Tourism: One of the sectors hardest hit by COVID-19
As Dubai opens its doors to foreign tourists, this is as good a time as any to look at the importance of tourism for the global economy.
Since 1995, the tourism sector has more than tripled. That year, it contributed around $500 billion to the global economy. By 2019, the tourism sector had grown to $1.6 trillion.
Tourism is big business. For some economies, it is a major part of their GDP. According to the World Travel and Tourism Council, in 2019 tourism contributed 30 percent to Cambodia’s GDP; 25 to that of Thailand; 20 percent to Greece; 15 percent to Austria; 12 percent to Spain; 11 percent to Tunisia; and 11.5 percent to Dubai. In 2018, Hajj and Umrah contributed $20 billion — between 2 to 3 percent — to the Saudi economy. Vision 2030 counts on tourism to diversify the economy away from the Kingdom’s dependence on oil. The megacity of Neom is one example of a project that is working toward this end.
These are big numbers, especially as many small and medium-sized enterprises (SMEs) such as restaurants, small hotels, small tourism operators or souvenir shops depend on the sector. SMEs are big employers. Over the past five years, 25 percent of all new jobs created globally were in the tourism sector.
Tourism grew alongside the emergence of a new middle class in the hundreds of millions in Asia, accounting for around a third of global tourists in 2019 compared to much lower numbers in 1995.
The coronavirus disease (COVID-19) pandemic, however, has wreaked havoc across the tourism sector. The airline industry is expected to lose $84 billion in 2020. According to the International Air Transport Association (IATA), air travel dropped by 94 percent in April 2020 compared to the previous year. It is recovering gingerly, but IATA believes it may take years before rebounding completely. This is no wonder, considering the restrictions imposed on travelers, such as wearing masks and undergoing medical tests. On top of that, there is the uncertainty regarding a second wave of outbreaks, which could lead to borders closing again, complicating travelers’ return flights home or subjecting them to quarantine upon arrival.
Countries have started to create air corridors with other countries determined to be safe. On July 1, the EU opened its borders to 15 “safe” non-EU countries, including Canada, Morocco and Australia, but not the US, Brazil and Russia. The tentative nature of this arrangement became evident over the weekend when many EU countries closed their borders again to Serbia due to new COVID-19 outbreaks in the country.
International travel will remain fragile as long as there is uncertainty over the spread of the virus. Experts have noticed that domestic tourism is recovering more quickly, but that is only true for countries with sufficiently large populations and a sizeable middle class. It is harder for places like Dubai, where the vast majority of tourists fly in from other countries, and particularly difficult for developing economies who rely on middle-class travelers from abroad. According to the International Monetary Fund, countries such as Tunisia, Morocco, Thailand, Spain or Portugal — where the tourism sector makes up a large part of GDP — will be particularly affected by the economic downturn in 2020.
Even if borders open again, it will not be easy for airlines, hotels and restaurants. They will have to operate at a very limited capacity due to the new sanitary and social distancing rules. It will prove difficult to be profitable under these circumstances. It will certainly result in many people, especially lower-paid workers like servers, losing their jobs. If the airline industry in Europe and the Middle East is anything to go by, the situation seems bleak; more than 60,000 employees have lost their jobs in those regions over the last few months.
The good thing about the tourism and travel sectors is that they create many jobs in countries that need job growth. They are, nonetheless, susceptible to a multitude of shocks such as global economic downturns, terrorism or natural disasters. Take the eruption of the Eyjafjallajökull volcano in Iceland in 2010, which brought air travel in Europe to a complete standstill.
However, nothing can quite compare to the jolt that the current virus has delivered to the sectors.
• Cornelia Meyer is a business consultant, macroeconomist and energy expert. Twitter: @MeyerResources