Lack of accommodations rationale for hotel investment in Vanuatu

Port Vila Bay, Vanuatu

On the back of being named the happiest place on earth in 2010 by Lonely Planet, Vanuatu is attracting increasing numbers of visitors. In 2016, the country received 95,000 international overnight visitors and over 256,000 cruise passenger day visitors. The country’s natural and cultural attractions are a draw, especially for cruise lines. However, as with other countries in the region, infrastructure, product offerings, especially hotels, need to be further developed. Changes are happening, which suggest that the country is fast becoming a more attractive destination for hotel developers, investors and operators. 

An archipelago of 83 islands located 1200 miles northeast of Brisbane and 600 miles west of Fiji, the islands host 158 species of orchids and 136 species of birds of which nine are endemic to Vanuatu. The country was also the setting for the musical “South Pacific” and an important depot for American forces during World War II. 

The islands of Efate, home to the capital of Port Vila, and Espiritu Santo Island attract most of the air and cruise visitors, but the other islands are also striving to develop tourism. Activities include horseback riding, cave tours, visits to the Mt. Yasur active volcano on Tanna Island, a wild food tour and the SS Coolidge wreck dive. Mt. Yasur is one of the few drivable volcanoes in the world. With over 100 languages, Vanuatu also offers a diversity of cultural experiences. What is lacking, though, are accommodations.

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Lodging Need

The accommodation sector is not as well developed as it is in some other tourism-intensive Pacific member countries. This could mean an attractive opportunity for hotel investors. There are few internationally branded hotels: only the Warwick, the Ramada and the Holiday Inn. All three hotels are in the capital city of Port Vila, prompting the government to seek more investment interest in the other islands of Vanuatu.

At the end of July, the Vanuatu government announced plans to launch a World Bank-funded upgrade of airports by the end of August. The first phase will focus on improving the runway, taxiway and aprons at the Bauerfield International Airport in Port Vila. The second phase would include a new Port Vila terminal and upgrades to airports on Tanna and Santo Islands. Air access has been an issue due to inadequate aviation facilities. So, the upgrades are expected to turn around the situation and help the country attract more flights. In the Pacific region, Vanuatu stands out as one of the most popular cruise destinations in the region, popularity which could be converted into increased air arrivals, thus more overnights and more spending. The country has substantial natural and cultural tourism potential, which if developed strategically, could generate substantial benefits for citizens and visitors, as well as help preserve the country’s natural and cultural heritage.  

Since 2009, international arrivals have ranged between 110,000 and 90,000. A decline in 2015 was due to Cyclone Pam, which hit Vanuatu on March 13th, 2015 and caused widespread damage across the country. It is estimated that 90 percent of the buildings in Port Vila were damaged or destroyed.  Australia, accounting for more than 50 per cent of overnight visitor arrivals, remained Vanuatu’s major source market in 2015 followed by New Caledonia accounting for about 15 per cent, New Zealand at 10 percent. Europe is the largest market outside the Pacific region accounting for 6.5 per cent followed by North America at 3.3 per cent and arrivals from PRC accounting for 2.4 per cent of total visitors. Although the PRC market is small, it grew nearly 40 per cent from 2014 to 2015.

In the first half of 2016, total visitor arrivals by air grew by 5.7 percent and cruise visits by 30 percent. The growth was supported by on-going promotional and marketing efforts via the Vanuatu Tourism Office’s branding campaign centered on the slogan “Discover what Matters.” The airport upgrades should help as air access increases.

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Vanuatu's Future

Tapping this potential is recognized in Vanuatu 2030, the country’s national development strategy. Vanuatu 2030 provides a 15-year development roadmap based on a vision of achieving a “Stable, Sustainable and Prosperous Vanuatu” and realizing the United Nation’s Sustainable Development Goals (SDGs). As an important sector for the country, tourism is recognized in the Vanuatu 2030 as a means for helping to achieve this vision and implement the SDGs. The well-researched and detailed Vanuatu Strategic Tourism Action Plan (VSTAP) 2013-2018 provides a comprehensive roadmap for growing tourism all across the country that complements Vanuatu 2030.  

Several areas of need are identified:

  • Governance and institutional strengthening.
  • Destination marketing.
  • Infrastructure and transport access.
  • Tourism investment: Create a positive environment for international and domestic investment in tourism.
  • Product Development and Standards: Develop quality market-focused products that reflect and build on Vanuatu’s natural and cultural features.
  • Human Resource Development: Build the capacity and skills of those in the tourism sector.

New Zealand’s development aid agency, MFAT, has been supporting the VSTAP program, which has included the Vanuatu Tourism Infrastructure Project (VTIP), a four-year, NZ$16 million redevelopment and beautification of the Port Vila Seafront to boost tourism and potential economic opportunities.

The World Bank Group through IFC, the Australian DFAT and Carnival Australia partnered to conduct a study of the economic impact of cruise ship tourism in Vanuatu. The report, published in August 2014, showed that cruise passenger spending was indeed benefiting destination economies. Because of the report, Australian DFAT and China proposed a number of infrastructure and market access investment initiatives, including improving access to the island of Tanna, upgrading the Luganville (Espiritu Santo) wharf for cruise ships and opening up further destinations.  

The Asian Development Bank also recognizes this potential. In their Asian Development Outlook (ADO) 2017 Report, they state that “Growth is driven by ongoing recovery in tourism and agriculture, cyclone reconstruction, and new infrastructure investment.”

Vanuatu’s growing popularity as a cruise destination could translate into increased popularity as an overnight vacation destination, a possibility that the government and development partners recognize. Pursuing the Vision 2030 combined with VSTAP and development partner support should help leverage their cultural, natural and historical heritage towards sustainable tourism sector and thus provide more opportunities for investors, especially hotels.

Scott Wayne and his Sydney-based colleague Dain Simpson have been analyzing and writing about tourism investment challenges and opportunities in the South Pacific, including Vanuatu, for the International Finance Corporation and the Asian Development Bank (ADB). 

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