When the G-20 leaders met in Mexico in June 2012, they recognised the role of travel and tourism as a vehicle for job creation and economic growth. No wonder then that so many countries are developing policies aimed at attracting FDI in the tourism sector.

During the G-20 summit, world leaders recognised the sovereign right of countries to control the entry of foreign nationals. But they also committed to developing schemes that encourage travel and which, in turn, help support job creation and global growth, and reduce poverty, all essential to attracting major inward investment by tourism firms. Projects are already in progress that support tourism and liberalise air travel.

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Inward investment agencies in some of the world’s prettiest, most historic and appealing locations often wax lyrical about the soft factors – such as tourism, leisure activities and quality of life – that can help entice firms looking to relocate and attract talent to a new site. While the development of the travel and tourism sector is important to them, it is also a market worthy of inward investment in its own right, driven by factors as diverse as low-cost airlines, the growth of an emerging middle class in developing countries and government policies designed to make travel easier.

Tourism is an area ripe for FDI. For example, South Korea’s 1930-square-kilometre Hwayang District development area, which was established in 2004, aims to create a tourism complex with links to countries such as Japan, China and Russia. The development includes five areas, or districts: Marina Beach, Gold Island, Forest Valley, Hilltop and Mountain Top. Each district offers a range of tourist facilities, including a marine sports centre, an 18-hole golf course, a hotel complex, a observatory tower, a world folk village and a cable car system.

In Nigeria, the Tinapa Free Zone and Resort has earmarked tourism as an area for investment, thanks to its prime location near to both an airport and sea port. Facilities include a games arcade, water park, hotel, fisherman’s wharf and film studio.

In India, the hotel and tourism sector has been declared a high priority, and is one of the few sectors in which the government has allowed FDI of up to 100%, subject to certain laws, regulations and conditions. According to the country’s ministry of tourism, FDI supported 1902 hotel and tourism projects between April 2008 and January 2012. The ministry says that it permitted the FDI to encourage investment in the hotel sector and to create job opportunities in the hospitality sector.

New destinations

“A developed tourism sector, with an efficient infrastructure, attracts foreign investors,” says Eduardo Santander, executive director at the European Travel Commission. “This is confirmed by the World Economic Forum Travel & Tourism Competitiveness Index, with most European destinations at the top of the rankings. Europe is considered by the Organisation for Economic Co-operation and Development to be the safest place in the world to do business. The impact of tourism on the European economy and its role as an economic engine corroborate this trend.”

While traditional tourist locations remain buoyant, a raft of new spots are making their mark. And with more consumers from emerging markets now travelling, the sector is starting to respond to these developments. “Europe’s main tourist market is Europe itself: the intra-European (regional) market is responsible for some 80% of the total volume of arrivals,” says Mr Santander.

He believes that there are three growth opportunities for European tourism. First, the fast-growing overseas markets, especially China, India (known as 'the 1 billion markets') and Brazil, because of its cultural ties with Europe and its booming middle class who are keen on travel. Second, established overseas markets such as the US and Canada, where Europe already has a good market share and can compete with other destinations for a bigger slice of the business. And finally, emerging markets in Europe, such as Russia – which has definite potential in terms of population and spending power, although this is dependent on certain national reforms – and other European countries such as Turkey and Poland, which are performing above average both as destinations and as source markets.

The 2012 World Travel Market Industry Report revealed three tiers of emerging tourism markets that are shaking up the sector. The top one includes Brazil, Russia, India and China; the second tier has Sri Lanka, Indonesia, Malaysia, Mexico and Argentina among its ranks; and the newly emerging third tier includes Thailand, the United Arab Emirates, South Korea, Chile, Nigeria and Singapore. According to the report, the Nigerian film industry – dubbed Nollywood – is the country’s secret weapon, helping to boost its profile, with Africans using no-frills airlines to visit locations made famous in its movies.

Technologies and initiatives

A raft of technologies and government initiatives are being implemented to facilitate crossborder travel. Developments include issuing visas on arrival; frequent traveller schemes – such as the US Transportation Security Administration’s Pre, which allows certain frequent flyers of participating airlines and members of the US Customs and Border Protection Trusted Traveler programmes to enjoy faster screening during domestic travel; and regional agreements such as the EU’s Schengen Zone, which allows citizens to freely circulate without being subjected to border checks.

Liberalisation of the aviation industry is providing opportunities for investors to enter new markets. However, this is not always enough, as Tony Tyler, the International Air Transport Association’s director-general and CEO pointed out in a keynote address at the India Aviation 2012 conference. In his speech, Mr Tyler urged the positive consideration of the country’s Ministry of Civil Aviation proposals to allow foreign carriers to invest up to 49% in Indian airlines.

“This would allow strategic tie-ups with foreign airlines similar to arrangements that have successfully strengthened airline groups in other parts of the world,” he said. “But allowing foreign airlines to invest in Indian aviation is not a panacea. Without addressing the other three pillars – costs, taxes and infrastructure – it may only be a theoretical exercise.”

Although progress is being made internationally, challenges still remain. Mr Santander says of the European travel market: “The main travel barriers are currently visa and taxation policies, intermodal connectivity [air-rail-boat] as well as a broader consumer protection. This has to be addressed with a common voice in the EU, working with the common goal of attracting more travellers to Europe. National interests only cloud a wide horizon of opportunities in a global marketplace where borders start losing their significance.”