How global tourism growth is triggering a new wave of investment promotion

In many countries, governments have not yet enacted focused tourism industry policies, and little attention has been paid to investment promotion in tourism when compared with other sectors. This situation is changing quickly, however, and investment promotion agencies (IPAs) are increasingly targeting travel and tourism. Indeed, hotels and tourism were among the top five sectors for Chinese investments in North America in 2014, according to The fDi Report 2016. 

Government agencies’ rising interest is triggered by growing competition in tourism markets, which are increasingly demanding greater quality and diversity of goods, services and travel experiences. Sizeable tourism flows to certain geographical areas have created a large and relatively stable market. Globally, international tourist numbers have grown continuously since 1950 and are forecast to keep growing by 3.3% annually until 2030, according to the UN World Tourism Organisation (UNWTO). Such flows are forecast to generate 9.6% of global GDP by 2030, creating 300 million jobs in a global market that is becoming much less concentrated as new tourist destinations spring up.

Great expectations

The opportunity to expand and strengthen local economies through tourism is an option for most (though not all) regions. Yet this requires strategic thinking about the capital, businesses and entrepreneurial abilities needed to turn tourism into a sustainable lever for economic development. According to international advisors, high expectations for global tourism growth risk remaining unmet because of scarce or outdated assets, including tourism ‘software’ (such as innovative travel products), ‘hardware’ (infrastructures) and ‘orgware’ (managerial and organisational capacity), which require injections of capital.

There is rising interest in investment promotion in travel and tourism, and numbers (arrivals, overnight stays and jobs created) certainly justify action in these sectors. The field is in its infancy, however. The World Bank’s report on global investment promotion practices revealed that 107 out of the 189 IPAs surveyed include tourism as a priority sector, but the quality of assistance and information on offer for prospective investors were generally low.

Data on greenfield investments from fDi Markets shows that between 2003 and 2013, hotel and tourism investment reached $97.5bn globally, creating 38,500 new jobs, twice as many as in the biotech industry. This figure is not limited to hotel construction investments; other travel and tourism-related sectors created about 8000 of those jobs. In addition to hotels, resorts, restaurants and transport rentals, diverse and innovative tourism services should be considered, including tour operators, cultural, sport, recreational and entertainment products and services, ICT, digital media for smart tourism and ‘smart heritage’, and green industries for ecotourism. Other non-tourism sectors such as the fashion and lifestyle industries, agriculture, arts and crafts and even higher education are all also becoming particularly sensitive and responsive to tourism dynamics.

Europe’s potential

'Europe, the World’s No. 1 Tourist Destination' was the title of the European Commission’s 2010 communication that outlined a new political framework for tourism in Europe. It inaugurated a new phase that, based on a rising awareness of tourism’s role in the continent, formally recognised the EU’s competencies in tourism. Its title was grounded in figures: arrivals continue to grow, and in 2014 Europe led global tourist growth with 3%. It is not only a top international destination but also the main source of international travellers and more than half of global arrivals. Analysts hence forecast steady and robust growth despite international geopolitical crises: in times of turbulence, domestic tourism has remained fairly untouched. Furthermore, Europe’s travel and tourism sector accounts for 9.2% of GDP (considering indirect and induced effects) and directly employs 13.9 million people (and 32.2 million indirectly), with a labour market growing faster than in other sectors.

Foreign investments are usually prioritised in the emerging tourism markets of developing countries, so it also makes sense to evaluate the potential of investment promotion in the developed world. The total number of FDI projects into Europe fell by 9% in 2015 according to The fDi Report 2016, with some notable exceptions (including the UK, Ireland, the Czech Republic and Finland). Therefore, it is worth assessing how Europe can boost its competitiveness as an investment destination in general, and especially in the travel and tourism sector.

Europe’s performance as an investment destination must be factored in given that a key issue in tourism development is low or at-risk infrastructure competitiveness, especially in countries that are particularly reliant on tourism. In 2015, the World Travel & Tourism Council rated France, Italy, Ireland and Greece as countries "well-placed, but with key risks" because their stability is at risk over the next 10 years, meaning that forecast investment growth is much weaker than tourism growth. Investment is needed to maintain or improve these countries’ competitiveness, which could include public-private partnerships for key projects, ranging from airport infrastructure to eco-friendly transport projects.

Investment propositions

France, Germany, Italy, Spain and Turkey are the top five European destinations for international tourism arrivals, according to data from the UNWTO. In France, 23 foreign investment projects were recorded in 2014; these created 799 jobs, according to government agency Business France. In Spain, greenfield investment projects in tourism created more than 5000 jobs in the past 10 years and 745 between 2012 and 2015. In these cases, tourism investment largely means hospitality projects but also innovative tourism services. An example is G Adventures, a Toronto-based company offering small group adventure and environmentally sensitive travel. It recently opened sales, marketing and support facilities in Berlin, following the growth of its European and German markets. 

Tourism is widely referred to in investment propositions as an ingredient of competitiveness, attractiveness and country branding. This is exemplified by Invest in Bavaria’s marketing slogan of 'Live where others spend their vacation'. Business France has recently launched umbrella branding campaign Creative France, a programme aimed at boosting the country’s attractiveness. The tourism industry, culture and heritage and international higher education are among the key elements of national competitiveness highlighted by the campaign. Tourism is also playing an increasing role in FDI promotion, where traditional marketing techniques are only part of the broader reputation-building strategy.

Diversification plans

Among the UNWTO’s top five, however, tourism is clearly identified as national target industry for investment promotion only in Turkey. The Turkish Prime Ministry Investment Support and Promotion Agency identifies tourism as one of 16 key industries. All Turkish regions are said to have untapped tourism potential and offer various investment opportunities, and this potential must be realised if the target of 60 million tourists by 2023 is to be reached. Diverse tourism segments include halal tourism, ecotourism, sun and sea tourism, cultural tourism and Unesco sites, and golf and conference tourism.

Where it is not identified as national target sector for FDI promotion, tourism is sometimes a priority at regional level. The Invest in Spain website provides information about six regions that identify tourism as target sector. The Balearic Islands target investors to diversify their tourism offerings and transcend the ‘sun and beach’ model, while attempting to increase visitor spending. The Canary Islands promote advanced tourism services including health services, international higher education and shopping tourism as ways to boost international arrival numbers, especially from west Africa. Castilla y León has recently experienced fast tourism growth and is currently targeting meetings, incentives, conferences and exhibitions.

Hospitality real estate is usually promoted to international investors, as with Italy’s Valore Paese (Value Country) programme, which promotes a network of refurbished lighthouses, towers and coastal buildings that offer niche accommodation. The project aims to boost sustainable tourism by capitalising on Italy’s heritage, following similar initiatives in Spain and Portugal. The properties are owned by the state, and private investors are entitled to develop them through a 50-year ‘concession of enhancement’ contract.

A role for IPAs

IPAs’ activities can contribute to making tourism a realistic lever for economic development. However, it is vital that their activities are integrated with national tourism development strategies. Such integration will give focus to investment facilitation and boost key strategic investments for sustainable and inclusive tourism development.

Based on their first-hand knowledge of the market and of investment mobility, and by accumulating knowledge on tourism markets, IPAs function as antennae, detecting emerging opportunities and advising policymakers on, for example, incentive schemes such as grants or fiscal incentives in key areas.

Dedicated frameworks for assessing the value of incoming tourism investments are important. A range of criteria can be developed, including both the number and the quality of jobs created (for instance, the generation of unskilled and highly skilled employment). While the size of capital investment may vary, incoming investment projects must connect with the local socio-economic fabric and contribute to local tourism’s ‘value constellation’.

Cecilia Pasquinelli is a post-doctoral research fellow at the Gran Sasso Science Institute in Italy.