ifc tourism/hotel sector review - the george washington...

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Overview

IFC’s Tourism Sector Activities

October 04, 2011

Shaun Mann, Global Technical Specialist,

Tourism

IBRD International Bank for Reconstruction and Development

IDA International Development Association

MIGA Multilateral

Investment and Guarantee Agency

To promote institutional, legal

and regulatory reform

Governments of poorest countries

with per capita income of less than

$1,025

- Technical assistance - Interest Free Loans

- Policy Advice

To reduce political investment risk

Foreign investors in member countries

- Political Risk Insurance

Est. 1945 Est. 1960

IFC International

Finance Corporation

To promote private sector development

Private companies in member countries

- Equity/Quasi-Equity - Long-term Loans - Risk Management - Advisory Services

Est. 1956 Est. 1988

Role:

Clients:

Products:

To promote institutional, legal and

regulatory reform

Governments of member countries with

per capita income between $1,025 and

$6,055.

- Technical assistance - Loans

- Policy Advice

IFC?

Shared Mission: To Promote Economic Development and Reduce Poverty

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IFC’s Global Reach

100+ country and regional advisory services offices worldwide

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IFC also provides advice to governments and businesses

Investment Services Advisory Services IFC is the world’s largest multilateral provider of financing for private enterprises with over US$40 billion in outstanding investment commitments

Loans Equity

Guarantees

Business Advisory Services

Investment Climate

Public-Private Partnerships

Access to Finance

IFC: Advisory and Investment

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▪ Why Should IFC Invest in Tourism?

▪ World Bank Group Strategy in Tourism

▪ WBG Impact in Tourism

Presentation Outline

Revenue Generation:

>> The sector will generate US$6 trillion of economic activity in 2011. >> It is expected to rise by 4.2% p.a. to US$9.2 trillion by 2021.

Largest Employer next to Agriculture:

>> Total contribution to employment is forecasted to rise by 2.3% p.a. from 259 million (or 8.8% of total employment) in 2011 to 324 million (or 9.7% of total employment) by 2021 (equivalent to one in ten jobs).

Travel and Tourism capital investment is estimated at US$651 billion or 4.5% of total capital investment in 2011 and is expected to double by 2020.

In 2010 International Tourism Receipts surpassed US$900 billion.

By 2020 international arrivals are expected to reach 1.6 billion.

Emerging Markets represent 37% of total international tourism receipts.

Source: World Travel & Tourism Council (WTTC), UN World Tourism Organization (UNWTO) 2010

Tourism Sector has High Economic Importance and Significant Global Impact…

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Because:

Tourism is the main source of foreign exchange for 47 of the World’s 50 Least Developed Countries.1

It is an economically important sector, one of the first sectors to be developed in many IDA eligible countries and is a catalyst for development of other sectors.

According to WTTC 66 million jobs will be created in tourism over the next 10 years acting as a key driver to poverty reduction.

There is escalating demand for tourism products/services including transportation and hotel rooms worldwide, especially in developing countries.

Private financial markets are often not willing to fund hotel investments in developing countries on account of risk factors such as political instability, seasonality, unstable cash flows, capital intensive, etc.

In some destinations, for every US$4 spent by a tourist, US$1 reaches the poor.2

By supporting the Tourism Sector, IFC’s aims to create jobs and to

generate economic growth

…And Provides an Attractive Development Opportunity for IFC in Emerging Markets

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Since 1956, IFC has invested over US$2.5 billion (including syndications) in 250 hotel projects in more than 83 countries, 50% were in frontier countries.

1 2 Ashley and Mitchell, 2010

Presenter

Presentation Notes

Economic and Social Council of the United Nations used the following three criteria for the identification of the LDCs: - low-income criterion based in gross national income per capita (under $750 for inclusion, above $900 for graduation); - human resource weakness criterion based on indicators such as: (a) nutrition; (b) health; (c) education; and (d) adult literacy; and�- an economic vulnerability criterion based on: (a) the instability of agricultural production; (b) the instability of exports of goods and services; (c) the economic importance of non-traditional activities (share of manufacturing and modern services in GDP); (d) merchandise export concentration; and (e) the handicap of economic smallness (as measured through the population in logarithm); and the percentage of population displaced by natural disasters.

From 1950 to 2010 international tourism arrivals grew from 25 million to 935 million. Over the same period, international receipts grew from US$2 billion to US$919

billion.

Source: UNWTO 2010 Edition, UNWTO PRN0PK11041, Oxford Economies

Arriv

als (

Mill

ions

)

Rece

ipts

($ B

illio

ns)

Tourism: A Growth Industry

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Source: UNWTO, 2010

Presenter

Presentation Notes

International tourism figures (arrival and receipts from all WTO (World Tourism Organization ) sourced info refers strictly to cross border travel and excludes domestic travel which is much more significant in many countries International Receipts have grown to approximately US$2 billion per day and Africa, Asia& Pacific and the Middle East have increased their share of total international tourist arrivals. Most countries in the developing countries have comparative advantages in tourism because of the natural environment in addition to developing tourism strategies as part of the national economic planning program. DOMESTIC TOURISM IN INDIA AND CHINA Significantly increased travel volumes in the region from international and, in particular, regional and domestic travelers have greatly increased interest in hotel investment, especially in China and India, the two fastest growing hotel markets in the world. Domestic tourism in India increased by 15% between 2005 and 2006 with an estimated 52.9 million domestic trips Domestic tourism market in China rose an estimated 17% from 2005 to 2006 generating a total expenditure of US$ 79.5 billion in 1.39 billion trips

Source: UNWTO, 2010

Tourism revenues account for more currency moving from developed countries to developing countries than the total of all aid from foreign governments.

This is mainly due to:

>> Governments making tourism development a national priority.

>> Strong economic growth in developing countries (especially India, China and Brazil).

>> Emerging middle class.

>> Increased business and intra-regional travel.

>> Increased investments in tourism infrastructure.

>> Liberalization of air transport.

>> Expansion of low cost air carriers.

Market Share is Shifting to Developing Countries

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Small hotel chains or independently owned (the majority of which are SMEs) account for 66% of the rooms.

Global hotel chains account for 20% of total hotel rooms (including management contract, franchise, lease or owner-operator).

Rooms worldwide increased from 8.5 million to 19.4 million.

Room nights sold increased from 1.4 billion p.a. to 3.2 billion p.a.

Highest level of growth experienced in emerging markets

– Middle East: 6.2% – Asia and the Pacific: 4.6% – Africa: 4.3%

Hotel Rooms by Region, 1975 and 2005 (million)

2.9

4.1

0.3

6.7

4.8

1.11.2

6.9

0

1

2

3

4

5

6

7

8

Americas Europe Asia and the Pacif ic Africa and MiddleEast

UNWTO & IHRA1975 2005

Hotel Rooms by Region, 2005 Average annual growth rate, 1975-2005 (%)

2.8

1.6

2.9

4.34.6

6.2

0

1

2

3

4

5

6

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World Europe Americas Africa Asia andthe Pacific

Middle East

UNWTO & IHRA

IHRA: International Hotel & Restaurant Association

The Hotel Industry Underpins Tourism

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Impressive Growth in the Hotel Industry (1975-2005) The Role of SMEs in the Hotel Industry

Presenter

Presentation Notes

A common definition of SMEs includes registered businesses with less than 250 employees.1 This places the vast majority of all firms in the SME sector. SMEs are estimated to account for at least 95 percent of registered firms worldwide; in Europe, for example, this number is well over 99 percent.2 To narrow this category, SMEs are sometimes distinguished from microenterprises as having a minimum number of employees, such as 5 or 10. They can be further divided into small enterprises (SEs) and medium enterprises (MEs), though there is even less consensus on where to divide them. Alternative criteria for defining the sector includes annual sales, assets, and size of loan or investment. To qualify as a micro, small, or medium enterprise (often abbreviated MSME) under this World Bank classification, a firm must meet two of three maximum requirements for employees, assets, or annual sales (Table 1).

Hotels Generate Significant Development Impact

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Government Taxes

Improved Fire and Safety Standards Improvements in Local Environment;

e.g. Solid Waste, Energy Efficiency, Green Construction, Roads, Airports

Quality Hotels; Conducive for Business

and Leisure Job Creation Opportunities Foreign Exchange

Improvement of Cultural Heritage Sites

Transfer of Knowledge and Skills

Indirect Employment Opportunities; Local

Handicrafts, Restaurants; Tourist Services , other Retail

Linkages with Local Suppliers; Agribusiness, Construction

and Service Companies

A new Hotel Project/an Expansion/ or a Refurbishment

Presenter

Presentation Notes

Tourism and Hotels are used interchangeably in the presentation. Tourism is a very broad industry covering a lot of facets – in IFC, the focus is on hotel investment which is the most capital intensive part of tourism from the private sector perspective; with the move to privatization of airports and airlines, IFC has also gotten actively involved in these areas but this is typically under Infrastructure and Advisory Services Departments. Infrastructure has also supported power projects focused on tourism destinations and cruise ports etc which support tourism. There is no other industry that has a sustained and diversified multiplier effect on the economy, while playing a crucial role in the overall development of a country. Since the very essence of tourism and its future depends on protection of natural, historical and cultural resources, it plays an important part in promoting sustainable growth and environment protection.

Many Factors Impact Its Development

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•Trained Workforce •Infrastructure •Access Transport

•Sustainability •Master Planning •Marketing

•Tour Operators •Hotels

Public

Public / Private

Private

• Proper Planning • Enabling Environment • Border Facilitation

• Safety and Security • Investment incentives • Regulation

External Factors that affect Tourism: Distance / Cost

Cost of Development

Cost of Operations

Political Stability

Economic Stability

Innate Attractiveness

Perceived Health and Safety

Weather / Natural Disasters

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Big picture: the Bank’s perspective is evolving

1966-79 Economic Growth /Import Substitution

1979-1980 Retrenchment

1980-90 Minimal Attention

1990-1999 Re-Emergence through Environmental

and Cultural Preservation 2000 onwards – Poverty

Reduction / Economic Growth

• Project objectives linked to MDGs

• Private sector growth strategies (e.g. Growth Poles)

• Community Driven Development approaches

• Focus on baseline data, growth diagnostics, benchmarking, results, sustainability

• Institutional support

• Coordinated approaches (e.g. FPD with Investment Climate)

World Bank Tourism Portfolio

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The kind of projects the Bank is engaged in:

Infrastructure investments to leverage tourism growth >> China - 3 Urban regeneration projects in culture and heritage-rich

cities.

Cultural Heritage to preserve and rehabilitate cultural assets >> Ethiopia: tourism development through rehabilitation of Northern

Historic Route sites.

Environment Conservation and rural community development >> Amazon Basin Regional Project: Economic diversification into

ecotourism through leveraging natural assets >> Global Tiger Initiative: Using ecotourism to preserve tiger habitats. >> Tunisia: Economic diversification into ecotourism through leveraging

natural assets.

Private Sector Development and business/investment climate improvements

>> Mozambique: Tourism development through improving private sector business enabling environment.

>> Lesotho: Private sector development and infrastructure investment to support tourism growth.

>> Mali: Tourism development through improving private sector business enabling environment.

>> Sri Lanka: Private sector development and infrastructure investment to support tourism growth.

SSA22%

MENA13%

EAP21%

SAR8%

ECA18%

LAC18%

38 Projects Globally Total value US$ 1.9 billion

•Build foundation for Infrastructure

•Opening the country for international business

•Demonstrating viability

•Training & Employment

•Spill-over to local hotels

•Foreign exchange, taxes

•Development of local business

• Improve community linkages & local supply chain efficiency/standards

•Decrease hotels’ impact on environment

• Tourism enabling infrastructure

ESD, IC Advisory

First International Std. Tourism Investment

Business Hotel / Innovative Projects Restructuring

Sustainable Development Advisory

Country Development

Tourism Sector Development

IDA / Post Conflict BRICT

•Support sustainability of the sector

High Level of Project Selectivity Financing of Hotel

Chains where possible Limited equity

investment in the sector

Risk Mitigation

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IFC Strategy – Maximizing Impact in the Sector

IFC Advisory Work: Developing the Market for Growth

Sierra Leone Govt prioritizes tourism But hard to convince investors or consumers

Strategic case to start with a good 4* Business hotel in Freetown – none exists Several derelict govt. properties that have potential – define 1 and find an investor

Transparent bidding process gives some investor confidence, IFC Advisory (IC & C3P) hand-holds the process

$40 million investment signed July 2011 with

Hilton managing

Sierra Leone & Mozambique

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Mozambique Govt prioritizes tourism investment But poor legal & regulatory environment is a major obstacle

IFC advises focus on special tourism zones where regulations can be simplified IFC/ govt. define these areas and specific sites within them

Transparent bidding process for sites results in 2

investments $33 million investment deals signed June 2011

IFC Tourism Investments: Global Brands

EMENA EMENA &CAF EMENA & CAF LAC Asia & Global

Peru, Russian Federation, Iexico

US$40 million Loan

Maldives (Universal) US$30 million Loan

Maldives US$17 million Loan

Brazil, Mexico US$176 million Loan &

Equity

Dominican Republic, Mexico

US$186 million Loan & Equity

Trinidad and Tobago US$4 million Loan

Poland US$11 million Loan &

Equity

Kenya US$7 million Loan

Ukraine US$30 million Loan

Jordan

US$10 million Loan & Equity

Senegal US$10.5 million Loan

Pakistan US$16 million Equity

Afghanistan US$7 million Loan

Jordan US$69.8 million Loan &

Equity

Bhutan US$10 million Loan

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Peru was coming out of a very difficult period.

IFC’s investments helped to provide the first long-term funding to a hotel in Peru.

IFC successfully contributed to positioning Peru as a high end destination.

Other hotels such as Inkaterra and Marriot followed the example of POEH.

An IFC’s rail project implemented in parallel successfully improved Peru’s infrastructure and market attractiveness for the sector.

Tourism is the third largest industry in Peru. It employs 10.8% of the labor force and makes up to 7% of Peru’s GDP

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First Investments in Tourism: Focus on IDA / Post Conflict

IFC’s successfully helped to position Rwanda as a high-end destination.

First investment in two luxury international hotel chain in Rwanda.

Promotion of Rwanda’s cultural heritage, safaris, etc.

Strong demonstration effect: more luxury hotels and direct flights from Europe.

World Bank supported infrastructure development.

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Supporting Growth of Local Business

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Supporting Innovation

IFC’s first direct investment in an ESCO in LAC.

IFC’s successfully increased the access to finance of commercial companies for cost saving investments in energy efficiency .

>> Reduction in energy usage, shrinking the carbon footprints of Optima Energia

clients. >> Significant cost savings for Optima Energia clients, typically up to 40% utility

cost savings.

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Stabilizing the Industry During Downturn

World Bank helped Dominican Republic for integrated tourism development in the 1970’s.

IFC helped financed the first hotel. Strong demonstration effect.

IFC’s Infrastructure department financed power plants.

After the economic downturn in 2001, IFC successfully contributed to the restructuring of Occidental.

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IFC has invested over US$2.5 billion (including syndications) in 250 hotel projects in more than 83 countries, 52% were in IDA countries (one of the highest IDA counts across IFC departments), including 99 hotel investments in Sub-Saharan Africa.

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IFC Impact in Tourism (investments)

IFC’s 24 Tourism Projects (investments) (extrapolated to 30 years)

237,552 direct jobs created1

US$7.4 billion paid in taxes

US$36.7 billion purchased in local goods and supplies

US$22 billion earned in net income

US$243 billion generated in sales revenues

1 Estimation based on a sample of 24 projects

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IFC Impact in Tourism (Advisory)

This is an emerging picture as the focus on the tourism sector is only since 2008, previously efforts were ad hoc responses to demand

Investment Climate Sustainable Business Public Private Partnerships

Moving from economy-wide reform work to improving, at a sector level, the investment climate and the business enabling environment to foster growth, competitiveness and inclusion through generating sustainable jobs and investments in tourism, e.g.: • Mozambique Anchor Investment Program – US$ 33 million investments, 400 jobs

Growing a portfolio and experience in the privatization of government hotels, airlines, airports, cruise terminals, e.g.;

Transitioning from ad hoc tailored products for individual IFC clients to a more programmatic sector supporting role e.g.: • Linkages Programs (Community linkages program for Orient Express Hotels in Peru) • World Hotel Link, • Business Edge, • Energy and Water Audit, • Renewable Energy/Energy Efficiency

US$640 million (1.5% of IFC’s Total Committed Exposure).

Primarily debt financing, only US$57 million committed in equity investments.

Well diversified (68 Projects in 39 Countries) of which 52% are in IDA countries.

Over the last three years, 65% of the projects were in IDA countries.

US$1.33 billion committed in related infrastructure projects.

IFC’s Current Tourism Portfolio

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High growth industry in Emerging Markets. High development impact.

Very risky sector limiting Commercial Financing.

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In Conclusion

High Demand for IFC’s Services

ifc tourism/hotel sector review - the george washington...

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