Tourism Industry Studies

International Hospitality and Tourism

Link Year

Rebecca Robinson

With reference to European examples,

discuss the impacts of tourism on the
National economy

Rebecca Robinson IHT link Tourism Industry Studies

With reference to European examples, discuss the impacts of tourism on the
National economy

The economic benefits brought by tourism represent the single most common reason for
governments encouraging its development. Tourists spending can be an important source
of foreign currency. Jobs are generated not only in the facilities directly serving tourists
but also in local shops and other businesses which benefit from an enlarged market for
their products and services. However, destinations can find that a significant share of the
revenue generated by tourism does not stay in the country but leaks away, back to the
multinational hotels and agencies which control much of the mass holiday market.
Servicing the needs of tourists can involve the expensive importation of luxury goods and
materials to build and equip hotels and airports, all of which lower the profits form
tourism.

“According to the World Tourism Organization, 698 million people traveled to a foreign
country in 2000, spending more US$ 478 billion. International tourism receipts
combined with passenger transport currently total more than US$ 575 billion - making
tourism the world's number one export earner, ahead of automotive products, chemicals,
petroleum and food.” WTTC

Leakage

The direct income for an area is the amount of tourist expenditure that remains locally
after taxes, profits, and wages are paid outside the area and after imports are
purchased, these subtracted amounts are called leakage. In most all-inclusive
package tours, about 80% of travelers' expenditures go to the airlines, hotels and
other international companies, and not to local businesses or workers. In addition,
significant amounts of income actually retained at destination level can leave
again through leakage.

Import leakage commonly occurs when tourists demand standards of equipment, food,
and other products that the host country cannot supply. Especially in less-developed
countries, food and drinks must often be imported, since local products are not up to the
hotel's, tourist's standards. Much of the income from tourism expenditures leaves the
country again to pay for these imports.

“The average import-related leakage for most developing countries today is between
40% and 50% of gross tourism earnings for small economies and between 10% and 20%
for most advanced and diversified economies, according to UNCTAD.”

Even in developed regions, local producers are often unable to supply the tourism
industry appropriately even if good will is present “ the 64-room hotel "Kaiser im Tirol"
in Austria, an award-winning leader in sustainable practices, cannot find organic food
suppliers in the local farming networks in the appropriate quantity, quality and

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reliability, as production cycles and processes are not compatible with its needs.
Source: Austrian Preparatory Conference for the International Year of Ecotourism,
September 2001”

A 1996 UN report evaluating the contribution of tourism to national income, found that
net earnings of tourism, after deductions were made for all necessary foreign exchange
expenditures, were much more significant for the industry. This report found significant
leakage associated with:

1. imports of materials and equipment for construction

2. imports of consumer goods, particularly food and drinks
3. repatriation of profits earned by foreign investors
4. overseas promotional expenditures and
5. amortization of external debt incurred in the development of hotels and resorts.

The impact of the leakage varied greatly across countries, depending on the structure of
the economy and the tourism industry

Foreign exchange
Tourism expenditures and the export and import of related goods and services generate
income to the host economy and can stimulate the investment necessary to finance
growth in other economic sectors. Some countries seek to accelerate this growth by
requiring visitors to bring in a certain amount of foreign currency for each day of their
stay and do not allow them to take it out of the country again at the end of the trip.

“An important indicator of the role of international tourism is its generation of foreign
exchange earnings. Tourism is one of the top five export categories for as many as 83%
of countries and is a main source of foreign exchange earnings for at least 38% of
countries.” Source: World Tourism Organization

Foreign exchange earnings from tourism have been significant in the industrialization of
southern Europe since 1960, effectively financing the imports of raw materials and
technology for the manufacturing sector. They were particularly important in Spain in the
1960’s when they accounted for almost half of export earnings.

The Euro
The most obvious benefit of the Euro is the convenience for travelers. The hassle and
costs of changing money have disappeared. The Euro also makes it easier to compare
prices. That is healthy for competition and good for consumers.
The reasons for introducing the Euro are much more fundamental, however. The
additional integration will bring long-term benefits in competition, growth and prosperity,
by ensuring a low-inflation environment and enabling business to trade more efficiently.
The cost of transferring money to do business in another country has come down and
there is no need for businesses to take out insurance or increase their profit margin to
protect themselves against the risks of exchange rate fluctuations. These costs were
tantamount to a ‘tax’ on doing business and used to amount to 1% of GDP. They have

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largely disappeared because more than 80% of the trade of Euro-area countries is now
with one another.
Companies in the Euro area that trade with the rest of the world have the automatic
advantage of using an international currency. They can often protect themselves against
variations in exchange rates simply by billing their customers in Euro. It is much easier to
do that than it was in the past to persuade a client to pay in Greek drachma or Finnish
Markka.

Employment
International tourism has led to significant employment opportunities. For example, the
hotel accommodation sector alone provided around 11.3 million jobs worldwide in 1995.
Tourism can generate jobs directly through hotels, restaurants, taxis, and souvenir sales,
and indirectly through the supply of goods and services needed by tourism-related
businesses. According to the Organization, tourism supports some 7% of the world's
workers.

Money is earned from tourism through informal employment such as street vendors. The
positive side of informal or unreported employment is that the money is returned to the
local economy, and has a great multiplier effect as it is spent over and over again. The
World Travel and Tourism Council estimates that tourism generates an indirect
contribution equal to 100% of direct tourism expenditures.

The tourism representatives from the new EU-countries want to make the best out of the
tourism options brought by the EU-membership. “We expect about 10% growth of guest
nights in the first year and annually about 9,000 new jobs in tourism” Miroslav Ronèák,
head of Czech Tourism in Berlin, explains.

Other than employment income is the major benefit of tourism to local communities,
Hence Clement wrote that “the rapidity with which tourists spend money over a give
span of time is an important factor. It tends to reflect not only net income from tourism
but also the efficiency of the travel plant – that is the success of a country in getting
tourists to spend a fair amount of money in relation to their length of stay”

Contribution to government revenues

Government revenues from the tourism sector can be categorized as direct and indirect
contributions. Direct contributions are generated by taxes on incomes from tourism
employment and tourism businesses, and by direct levies on tourists such as departure
taxes. Indirect contributions are those originated from taxes and duties levied on goods
and services supplied to tourists

The role of the government

The role of the government is establishing a ‘whole government’ agenda for tourism
development which is rarely achieved, this applies both between departments at national
level and between national and local government.
Other departments of government can be engaged in the issues of tourism development,
Ministries of Tourism are often seen as junior players in government and it can be very

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difficult to engage ministries of finance, trade and industry in cross government efforts to
harness tourism for development.

Tourism policies in Irish tourism

The neglect in policy terms of the Irish tourism sector for several decades, compared with
agricultural or manufacturing was partially redressed in the latter part of the 1980’s. This
was prompted by the unemployment problem in Ireland and was aided by the belief that
the greater labour intensity in tourism would generate better return in terms of job
creation that competing sectors. Tourism had the advantage also of being an important
export earner with relatively low import content and thus would generate more
employment per € million of foreign receipts. The liberalization of air fares from 1986
onwards particularly on the UK-Ireland routes was a timely boost for Irish tourism.

The increased policy interest in the sector anticipated the availability of EU structural
funds under the first time substantial non Irish Exchequer public funds were being made
available to improve the quality of the Irish tourism product to introduce new products
and to move beyond the bland commodity image of Irish tourism which had dominated
and limited the industry for so long.

Balance of payments

Not surprisingly tourism has been actively promoted in a number of countries,

specifically so as to increase foreign exchange earnings and improve the invisibles
component of the balance of payments. The negative side of this is spectacularly
illustrated by the federal republic of Germany, where in 1985 the tourism invisibles
account amounted to a deficit of DM24.5 billion, equivalent to about one third of the
visible trade surplus.

Conclusion

In conclusion tourism affects the national economy in many ways, positively and
negatively. It has helped develop many counties and created many job opportunities and
boosted the local economy. The economic impact has also lead to leakage in poorly
developed countries, all money is leaving the country to suit tourist’s expensive needs.
The Euro has made traveling easier and more manageable for tourists. Tourism is an
economic sector of major importance in Europe, and its contribution to the continents
economic welfare looks set to continue to increase in future decades.

Rebecca Robinson IHT link Tourism Industry Studies