The Tourism Industry

Before the outbreak of the COVID-19 pandemic, one of the world’s largest and most profitable economic activities has consistently been tourism. The tourism industry drives people to travel for the purpose of recreation and leisure. It has been known to have a number of economic, environmental, and socio-cultural effects on both the tourists and host communities. 

Tourism can be a large booster to local communities – increasing regional development and improving local opportunities for wealth and employment. As well, tourism provides an opportunity to preserve and highlight local culture and heritage. As such, many countries are eager to develop their tourism sectors as a method to becoming richer and more marketable, and as a means for improving the quality of life for their citizens. 

According to the UN World Tourism Organization (UNWTO) and The World Counts, the number of international tourists arriving at their destinations each year averages to about 1.4 billion. In 2019, all regions saw an increase in arrivals, with the Middle East leading growth (+8%), followed by Asia and the Pacific (+5%), international arrivals in Europe and Africa both increased (+4%), and the Americas saw growth (+2%). As of November 15th, the number of tourist arrivals somewhere on the planet in 2020 was 1.2 billion, even with a global pandemic raging. This indicates that the tourism sector is resilient, and while the pandemic will definitely impact the relevant data for 2020, the tourism sector will still be one of the world’s largest and most profitable economic activities. 

Economic Aspects of Tourism 

Tourism development brings with it extensive economic potential for a destination that wishes to develop its tourism industry. It can bring money into a region via employment, currency exchange, imports and taxes. As well, tourism numbers continue to increase exponentially on a global scale as illustrated above in the increase in arrivals. There are a number of reasons for this growth, including technological innovations, increases in disposable incomes, the growth of budget airlines, and consumer desires for frequent travel. In 2018, total export earnings from international tourism hit $1.7 trillion USD, or an average of approximately $5 billion USD per day. 

The number of jobs created by the tourism sector in many areas is significant, as these jobs are not only part of the tourism industry, but also many related industries, such as agriculture, communication and marketing, health, and education. Many tourists choose to travel to places to experience the host community’s culture, traditions, and cuisine. This can be very profitable to local restaurants, shopping centres, stores, and entertainment businesses. One example is Melbourne, Australia; the population is greatly impacted by tourism, with over 10.4 million visitors per year, who spend approximately $13.4 billion in total. With a population of 4.936 million people, 723,200 of Melbourne’s citizens are employed within the tourism sector. 

As well, a number of governments rely on tourism for a sizable percentage of their revenue, choosing to invest in infrastructure for the country.  They aim to attract more tourists to visit their country, which means that safe, advanced, and esthetically-pleasing facilities are important – leading to new roads and highways, maintained parks, improved public spaces, and new airports. Essentially, with a nation’s investment in tourism comes the opportunity for its local citizens to experience economic and educational growth. 

As with many sectors, there are also a number of challenges and downsides to tourism to consider when investing in it. There are several hidden costs to tourism, which can have negative economic effects on the host community. Some of the most common negative economic impacts of tourism include:

Leakages

Economic leakages in tourism occur when revenue generated by tourism in a host community is a lot to outside communities. The cumulative impacts of actions like buying imported souvenirs or staying in foreign-owned hotels can be significant – with developing nations being particularly hard hit. For instance, in Fiji, an estimated 60% of the money earned through tourism ends up leaving the island. 

Infrastructure Costs

Many holiday spots with high tourism leakage must absorb the negative effects of tourism, with difficulties paying the damages. As previously stated, governments that rely on tourism for a large percentage of their revenue invest a lot in the infrastructure of a country. This can cost the local government and taxpayers a significant amount of money. For example, the development of a new runway at London’s Heathrow airport is expected to cost upwards of £37.7 billion by the time it is completed in 2026. Money spent in these areas may reduce government money needed in other critical areas such as education or health. 

Price Increases

One of the most common and obvious economic impacts of tourism is the increase of prices in the local area. Increasing demand for basic goods and services from tourists will often cause price hikes that negatively impact local residents, whose incomes do not increase in proportion. This is also a problem for real estate, as tourism development and the related rise in real estate demand can drastically increase building costs and land values. This often results in locals being forced to move away from the tourist-centric area – known as gentrification. 

Economic Dependence 

Many nations and regions investing in tourism run the risk of becoming too heavily dependent on tourism. The country sees the economic benefits and places a significant amount of money and confidence in the development of the sector. While this can be beneficial, it can also be quite risky. If tourism begins to slow in an area, then it’s important that the area have alternative methods of economic wealth, because if they don’t, they can run the risk of being in severe financial insecurity if there is a decline in the tourism industry. There are a number of reasons why tourism would decline in an area, such as political instability, civil unrest, severe weather events, illness, or disease. Overall, an overreliance on tourism carries risks that can have devastating consequences. 

Foreign Ownership & Management 

As enterprise in the developed world becomes increasingly more expensive, many businesses choose to expand abroad. While this may save the company money, it is not always beneficial for the economy of the host community. Foreign companies often bring with them their own staff, already limiting the economic impact associated with increased employment. They will also usually export a large portion of their income to the country in which the head offices are based. 

This concludes the first part of our Greening an Industry series, written by Saige Friedman of The Sustainable Switch. Check her blog out for more articles about current issues, policies, events, and technologies, that help or hinder our global, national, and local efforts to create more sustainable societies. Come back next week when the socio-cultural aspects of tourism will be explored.