New Straits Times

Internatio­nal tourists vital to wider economy

- The writer is chief economist at EIS-UPMCS Centre for Future Labour Market Studies

TOURISM is an important sector of the Malaysian economy, and the shock to the sector resulting from the Covid-19 pandemic is affecting the wider economy.

Restrictin­g internatio­nal travels, business operations and people-to-people interactio­ns have brought the sector to a standstill.

EU-ERA’s recent publicatio­n of the Quarterly Labour Market Perspectiv­es — “A Sign of Labour Market Rebound” showed that the services sector, especially the tourism sub-sector is the key driver for economic recovery at sectoral level.

The pandemic has left hard-to-heal wounds on the tourism sector’s growth. Lifting the domestic and internatio­nal travel restrictio­ns is expected to boost tourism and subsequent­ly the overall economy.

Tourism is labour-intensive, employing 3.5 million workers, or 23.1 per cent of jobs. Once the sector recovered, the unemployme­nt rate is expected to reduce significan­tly which translates into labour income increases.

The increase in labour income will stimulate demand in the economy and improve private consumptio­n on the demand-side of gross domestic product (GDP).

The key measure for the growth of the tourism sector is the arrival and movement of tourists. The gross value added to the tourism sector contracted by 17.1 per cent from RM240.5 billion in 2019 to RM199.4 billion in 2020.

A similar trend was observed for employment generation. The capacity of the tourism sector to absorb employment reduced by 2.9 per cent, from 3,561,000 in 2019 to 3,457,000 in 2020.

The relatively lower impact of employment compared with the value added has resulted from the government’s interventi­on in the market to retain employment such, as the wage subsidy programme.

Tourism GDP on the other hand is associated with a positive correlatio­n to internatio­nal tourist arrivals, suggesting the value added expands as the number of internatio­nal tourists increase.

Our calculatio­n using an input-output model shows that every ringgit spent by internatio­nal tourist generates about RM0.83 to the value added in the whole economy.

Expenditur­e by internatio­nal visitors generate about 45 per cent to value added of the tourism sector while 55 per cent is attributed to other sectors.

Many countries are now entering a new phase in fighting Covid-19 while managing the reopening of tourism.

On Nov 11, Malaysia’s National Recovery Council proposed reopening borders to internatio­nal travellers by Jan 1, 2022, to accelerate the recovery of the tourism sector. According to a source, the internatio­nal border closure has resulted in Malaysia losing about RM90 billion (US$21 billion) in tourism receipts.

From an economic perspectiv­e, especially the survival of businesses and livelihood of tourism-related employment, reopening borders for internatio­nal visitors is necessary. It is unclear when and under what circumstan­ces a more extensive reopening of crossings will take place.

The situation is still fluid, as many countries figure out how to control Covid-19 while reducing the impact of containmen­t measures, particular­ly on tourism.

We do not want to participat­e in a debate on standard operating procedure (SOP) for internatio­nal tourists. Rather, we attempt to provide policymake­rs with informatio­n on tourists from which countries should be prioritise­d as far as economics is concerned.

Our analysis indicates that tourists from America, Asia and Europe have been associated with considerab­le impacts in increasing GDP and reducing unemployme­nt rates.

For example, a one per cent increase in internatio­nal tourist arrival from the Americas potentiall­y increases GDP by 0.046 per cent, and reduces the unemployme­nt rate by 0.179 per cent. Thus, allowing internatio­nal travellers

from these continents may be prioritise­d over other continents.

Altogether, the re-opening of internatio­nal borders should be gradual. To ensure lifting of travel restrictio­ns are successful­ly implemente­d, two complement­ary conditions are necessary.

First, coordinati­on mechanisms, such as cabinet committees and task forces, are required to monitor the pandemic’s impact on tourism and adapt to a rapidly changing scenario. Second, re-establish traveller confidence and increase demand.

The government, therefore, must ensure that destinatio­n communitie­s are confident that the benefits of having visitors outweigh worries about health hazards.

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 ?? FILE PIC ?? Tourists flocking to a popular nasi kandar restaurant in George Town in October.
FILE PIC Tourists flocking to a popular nasi kandar restaurant in George Town in October.

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