Viability of International Tourism

Symposium on Tourism Services

World Trade Organization, Geneva,

February 23, 2001

Iain T. Christie
MIGA
ichristie@worldbank.org

World Bank
Group
 TOURISM IN THE GLOBAL ECONOMY

•WTTC’s estimates for 1999:

•Travel and Tourism: 11.7% of global GDP

•Tourist expenditures: 8% of global exports

•Employment: 8% jobs worldwide

•Tourism Satellite Accounts (TSA)

Source: World Travel and Tourism Council
(WTTC)

World Bank
Group
 TOURISM & POVERTY

Tourism is designated as “significant” when:

> 2% of GDP, or
> 5% of exports

•TOURISM IS SIGNIFICANT IN:

- 11 of the 12 poorest countries of the world

(< US$1/day)

- half of the lowest income countries

- almost all lower middle income countries

Source: DFID: Tourism and
Poverty Elimination: Untapped Potential

World Bank
Group
 TOURISM PROJECT DATA REQUIREMENTS

Tourism Satellite Account

 If you can afford it -- go for it!
 Modular approach

Data requirements for sustainability:

Pricing,conservation of scarce, fragile resources
Value added & leakage
Linkages to other sectors
Investment, local and foreign
Job creation and quality
Poverty alleviation, creation of wealth and growth.

World Bank
Group
 WBG CONTEXT

•DEMAND from client countries

•IFC finances tourist establishments
•MIGA provides guarantees and investment promotion
•Bank/IDA
Formerly financed tourism, including:
Infrastructure & site development
Hotel credit
Tourism training
Cultural heritage
Renewed interest, spurred by:
Environment & Ecotourism -- GEF
Poverty alleviation
Community participation & social inclusion
World Bank Cultural heritage & preservation
Group
 THE ACTORS

•TOURISM IS A PRIVATE SECTOR ACTIVITY

Entrepreneurs finance hotels & other businesses
Opportunity to make profits
Cross sectoral with wide business linkages
•SUCCESS DEPENDS ON A PERFORMING PUBLIC SECTOR
Policy & regulatory framework
(economic, social & cultural)
Infrastructure services, public & private
Key services: public health, security & rule of law
•PUBLIC/PRIVATE PARTNERSHIP
•DONOR COMMUNITY

World Bank
Group
 SUSTAINABILITY

•RIO EARTH SUMMIT AGENDA 21, 1992

- one of few economic activities capable of
providing economic incentives for preservation
of the environment

- potential major source of continuing

employment for women and the unskilled
•COMMISSION FOR SUSTAINABLE DEVELOPMENT 19
“economic benefits of tourism have the potential to
alleviate poverty in the developing world, but capacity
building is needed at the local level to achieve the goal”

World Bank
Group
 SUSTAINABILITY & DEVELOPMENT

•POVERTY ALLEVIATION
•INTERDISCIPLINARY NATURE OF TOURISM
•FINANCIAL AND ECONOMIC
Create the opportunity for owners, investors to make profits
Economic catalyst -
Expenditure outside tourist enterprises
Leakages or linkages?
Employment
Tax revenues
Regional development
Ownership
•SOCIO-CULTURAL
Inclusion of local people in benefits
Interpretation, protection of cultural heritage
•ENVIRONMENTAL
Conservation and mitigation
Eco-tourism, coastal zone management (CZM),
wildlife management
•EXTERNALITIES
 TOURISM AS AN ENTRY POINT
SECTORAL
LINKAGES CAPACITY BUILDING
MACRO POLICIES
•Agriculture •Foster enterprise learning
•Foreign exchange
•Infrastructure •Operating, financial,
•Monetary policy
•Education & health commercial and marketing
•Tax and trade policy
•Manufacturing management.
•Employment
•Construction •Training and
•Handicrafts professional development .

REGULATION &
FINANCING TOURISM: COMPETITION
•FDI AN ENTRY POINT •Competition
•Hotel •Environment & physical
•SME & micro-credit planning
•Infrastructure •Privatization
•Risk mitigation •Property rights &
contract enforcement
•Judicial reform
INSTITUTIONAL •Security
FRAMEWORK •Health
•Public/private partnerships MICRO ISSUES
•NGOs •Sector policy
•Community participation •Infrastructure & service costs
•Investment promotion •Employment creation &
•Marketing & sales income generation
•Consumer preferences •Hotel Standards
World Bank
•Public awareness
Group
 FINANCIAL & ECONOMIC SUSTAINABILITY

TOURISM VULNERABILITIES: MYTHS AND REALITY

Myths: 1. Leakage of foreign exchange

2. Volatility of demand
3. Foreign ownership and management
4. Not pro-poor

Reality: 1. Compare leakage between sectors

-- focus on linkages
Pricing of fragile tourism resources
2. Volatility usually based on conditions
pertaining locally, not commodity prices
3. Evidence of high level of local investment
Training of local staff in large chains
Tourism requires international experience
4. If local communities included, tourism is
powerful stimulus for job, wealth creation
 ERRs ON HOTEL PROJECTS
(sample of 46 IFC hotel projects)

12% = average of all IFC projects

8 hotel projects had ERR>20%

9 projects between 1995-1997, ERR median 16%

 >ERR for IFC as a whole

Composition Charter Scheduled
Of Package (%) Two week Three week
(E. Philip English) Long-haul Short-Haul
LDC DC LDC
Package:
Tour operator -- 21 -- 11
Air transportation 4 39 9 9
Hotel & Transfer 19 -- 27 --

Other expenditures 17 -- 44 --

World Bank Total 40 60 80 20

Group
 Turkey: South Antalya Tourism Project

Projected Completion
at appraisal (1990)

Total costs (US$ millions) a/

Infrastructure 65.0 43.0

Accommodations (beds) b/ 1,050 (existing)

6,100 10,350

Room occupancy (%) 75 60

Domestic tourists (%) 20 37

Economic rate of return (%) 17.2 10.5 c/

Jobs created (1990) 12,500 7,300 d/

a/ Rapid devaluation resulted in higher TL costs than at appraisal

b/ Includes hotels, vacation villages, guest houses, etc.
World Bank c/ Lower expenditures than forecast outside hotel, as well as lower occupancies; does not
Group include benefits to local populations
d/ Excludes construction industry and reflects seasonality
 Dominican Republic: Puerto Plata Projects
(Infrastructure and Hotel Credit)

Projected Completion
at appraisal (1990)

•Total costs (US$ millions)

First project 36.0 49.5
Loan 21.0 20.9
Second project 71.0 71.0
Loan 25.0 21.5
Superstructure N/A 180.0
(Period of rapid devaluation and inflation in 1980s (>40%) )
•Accommodations (rooms) 1,600 3,300
•Room occupancy (%) 65 76
•Cost per room ($) 44,000 75,000

•Cruise passengers (000s) 3.2 47.9

•Economic rate of return (%) 17.5 (low) 12
(Role of tourism incentive law) (upper) 26
•Jobs created
Direct 6,000 12,000
Indirect N/A 28,000
World Bank •Forex earnings (US$ millions) 100 (1980) 1,000
Group
 CONCLUSIONS

•DOES TOURISM HAVE A COMPETITIVE ADVANTAGE?

•IS IT VIABLE?
- Specific context, given endowments, socio-cultural,
economic, and environmental considerations
•MAINSTREAM TOURISM BY:
- Building multi-sectoral teams
- Launching pilot projects to demonstrate capacity
- Working with partners, stakeholders
•WBG: WHEN TO INTERVENE?
- Public good content
- Market failure
- Other gaps in competitiveness
MIGA: Investment promotion, guarantees
IFC: Transactions
World Bank: Policy framework, public lending,
business environment
World Bank - Lending or non-lending?
Group