In November 2020 when we first officially launched The Sustainable Switch, our owner, Saige Friedman wrote a series on the impacts and benefits of tourism for Canadian adventure company Peak Adventure. These articles will now be available via our website and Peak Adventure’s Journal. Part 1 provides some background on the tourism industry and explores the positive and negative economic impacts of the industry.
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 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 of improving the quality of life for their citizens. According to the UN World Tourism Organization (UNWTO) and The World Counts (see Figure 1), 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.
Figure 1 – UN & WTO International Tourist Arrivals by World Region / Figure 2 – World Map & Compass (Canva)
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 of arrivals. There are a number of reasons for this growth, including technological innovations, increases in disposable incomes, the growth of budget airlines, and consumer desire 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 sizeable 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 aesthetically 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.
Figure 3 – Backpacking (Canva) / Figure 4 – Melbourne Beachfront (Canva)
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 the revenue generated by tourism within a host community is invested in outside communities (see Figure 5). The cumulative impacts of actions like buying imported souvenirs (those not made in-country, but created in elsewhere and imported for sale) or staying in foreign-owned hotels (e.g., a Hilton or Four Seasons resort) can be significant, as the money spent by tourists does not all stay within the community and circulate through the local economy. Such impacts on developing nations are felt particularly hard. One such example is Fiji, where an estimated 60% of the money earned through tourism ends up leaving the island.
Price Increases
One of the most common and obvious economic impacts of tourism is the increase in 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.
Gentrification is known as the process by which the character of an area considered to be “urban poor” is altered, improving housing and attracting new businesses. However, the current inhabitants are usually displaced during this process, as they can no longer afford to live where they once could.
Figure 7 – Gentrification sign
Foreign Ownership & Management
As an enterprise in the developed world becomes increasingly more expensive, many businesses choose to expand abroad instead. While this may save the company money, it is not always beneficial for the host community’s economy or their people. Foreign companies often bring with them their own staff – already applying limitations to the potential for the economic impact that is associated with increased employment. As well, these organizations tend to export a large portion of their income to the country in which their head offices are based (causing economic leakages).
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. One common example is the money spent by a host country for the Olympics. More often than not, the region selected will not already have existing infrastructure in place, and the government will spend billions of dollars to create it. Money spent in these areas may reduce government money needed in other critical areas such as education or health.
Figure 6 – Olympic Megastructure
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. As with stocks and personal finance, it is important for diversification in investments, so you don’t have all your eggs in one basket so to speak (see Figure 8).
This concludes the first part of the Greening an Industry series. Make sure to come back tomorrow to read part 2, in which the socio-cultural aspects of tourism will be explored.
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