public-private partnerships mooted to boost mena travel and tourism infrastructure
Booz Allen Hamilton identifies significant investment, air- and land-travel connectivity, service quality, and technology challenges facing the regional travel and tourism industry
Although significant investment is being poured into the MENA travel and tourism industry, the sector still faces a number of infrastructure challenges that could best be addressed through public-private partnerships (PPPs), according to findings by Booz Allen Hamilton.
Presented during a session of the recent World Economic Forum meeting in Jordan, the findings noted that globally, PPPs are widely employed to address infrastructure challenges, particularly in the transport sector, and thus could be an attractive way to address significant issues hanging over the regional travel and tourism sector in areas like air transport connectivity, land transport infrastructure, service quality, and technology.
“Public-private partnerships serve a number of valuable roles. They can increase the volume of investments that can be delivered during a given period of time. As well, worldwide experience shows that, under certain conditions, significant efficiency and quality gains can be obtained by giving more responsibilities to the private sector. PPPs also can drive the restructuring and privatization of incumbent government-run operators, leading to reduced government subsidies and greater transparency,” said Nabih Maroun, Vice President with Booz Allen Hamilton, a global management consulting firm with offices throughout the Middle East and North Africa (MENA) region.
The MENA T&T Infrastructure
Significant investments are being poured into MENA travel and tourism infrastructure to sustain the rapid growth of the sector. USD1 trillion worth of projects are either underway or planned, which by 2020 should provide 200 additional hotels and 100,000 new rooms, an expansion of airport capacity by 300 million passengers, and an increase in aircraft fleet size by up to 150%.
These investments are expected to help lift the region’s T&T infrastructure ranking, which stands close to mid-range as a whole, with the United Arab Emirates leading the pack, according to the World Economic Forum’s Travel and Tourism Competitiveness Index 2007. The study looked at key elements of infrastructure, including air transport, ground transport, tourism-related infrastructure, and ICT.
The Gulf in general and the UAE in particular do better than the rest of the region, although top regional performer, the UAE, only ranks in the top 10 in one sector – air transport. Overall the UAE has the strongest showing in the region, ranking 19th, ahead of countries such as Greece, Ireland, Barbados, Malaysia and Italy. Tunisia is 34th and Qatar is 36th. Jordan at 46th, rounds out the Arab world’s representation in the top 50.
Transport Infrastructure
For the region, air transport connectivity remains low, with most airports underserved in terms of international network and flights. The negative impact of this on sector growth includes a “capped” growth potential for traffic from source markets, generally higher fares on routes with limited flight options, more difficulty in attracting tour operators and creating tour packages, and a reliance on charter flights, which are focused on limited peak seasons.
Planned capacity expansions, though positive, will magnify the connectivity challenge, requiring airports to find the right strategic positioning, i.e., do they want to be a global or a regional hub, an international destination, or else a regional origin and destination airport? They also will have to enhance service levels and revenues in order to attract more airlines and destinations, and thus passengers to ensure long-term sustainability. This means providing hassle-free, quick, smooth-running processing all the way from check-in, information systems, and security to duty free and restaurant purchases, boarding, and baggage handling.
In-country land and air transport networks are not developing fast enough, and therefore are limiting tourism benefits. These limitations imply a shorter average visitor stay, loss of opportunity to showcase diverse tourism offerings and share tourism benefits with remote locations, declining average spend per day in single locations over the duration of a long stay, and potential leakage to other markets of a portion of both visitor days and spend for long stay tourists.
Finally, in the absence of a well-developed urban bus transport infrastructure, taxis are the predominant mode of transport for tourists within cities. However, service, price and standards are not well regulated, with many taxis not using meters and suffering from poor maintenance and lack of proper cleaning. Meanwhile, a bus infrastructure and fleet adapted for tourists is generally non-existent.Tourism-Related Infrastructure
All major international chains have made significant investments in hotel capacity in the region, with the bulk of new rooms coming available in the UAE, Egypt and Saudi Arabia. Overall, a 21.4% increase in MENA room capacity is expected between 2006 and 2009.Nonetheless, serious challenges remain with regard to the availability of utilities necessary to support this investment. At the current pace of development, utilities – water in particular – will not be sufficient to cater to all the planned developments. The World Bank forecasts a gradual reduction in water availability, potentially reaching 50% of current levels by 2050, as desalination technology remains expensive.
On the other hand, an exponentially increasing supply may lead to overcapacity in light of potentially aggressive tourist arrivals forecasts by the relevant authorities. For example, the World Travel & Tourism Council estimates UAE arrivals at 12 million versus the 20 million expected by government bodies in the UAE.
Finally, undifferentiated developments in the region, which cater in majority for the high-end tourism segments, stand to aggressively compete with one another and exacerbate overcapacity risks. ICT Infrastructure
Across the MENA region, technology is still underleveraged in travel and tourism services, partly due to low ICT penetration generally. For example, just 1% of ticket sales in MENA are made online, versus 15% in Asia/Pacific and 27% in Europe. This is partly due to low ICT penetration in general, but also to low credit card penetration (e.g. 5% in Saudi Arabia), as well as cultural preferences favoring human interaction over electronic transactions.
The region also trails the world in global initiatives to apply modernizing technology to airlines and airports processes and services. For example, the introduction of e-ticketing is taking much longer than expected, raising doubts on the ability of all regional airlines to meet their commitment to IATA’s “Simplify the Business” program, which includes 100% e-ticketing by end of 2007, Common Use Self-Checking Systems, RFID for Baggage Handling, Bar Code for Boarding Passes, and e-freight among others. Next to airlines, airports (represented by ACI) have also fully committed to supporting this program, which is expected to lead to significant cost savings, improvement in passenger processing and customer service.
“In sum, the regional travel and tourism infrastructure faces significant investment, connectivity, service quality, and technology challenges in supporting robust and fast-growing tourism development,” Maroun said, adding that one effective way to address these challenges is through public-private partnerships. “On a global level, PPPs have successfully been employed to address infrastructure challenges – particularly in the transport sector.”
Public-Private Partnerships
PPPs can yield three main benefits, according to Booz Allen. First, PPPs can increase the volume of investments that can be delivered during a given period of time; second, worldwide experience shows that, under certain conditions, significant efficiency and quality gains can be obtained by giving more responsibilities to the private sector; and third, PPPs can drive the restructuring and privatization of incumbent companies, leading to reduced government subsidies and greater transparency.
However, ensuring that PPPs are successful requires the structuring of the PPP in consultation with the private sector, as well as the use of standardized documentation that is accepted by global market players. As sine qua none condition is also the existence of robust regulatory bodies or a public sector dedicated to industry development and competitiveness is a sine qua non condition.
In conclusion, the MENA travel and tourism industry shows tremendous promise, as it readies itself to absorb up to USD1 trillion in investment over the next 15 years. However, the industry faces a number of challenges that could dampen this optimistic mood and limit the expected gains from its growth. Noting that these challenges primarily relate to infrastructure, Booz Allen advises that public-private partnerships are the best road forward to address these issues, given their success in countries around the world and particularly in the transport sector.
