Young tourists and foreign investment

Inconsistent

 

The disclosure that another hotel with an international brand will be built in Guyana has raised once again questions as to what the government’s real interest is in encouraging such types of foreign investment in Guyana. Traditionally, foreign investment refers to the movement of resources from a foreign country to a host country with the expectation that a long term relationship would result from the investment. The foreign investor would be expected also to control the production and distribution process of the enterprise that results from the investment. Typically, the foreign investment is about the reallocation of surplus resources from one country, the investing country, to the other country, the host or beneficiary country. That still stands. What seem to be inconsistent are the benefits that Guyana expects to receive from the foreign investment and what it is prepared to accept in the foreign investment package.

 

Greatest benefit

For a very long time, the foreign investment package was thought to consist primarily of surplus capital. Such capital contained foreign currency (money), technology (capital equipment) and high level management (human resources). That was how investment from countries was generally thought of whether it was of the Greenfield, mergers and acquisitions or the joint venture type. In the early days of foreign investment, it did not matter if the investment came from developed or developing countries. Following the theory of comparative advantage,20140112rawle Guyana as a host country often sought to maximize the benefits of the natural resources that it had. Through the development of its natural resources, the investor got access to land, labour and possibly some intermediate inputs. The country therefore was able to increase export earnings, increase employment, and in the long term earn increased tax revenues once the tax concessions given to the investor had expired. The experience that Guyanese gained from being employed with the foreign investor was perhaps the greatest benefit that was derived from such investment. Better skills were becoming available to the country. But as we look today at the way in which Guyana is trying to develop through foreign investment, things seem to be different.

 

Noticeable difference

The first noticeable difference is the way in which Guyana is attempting to diversify its economy with the use of foreign investment. Emphasis is being placed on non-traditional natural resources (oil), telecommunications and event tourism. It is the last item that generates the most interest for this article. Entertainment events in the form of Mashramani celebrations, cultural festivals, and summer fun with such types as ‘Jam Zone’ are designed to entice visitors to Guyana. Media advertisement indicates that ‘Jam Zone’ is being exported to the US market this year with the hope of tapping into the niche with a taste for Guyanese entertainment. That means the young and the restless.

At this stage, one cannot tell if event tourism is successful since financial information about such events are not readily available to the public. The best guide is what the tourism sector contributes to gross domestic product (GDP). But even that source of information is unreliable since tourism expenditure and output are mixed in with other activities. But for 2013, that sector of the economy declined by 10 per cent.

20140713lucas tableUnless the data is disaggregated, one has to draw the unfortunate conclusion that investments in tourism are not producing positive results. That disaggregation could be gotten from the World Travel and Tourism Council which reports that tourism contributed about three per cent to GDP last year. This growth was expected to continue at a slightly higher level in 2014. The spinoff benefits from these events are not that noticeable either. There is no explosion of local talent in the entertainment area. So one must ponder the reason an international hotel would seek to invest in a country where the demand for tourism is as low as it is in Guyana.

It is not a small matter because the global data on tourism suggest that the emphasis of the hotel investment in Guyana does not support an important trend of the industry. Guyana is investing in luxury hotels with international brand names. The luxury portion of the market is growing but not necessarily among the young tourists. Quite recently, the Ramada brand was added to the Princess Hotel. The controversial Marriott Hotel is under construction and now the Sun and Sand brand will eventually join the other two hotels upon completion of its construction. Guyana is located in South America where there is already evidence that popular tourist destinations on the continent are experiencing slower than expected demand, notwithstanding the overall positive global trend in visitor arrivals and exports.

Moreover, the market with the potential for growth is not being catered for with the investments being made in Guyana. Tourism industry experts indicate that the fastest growing category of travellers is young people. Travel by youths reached about 20 per cent in 2012 and was expected to increase in 2013 and beyond. The report found that many more young people (30 per cent) described themselves today as tourists than in 2002 (15 per cent) when they were known as ‘backpackers,’ a label that was synonymous with dependent travellers. The experts report also that the young tourists are travelling more, spending longer periods of time and spending more money than before.

In addition, the young tourists have increased their interest in travel to places in Africa, the Americas and Asia Pacific. What is significant for the type of investment that is taking place in Guyana is that the younger tourists prefer to stay in locally-owned hotels. The experts in the field of tourism contend that the young tourists are conscious of the implications of foreign investment on local economies and seem willing to make a trade-off between luxury and budget hotels. They are aware that profits earned by foreign hotels tend to be repatriated. As such, a majority of such tourists prefer to spend their money on hotels where the money had a greater likelihood of remaining in the tourist destination.

Guyana might be sending a mixed message to an important part of the tourism market. While it no longer carries the ‘backpacker’ image, this group of travellers still looks for good hotel deals. The hotels that offer reasonable rates still attract that type of traveller. With that kind of information available, the government should be targeting the tourist population and supporting investment that was likely to have a greater positive effect on the development of the country. This type of traveller might be more inclined towards the type of event tourism that seems to be popular among policymakers. Instead, it has gone for the upscale brands and seems to believe that international brands would make Guyana a more attractive destination. It appears therefore that there is an unwillingness to support upgrading the local hotel industry.

 

Precedents

The second noticeable difference about foreign investment in Guyana is the content of the investment package. The investment package in the past used to contain money, equipment and managerial skills. It was thought to represent a surplus of capital in the investing country being transferred to the capital deficient host country.

When the investment came from more industrialized or developed countries, local labour was provided by the host country since the host country was thought of as having a surplus of such labour. But, it seems as if some foreign investors are bringing the entire set of inputs needed for production. That was likely to be the case with the investors of the Sun and Sand hotel since this practice has precedents in Guyana, and appears to be an acceptable part of government policy.

This means three things for Guyana. One, it converts Guyana into a labour importing country. Two, the non-participation of local labour in the construction phase of an enterprise limits the benefits of the transfer of technology. Three, it renders the investment incentives irrelevant in cases where employment creation is a desired objective.

 

Bypass

So, instead of bringing much needed benefits to the country, investment in the tourism industry might end up taking resources from the country. Guyana might also miss some opportunities to grow the tourism sector by pursuing strategies that bypass an important and fast-growing segment of the tourism market. The message of modesty coming from the young tourists, a growing segment of the tourism market, should not be ignored.

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