FHTA Tourism Talanoa: Local Ownership in Tourism

FHTA Tourism Talanoa: Local Ownership in Tourism

FHTA, 06 April 2023 – The next series of topics will take readers through the often-complex discussions on the deeper specifics of tourism in Fiji; local ownership, leading up to the real impacts of linkages and eventually dissecting what leakages are really about.

Information that is not just coming from people with experience in the industry – as opposed to not very well-researched academic commentary; but that can be factchecked with several institutions like FRCS, FNPF, RBF and several ministries who have long recognised the real impact that was so abruptly brought to the fore when the pandemic shut down borders globally.

We hope you can stay with us and gain some insight as we navigate this complicated industry to share what we believe is relevant information in the way we usually do to create better understanding and awareness.

To start with, consider that this is one of the oldest industries in the country, coming in second only to the sugar industry, but expanding and developing at a far different pace from Fiji’s oldest industry. We might consider trade, timber and copra as other industries that stretch back in our colourful history, but their glory days were often marked by unpleasant times most would rather not recall.

And while both sugar and tourism are deeply rooted in land leases, based predominantly in the western areas where the sun shines the hottest and evolving from colonial beginnings; that is where the similarities end with one constantly evolving and private sector being driven and the other well, quite the opposite.

Over 70 years later (Blue Lagoon Cruises started in 1950 and Fiji Airways in 1951), the industry is now the lifeblood of the Fijian economy, contributing approximately 40% to GDP, employing 150,000 people directly and indirectly and responsible for the flourishing of thousands of supplier networks, SMEs and activities that include transport, entertainment and general services.

There was exponential growth over the past few decades leading up to 2015, largely due to direct foreign investment in hotels, resorts, and other tourism-related businesses. The national airline expanded its network and commenced its fleet replacement initiatives, cruise companies were also expanding and moving further out into the sun-kissed islands, while adventure tourism, weddings and the family market became ingrained destination drawcards.

But things were changing in the background with small, locally owned hotels investing further by expanding or buying properties for sale.

There are several structures available for the ownership and operation of a hotel, many of which separate ownership of the real estate from the day-to-day running of the hotel business.

Most branded hotels are operated under either a lease, management contract or franchise, or a combination of these options. Each of these models creates a separation of some sort between the investment in the real estate element of the hotel and the operation and/or branding of the business element. Over the past few decades, hotel brands and operators have increasingly pursued more capital-light growth and used these models to drive expansion in partnership with real estate investors.

Under a hotel management contract, the owner of the hotel real estate and business appoints a management company to operate the hotel business on the owner’s behalf. Some management companies are also brand owners; in which case the hotel will be operated under the management company’s brand. The owner remains the owner of the real estate and the business and retains the majority of the risk and reward from the operation, but pays a fee to the management company, which is responsible for the day-to-day management of the hotel.

Internationally recognized brands form an important aspect of marketing in different regions.

Asian markets recognize specific brands they feel comfortable with or wish to be associated with, American markets can discern the difference between an affordable or upmarket option by brand recognition, and Europeans recognize the difference between a boutique or elegant and therefore superior brand.

Some of the best hotel management companies in the world include Marriott International, Hilton Worldwide, IHG (InterContinental Hotels Group) and Accor, who are all present in Fiji and from what we hear through the coconut wireless, a few more global brands are about to make their mark here alongside our very own homegrown brands like Tanoa Hotels Group, Likuliku and Malolo Island Resorts, Raffe Hotels Group and Musket Cove Resort, to name a few.

There have been wide discussions on moving room inventory levels up by up to 4,000 more rooms or more to be able to support the increased seat capacity of the national airline once it takes delivery of its next two wide-bodied aircraft.

The investment environment in recent years has not been conducive to any medium to large hotel investment and wide consultations have been taking place to address this.

We estimate that at least 75% of current hotel ownership in Fiji is local-based, which includes the properties owned by the Fiji National Provident Fund (FNPF) – the biggest local owner.

Recognising the opportunity to grow their portfolio and make some sound investments in a sector with the highest revenue earning capacity must have made sense because FNPF now owns several hotels that are managed by internationally recognised brands and often publicly state that these investments while only forming 8% of their total investment portfolio, continue to see a great return on them.

The estimate of 75% while sizeable is probably a little higher, given that we are not privy to the actual ownership of properties with strata-titled options. These are the apartment-styled units that can be purchased, where the unit is part of the total hotel stock for specific timeframes. The owners can access their investments at certain times while the rest of the time, the hotel management sells the rooms, take cleaning, maintenance and operational costs off the annual sales and deposit the balance for them.

New apartment blocks changing the Suva skyline are offering these same options if you care to invest half a million dollars or more as a starting rate.

Along with the FNPF investments and some well-known locally-owned brands that have been around for over fifty years, there are also lesser-known brands that many do not realise have been owned by locals that are a mixture of business investors or families that have been in hospitality all their lives.

Then there are the more “recent” investors. Returning diaspora or even retirees that have chosen to become citizens after working here for over twenty years that have invested in smaller properties that they continually built on or in tourism activities that keep them close to shorelines or zipping along the tops of forests.

Payments made overseas for bookings on flights, hotel rooms, transport and activities all eventually make their way back to Fiji by way of receipts. These might trickle in long after the end of the year and is usually the reason you might see the revenue earnings for tourism increase for the previous year over the first six months of the next year.

Wholesalers, online travel agents (OTA’s), and traditional travel agents use payment gateways, including the taxes, take their commission and remit the balances.

More recently, some OTA’s require payments to be made directly to Fiji and require the tourism business to remit their commission back overseas; further complicating issues with the taxman here because the business must also pay the NRWT (any non-resident person who derives professional service fee from sources in Fiji is required to pay Non-Resident Withholding Tax of 15% on the income derived by the non-resident person) forcing the business to pay the tax here that it could not charge to the OTA.

This may be small in the annual washup for a large operator but often impact SMEs up to 25% due to smaller turnovers.

Payments made here in Fiji stay here except for any agreed contracted commissions or other payments that must be remitted overseas through a complicated process of RBF approvals.

As we noted earlier, the RBF, FRCS, FNPF and several ministries, are well aware of exactly what is coming in as revenue and make it quite difficult to send even required payments out unless heavily scrutinised.

A policy and process in that non-conducive investment environment basket.

While local ownership might help ensure that tourism benefits are distributed more equitably across the economy and that tourism development aligns with the needs and aspirations of local communities, any ownership in tourism with a lease does this.

Lease agreements are entered into with the landowning community through the TLTB and often include additional clauses that support education and community developments (community halls, schools, roads, water and power supply projects, etc).

Leases are reassessed every five years and strong, often deeply connected relationships are built up over decades. Some of the oldest tourism leases go back over 50 years and TLTB advises that the most lucrative lease payments for landowners come under tourism – consistent, compliant, and reliable.

Resources are being shared, environmental protection and support awareness programs must be discussed, and a community’s health and well-being must be considered and watched over.

These relationships are important to the community, the tourism operator and the industry.

In our next article, we’ll touch more on why there is a need for more significant investment in the tourism industry, and over the next few weeks we will discuss tourism’s many critical linkages, what leakage is really all about, and more importantly where to find it.

It’s not quite where some economists keep saying it is.

Fantasha Lockington – CEO, FHTA (Published in the Fiji Times on 06 April 2023)