Post-pandemic tourism in Latin America faces a reset – BRINK – World Trade Conversations & Insights

No economic sector has been harder hit in Latin America and the Caribbean by the pandemic than tourism. This sector had become critical for the economy of the region, not only for the Caribbean islands, but also for some of the medium and large countries in the region.

The spread of democracy in the region over the past quarter century has been accompanied by increasing prosperity of the population, a decrease in crime and some smart investments in experiential tourism.

Twenty-five years ago, tourism in Latin America was synonymous with surf, sand and sun, mainly offered by the resorts of the Caribbean and Mexico. Today, no one is surprised when friends describe their culinary vacations in Lima, the delights of Colombia’s old Cartagena, walking in the high muds of the Brazilian Pantanal or the dry Atacama in Chile. In 2019 alone, tourism was responsible for generating $299 billion in Latin America and nearly $59 billion in the Caribbean, significantly increasing the sector’s contribution from 2010.

The pandemic changed everything

In 2020, when the pandemic hit, tourism-related GDP in Latin America fell by $52.8 billion and by $26.4 billion in the Caribbean. Employment in tourism has been reduced around 24% in Latin America and the Caribbean.

The impact of tourism on the economies of the region cannot be underestimated. In 2018, the World Bank estimated that 113 million tourists visited Latin America and the Caribbean, generating $103 billion in revenue for the region and 15 million jobs. For countries dependent on tourism, this number is literally an economic lifeline.

According to a report by the Inter-American Development Bank, the Caribbean countries are the most dependent on tourism. Since tourism accounts for around 15% of the GDP of many Caribbean countries, the economies of Caribbean countries dropped 9.8% during COVID. Let’s not forget that some large countries also depend on tourism, with 16% of Mexico’s “economic output and employment” depending on the sector, and “about 10% of GDP and employment for Uruguay, Argentina and Chile”. Brazil was not far behind with 8%.

Now that COVID-19 is easing and global travel is slowly returning to normal, tourism in the region will play a key role in supporting local economies, and some positive signs regarding the sector are beginning to emerge. What some are calling a “revenge trip” or a trip that was put on hold due to the pandemic but is now happening, is off the charts. A Mastercard study project that there is “about 365 million more people in the United States, Canada and Mexico who are likely to take off this year compared to last year.”

High vaccination rates bring people back

A key variable in the return of tourism to the region has been the vaccination rate in the region, which after a slow start has increased significantly. According to the Pan American Health Organization, two-thirds of residents in Latin America and the Caribbean have received two doses of the COVID-19 vaccine, leading to a drop in the number of COVID-related deaths. It is a key instrument that has enabled countries to open up to foreign visitors. The high vaccination rate allowed Latin America to abandon restrictions that were in place to control the pandemic just as air travel resumed.

While inflation apparently hasn’t had an impact on travel yet, that’s likely to change as the novelty of post-COVID travel wears off.

The Caribbean Tourism Association (CTA) found that “during the third quarter of 2021, there were 5.4 million tourist arrivals to the region”, three times the amount for 2020.

The CTA report can barely contain its euphoria: “While the results to date do not indicate a return to 2019 levels, the exceptional results recorded during the summer period at the end of the year 2021 shows that a gradual or gradual rebound is likely and very possible.” by end of 2022.”

Indeed, leading travel booking company Expedia noted that “search request for Latin America is up across the board and shows a market rebound for the second quarter of the year. Mexico has also seen a steady increase in the number of visitors.

But dark clouds remain that could dampen a rapid rebound in tourism in the region. The biggest worry of all is inflation. Inflation spikes seen around the world, particularly in oil (jet fuel) and food prices, could reduce travelers’ discretionary spending, making travel a luxury choice and forcing many to stay closer from their house.

While inflation apparently hasn’t had an impact on travel yet, that’s likely to change as the novelty of post-COVID travel wears off. A potential global recession or decline, as many economists are now predicting, will inevitably impact the tourism sector. While travel is increasing today, price increases can’t last forever. In May 2022, the prices of plane tickets in the United States have increased by 25% in one year. Additionally, as virtual meetings continue, business tourism will also decline, another element that will likely take time to return to normal.

But some of the storms on the horizon are also political. The region has experienced a dramatic economic downturn over the past 24 months. As in the United States, crime and homelessness are increasing dramatically in the region. News stories about crime in Rio, or beggars on the streets of Cartagena, or the mistreatment of Haitians in Chile can only affect higher-income experiential tourism.

Is tourism facing a political reset?

Elections over the past five years have seen a leftward drift in the region – a trend that the aftermath of the pandemic will only accelerate.

While there is no doubt that tourism is an important economic driver for many countries in the region, old questions remain about how tourism equitably distributes wealth. New, younger politicians are beginning to say that tourism needs a “big reset”, necessitating a re-examination of how tourism operates in the region.

Recently, the tourism ministers of Jamaica and Saint Lucia, two major Caribbean tourist destinations, called foreign-owned hotels “plantation systems” and called for another way to share revenue of these companies. Jamaica’s Minister of Tourism, Edmund Bartlett, sternly described the current system: “The labor market in tourism is akin to the plantation system — most tourism workers do not have tenure and work seasonally. We tend to align service with servitude.

Such rhetoric would have been unthinkable years ago, but as many economies struggle and a new nationalist-tinged ideology spreads across the Americas, such positions can no longer be whispered, but publicly called out.

Tourism will have a huge role to play in the region. But the sector needs to be careful – it is not immune to the political and societal storms we see in much of the world.

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