Introduction
Expo 2020 is the continuation of the World Expos that began over 170 years ago to provide a platform to showcase the world’s greatest innovations and creativity across industries. Thus, Expo2020Dubai, hosted by Dubai in the United Arab Emirates, where innovation is an essential factor of development, is an exemplary event in the history of technology and innovation around the world (Expo 2020 Dubai, 2021a). The organization offers a range of opportunities for top innovators to show the world what it takes to adapt to changing technologies and their values throughout human history. In addition, Expo2020Dubai provides critical reflections on the overall development of technology and other innovations in human history (Krzymowski, 2020). Notably, World Expos tend to welcome millions of innovative ideas and organizations to create monumental pillars in cities and other places for sustainable development worldwide.
The emergence of the Covid-19 pandemic has presented organizations with unprecedented challenges, including recommendations to move from physical engagement to a virtual work environment and embrace the new standard forms of business. This challenge forced the organization to move the date from October 1, 2021, to March 31, 2022, which poses a fundamental strategic planning challenge to ensure that all 192 countries successfully participate in showcasing their innovations (Jatana and Mirchandani, 2017). This paper critically considers this event in terms of the effectiveness of management decisions in the context of financial performance. The organization aims to provide essential platforms and opportunities for the best innovators worldwide to help solidify the generational history of World Expos (Setork and Habib, 2020). This factor favors the need to work with global environmental and business agenda.
Firstly, the company’s international status obliges it to conduct efficient financial activities due to its responsibility to investors and stakeholders, including governments. In addition, many aspects of this activity depend entirely on federal and international authorities (Brown, 2020; Samper, Schockling, and Islar, 2021). Secondly, the current topics of the Expo affect innovation in the plane of many ethical questions, the answers to which must meet all the requirements of sustainable development (Expo 2020 Dubai, 2021c). It is not for nothing that the agenda of the event itself and its organization contains many items directly related to environmental problems. However, this evaluation is vital to the event’s reputation, and financial performance should measure its effectiveness. This paper compares costs and revenues at two levels: state and organizational. Moreover, a comparison with other exhibitions that have been held in the last decade is presented.
Large projects like this one are of complex and multi-criteria nature of financial efficiency. Success is assessed not so much by a positive balance but by the impact on the region’s image, city, the country’s economic performance, and much more. The Expo attracts many people from the regions as jobs are created (Expo 2020 Dubai, 2021a). Investors and sponsors from different countries invest in their marketing campaigns (Expo 2020 Dubai, 2021b). In this regard, the financial performance of the exhibition should be assessed at different levels. Since the exhibition’s goals are more diversified than financial gain, an integrated approach will be applied to the corresponding assessment.
The Role and Value of Financial Analysis
The financial analysis tool can be multifaceted and multi-criteria and depend on specific tasks. Evaluation of enterprises, as a rule, includes their income statement, balance sheet, and cash flow statement, which reflect the organization’s liquidity, relevance, and market value (Hasanaj and Kuqi, 2019; Rashid, 2018; Welc, 2022). These indicators are often used to compile specific ratios that determine the investor attractiveness of such companies (Palepu et al., 2020). Naturally, for these indicators, the reputational support of the organizations is essential, as well as the influence of external factors that are not always reflected in the listed statements.
International Financial Reporting Standards require the presentation of comparative financial statements that provide financial information for the current year and the previous year; however, any identical time intervals can be taken as periods (Acaranupong, 2021; Marzuki and Wahab, 2018). Typically, the starting point for examining such reports is a horizontal analysis, which begins with calculating the change in monetary terms and percentage terms from last year to the current year (Shim, 2022). The percentage change needs to be calculated to show how the magnitude of the change is related to the respective amounts (Haralayya, 2021). A 1 million change in sales is not as critical as a 1 million change in net income, as sales represent a relatively more significant amount than net income (Petryna et al., 2020). The effectiveness of this analysis is manifested not only concerning the company itself and its financial performance but also in comparison with the industry and competitors in the same field.
In addition to horizontal, vertical analysis or a technique is used in which the ratio of the selected indicator with other homogeneous indicators within the same reporting period is studied. Here one can get a more detailed company performance within a short distance and identify weaknesses and successes that will make it possible to use new resources (Shim, 2022). The vertical method of analyzing the income statement characterizes which indicators had the most significant impact on net profit (Vaca-Tapia, Martínez-Fernández and Juanatey-Boga, 2020). Both types of analysis also allow evaluating risks in the income statement (Ren et al., 2018; Kou et al., 2019). When considering an international company, it is necessary to consider the influence of various external factors that can create an insignificant or significant error, as in the case of a pandemic (Jebabli, Kouaissah and Arouri, 2022; Padovani et al., 2021). Finally, vertical analysis is often referred to as structural analysis, making it possible to consider economic assets as a set of data with several levels (Breuer and Leininger, 2021). This paper proposes to use horizontal and vertical analysis to evaluate the activities of Expo2020.
Organizational performance through a financial lens will be assessed by comparing the activities in the UAE with projects from previous years; profits will be correlated with costs in the short and long term. The vertical analysis will be carried out as a structural assessment of cash flow at organizational and state levels. The UAE, in this case, appears as the most interested player from all sides of the investors in the project. As a result, the success of this event should be reflected not only in the income statement of the organizers but also in macroeconomic indicators.
Financial Analysis in Expo 2020
In view of the fact that even state structures are involved in the organization of this event, it is necessary to pay attention to high-level financial activity. The state budget of various levels, from the national to the city, has significantly increased its debt structure during the preparation for the exhibition. According to the source, the state budget debt has increased by $8 billion by 2021, exceeding $33 billion (Writer, 2019). The country’s GDP-to-debt ratio was at around 27 percent, which, however, did not prevent the government from cracking down on its short-term liabilities (Trade Arabia, 2021). Entering the debt market was dictated only by the requirements for additional financing of infrastructure projects for the Expo2020 exhibition (Expo 2020 Dubai, 2021d). This event required high costs, with sponsorship fees and investments considered the primary sources of income.
However, in a global assessment, Expo 2020 is vital for the region’s economy, even with an increase in the long-term debt of its representatives. According to official figures from Expo 2020 itself, the bulk of the positive impact comes from growth in economic activity of over 122 billion dharma, about a million full-time jobs, and a significant strengthening of every sector from the restaurant business to construction, amounting to 10 billion dharma (Expo 2020 Dubai, 2021e). GDP grew by more than one and a half percent only during the exhibition (Expo 2020 Dubai, 2021e). The show’s net earnings come primarily from sponsorship rentals and admission fees. According to official figures, the exhibition was visited by more than 20 million people. Considering that a particular group of people could get to the exhibition for free, even by purchasing equally expensive and medium categories of tickets, the ratio of income and costs does not approach unity. In addition, the unprecedented case of postponement of the event due to the pandemic caused additional costs, including the need to comply with individual and public safety measures in the infrastructure of the exhibition (Valek, 2019). In this connection, Expo 2020 should not be considered from the point of view of financial efficiency in the classical sense; a more comprehensive approach is required.
The indicated economic impact on the region’s development can be divided into various stages, each contributing to investment infusions, job creation, and other positive aspects of the impact. First of all, there was a preparation stage, during which a sufficiently large number of workers came from other countries to earn money, which contributed to the development of nearby neighboring regions (Setork and Habib, 2020). During the implementation phase of the Expo 2020 project, the number of local employees who received permanent and well-paid jobs has significantly increased (Bodolica, Spraggon and Shahid, 2018). Finally, the stage after the actual completion of the exhibition is essential for the tourist attractiveness of the region, both in the case of external and internal tourism. The hospitality and restaurant industry experienced a massive influx of guests at the time of Expo 2020. Having provided itself with a substantial income, Dubai can further develop a green policy within the framework of the goals set at the Expo and operate existing facilities to earn money further (Vij et al., 2019). The high technology standard has given local companies an impetus to develop advanced energy sources and other critical inventions that can be further supported by attracting investment and government policies.
At the same time, apart from the potential impact on the regions and the country, which is not always quantitative and expressed in finance, creating such exhibitions always leads to short-term losses. For example, the 2015 exhibition in Milan required 721 million dollars in expenses and was paid off only a few years later at a rate of 14 million (Wanted in Milan, 2016). It did not take into account the revenue of nearby hotels and shops. Expo 2020 had more significant spending, including significant government injections, than the 2010 Shanghai Expo (Jiabao, 2011). In addition, the UAE project has long-term plans for a return on investment up to 2031 (The Economic Times, 2022). Such a long-term perspective in exhibitions of past years was assessed only through the prism of macroeconomic indicators, such as GDP, employment rate, and others relevant to the exhibition’s theme (Jiabao, 2011). One year after the show’s close, when the latter usually drew the line of financial analysis, Expo 2020 is unlikely to have a net revenue regardless of the impact on the country (The Economic Times, 2022). This organization is unique in that costs have increased not only due to inflation but also to the postponement of the event, and income will be distributed over a much more extended period than the event period.
From the point of view of financial relations, it is pretty challenging to increase gross profit by reducing the cost of manufactured products or projects in the context of an exhibition. Firstly, the projects demonstrated at the exhibition are unprecedented and have no analogs as well as accordingly, there are no specialists with extensive experience in managing such projects. As a result, unexpected increases in costs are possible. Secondly, as mentioned above, Expo 2020 is not primarily aimed at adequate net income but has a much more comprehensive global impact. Green politics and environmental solutions currently cost more than more environmentally harmful energy resources (Bloodhart and Swim, 2020; Vacchi et al., 2021). As a result, the gross profit ratio in this project should not be assessed classically either.
Finally, like financial analysis, it is possible to compare the public data on the revenue from Expo 2020 with the estimated costs. According to the source, the organizers and persons involved can receive more than 17 billion dollars from the exhibition, covering the state’s debt (Soldatikhin, 2021). However, this income item is mainly claimed by the hotel business, which received subsidies from the government to meet demand during the exhibition (Kaul, 2019). In addition, the pandemic has caused significant damage to the entertainment industry, involving mass gatherings of people (Donthu and Gustafsson, 2020; Moon, 2020; Meahjohn and Persad, 2020). Dubai suffered losses due to the postponement of the event and the need to reorganize most of the pavilions under the new requirements in connection with the pandemic (COVID-19 safety measures, 2021). However, for organizers and stakeholders, financial benefits are expected only in the long term, unlike other similar exhibitions. If we accept the available data on costs and profits at the organization level, then the results will be positive in both cases, but the payback of Expo will come closer to 2028: the results of the calculations are presented in table 1.
Table 1. Financial Income Statements Expo.
As can be seen from these calculations, the expected profit significantly exceeds that of previous exhibitions in the long term but has a negative value in the first years after the event. Investing in such an enterprise defines and develops a global business aimed at change, and change always requires high costs in the short term.
Therefore, the horizontal analysis compared the company’s profit and loss by years in the short and long term. It showed that Expo, an event-focused company, could afford to operate with deferred revenue, even with long breaks between exhibitions. Such a model can only be used with sustainable business development and constant investment. Considering that the Expo is always focused on current global issues and presents the most advanced developments at these exhibitions, the project’s investment attractiveness from a reputational point of view does not raise any questions. The vertical analysis made it possible to structure expenses and incomes into two levels: state and organizational. A specific analysis of the financial performance of the UAE is reflected in the injections, which are converted into GDP and the availability of jobs. A similar approach is adopted by the company, which, as shown in Table 1, will be able to recoup the project only by 2028 entirely but promises much more income in the future.
Recommendations
Expo is a global international organization that requires an integrated approach to evaluate. Their financial activity in holding mass events is closely intertwined in economic matters with state assets. The exhibition is accompanied by infusions from the authorities, as they are interested in the positive dynamics of macroeconomic indicators, such as GDP and unemployment reduction. For the first time in decades, the organizers may be in the red a year after the event, but are able to receive significantly more revenue after almost ten years. This approach can be used as a recommendation for a further strategy for organizing such events. Given the long-term agenda, in this way the company will be able to attract more investors to fulfill short-term obligations while having a reliable source of income for the coming decades.
At the state level, the gain was obvious, which will attract more interest from the participating states in the future. Financial revenue was disproportionately distributed with a clear advantage towards the hotel business (Nadkarni, 2019; Giardina, 2019; Yeung and Al Mashary, 2019). However, in the case of the national budget, debt did not significantly impact the growth rates of indicators such as GDP, the number of jobs, and, as a result, economic growth rates (Nadkarni and Teare, 2019). In order to maintain these positive dynamics, the region organizers should focus on the development of tourist attractiveness. Appropriate supporting infrastructure in the form of hotels, restaurants, and attractions was created in preparation for the Expo 2020 exhibition. Now, both at the local and the state level, events and customs should be created on the Expo 2020 heritage platform that would contribute to the flow of tourists all year round (Manikas et al., 2022). The second recommendation is to create an active tourism environment that can support economic growth and maintain a high level of financial growth in each sector involved. The tourist attractiveness of the region will contribute to investor interest and opportunities to organize other global events.
Finally, Expo organizers may increasingly show up in countries not even considered before. The experience of the UAE is indicative of the organization of such events, as it contributes to the environmental agenda for the transition to renewable energy sources, as well as the tourist attractiveness of the region for years to come. If the exhibition was held earlier, mainly in the USA and European countries, then only in the second half of the 20th century did the organizers begin to choose other countries. Although holding an exhibition requires severe investments and preparation, almost always, these investments pay off indirectly and reputationally. Consequently, more African, Asian, South American, and Australian countries can become not just participants but apply for the competition. This recommendation may not be so financially effective in the short term, but with the approach used in the UAE, it can create a unique economic system that is permanently attractive to investors and has a long-term source of income.
Conclusion
An analysis of the World Expo 2020 Dubai showed that the event, despite various obstacles and costs, and the absence of a short-term positive balance, the project expects a payback for the coming decades. In fact, the organizers are gradually changing their approach and moving from the primary source of income in the form of sales directly at the event to long-term projects that can generate profit long after the exhibition closes. The most significant stakeholder player is the UAE government in the case of the 2020 Expo. EXPO 2020 at the state shows a considerable potential for influencing economic growth, including GDP, and reducing unemployment (Tobolski and Peronto, 2019). Such activities are needed primarily for sustainable development on a large scale, from national to global. By applying this approach, Expo can become one of the most successful companies in the world, with a constant and long-term source of income that is constantly updated with the current agenda and investments. As a result, these aspects ensure the sustainable development of an international company with a rich history behind it.
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