The tourism industry has two faces: one offers public goods such as historical artifacts, natural parks, and museums; the other presents private goods and services such as hotels, entertainment events, and theme parks. But public-private partnerships unite these two sides for the greater good, as the private sector’s role complements the public sector’s goals for development, growth, and effectiveness.
The importance of the tourism industry within national economies has long been evident, but a paradox lies at its core: although tourism contributes significantly to a country’s earnings, it has traditionally been structured and run exclusively by the public sector. In 1992, the Organisation for Economic Cooperation and Development (OECD) examined this question closely, publishing a detailed analysis of the industry that concluded that the public sector was less responsive and entrepreneurial than it should have been in the development of tourism.
At this point the stage was set for change. During the next two decades, a push towards decentralization (leading to local authorities assuming greater autonomy in the management and financial allocation of tourism assets), alongside an increased effort to foster private sector involvement, paved the way for public-private partnerships (PPPs).
The PPP framework
This is an age of widespread interest in various forms of private involvement in the development of the tourism industry. This interest is motivated by the fact that many countries are contending with two divergent policies: first, the necessity to curb public expenditures and contain public budgets; and second, the drive to improve competitiveness and efficiency in the service and operation of the tourism industry. It is important to remember that public administrations worldwide are characterized by diverse cultures and capabilities, as well as distinct legal and planning traditions. But despite these differences, a framework for what are now referred to as PPPs has emerged within the tourism industry.
As shown in the illustration above, in Phases 1 and 6, the public sector has a catalytic role and agreement models are often the main tools of partnerships. In these cases the public sector (particularly local authorities) is uniquely situated as initiator and convenor of tourism growth as well as facilitator of economic development in the community. Local authorities often create financial solutions and incentives in order to ease agreements with the private sector, and agreements can vary from sponsorships of specific events to co-financing various activities within large projects.
One interesting example is illustrated by the Phoenix Islands Protected Area (PIPA) in Kiribati, where the agreement between the public and private sector is driven by the development of eco-tourism to promote regional economies. There is particular interest in the impact of these on economies of coastal communities, but they also support the conservation of coastal and marine biodiversity and help to inculcate conservation values in the islands’ populations.
The joint venture model is more common in Phases 2 and 3, where the public and private sector agree to work together. Sometimes when a large amount of capital is required to develop infrastructure and facilities, the public sector may take a share higher than 50 percent to leverage private finance and decrease financial risks. In Slovenia, for example, the Funicular Railway on the mountain of Pohorje, which is used to reach the natural park and ski resort, was constructed and is now operated by the private sector under a 40-year contract. Given the importance of the infrastructure for the development of the city of Maribor (European City of Culture 2012) and the greater Stajerska region, significant financial support is being provided by the government.
In Phases 4 and 5, partnerships are more often constructed under concessionary models. The private sector is usually granted the right to operate and manage a tourism asset and the ownership of the asset remains in public hands. The public authorities often receive a fixed financial contribution per annum under a contract lasting on average over 15 years. One example of the concessionary model is the Schönbrunn Palace in Vienna, which is visited by over 3 million tourists per year and is operated by a private company. The concessionaire is responsible for investing, renovating, and financing the castle; it retains all the operating revenue and does not receive any subsidies from the Austrian government.
A spirit of cooperation
The unique character of the partnership between the public and private sector in tourism is clearly outlined by the context, objectives, and constraints of the different actors. The lack of a culture of cooperation and experience, plus insufficient institutional support, can hamper the creation of these partnerships. But by sharing clear strategic plans and contracts based on results and targets, the private and public sector can together design imaginative ways to welcome tourists as patrons of economic growth.