TOURISM AS AN ECONOMIC BACKBONE OF DEVELOPING COUNTRIES
Name
ACCT 6600 - Managing Operational and Financial Business Risks
Walden University
2022
1.1 BACKGROUND TO THE STUDY
The tourism industry is seen as a promising sector for developing countries. Increased numbers
of international arrivals and gross tourist expenditures in hard currencies usually gives evidence
of successful growth through tourism in developing countries. International tourism arrivals to
developing countries have increased by 6.5 per cent annually since 1988, a higher rate than
average world growth of arrivals. Income through international visitors is representing a large
component of international exports in the Least Developed Countries (Denman et al., 2004).
Tourism ranks first, second or third among all export sectors in 19 LDCs.
According to Ikawa, (2009) for many developing countries, tourism is a significant vehicle for
economic progress that creates jobs, foreign exchange, and tax revenues - all of which contribute
in one way or another to improving poor people's lives. While poor countries command only a
minority share of the international tourism market, tourism can make a significant contribution to
their economies. Tourism can play a critical economic role in developing countries, especially
for those with limited income-generating alternatives. Multilateral Investment Guarantee Agency
(MIGA), a private sector branch of the World
Bank Group.
Tourism is one the world's fastest growing industries, expected to overtake agriculture as
Others however have indicated that tourism on its own cannot be an explanation for specialised
tourism countries achieving higher growth rates. It appears that faster growth rates are more
related to the fact that some economies are more open and liberalized than others (Lozano et al.,
2005). Tourism is a service industry and benefits strongly from liberalized and open economies.
Also specific factor productivity plays an important role materializing growth, e.g. the extent to
which tourism growth leads to more demand for human resources and human capital
accumulation (Neves et al., 2005). So it is not tourism per se that relates to economic growth.
The liberalization of developing economies usually starts with the modernization of their
domestic financial markets.
There appears to be a positive relationship between open and modernized financial markets and
poverty alleviation. When it comes to the relationship with poverty alleviation, the main topic is
to provide poor people with access to financial services. This is mainly promoted through
Microfinance Institutions (MFIs).
Microfinance refers to `small-scale financial services – primarily credit and savings- provided to
people who farm, fish or herd; operate an income generating activity, small- or micro-enterprise
where goods or services are produced, recycled or sold; who work for wages or commissions,
who gain income from renting out small amounts of land, vehicles, draft animals, or machinery
and tools; and to other poor individuals or groups at the local levels of developing countries, both
rural and urban´ (Robinson, 2001). Microfinance initiatives have been successful in many rural
and urban markets. Simply through improved access to financial markets, the poor are able to
achieve considerable increases in their income situation.
Effective growth in tourism is mostly depending on those foreign direct investments in which
large Transnational Corporations dominate (Endo, 2006). Countries may benefit from the
participation in vertically interpreted tourism networks of transnational companies but run the
risks of these companies taking the benefits from tourism growth figures (Van der Sterren et al.,
2006). So far there have been hardly any studies indicating that foreign tourism investments are
contributing more to GDP growth of the Least Developed Countries than investments in other
sectors, like modern agro-industry or Information and Communication Technology. But
examining the scale of Foreign Direct investments (FDI) in all segments of tourism-related
industries is hardly possible: industry classification used in statistics does not correspond to the
range of activities that tourism covers.
Developing countries Developing countries are not popular for Foreign Direct Investors in
tourism. The only real tangible investments in real estate, hotels and restaurants in tourism
destinations are not visible as these companies make use of non- equity forms of investments.
Hotel investments are included in overall real estate investments and hotel companies only
arrange management contracts or leasing arrangements (Endo, 2006).
1.2 STATEMENT OF THE PROBLEM
Tourism in the western circuit of Kenya has been faced with numerous challenges among them
including poor infrastructure, this explains the poor roads leading to this touristic sites rendering
them inaccessible especially during the rainy seasons.
The sites are poorly developed and under maintained attributing to poor management and lack
of proper funding from the government. This has led to loss of relevancy and outdated
attractions that leaves this areas less visited.
Developing countries have specific constraints when attempting to compete through liberalizing
and opening their markets. Especially the group of Least Developed
Countries (LDCs), lack the infrastructure or competitive strength to participate in most
liberalized service industries like ICT and banking. It is not strange that most liberalization
attempts have lead to more uneven national income distribution and increased numbers of poor
(Kohl et al., 2000). Government’s efforts in developing countries to stimulate foreign tourism
investments, might improve their Balance of Payments. This however is not per se leading to
economic growth, or a better income distribution.
1.3 Research Objectives
1.3.1 Main Objectives
The main objective of this research was to establish the role of financial institutions in tourism
development in the case of western circuit
1.3.2 Specific Objectives
The specific objectives of the study were:-
1. To establish the benefits of tourism industry in a country
2. To establish factors that hinder growth in tourism enterprises
3. To establish the effect of financial support to tourism enterprises
4. To establish the relationship between tourism development and financial institutions
1.4 Research Questions
1. To establish the benefits of tourism industry in a country
2. To establish factors that hinder growth in tourism enterprises
3. To establish the effect of financial support to tourism enterprises
4. To establish the relationship between tourism development and financial institutions
1.5 Significance of the Study
The researcher anticipated that the findings of the study provide useful information for policy
makers and planners speed up implementation of tourism financing. The findings were also
deemed to inform stakeholders in the tourism industry of the relationship between the enterprises
management and accessibility to loans. The study also aspired to contribute to the wealth of
knowledge that can be referenced for future further research.
1.6 Scope of the Study
The study was basically concerned with factors affecting the accessibility to bank loans by
hospitality enterprises. This was done in Eldoret Municipality, Uasin Gishu County. The study
was carried in June 2012.
1.8 Definition of Terms
FINANCIAL INSTITUTION: In financial economics, a financial institution is an institution
that provides financial services for its clients or members. Probably the most important financial
service provided by financial institutions is acting as financial intermediaries. Most financial
institutions are regulated by the government.
TOURISM: Tourism is travel for recreational, leisure or business purposes. The World Tourism
Organization defines tourists as people "travelling to and staying in places outside their usual
environment for not more than one consecutive year for leisure, business and other purposes.
DEVELOPMENT: A significant event, occurrence, or change.
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