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The Financial Express

Coronavirus will cost global tourism at least $1.2 trillion

UNCTAD estimates that for every $1 million lost in international tourism revenue, a country's national income could decline by $2 million to $3 million.


| Updated: July 03, 2020 21:42:04


Coronavirus will cost global tourism at least $1.2 trillion

The world's tourism sector could lose at least $1.2 trillion, or 1.50 per cent of the global gross domestic product (GDP), having been placed at a standstill for nearly four months due to the coronavirus pandemic, United Nations Conference on Trade and Development (UNCTAD) said in a report published on Wednesday.

The UN's trade and development body warned that the loss could rise to $2.2 trillion or 2.80 per cent of the world's GDP if the break in international tourism lasts for eight months, in line with the expected decline in tourism as projected by the UN World Tourism Organization (UNWTO).

UNCTAD estimates losses in the most pessimistic scenario, a 12-month break in international tourism, at $3.30 trillion or 4.2o per cent of global GDP.

Tourism is a backbone of many countries' economies and a lifeline for millions of people around the world, having more than tripled in value from $490 billion to $1.60 trillion in the last 20 years, according to UNWTO. But Covid-19 has brought it to a halt, causing severe economic consequences globally.

Prevailing lockdown measures in some countries, travel restrictions, reductions in consumers' disposable income and low confidence levels could significantly slow down the sector's recovery. Even as tourism slowly restarts in an increasing number of countries, it remains at a standstill in many nations.

"These numbers are a clear reminder of something we often seem to forget: the economic importance of the sector and its role as a lifeline for millions of people all around the world," said UNCTAD's director of international trade, Pamela Coke-Hamilton.

"For many countries, like the small island developing states, a collapse in tourism means a collapse in their development prospects. This is not something we can afford," she added.

Developing countries could suffer the steepest GDP losses. Jamaica and Thailand stand out, losing 11.0 per cent and 9.0 per cent of GDP respectively in the most optimistic scenario of UNCTAD's estimates. Other tourism hotspots such as Kenya, Egypt and Malaysia could lose over 3.0 per cent of their GDP.

But the tourism sector in many rich nations will also feel the squeeze. Popular European and North American destinations, including France, Greece, Italy, Portugal, Spain and the United States could lose billions of dollars due to the dramatic drop in international tourism, according to UNCTAD forecasts

HOW THE COVID-19 CRISIS HITS TOURISM: Tourism is one of the fastest growing economic sectors and is an important driver of economic growth and development. In 2018 there were 1,407 million international tourist arrivals, a six per cent increase on the previous year. Tourism receipts amounted to $1,480 billion, an increase by 4.40 per cent, higher than global GDP growth as in the previous eight years. Passenger transport is worth another $250 billion. Tourism exports account for seven per cent of global trade in goods and services, or $1.7 trillion. In 2019, the most popular destinations were France, Spain, the USA and China.

Tourism is a major source of employment globally. The labour market has some distinguishing features. The industry is labour-intensive in nature. A high proportion of the jobs are undertaken by women, 54 per cent, significantly higher than in most other sectors, and young employees, meaning the industry is seen as inclusive.

However, women are more likely to be entrepreneurs in tourism than in other sectors and most women hold low skilled jobs in the tourism sector, making them vulnerable to shocks.

There is also a significant amount of indirect employment in construction and infrastructure development, plus supplying food and drink and souvenirs to tourists. Furthermore, many employees have direct contact with tourists in travel agencies, airlines, ships, hotels, restaurants, shopping centres and various tourist attractions.

Covid-19 is a health and economic crisis on a global scale. While little is known at this time about many aspects of the disease (such as asymptomatic transmission, preventative measures, possible treatments, the likelihood of a vaccine and long term effects), it is generally agreed that the virus is easily transmissible and that the fatality rate is low when compared to previous pandemics such as SARS, Ebola and the bubonic plague. Fatalities are heavily skewed towards older people and those with existing ailments.

To slow the spread of the virus, many countries have encouraged or mandated the use of sanitary practices such as hand washing, social (spatial) distancing and isolation. Government have introduced a slew of policy measures such as targeted testing and tracing, lockdown measures, upgrading public health facilities and closure of borders. The measures have impacted many industries and the delivery of personal services, resulting in demand and supply side shocks.

International tourism is among the economic sectors most impacted by the Covid-19 pandemic. The UN WTO estimates a loss of 850 million to 1.1 billion international tourist arrivals, $910 million to $1.1 trillion in export revenues and 100-120 million jobs, depending on whether the borders are opened in July, September or December. Most destinations were entirely closed in April and May 2020, opening only in some regions slowly for the northern summer. UN WTO projections reflect considerable uncertainty about the duration of the pandemic, in addition to the government response to support economic activity.

For Least Developed Countries (LDCs), tourism is also an important sector contributing 9.5 per cent to their GDP on average.6 For 42 out of 47 Least Developed Countries, tourism is considered a key sector of the economy. Some larger high or middle income countries, such as Croatia, Greece and Thailand, also depend significantly on tourism with a share of inbound tourism between 8 and 18 per cent. Countries most dependent on tourism include many small economies and notably, SIDS. Common characteristics among these countries include small domestic markets, a low degree of export diversification and remoteness. As a result, these economies are highly vulnerable to external shocks and thus, are among the most impacted by Covid-19. It is anticipated that the economic blow to SIDS will result in record amounts of revenue losses without the alternative sources of foreign exchange revenues necessary to service external debt and pay for imports.

In addition to inbound tourist expenditure, tourism also has indirect effects on the economy. Tourism employs labour, capital (ports and airports), and a host of intermediate inputs such as financial services, education, food and alcohol, and domestic travel. Due to the remoteness of many SIDS, travel to these destinations is expensive for consumers in important export markets such as North America, Europe and Asia. Consumers are limited to air and sea travel to reach these destinations. Given the current public health and safety concerns, these transportation options are not feasible at this time for many international tourists.

The dramatic reduction in global demand for international travel has caused significant setbacks in key industries, most evidently the cruise and airline industries. Amid travel restrictions, the cruise industry has suspended sailing until September 2020. The industry has seen record losses in share prices amongst the top three cruise lines - Carnival, Norwegian Cruise Line and Royal Caribbean Cruises.9 For example, Carnival's share price dropped 70 per cent in the first quarter of 2020, However, booking for 2021 are 40 per cent up on 2019, according to data from industry sources, but this may reflect postponed booking from 2020.10 As of April 2020, the airline industry (IATA) has recorded an 80 per cent drop in flights when compared to the same period in 2019. In the IATA financial outlook for the global air transport industry, it showed that airlines are expected to lose $84.3 billion in 2020.11 Frankfurt's passenger numbers, home of Europe's biggest airline Lufthansa, dropped by 97 per cent in April. The situation is even worse in some other airports, such as Lima with a drop of 99 per cent. Chili's LATAM airline, Latin America's biggest carrier, filed for Chapter 11 bankruptcy protection, and Lufthansa survived only with a €9 billion bailout. IATA reports that passenger numbers may not recover to 2019 levels until 2023-24. Domestic flights will recover much sooner, reflecting the closed international borders and uncertainty about the safety of long-distance air travel. Some 40 per cent of respondents to an IATA survey said they would wait at least six months after restrictions were lifted before resuming travel.

Tourist travel is discretionary spending and a global recession will dampen consumers' enthusiasm for international travel. In particular because ticket prices may increase if social distance measures have to be observed in planes and airports. The bankruptcy of several airlines may also increase the cost of air travel. Taken altogether, the availability and accessibility of transportation will have a profound impact on the financial recovery for many tourism dependent economies. Many predictions do not anticipate a return to normal levels in the short term for the tourism sector.

IMPACT ON OTHER SECTORS, JOBS AND WAGES: Travel and tourism account for a significant share of global GDP and more than half of many countries' national income.

Coronavirus-induced losses in tourism have a knock-on effect on other economic sectors that supply the goods and services travellers seek while on vacation, such as food, beverages and entertainment.

UNCTAD therefore estimates that for every $1 million lost in international tourism revenue, a country's national income could decline by $2 million to $3 million.

The massive fall in tourist arrivals has also left a growing number of skilled and unskilled workers unemployed or with less income.

UNCTAD estimates show that in the worst-affected countries, such as Thailand, Jamaica and Croatia, employment for unskilled workers could decrease at double-digit rates even in the most moderate scenario.

In the case of wages for skilled workers, the steepest drops could be seen in Thailand (-12%), Jamaica (-11%) and Croatia (-9%), in the optimistic case, doubling or tripling in the worst scenario.

The effects could be particularly negative for women, who are expected to be disproportionately affected by layoffs in tourism due to Covid-19, according to the report.

Women are more likely than men to be entrepreneurs in tourism and make up about 54.0 per cent of the workers in the accommodation and food services sectors.

And because many women in the sector work informally in low-skilled jobs, they are less likely to have unemployment benefits or other safety nets.

RECOVERY SUPPORT NEEDED: UNCTAD calls for strengthened social protection in the affected nations to prevent the worst economic hardship for people and communities that depend on tourism.

It urges governments to protect workers. Where some enterprises are unlikely to recover, wage subsidies should be designed to help workers move to new industries.

Governments should also assist tourism enterprises facing the risk of bankruptcy, such as hotels and airlines. One approach for financial relief is low-interest loans or grants, the report states.

In addition, UNCTAD calls on the international community to support access to funding for the hardest-hit countries.

 

[Source: www.unctad.org]

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