Tourism and its economic value

General overview

More often than not when one thinks about a tourist area, blue waters, white sandy beaches and surf boards are things that come to mind. But, tourism is more than a picturesque horizon of sun, sand and sea housing the shadows of those enjoying themselves. It is an activity that involves people “traveling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes” according to the United Nations World Tourism Organization (UNWTO). It is clear from the definition that tourism is more than merely having fun at the beach. People travel for different reasons. Some travel to see different things and places. Others travel to generate business opportunities and to expand business income. Tourism, itself a business, affords people the opportunity to gain a better understanding about different cultures and history. This income-generating activity is largely educational. Tourism has both a domestic and foreign component. However, the focus of this article is on international tourism. In trying to understand the economics of the sector, consideration was given to how the industry was structured. There are many ways in which the international tourist market is described. It is described in terms of tourist arrivals, tourism receipts, tourism purpose or activity and destination. Linked to the market structure are the things that take place as a result of the travel and arrival of the visitors. This week’s article is an attempt at understanding the tourism business as an economic activity. In doing so, it draws heavily on the 2017 edition of the UNWTO report.

Business product

Tourism is a service and, because it generates foreign earnings for most countries that offer it as a business product, it forms part of the international trade in services. International tourism is a very important part of world trade, accounting for about seven percent of world trade in goods and services. As a worldwide export category, tourism ranks third as the highest income-generating product. It is led only by the export of chemicals and fuels. This placement should not surprise anyone since tourism was the largest and fastest growing economic sector in the world and experienced continued expansion and diversification for the past 60 years. Traditionally, tourism was concentrated in Europe and North America. But global shifts in tourism have taken place and the different metrics used to measure its impact offer a fascinating view of its global trends.

People travel to international destinations for a variety of reasons. These markets are grouped as leisure, visiting friends and relatives, business, religious reasons and other purposes. While it is not that easy to tell what people actually do when they arrive in a country, countries place reliance on the declarations that people make about their reason for visiting a country. That reliance reveals that inbound tourism for leisure, recreation and holiday purposes is by far the reason that people travel to other countries. Statistics for 2016 reveal that 53 percent of inbound tourists visited foreign locations to enjoy free time in relaxed mode. Some form of relaxation is found too in visiting friends and relatives, even though such visits could be occasioned by health, death and family problems. Visits to friends and relatives, denoted as VFR, and for religious purposes account for 27 percent of the inbound tourist market. Thirteen percent of the market is taken up by business travel while the remaining seven percent is unknown.

Distribution of arrivals

Collectively, international tourist arrivals amounted to 1.2 billion in 2016. Though slower than in 2015, the number of arrivals reflected another year of growth that gives those reliant on the sector reason for optimism. Globally, international arrivals grew 3.9 percent in 2016 which was higher than the 3.8 percent annual average growth rate that UNWTO forecasted for the period 2010 to 2030. The distribution of the arrivals last year revealed some very interesting patterns as well. The international tourism market when considered from a regional and national perspective offers insights into market dominance of the sector. Using international arrivals as a metric, European destinations hold nearly 50 percent of the market share. This is followed by Asia which attracted about 24 percent of international arrivals. The Americas, which include the Caribbean, saw 16 percent of the market share while Africa and the Middle East accounted for under five percent each of the market.

It should come as no surprise that of the top 10 most visited countries, Europe accounted for 6 of them. These countries were France, Spain, Italy, United Kingdom, Germany and Turkey in descending order. The remaining 40 percent is split evenly between destinations in Asia and North America. There is no doubt that people visited beaches, shopping sites and restaurants and did other things for entertainment. With a dominant share of the market, one must wonder what makes Europe stand out. It seems to be the European architecture that is drawing the crowds. Using France as an example, the Notre Dame Cathedral, the Sacre Coeur Basilica, the Musée du Louvre, the Eiffel Tower and the Sanctuary of Our Lady of Lourdes have been top draws of international tourists. In Italy, there is of course, the St. Peter’s Basilica, the Colosseum and the Shrine of Padre Pio. In Turkey, there is the Grand Bazaar.

Interesting developments

But the global body is reporting some interesting developments. One such development is in the area of growth rates in arrivals. Asia and the Pacific led the world in growth in arrivals in 2016, with arrivals growing at the rate of nine percent. However, Africa was close on its heel with a growth rate of eight percent in international arrivals. Much smaller growth was recorded in the Americas and Europe which each grew by three and two percent respectively. The bottom line for many countries is the money that they earn from tourism. As one would expect, with Europe leading the way in terms of arrivals it would also lead in revenues earned from tourism.

The data that has been reported shows Europe with about 37 percent of the revenues. Asia and the Pacific are responsible for 30 percent of the revenues while the Americas account for 25 percent. Middle East has five percent and Africa received three percent. However, per capita arrival revenues tell a different story. The leading region is that of the Americas which earned per capita arrival US$1,570 in 2016. The Americas was followed by Asia and the Middle East which earned per capita arrival revenues of US$1,190 and 1,080 respectively. Europe, despite being the most popular and busy regional destination earned very little from each arrival. It earned US$730 per capita arrival while Africa earned US$600.

Biggest earner

Within the regional distribution, the biggest earner per arrival was Oceania which raked in US$2,990 per arrival. North America, South Asia and the Caribbean held their own when one looks deeper into the distribution patterns of revenues per arrival. North America emerged as the second highest earner per arrival with US$1,870, South Asia as the third with US$1,340 and the Caribbean destinations holding their own at US$1,200. This per capita revenue trend is very significant for the Caribbean.

Tourism is the most important revenue generator for Caribbean islands. It is the bread and butter of these

economies accounting for about 50 percent of their GDP, but the impact of the recent hurricanes Irma and Maria left some countries in a state of helplessness. The revenue loss for countries like Antigua and Barbuda and Dominica will be significant. The glimmer of hope that might have arisen in the first quarter of 2017 with a reported arrival of over 15 million international tourists must surely now have been extinguished. With the recent devastation, the Caribbean Development Bank has predicted a one percent reduction in the arrival of international tourist which means lower revenues with fewer arrivals. Beyond the immediate concern of loss of revenue looms the reality that affected Caribbean islands will require significant investment to rebuild the economies and improve their growth prospects.

Guyana

For Guyana, the situation is different. Tourism is not as yet a major contributor to the economy. The total contribution of travel and tourism to the Guyana economy in 2014 was eight percent and is predicted to contribute only 7.1 percent of GDP by 2025. It is still an evolving product which can have many dimensions. In addition to the traditional entertainment of food, drinking and dancing, there is the ecotourist who wants to understand and appreciate nature more. Guyana does not generate enough business to make business travel a highly desired tourist activity. That could change with oil production. The prospect of more business opportunities will encourage business tourists. But, Guyana has to ready itself for that purpose.