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Oxford Business Group

Oxford Business Group

Oxford Business Group

The global economic landscape is changing, and since 1994 OBG has been at the frontier of mapping new waves of emerging economies. OBG now operates in…

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Can Domestic Tourism Bolster Emerging Economies?

Domestic Tourism

Since the Covid-19 outbreak was first reported in China in December 2019, some 5.58m people have been infected with the virus, leading to 348,000 deaths globally as of May 25.

Although international travel ground to a halt in the first quarter of 2020, domestic tourism could become a popular approach to stimulating economic growth as restrictions are eased in many countries around the world.

Kick-starting travel

The revival of domestic travel in emerging markets is being led by countries that have been comparatively successful in avoiding large-scale outbreaks of the virus, and which rely on tourism for a significant portion of GDP.

One such country is Vietnam, which by May 25 had limited Covid-19 cases to 326 and had not experienced a virus-related death. These results are remarkable considering Vietnam’s population of 97m and its close geographical and economic ties with China.

With international travel expected to remain severely limited for the foreseeable future, in mid-May the government launched the “Vietnamese people travel to Vietnam destinations” programme, designed to stimulate domestic tourism.

Running until the end of the year, the programme aims to develop specific tourism products and tours that cater to the needs of local travellers during the pandemic. Meanwhile, airlines, travel agencies, resorts and hotels are offering discounts of up to 50% to encourage internal travel while incoming flights are still banned.

Elsewhere in South-east Asia, Thailand – which last year welcomed around 40m tourists, making it the most popular destination in the region – has also outlined efforts to incentivise domestic travel from July.

Some of the BT1trn ($31.3bn) that is expected to be borrowed by the government in 2020-21 is likely to be channelled towards incentives and subsidies to help stimulate the industry.

Meanwhile, the Philippines, which in 2018 derived 12.7% of GDP from tourism, has outlined a series of safety measures, including sanitation and physical distancing regulations, necessary for the re-establishment of domestic tourism. The importance of domestic tourism to the Philippines had been growing before the pandemic, with the country recording 110m domestic tourists in 2018, an increase of 14.1% from the previous year. 

Outside of Asia, Egypt allowed hotels to open for domestic travellers in early May, albeit with a maximum 25% capacity, which is to be increased to 50% as of June 1. 

How big will the impact be?

Although domestic tourism will undoubtedly offer some relief to emerging economies that have suffered under the virus lockdown, it is unlikely to fully compensate for the losses incurred from international travel restrictions. 

The global economy is expected to contract by 3% this year and emerging markets by an average of 1%, according to the IMF. Furthermore, widespread job losses around the world have placed significant pressure on household finances, leaving many people either unwilling or unable to spend money on travel.

This will disproportionately impact lower- to middle-income countries, where tourism was previously geared more towards foreign visitors.

For example, while tourism accounted for around 12% of Vietnam’s GDP last year, domestic spending only made up an estimated 40-45% of this. As such, efforts will need to be made to not just encourage more domestic trips, but also to entice domestic tourists into spending more when they visit local destinations – not an easy task considering the current pressures on household finances. 

Similarly, in Thailand tourism accounts for around 17.4% of direct and indirect GDP, of which just 6% comes from domestic tourists. Meanwhile, estimates have suggested that the Philippines and Morocco could lose around $9bn and $3.5bn, respectively, in tourism receipts this year.

Significant restrictions placed on tourism operators – such as maximum occupancy levels in hotels, and stringent health and safety regulations – is also likely to dampen tourism and hospitality revenue in the short and medium term, with businesses having to consider price hikes to compensate for reduced capacity. 

Next step: international travel

While the immediate focus is on domestic travel, selective international travel will be the next step as the health care risks and pressures ease.

As part of so-called ‘travel bubble’ plans, some countries have looked towards opening international borders to countries that have successfully limited the spread of the virus.

World leaders in this regard have been the Baltic states of Estonia, Latvia and Lithuania, which in mid-May opened their common borders to kick-start movement between the countries.

Meanwhile the governments of Australia and New Zealand – which have together limited Covid-19 cases to 8300, and fatalities to less than 125 – have discussed creating their own travel bubble.

In terms of emerging countries, tourism officials in Vietnam have suggested that the country could create its own travel bubble with Australia and New Zealand, or alternatively with the key tourist markets of China and South Korea.

Indonesian officials, meanwhile, have said that Bali may begin a phased reopening to foreign tourists at some point between June and October, if the island can demonstrate sustained success in controlling the virus.

By Oxford Business Group

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