TWN Info Service on UN Sustainable Development (Jul20/02)
3 July 2020
Third World Network

COVID-19: Global tourism sector set to lose at least $1.2 trillion
Published in SUNS #9152 dated 3 July 2020

Geneva, 2 Jul (Kanaga Raja) – The world’s tourism sector could lose an estimated $1.17 trillion or about 1.5 per cent of global Gross Domestic Product (GDP) as a result of a standstill of nearly four months in international tourism due to the COVID-19 pandemic, the UN Conference on Trade and Development (UNCTAD) has said.

In a report on COVID-19 and tourism, UNCTAD said that the loss could rise to $2.22 trillion or 2.8 percent of global GDP if the four month lockdown is extended to eight months.

This is in line with the expected decline in tourism as projected by the UN World Tourism Organization (UN WTO), it added.

However, in the most pessimistic scenario of a 12-month break in international tourism, UNCTAD has estimated losses at $3.3 trillion or 4.2 percent of global GDP.

The estimated GDP losses of $3.3 trillion are more than double the size of the international tourism industry alone in the worst-case scenario, it said.

“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 Ms Pamela Coke-Hamilton, Director of the UNCTAD Division on International Trade and Commodities.

“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.

According to the UNCTAD report, by June 2020, COVID-19 infected over 10 million people and caused the deaths of over 500,000 worldwide. Globally, the spread shows no sign of abating, it said.

Although daily cases in Europe and Western Pacific are declining, they are increasing in the Americas, South East Asia and Africa. In response, most countries have closed their borders to visitors and tourists.

The UN World Tourism Organization reported during the second quarter of 2020 for the first time ever that 100 per cent of global destinations introduced travel restrictions.

As a result, international tourism has been almost totally suspended, and domestic tourism curtailed by lockdown conditions imposed in many countries. Although some destinations have started slowly to open up, many are afraid of international travel or cannot afford it due to the economic crisis.

According to UNCTAD, tourism is a critical sector of the international economy. In 2019, the tourism sector accounted for 29 per cent of the world’s services exports and about 300 million jobs globally. It is an important source of income and employment for developed and developing countries.

“The global contraction in tourism arrivals could have devastating economic consequences as some developing countries are highly dependent on tourism. In some countries, such as several small island developing states (SIDS), tourism accounts for more than half of the GDP.”

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 4.4. 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.

International tourism is among the economic sectors most impacted by the COVID-19 pandemic, said UNCTAD.

The UN World Tourism Organization (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.

For the Least Developed Countries (LDCs), tourism is also an important sector contributing 9.5 per cent to their GDP on average. For 42 out of 47 LDCs, 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 alternatI’ve sources of foreign exchange revenues necessary to service external debt and pay for imports, said UNCTAD.

It noted that 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.

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.

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. 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. Chile’s LATAM airline, Latin America’s biggest carrier, filed for Chapter 11 bankruptcy protection, and Lufthansa survived only with a EUR 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.”

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, said UNCTAD.

SOME MAIN FINDINGS

According to the UNCTAD report, to illustrate the potential impact of the decline in the tourism sector, three scenarios were simulated – moderate (or optimistic, equivalent to a 4 month standstill of international tourism), intermediate (an 8 month standstill of international tourism) and dramatic (or pessimistic, equivalent to a 12 month standstill of international tourism).

The intermediate scenario is closest to the assessment of the UN WTO that international tourist numbers could fall by 60 to 80 per cent in 2020. The intermediate scenario assumes a reduction of 66 per cent, said UNCTAD.

GDP losses under the most optimistic tourism reduction scenario amount to an estimated $1.17 trillion, or about 1.5 per cent of global GDP.

Extending the four month lockdown to eight and 12 months increases the losses in a fairly linear fashion, to $2.22 trillion (2.8 percent of global GDP) and $3.3 trillion (4.2 percent of global GDP) respectively.

The estimated GDP losses of $3.3 trillion are more than double the size of the international tourism industry alone in the worst-case scenario, said UNCTAD.

Jamaica stands out with a loss of 11 per cent in GDP in the moderate scenario. This finding is unsurprising as the tourism industry accounts for 20 per cent of GDP in Jamaica, said UNCTAD.

A similar scenario may be estimated for other SIDS where the tourism sector is a significant contributor to GDP.

Thailand is also among the most heavily affected countries with a loss in GDP of 9 per cent in the moderate scenario. This is followed by popular tourist destinations of Croatia, Portugal and Dominican Republic which record losses of 9 per cent, 8 per cent and 6 per cent respectively. Many countries face losses over 3 per cent of GDP.

In absolute terms, the world’s largest trading economies, the US and China, face the largest declines in GDP.

The US incurs the highest losses with a drop of US$187 billion in GDP in the moderate scenario. Following the US, China faces a loss of US$104 billion in GDP.

Major tourist destinations such as Thailand, France and Germany stand to lose approximately US$47 billion each in GDP due to the contraction in tourism. Other tourism hotspots such as Kenya, Egypt and Malaysia could lose over 3% of their GDP.

According to the UNCTAD report, inter-sectoral linkages worsen the impact of a decline in tourism. A fall in tourist arrivals has a negative impact on the suppliers to hotels, food and recreational activities.

The indirect losses due to inter-sectoral linkages in the tourism industry produce a multiplier effect throughout the economy. Findings show that the losses in GDP are approximately 2-3 times higher.

As a result, a $1 million loss in international tourist revenue can lead to a fall in national income of $2-3 million.

It is these inter-sectoral linkages and corresponding losses which lead to the large indirect losses when the tourism sector contracts, said UNCTAD.

Due to the dramatic contraction in the tourism industry, many workers may become unemployed or displaced.

Displaced workers can move to other sectors within countries, but it may be difficult to find employment in other sectors or industries during the economic downturn.

In many developing and least-developed countries, tourism provides an opportunity to enter the job market, though often with precarious working conditions. Tourism often serves as a first entry point into work especially for women, youth, migrant workers and rural population.

Low-skilled, casual and temporary workers are likely to be the first to lose their jobs and may find it difficult in seeking employment in other sectors of the economy.

Negative employment and wage effects are highest in countries reliant on tourism, said UNCTAD. Due to the possible mobility of labour, wage effects can spread across the economies.

The steepest drops in wage rates for skilled staff are in Thailand (-12 per cent), Jamaica (-11 per cent), and Croatia (-9 per cent), in the optimistic case, and two to three times this in the worst case.

For unskilled workers, the worst affected countries in terms of the level of unemployment are Thailand, Jamaica and Croatia.

In the most extreme case employment falls 44 per cent in Jamaica if the entire tourism sector is stopped for 12 months. The case in Jamaica is extreme due to a high share of unskilled workers in its tourism industry, and the contribution of the industry to GDP.

The high unemployment contributes to the significant losses in GDP. It can be expected that other SIDS reliant on tourism may face similar dramatic challenges in the labour market, said UNCTAD.

Tourism is likely to recover more slowly than other industries, perhaps as long as 19 months, based on previous pandemics, according to the World Travel and Tourism Council.

Private individuals, businesses and governments are faced with the decision to move to another sector, which involves retraining and some capital investment, or waiting it out until the tourism industry recovers, said UNCTAD.

The damage incurred in the tourism sector goes beyond cancelled flights and hotel bookings, it emphasized.

There is a strong case to be made for governments to intervene and cooperate at an international level to protect lives and livelihoods around the world, it added.