Investment challenges in the hotel industry in Kigali, Rwanda: Hotel managers' perspectives

Abstract

Developing countries today compete to attract foreign direct investment to their local hotel industry. Many have therefore already changed their policies on foreign investment in order to compete effectively. Recovering from the 1990s genocide, the Rwandan Government has created an environment conducive to investment, to attract both local and foreign investment finance. This paper discusses the tourism investment policy context in Rwanda. It describes a survey of Kigali hotel managers' perceptions and opinions on challenges for investment in the country's hotel industry. The survey found that the perceived weaknesses of investing in the hotel sector are closely related to problems faced by the Rwandan tourism sector in general, such as the perception that Rwanda is not a safe tourism destination, the lack of skilled labour in tourism services, the lack of finances in the form of loans to potential investors and the lack of adequate tourism infrastructure.

Keywords:

• foreign direct investment
• hotel investment
• Kigali
• Rwanda

1. Introduction

Tourism is today widely recognised by various governments, international funding agencies and the business community as an effective tool for economic development (Ghimire, 2001:6) and many developing countries have turned to it as a possible alternative source of economic growth in order to solve the problems of declining agriculture (Oppermann & Chon, 1997; Sindiga, 1999). Indeed, governments of developing countries encourage tourism foreign direct investment (FDI) because of its expected contribution to development (Sharpley, 2002; UNEP, 2002; NEPAD, 2004; Mbaiwa, 2005). Its potential benefits, such as foreign exchange earnings, employment opportunities, infrastructure and investments, have made it one of the integral components of economic development in these countries (Sharpley, 2002; Torres & Momsen, 2004; Mbaiwa, 2005). Neoliberalism emphasises outward-oriented economic development strategies, for example encouraging new sectors that are believed to stimulate growth, such as international tourism, export-oriented industries and non-traditional exports (Brohman, 1996; Torres & Momsen, 2004). The policy directives of the International Monetary Fund (IMF) and World Bank have found their way into Third World policy-making through structural adjustment lending, which means that lending is made conditional on the adoption of policies such as the reduction of state monopolies by selling state assets to private companies and liberalising the economy. Overall, these IMF and World Bank measures have paved the way for foreign investment and private sector involvement in tourism development (Brohman, 1996; Telfer, 2002:58). Neoliberalism has been criticised for focusing on increasing international tourism trade without considering other developmental goals, such as raising the standard of living of the majority of the population and promoting more balanced growth among a variety of economic sectors.

To date the only academic studies of tourism development in Rwanda have been by Mazimhaka (2007) and Grosspietsch (2006). The present study surveyed the hotel investment environment in Kigali, the capital of landlocked Rwanda in Central Africa. Although many tourism strategies are in place to revive Rwanda's tourism sector, which collapsed after the 1994 genocide, tourism investments have remained sparse. The paper first discusses the tourism investment environment in the developing world and then looks at Rwanda's hotel investments since 1994. Fieldwork was conducted in Kigali over a two-month period. Personal interviews were carried out with relevant government officials in charge of tourism and investments to determine their role in facilitating investment in the tourism industry. Interviews were carried out specifically with officials in the Rwanda Investment and Export Promotion Agency (RIEPA), the Rwanda Private Sector Federation and the Rwanda Office of Tourism and National Parks. Quantitative data on existing investments in the accommodation sector were obtained from RIEPA and this provided an insight into the extent of local and foreign investments in tourism. Apart from interviews with key government stakeholders in the tourism industry, data were also collected through questionnaire interviews with 12 hotel managers or owners.

2. Foreign investment and tourism development

FDI combined with international cooperation has become a key policy directive in global action plans such as the 2002 Johannesburg Plan of Action at the World Summit on Sustainable Development. FDI is now considered to be among the key strategies for sustainable tourism development. In addition, through New Partnership for Africa's Development (NEPAD), African leaders have pledged good governance, peace and security in return for increased foreign investment. In order to attract FDI, NEPAD has therefore pledged to build investor confidence and to challenge the negative image of Africa as a continent characterised by political instability, lack of infrastructure and rampant corruption (Tsheola, 2002).

Developed countries, however, are still the main beneficiaries of the direction of FDI flows, and they are the main source of outward FDI stock. For example, up to 65 per cent of international investment in the hotel industry has been in developed countries (Kundu & Contractor, 1999:303). Developing countries' share of FDI in services is indicated to have increased from 1 per cent in 1990 to 10 per cent in 2002 (UNCTAD, 2004). FDI in the service sector in developing countries has increased by 100 per cent from the 1990s to 2000, taking into account that more than half of these countries' total FDI inward stock was in the service sector by 2000. According to Broadman & Sun (1997), developing countries are now commanding a steady increase in the world FDI flows. Palmade & Anayiotas (2004:38) observe that ‘South–South FDI is expanding rapidly’. FDI flows between developing countries are growing much faster than flows between developed and developing countries. It is estimated that by 2010 most FDI flows will be originating from within developing countries such as India, China, Brazil and South Africa. This shift in the direction of FDI has obviously had implications for both the service sector and the recipient countries in terms of capital transfer, technology and managerial know-how (UNCTAD, 2005). It is not only the direction of FDI flows that has changed but also the initial focus of FDI, which has shifted from natural resources, manufacturing and infrastructure to services such as banks, retail construction, insurance, tourism and telecommunication. Internationally, six investment types have been identified in the hotel industry (see Table 1). The benefits and costs to the host country vary in terms of leakage, marketing, managerial marketing and skill developments, among other things.

Table 1: Advantages and disadvantages of hotel investments to host countries

Form of investment	Benefits to host country	Costs to host country
Total ownership	No financial risk to host economy	Large outflow of income (‘leakage’)
100% of equity by a foreign subsidiary; may be for an unlimited time or a specified period		Difficult to reflect government policy for tourism
Joint venture	Access to capital	Requirement for the level of base capital
Partial ownership by foreign capital; an unlimited time or a specified period	Access to international marketing	Possibly unfavourable contracts due to limited bargaining power
	Reduced income leakages	Risk more widely spread
Franchising
The right to do business in a prescribed manner under an existing brand name sold to a local firm	Transfer of managerial and marketing skills	Management risk is with host country's firms
	Assured standard of quality
	brand image
Management contracts	Possible transfer of knowledge, skills, and technology (e.g. GDS – global delivery system) through a cooperation agreement	No control over finance, management or planning of firm
Business is controlled and managed by a foreign firm, but without ownership
Hotel consortia	Joint national and international marketing efforts	Small hotels may not be considered attractive to consortium
Independent hotels pool resources to compete with integrated and franchise chains		Initial lack of brand recognition
Full national ownership	Reduced international leakage	Lack of international reputation
Domestic investment without foreign links	Independence in corporate strategies	Higher marketing costs
Source: UN (1998:10).

Developing countries, however, are now in competition to attract FDI to their local hotel industries and many have therefore already changed their policies on foreign investment so as to compete effectively. For example, the steady growth of the tourism industry in recent years and the development of investor-friendly services in African countries such as Zambia, Mozambique and Malawi have helped to attract more foreign investments in the tourism sector (Brown, 2000:236).

Unlike Investment Promotion Agencies (IPAs) in developed countries, whose main FDI target is computer and business services, 80 per cent of all IPAs in Africa target FDI in tourism (UNCTAD, 2004). However, Brown (2000) notes that the percentage share of FDI in tourism is still low, particularly in African countries, compared to the percentage share devoted to increasing business services, utilities and telecommunication services. At a United Nations conference on trade and development in 1998 it was observed that although ‘global data on greenfield investments in foreign hotels indicate that there is some reorientation of tourism-related FDI towards developing countries, most of the recent new investments – in terms of project numbers, if not value – are going to transition economies and developing countries, in particular in southeastern Europe and the Commonwealth of Independent States, Latin America and the Caribbean, and China’ (UN, 1998: 27), FDI in Africa remains noticeably low.

Notwithstanding the fact that hotels and restaurants represent the major portion of tourism, FDI evidence shows that there has not been much FDI in tourism (Endo, 2006). The only exception is in China, where a large percentage of FDI is in the real estate sector, especially in hotels and other tourism-related services (Broadman & Sun, 1997).

Investment in hotels could encourage links between tourism and agriculture in host governments. This is especially true since developing countries' populations depend largely on farming. Tourism driven demand for food induces agricultural expansion and diversification of agricultural production. The strength of these links, of course, depends on other factors such as the level of tourism development, the hotel industry, and the size and class of hotels (Torres, 2003:546). However, several researchers have noted that tourism fails to create strong links with agriculture if it competes with agriculture for land and labour resources. It has also been noted that hotels owned or managed by foreigners cater for high-class tourists who prefer imported foods to locally grown products. This causes foreign exchange leakages. Most Caribbean resort hotels, for example, depend on foreign imports (Torres, 2003), and in Botswana tourism's links with agriculture have weakened because most food is imported from South Africa (Mbaiwa, 2005:162).

Multinational investments in hotels may stimulate domestic investment in host countries through competition and the demonstration effect of local firms. In China's hotel industry, FDI led to significant contributions in terms of boosting local investments. In one decade (1985–95), foreign investments led to the establishment of 3720 hotels, 3826 travel agencies and 34 airlines, at the same time directly employing one million people and indirectly five million (Qui et al., 1999). Several commentators argue that local investors may also benefit from the increased efficiency and improved quality of services that are brought about by foreign investors (Forsyth & Dwyer, 1994; Kusluvan & Karamustafa, 2001). Foreign-owned hotels are recognised for high-quality services introduced by their international management and business techniques. For example, a study comparing the performance of China's hotels showed that all those owned by Hong Kong and Taiwan companies had high-quality services and high profit levels and performed better than locally owned hotels (Pine & Phillips, 2005). Internationally, tourism investments can lead to global integration. To support this proposition, Gerose (2003) claims that FDI in African tourism can raise the chances of African destinations being reorganised in the global tourism market, as is the case for North African countries.

Despite the benefits, foreign investment in tourism can also have costs for developing countries, in the form of loss of control of the tourism sector and dependence on the foreign investor. For instance, in Botswana foreign companies and investors dominate the ownership of tourism facilities in the Okavango Delta, where about 79 per cent of the tourism activities are foreign owned (Mbaiwa, 2005:162). This contributes to overseas leakage of tourism earnings, lack of articulation with other economic sectors and lower multiplier and spread effects outside the tourism enclaves (Brohman, 1996; Christie & Crompton, 2001). Enclave tourism has been referred to ‘as a kind of internal colonialism’ (Mbaiwa, 2005) and has been blamed for serving primarily the interests of the elites and the tourists and leaving the majority of the populace with only a small part of the benefits, which leads to economic disparity and social polarisation (Oppermann & Chon, 1997). Brohman (1996:51) refers to enclave tourism as a ‘truncated’ type of development that excludes the majority from participating in their own developmental issues.

3. Rwanda tourism policy

The Rwanda National Tourism Policy was adopted from the Rwanda Tourism Strategy in 2006. Its objectives are economic, social, environmental and cultural (see Table 2). Economically, the policy aims to increase foreign exchange earnings and government revenue by increasing lengths of stay and daily expenditure. Overall, the government's target is to attract 70 000 visitors by 2010, each spending US$1400 during a seven-day stay in the country. This would enable Rwanda's tourism sector to achieve its goals by 2020 (MINICOM, 2004). The sector hopes to achieve this by fostering close cooperation between the public and the private sectors, financial institutions and non-governmental organisations (NGOs). Five role players will see to the implementation of Rwanda's tourism policy:

• Rwanda Office of Tourism and National Parks, which is in charge of tourism promotion, development and conservation;

• MINICOM, which is the main government body in charge of tourism development;

• the local authorities, whose role is to plan community projects and ensure proper use of resources;

• the private sector stakeholders, whose role is to ensure the policy is implemented (e.g. by investing in tourism experiences and amenities such as hotels and restaurants and offering high-quality services); and

• the NGOs, which are expected to play a vital role, particularly in encouraging community-based tourism and protecting the environment by providing communities with technical skills and know-how.

Table 2: National Tourism Policy objectives

Objective	Policy
Economic objectives	Increase foreign exchange earnings and generate government revenues; generate employment opportunities; promote rural economic development; stimulate infrastructure; enhance regional and international tourism linkages
Social objectives	Promote favourable image to the outside world; increase awareness of responsible tourism; provide and maintain a legal framework according to international norms
Environmental objectives	Promote tourism that is ecologically friendly; develop facilities in national parks in accordance with park management plans; provide and maintain a legal framework according to international norms
Cultural objectives	Develop cultural attractions; develop cultural values; emphasise development of tourism based on Rwanda's cultural diversity
Source: Compiled by the authors on the basis of information from the National Tourism Policy (MINICOM, 2006).

Overall, there should be coordination between the private sector, the government and the communities to promote the tourism industry (MINICOM, 2006).

The Rwandan Government has created an environment conducive to attracting both local and foreign investment, in particular emphasising investment that will develop and promote quality and sustainable tourism products, such as:

• disseminating information on the tourism investment opportunities available in the industry to potential investors within and outside the country;

• promoting tourism as a priority sector for development, streamlining investment procedures in collaboration with the Investment and Export Promotion Agency and advocating for incentives in the tourism sector;

• promoting tourist projects and ventures by way of joint venture arrangements with local partners;

• advocating for a favourable fiscal, legal and regulatory framework in order to attract finance;

• allocating the necessary public funds to enable effective development and marketing;

• facilitating loans, equity and technical assistance for medium-term and long-term tourism financing; and

• supporting a concession policy where beneficiary concessions are granted for entrepreneurs and developers to undertake development of natural and cultural resources with local communities in a sustainable manner (MINICOM, 2006).

Rwanda has among the lowest FDI inflows in Africa (OECD, 2006:435), since it is a landlocked country with a poor image internationally, especially where security is concerned, and has poor infrastructure and high transaction costs, particularly in the transport and energy sectors. Domestic investors are still the main source of investment in the hotel sector. Since 1999, South Africa and India have been the only foreign countries to invest in its hotel sector. Dubai World, a major holding company owned by the United Arab Emirates, has invested over US$200 million in numerous, mostly ecotourism related, infrastructural projects since 2007 (Africa Travel Association, 2008). The government has privatised a number of hotels as a way of increasing the private sector's role in developing tourism. Three top-class hotels have been constructed: two Intercontinental Hotels, rated four-star and five-star, in Kigali, and the Kivu Sun in Gisenyi (Nsekanabo, 2005). Jeyakumar (2005) notes that investments in the hotel and restaurant subsector have attracted more investment than other subsectors such as travel agencies and tour operators, which is unsurprising since this is a rapidly growing sector of the Rwandan economy. In terms of distribution, almost all top-range rooms and hotels are situated within Kigali and they represent 65 per cent of all the hotels in the country (OTF Group, 2002).

The Investment Report (RIEPA, 2005) first classifies investments into three categories: new investment, restructuring, and rehabilitation or expansion. Most investments are new, especially the one-star and two-star hotels. Of the 32 hotel projects both operational and non-operational, new investments account for 75 per cent (Table 3). Hotels that fall into the new investment type were all built between 2001 and 2004. Most three-star, four-star and five-star hotels fall into the second two categories. These hotels were built before the 1990s, although the reconstruction and renovations are more recent. Hotel investments are further categorised as operational and non-operational. Most of the hotels are operational. The total amount invested in operational hotels is US$32 889 450, and these hotels have created 1509 jobs. By 2005 a total of US$16 055 470 had been invested in non-operational hotels, creating 130 jobs. Given their ‘non-operational’ status, it is clear that most are still in the construction phase, which implies that on completion of these hotels more benefits are likely to be achieved in this sector.

Table 3: Operational and non-operational hotels in Rwanda

Source of investment	Name of project	Investment type	Year established	Jobs	Nature of investment	Estimated investment (US$^a)
Operational hotels
Belgium	Hotel des Mille Collines SA	Rehabilitation	2001	150	FDI	2 964 912.28
India	Indian Khazan Limited	New investment	2004	48	FDI	289 421.05
Rwanda	Hotel le Belvedere	Expansion	2004	49	Local	673 463.43
Rwanda	Hotel Credo	New investment	1999	40	Local	482 456.14
Rwanda	Hotel Gorillas	New investment	2000	50	Local	438 596.49
Rwanda	Novotel	Rehabilitation	2000	169	Local/FDI	406 504.59
Rwanda	Muhazi Beach Resorts	New investment	2001	65	Local	315 789.47
Rwanda	Alma Mater Lodge	New investment	2001	26	Local	152 213.68
Rwanda	Hotel Alpha Palace	New investment	2001	78	Local	329 824.56
Rwanda	Golden Head/Intercontinental	Restructuring	2001	250	Local	17 879 473.68
Rwanda	Hotel Castel	New investment	2001	23	Local	403 508.77
Rwanda	Hotel Paradise Ten to Ten	New investment	2001	50	Local	526 315.78
Rwanda	Okapi Hotel	New investment	2001	8	Local	177 094.49
Rwanda	Guest House ‘Chez Rose’	New investment	2002	10	Local	87 719.29
Rwanda	Hotel Chez Lando	Restructuring	2002	100	Local	1 026 652.77
Rwanda	Trust House Building	New investment	2002	20	Local	1 749 879.22
Rwanda	Akagera Game Lodge Sarl	New investment	2003	78	Local	1 515 789.47
Rwanda	Imorex Chez Robert	New investment	2003	18	Local	243 396.49
Rwanda	Le Petit Prince Hotel	New investment	2003	38	Local	600 175.43
Rwanda	Lighthouse Resort	New investment	2003	20	Local	477 192.98
Rwanda	Mountain Gorilla Nest Hotel	New investment	2003	28	Local	410 526.31
Rwanda	New Blue Sky Hotel	Expansion	2004	31	Local	144 720.05
Rwanda	Sky Hotel	Expansion	2004	50	Local	74 024.56
Rwanda	La Palisse Club	Expansion	2004	29	Local	963 731.57
Rwanda	Le Printemps Hotel	New investment	2004	35	Local	380 627.97
Rwanda	Amigo restaurant	Expansion	2005	46	Local	175 438.59
Total				1509		32 889 449.11
Non-operational hotels
Rwanda	Oasis Hotel	New investment	2000	Unknown	Local	3 076 578.94
Rwanda	Dreamland Towers ‘DT’	New investment	2000	60	Local	1 540 296.77
Rwanda	Royal Prince Hotel	New investment	2000	30	Local	736 842.10
Rwanda	Te Deum Apartments	New investment	2001	8	Local	526 315.78
Rwanda	Hotel Olympia	New investment	2002	Unknown	Local	1 052 631.57
South Africa	Mickor Hotel Holding	New investment	2002	130	FDI	9 122 807.01
Total				130		16 055 472.17
^aUS$1 = 570 RWF. Source: Compiled by the authors on the basis of the Investment Report 1999–2005 (RIEPA, 2005).

4. Kigali hotel investment: Nature, extent and challenges

This section analyses and interprets the data from the survey conducted in Kigali.

4.1 Ownership type and market entry

Three-quarters of the hotels in Kigali are owned by Rwandan locally based investors, with government owning 16.7 per cent and a mere 8.3 per cent being foreign owned. Table 4 shows that most of the hotels in the survey are privately run businesses. The others are business partnerships with government, under management contracts. Hotel Intercontinental was at first managed by a South African company, which later withdrew from the hotel. It is now managed by the government investment arm Prime Holdings. Hotel Novotel is managed by Libyans.

Table 4: Ownership type and grades of hotels in Kigali

Name of hotel	Ownership	Grading
Intercontinental Hotel	A franchise/government (formally managed by a South African company).	5-star
Mille Collines	FDI/Government owns only 2.5% of shares	4-star
Novotel	Libyan Arab Republic 60% and the Government 40% (managed by Libyans)	4-star
Okapi	Private	3-star
Ninzi	Private	3-star
Sky Hotel	Private	3-star
Alpha Palace	Business partnership	3-star
Chez Lando	Family business	2-star
Isimbi	Family business	3-star
Castel	Private	1-star
Baubar	Private	1-star
Hotel Gorillas	Private	3-star

4.2 Source markets

The Rwandan tourism sector appears to lack statistical data on tourism receipts and it was not possible to get information on visitors to the hotels since 1995. However, the respondents said the number of visitors to the hotels has been increasing. Information about source markets is mixed. Visitors to four-star and five-star hotels are mainly from America. Some are from Britain, and European countries such as Belgium, France, Germany, Sweden and Italy. Local tourists, mostly from nearby countries such as Kenya, Uganda, Tanzania and the Democratic Republic of Congo, mostly stay in the smaller hotels.

It was not possible to obtain detailed information on occupancy rates for particular hotels, either because the hotels lacked proper management systems or because the owners did not wish to divulge this information. According to the respondents, occupancy rates for the four-star and five-star hotels are 50 per cent (based on estimates and not calculated from a base year), while one-star, two-star and three-star hotels are running at 30 per cent occupancy rates at times. The number of hotel rooms in Kigali has increased by about 50 per cent since the opening up of Rwanda (after the genocide). Most of the respondents were of the opinion that in the next decade the mid-range market segment is likely to offer the most growth opportunities for their hotels.

There were three main customer types: foreign business people, government conference delegates and NGOs. One hotel manager said 90 per cent of the business was from the corporate and government segments, which were ranked as most important by most of the managers. Foreign tourists were ranked third in importance by almost half the respondents. The lowest ranked customer type was the domestic Rwandan traveller.

4.3 Impacts, investments and incentives

The UN Conference on Trade and Development (UNCTAD) highlights the following as some areas affected (positively or negatively) by FDI in tourism: consumer demand, capital formation, human resources, including knowledge and skills formation, procurement linkages, technology, the environment, corporate and competitiveness effects, and balance of payments (UNCTAD, 2007:88–9). Hotels in Kigali have contributed significantly to job creation and most of the staff are Rwandan. According to the survey, of 732 jobs created by hotels only 10 are taken by foreigners. Foreigners are mainly employed in managerial positions at four-star and five-star hotels. It is also clear that most of the employees at the four-star and five-star hotels are full-time workers and that there is an equitable spread in terms of gender. Additional employment is created by outsourcing hotel work. Of the 12 hotels surveyed, seven confirmed that some of their services, such as catering, laundry and transport, were outsourced.

Pro-poor tourism has been defined as tourism that generates net economic, social, environmental or cultural benefits for the poor (Ashley et al., 2001). For tourism to be more meaningful, hotel investors have a role to play in extending benefits to the poor. Three-quarters of the respondents said they were aware of pro-poor tourism strategies. Hotels that were not aware of pro-poor strategies were the one-star and two-star hotels.

Some of the pro-poor strategies that the survey indicated have been put in place by investors and managers in the hotel sector were the provision of employment opportunities to the community, not only in the hotel but also in the form of outsourcing, and the purchase of local foodstuffs and other locally made materials to be used at the hotel. Some of the big hotels in Kigali have on many occasions helped the local artists to showcase their products on the hotel premises.

The survey revealed that 76 per cent of food and beverages is bought locally. The biggest share of imported food and beverages is purchased by international hotel chains that serve an international clientele, which suggests that hotels in Kigali could generate demand for other locally produced commodities, mainly in the agricultural sector. Less need to import food and beverages would mean less leakage of tourism incomes to the outside. About 45 per cent of hotel equipment such as furniture and fixtures is imported, and an even larger proportion (86 per cent) of the electrical equipment used by the hotels, such as televisions, stoves and telephone switchboards, is also imported.

The main incentives for hotel investors are tax concessions on imported building materials and imported equipment such as stoves and televisions. A large majority (90 per cent) of the respondents said they were aware of RIEPA's incentives, and when it came to accessing these incentives only one hotel manager said it was a difficult process because a lot of bureaucracy is involved. According to the managers there is room for more incentives for investors in the hotel sector. The survey showed that the only tangible incentives are those for imported hotel equipment. Since a large percentage of the hotel electronic equipment, furniture and fixtures is imported, it is clear that incentives in the form of tax concessions on these are crucial for hotel investors.

Most of the hotels have performed reasonably well in terms of returns on investment – 75 per cent said their returns were fair, 17 per cent said they were good, and 8 per cent said they were very good. None of the respondents said the returns were excellent.

4.4 Positive and negative investment factors

UNCTAD's report on FDI in tourism says:

the decision of hotels on where to locate depends upon the extent of tourism demand for a specific destination, as well as its tourism specific assets (e.g. natural environment, culture). But the presence of a TNC [transnational corporation] hotel can also further contribute to tourist demand, and in fact the interrelationship between investors and tourist arrivals can be very difficult to disentangle, especially if attempted years after the process first began. (2007:33)

The prevailing high level of political and economic stability in Rwanda since 1994 has motivated investors to invest in tourism-related projects, particularly in the hotel sector. All the respondents believed the political situation was beginning to look promising for guaranteeing investor confidence. At the time of writing, investors in the hotel sector were motivated by the fact that there were few hotels in Rwanda; in other words, the industry was still virgin territory, with a market that was not saturated. It is clear that the government's main motivation for investing in four-star and five-star hotels was to encourage the development of tourism through these hotels and to build international levels of service in Rwanda. International hotel chains are usually known for better services, since they invest substantial sums in training hotel staff (Dunning & McQueen, 1981).

Table 5 summarises positive and negative experiences of the hotel industry as perceived by the respondents. They viewed the government's proactive involvement in creating an enabling environment for the tourism industry as the strongest incentive to invest in the sector. For example, tourism was designated as a priority sector in October 2002 (MINICOM, 2006). The government has in addition provided financial support to improve the tourism infrastructure and development. Rwanda is said to have achieved remarkable social and political progress since the 1994 genocide and is now one of the countries in Africa with the highest degree of personal safety and lowest levels of corruption (UNCTAD, 2006; OECD, 2006). Political strategies to achieve peace and stability in the country date from the formation of the transitional government and the institution of the parliament of national unity in July 1994. In terms of tourism, the government has provided security in all the tourism areas not only to protect the tourism infrastructure but also to ensure safety for tourists. For instance, tourists who visit the mountain gorillas are guarded by the army (Manzi, 2004).

Table 5: Perceived positive and negative experiences of the hotel industry

Feature	Experience
	Positive
Politico-economic environment	Most respondents saw the existing political and economic environment as stable. The political situation in Rwanda is more promising than ever before.
Destination image	Perception of Rwanda as a tourist destination in recent years has been very negative, but the country has improved greatly and is more promising.
Government's role	All respondents thought the government recognises the significance of tourism in the economy. They anticipate that in the near future tourism will be the leading economic sector.
Locality	Rwanda's strategic location has facilitated movement in the Great Lakes region and helped to tap into the East and Central African markets.
Investor information	Information on investment opportunities is provided to potential tourism investors adequately through the one-stop centre – RIEPA.
Economic reforms – liberalisation	Positive steps have been taken towards liberalisation of the economy and privatisation since 1995 and this is in line with promoting investments. Some hotels have been privatised.
Market size	The market for hotel development is still limited, but has been increasing.
	Negative
Standard	Standard and availability of tourist attractions are still low – there are few tourist attractions and even the few that exist are mainly focusing on mountain gorillas.
Skilled labour	There is lack of skilled labour in Rwanda. The Rwandan business environment has been constrained by lack of human capital, among other constraints (OECD, 2006).
Infrastructure	Almost all respondents saw Rwanda as lacking basic infrastructure – water, electricity, roads and airports – was lacking. Lack of sufficient energy has continued to affect the country's competitiveness. There has been rehabilitation of important national roads, but roads are still poor, particularly in the rural areas (OECD, 2006). Telecommunication infrastructure is unaffordable for the ordinary person.
Expensive destination	Rwanda is currently served by one airport – travelling to the country is very expensive, which discourages potential tourists to Rwanda.
Investment options	Promotional efforts in terms of incentives and government policy towards FDI have mainly been in the form of import duties. Not much has been given to investors in the hotel sector.
Access to land	Views on the availability of land were mixed. Some respondents believed that land for investment is available depending on where you want to invest; others that getting a site for investment is difficult because the land belongs to the government.
Source: Interviews with hotel managers; OECD (2006).

Hotel investors found Rwanda's central location an added advantage. Rwanda is strategically located in that investors in this sector can benefit from the easy movement of people. In terms of market potential, Rwanda stands a chance of capturing a bigger market in the region. Location-specific advantages are those factors that make the location attractive to international hotel companies (Johnson, 2002). To discover what these factors are in Kigali, respondents were asked to rank the perceived advantages and disadvantages of operating hotels. As can be seen in Figure 1, the highly ranked perceived advantages were the country's infrastructure, government recognition of the significance of tourism for developing the economy, the size and the growth rate of the economy, and the size and nature of the city. Cities are preferred to rural areas, and infrastructure was seen as an advantage of operating hotels in Kigali rather than in other areas of Rwanda. However, less than one-quarter (23 per cent) of the respondents said the infrastructural networks – roads, water, electricity and accessibility to other services such as telecommunication and banking services –are better in Kigali than in rural areas of the country.

Figure 1: Specific locational advantages

Although Rwanda seems to have done a lot to boost tourism and hotel investment, considerable obstacles and constraints remain. Its negative image as a result of its recent history has influenced both foreign and local investors in all sectors of the economy. Investors are still anxious about investing in Rwanda and this has also affected the number of potential tourists to the country. The effect of Rwanda's image on investments was well explained by Khalil Hamdani (the Director of UNCTAD's Investment Division), who said that investors:

are still shy [to invest in Rwanda] as suggested by the statistics of foreign direct investment coming into Rwanda … It is now a decade since the tragedy and still foreign direct investment on an annual basis amounts to only one dollar per person, per year. This is a very low figure. An UNCTAD study shows the world's 50 Least Developed Countries last year attracted US$11 billion in foreign direct investment. Rwanda's share of that came to about US$100 million. (ICC Hungary, 2006)

5. Conclusion

The World Economic Forum's (2008) Travel & Tourism Competitiveness Report (which did not include Rwanda) once again highlights tourism's reliance on other issues such as safety and security, land use planning, healthcare and environmental issues if it is to create an enabling environment for investment. Our study revealed that increased investment in the hotel sector in particular can have positive impacts on the destination. These include increased job opportunities, government revenue, infrastructural development, forward and backward linkages, transfer of technology, increased competition, and improved quality of services. Tourism investors in Rwanda have been favoured by the existing political stability, the government's determination to promote tourism and the access to regional markets. However, Rwanda's tourism sector nevertheless faces numerous problems, the most prominent being a poor international tourism image, lack of adequate infrastructure, lack of reliable data on tourism receipts and lack of skilled labour.

For investors in Kigali's hotel sector, the perceived strength of investing in the hotel sector lies in the government policy on tourism. They are encouraged by the government's move to boost its tourism sector and make it one of the country's engines of economic growth. The current political stability in the country is further motivation. In a bid to increase tourism investment, hotel investors are provided with sufficient information on investment opportunities; however, only a few incentives are offered, in the form of tax concessions on imported hotel equipment. The survey also indicated that the government provided infrastructure irrespective of its budget constraints, and that there have been improvements in the transport networks and rehabilitation of other tourism infrastructure. The government has also managed to improve electricity and water services. Electricity shortages are not as acute as they have been in recent years (OECD, 2006).

The perceived weaknesses of investing in the hotel sector are similar to the usual problems faced by the Rwandan tourism sector:

• the perception that Rwanda is not a safe tourism destination;

• lack of skilled labour in tourism services;

• lack of international demand for tourism services;

• lack of finances in the form of loans to potential investors;

• lack of adequate tourism infrastructure; and

• lack of an adequate market for hotel services.

Rwanda's tourism sector has generally improved greatly since 1994. UNCTAD notes that ‘FDI and TNCs have the potential to make a useful contribution to the tourism economy in developing countries’ and ‘can provide access to the tangible and intangible assets needed to help developing countries become players in the global tourism market’, but warns that FDI ‘is not a panacea and can only be effective as part of an appropriate overarching policy framework’ and ‘is best seen as a useful potential catalyst that can be a complement to domestic investment, but not a substitute’ (2007:89).