When finance and trade ministers are asked which sectors they would most like to develop in their countries, tourism is frequently near the top of the list. Despite its occasional fickleness and vulnerability to economic downturns, ministers often describe it as one of the easiest sectors to develop and one that brings benefits to the wider economy.

However, there are concerns that it can be counterproductive for a location to be known primarily as a holiday destination, as it can make the economy over-reliant on a sector that is highly cyclical. It can even backfire and stunt growth in other sectors. Figures from fDi Markets show that tourism projects have been in a steady decline since their peak of 2008, as it was one of the sectors hardest hit by the financial crisis.

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Yet the UN certainly believes that the fruits of tourism will most definitely trickle down to the wider economy, particularly for the world’s least developed countries. It recently held a conference on the matter, promoting the idea that tourism could lead to sustainable development and poverty reduction.

Low priority

Taleb Rifai, secretary general of the UN’s World Tourism Organisation (UNWTO), says: “In spite of tourism’s proven contribution to foreign exchange generation, job creation and socio-economic development, low priority has so far [been] assigned to the sector in the development agenda. This is particularly surprising given that tourism has been clearly identified by developing countries themselves as a priority for their economic development.”

According to the UNWTO, tourism is one of the top three sources of export earnings for nearly half the world’s least developed countries. Furthermore, it calculates that international tourist arrivals in the world’s 48 least developed countries grew from 6 million in 2000 to more than 17 million in 2010, while international tourism receipts climbed from $3bn to $10bn in the same period.

Ripple effect

An important question, however, is does this investment truly reach the wider population and does it actually lead to more investment in other sectors? Empirical evidence is somewhat fleeting, but the UNWTO certainly believes it does. According to fDi Markets, the countries that have historically attracted the most greenfield investment into their tourism sectors tend to have developed and well-diversified economies. Of the countries topping the charts, none of them has tourism as their top FDI sector. China has had the most projects since 2003, with 238. It is followed by the UK with 224, the United Arab Emirates with 138 and India at 113.

Ifor Ffowcs-Williams, a member of the advisory board at the European Cluster Observatory, firmly believes that tourism can be an important stimulus for related sectors and cites examples he has seen in the Bahamas and Portland, Oregon, where tourism has become a driver for local businesses.

He says: “Tourism is a driver for local food products and local cuisine in the Bahamas. The demands of Portland’s wilderness walkers and visiting tourists have in part created the environment for the growth of local firms such as [sportswear manufacturer] Nike and Columbia. Too often the word ‘tourism’ is seen as an activity unrelated to economic development, with its own structures. From an FDI and economic development perspective, tourism needs to be intertwined with a broader agenda. High-growth businesses and high-value jobs tend to be beyond tourism, but tourism activity can be the important initial impetus.”

The exception or the rule?

This also goes part of the way in explaining why sometimes the development of a country’s tourism sector can fail to benefit the wider population or further develop other sectors. Gabriel Holt, is an outspoken business manager at the Pelican Eyes resort hotel in San Juan del Sur in Nicaragua. Having written his thesis on how tourism can benefit a country’s economy, he is well placed to comment on what he has seen happen in recent years in Nicaragua.

The country’s tourism industry has grown rapidly in the past five years, but its knock-on effects are not yet known. While this growth is admittedly from a very low base, the benefits of the country’s tourism boom have largely failed to reach the majority of the population, many of which are still mired in poverty. However, some green shoots have appeared in its business process outsourcing, energy and textile industries, and the economy is certainly growing. Yet again, it is difficult to say if this is thanks to tourism.

Community focus

In Mr Holt’s opinion, the government’s tourism strategy has to be well defined and well targeted. He says: “The tourism to attract is the tourism that will reach the community. A resort or retirement community, where the people never leave their enclave and buy imported stuff, isn’t going to help at all. They have to find ways to connect the tourists to the people and what the country is about. Do things like use local products and get them to really experience the whole country, not just their one place on the beach. Word of mouth can spread and can be a great marketing tool. The people who come here have their lives back home and if they learn more about Nicaragua, they’ll go home and spread the word. That is helpful.”

While the tourism sector appears to be one of the easiest to develop and can lead to further development of a country’s economy, it seems that it is a sector with weaknesses that governments need to address. On its own, it is not quite robust enough to lead to widespread development, but given the right conditions and direction, it can certainly benefit a country’s economy and populace. Governments need to have a clear strategy and also diversify their economies as quickly as they can to avoid an over-reliance on a vulnerable and volatile industry.