Tourism

The island of megadiversity

Over the past 6 years the number of tourists visiting Madagascar almost doubled to reach 344.000 in 2007. This spectacular growth is proof of the exceptional dynamism of Madagascar’s tourism sector.

This important growth of demand needs to be supported by the construction of additional accommodation facilities as well as additional air transport links with major European cities.

A strong potential

Benefiting from an extraordinary tourist capital which differentiates the island from other competitive destinations, the country offers great investment opportunities.

Evolution of the influx of non-resident visitors at the frontiers

Source : EDBM 2007

Through the new investment law, the government has established a simplified legal framework for private investments to be carried out in Madagascar. With 22 tourism land reserves, 5,000 km of beaches and an exceptionally unique fauna and flora, investment opportunities in the tourism sector are enormous.

After a drop in tourism caused by the events of September 11, 2001, and other natural disasters, global tourism has seen a rebound since 2004. According to the UN World Tourism Organization (UNWTO), the number of international tourist arrivals in 2005 is estimated at 808 million, up from 766 million in 2004. The UNWTO is expecting tourism arrivals to double by 2010 and reach 1.56 billion by 2020. Globally, tourism accounts for roughly 35 percent of exports of services and over 8 percent of exports of goods, and is the world’s largest employer.

According to the UNWTO, sub-Saharan Africa saw the strongest growth in tourism in 2005 estimated at 13 percent, with particularly remarkable results for Kenya (26 percent between January and October compared with the same period of the previous year), and Mozambique (37 percent Jan.-Sept.). South Africa (11 percent Jan.-Aug.) as well as Seychelles (7 percent) and Mauritius (6 percent), all improved on their 2004 results. Tourism is often a leading generator of foreign exchange in African countries. Total tourist expenditure in Africa was estimated at about USD 33 million in 2004, and is anticipated to increase to USD 47 million by 2010 and to USD 77 million by 2020.

Sub-Saharan Africa is heavily endowed with exceptional attractions for the local and international tourism markets. These include natural resources, biodiversity and a number of historical heritage sites. The greatest numbers of tourist arrivals to sub-Saharan African countries were visitors from other countries within the region. Nonetheless, arrivals from Europe, Asia and North America are also growing. Europeans tend to visit single countries, while North American travelers usually visit several countries as part of a circuit tour. While North Americans number fewer than Europeans, their expenditure tends to be higher. Asians form a smaller part of African tourism, but are growing in importance.

African countries offer unique opportunities for investment in safari, beach, adventure, cultural and ecotourism holidays as well as opportunities for business travel. At the early stages of investment, anchor or magnet projects create the base for future investment. Some cities have become hubs for tourism investment with a full complement of hotels catering to local and foreign tourists. These investments are typically made by foreign investors, but often with local partners who are skilled at negotiating with government. These anchor – or greenfield - investments require financial engineering suited to the hotel sector. Ownership and operations are often separated, with one company owning the building and an operating company managing or leasing the property. Ownership companies are suited to local and foreign investment with substantial equity (20-50 percent of investment) and long-term loans consistent with real estate financing. In this context, investors look for the additional comfort that guarantees can offer on the equity and associated long-term lending.

Most international chains, on the other hand, are management companies providing skilled management services. A limited number will also take equity positions as a demonstration of goodwill and a few are exploring long-term investment as a new strategy. Anchor projects of course also attract the smaller investments characteristic of tourism investment – small guest houses, new restaurants and vastly improved travel agency and tour operator services. Financing of tourism SMEs conforms to schemes for SMEs in general and typically does not lend itself as well to guarantees – although technical support is often a feature of such operations and some countries are experimenting with credit and guarantee schemes.

Tourism Sector Survey Profile

Companies interviewed: 48

Tourism (Hotels) Brief

• Most current foreign investors in the Malagasy tourism sector enjoyed strong ties to the country prior to investment, many having come to the Madagascar during its time as a French colony.
• One-quarter of visitors come primarily for a beach holiday and two-thirds for ecotourism. Seventy percent of visitors are from Western Europe with France the largest supplier (52 percent), followed by Italy, Germany and the UK. Another ten percent of visitors come from the island of Réunion.
• According to the Government of Madagascar, there are currently 932 hotels (mostly small scale with 10 rooms or less) in the country, totaling 10,847 rooms.
• Malagasy hotels interviewed for this study cater to a clientele that includes about 60 percent leisure or package tourists and 40 percent business travelers.
• High-end hotels in Madagascar rely on imported capital inputs such as cutlery, glassware, dishes, and kitchen equipment. Hotels source linens and most food locally.
• The surveyed hotels in Madagascar hire an average of 210 workers.
• Madagascar offers attractions that appeal to residents and tourists alike, including golf, fishing, a unique natural ecosystem, and miles of beaches. Opportunities exist for investment in hotels since there are few flagship resort hotels or ecotourism hotels yet on the island.
• The Ministry of Culture and Tourism has made tourism a priority sector and has established a number of institutions to facilitate investments into the sector.

Comparative SWOT Analysis for Tourism (Hotels) Madagascar vs. Snapshot Africa

Breakdown of cost motivations reported by tourism (hotels) firms

Breakdown of quality motivations reported by tourism (hotels) firms

Total annual cost in USD (millions) to employer per function

Hotel construction costs in USD per square meter

Photo and movie authorization

Questionnaire to be filled by any applicant requesting shooting authorization (picture or movie) in protected areas