COVID-19 impact on tourism may cost over $4 trillion: UNCTAD

Munroe Island Tourism. Sanu N. Creative Commons.

Geneva, 30 Jun (Kanaga Raja) – The blow to international tourism due to the COVID-19 pandemic could result in a loss of more than $4 trillion to the global GDP for the years 2020 and 2021, the UN Conference on Trade and Development (UNCTAD) has said.
In a report jointly presented with the UN World Tourism Organization (UNWTO), UNCTAD said that the current pandemic has had a devastating effect on the tourism sector, with the UNWTO estimating that 100-120 million direct tourism jobs are at stake.
Taking the impact on closely linked sectors into account, the drop in international arrivals has caused an estimated loss of about $2.4 trillion in GDP in 2020 and it is possible that a similar loss occurs again this year, it said.
UNCTAD said the recovery “will depend to a large extent on the uptake of vaccines, the removal and coordination among countries of travel restrictions and the rebuilding of travellers’ confidence.”
“The world needs a global vaccination effort that will protect workers, mitigate adverse social effects and make strategic decisions regarding tourism, taking potential structural changes into account,” said Ms Isabelle Durant, Acting Secretary-General of UNCTAD.
“Tourism is a lifeline for millions, and advancing vaccination to protect communities and support tourism’s safe restart is critical to the recovery of jobs and generation of much-needed resources, especially in developing countries, many of which are highly dependent on international tourism,” said UNWTO Secretary-General Zurab Pololikashvili.
At a virtual media briefing on 29 June, Ralf Peters, with the Trade Analysis Branch at UNCTAD, said that tourism is one of the most affected sectors by the COVID-19 pandemic.
Citing the UNWTO figures, he said that international tourist arrivals declined by 74% last year, adding that it is a dramatic decline in tourism.
He said developing countries have been significantly hit with reductions of around 80-90% (in international tourist arrivals) and this coupled with the high share of their GDP in tourism makes them highly vulnerable countries during this pandemic as a result of the decline in tourism.
In many Small Island Developing States (SIDS), tourism accounts for more than half of their GDP, and this has had a really significant impact on them, he added.
“The outlook for this year does not look much better,” said Peters, adding that the UNWTO estimates that this year again there could be a decline of between 63-75% in international tourist arrivals.
Ms Zoritsa Urosevic, UN World Tourism Organization Representative in Geneva, said in terms of international tourism, “we are at the levels of thirty years ago.”
She said that the problem that we are facing is that many livelihoods are under threat.
“We have lost one billion travellers, so one billion opportunities for people to build livelihoods, especially in developing countries,” she said.
According to the UNCTAD report, the COVID-19 pandemic has resulted in a health and economic crisis with devastating effects on developing countries, especially those dependent on tourism.
As governments have attempted to protect their populations, lockdowns, quarantines, and major restrictions on national and international mobility were implemented, it said.
This, coupled with the decision of consumers to limit international travel resulted in a sharp contraction for the tourism sector with severe economic consequences, particularly in countries that rely on the sector.
The COVID-19 virus has so far – by June 2021 – infected 179 million people globally and contributed to 3.9 million deaths.
After abating somewhat in February and March 2021, daily cases increased to almost one million a day and still amount to 400,000 per day, and vaccine doses administered are approaching 2.4 billion.
According to the report, vaccinations appear to have slowed the spread in some countries, such as Israel, the United Kingdom, and the United States of America.
However, in most developing countries, access to and distribution of vaccines is a limiting factor, and the virus continues to spread at an alarming rate in India, Brazil, and in many countries where tourism is important for people’s livelihood such as Maldives and Seychelles.
On the other hand, other countries where tourism is an important sector such as Thailand, Morocco, and Barbados, appear to have done well in controlling the spread.
“Vaccines are a critical part of the solution, albeit with considerable uncertainty, even once access and distribution problems are overcome,” said UNCTAD.
While effective at limiting severe cases and deaths from the virus, so far, it is not clear that current vaccination efforts completely halt the spread of infection. There are people who are reluctant to receive the vaccine, as they fear adverse short- or long-term effects, it added.
Fears that vaccinations will be less effective against new variants of COVID-19 add another layer of concern.
“However, a major challenge currently is the uneven availability of vaccinations and the low number of vaccinated people in many countries,” said the report.
Given these constraints, it is unlikely that tourism will bounce back to its pre-pandemic levels within a year or two, said UNCTAD.
The UNWTO reports that almost all countries have implemented travel restrictions of one sort or another, such as travel bans, visa controls and quarantines.
As a result, international tourism was almost totally suspended in April and May of 2020. Inbound tourist arrivals declined 74 per cent between January and December 2020 – about 1 billion trips.
However, if the pre-COVID months of January and February 2020 are excluded, the fall in arrivals amounts to 84 per cent, said UNCTAD.
The most affected regions are North-East Asia, South-East Asia, Oceania, North Africa and South Asia, while the least affected regions are North America, Western Europe and the Caribbean.
This shows that the greatest impact has fallen on developing countries. The reduction in tourist arrivals across developing nations is relatively consistent, mostly between 60 and 80 per cent, said UNCTAD.
It noted that tourism is an important source of income for many developing countries, accounting for 50% of total exports for many small economies, particularly Small Islands Developing States such as the Maldives and Saint Lucia.
The UNWTO reports that tourism experts do not expect a return to pre-COVID arrival levels until 2023 or later.
The main barriers are travel restrictions, slow containment of the virus, low traveller confidence and a poor economic environment, said UNCTAD.
“Travel has adapted to the impact of COVID particularly in terms of travel restrictions. Domestic travel has increased, but this does little to help developing countries that are dependent on international travel,” it added.
Retirees, who tend to spend more per trip, are more likely to stay at home. Younger travellers, such as backpackers, who seem more willing to travel during this pandemic, tend to stay longer but spend less than older travellers.
Cruise ships, involving extended confinement, are likely to be less popular. Developing countries dependent on cruise ship arrivals may need to diversify their industries, said UNCTAD.
The proportion of vaccinated people can be an indicator of tourists’ wanderlust and their possibilities to travel, said UNCTAD.
Although the proportion in the countries of origin as well as in the destination countries can be decisive, it is likely that tourists will nevertheless hesitate to travel long-distance, preferring closer destinations with high vaccination levels, it added.
“The share of vaccinated people varies significantly across countries, from below 1 per cent to over 60 per cent.”
It is likely that tourism in countries with a high share of vaccinated people will rebound faster than in countries with a low share, said UNCTAD.
“For example, travel within Europe and North America is likely to pick up faster beginning this summer than many developing countries, who are still struggling to get sufficient vaccines and are thus expected to rebound slower.”
DEVELOPING COUNTRIES CARRY THE GREATEST BURDEN
UNCTAD noted that in July 2020, in its report on COVID-19 and Tourism, it had presented three scenarios on the potential economic impact of the pandemic on the tourism sector and sectors directly or indirectly linked to it.
A 12-month lock-down was estimated to incur a cost of US$3.3 trillion, including indirect costs, it said.
“Unfortunately, even the worst-case scenario has turned out to be optimistic,” it said, adding that few observers expected that international travel would still be very low after 12 months.
In its present report that updates the previous report, UNCTAD highlights three possible scenarios for tourism for 2021:
1. The first scenario is a reduction in tourist arrivals as observed in 2020. Reductions averaged 74 per cent with considerable variation between countries. This average reduction is close to the 75 per cent reduction in UNWTO’s pessimistic scenario.
2. The second scenario is a reduction in arrivals averaging 63 per cent, which the UNWTO sees as an optimistic outcome in 2021.
3. The third scenario takes into account varying rates of vaccination and assumes a 75 per cent reduction in countries with low vaccination rates, and a 37 per cent reduction in countries with relatively high vaccination rates.
The cut-off point is economies with 50 per cent of their population vaccinated at the end of May. There are 55 such economies, including major destination countries such as the United States, Italy, France and Spain as well as many smaller economies.
According to UNCTAD, the analysis shows that depending on employment effects, the indirect effects of a drop in tourism receipts increase the cost.
A partial recovery, from a loss of 74 per cent to 63 per cent, reduces the loss in global GDP by 30 per cent to $1,696 billion.
With the benefit of vaccinations being more pronounced in some countries than others, losses are reduced in most developed countries but are worsened in developing countries where the absence of widespread vaccinations keeps tourists away, it said.
It said at a regional level, there are significant differences between scenarios 2 and 3, but the major beneficiaries in absolute terms are the United States, France, Germany, the United Kingdom and Switzerland. These countries have high levels of tourists and high vaccination rates.
“Developing countries will carry the greatest burden,” said UNCTAD.
“Globally, the blow to international tourism given by COVID-19 has caused a loss in GDP of more than $4 trillion only for the years 2020 and 2021, if indirect effects are taken into account as our estimates suggest,” it added.
The report highlighted some of the estimated GDP effects of the observed loss in tourism receipts.
For example, international tourism contributes about five per cent of the GDP in Turkey and the country suffered a 69 per cent fall in international tourists in 2020.
The fall in tourism demand is estimated at $33 billion and this leads to losses in sectors that supply tourism, such as food, beverages, retail trade, communications and transport. The total fall in output is $93 billion, about three times the initial shock.
The decline in tourism alone contributes to a real GDP loss of about 9 per cent. This decline was partly offset in reality by fiscal measures to stimulate the economy.
GLOBAL VACCINE ROLLOUT A PRIORITY
Tourism is a major economic sector and has a particular socio-economic importance, as it employs many women and young people and provides a livelihood to many informal workers in developing countries, said UNCTAD.
In this context, the UNCTAD report highlighted the importance of three policy dimensions related to tourism.
First, bringing tourism back on track including in developing countries. Much needs to be done to restore the confidence of travellers, who are concerned about health, and the risk of cancelled travel plans and becoming stranded overseas, it said.
“Vaccinations seem the most important element. So far, the vaccine rollout has varied greatly between countries, from almost complete to hardly started. Rolling out the vaccine globally as soon as possible is an economic priority,” UNCTAD emphasized.
Vaccinating 40 per cent of the global population by year’s end and 60 per cent by mid-2022 is an aspirational goal, but difficult to achieve and could cost $50 billion, according to the International Monetary Fund, World Health Organization, World Bank and World Trade Organization estimates.
Nonetheless, the estimated benefits far exceed the costs, said UNCTAD.
While vaccination is incomplete and herd immunity not achieved, stepping up coordination and communication on travel requirements is critical, said UNCTAD.
Other measures to facilitate travel could include cheap, fast and reliable testing, and agreed protocols for testing on departure may remove the need for quarantine on arrival. Common standards are also required so that destination countries accept testing in the source countries.
Second, it is important to mitigate the socio-economic impacts on livelihoods. Developed countries have used fiscal measures to support tourism businesses and workers.
This is essentially borrowing from the future, and while helpful as a transition measure, incurs a debt that will need to be repaid at some stage. Where the support is for otherwise healthy businesses, it is likely to pay off.
UNCTAD said that this strategy is a challenge for most developing countries in particular where the tourism sector is large.
“Social security nets do often not exist, and informality is high. Workers should be protected rather than specific jobs in declining sectors, for example, through training,” it added.
Third, countries need to make strategic decisions regarding the future of tourism in their countries. Some tourism businesses will not survive even once travel restrictions are removed.
Governments need to decide which to support and for how long. Long-term implications of the pandemic need to be considered. Some structural adjustment is likely to be necessary.
It seems likely that COVID-19 will be around for some time. A return to normal before 2023 seems optimistic, said UNCTAD.
Furthermore, environmental considerations, for example, may become more important and could increase costs for long-distance flights or increase social pressure to avoid them.
Other changes may be a reduction of confidence in cruise ships, and more domestic tourism in the three largest source regions – the United States, Europe and China.
Developing countries dependent on tourism might consider how they can diversify resources away from tourism, said UNCTAD.
Published in SUNS #9378 dated 1 July 2021