Investment promotion agencies often trump their achievements in attracting investment in industries such as biotechnology and alternative energy, but can be less vocal about tourism projects. While high-tech industries, with their well-paid and highly skilled employment opportunities, are widely regarded as a panacea to many economic woes, tourism is sometimes seen as nothing more than a band aid, providing seasonal, low-paid positions.
But while the hotel and tourism industry might not have the same kudos as other, more modern, niche sectors, its sheer size still makes it a hugely valuable sector. According to the United Nations World Tourism Organisation (UNWTO), hotels and tourism account for 6% of the world's exports and one in every 11 jobs. As data from greenfield investment monitor fDi Markets shows, between 2003 and 2013, investment into hotels and tourism exceeded $97.5bn and attracted more capital than business services ($62.9bn) and pharmaceuticals ($58.9bn). In the same period, an estimated 38,500 new jobs were created by investment in the sector, twice as many as in the biotech industry.
Sun, sea and… cities?
The majority of new investments in the hotel and tourism sector are related to hotel construction, with companies such as US hospitality giant Marriott International, French hotel group Accor and UK budget hotel chain Travelodge among the most prolific investors in the sector between 2003 and 2013, in terms of FDI project numbers.
It is not just hotels that are benefiting from this thriving sector, however. Nearly 8000 of the jobs that have been created as a result of FDI in tourism are in sub-sectors, such as shared services and customer contact centres. Additionally, crossborder investment in the industry creates positions in other sub-sectors such as design and development, logistics, and retail.
While tourism projects are often assumed to be centred around beaches and exclusive holiday resorts, many of the top 20 destinations for FDI in this sector are major cities. More than 70% of the list – which includes metropolises such as London, Shanghai and New York – have populations of more than 3 million, with investment into their tourism sectors benefiting residents and visitors alike. Of the top 20 destinations for FDI into hotels and tourism, three-quarters are located in emerging markets, with Dubai leading the ranking, ahead of London, Shanghai and Beijing. China, the United Arab Emirates, Mexico, Russia, Saudi Arabia and Brazil are the leading countries for FDI in the sector between 2003 and 2013.
FDI projects undertaken in the tourism sector after the global financial crisis show an even bigger concentration of developing countries, with Germany, Spain and the UK the only developed markets among top 10 most popular destinations for new ventures in the hotels and tourism industry between 2008 and 2012. Emerging markets also led the way in terms of capital invested during this period.
The Philippines was the leading destination for capital expenditure, largely thanks to a $3bn commitment made by Japanese casino equipment manufacturer Universal Entertainment Corporation. The company plans to co-finance the development of a gaming and entertainment complex, Bagong Nayong Pilipino, just outside of the country's capital, Manila. Russia, Mexico and Vietnam made up the top four countries for inward FDI in the hotels and tourism industry during this period.
Abu Dhabi and London have seen the largest increases in inward FDI in the tourism sector in the past five years. Between 2008 and 2012, these cities recorded increases of 120% and 89%, respectively, in FDI into the tourism sector, compared with the period between 2003 and 2007. The increased investment in London can be attributed to the city's hosting of the 2012 Olympic Games, and the frenzy of construction projects that accompanied the event.
Vietnam, Morocco, Poland, Oman and Qatar have all, since 2008, seen a steady growth of investment in their tourism sectors, showing that investors in this sector are increasingly betting on second-tier markets in developing countries.
Here to stay?
Investment is only one side of the story, however, and the question is, are visitor figures in these countries increasing as a result of this growth in hotels and tourism sector projects? According to nSight, a Tennessee-based platform that aggregates searches and bookings from more than 5000 consumer travel websites, among developing economies in 2013 only the UAE could be described as a hit. “We were surprised to see that the UAE beat Brazil and most of South America, which tend to be popular destinations,” says Jami Timmons, president and chief product officer at nSight.
Unlike Brazil, the UAE was not listed in the top places that potential travellers searched in their browsers, but it is featured in the list of most frequently booked destinations in 2013. According to Ms Timmons, this indicates that “people are so eager to go there that they do not actually need to do as many repeat searches for UAE to capture the bookings”.
This suggests that, the UAE's success notwithstanding, emerging markets are still some way from delivering on their promise. Hong Kong and Singapore are the only two developing market locations that the World Economic Forum included in the top 20 of its 2013 Travel and Competitiveness Index. Furthermore, as data published by the UNWTO shows, Europe remains the main recipient of tourist dollars, grossing $458bn, ahead of Asia-Pacific ($324bn), the Americas ($213bn), the Middle East ($47bn) and Africa ($34bn).
Investments into emerging markets might not bring the expected return on investment just yet, but the UNWTO claims that soon they will. Among the regions that noted the biggest year-on-year growth in the volume of international arrivals are south-east Asia, central and eastern Europe and southern Europe, with growth of 9.4%, 7.8% and 7.4%, respectively. The UNWTO forecasts that by 2015, arrivals in emerging economies will exceed those in developed economies and, by 2030, developing countries will account for 57% of all tourist traffic, up from 47% in 2012. In absolute numbers, by 2030, developing economies are expected to receive more than 1 billion visitors annually.
“International tourist arrivals in the emerging economy destinations of Asia, Latin America, central and eastern Europe, eastern Mediterranean Europe, the Middle East and Africa will grow at double the pace (4.4% a year) of those in advanced economy destinations (2.2% a year),” state UNWTO experts in their most recent report on the industry.
IPAs fall into tourism trap
Tourism, while hardly seen by investment promotion agencies (IPAs) as a main driver of FDI into their respective regions, is still often shortlisted by them as one of the main sectors for economic development, according to the recent ‘Winning Tourism Investment’ report prepared by the World Bank Group (WBG). Out of 189 IPAs assessed by the report, 107, predominantly in developing countries in Latin America and the Caribbean and sub-Saharan Africa, listed tourism as a priority sector.
A ‘mystery shopper’ experiment, in which WBG researchers measured the response rate of IPAs to tourism inquiries, revealed that 64% of the 189 IPAs assessed did not respond to the tourism query.
Moreover, of those that did, only 37 submitted a full response. The authors of the report also found that more that one-quarter of IPAs that highlighted tourism as a priority sector did not offer a relevant section dedicated to the industry on their website.