Bazaar plays an important role in sures to allow an assessment of the results of the creating a shared sense of cultural identity. This two projects. study has provided some quantitative evidence of 44 Urban DEVELOPMENT SERIES – knowledge paperS the cultural benefits perceived by stakeholders and original investments in either of the case study cities, their willingness to pay through voluntary contribu- it can certainly be concluded that the economic, so- tions to a fund to continue the rehabilitation work. cial, and cultural effects of the heritage investment Altogether 84 percent of survey respondents agreed as exemplified in both cities have been significant, that restoration of the Old Bazaar improves Skopje and can be taken as the sort of impacts that might as a place to live, and 90 percent indicated that they be achievable from similar investments elsewhere. would be willing to contribute something to a fund to continue the restoration work. Several lessons can be drawn from this research, relating both to the identification and design of In the case of the Georgia project, this study com- cultural heritage investment projects and to the pared the target area of Zemo Kala with the control conduct of an ex post economic impact assessment site of the Metekhi Plateau within Old Town Tbili- some years after project completion. si. The indicators assembled pointed to an increase in tourism in the target area since the heritage re- First, in regard to project design, it can be noted habilitation. For example, the daily number of visi- that processes for identifying and appraising invest- tors to shops in Zemo Kala increased by around 40 ment projects involving built heritage are becoming percent over the past 10 years, compared with an more securely established both within the Bank and apparent decline in the control site. Foreign tourists in some borrowing countries’ agencies. Such proj- in 2010 spent 90 GEL per person per day in shops ects are usually associated with objectives of urban in Zemo Kala, three times as much as locals, and development, and may involve a comparison be- more than twice as much as did foreign tourists in tween adaptive reuse of existing heritage building Metekhi shops. stock and replacement with new construction. In this regard it is important to account for the fact that In regard to housing, 42 percent of residents in Zemo the beneficiaries from heritage rehabilitation extend Kala thought that their conditions had improved beyond the immediate users; the present research since 1998 compared with only 30 percent in Me- has emphasized the significance of the non-market tekhi Plateau; 16 percent in the target site felt their benefits of heritage, including the social and cultur- conditions had worsened, whereas 30 percent in the al value that heritage conservation generates, and control site believed they were worse off. The wide- these benefits need to be given appropriate weight spread cultural and social benefits arising from the in project appraisal. heritage revitalization were apparent in the survey of visitors to the Zemo Kala area. For example, 92 The most important lesson for project design aris- percent of respondents felt that restoring Kala had ing from the present research relates to the need for improved Tbilisi as a place to live, and 97 percent sound monitoring and evaluation provisions to be saw benefits of social cohesion generated in the area. built into project implementation. It is essential that The majority (89 percent) disagreed with the proposi- monitoring and evaluation systems are carefully tion that the old buildings of Zemo Kala should be designed to ensure that monitoring efforts produce demolished to make way for new development. Most data that are useful in assessing project outcomes respondents to this survey (92 percent) indicated they and impact. If well-resourced monitoring mecha- would pay something toward a fund for financing nisms could be routinely included when heritage further heritage restoration in Zemo Kala. projects are being implemented, the tracking of post-project performance in economic, social, and Overall, although there were insufficient data to cultural terms would be greatly facilitated, and the make a reliable estimate of the rate of return on the quantity and quality of data available for ex post Investment in Urban Heritage 45 impact analysis would be increased. Economic vari- sidered. For example, increases in tourist numbers ables of importance in this respect include the out- to a heritage site over time need to be interpreted in put of goods and services generated by enterprises the context of trends in tourist numbers in the city located in the project site, household incomes and or country generally. Alternatively, a counterfac- expenditures, trends in employment, tourist num- tual may be found through reference to an area of bers and levels of spending, and induced invest- similar character to the target site, as in the present ments attributable to the project. It may also be research. It goes without saying that such a control possible to include the means to track some social site must be as close as possible in all respects to the and cultural impacts. target site, but without similar investment, if it is to be taken as a valid benchmark. Turning to lessons for conducting ex post economic impact assessments such as those reported here, it A final lesson to be drawn relates to the importance should be noted again that the primary constraint of the public-good output of heritage investment is likely to be the availability of data. If the sorts of projects. It is well known that such outputs may turn monitoring and evaluation mechanisms described out to be the major economic benefit of the invest- above have been in place, a sufficiently reliable, ro- ment. These effects can be evaluated through a full- bust, and comprehensive dataset might be available scale contingent valuation or choice modeling study. to enable time series analysis of trends in major vari- If resources to undertake such a study are not avail- ables, for example, or hedonic estimation of heritage able, a simpler approach may be possible (as used impacts on real estate prices, and so on. If such data in the present study) that does not yield quantita- are not available, an assessment must rely, as in the tive estimates of willingness to pay or of aggregate present study, on primary data collection. It cannot non-market benefits, but that at least can provide be emphasized too strongly that the gathering of data some evidence of the existence of such benefits. from relevant groups of stakeholders—including lo- Alternatively it may be possible to infer the value cal businesses, residents, tourists, and so on—requires of non-market effects by a benefit-transfer calcula- both time and resources to ensure that sample sizes in tion using the results of another study. Whichever surveys will be large enough, and the range of data approach is used, any impact assessment should in- collected comprehensive enough, for useful analysis clude this source of benefit in its compilation of the to be undertaken. aggregate economic value generated by the project, despite the fact that the monetary amounts involved A further lesson from this research relates to the are not realized as a tangible revenue stream. Of importance of choosing a valid counterfactual. 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Investment in Urban Heritage 49 Previous knowledge papers in this series Lessons and Experiences from Mainstreaming HIV/AIDS into Urban/Water (AFTU1 & AFTU2) Projects Nina Schuler, Alicia Casalis, Sylvie Debomy, Christianna Johnnides, and Kate Kuper, September 2005, No. 1 Occupational and Environmental Health Issues of Solid Waste Management: Special Emphasis on Middle and Lower-Income Countries Sandra Cointreau, July 2006, No. 2 A Review of Urban Development Issues in Poverty Reduction Strategies Judy L. Baker and Iwona Reichardt, June 2007, No. 3 Urban Poverty in Ethiopia: A Multi-Faceted and Spatial Perspective Elisa Muzzini, January 2008, No. 4 Urban Poverty: A Global View Judy L. Baker, January 2008, No. 5 Preparing Surveys for Urban Upgrading Interventions: Prototype Survey Instrument and User Guide Ana Goicoechea, April 2008, No. 6 Exploring Urban Growth Management: Insights from Three Cities Mila Freire, Douglas Webster, and Christopher Rose, June 2008, No. 7 Private Sector Initiatives in Slum Upgrading Judy L. Baker and Kim McClain, May 2009, No. 8 The Urban Rehabilitation of the Medinas: The World Bank Experience in the Middle East and North Africa Anthony G. Bigio and Guido Licciardi, May 2010, No. 9 Cities and Climate Change: An Urgent Agenda Daniel Hoornweg, December 2010, No. 10 Memo to the Mayor: Improving Access to Urban Land for All Residents – Fulfilling the Promise Barbara Lipman, with Robin Rajack, June 2011, No. 11 Conserving the Past as a Foundation for the Future: China-World Bank Partnership on Cultural Heritage Conservation Katrinka Ebbe, Guido Licciardi and Axel Baeumler, September 2011, No. 12 Guidebook on Capital Investment Planning for Local Governments Olga Kaganova, October 2011, No. 13 Financing the Urban Expansion in Tanzania Zara Sarzin and Uri Raich, January 2012, No. 14 What a Waste: A Global Review of Solid Waste Management Daniel Hoornweg and Perinaz Bhada-Tata, March 2012, No. 15 This publication has been financed by a grant of the Italian Cultural Heritage in Sustainable Development Trust Fund For more information about the Urban Development Series, contact: Urban Development and Local Government Unit Sustainable Development Network The World Bank 1818 H Street, NW Washington, DC, 20433 USA Email: urbanhelp@worldbank.org Website: www.worldbank.org/urban