Social Investing and the Adventure Tourism Opportunity
May 16, 2009 | Filed Under Adventure Tourism and Social/Environmental Issues, Rural Communities
You might hear “adventure tourism,” and think of mountain climbing, whitewater rafting, or trekking. When we hear “adventure tourism,” we think of all that, too, but we also see tremendous opportunity for rural economic and environmental development. We think that for social investors, the adventure tourism niche is worth a look.
Here we’ll describe why adventure tourism businesses offer an opportunity for social investors and provide some suggestions on how to move investing in the sector forward.
The Case for Investing in Tourism Businesses
Tourism is already recognized as a meaningful sector in developing countries as a source of sustainable economic development. Today, it is a 1 USD trillion industry employing about 230 million on a worldwide basis.
Investments in the tourism sector represent almost 10% of total investment value worldwide (or USD 1.2 trillion) and an even higher percentage and in certain developing regions and countries:
• Namibia 13% of total investments
• Kerala, India 8%
• China 9.9%
• Malaysia 12% and the Caribbean 15% to 76%
In fact, revenue generated from all forms of tourism has grown 35% faster than the world economy since 1975.
The Adventure Tourism Opportunity
Within the global tourism economy, the adventure travel sector holds special promise for socially and environmentally motivated investors.
Adventure tour business owners are often passionate advocates for conservation and environmental protection. They are leaders in their communities - taking on issues from land use designations to water quality to wildlife protection and the human rights of local people.
Predominantly small and micro adventure businesses are unusually reliant on local sources of people and goods to operate their companies. Consider the typical scenario: a tour operator serves guests who place a high premium on authentic experiences and local culture; he therefore books his guests into a family-owned local lodge which purchases food for meals from a local grower, on his treks takes his guests through mountain villages, passing the benefits - small in absolute terms - but significant in impact, throughout the region.
From tour operators to lodge owners and gear suppliers, organic food growers and handcrafts producers, the adventure tourism supply chain is inherently local, driving benefits directly to communities.
A well-documented case in Yunnan, China, for example, showed that the scant fee trekkers in the 1980s were paying for a bed at village guest houses near the famous Tiger Leaping Gorge made a significant contribution in lifting local people out of absolute poverty; now locals serve hikers with small shops, frying banana pancakes, selling handcrafts and transporting weary hikers on their horses.
In another example from Africa, we see the powerful effect of buying local, something adventure businesses do habitually - each $1 of new income for a farmer yields an average income increase to other local workers in the local economy, ranging from $1.96 in Niger to $2.88 in Burkina Faso.
(We should also mention that as the adventure industry has grown, so has its awareness and consideration for controlled and scaled development, attention to local customs and cultures and preservation of land. Important standards to support the industry’s development and avoid exploitation and degradation of local cultures are being promoted and extended by academics, consultants, and the industry’s association, the Adventure Travel Trade Association. See the Adventure Tourism Development Index online.
So what’s holding the adventure industry back from Changing The World? It lacks investment.
Adventure businesses typically lack the necessary access to credit and other financing sources to ever get beyond the “boot-strapping” phase, especially in developing countries. With government support primarily aimed at attracting foreign direct investment, not directed towards expanding local enterprises, there is little support for these small businesses, which deliver such significant benefits in their communities. While there has been a substantial expansion of the microfinance industry, MFIs have not by and large met this funding gap.
MFIs investing in this sector would have the opportunity to finance broad and overlapping groups of businesses by supporting coherent and smooth supply chains. In this way, they could boost the revenue of all of their inter-connected clients, helping them to achieve financial sustainability more rapidly as well as to increase their size, market power and reach.
New Instruments Are Needed
A recently published working paper entitled Financial Markets, Microfinance and Tourism in Developing Countries (May 2008, Jos van der Sterren, Breda University of Applied Sciences) states that more flexible, appropriate financial instruments tailored to the needs of these micro- and small enterprises in attractive tourist destinations, to include:
• Investment subsidies
• Tax measures
• Long-term loans
• Leasing and insurance products,
• Lines of credit or overdraft facilities, and
• International payment transactional support.
As a result, the author also believes that commercial banks will need to play an important role in innovating new financial products to meet the financing needs of this highly diverse, dynamic sector of the economy.
At the present time, the paper observes that MFIs are mainly poverty- and not business-oriented. What this means is that their business is directed at raising individuals out of poverty (even if the loans are allegedly made to a microenterprise). Secondly, both MFIs and commercial banks in developing countries do not appear to have tourism sector expertise.
Conclusion
Research has shown that money spent in local areas through adventure tourism businesses can drive significant benefits throughout an economy, but as an industry we need more consistent data from multiple destinations. Do you or your business have stories to share in this regard? Contact us at info@xolaconsulting.com.
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Nice writing. You are on my RSS reader now so I can read more from you down the road.
Allen Taylor