The Covid-19 pandemic has had a sudden and significant impact on public health and the global economy. It also brought international travel to an abrupt halt. By the second quarter of 2020, 100% of global destinations had introduced restrictions on travel.
According to the three scenarios put forward by the World Tourism Organisation (UNWTO), international tourist numbers could fall by between 60%, 70% and 80% in 2020 – at the start of the year, growth of 3% to 4% was predicted. This would translate into losses of 850 million to 1.1 billion international tourist arrivals; $910bn to $1200bn in export revenues; and 100 to 120 million direct tourism jobs. And it’s not just people’s livelihoods being threatened. Our efforts to ensure tourism is a driver of the UN sustainable development goals (SDGs) are at risk of being rolled back.
This pandemic has highlighted that sustainable tourism should no longer be considered a niche part of the sector. Instead, its principles should guide everything the sector does. All stakeholders have a responsibility to make sure the future of tourism is more innovative and more sustainable. Experts point to the need to rethink frameworks and to shift from a growth paradigm to a sustainable paradigm. This is an opportunity to develop global partnerships and global initiatives and to effectively rethink investment frameworks.
The nature of tourism
Tourism is a global force for economic growth and development, generating $1700bn annually; this represents about 4% of global gross domestic product and around 29% of service exports. The labour-intensive nature of tourism drives employment; it directly accounts for one in 10 jobs in the world and in 2019, the sector supported around 300 million jobs globally.
Notably, tourism employs more women and young people than almost every other sector. Around 32% of people working in tourism are between 15 and 34 years of age, and in OECD countries, women account for 60% of tourism workers. Furthermore, tourism is the ultimate person-to-person sector and serves growing consumer demand for domestic and international travel.
According to UNWTO data, the number of international tourist arrivals reached 1.5 billion in 2019, and is expected to reach 1.8 billion by 2030. This represents around 50 million additional arrivals per year, around a 150% increase on the period between 1995 and 2010. An estimated 88% of these tourists are from Asia.
The demographic of this new market horizon (2030-40) will be predominantly millennials and Generation Z; by 2040 they will represent the largest share of the global population at 2.3 and 2.6 billion respectively. As both generations are ‘digital natives’, this will present an important opportunity to develop digital and technologically innovative services.
However, it also poses several challenges in terms of digital infrastructure, value chains and platforms, data protection, mobility, and so on. At the same time, as consumer behaviour changes, growing numbers of people consider travel and experiences a priority, and so take four or more trips per year. These trips are generally characterised by their shortness and their emphasis on authenticity and sustainability.
There is evidence that for every dollar of tourism exports, 89 cents of domestic value added is generated: 56 cents are directly generated while 34 cents come from indirect impacts. More than 30% of this value comes from indirect impacts on the local value chain – that is, through links to other sub-sectors such as passenger transport (21%), accommodation (19%), food and beverage (16%), and other services (44%) such as travel agencies, entertainment, financial services and digital start-ups.
The multi-dimensional nature of tourism, combined with the dynamic nature of investment capital, presents a complex picture, which makes the understanding and measuring tourism investments challenging. At the same time, new consumer expectations, the advantages of technology, and the need for sustainability measures challenge the current business models, and present new opportunities for investors interested in the tourism sector in the new, post-Covid reality.
Investments are a crucial component for driving recovery and strengthening the tourism ecosystem, both in the traditional and non-traditional senses. Beyond the financial instruments to facilitate liquidity and so support the tourism value chain in the short term, there is a need to develop investment vehicles to accelerate the diffusion of technology, inclusion and sustainability for the long-term resilience of the sector.
A significant level of investment will be required to support increasing traveller volumes, and their changing needs. It is estimated that around $6900bn of infrastructure investment will be needed each year between now and 2030 if we are to achieve the SDGs. The current spending on infrastructure is between $3400bn and $4400bn.
According to fDi Intelligence, tourism FDI reached 613 greenfield projects, and more than $57bn in investments in 2018. As such, climate-related requirements regarding infrastructure quality are an opportunity for the tourism sector to move the climate and development agendas forward and develop infrastructure systems that deliver better services while also achieving climate goals and the SDGs.
Venture capital (VC) investments in travel tech have been growing. Around $449bn was invested in travel and mobility tech start-ups between 2014 and 2019. At the same time, travel tech start-ups reached $61.6bn in unicorn valuations. Non-traditional investments in start-ups are not only an opportunity for investors, but also represent an opportunity to develop solutions to decarbonise and decentralise energy systems through electric vehicles and renewable energy solutions, and design innovative new services and business models including new platforms, and for the further development of the sharing economy and circular supply models. All of these can help the transition towards a low-emission and resilient future.
This data can be used as a proxy to measure the flows of capital into the sector. Due to its cross-cutting and multi-dimensional nature, investments in the sector can be difficult to measure and track so the UNWTO is developing a series of investment guidelines to understand and generate sustainable investments in the tourism ecosystem. This aims to provide insights on trends and opportunities, as well as strategies on how to address current challenges and barriers when investing in the tourism sector, including the opportunities for digital start-ups to raise funding from non-traditional investments such as VC and corporate ventures.
The Covid-19 pandemic has highlighted the fact that sustainable tourism requires sustainable investments to be at the centre of new solutions, not just traditional investments that promote and underpin economic growth and productivity. It has also illustrated the importance of non-traditional investments that enhance innovation through the creation and diffusion of new solutions to decarbonise the sector.
To harness the advantages of investments, it is critical that governments promote policies as well as new investment vehicles to recover, retain and attract FDI. Only this way can we re-imagine tourism and enhance the sector’s positive impact on the people and the planet as we accelerate the achievement of SDGs.
The urgency to balance the trade-offs between the environmental, economic and sociocultural challenges of tourism and meet the demand to drive digital technologies might require extra political and financial commitment as well as the data-driven participation of several stakeholders. This is especially true of the private sector, which has the ability to enhance solutions not only in response to the Covid-19 crisis, but also to develop solutions related to offers and destinations.
Strategic public-private partnerships in investments have a critical role to play in the economic recovery from the effects of this pandemic, and in realising the ambitious goals of protecting the planet and ensuring prosperity for all through sustainable investments in tourism as a catalyst and multiplier sector globally.
Miguel Angel Figueroa is the investments principal for innovation, investments and digital transformation at the World Tourism Organisation (UNWTO).