Tourism investment & finance 21 Unit 2: Evaluate Investment Environment

Political stability
— More commonly referred to in the investment community as 
political risk
, 
this is typically defined as the amalgamation of all non-market factors that can negatively impact 
an investment. They include civil insurrection or terrorism (both very effective at driving away 
visitors), regime change, and respect for rule of law (the degree to which new governments 
respect agreements, rules, and regulations established by previous governments).
 
Government support (or lack thereof) for tourism and tourism-related investment is also 
critical — 
National, regional, and local governments, in both the industrialized and developing 
world, are locked in fierce competition for investment flows. The most commonly used tools to 
attract investment include tax incentives, subsidies, streamlining of the investment approval 
process, and facilitating access to credit (loan guarantees and the like).
Many governments, particularly in developing countries, do not have enough resources or 
simply choose not to compete and sometimes, wittingly or unwittingly, erect barriers to 
investment, including currency controls, limited access to financing, burdensome investment 
approval processes, and simple bureaucratic inefficiency. 
It is important to understand how the country or region being evaluated stacks up in these 
terms, very early in the investment opportunity identification process, and to assess whether or 
not potential obstacles identified can effectively be overcome. 
 
RESOURCE 2.1
 
P
OLITICAL 
R
ISK 
I
NSURANCE
 
Two organizations, the Multilateral Investment Guarantee Agency (MIGA), a member of the 
World Bank Group, and the Overseas Private Investment Corporation (OPIC), an agency of 
the US Government, provide, for a fee, insurance against political or non-market risks for a 
wide variety of investment types in countries around the globe. Risks that are typically 
insurable include 
•
Currency inconvertibility 
•
Expropriation 
•
Political violence 
•
Terrorism 
There are also addition types of coverage available for other types of investment.
More information on MIGA programs can be found here: 
www.miga.org
  
More information on OPIC programs can be found here: 
www.opic.gov/insurance
  

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TOURISM INVESTMENT & FINANCE
23 
Another area in which governments compete that is more specifically related to tourism is in 
destination promotion
. 
The image of the country as an attractive and safe vacation destination is 
critical to the success of tourism development and investment promotion efforts. Billions of 
dollars are spent each year on destination promotion and image building. If the country is 
unwilling or unable to invest in promotion, or suffers from a poor image, this needs to be 
factored in the decision making process.