Pacific Money | Economy | Southeast Asia

COVID-19 and the Perils of International Tourism

Tourism has been a boon for Southeast Asia, but the pandemic has exposed the region’s unhealthy dependence on foreign visitors.

James Guild
COVID-19 and the Perils of International Tourism

The beach at Sunur on the eastern coast of Bali, Indonesia.

Credit: Flickr/McKay Savage

Last month, I took a walk along the beach in Sanur, a corner of Bali popular with expats and families. It is not as rowdy as nearby Kuta, but during normal times would still be packed with international visitors lining up for gelato or lounging on daybeds at luxury beachside resorts. Like other Bali tourist enclaves, the areas on or near the sand have mostly been developed by international brand name hotels or exclusive private villas which can go for hundreds of dollars a night. As I strolled along the beach path, these branded resorts mostly stood empty against the darkening sky.

The Grand Inna Hotel, owned by the state and one of the first luxury hotels to open in Bali in the 1960s, appeared to be completely shuttered. Along the beach a few hotel bars were open, trying to gin up business with generous happy hour deals though the clientele was sparse. The grounds of a major international hotel were overgrown and cluttered with dead leaves. But just 500 yards further down the path this barren landscape gave way to bustling activity.

Mertasari Beach marks the end of the beach path. Easily accessible by the public and free to use except for the $0.10 fee to park your motorbike, locals come there by the hundreds to splash around in the surf. Instead of hotel bars, the area is thronged with little warungs selling grilled corn, tempe and fried fish, which were doing a brisk business. The contrast between the liveliness of Mertasari Beach, and the stillness of the resorts just a few steps away, was jarring. It also cast into sharp relief the perils of leaning too hard on international tourism as an economic development strategy.

Many countries in Southeast Asia are popular international tourist destinations, most notably Thailand, where tourism contributes an estimated one-fifth of GDP. Thailand’s reliance on tourism is one reason why the economic fallout from COVID-19 is hitting harder there than in some neighboring countries, and why the government is spit-balling a variety of ideas to revive the industry, including a special long-stay visa.

The logic of making international tourism a cornerstone of economic development is clear enough. For the recipient country, tourism means inflows of foreign exchange. This can take the form of vacationers spending their own currencies in your country, or of foreign capital flows, as hotel and restaurant developers invest in the sector. These inflows are often direct equity investments, which are generally more stable and productive than investments in stocks and bonds.

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Tourism-led growth also creates decent-paying service sector jobs that can absorb excess labor, such as in Bali, where thousands of people from neighboring East Java come to start businesses or look for work in the industry. Popular tourist destinations also attract investment in public infrastructure like roads, airports and sanitation. Especially for emerging economies like Thailand and Indonesia, which are wary of current account deficits and have large rural populations, a thriving tourism industry can solve a lot of problems.

But, of course, any economy that becomes too reliant on a never-ending flow of foreigners places itself at the whims of external shocks like a pandemic or natural disaster. The sudden stop in visitors due to COVID-19 has prompted a lot of reflection on the status quo, as in this piece from Julia Winterflood asking whether it’s time to rethink tourism. Among other things, the pandemic has revealed the limits of prioritizing external flows – be they trade, tourism or investment – as engines of growth at the expense of domestic ones. Mertasari Beach used to be just a local hangout spot. Now it’s the only game in town.

There is a metaphor in there, I think. International tourism – and the investment, foreign exchange and employment that it brings – is an important component of economic growth. But a truly resilient economy is one where a sufficient share of national income rests in the hands of local consumers who can pick up the slack should the external tap dry up. In 2019, Indonesia’s Central Statistics Agency estimates there were 282.9 million domestic tourists in the country – several orders of magnitude more than the 16.1 million foreigners who visited the country that year.

This is not to say that domestic tourism can meet the same needs as international tourism. But the local market is not something that should be neglected until it becomes a last resort during extraordinary times. It should be part of a balanced approach to economic development more generally, so that when needed local consumers can help lift the economy out of its doldrums instead of waiting for international airports to reopen.