Tourism: Enhancing Economic Growth in Emerging Markets
Since 1956, IFC has invested over US$2.5 billion (including syndications) in 250 hotel projects in more than 83 countries; more than half these investments (52%) are in International Development Association (IDA) countries, which are some of the poorest countries in the world.
Hotels play a critical role in development as they catalyze tourism and business infrastructure. In addition, hotels generate jobs, grow tax revenues, increase foreign exchange earnings, and provide better opportunities for small businesses. This ability to facilitate local, regional, and national economic growth—thereby helping to reduce poverty—is the reason that IFC is deeply committed to the hotel and tourism industry. Our commitment extends to environmental protection and cultural preservation with investments in hotels that complement unique natural habitats and enhance the attractiveness of historically signiﬁcant sites.
IFC’s Track Record
Our investments in the hotel sector have had a far-reaching impact globally and vary from supporting city center and airport hotels that contribute to business infrastructure to tourist hotels and resorts, including eco-tourism and all-inclusive properties. We also support historic and environmental preservation tourism projects that encourage redevelopment of historic buildings and preservation of historic sites. In addition, we invest in mixed-use facilities, such as, hotels combined with shopping centers, ofﬁce towers, and residences.
Our partners include leading domestic and international investors and companies, such as, Occidental, Orient Express Hotels, TPS Serena, Shangri-La, and other investors that affiliate with large hotel brands, including, Hilton, Marriott, Hyatt, Inter-Continental, and Accor, via management or franchise contracts.
Many IFC hotel clients use energy, water, and waste disposal audits to identify energy efficiency and cost saving opportunities; some have their own water/sewage treatment and power generation facilities. IFC has also invested in energy service companies (ESCOs) and has undertaken Cleaner Production Loans to improve energy and water efficiency.
Tourism and Poverty Reduction
The latest research from the World Travel and Tourism Council suggests that the travel and tourism industry will generate 324 million direct and indirect jobs worldwide by 2021, which is 1 in 10 jobs. In 2010, international visitors spent more than $900 billion on goods and services annually, of which 37% were spent in emerging market countries. Tourism-related inﬂows are often the primary source of foreign exchange in many developing countries (and the main source of foreign exchange for 47 of the world’s 50 Least Developed Countries). No other sector spreads wealth and jobs across poor countries in the same way as tourism.
In IDA-eligible countries, the development of high-end hotels sends a positive signal to foreign investors. Hotels create critical business infrastructure and venues for international conferences. In fact, in many IDA countries, tourism is one of the first sectors to be developed and is a catalyst for the development of other sectors. In some destinations, for every US$4 spent by a tourist, US$1 reaches the poor. High-end hotels in particular create an average of 1.5 to 3 jobs per hotel room and can generate substantial tax revenue.
However, in Middle Income Countries, there is often a need for 2- and 3-star hotels, as an emerging middle class begins to travel. IFC also supports integrated mixed-used developments, which include hotels along with commercial and retail complexes that enhance prime business infrastructure both for international and local business activities, and spur economic growth.
Private financial markets are often unwilling to fund hotel investments in developing countries on account of risk factors, such as, political or economic instability, seasonality, unstable cash flows, capital intensive nature of developments, etc. This is often the reason that IFC and other investors need to step in.
Examples of IFC’s investments in Tourism
Shangri-La Ulaanbaatar (Mongolia) - 2011
Business: Shangri-La Hotels is a luxury hotel and resorts chain spanning key locations around the world.
Market Gap: This is Mongolia’s first international standard hotel, including office and retail space, and will contribute to the country’s business and tourism infrastructure.
IFC Financing: US$ 50 million A loan.
Development Impact: The project is expected to increase supply of hotel services to help meet the growing demand for hotel accommodation in the presently underserved 5-star hotel sector in Ulaanbaatar, Mongolia, and create a significant number of direct and indirect jobs for local communities. It will also create demand for locally sourced materials, service, and labor during construction and operation stages and support SMEs, including a wide range of goods and service providers. In addition, the presence of the Shangri-La Hotel in Ulaanbaatar will send a positive signal to other foreign investors—who are considering investments in Mongolia where there is limited private sector activity—that the country is ready and open for business.
KHI Ghana/ Movenpick Accra (Ghana) - 2011
Business: KHI’s parent company, Kingdom Hotels Investments, is a global player in the hospitality and leisure business with operations in Asia, Middle East/North Africa, and Sub-Saharan Africa.
Market Gap: IFC provided long-term funding when it was not readily available in the local market. The project consists of developing a 259-key 5-star hotel to be managed by Mövenpick, 9,000m2 of Class A office space, and 1,260m2 of retail space in Accra, the capital city of Ghana. This will help meet the growing demand for such business-enabling infrastructure.
IFC Financing: US$46 million loan (US$26 million direct and US$20 million syndicated loan). Development Impact: The project is expected to address the country's lack of critical business infrastructure. The hotel and associated developments are also likely to create new direct and indirect employment. Most food and non-food purchases are expected to be sourced locally, thereby providing increased business opportunities to a wide range of local suppliers and sub-contractors, most of whom are SMEs.
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