Should we be promoting tourism sector investment?

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When most people think of tourism, they think about a vacation to a new destination, an island retreat, a beautiful vineyard, or a hike in the mountains. They rarely think of tourism as a source of inclusive poverty reduction in the developing world. 

Nkwichi Lodge in Mozambique is a good example. Investments to the projects created 75 jobs for locals supporting over 1,000 community members. It also established a community trust that built five local schools, a maternity clinic and a maize mill that provided nutrition and education to more than 350 farmers and their families. This is having a transformative impact on poverty reduction and improvements in the quality of life of some of the worlds poorest.  

The potential of the tourism sector

The tourism sector is one of the priority sectors of the Investment Climate Advisory Services for investment generation and regulatory simplification. We and institutions like UNCTAD, as well as the World Economic Forum strongly believe this sector can boost competitiveness , expand economic opportunity and provide a pathway to prosperity in client countries. Unsurprisingly, developing economies like Haiti, Mozambique, the Solomon Islands, Yemen and Zambia recently prioritized tourism as a key target to produce economic growth.

But what makes the tourism sector so attractive?

While the answer is not 100 percent clear, it is clear that the tourism sector is growing and in particular in developing in transition countries. Its total contribution to global GDP has grown by 21 percent in the last decade to$5,992 billion in 2011 (Figure 1). 

Source: World Travel and Tourism Council (WTTC) 2011 

The tourism sector has strong links to economic growth.

Economic (GDP) growth is of principal concern for all countries, particularly those engaged in poverty reduction as a means to spread wealth across the population. Empirical studies in countries as diverse as Barbados, Croatia, India, Taiwan and Turkey have shown a causal relationship between tourism development and economic growth. A cross country study by the IMF showed that an increase of one standard deviation in the share of tourism in exports leads to about 0.5 percentage point in additional annual growth, everything else being constant. Thus many governments (particularly low income economies) should view investing in its tourism industry as a means to stimulate growth over the long term and enabling the poor to share in economic gains.

Tourism investments can benefit local people

Tourism is one of the only industries in the world where the ‘good’ or ‘service’ is consumed at the site of production. For this reason, local people are both at an advantage to reap the benefits associated with the sector, but also at risk from exclusion or even the negative impacts it can bring. A well planned, regulated and responsible tourism can be an excellent mechanism of channeling resources from rich to poor - even at the large scale. Commercial tourism activities provide an opportunity for local people to participate in direct employment, in providing goods and services to tourism businesses through the supply chain, but also in direct interaction with the tourist (for example: crafts, excursions, food and beverage). The generation of earnings amongst those local people directly involved with the industry in turn stimulates indirect spend (of wages) in the local economy.

Tourism provides opportunities for economic diversification and skills upgrading

Developing countries can leverage tourism to support local companies and entrepreneurs in developing new products and exports. The tourism sector provides a means by which local entrepreneurs can experiment with new products and test them on international markets in their home country before exporting. International tourists typically create demand for products and services which may not have already existed in the local market and also demand certain quality standards. Whilst these can be a challenge to meet in the short-term, tourism creates the market and the incentive to drive the process – leading to growth and improvement over time.

Sustainably protecting environmental and cultural assets

Many developing countries have rich natural or cultural heritage assets such as national parks, coral reefs, rare species, ancient cities or monuments that are under threat. Often, states do not have the financial resources to allocate to the preservation of these areas and more creative ways of funding their protection must be sought. The revenue generated from tourism is one such solution – provided it is regulated and managed in a responsible manner.

Authors

Kusi Hornberger

Investment Policy Officer

Join the Conversation

Chester Chua
October 27, 2011

Dear Kusi,

A rather timely post. A few of my friends here in Southeast Asia are wondering how they can catalyze either public or private investments in the tourism sector across the region. In some parts of the sector, development in a single country may not attract a critical mass of tourists, especially those from countries further away, who are likely to travel a long distance only if there are a few countries worth visiting. There is, therefore, a collective action problem, as each country waits for its neighbor to develop its tourism infrastructure before making similar investments.

What role does the World Bank or IFC play in such situations beyond providing advisory services? Does the IFC make investments in the tourism sector?

Thanks!
Chester

Prof. Raymond Saner
November 04, 2011

Dear Mr. Hornberger,

Thank you very much for your interesting and timely entry on promoting tourism sector investment. In addition to the information provided I would like to draw your attention to the report “Mainstreaming Tourism Development: Policy Coherence and Complementarity” (http://www.csend.org/publications/development-a-int-rel/287-mainstreami…) developed by the Centre for Socio-EcoNomic Development (CSEND) and recently launched at the Palais des Nations in Geneva.

This policy analysis seeks to assist the Least Developed Countries (LDCs) in harnessing development opportunities by providing a comprehensive overview of existing international development instruments, i.e., Diagnostic Trade Integration Studies (DTISs) and their Action Matrices, Poverty Reduction Strategy Papers (PRSPs), and reviewing their alignment with the national tourism development strategies, investment policies and tourism related trade arrangements.

We encourage the use of findings from this analysis by all actors and stakeholders engaged with trade facilitation activities in LDCs. In reviewing these key development policy documents, this in-depth analysis seeks to better equip LDCs to manage international policy advice provided by a multitude of international development partners. The ultimate objective of this work is to support their achievement of greater social and economic benefits through growth trade in tourism services. It is also hoped that this analytical report will enhance the coherence and complimentarity of tourism development advice proposed by the international community via drawing attention to policy gaps and implementation vacuums existing within the tourism supply and value chain.

CSEND is an independent, project-financed, non-profit research & development organization founded in 1993 in Geneva, Switzerland. It is accredited by the Swiss National Science Fund as an independent research grant receiving organization since 2003. CSEND aims at promoting equitable, sustainable and integrated development through multistakeholder dialogues, institutional learning and free flow of information. More information about our organization is available from http://www.csend.org/home

We look forward to your comments / questions on our report and hope it could be useful for the activities that the IFC is conducting in relation to tourism.

With best regards,

Prof. Raymond Saner

Erick Ramos Murillo
October 27, 2011

One of the answers to why the tourism is growing has to do as well with the dynamics of modern societies. As populations group in cities and have less time for outdoor activities and leisure, while at the same time experiencing increasing incomes, people spend more money in "luxurious" items such as abroad tourism.

One potential problem with tourism is that it is very easy to scare off tourists given security concerns etc. An overall strategy based on tourism has to focus on those elements that make successful companies thrive: differentiation.

It is easy to establish coconut-selling business on beaches in hopes to make them more attractive than before. What is harder is to solve the question: what makes this beach unique in the world compared to those others with similar natural resources and beauty?
These are the kind of mindset it is important to have when thinking about a strategy sucha s tourism.

Hermione
October 31, 2011

Thanks for your interest Chester - great to get the debate going here. In answer to your questions, the World Bank Group does of course provide Advisory Services in situations like you describe - and the IFC does indeed invest in hotels. You can read a little of their activities here; http://www.ifc.org/ifcext/gms.nsf/content/Tourism_Overview

Shaun Mann
October 31, 2011

Chester, a few answers...IFC does indeed invest in tourism directly, usually through hotels. There is currently a global portfoilio of about US$ 600 million in around 70 hotels around the world. IFC has been investing in this sector for about 50 years. More recently (say the last 10 years), advisory work in tourism has been split between investment climate work focused on helping governments define viable investment strategies, investment opportunities and reforming the sector specific investment climate to make tourism investment more attractive and competitive. Also PPPs around airports, airlines, railways, ports, and government hotels. There has also been some work in supply chain development, helping local suppliers raise their performance standards in order to be able to supply goods and services to some IFC investment clients.

IFC advisory work in this sector is moving increasingly towards a more harmonized business line approach, where the common theme is sustainable tourism. This starts with a government request to help out with their tourism sector and then narrows to giving that government the kind of advice that will lead to sustainable growth in their tourism. Often this involves skills from across IFC; investment climate reforms that open up opportunities for both local and foreign investments and supply chain work that increases the local economic impact of those investments.

utkarsh amitabh
October 28, 2011

A cogent article which presents the importance and effects of sustainable tourism from the point of view of the "local"

Carolyn Cain
November 08, 2011

Thanks for this timely post. IFC -- which believes that tourism is a strong driver of development and can make a significant contribution to moving the development agenda forward -- recently announced its one-hundredth hotel investment in Africa with a $5.5 million financing package to emerging East African-based hotel company, Opulent (B) Ltd., to develop the first DoubleTree by Hilton hotel in Burundi. By providing international-standard rooms and conference facilities, the project will help improve Burundi’s essential business infrastructure at a time when business travel is picking up after years of conflict and many travelers are seeking high-quality accommodation and services. The DoubleTree’s key location in Bujumbura’s central business district will help place Burundi at par with other commercial hubs in East Africa.
Check out IFC Press Release: http://www.ifc.org/ifcext/gms.nsf/Content/SelectedPR?OpenDocument&UNID=…

Bernard Micallef
November 08, 2011

I am glad to participate in this discussion on the economic benefits of hotel projects. Since 1956, IFC has invested more than $2.5 billion in 251 hotel projects in developing countries worldwide. These investments have contributed to economic diversification and sustainable growth and boosted the travel and hospitality sectors while generating much-needed jobs, foreign currency, and tax revenue. IFC’s hotel investments create an average of 1.5 to 3 jobs for each hotel room. They provide supply chain linkages from construction to operation and secure markets for local farmers and SME suppliers and improve quality standards for the hotel industry. In addition, hotel employees benefit from regular training received in areas such as management, customer service, and so on.
Check out IFC Web Feature: IFC Hotel Investments-Delivering Dev. Impact in Africa

Ludi Joseph
November 08, 2011

Your posting is both timely and necessary. With one billion tourists set to cross international borders in 2012 and market share shifting to developing countries, IFC feels that a strong case can be made for hotel projects in emerging economies. In addition, hotels can have a significantly higher development impact when compared to other industry groups. This impact is evident in direct and indirect jobs, income generation, a variety of taxes, and public good dimensions, such as, encouraging infrastructure development, enhancing the image of a country, and contributing to environmental conservation.
Check out IFC's Tourism Case Studies:
http://www.ifc.org/ifcext/gms.nsf/Content/TourismCaseStudies

Ludi Joseph
November 09, 2011

Here is the attachment:
IFC Hotel Investments-Delivering Development Impact in Africa:
http://ifchq21.ifc.org/intranet/mas.nsf/AttachmentsByTitle/HotelInvAfri…

Anonymous
November 23, 2011

Within the UN family, you have to take a close lok at the UN World Tourism Organization (UNWTO), who are spearheading the pro-development aspect of tourism. And this on all fronts: climate change response, grassroots development, positining tourism in the G20 context, job creation, positioning tourism higher and higher in the media agenda, and more. UNWTOs numbers are also the only ones reliable - used by the IMF, OECD and the UN, above all.

check out:

www.unwto.org

http://media.unwto.org/en/press-release/2011-05-13/un-agencies-commit-m…

http://sdt.unwto.org/en/content/climate-change-tourism

http://t20.unwto.org/en

http://media.unwto.org/en/press-release/2011-09-13/unwto-conference-for…

Ludi Joseph
February 06, 2012

January 24, 2012
Near Cambodia's Temple Ruins, a Devotion to Learning
By THOMAS FULLER, NY TIMES
SIEM REAP, CAMBODIA — Millions of tourists come here every year to visit the ancient ruins of Angkor Wat, an influx that has helped transform what once resembled a small, laid-back village into a thriving and cosmopolitan town with thumping nightlife and more than 10,000 hotel rooms.
But the explosion of the tourism industry here has also done something less predictable. Siem Reap, which had no universities a decade ago, is now Cambodia’s second-largest hub for higher education, after the capital, Phnom Penh.
The sons and daughters of impoverished rice farmers flock here to work as tour guides, receptionists, bartenders and waitresses. When their shifts are over, they study finance, English and accounting.
“I never imagined that I could go to university,” said Hem Sophoan, a 31-year-old tour guide who is now studying for his second master’s degree. “There’s been so much change and opportunities for young people.”
The establishment of five private universities here is helping to transform the work force in this part of Cambodia, one of Asia’s poorest countries and a society still living in the shadow of the genocidal rule of the Khmer Rouge. Employers say that English proficiency is rising and that workers who attend universities stand out for their ability to express themselves and make decisions. A generation of students who would otherwise have had little hope to study beyond high school are enduring grueling schedules to get a degree and pursue their dreams.
Khim Borin, a 26-year-old tour guide by day and law student by night, says he wants to become a lawyer. But he sometimes has trouble staying awake in class during the high tourist season, when he spends hours scaling vertiginous temple steps and baking in the tropical sun.
“I tell my friends, ‘Hit me if you see me falling asleep,”’ he said.
The son of a broken and impoverished household, Mr. Khim Borin worked as a bartender and a masseur and installed air-conditioners at hotels before becoming a tour guide. He summarizes his life as “hard but happy.”
The five universities in Siem Reap currently enroll more than 10,000 students. Most of the campuses, which are scattered around the town, are quiet during the day but come to life with the buzz of students’ motorcycles as soon as the sun sets.
The United Nations and foreign aid organizations have had an oversize role in helping steer the country since the Khmer Rouge were driven from power more than three decades ago. But the symbiosis of work and study here came together without any master plan.
It was driven largely by supply and demand: universities opened to cater to the dreams of Cambodia’s youth — and offered flexible hours in sync with the rhythms of the tourist industry. University administrators say 80 to 90 percent of the students hold full-time jobs.
“They come here, find a job first, and then they start their bachelor degree,” said Rous Bunthy, vice president for administrative affairs at the University of South-East Asia, which opened here in 2006 and has an enrollment of 2,300.
Most students pay the annual tuition of $400 themselves, Mr. Rous Bunthy said. “Some of their parents can help a little — maybe $10 a month,” he said.
Although the fees are a small fraction of what private universities in more developed countries charge, students often struggle to pay, administrators say.
“The main problem is financial support,” said That Bunsay, vice president of administrative affairs at the Siem Reap branch of Build Bright University, the largest in Siem Reap with about 5,000 enrolled. “They need to find money first and then go to school — money is the first priority,” Mr. That Bunsay said.
Luckier students get sponsorship from foreigners. On a recent evening, an Argentine insurance saleswoman on vacation here, Maria Theresa Landoni, waited outside Mr. That Bunsay’s office. She had come to the university to pay the tuition of a young woman who wanted to study tourism.
Ms. Landoni recounted how she struck up a friendship with the driver of her tuk-tuk, the open-air motorized rickshaws popular here, and met his daughter during a visit to the family’s house. “They were very, very, very poor,” Ms. Landoni said. “This is a country that has suffered a lot.”
Ms. Landoni said she agreed to pay one semester’s worth of fees for the daughter: $180. “I don’t have a lot of money,” Ms. Landoni said. “But I have enough for that.”
All five of the universities in Siem Reap are privately owned, and some are for-profit institutions. But administrators say it will be years before the owners of the universities make money. The wealthy Cambodians who back the schools seem to see them largely as philanthropic ventures.
“The shareholders say they are wasting their money compared with other investments,” said Mr. Rous Bunthy of the University of South-East Asia. “But they are happy because they are helping people.” Among his university’s shareholders are the owner of a clothing wholesale business, a beer magnate, the owner of a supermarket chain and the founder of a successful English-teaching school.
The quality of the universities in Siem Reap is uneven, says Mr. Hem Sophoan, the tour guide, who is studying for a master’s in public administration.
“They are thinking about quantity first — to support their business. They are happy if they have many students. They want market share,” he said of the universities.
Many graduates seem to have stayed with their employers and moved up, their degrees having made them better prospects for managerial roles. But it is too early to draw conclusions about whether the degrees are leading to better jobs. The six-year-old University of South-East Asia, for example, has had only two graduating classes, and they were small.
Still, Mr. Hem Sophoan and other students say that despite any shortcomings at the universities, the experience of attending classes and obtaining a degree is transformative.
Chan Sreyroth, a 29-year-old manager at a company that owns restaurants in Siem Reap, says she sees a big difference in her employees who attend universities.
“The difference is that they have a dream,” said Ms. Chan Sreyroth, who oversees around 250 employees, many of them students. “After they study, they are not scared anymore. They want to be something.”
After graduation, students who work and study at the same time often have an edge over fresh graduates who have never worked before, for whom starting a career can be difficult, Ms. Chan Sreyroth and others say. University students are “more communicative,” she said. “If they don’t like something, they speak out.”
Ms. Chan Sreyroth and others say they are lucky that Angkor’s temples have proved so popular with tourists. If it were not for the sandstone structures nestled in the jungles, Siem Reap would probably have remained a backwater. Last year, 3.3 million tourists visited Siem Reap, half of them foreigners, according to the Cambodian Ministry of Tourism.
Kong Soeun, the deputy director of the local tourism office, is trying to convince others in the tourism industry that Siem Reap should declare an annual day of remembrance for the people who built the temples.
He says the tourist industry helped resurrect his life. His early years were shattered by the Khmer Rouge. Of 11 brothers and sisters, 6 disappeared. But he put himself through university with income earned as a tour guide, earned a law degree and dreams of becoming a crusading lawyer.
“We should remember their souls,” Mr. Kong Soeun said of his forebears who built Angkor Wat. “These temples are a very great thing.”

http://www.nytimes.com/2012/01/25/world/asia/cambodias-angkor-wat-templ…