Offset fund could diversify regional tourism
Dubai, May 2, 2011
Regional governments in the Gulf should consider setting up an offset fund to reinvest in a variety of local tourism initiatives and projects to enhance opportunities for the national workforce, according to a leading hospitality expert.
Michael Scully, managing director, hospitality at Dubai-based hospitality and real estate investment company Seven Tides, was part of a panel discussion at the Arabian Hotel Investment Conference (AHIC) in Dubai today.
The sums of money available could be considerable. Scully estimates that between them, the top100 internationally branded hotels in Dubai alone could repatriate up to Dh 750 million ($205 million) per annum for little or no investment on their part.
“This is basically a franchise service for a management fee which results in the Middle East being a cash cow, in some cases supporting corporate losses elsewhere,” he said.
It is important to note that the proposal for an offset fund is set against a tax-friendly environment – the UAE imposes no tax on hotel management profits. This compares favourably with corporate tax rates of 33 per cent in France and up to 28 per cent and 35 per cent in the UK and US respectively.
The fund could operate by combining public funds with a proportion of repatriated profits, or as a private fund in parallel with existing government budgets. The key to the success of the Public Private Partnership (PPP) initiative would be to present employment and business opportunities for the rapidly growing number of nationals, 65 per cent of which are under 25 years old.
“Unfortunately, many graduates throughout the region are struggling to find decent jobs. The root cause of recent unrest in the region was as much about economic opportunities as it was about political opposition.
“90 per cent of all working UAE nationals are in the public sector, compared with 20-25 per cent of working nationals in similarly sized economies elsewhere. The government simply cannot continue to employ more and more nationals, so therefore the private sector has to step up to the plate,” said Scully.
“Many hotel operators here are fishing in the same pond,” said Scully. “This strategy is unsustainable, we need to open up new markets, to drive in more visitors. There are a number of untapped market segments, such as singles or 18-30 market, mature couples, sports, medical, families, budget-holidays, even back-packers. It’s amazing that Dubai does not have a four-star beach resort, let alone extensive public beach facilities for economy travellers.
“The beauty of this offset investment initiative is that it has other major benefits, by broadening the tourism proposition, it will open-up business opportunities and support SMEs encouraging nationals to set up their own businesses.
“Through strategically planned investments, nationals could manage eco-tourism firms, educate tourists about coastline erosion, pollution, preserving coral, protecting turtles, and training falcons. They could operate fishing charters and desert safaris, produce handmade arts and crafts, weave baskets and carpets, or make jewellery, ornaments and khanjars.
“Engaging local communities and giving them a stake in local tourism can only be a positive move. Nationals have always had a healthy entrepreneurial spirit that should be nurtured and given the chance to flourish. The fund donors should not look upon this a ‘stealth tax’ as it’s an investment in their future as well. They will actually reap the rewards of an expanding and sustainable tourism industry - more tourists, with more to do, will need more hotels,” added Scully. – TradeArabia News Service