With the onset of the pandemic, the world stopped. A previously unknown threat made us drastically change our way of living. This is the first entry in a series of blogposts about the structural changes that the pandemic brought to the tourism sector in the Caribbean.
Countries where the sector represented 30%, 40%, 50%, or even more of their GDP saw their tourist activity almost entirely disappear. Many of these countries did not have social protection networks, adding, in these cases, the human pain of the pandemic to a very complicated socioeconomic reality, extremely challenging to face on a personal and state level.
The income statements of many tourism businesses came to present negative income entries due to sales that were never thought to be cancelable, but that the state of emergency made them appear as liabilities without having any provision. On top of this, half-built multimillion-dollar investments were stopped, debts to be satisfied based in cash flows that suddenly became completely unpayable, with almost no possibility of adjustment.
In May 2020, experts realized that the recovery would not be immediate. It was estimated that it would take, on average, three years. That is, today: 2023.
Therefore, this International Tourism Day is worth analyzing how accurate these projections were and trying to extract the lessons learned that this terrible crisis has left us at a sectoral level.
The pace of recovery has been very uneven between regions and countries.
The World Tourism Organization (UNWTO) recently announced that we were approaching full recovery. Between January and July 2023, international arrivals reached 84% compared to the pre-pandemic level. The Middle East leads the recovery, having notably surpassed 2019 levels (120%), followed by Africa (92%) and Europe (91%). The Americas stands at 87%, and Asia and the Pacific Region at 61%.
As the IDB anticipated, this critical advancement toward 2019 numbers has occurred irregularly (UNWTO, 2023). At first, the recovery path was marked by the evolution of the primary critical indicators related to the prevalence and impact of the disease. Year-on-year growth in 2021 was just 12.7%, very timid considering the incredible decline of the previous year. However, in 2022, the number of international tourism arrivals increased considerably, more than doubling (+111.5%). In the first seven months of the year, the growth of this same indicator was 43%.
In this context, it is worth emphasizing that, among the IDB borrowing countries, the recovery of some countries stands out firmly, such as El Salvador, leading the recovery in the number of international visitor arrivals for the entire Americas region (+32% from January to July 2023 versus the same period in 2019), Colombia (+23%), Dominican Republic (+17%), and Honduras (+17%).
We will still have to wait a few months to adequately measure the recovery in economic terms (the quantitative measurement that perhaps matters most to us). Still, the data from the beginning of the year indicate that the level of recovery in economic terms could be more pronounced than that experienced in terms of arrivals for international tourism.
If we analyze the 2022 data and the projections of the World Travel and Tourism Council (WTTC, 2023), we find the following:
- Of all the 26 IDB borrowing countries, approximately a third managed to reach or exceed in real terms the pre-pandemic contribution of the travel and tourism sector to GDP in 2022 (9 out of 26 countries, see Chart 1).
- According to estimates for 2023, less than half of the borrowing countries will have their travel and tourism sector contributing more to GDP in 2023 than in 2019 (specifically, only 12 of the 26 countries).
- At the employment level, in 2022, only 27% of IDB borrowing countries reached 2019 employment levels (only 7 of the 26 countries, see Chart 2).
- Regarding estimates for 2023, the WTTC expects a somewhat improved pace of recovery at the employment level since it estimates that 14 of the 26 borrowing countries will ensure that their travel and tourism sector generates the same or a more significant number of jobs in 2023 than in 2019 (54% of countries, 14 of the 26).
This data reflects a complicated reality for many countries in the region.
Tourism, a key sector for most of the countries in the region
Before the pandemic, the travel and tourism sector generated more than US$566.6 billion in value-added, more than 26 million jobs, more than US$99.8 billion in exports, and more than US$53.35 billion in investment. (WTTC, Database). In relative terms, these figures imply that, on average, in IDB borrowing countries, the travel and tourism sector generated one in every ten US$ of value-added.
This importance was prevalent for most countries and especially pronounced for some.
The sector represented more than 10% of GDP for 12 of the 26 IDB borrowing member countries and more than 10% of jobs for 15 of the 26 borrowing member countries. Meanwhile, it comprised more than 25% of GDP and total employment for 4 of the 26 countries.
The sector also contributed very significantly to national exports. For 12 of the 26 IDB borrowing member countries, the tourism sector represented more than 10% of exports in 2019; for 9 of the 26 borrowing member countries, more than 15% of total exports; and for 3 of the 26 borrowing member countries, more than 50% of total exports.
This relevance is still valid, but the data on critical indicators, such as the sectoral contribution to GDP, employment, exports, or investment, show us a complicated reality for many national states or local regions.
The role of the national (and local) government is crucial for the development of the tourism sector
Although it is on the way and has been achieved in some countries, recovery is taking, on average, longer than initially expected. In this context, it is critical to emphasize that we would only be able to advance towards a complete, sustainable, resilient recovery with the public sector’s support and recognizing its essential role at the sectoral level.
The role of the state is essential as a sectoral planner, as a guarantor of the protection of natural, cultural, and heritage resources – the primary basis of tourism activity for most countries -, as a promoter of the strengthening of sectoral governance, as responsible for the design and efficient management of an adequate fiscal framework, which has critical automatic stabilizers, which promotes adaptation to climate change, which stimulates innovation and digitalization, which invests in the primary and productive infrastructures so necessary for tourist activity.
The role of the state cannot be limited to promoting tourist destinations, enabling the country’s tourist brand, or generating tax incentives that evidence has shown us to be mostly ineffective and with high opportunity costs. The role of the State must be much more prominent and comprehensive.
In this government strengthening, in this transition towards positioning the public sector as a key axis for the development of a competitive, resilient, and sustainable sector, in this transformation of roles, and in this further professionalization of this vital sector, the IDB can be a great ally, not only at the level of financial support but also, and especially, as a collaborating partner at a technical level in the design of policies and public investments.
In future blogs, we will address the main lessons learned that the pandemic has left us at a sectoral level, among which we will delve into this one that we already mentioned: the crucial role of the State in the development of a competitive, thriving, economically vigorous, socially transformative, and sustainable tourism sector.