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Overview
IFC’s Tourism Sector Activities
October 04, 2011
Shaun Mann, Global Technical Specialist,
Tourism
IBRD International Bank for Reconstruction and Development
IDA International Development Association
MIGA Multilateral
Investment and Guarantee Agency
To promote institutional, legal
and regulatory reform
Governments of poorest countries
with per capita income of less than
$1,025
- Technical assistance - Interest Free Loans
- Policy Advice
To reduce political investment risk
Foreign investors in member countries
- Political Risk Insurance
Est. 1945 Est. 1960
IFC International
Finance Corporation
To promote private sector development
Private companies in member countries
- Equity/Quasi-Equity - Long-term Loans - Risk Management - Advisory Services
Est. 1956 Est. 1988
Role:
Clients:
Products:
To promote institutional, legal and
regulatory reform
Governments of member countries with
per capita income between $1,025 and
$6,055.
- Technical assistance - Loans
- Policy Advice
IFC?
Shared Mission: To Promote Economic Development and Reduce Poverty
2
IFC’s Global Reach
100+ country and regional advisory services offices worldwide
3
IFC also provides advice to governments and businesses
Investment Services Advisory Services IFC is the world’s largest multilateral provider of financing for private enterprises with over US$40 billion in outstanding investment commitments
Loans Equity
Guarantees
Business Advisory Services
Investment Climate
Public-Private Partnerships
Access to Finance
IFC: Advisory and Investment
5
▪ Why Should IFC Invest in Tourism?
▪ World Bank Group Strategy in Tourism
▪ WBG Impact in Tourism
Presentation Outline
Revenue Generation:
>> The sector will generate US$6 trillion of economic activity in 2011. >> It is expected to rise by 4.2% p.a. to US$9.2 trillion by 2021.
Largest Employer next to Agriculture:
>> Total contribution to employment is forecasted to rise by 2.3% p.a. from 259 million (or 8.8% of total employment) in 2011 to 324 million (or 9.7% of total employment) by 2021 (equivalent to one in ten jobs).
Travel and Tourism capital investment is estimated at US$651 billion or 4.5% of total capital investment in 2011 and is expected to double by 2020.
In 2010 International Tourism Receipts surpassed US$900 billion.
By 2020 international arrivals are expected to reach 1.6 billion.
Emerging Markets represent 37% of total international tourism receipts.
Source: World Travel & Tourism Council (WTTC), UN World Tourism Organization (UNWTO) 2010
Tourism Sector has High Economic Importance and Significant Global Impact…
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Because:
Tourism is the main source of foreign exchange for 47 of the World’s 50 Least Developed Countries.1
It is an economically important sector, one of the first sectors to be developed in many IDA eligible countries and is a catalyst for development of other sectors.
According to WTTC 66 million jobs will be created in tourism over the next 10 years acting as a key driver to poverty reduction.
There is escalating demand for tourism products/services including transportation and hotel rooms worldwide, especially in developing countries.
Private financial markets are often not willing to fund hotel investments in developing countries on account of risk factors such as political instability, seasonality, unstable cash flows, capital intensive, etc.
In some destinations, for every US$4 spent by a tourist, US$1 reaches the poor.2
By supporting the Tourism Sector, IFC’s aims to create jobs and to
generate economic growth
…And Provides an Attractive Development Opportunity for IFC in Emerging Markets
7
Since 1956, IFC has invested over US$2.5 billion (including syndications) in 250 hotel projects in more than 83 countries, 50% were in frontier countries.
1 2 Ashley and Mitchell, 2010
From 1950 to 2010 international tourism arrivals grew from 25 million to 935 million. Over the same period, international receipts grew from US$2 billion to US$919
billion.
Source: UNWTO 2010 Edition, UNWTO PRN0PK11041, Oxford Economies
Arriv
als (
Mill
ions
)
Rece
ipts
($ B
illio
ns)
Tourism: A Growth Industry
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Source: UNWTO, 2010
Source: UNWTO, 2010
Tourism revenues account for more currency moving from developed countries to developing countries than the total of all aid from foreign governments.
This is mainly due to:
>> Governments making tourism development a national priority.
>> Strong economic growth in developing countries (especially India, China and Brazil).
>> Emerging middle class.
>> Increased business and intra-regional travel.
>> Increased investments in tourism infrastructure.
>> Liberalization of air transport.
>> Expansion of low cost air carriers.
Market Share is Shifting to Developing Countries
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Small hotel chains or independently owned (the majority of which are SMEs) account for 66% of the rooms.
Global hotel chains account for 20% of total hotel rooms (including management contract, franchise, lease or owner-operator).
Rooms worldwide increased from 8.5 million to 19.4 million.
Room nights sold increased from 1.4 billion p.a. to 3.2 billion p.a.
Highest level of growth experienced in emerging markets
– Middle East: 6.2% – Asia and the Pacific: 4.6% – Africa: 4.3%
Hotel Rooms by Region, 1975 and 2005 (million)
2.9
4.1
0.3
6.7
4.8
1.11.2
6.9
0
1
2
3
4
5
6
7
8
Americas Europe Asia and the Pacif ic Africa and MiddleEast
UNWTO & IHRA1975 2005
Hotel Rooms by Region, 2005 Average annual growth rate, 1975-2005 (%)
2.8
1.6
2.9
4.34.6
6.2
0
1
2
3
4
5
6
7
World Europe Americas Africa Asia andthe Pacific
Middle East
UNWTO & IHRA
IHRA: International Hotel & Restaurant Association
The Hotel Industry Underpins Tourism
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Impressive Growth in the Hotel Industry (1975-2005) The Role of SMEs in the Hotel Industry
Hotels Generate Significant Development Impact
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Government Taxes
Improved Fire and Safety Standards Improvements in Local Environment;
e.g. Solid Waste, Energy Efficiency, Green Construction, Roads, Airports
Quality Hotels; Conducive for Business
and Leisure Job Creation Opportunities Foreign Exchange
Improvement of Cultural Heritage Sites
Transfer of Knowledge and Skills
Indirect Employment Opportunities; Local
Handicrafts, Restaurants; Tourist Services , other Retail
Linkages with Local Suppliers; Agribusiness, Construction
and Service Companies
A new Hotel Project/an Expansion/ or a Refurbishment
Many Factors Impact Its Development
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•Trained Workforce •Infrastructure •Access Transport
•Sustainability •Master Planning •Marketing
•Tour Operators •Hotels
Public
Public / Private
Private
• Proper Planning • Enabling Environment • Border Facilitation
• Safety and Security • Investment incentives • Regulation
External Factors that affect Tourism: Distance / Cost
Cost of Development
Cost of Operations
Political Stability
Economic Stability
Innate Attractiveness
Perceived Health and Safety
Weather / Natural Disasters
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▪ Why Should IFC Invest in Tourism?
▪ World Bank Group Strategy in Tourism
▪ WBG Impact in Tourism
Presentation Outline
Big picture: the Bank’s perspective is evolving
1966-79 Economic Growth /Import Substitution
1979-1980 Retrenchment
1980-90 Minimal Attention
1990-1999 Re-Emergence through Environmental
and Cultural Preservation 2000 onwards – Poverty
Reduction / Economic Growth
• Project objectives linked to MDGs
• Private sector growth strategies (e.g. Growth Poles)
• Community Driven Development approaches
• Focus on baseline data, growth diagnostics, benchmarking, results, sustainability
• Institutional support
• Coordinated approaches (e.g. FPD with Investment Climate)
World Bank Tourism Portfolio
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The kind of projects the Bank is engaged in:
Infrastructure investments to leverage tourism growth >> China - 3 Urban regeneration projects in culture and heritage-rich
cities.
Cultural Heritage to preserve and rehabilitate cultural assets >> Ethiopia: tourism development through rehabilitation of Northern
Historic Route sites.
Environment Conservation and rural community development >> Amazon Basin Regional Project: Economic diversification into
ecotourism through leveraging natural assets >> Global Tiger Initiative: Using ecotourism to preserve tiger habitats. >> Tunisia: Economic diversification into ecotourism through leveraging
natural assets.
Private Sector Development and business/investment climate improvements
>> Mozambique: Tourism development through improving private sector business enabling environment.
>> Lesotho: Private sector development and infrastructure investment to support tourism growth.
>> Mali: Tourism development through improving private sector business enabling environment.
>> Sri Lanka: Private sector development and infrastructure investment to support tourism growth.
SSA22%
MENA13%
EAP21%
SAR8%
ECA18%
LAC18%
38 Projects Globally Total value US$ 1.9 billion
•Build foundation for Infrastructure
•Opening the country for international business
•Demonstrating viability
•Training & Employment
•Spill-over to local hotels
•Foreign exchange, taxes
•Development of local business
• Improve community linkages & local supply chain efficiency/standards
•Decrease hotels’ impact on environment
• Tourism enabling infrastructure
ESD, IC Advisory
First International Std. Tourism Investment
Business Hotel / Innovative Projects Restructuring
Sustainable Development Advisory
Country Development
Tourism Sector Development
IDA / Post Conflict BRICT
•Support sustainability of the sector
High Level of Project Selectivity Financing of Hotel
Chains where possible Limited equity
investment in the sector
Risk Mitigation
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IFC Strategy – Maximizing Impact in the Sector
IFC Advisory Work: Developing the Market for Growth
Sierra Leone Govt prioritizes tourism But hard to convince investors or consumers
Strategic case to start with a good 4* Business hotel in Freetown – none exists Several derelict govt. properties that have potential – define 1 and find an investor
Transparent bidding process gives some investor confidence, IFC Advisory (IC & C3P) hand-holds the process
$40 million investment signed July 2011 with
Hilton managing
Sierra Leone & Mozambique
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Mozambique Govt prioritizes tourism investment But poor legal & regulatory environment is a major obstacle
IFC advises focus on special tourism zones where regulations can be simplified IFC/ govt. define these areas and specific sites within them
Transparent bidding process for sites results in 2
investments $33 million investment deals signed June 2011
IFC Tourism Investments: Global Brands
EMENA EMENA &CAF EMENA & CAF LAC Asia & Global
Peru, Russian Federation, Iexico
US$40 million Loan
Maldives (Universal) US$30 million Loan
Maldives US$17 million Loan
Brazil, Mexico US$176 million Loan &
Equity
Dominican Republic, Mexico
US$186 million Loan & Equity
Trinidad and Tobago US$4 million Loan
Poland US$11 million Loan &
Equity
Kenya US$7 million Loan
Ukraine US$30 million Loan
Jordan
US$10 million Loan & Equity
Senegal US$10.5 million Loan
Pakistan US$16 million Equity
Afghanistan US$7 million Loan
Jordan US$69.8 million Loan &
Equity
Bhutan US$10 million Loan
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Peru was coming out of a very difficult period.
IFC’s investments helped to provide the first long-term funding to a hotel in Peru.
IFC successfully contributed to positioning Peru as a high end destination.
Other hotels such as Inkaterra and Marriot followed the example of POEH.
An IFC’s rail project implemented in parallel successfully improved Peru’s infrastructure and market attractiveness for the sector.
Tourism is the third largest industry in Peru. It employs 10.8% of the labor force and makes up to 7% of Peru’s GDP
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First Investments in Tourism: Focus on IDA / Post Conflict
IFC’s successfully helped to position Rwanda as a high-end destination.
First investment in two luxury international hotel chain in Rwanda.
Promotion of Rwanda’s cultural heritage, safaris, etc.
Strong demonstration effect: more luxury hotels and direct flights from Europe.
World Bank supported infrastructure development.
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Supporting Growth of Local Business
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Supporting Innovation
IFC’s first direct investment in an ESCO in LAC.
IFC’s successfully increased the access to finance of commercial companies for cost saving investments in energy efficiency .
>> Reduction in energy usage, shrinking the carbon footprints of Optima Energia
clients. >> Significant cost savings for Optima Energia clients, typically up to 40% utility
cost savings.
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Stabilizing the Industry During Downturn
World Bank helped Dominican Republic for integrated tourism development in the 1970’s.
IFC helped financed the first hotel. Strong demonstration effect.
IFC’s Infrastructure department financed power plants.
After the economic downturn in 2001, IFC successfully contributed to the restructuring of Occidental.
23
▪ Why Should IFC Invest in Tourism?
▪ World Bank Group Strategy in Tourism
▪ WBG Impact in Tourism
Presentation Outline
IFC has invested over US$2.5 billion (including syndications) in 250 hotel projects in more than 83 countries, 52% were in IDA countries (one of the highest IDA counts across IFC departments), including 99 hotel investments in Sub-Saharan Africa.
24
IFC Impact in Tourism (investments)
IFC’s 24 Tourism Projects (investments) (extrapolated to 30 years)
237,552 direct jobs created1
US$7.4 billion paid in taxes
US$36.7 billion purchased in local goods and supplies
US$22 billion earned in net income
US$243 billion generated in sales revenues
1 Estimation based on a sample of 24 projects
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IFC Impact in Tourism (Advisory)
This is an emerging picture as the focus on the tourism sector is only since 2008, previously efforts were ad hoc responses to demand
Investment Climate Sustainable Business Public Private Partnerships
Moving from economy-wide reform work to improving, at a sector level, the investment climate and the business enabling environment to foster growth, competitiveness and inclusion through generating sustainable jobs and investments in tourism, e.g.: • Mozambique Anchor Investment Program – US$ 33 million investments, 400 jobs
Growing a portfolio and experience in the privatization of government hotels, airlines, airports, cruise terminals, e.g.;
Transitioning from ad hoc tailored products for individual IFC clients to a more programmatic sector supporting role e.g.: • Linkages Programs (Community linkages program for Orient Express Hotels in Peru) • World Hotel Link, • Business Edge, • Energy and Water Audit, • Renewable Energy/Energy Efficiency
US$640 million (1.5% of IFC’s Total Committed Exposure).
Primarily debt financing, only US$57 million committed in equity investments.
Well diversified (68 Projects in 39 Countries) of which 52% are in IDA countries.
Over the last three years, 65% of the projects were in IDA countries.
US$1.33 billion committed in related infrastructure projects.
IFC’s Current Tourism Portfolio
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High growth industry in Emerging Markets. High development impact.
Very risky sector limiting Commercial Financing.
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In Conclusion
High Demand for IFC’s Services
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