Tourism Economics

Tourism Leakages through Imports and Expatriate Welfare

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Abstract

Tourism is undoubtedly one of the largest and growing industries in Fiji. It creates employment, brings about economic growth and development and earns a significant amount of foreign dollar for the economy. However, a significant amount of the income earned is leaked out of the economy through imports and hiring of expatriates. The extent to which this leakage occurs is from Fiji’s economy is not known. As such, this research seeks to fill this vacuum and quantify the extent of leakage from the tourism industry.

Key words: Leakage, expatriates, imports

Introduction

Tourism is one of the significant industries in Fiji’s economy. It generates a substantial amount of foreign exchange inflows, creates employment, contributes towards government revenue and brings about a lot of economic growth and development. Like other Pacific Island Countries, Fiji’s tourism sector has comparative advantage enabling it to compete internationally.

However, despite the lucrative benefits from the tourism industry, full extent of the income generated can not be retained in the local economy. Fiji has an open economy. This means that it imports, exports and indulges in transactions internationally. As such, there are bound to be leakages from the economy. Leakage means income from tourism that leaves the destination country. The World Bank estimates that 55 per cent of international tourism income leaves the destination country via foreign-owned airlines, hotels and tour operators, or payments for imported food, drink and supplies.

The supply of tourism products requires three types of imports, final goods and services or directly consumable items such as foreign liquor, cigarettes, film rolls, intermediate inputs or raw materials such as flour, meat, fuel and capital goods and services such as machinery and equipment, busses and coaches. Apart from importing goods and services, the industry hires expatriates from overseas countries. Expatriates are those employees hired from overseas for their expertise. They are contracted for a specific time frame and return to their home countries upon completion of their contracts. Both imports and hiring of expatriates result in financial leakage. This means that revenue arising from tourism related economic activities in destination countries are not available for investment or consumption of goods and services in the same countries. The income lost through leakages is a concern to developing countries like Fiji since investments are vital if growth is to be secured.

Background

The direct income for an area is the amount of tourist expenditure that remains locally after taxes, profits, and wages are paid outside the area and after imports are purchased; these subtracted amounts are called leakage.

The bathtub theorem is often used to explain leakages from an economy. The theorem states that an economy grows when injections are greater than leakages and an economy shrinks if leakages exceed injections. One of the most acclaimed downfalls about tourism is that much of the tourism income leaks out of host countries in the form of international airfares, royalties and fees paid to foreign managers and foreign trade names, to tour operators, airlines, hotels, and for imported food and drinks. Additionally, international promotion and advertising results in a lot of tourism income spent in foreign markets.

The expansion of the travel and tourism industry in Fiji has increased the demand for trained and skilled people to cater for the growing needs of the expanding industry. Since the demand of the needed expertise is not met by the local labour market, the industry resorts to international markets to fill this vacuum.

A larger number of expatriate’s hold senior management level jobs in the tourist industry. The locals are employed mainly in the unskilled or semi-skilled jobs. The problem of labor unavailability stems from the massive brain drain that took place as a consequence of the series of coups. As such, Fiji loses most of the income from tourism is lost through foreign exchange leakage. In 1998, Fiji’s tourism receipts were valued at F$568 million of which, 60 percent leaked out of the country. Import of food decreases foreign exchange earnings, thus reducing opportunities for development of local production. Regional impact depends on varying availability of resources in different regions. Among the barriers towards stronger linkages into the local economies are strong linkages between foreign-owned hotels and overseas suppliers, particularly in the form hierarchical monopolies in the tourism sector. Other barriers are tourists’ preference for similar food as at home; imported food being cheaper; imported food being of better and more consistent quality; and more reliable supplies by imports. Barriers of communication and understanding between foreign tourism companies and local producers are also named as causing large amount of imports. In addition, tourism development has caused decreases of agriculture and greater dependencies on imports of agricultural products in many cases. Tourism developments compete with agriculture in terms of land and labor and can increase the local consumption of imported food as well as inflate the food prices, which create particular burdens for women (Hemmati 1999).

Importing luxury goods for tourist consumption is another significant cause of financial leakage because the amount of imported goods is high and it is necessary to maintain a sophisticated infrastructure.

Many employees in the tourism sector need specific qualifications, such as foreign language abilities. However, local people in destination areas often don't have such qualifications and education and training facilities are not present in many areas. Managers from developed nations, particularly with international hotel chains, usually occupy highly qualified and well-paid positions whereas unqualified and low paid jobs are offered to local people. Gender segregation of the labor market prevails, with women in unqualified and low-paid jobs. Under these circumstances, income of employed foreigners will largely leak away (indirect economic impact), and tourism development will over time not increase the living standards of local people and development levels of their communities.

Tourism has many hidden costs, which can have unfavorable economic