Linkages and leakages

Local supply and imports

Tourism is a major global industry, but is it good for developing countries? Since long-haul tourism to developing countries started in the late 1960s, many commentators have persistently claimed that tourism scarcely benefits the hosts. One suggested problem is the high level of leakages out of the destination country.

Leakages are payments made outside the destination economy: in other words, the proportion of the total holiday price that does not reach or remain in the destination. Some leakage happens internally, where tourists spend money at the destination but this pays for imported goods and services. Other tourism leakages are external payments that never make it to the destination country, such as travel agent commissions, tour operator profits and foreign airlines.

Many experts claim that foreign-owned mainstream resorts with all inclusive packages have particularly high 'leakage' figures. For example, Tourism Concern frequently claims that up to 90 percent of the holiday cost leaves developing countries. If true, these figures undermine the case for tourism as a development tool.

Perceptions and myths

So, are these leakage figures plausible? We need better data before giving a definitive answer. However, a recent review of economic linkages, published by the Pro-Poor Tourism Partnership, offers some hope. This research shows:

• Even in the most 'leaky' scenarios (holidays using foreign airlines and foreign-owned accommodation, in destinations with small and fragile economies), the highest leakage rates are approximately 75 percent.
• Leakage figures are even lower in countries with large and diversified domestic economies, such as Egypt.

Researchers from the Overseas Development Institute, UK, found that a more representative figure was approximately half the total cost of a tourist package reaching the host economy. These figures suggest that significant benefits often remain at the destination. This is not surprising: careful analyses of tourism in developing countries demonstrate a positive impact on host economies.

How can leakages be reduced?

Economic linkages stop leakages. Buying supplies from people in the host country allows the benefits to remain. Many developing countries now encourage local farmers to supply fresh fruit and vegetables to hotels. Labour is often the most important linkage between a hotel and the local economy, through the payment of salaries and wages. Even a foreign owner will recruit locally to minimise costs. Hotels enhance economic linkages by working with informal tourism businesses (such as a local taxi company).

Governments and tourism companies in destination countries can support initiatives to reduce leakages further by:

• using locally-owned accommodation (this can be up to half of the total holiday cost)
• endorsing destinations that integrate tourists into the local economy, where they can purchase local products
• promoting resorts that employ local
• staff and pay reasonable salaries
• using airlines from the host country (for long-haul destinations this may constitute one-third of the total package cost).

Jonathan Mitchell and Sheila Page
Overseas Development Institute, 111 Westminster Bridge Road, London SE1 7JD, UK
T + 44 (0)20 7922 0300
Jonathan.Mitchell@odi.org.uk
s.page@odi.org.uk

See also

Caribbean tourism, local sourcing and enterprise development: Review of the literature, PPT Working Paper No.18, by D. Meyer, January 2006
www.propoortourism.org.uk/18_domrep.pdf

Can tourism help reduce poverty in Africa? ODI Briefing Paper, by J. Mitchell, C. Ashley, L. Jarque, J. Elliot and D. Roe, March 2006
www.odi.org.uk/RPEG/research/pro-poor_tourism%5Cbp_march06_tourism1.pdf

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