Headline Diplomat eJournal: Issue 1
The perilous lenses of COVID-19: The impact on the economy
Tayo Williams, Journalist, Headline Diplomat, LUDCI.eu
COVID-19 is a health crisis that has affected economies on a global scale. Many countries responded to the spread by imposing lockdown conditions.
This has severely affected many industries as well as the personal services delivery overall causing demand and supply-side shocks. And even though many economies are gradually reopening, all borders remain shut to visitors and tourists.
For the first time ever, the UN World Trade Organisation reported that 100 percent of global destinations introduced travel restrictions. As it now stands, international tourism is all but non-existent. Local tourism is extensively restricted by stiff conditions in many countries.
The tourism industry is a critical contributor to the global economy. In 2019, the tourism industry employed about 300 million people globally and accounted for 29% of the world’s services exports. In 2018, direct revenue from tourism was $1,480 billion. This was a 4.4% increase from the previous year, more than the growth of global GDP. International tourism arrivals stood at 1,407 million. Passenger transport generated another $250 billion revenue.
International tourism is one if the economic sectors most affected by COVID-19. About 850 million to 1.1 billion loss in tourist arrivals is estimated by the United Nations World Trade Organization. They project a further loss of $910 million to $1.1 trillion loss in export revenues and 100-120 million job loss. These estimations are dependent on whether tourism borders are opened in July, September, or December.
The airline industry (IATA) has been severely hit. It recorded an 80% drop in flights in April 2020 compared to April 2019. IATA has projected in its financial outlook for the global air transport industry that airlines could lose $84.3 billion this year. Europe’s biggest airline Lufthansa has seen a 97% drop in passenger numbers in their home base at Frankfurt in April. Could it get any worse?
Compared to what happened to many other airlines, this is mild. Lima experienced a 99% drop in passenger numbers. The biggest carrier in Latin America, LATAM airline, had to file for Chapter 11 bankruptcy protection. Lufthansa was saved only by a €9 billion bailout. Avianca holdings, Virgin Australia, Flybe, Miami Air International, RavnAir, Trans States Air, Compass Airlines, Air Deccan, BRA, Air Mauritus, South African Airways, SunExpress Deutschland, Level Europe are just some of the airlines that have gone bankrupt amidst the COVID-19 crisis. Special Leisure Group, a British company with 44 hotels and travel brands like Shearings, a century-old tour bus operator, has also folded up under the pressure of the crisis.
Tourism provides an important source of income in both developed and developing countries. Indeed, some countries depend heavily on tourism such that its absence or decline can spell literal disaster.
In many small island developing stated (SIDS) its accounts for more than half of their GDP. Cambodia, Vanuatu, Sao Tome, and Principe, and Gambia have between 17% and 35% of their GDP from tourism. These countries will be shaken from the sink in the industry. Spain, Italy, and Greece were hit very hard by the outbreak. These countries depend heavily on tourism and are left “most vulnerable to the pandemic’s fallout”.
Many countries have introduced economy-wide bailouts to mitigate the economic effect of the pandemic. There are theories about a rebound in the tourism sector, but these are unfounded. Many countries are cautious about a surge in COVID-19 cases and are likely to keep their borders shut to visitors for up to a year.
Conclusion:
The short-term goal should be protecting people and ensuring a healthy tourism industry. Casual and self-employed workers are synonymous to tourism-related sectors and are the most volatile. These should be helped where possible. Workers in direct tourism enterprises should be protected. In cases where their enterprises cannot survive, the workers should be given a reprieve to help them move on to other jobs.
The government can further help firms that could go bankrupt, such as hotels and airlines. One way they could do this is to provide low-interest loans or grants. While the need for this is pressing, it needs to be carefully considered as the effect of the pandemic cuts across a lot of other sectors.
