Why tourism offers best opportunities for future growth

Published in The National Business Review (Auckland), 7 June 2013 (PDF)

Other sectors are more productive but it does not follow tourism is a drag on the economy.

At least in principle, there is widespread agreement that New Zealand should aim to increase its exports – whether you subscribe to the government’s target of 40% of GDP by 2025 or not.

There is less agreement on how such an exports boost could be realistically achieved and which sectors are most likely to drive it. This holds especially true for New Zealand’s second largest exports industry (after dairy): tourism.

The tourism sector is a big exports earner. Its $9.6 billion revenue accounts for 15.4% of New Zealand’s total export earnings. Tourism also provides close to 120,000 full-time equivalent jobs – or 6.2% of total employment. Yet despite these substantial figures, there is a widespread sentiment that growing the economy and our exports, we should not count on tourism too much because it is perceived to be a low value generating sector.

To a degree, this view probably derives from the late Sir Paul Callaghan’s entirely laudable quest to make New Zealand more entrepreneurial and turn it into a more innovative place.

Sir Paul often compared the economic impact of creative, high-tech and entrepreneurial companies to the allegedly less beneficial tourism sector.

„The more tourism, the poorer we get. Tourism is a great industry; but it cannot be a route to prosperity,“ he claimed in one of his last speeches, pointing out – correctly – that the roughly $80,000 revenue per employee is far lower in tourism than at, say, Fonterra (approximately $350,000 of revenue per job) or Apple ($1 million).

However, as intuitive as this logic may sound at first, the economics of tourism are not nearly as straightforward as that.

Of course, if one were to convert the whole of the New Zealand economy into one giant holiday resort, it would reduce our economic performance. It is true there are other sectors that are more productive than tourism, generating more outputs per input, but from this does not follow that the tourism sector was in fact a drag on the economy. It is easy to understand why.

There are lots of jobs in New Zealand generating below median revenues – 50% in fact, because this is how a median is defined. If only we got rid of all of these supposedly “underperforming” jobs, we could significantly increase the productivity of the New Zealand economy.

Unfortunately, it would come at the expense of a massive rise in unemployment since it would be difficult to turn all those unemployed hairdressers, bartenders and office cleaners into software programmers and engineering consultants.

With the tourism industry it’s a similar story. Of course, you could not turn New Zealand into an economic powerhouse based on tourism alone. On that, Sir Paul was certainly right. But that does not mean that tourism actually makes New Zealand poorer. For quite a few people working in the sector, the jobs they do are a close match to their skills. The alternative to not working in the tourism industry is not to have a job at all.

The other factor to keep in mind is that there is still substantial potential in growing the tourism industry. Our major tourism export markets are undergoing a radical transformation, and it is plausible that we have only seen the beginning of a new era of tourism.

The total number of visitors to New Zealand has increased a fair bit over the past years. ln the year to April this year, a little over 2.6 million visitors were recorded – up from 1.5 million in 1999. The biggest change, however, lies in the composition of these visitors.

Whereas back then, only 16,589 visitors came from China and a mere 5655 from lndia, the latest figures reveal that Chinese visitors have become the second strongest group after Australians (216,832) and lndian visitor numbers, too, have grown substantially (29,936).

As the middle class of Asia is growing, we may well expect this trend to continue. While New Zealand’s traditional tourism export markets in Europe and North America are struggling or slowing, Asia has the potential to more than make up for this.

It is not only in absolute visitor numbers that Asian visitors will contribute to the growth of the tourism sector. Their visits are relatively short with the average Chinese visitor only spending 16 days in the country (compared with 30 days for visiting Brits and 50 days for Germans, the record-holders in this category).

By enticing Asian tourists on to more extended trips around New Zealand, they could increase their spending substantially.

The economic benefits of tourism go beyond the numbers directly accounted for by the tourism industry. Tourists travelling to New Zealand may come here, first and foremost, to explore flora and fauna, see magnificent landscapes, or pursue sports activities.

When they return home, they will have done all of that. But they will also have formed a new view of New Zealand that could go well beyond its touristic attractions.

From anecdotal evidence, and from my own personal experience, I know how tourists can become international students and migrants. Tourism is a country’s greatest opportunity to showcase itself to the world. Among those hundreds of thousands of visitors from Asian countries, there are undoubtedly some who are considering options for their own or their children’s tertiary education.

There will be some who are looking for new business opportunities. The first-hand experience of life in New Zealand is then worth more than the best campaign to attract foreign students or foreign direct investment.

We should regard international tourists more in this light as well. Not just as the revenue and exports generators that they are. But also as multipliers for the image of New Zealand we would like to send to the world.

For that reason alone, it is worth every effort to grow the tourism industry further – and to make it more attractive. The tourists of today may be the foreign students, the high skilled migrants, or even your international business partners of tomorrow.

Maybe the tourism industry cannot make New Zealand rich. But it certainly helps.

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