Viability of International Tourism Symposium on Tourism Services World Trade Organization, Geneva, February 23, 2001 Ia

1. 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

2. TOURISM IN THEGLOBAL 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

3. 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

4. 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

5. 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 • Cultural heritage & preservation World Bank Group

6. THE ACTORS • TOURISM IS APRIVATE SECTOR ACTIVITY • Entrepreneurs finance hotels & other businesses • Opportunity to make profits • Cross sectoral with wide business linkages • SUCCESS DEPENDS ON APERFORMING 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

7. 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

8. 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

9. 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 & TOURISM: FINANCING COMPETITION AN ENTRY POINT • FDI • 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 Group • Public awareness

10. 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

11. 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 DC • Package: • Tour operator -- 21 -- 11 • Air transportation 4 39 9 9 • Hotel & Transfer 19 -- 27 -- • Other expenditures 17 -- 44 -- • Total 40 60 80 20 World Bank Group

12. 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. c/ Lower expenditures than forecast outside hotel, as well as lower occupancies; does not include benefits to local populations d/ Excludes construction industry and reflects seasonality World Bank Group

13. 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 ($) 44,000 75,000 • Cruise passengers (000s) 3.2 47.9 • Economic rate of return (%) 17.5 (low) 12 • (Role of tourism incentive law) (upper) 26 • Jobs created • Direct 6,000 12,000 • Indirect N/A 28,000 • Forex earnings (US$ millions) 100 (1980) 1,000 World Bank Group

14. 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 • - Lending or non-lending? World Bank Group