International Tourism

The sector of the New Zealand economy that has been worst affected by the Covid shutdown is tourism. According to the Tourism Satellite Account produced by Statistics NZ, large numbers of people (possibly 70,000) lost their employment in the tourism sector during the first year of the shutdown. By the time the figures for the following year are available, more than half the employment in the sector might have disappeared.

The tourism sector has always been a very noisy advocate for more government support. However, this publicity is out of proportion to the contribution that it makes to the economy. Prior to the arrival of Covid, the tourism sector contributed just 5.5 percent of GDP in NZ. Estimates for the year ending March 2021 suggest that the contribution has dropped to 2.9 of GDP. By the time the continued down downturn in tourism through 2021 is factored in, the contribution of the sector to GDP will be significantly less.

Strangely enough, the collapse of international tourism has not had the dramatic effect on the economy that was expected. In the September 2021 quarter, GDP was 0.6 percent greater than the quarter prior to the emergence of Covid. The economy has kept growing despite the shutdown. This suggests that tourism does not make as large a contribution to the economy as is often assumed.

The problem is that many tourism businesses are only viable if they can employ very cheap labour. In the past, they have tended to rely on young tourists from overseas travelling around New Zealand and taking casual employment when they need more money to keep going. The young people who want to travel the world without spending too much are the ones who benefit most from this practice.

Tourism is supposed to benefit the NZ economy because overseas tourists bring money from their home country and spend it here. However, if they earn it in poorly paid jobs that keep wages down for everyone, they are a drag on the economy, even if they spend all that they earn. They will still need to spend a significant sum for travel home with an international airline, which takes some of the money that they earn here out of the country.

That Covid shutdown has cut off the supply of cheap labour that much of the tourism sector relies on. Industry leaders are now appealing to the government for assistance. They want the border opened up so they can continue to find cheap labour. I hope that the government will resist these calls.

Tourism has significant economic costs (externalities) that tourists don’t always pay for. Increased tourism puts pressure on economic infrastructure. Better roads are needed. National parks need better support structures and maintenance. Investing in infrastructure to support international tourism is only viable if the sector is making a significant contribution to the economy.

Reliance on back-packer tourists who want to travel cheaply and spend very little money is not the basis for an economically viable industry. New Zealand needs international tourists who are willing to spend money and contribute to the economy. The Covid shutdown provides an opportunity to reposition the industry to become more economically viable. If the government encourages continuing dependence on cheap labour, it will prevent the necessary changes from occurring.

See Migration.

Staff Shortages

I get tired of hearing business owners complain on television that they cannot get staff because the border is closed to migrants. These are people who vote for right-wing political parties because they supposedly believe in free markets.

In a free market, there is a simple way for businesses to get staff. Pay a better wage than other employers are paying.

But businesses are mostly unwilling to practice what they preach. Instead, they ask the government to bring in migrants who will work for the minimum wage.

International Tourism

Since the collapse of the demand for wool in the 1960s and 1970s, New Zealand has been looking for an alternative way of paying for the imports that we need for a modern lifestyle. For many, international tourism was seen as the solution, but even after significant investment by the government, tourism directly contributes a bit less than 6 percent of our GDP, and about half that comes from international tourism. International tourism is more important for providing employment, as most tourism activities are labour intensive. About a fifth of the workforce is directly involved in tourism.

The closure of the border to keep out Covid19 has had a serious impact on businesses who depend on international tourist. And due to the uncertainty about when the border will be opened again, there is serious uncertainty about when international tourism will get underway again. I hope that when the tourists do return, the industry will be re-established on a sounder basis.

• Although international tourism has provided employment for large numbers of people, the wages are poor. Many of the employees who serve tourists are only paid the minimum wage. Many of the jobs are part-time and some are seasonal, so they are inadequate for supporting a family.

• Because many of the jobs offered are poorly paid, tourism-related businesses often find it difficult to attract New Zealander to work for them. Consequently, they depend on migrant labour, because only migrants are willing to work unsocial hours on a seasonal basis for poor pay. Following the coronavirus shutdown, large numbers of migrants are stuck in tourist towns, with expired visas and no income, because they can’t afford to go home.

• Tourism places a big load on public infrastructure without contributing to the costs. The industry wants airport expansion, cruise ship terminals, and better roads. They expect accommodation to available where and when they need it. Tourists want to be able to travel in National Parks without contributing to the costs. When they get sick, they need medical services, but they do not always pay for it.

• Most tourists are stingy with their spending. I know I was when I have travelled overseas. It is their choice to keep their spending controlled while visiting the country, but that means that they are not going to be the solution to countries problems.

If international tourism starts up again, I hope that it will be established on a sounder economic basis. New Zealand needs tourism businesses that:

• contribute to the cost of the infrastructure that they use;
• pay wages or salaries that provide enough income to support a family
• are not dependent on the exploitation of migrants to be profitable.

Tourism Decline

One thing very clear, tourism is the sect of the economy that will be most affected by the coronavirus shutdown.

Tourism affects many industries (accommodation, retail, transport, etc) so Statistics NZ produces a satellite account to the National Accounts that measures the size of the tourism sector. Some of the data series integrated into it are a bit dodgy, and some of the underlying assumptions behind the ratios used are not very robust, but it does give a reasonable indication of the size of the tourism sector in New Zealand.

The account measures the size of the tourism sector in two ways.

• The direct measure cover business that deal directly with tourists.
• The indirect measure includes businesses that supply the intermediate inputs used in producing goods and services for tourists.

The account for 2019 shows the following results.

Direct tourism value added is 5.2 of GDP.
Indirect tourism value added is 4.3% of GDP.
Total tourism is 9.5% of GDP.

The satellite account also estimates employment in the sector.

Tourism directly employed 230,000 people, which is 8.4 percent of total employment.
A further 160,000 were indirectly employed in tourism generating an additional 6.0 percent share of total employment.
This suggests that the employment of nearly 400,000 people depends on tourism. They are about 14.4% of the workforce.

Business and government travel, which is a smaller segment of tourism (about 15%). The bulk is split fairly evenly between international and domestic tourism. Once we move down from Alert Level 4, business and government travel will begin again, but at a much lower level. International tourism will cease for several years, as strict border restrictions will need to be in place for quite some time, and even when they are removed people will be scared of international travel. Inter-regional travel will be constrained for a while too. With reduced incomes, people will have less spare cash to spend on travel within New Zealand. These factors mean that we can expect a big decline in the tourism sector persisting over the next few years.

If all of the direct and indirect employment on international tourism activities disappear for and half of those with domestic tourism disappear, that could be nearly 300,000 jobs gone. About 6 percent of GDP could disappear.

Only 5% of those directly employed in tourism are in air transport. 13% are in accommodation (hotels, motels, etc). Nearly 30 percent are in the Food and Beverage Services (restaurants, takeaways, bars, etc). 15 percent are in Retail Trade. We have seen airlines putting off staff, but the decline in the accommodation, food services, and retail industries is still to come.

Of course, when these people lose their jobs and income, they will stop buying, so the effect ripples out to other businesses not directly or indirectly connected to tourism. So, the overall effect of the shutdown could be much greater.