Opinion: Tourism investment challenges and realities during COVID-19
It’s not news to anyone, that prior to the outbreak of the COVID-19 pandemic, tourism was one of the most prominent economic sectors worldwide. And figures such as a 4% of growth, 1.5 million visitors per year, $1.3 trillion dollars because of tourism investments, or the fact that one out of 10 jobs globally were related to the tourism sector, are solid proof of this. However, after the well-known consequences of the pandemic, the current industry outlook is not as how it used to be.
The sector’s reality is different now. As of today, international tourism arrivals have decreased by 85%. Perhaps no other sector of the economy has seen such dramatic drops globally. Certainly, the African region has not been exempted from being affected by this global economic and social juncture. Figures reflect that Africa’s tourism arrivals have also dropped by 85%, and when focusing on investments the FDI (foreign direct investments) has dropped by 74% representing $43.92 US billion. Additionally, when analyzing tourism’s investments global landscape, there is scarce evidence of active involvement from the region. Currently, the foreign direct investments and the traditional investments as private equity investments, infrastructure investments, hotel development investments in tourism, are concentrated in the world’s large economies like China, India, Saudi Arabia, USA, the EU, UAE, and Mexico. But where is Africa? Where are the emerging countries? That is the question.
That is the inquiry, indeed, but at the same time, that it is the priority. In this sense, and assuming its commitment, one of UNWTO’s mission- as a United Nations specialized agency- has been to help emerging countries to connect with more mature economies to develop business opportunities focused on tourism.
Although the outlook is somewhat uncertain, there is a glimpse of hope. While declines in foreign direct investment and in investments such as infrastructure have been evident, the investments related to innovation and technology in Africa increased. So, when it comes to investments in technology on venture capital and on innovation and digital transformation, data indicates that people are still investing. This proves that it doesn’t matter if there is COVID-19 or not, technology is here to stay. But this reality does not only permeate technology, but this new reality is also about youth empowerment. It is about the 90% of the SME’s that are part of the tourism ecosystem; it is about the young entrepreneurs leading the change by creating startups; it is about the more than 35% of startups and tech companies led by women. Therefore, we need to reinforce not only the investments but the creation of new business models within this field.
Indeed, they are well-identified key players in Africa like Morocco, South Africa, Nigeria, Tunisia, Tanzania, that are leading the recovery process. Nevertheless, in 2019 Africa received more than $9 US billion dollars for investments, but in 2020 the region just received $1 US billion. The challenge is major. Therefore, it is peremptory to develop an aggressive strategy to work and involve the private sector. This is why, it was of utmost importance to create scenarios as the Second Edition of the UNWTO Tourism Investments Forum hosted from Sal, Cabo Verde, a convergence and meeting point platform for the public sector, the private sector and the international investors- that hold more than $20 billion in their portfolio- as they are aiming to help, promote and to open business opportunities for the African region.
The strategy should be addressed to foster and attract private equity and venture capital firms and to develop matchmaking funds to invest in African-made technology and innovation. This strategy is not the future, it must be assumed as the new reality and the post-pandemic indicators have confirmed this. A clear example of the increasing strength of global investment in technology and why we should be putting all the efforts in this direction, it’s the ZOOM platform. Due to COVID-19’s side-effect, this tech company is now valuated at US $151 billion dollars, while all the airlines of the world are evaluated for this exact same value. This happened in just one year, meaning that there is a huge opportunity when it comes to investments in technology.
Investors are only investing in three sectors of tourism: transportation and mobility, community and of course everything related to communications and economics. It is not surprising then, that today tourism’s top employer is Amazon and the fact that top tech companies as MasterCard and Google have a Tourism Senior Vice President. And all of this occurred because after the pandemic these tech companies have realized that tourism-tech business models should be a critical element of their corporate strategies. In this sense, I encourage policymakers to remain in touch with the Vice President of Government affairs of tech companies to foster investments through no tourism enterprises.
Investment’s realities and opportunities
An urgent need for digital transformation
The COVID-19 juncture has contributed to attracting international investors interested in identifying African-developed technology, and believe me, not all the regions of the world can state that. Africa has a latent opportunity to recover the sector by using the power of technology and innovation. Nevertheless, the most active countries in travel and mobility tech developments are the US, China, UK India, France, Germany, Spain, Japan, Singapore, Australia, and Canada. There are no strong and sufficient indications of stable technological development in the region, yet. This means, that private investors are coming to Africa to invest in times of COVID-19, but we must encourage more local entrepreneurs to take a more active role by making use of these funding opportunities.
Investments and sustainability are intrinsically linked
Last year that we did an interview with 200 investors from the UNWTO Investments Network and 50% of them told us that they will keep on investing in tourism, nonetheless, that they will focus on climate change, green investments, governance, and social impact. Proving once again that if an investment is to be attracted, the priority must be focused on technologies based on the 3 pillars of sustainability. In this regard, we partnered with the IFC (the private branch of the World Bank) to launch the Green Investment Certificate for hotel models focused on sustainability. A good performance in this field could represent a funding opportunity from this organization. Remember that after tech mobility and transport hotels are, the second tourism subsector that attracts investors.
Investment’s capacity building is a must
One of UNWTO’s main priorities is to train the stakeholders of the tourism value chain taking the lead on creating a more friendly investment ecosystem. For this purpose, several Tourism Investment Guidelines and Frameworks have been developed to share knowledge a spread investment-related information to our Member States and Affiliate Members. Additionally, we are guiding and developing foreign direct promotion strategies for those States getting familiarized with this domain. Because that’s the only way to promote and to develop those pipelines. Furthermore, we encourage the region to make use of the UNWTO Investments Network- to enhance local tech development by connecting investors from all around the world- as private equity developers, social impact, venture capital investments and some more.
Innovative legal frameworks
Some other urgent realities and latent opportunities are in the creation of stable and coherent legal frameworks, that will attract stable flows of inversion. The region must have a legal framework to promote green investments. If the priority is to bring sustainable investments, then they must be created new laws to foster external capital. This legal framework must help and incentive private sector stakeholders that are creating while developing social impact strategies, but evidently, to receive such benefits parts must embrace green economy principles, as renewable energies, equity, social justice, human rights, and community cohesion.
Finally, I invite those responsible for the creation, promotion and attraction of investments to fully grasp these realities, to identify them in their own local contexts, to learn how to mitigate their effects by making use of the tools offered by UNWTO and to take advantage of the palpable opportunities that Africa as the world’s youngest region has, where its entrepreneurs have in their hands the power to foster an attract these investments, to transform the region into a more innovative, resilient, sustainable, technological and responsible one.