Research: The impact of tourism on poverty in South Africa 6

Our Research posts are about the latest academic research being done in the School of Economics. This week:

THE IMPACT OF TOURISM ON POVERTY IN SOUTH AFRICA

by Melville Saayman, Riaan Rossouw & Waldo Krugell

Does the spending tricle down?

The South African tourism industry is valued at nearly US$10 billion a year, or roughly 7% of GDP (Snyman, 2007). According to Rossetto et al. (2007:49), the potential for the tourism sector to help alleviate poverty has recently come under the spotlight of international and national tourism and development agencies. However, apart from studies of specific projects and programmes that indicate how the industry can help (for example Blake et al., 2008), there is little economy-wide research evidence to suggest that tourism does reduce poverty and few studies that quantify the interactions between tourism and poverty (see Blake et al., 2008:108). Consequently, our paper seeks to offer some insight into who loses and who gains in South Africa when tourism expenditure increases.

Accordingly, our paper provides an economy-wide analysis of the distributional effects of a tourism expansion (and a recession), thus offering a means of answering the question: Can the tourism industry help to alleviate the problem of poverty in South Africa? More specifically, we looked at three scenarios, using an applied general equilibrium (AGE) model. Our findings show that in the short term the poor benefit very little, if at all, from additional tourism inflows to South Africa, and, most disturbingly, that a 10% increase in tourism would bring no significant benefit to the very poor, i.e. the lowest income households.

The following are some implications of our study:

  • Firstly, the results from the modelling exercise suggest that the welfare of lower income black households (which embody the bulk of the poor in this country) will be affected unfavourably compared to other households given a tourism expansion. This is mainly because of labour market imperfections that exist in South Africa and which contribute towards the allocative inefficiency and lack of equity that can be seen in the model’s results.
  • If it were possible to invest in education and training and to free up the labour market, then at a macro level, and with a scenario of 20% growth in tourism, the impact on poverty alleviation would be the greatest (although, of course, to achieve and sustain a 20% growth would not be easy).
  • Secondly, arising from the discussion of the first implication, it remains of the utmost importance that destinations implement a sustainable growth plan. This implies a gradual increase in tourist numbers and especially tourist spending.
  • Thirdly, it must be realised that expenditure by foreigners and by domestic tourists have different impacts on various sectors.
  • Fourthly, recommendations made by the UNWTO (see WTO, 2002:2) should be implemented as far as possible to maximise the impact of tourism on poverty alleviation.
  • Lastly, tourism marketers must focus more on segmenting markets. It is important to target markets with a high yield since these have the greatest impact on poverty alleviation.

We can therefore see that the economy-wide effects of an inbound tourism expansion (or recession) in South Africa include both benefits and costs. These are distributed unevenly across institutions and sectors. An inbound tourism expansion can stimulate higher real GDP growth and improve the balance of trade because the real exchange rate is exogenous. These results are not as self-evident as they should be, seen against other recent findings that are consistent with ours, such as the study by Blake et al. (2008).

From a policy perspective, it would be important to foster both domestic and foreign tourist arrivals. It must be emphasised that it is not the number of tourists but the amount spent that counts. Our article also contributes to the discourse on tourism and poverty alleviation and emphasises that the mere fact that tourism takes place does not imply that the money trickles down to the poor —deliberate action is required. In essence, the research confirms that tourism receipts can be used as a tool to alleviate poverty, but in South Africa this must be supported by policies that focus on the labour market and human resource development.

The complete article is forthcoming in Development Southern Africa, issue 29 volume 3.

————–

References:

Rossetto, A., Li, S. and Sofield, T. 2007. Harnessing tourism as a means of poverty alleviation: using the right language or achieving outcomes? Tourism Recreation Research, 32(1), 49–58.

Blake, A., Arbache, J.S., Sinclair, M.T. and Teles, V. 2008. Tourism and poverty relief. Annals of Tourism Research, 35(1), 107–27.

Snyman, J.A. 2007. A foreign direct investment model for the South African tourism industry. Thesis submitted for the degree Doctor of Philosophy at the Potchefstroom Campus of the North-West University.

WTO (World Tourism Organisation). 2002. Enhancing the economic benefits of tourism for local communities and poverty alleviation. World Tourism Organisation, Madrid.

6 comments

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