What is Tourism Leakage?
Leakage in the tourism industry is an economic concept. Now, if you would have told 20-year-old me, as I decided to quit my economic master’s program choosing instead to pack my bags and hit the road, that I would be knee-deep in economic concepts in the tourism industry 13 years later, I would have rolled my eyes and kept driving. But, I promise learning about tourism leakage will be much more interesting than my economic professor’s lectures. Yes, the very professor I convinced to let me take a final early so I could skip class and travel to Brazil, as long as I wrote an essay on the economics of the sugar cane industry in Brazil. Did anyone else convince their college professors to let them skip school to travel as long as they wrote papers about what they learned? No – just me? Ok, moving on.
Tourism leakage happens when tourism dollars leave the local economy and instead benefit multinational corporations, foreign companies or countries. To determine the amount of leakage, we look at how the net income for tourism in a region is less than the gross or total spent on travel. For example, let’s say I spend $100 traveling to and staying in an all-inclusive 5* resort owned by Hilton in Bali. A total of $95 might go to United Airlines, the Hilton, hotel amenities imported from overseas, and food imported from a foreign country. The remaining $5 that I spent while eating at one restaurant owned and managed by locals that source food locally is the only money that stayed in Bali. That means 95% of the money I spent during my trip to Bali leaked out to other economies. So, while it might appear Bali has a profitable tourism industry in a region, the reality may be vastly different.
Why is this a problem?
Well, for starters, it is the destinations that feel the impact of tourism and therefore need the income from tourism to manage these negative impacts. The local Balinese and Indonesian governments must spend additional money cleaning up trash on beaches, building better infrastructure to accommodate travelers, mitigating the extra air and water pollution from travel, etc. Without this money, the local beaches could fill with trash while the city struggles to source the funds to maintain the beach. Meanwhile, foreign-owned hotel chains are profiting at the cost of regional well-being. The more money stays, the more local governments and people can better manage tourism for sustainable and long-lasting benefits.
Is all tourism leakage bad?
Like most complex problems, the issue of tourism leakage is not black and white. Some might argue, people who live in a developing country and seasonally work in a developed country benefit from the opportunity to work in a hotel and take that money home back and the end of the season. This is very common in Alaska, where many of the employees in Denali National Park come from Eastern Europe. Now, I agree these seasonal employees have an excellent opportunity to make some money and provide a better life for themselves, and that alone isn’t always a problem. It is a problem if they are taken advantage of. For example, many cruise companies exploit workers from developed countries and pay them next to nothing – that isn’t ok. Furthermore, as I explain later, many locals may not be able to take jobs in tourism as companies can get away with exploiting foreigners for less pay. Bottom line, exploitation is never ok. Nor is it ok to justify exploitation by saying you’re helping someone from a developed country make an income. We can all do better. I encourage you to think critically as you read this article and how you can apply this to your travels to make them more ethical.
Facts and Figures of Tourism Leakage
Developing nations are more likely to be negatively affected by travel, and they are the ones that need the money more than anyone else. Unfortunately, leakage is the highest in developing nations, but it is present at any destination.
The UN estimates:
- For every USD 100 spent on tourism in developing countries, only about USD 5 goes back into the local economy.
- Most all-inclusive packages result in an 80% leakage.
- Leakage in Thailand is around 70%, 50% in the Caribbean, and 40% in India.
- Import leakage for developing nations is between 40-50%.
- Import leakage for developed nations is between 10-20%.
According to a Ph.D. thesis by I Gusti Ayu Oka Suryawardani
- 4* and 5* resorts (likely foreign-owned) in Bali result in a 51% leakage
- Non-star rated hotels (likely locally owned) only result in an 8.8% leakage
Import and Export Leakage
Import Leakage is when destination countries spend their tourism revenue on imports to ensure the traveler’s specific standards and satisfaction are met. If travelers demand a particular brand, product, or food the host country can not supply locally, they must spend some of their profits to import products elsewhere. Many companies may also import employees, such as fluent English speakers to make English-speaking guests more comfortable. Some companies import cheap labor, further exploiting citizens of developing nations while not providing stable jobs for citizens in which the company operates.
Say if I, as a traveler, demand Coca-Cola products at every hotel I visit, the hotel must spend a chunk of the money I give them importing Coke, rather than offering me a local Spezi. To further exacerbate import leakage, travelers’ specific demands take away viable income and jobs from local beverage companies, farmers, or producers.
In most developing nations, large international corporations may be the only entities with the necessary capital to invest in tourism facilities that meet travelers’ specific criteria. Export leakage might happen when all-inclusive resorts owned by US Apple Leisure Group, for example, set up shop in Mexico. The majority of the income spent by US American tourists visiting one of these resorts in Mexico goes right back to the United States. US tourists visiting Mexico may expect a particular type of luxury accommodation or service local companies can not provide. There may not be a Mexican-owned resort with enough capital investment to operate with the same standard US tourists demand. This means that profits are beneficial for the international tourism industry as a whole rather than the local region. Meaning, that it looks like Mexico makes a lot of money on tourism, but most of it is leaking out.
How to Reduce Tourism Leakage
We’ve learned a lot about tourism leakage problems, so it’s time to explore actional steps you can take to be part of the solution.
- Support local. You can book and support local and small tour operators and businesses. For example, in Alaska, there is a small-scale Native-owned cruise company. By choosing to support a company like Dream Alaskan Cruises over Carnival Cruises, you decrease the leakage and engage in sustainable ecotourism. Seek out locally-owned restaurants serving seasonal local fare. Hire local tour guides. Stay in locally-owned accommodation. The more local businesses you can support, the less leakage occurs.
- Avoid foreign-owned, all-inclusive. I understand that all-inclusive can be the only way some people are able to travel. I also understand that sometimes large all-inclusive resorts are the ONLY option in a region. But, you own it to your destination to do what you can. Find a locally owned boutique accommodation or resort – or better yet, find those non-star rated hotels in Bali or seek out homestays for authentic experiences that prevent excess leakage. Skip the cruise and hire local water taxis to take you from island to island. If you do opt for an all-inclusive, can you find a local all-inclusive? Support those who hire and train locals in management positions or source food and products locally. At the very least look for those that give back to their destination targeting economic, social, and environmental goals that will help minimize leakage. Who owns it? See if you can find who owns the hotel you’re staying at, and look for ones that are locally owned and not sneakily owned by a US mega-company.
- Small-Group Tours. If you don’t want to travel alone, try booking a small group tour as an alternative to international mega travel corporations. Small groups are a great way to travel and meet others without the large invasive cruise ships, or tour busses. By finding someone who specializes in small group travel while ensuring they support local businesses and accommodation you’ll decrease the amount of import and export leakage while making some like-minded friends along the way. Another great option is to travel with an ethical small group tour company, Intrepid Travel. Intrepid works to prevent tourism leakage on their tours.
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- Ask questions. Send an email before you book asking how the tour operator or hotel supports local jobs. Ask if you will be staying in locally-owned bed and breakfasts, if they will take you to local restaurants, etc. A lot of times, especially in developing countries, tour operators think tourists want something specific. “Oh, they are American. They must want certain foods and drinks.” By asking questions and letting them know you are open to experiencing the authentic culture, we can start the conversation to change travel.
- Embrace the local culture. One of the best parts of traveling is the cultural exchange and experience you get in trying new things. Don’t expect to have the same US American, Australian, or British products, food, accommodation type at your destination. Don’t expect everyone in the hospitality to speak English. Embrace the local products, the local food, and be prepared for new experiences. In Kazakhstan, we stayed in some accommodation with a lot of inconveniences, to be honest. Our host didn’t speak any English, the food was not what I would typically eat, the rooming situation was interesting, and all sorts of other things that put me outside my comfort zone. But, that was just part of the experience, and my money went directly to a working Kazak mom and entrepreneur, and that’s super awesome.
- Travel off-season. By traveling off-season, you are likely supporting year-round and stable jobs for locals. Most businesses, hotels, and excursions operating off-season probably employ permanent residents. Your money supports the local economy during a time when the destination may need it the most. Permanent residents spend their paycheck, adding to a diversified and healthy economy year-round.
- Research, Research, Research. If you are planning your own itinerary research every hotel, excursion company, and research to see how they give back to the local economy. If you’re struggling to find these types of local services in a foreign country, perhaps you can find a local travel agent or planner that can help you plan a customized tour supporting local businesses along the way.