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How hotel investments help fight poverty in developing countries

Aradhana Khowala, Managing Partner, Bridge.Over Group speaks at the Family Office Forum in London about how Hotel investments can be an unsuspecting medium for impacting change and making a difference.

Tourism is the world’s second largest industry and also one of the world’s fastest growing.  There are very few other industries that are poised to grow as much or as fast as tourism. People are travelling today globally at a pace that is unprecedented. International tourist arrivals have nearly crossed a billion travellers and not only are people travelling more they are spending and consuming more per person per visit.

Within the Tourism sector, hotels tend to be stand out performers for creating impact investments – because they have a significantly higher development impact when compared to other sub sectors. The reasons for this are three fold.

Salaries - the wages and earnings of those who are active employees or entrepreneurs in the sector. Tourism is more labour-intensive than other non-agricultural sectors. It is also unusual as a sector that employs a relatively high proportion of unskilled or semi-skilled labour. Hence it provides a genuine opportunity for growth to many who are armed with insufficient education or skills. In other words, tourism can be a very important source of employment for the poor.

Multiplier effect – the hotel industry draws on many other sectors like food and beverage, construction, transportation, furniture, visitor spending outside the hotel, add-on impact of hotel and employee spending, a variety of taxes paid to the governments etc. This incremental impact is the equivalent of an extra 60-70% on top of the direct effects of tourism. Building hotels is not simply a matter of creating hotel employees. A hotel needs to be built with local labour (usually), using local materials (usually) and requires a significant amount of goods and services both in development and on an on-going basis.

Image and perception – the dynamic effects it has on the image and perception of a country is a critical contribution of the hotel investments. When you have insufficient quality hotels, you risk losing out on important travel and tourism business (conference, business meetings, leisure tourists etc). Plus, some international companies may choose not to set up a presence in the city because its travel and tourism industry in insufficient for their needs.

Of course, the economic impact of a hotel differs from one country or city to the next depending on several factors including: availability of suitable construction materials/equipment and operating supplies vs. the need to import, availability of skilled staff vs. need for expatriates and imported labour, and the various taxes levied on the hotel or the guest. Impact also differs by type of hotel product. For example, a full service luxury hotel with a host of services will certainly create more jobs, tax revenue and foreign exchange than a limited service budget type product, though there is a real need for both in today’s travel environment.

Hotel investments, although unlikely as an agent, can really help in the fight against poverty especially in developing countries by merging business and philanthropic missions to build a future of shared prosperity and shared responsibility.

“Within the impact investment space there is an opportunity to be bold and creative with opportunities like investment in the hotel sector.”