Tourism Roars Back, But Tourism FDI Lags Behind

Bruno Schaaf | 09 Nov 2023 | General

Revenge-tourism is a post-pandemic phenomenon with more people wanting to travel for longer and more frequently. But while the tourism industry is returning to post-Covid levels, FDI in the tourism sector remains sluggish. But the forecasts suggest the recovery in investment is coming, and locations should be taking the time now to perfect their offer to investors.

With the pandemic now behind us, consumer demand has gradually shifted back toward services. This shift has not only alleviated pressure on supply chains and aided Central Banks in their battle against inflation, but also facilitated the recovery of a vital sector that was badly affected by lockdowns and travel restrictions: tourism. Indeed, data indicates that travel activity is nearly back to its 2019 levels—a stark contrast to FDI in the sector.

According to data from the World Tourism Organisation, by the end of July, international tourist arrivals had rebounded to 84% of pre-pandemic levels, signifying a substantial 43% increase in travellers compared to the same period in 2022. A strong recovery is to be seen in almost all regions, particularly in the Middle East, which is the sole region not only to have fully recovered but also exceeded its 2019 tourism levels.

Following the Middle East are Africa (92%), Europe (91%), and the Americas (87%) all with very similar recovery rates. Asia is the sole region that is still far from recovery, with only 61% recovery rate.

While international travel is on a steady path toward pre-pandemic levels, Tourism FDI has witnessed a comparatively sluggish recovery. Although data indicates a notable 23% increase in foreign investment projects in 2022 compared to 2021, this figure still falls considerably short, standing at only 51% of the levels observed in 2019. Only the Middle East region has matched its 2019 tourism FDI levels.

Even more concerning is the fact that, prior to the pandemic in 2019, Tourism FDI had just recovered from the 2008 financial crisis, which led to a 30% decline in Tourism FDI globally. This implies that the rapid growth observed, especially between 2018 and 2019, was building upon a very low base. In essence, Tourism FDI has not only failed to recover its 2019 levels but has not even matched its 2008 levels.

Predicting whether Tourism FDI levels will organically align with international travel trends and return to their 2019 levels in the short term (1 to 3 years) is not a straightforward endeavor. Nevertheless, there are indications that this recovery may be swifter than the 2008 rebound, which took an entire decade, largely due to the prominent role played by short-term demand shocks in the recent FDI decline. Moreover, emerging technologies such as AI, are set to disrupt traditional marketing, booking services, and customer relations, potentially boosting global FDI.

Given that Tourism FDI has the potential not only to rebound to its 2019—or 2008—levels but also to surpass them, the present moment is ideal for establishing a strong FDI attraction strategy. This strategy should capitalize on emerging opportunities within the sector while carefully assessing not only the potential and relevance of its development but also its alignment with the location, taking into account all the factors that investors consider before allocating resources.

Just as today’s investor cannot thrive on yesterday’s growth, investment destinations cannot thrive on yesterday’s FDI trends; they must look to future-oriented strategies for attracting FDI. Now is the time!