Determinants of foreign direct investment in tourism : the case of Malawi

Abstract

Foreign Direct Investment, in spite of several challenges, is hailed as one of the vehicles for economic development, especially in developing countries. In the tourism industry, FDI brings much needed capital, technology, marketing skills and operations systems that would otherwise not be available in the host country. Both developed and developing countries are always competing to attract FDI to their countries. The primary goal of this study was therefore to investigate factors that investors consider when undertaking FDI into the tourist accommodation sector in Malawi. Malawi remains one of the few countries in Africa which has not attracted meaningful FDI into its tourist accommodation sector. The objective of the study is fourfold; to analyse foreign direct investment, to identify country and industry level factors that influence tourism FDI, to analyse Malawi's general investment climate and to make recommendations to government and industry on attracting FDI. The study conducted a literature study on general FDI and tourism-specific FDI and the Malawi investment climate. An empirical study was carried out, through a quantitative research method. The sample was derived using a probability sampling method and was extracted from a national tourist accommodation database. The research found that there is a strong relationship between the source country of tourist accommodation FDI in Malawi and tourist source countries. It also found that economic factors, perception and infrastructure, government policy, competitiveness and nature are important considerations when investing in the Malawi tourist accommodation sector, in that order. Industry level factors that respondents found important are protection of investment, availability of fresh water, labour disturbances I unrest and tourist receipts. Whilst the Malawi government uses investment incentives as a key to FDI attraction, researchers found that incentives are not ranked as important to prospective investors.