Tourism sector recovery could be key to Emerging Asian economy futures, says OECD

Emerging Asia has shown resilience to global economic crises according to the OECD

Emphasising that the top 10 developing economies in Asia, clubbed as Emerging Asia, have been resilient to the global crises, a senior official of the Organisation for Economic Cooperation and Development (OECD) has called for proactive measures by the governments in the region to help the Micro and Small Enterprises that dominate the travel and tourism ecosystem to help them regain their footing after the Covid-19 pandemic.

Kensuke Molnar-Tanaka, Head of Asia Desk at the OECD Development Centre tells Media India Group in an interview that the enterprises could benefit from digitisation, labour retraining and expanding source markets, among other measures.

‘‘Prior to the pandemic, emerging Asia enjoyed a booming travel and tourism industry. In 2019, travel and tourism contributed 11.7 pc of GDP and 13.2 pc of employment to the Southeast Asian economy, with jobs for 41.8 million people. Restrictions brought the sectors to a near halt, but when they were lifted, travel and tourism rebounded. However, reviving the tourism sector requires to address several challenges, including diversifying and expanding inbound markets, boosting domestic tourism and addressing labour market challenges, while also adapting to the new preferences of tourists,’’ Molnar-Tanaka tells Media India Group.

Molnar-Tanaka adds that on the whole the export sector helped boost the region’s economic growth in 2022, though there are some recent signs of slowing down. The banking sector needs to be carefully monitored in the current high-inflation environment, even though it is showing resilience. However, he adds a word of caution for the future.

‘‘Countries in the region will need to manage various risks. They face persistent inflationary pressures, including higher food and energy prices. The combination of inflationary pressures and increasing interest rates in advanced economies have put pressure on capital flows and local currencies in the region. The global economic slowdown is expected to weaken external demand. Food security for specific items could also be a concern, with supply-side bottlenecks causing further difficulties and higher prices for goods and services, which could affect both domestic and external demand,’’ says Molnar-Tanaka.

The report by the OECD adds that the pandemic has significantly impacted the service accounts of regional economies, and the sector may not return quickly to pre-pandemic levels. The tourism and transport industries, including airline companies, may struggle to cope with the surging demand for travel, though China’s abandonment of zero-COVID policy is a positive element for growth in the region.

Diversify source markets, address labour market challenges

The OECD report suggests that diversifying the sources of inbound tourists could be done by increasing intra-ASEAN tourism and by targeting largely untapped markets, such as Indian visitors and expatriates. Molnar-Tanaka says that during the Covid-19 pandemic, domestic tourism helped greatly keep the sector alive. Even though cross-border travel restrictions are gone, the demand for local travel and “rediscovery” is growing. Domestic tourism should thus remain a priority, with the added benefits that it reduces both dependency on international arrivals, and the sector’s carbon footprint.

‘‘Addressing challenges in the tourism labour market is also crucial. The sector is characterised by a large share of micro, small and medium-sized enterprises, and faces challenges such as high degree of informality and vulnerable workers. The sector needs support to acquire, train and maintain a skilled workforce. Solutions include training tourism workers in relevant skills, such as languages, digital skills and hospitality management, support for local MSMEs, empowering local communities to participate and increasing workforce diversity,’’ he says.

The OECD goes on to say that Covid-19 pandemic and related restrictions have also modified tourist preferences. People who lived through lockdowns and want more personal space are increasingly attracted to nature-based tourism destinations, while many others now place more focus on health and wellness, increasing the demand for these services.

Lessons from the pandemic

The OECD says that the lessons learned from the pandemic are an opportunity to update the tourism and hospitality sectors by adopting more sustainable practices and integrating them more fully within the green and blue economies.

Visitor management strategies can help address over tourism, which damages sites and local environments, and disrupts the lives of residents. ‘‘Offering alternative niche forms, such as ecotourism, can also help promote more sustainable practices and diversify the sector. Community-based tourism programmes, which allow for upskilling residents and revive local cultures, have also emerged as an alternative to mass tourism. Planning should focus on strengthening linkages, where businesses work together for mutual benefit, while plugging leakages, which occur when revenue is sent outside the community,’’ says Molnar-Tanaka.

The increasing use of digital technology in travel and tourism, spurred by pandemic restrictions and health concerns, also requires the attention of policy makers. The tourism sector has embraced digital tools, such as online booking platforms and e-commerce, as well social media and virtual, or augmented-reality experiences. Challenges for Emerging Asia include the need to improve infrastructure for information and communications technology, cybersecurity, digital skills gaps and a lack of harmonised tourism statistics, he says.

Contribution of the tourism sector in Emerging Asia

Southeast Asia was a thriving tourism region prior to the pandemic, with 138.7 million international tourist arrivals in 2019. Travel and tourism contributed 11.7 pc of GDP to the South East Asian economy and provided 41.8 million jobs or 13.2 pc of total employment. In addition, China, including Hong Kong and Macau, received 260 million international visitors, while India received 17.9 million. Chinese outbound tourists made 155 million trips in 2019, spending USD 255 billion.

Prior to the COVID-19 pandemic, several Emerging Asian economies were highly dependent on tourism. In 2019, the sector contributed 25.8 pc of total GDP in Cambodia, 22.5 pc in the Philippines and 20.3 pc in Thailand. Contribution to exports from international visitor spending were highest in Cambodia (32.1,pc), Thailand (19.8 pc), Myanmar (16.9 pc) and Lao PDR (13.6 pc). The tourism industry began to recover in 2021 but has not yet reached pre-pandemic levels, partly due to many travel restrictions in force at that time, including requirements for Covid-19 vaccinations.

Prior to the pandemic, international tourism accounted for most of the industry’s activity in many countries in Emerging Asia, with some countries largely dependent on a few sources of inbound tourists, sometimes even a single source. For instance, in 2019, Chinese tourists accounted for more than a quarter of total international arrivals in Cambodia, Myanmar, Thailand and Viet Nam (Figure 3, Panel A). There, China’s zero-Covid policy led to severe consequences, says the OECD report.

It is therefore important to diversify the sources of inbound tourists. One way to achieve this is to increase intra-ASEAN tourism. Intra-ASEAN tourism flows are unequal among countries in the region. Lao PDR and Malaysia are particularly dependent on this market, while the Philippines and Viet Nam much less so. Intra-ASEAN tourism is dominated by travel between neighbouring countries. Many tourists visiting a neighbouring country do so by land or water. while Thailand and Singapore have good air accessibility, other countries would benefit from improving theirs: Indonesia, the Philippines, and Viet Nam have already begun to do so

Another potential source of inbound tourists is India, a market largely untapped despite its size. The top destinations for Indian travellers in the region in 2019 were Thailand, Malaysia, Singapore, Indonesia and China. Significant Indian heritage remains in the culture, traditions, religions and physical sites of those four ASEAN countries – examples are the Little India area of Singapore and the Brickfields area of Kuala Lumpur, Malaysia.

Expatriates form yet another possible source of tourists for the region. The countries of Emerging Asia have large communities of expatriates living and working overseas, with disposable incomes and ties to their home culture. The labour export trend from Indonesia and the Philippines has contributed to the expansion of this niche market. However, these tourists must be offered tailored packages, as their preferences often differ from those of other tourists, says Molnar-Tanaka in the report.