Tourism investment & finance 21 Unit 2: Evaluate Investment Environment

Tourism-related infrastructure:
Inadequate infrastructure — water supply, 
transportation, waste and sewage treatment, electricity, and communications — can 
be a major impediment to tourism investment. Infrastructure requirements are 
compounded since tourists tend to create more waste and use more water and 
energy than average residents in a destination. Unreliable infrastructure also 
increases costs and negatively impacts the visitor experience.
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Environmental degradation:
Environmental sustainability is a growing concern for 
competitive tourism destinations; in particular, issues such as coastal zone 
management, water pollution, and waste management. Environmental regulations 
that are clearly defined and enforced reduce uncertainty and risk and increase long-

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TOURISM INVESTMENT & FINANCE
25 
term project viability. Environmental concerns are especially important for tourism-
related investments, as most investments take advantage of natural resources.
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Access to capital and credit:
As a capital-intensive industry, tourism projects often 
require substantial investments in land, construction, equipment, furnishings, 
marketing, transportation, and working capital. In developing countries, 
underdeveloped capital markets, political risk, and government restrictions limit 
access.
Commercial banks, venture capital firms, and institutional and individual investors 
often lack the expertise to work with small- and medium-sized tourism enterprises. 
Typical reasons for limited capital availability include 
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Tourism development projects being viewed as high risk due to poor past 
performance, lack of experience and knowledge of the tourism sector.
o
An extended payback period due to high upfront development costs and 
developer unwillingness to make long-term commitments in light of excessive 
uncertainty.
o
Lack of capital markets, stock exchanges, and other vehicles that provide 
liquidity and exit strategies. 
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