As the negative impacts of tourism are clearly visible, they tend to dominate the spheres of debate and research and consequently eclipse its positive spillover effects, which are less visible and more difficult to gauge. And yet tourism makes a considerable contribution to the economies of developing countries and estimations indicate that this is on an upward trend. Despite this, States and donors do not lend much importance to tourism. They see it as a form of exploitation.
Tourism is in a paradoxical position in developing countries. Despite the weight it carries in these countries’ economies, States and donors lend little importance to it. Is tourism then thought not to be a key vehicle of development that contributes to economic dynamism, poverty reduction and participates in environmental protection?
The reasons for this “reluctance” on the part of States and donors must certainly be sought elsewhere. There is a high perception of the risk associated with the sector and this can often deter more massive support from financial institutions. The sector also suffers from a kind of incomprehension, or even misappreciation. Tourism does, however, certainly deserve greater support; by focusing on the methods for this support, the debate would allow donors and States to better exploit tourism as a lever for economic and social development.
Controversy over impacts
States, donors, NGOs and sector experts do not all share the same view on tourism in developing countries – it is even far from being the case.
The debate focuses on the negative impacts of tourism in developing countries – indeed, when they exist, they are extremely visible: how can damage to a landscape go unnoticed? How can one fail to see that water resources have run out or seas have been polluted? Although these realities must not be denied, one must also observe that it is much more difficult to show the positive impacts of tourism, which does not mean that they do not exist. They are more holistic, less visible and, moreover, suffer from a lack of appropriate instruments to gauge them.1
The perception States and donors have of the sector is also influenced by ideological factors: they see tourism – especially when it comes to the luxury hotel business – as a form of exploitation, whereby affluent populations from developed countries would appear to take advantage of the economic and geographical situation of developing countries. This perception is all the more marked for tourism because the latter is very often based on a face-to-face encounter between disadvantaged populations and affluent visitors. Donors consider that financing tourism projects in developing countries can have a negative impact on their image, whereas there is no guarantee of its positive impacts. States rarely give priority to tourism in Poverty Reduction Strategy Papers,2 even if it is included in 80% of them. Donors mobilize only a very small amount of their resources to support the tourism sector: in 2003, it only benefited from 0.1% of global official development assistance3 – i.e. USD 77 million out of a total of USD 77 billion (Development Assistance Committee (DAC), 2005).
A risky sector, but impacts are real
Beyond the image risks mentioned above, the lack of interest of donors and financiers in tourism in developing countries can also be explained by the financial risks that are linked to it. For example, commercial banks generally have higher levels of litigation in the tourism sector than in other sectors. Tourism is also particularly sensitive to fluctuations in the international economic climate. The recent economic crisis led to a sharp fall in the number of international tourist arrivals (Figure 1). Developing countries – apart from in Sub-Saharan Africa4 – do not escape this trend. It has been demonstrated that the tourism sector reacts dramatically to the economic climate (Oxford Economics, 2008). For example, during periods of crisis, activity in the tourism sector declines even faster than GDP.
But the reluctance of investors and financial institutions also stems from the specific features of tourism projects. For example, the hotel industry is an activity with fixed costs that require sizeable investments. Hotel businesses must therefore have a high level of equity in order to ride out fluctuations in their activity. And yet promoters put tourism projects in the same category as those in the real estate sector – which are, for their part, financed by considerable leverage – and tend not to respect this principle. In addition, given the low level of entry barriers (projects do not require complex technological processes), project initiators are often not specialists in the hotel business. Finally, in developing countries it is relatively complicated for foreign institutions to take a mortgage guarantee on land and buildings by way of a loan guarantee – local law sometimes even prohibits access to real estate ownership for foreign creditors – and the value of these guarantees often remains limited by the low level of asset liquidity. These different variables often deter financial establishments.
However, tourism makes a sizeable contribution to the economies of developing countries; in Vietnam, Thailand, Cambodia, as well as in Tunisia, Morocco or Egypt, it accounts for over 12% of GDP and total employment (AFD, 2008). Although this contribution is relatively lower in least developed countries, it still remains very considerable (World Travel and Tourism Council (WTTC), 2010): for example, in 2010 tourism contributes to roughly 9% of GDP in Ethiopia or Senegal. In some countries, it is not unusual to see this share top the 25% mark, this is the case for Mauritius for example. Forecasts for 2020 show a significant rise in the contribution tourism makes to growth in developing countries – a trend which is reversing, however, for developed countries. Tourism is also, after agriculture, the economic sector which contributes the most to job creation, compared to its contribution to GDP (Figure 2).
Beyond their direct positive effects, tourism projects – particularly for hotels – have considerable indirect effects. A hotel – when it is established in a remote area – boosts and diversifies the local economy, thus giving local players interesting business opportunities. For example, in Gambia, suppliers of drinks based on local products were awarded supply contracts by local operators (Goodwin, 2005); in Madagascar, the boom in tourism has helped ensure roads are well maintained, thus promoting the development of local economic activities nearby these roads. Finally, the implementation of a pioneering project in a remote region requires strengthening investment regulations, land laws and real estate laws – this gives other investors incentives to join in and contributes to the development of the region.
More generally, tourism development enhances the “visibility” of the country on the international scene, which gives its domestic problems more chances of being taken into consideration (poverty, conflicts, etc.) and helps it open up to the world. Tourism contributes to economic activity in a whole host of ways. There would appear to be a correlation between the share of tourism in a country’s export5 and its economic growth. According to the IMF (2009), all other things being equal, a 1% rise in the share of tourism revenues in total exports brings about a 0.5 percentage point rise in annual GDP growth. This correlation is confirmed by Brau et al. (2003), for whom the countries that are the most exposed to tourism are also those that have the highest GDP growth. Fayissa et al. (2007), for their part, demonstrate the existence of a positive correlation in Africa between growth in tourism expenditure and that of GDP: a 10% rise in this expenditure will generate a 0.4% rise in GDP per capita.
Selecting which projects to finance
Given that tourism already plays a considerable role in the economies of developing countries – and is destined to play an even greater role in the coming years – today, financial institutions cannot reasonably continue to stay on the sidelines of this sector. There is no longer any doubt over whether this boom must be supported; but it is essential to consider the best way of doing so.
Donors working in the tourism sector are aware of the financing difficulties facing tourist operators and the issues relating to the development of this sector. They take a specific interest in hotel projects – particularly those led by large-scale promoters. Indeed, they offer real repayment guarantees and have a financial capacity which allows them to implement actions to limit negative impacts and promote the positive aspects of projects. The experience of institutions that are active in this sector shows that there is no “miracle solution” to differentiate between a good project and a bad project; each project is, nevertheless, subject to a detailed analysis of its impacts. This is combined with requirements that can all guarantee success, such as the definition and implementation of an attractive Environmental and Social Management Plan. Project initiators must also be able to bear the financial cost of developing certain infrastructure that is beneficial to the public at large (road construction, preservation of natural sites, etc.) – and they must do so by integrating the related costs in the project financing plan. In addition, their project must help promote local economies and access to markets for the region’s businesses. They must also pledge to raise the hotel’s future clients’ awareness of the local cultural context. Finally, the project must be implemented by working together with regional and national authorities, which can lead to partnerships being built for public infrastructure management or regional or national standards with the highest criteria.
When all these criteria are respected, a project may be financed, as it is based on a real partnership and a common desire to participate in local development.
1 This observation can, fortunately, be moderated thanks to recent breakthroughs in scientific research: see in particular the article by Jonathan Mitchell in this issue of Private Sector and Development.
2 This type of document sets out a government’s action plan and its priorities in terms of economic policies to foster growth and reduce poverty. These documents are generally drafted by States with support from donors.
3 This aid mainly aims to improve the way the profession is organized, provide financial support to operators and help promote cultural and natural sites.
4 The resistance of Sub-Saharan African countries can be partly explained by the fact that there is less competition between hotel operators and consequently more leeway to lower prices in order to maintain high occupancy rates.
5 Tourism is considered as an exporting industry as it brings foreign currency into the country.
REFERENCES / AFD, 2008. Tourism and Development, Economic Newsletter. / Brau, R., Lanza, A., Pigliaru, F., 2003. How Fast Are the Tourism Countries Growing? The Cross-Country Evidence, CRENoS, Working Paper. / DAC, 2005. Correspondence from the Statistics and Monitoring Division, Development Cooperation Directorate, OECD, sent on 9 December 2005. / Fayissa, B., Nsiah, C., Tadasse, T., 2007. The Impact of Tourism on Economic Growth and Development in Africa, Middle Tennessee State University, Department of Economics and Finance, Working Paper. / Goodwin, H., 2005. Pro-Poor Tourism: Principles, Methodologies and Mainstreaming, International Conference on Pro-Poor Tourism Mechanisms and Mainstreaming, Technological University of Malaysia, Working Paper, 4-6 May 2005. / IMF, 2009. Tourism Specialization and Economic Development: Evidence from the Unesco World Heritage List, Working Paper n°176. /Mitchell, J., Ashley, C., 2010. ourism and Poverty Reduction: Pathways to Prosperity, Earthscan, London. / Oxford Economics, 2008. Tourism Forecasting. / WTO, 2010. World Tourism Barometer, vol. 8, n°1, January 2010.