Global Trends in Tourism Investment - Benefits and Risks

Enabling Tourism Investment

Challenges and Prospects for Tourism Investment in the COMCEC Region

Presented by: Scott Wayne and Manuel Knight,

SW Associates, LLC Washington, DC

Agenda

• Global Trends in Tourism Investment: Benefits and Risks

• Enabling Tourism Investment Climate in the COMCEC Region: Challenges, Prospects and Solutions

SW Associates, LLC - Enabling Tourism Investment in COMCEC Countries

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Global Trends in Tourism Investment: Benefits and Risks

• Importance of Tourism Investment

• Key Benefits and Positive Impacts

• Key Risks and Negative Impacts

• Problems and Impediments

SW Associates, LLC - Enabling Tourism

Investment in COMCEC Countries 3

Importance of Tourism Investment

• Engine for sustainable growth: Economy, jobs, incomes, protection of natural and cultural heritage.

• People to people industry

• Lower barriers of entry

• Relatively easy for investors


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Tourism – an attractive investment?


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Over US$2 trillion from tourism to GDP


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WTTC

TRAVEL & TOURISM INDUSTRY

Accommodation, recreation, catering,

entertainment, transportation, and

other related services

TRAVEL & TOURISM ECONOMY

Printing/Publishing,concrete, utilities,

financial services, furnishing & equipment

suppliers, foods, security, administration,

ship building, beverage supply, iron/steel,

aircraft manufacturing,wood, mining,

chemicals, textiles, oil/gas suppliers, plastics,

sanitation services, metal products,

computers, resort development, wholesalers,

rental car manufacturing, laundry services.

Sources of Investment

• Domestic and Foreign Direct Investment – Insurance companies

– Pension funds

– Religious institutions

– Labor unions

– Multilateral Development Banks

– Private equity funds

– Real estate investment trusts



Crowdfunding: A new potential source of tourism investment

• Raises capital from many donors

• Could maximize local engagement

• Helps market the investment and destination

• Two types: – Equity-based

– Non-equity or donation based

• Compatible with Islamic finance

• Potential projects? Hotels, restaurants, retail, destination attractions



Examples of tourism investment with public participation

Religious Pilgrimage

Sites

Stadiums & Fair

Grounds

Museums & Cultural

Centers

Congress Halls

National Park

Facilities

Tourism Training Facilities


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Key Benefits and Positive Impacts of Tourism Investment • Economic development

• Poverty alleviation

• Foreign exchange generation

• Urban revitalization

• Natural and cultural heritage preservation

• Capacity building


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Economic development

• Generates

– Attractive financial returns

– Tax revenue

– Foreign exchange

• Benefits broad supply chains

• Boosts small and medium-sized enterprises


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Poverty Alleviation

• Relies on non-skilled labor

• Offers opportunities for: – Women

– Racial, ethnic or low income minorities

– SMEs

• Generates extensive capacity building



Cultural and Natural Heritage Preservation

• Urban revitalization

• Preservation of heritage at risk

• Preservation of biodiversity via strengthening of protected lands


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Key Risks and Negative Impacts of Tourism Investments

• Environmental impacts

• Land tenancy challenges

• Infrastructure failures

• Financial risks

• Incompatible neighboring developments



Environmental Impacts

• Inadequate waste and sewage treatment

• Inadequate natural resource planning and management – Poorly regulated activities at

attractions

• Inadequate urban planning – Lack of traffic management

• Poor construction practices



Land Tenancy Obstacles

• Unclear land title, contracts and usage rights

• Insufficient cadaster or land registry

• Customary or other local ownership may not be reflected in legal system

• Restrictions on foreign ownership


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Infrastructure Failures Boosting Capital Costs

• Water or energy failures are costly for projects

• Installing own alternative systems is costly

• Inadequate road access


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Financial Risks

• Exist for all types of projects, including tourism infrastructure – Risk of default on debt

– Insufficient demand for offers

– Too many rooms

– Management underperformance

– Denied repatriation of capital and profits

– Non-convertibility of profits

– Risk of incompatible development


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Problems and Impediments

• Problems Related to Factors of Production

• Financial and Administrative Obstacles/Problems

• Problems Related to Promotion of Tourism Investments



Problems Related to Factors of Production • Land, labor, supplies,

equipment, and utilities required by projects.

• Restrictions in importing and/or hiring foreign labor High tariffs and duties Delays and expense

clearing goods through customs

Restrictions on foreign labor


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Financial and Administrative Obstacles

• High income taxes

• High interest rates

• Repatriation of capital and profits

• Administrative red tape

• Local partner requirement


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Problems related to promotion of tourism investments

• Inexperience formulating tourism projects

• No institution for tourism investment promotion

• Industry statistics unavailable or outdated


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Investor Relations

Global Trends in Tourism Investment - Benefits and Risks