Tourism as a driver of growth and employment

I have just ended a five-day vacation in an island resort in Central Philippines with my wife, son and his family.

We stayed in a large resort that was heavily crowded by international tourists on holiday. They were composed largely of young family tourists from South Korea, China, Taiwan, and a few were from Europe. The restaurants, the swimming pools, and the beach area was full of tourist traffic. I observed how the domestic services were able to cope with such high demand from tourists.

The experience gave me the opportunity to think also more fully about the role of tourism as a driver of growth, output diversification, and employment generation in the nation.

Relative size of tourism industry. The Philippine tourism industry today is now much bigger than a decade ago. However, it is still a relatively small industry compared to the tourism industries among other ASEAN neighbors. In general, ASEAN countries have done very well in promoting and realizing income and employment benefits from their tourism industry.

In 2016, for instance, Thailand had 32.5 million foreign tourists who visited; Malaysia, 26.7 million; Singapore, 16.4 million; Indonesia 11.5 million, and Vietnam, 10 million. Ours in the same year involved just under six million visitors.

In terms of arrivals compared to those of the Philippines, Thailand’s foreign tourism is larger by a factor of 5.4 times; Malaysia’s 4.4x; Singapore 2.7x; and Indonesia’s 2x.

Foreign tourist arrivals, latest. International tourism has been experiencing a healthy growth. Its growth has been complemented by the expansion of domestic tourism among Filipinos. The recent economic growth in the economy has been helpful in promoting domestic tourism.

According to government statistics, international tourist arrivals in the first three quarters of 2018 reached 5.4 million travelers. Of these, 1.2 million are from South Korea and 0.973 million from China (or almost a million). On a national basis, South Korea provides 20 percent of the tourists coming to the country.

In 2017, the arrivals amounted to 6.6 million visitors. In 2018, it is likely that the number of tourist visitors will exceed last year’s numbers. A negative factor that might affect the total number was the closure of Boracay, which was a disruptive touristic event in 2018.

Despite this development, the tourist arrivals appear to be continuing. The market for tourist destinations in the country is now much more diverse. 

Prospects for Philippine tourism. Many factors have led to the continuing improvement of tourism into the country. Government promotion of the industry has been a factor. The improvement of airports, transport, and other infrastructure has been helpful across the years.

One factor that has helped to jumpstart tourism has been the building boom that has accompanied the opening of more hotel investments in major touristic sites. The building of hotel facilities has happened across regions of the country. The large expansion of hotel capacity in Metro Manila has been helped by the expansion of casino gambling. Commensurately, international airline traffic into the country has also increased.

The expansion and upgrade of regional airports has further facilitated growth of the countrywide, especially in favored tourist zones, both of domestic and international. Air traffic among low-cost airlines, both within the Asian region and in the country, is also an on-going phenomenon. Domestic airlines have re-fleeted and have sustained a strong competition.

Needed: more step-up and expansion. Despite these positive developments, much remains to be done to enable the country to enlarge the contribution of tourism to the economy.

There is need for more rapid provision of more infrastructure – airports expansion and integration, electricity infrastructure, better internet speed and connectivity, etc.

An example was cited to me. The new Cebu airport is so much better in providing speedy transfer of tourists to their destination and connections. Manila airport has big problems in this respect.

The size of carriers that could land in Manila is limited, unlike other Asian regional centers which can have more frequencies and allow bigger crafts. Bangkok, for instance, has around 10 flights per day from Frankfurt of Airbus380 which can carry 853 travelers. Manila’s short runway cannot land such transport planes.

Travel and tourism expenditure and its total impact on output and employment. A “dollar” of new, direct tourism (both foreign and domestic) spending in any economy leads to more than a dollar of new output. The same economic expansion can almost be said in the case of employment. There is some larger impact on output and employment growth, something analogous to a multiplier, or a scale factor.

Examples of indirect spending are those that include the purchase of aircraft and the construction of new hotels, government spending on supportive programs for tourism, domestic purchases of food and services of airlines and IT (information technology) services of travel agents. Induced expenditure are those directly or indirectly employed in the tourism industries. For convenience, I lump these two types of expenditures under indirect spending.

The World Travel and Tourism Council (WTTC) estimates in 2017 that the total contribution of travel and tourism to total world output was 10.4 percent of world output, or GDP. The direct expenditure on tourism was equivalent to 3.2 percent of GDP.

With such total impact on output growth, we can surmise that the expansion of output arising from the direct tourism expenditure of 3.2 percent of GDP has contributed to the expansion of output by a factor of 3.25 times. (Note: divide 10.4 by 3.2)

Similarly, it was estimated that 9.9 percent of total world employment has resulted from the direct tourism expenditure equal to 3.8 percent of total employment. By the same reasoning, employment has expanded by a factor of 2.6 times.

These estimates give only an idea of the impact of tourism expenditure on output, based on calculations from world data on tourism and output. The impact of tourism activities on the output and employment of individual countries would likely be similar, but would vary by their nature of development.

An emerging economy with much more flexibility could have larger scale factors in income and employment multiplication. However, one with a lot of rigidities and constraints in their the movement of their economic factors like land, labor and capital would likely have smaller multipliers.

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