Do you know that the world has become smaller because of the current global financial crisis? Global financial crisis is a song that has been sung by every tongue one time and again. Screaming headlines on global economic crisis have been posted on all sorts of newspapers available on earth. Radios and televisions do not take a break either when reporting about the world’s financial crisis. It is not a song of praise that has been sung about global financial crisis but one that is directly opposite of what praise means. Global economic crisis has been a monster in the world and countries have been reduced to nothing.
All sectors of the economy have been touched by global financial crisis. It has had negative impacts on several areas. This term paper examines the global financial crisis and its impacts on the tourism industry for the past two years. The Global Financial Crisis For a better understanding of the impacts that are brought about by financial crisis on the tourism industry, it is important to first look at the global financial crisis in general. For the past two years, the economy of the world has been characterized by escalating fuel and food prices, collapse of financial markets, and contraction of the world’s economic demand.
The economy around the world declined in growth from 5. 2% in the year 2007 to -1. 1% in the year 2009 (Commonwealth of Australia, 2010). Global financial crisis is therefore not a new term and it has been the topic of the day. Its effects began to be felt seriously in the year 2008. All around the globe, stock markets have been reduced to pieces, financial institution that seemed to rule the world have fallen while other have been sold out, and the wealthiest governments on earth have been forced to establish rescue packages as a way of bailing financial systems.
In general, the whole world has been reduced to nothing by the current financial crisis. The global financial meltdown has affected people’s livelihoods in the interconnected world (Shah, 2009). The financial crisis has deepened disrupting many systems. It has gone way too far than even the Great Depression (Chossudovsky, 2010). Critics argue that the problem that the world is facing today could be avoided only if the ideologies that support the present day economic models had not been as vocal as they are, so influential and inconsiderate to the views and concerns of others (Shah, 2009).
The financial crisis in the world has seen the collapse of the sub-prime mortgage market in the US as well as the housing boom reversal in industrialized economies. Additionally, there are other weaknesses that have been exposed in the so called global financial system. Some of the financial instruments and products have become complex that every aspect of life has taken a new turn. The tourism industry has not been spared either (Shah, 2009). The Tourism Industry Tourism has been a major export in many countries. Many countries around the globe rely on tourism as a source of their revenue.
Money that is earned from this sector is used to develop other key areas (Economics Department Caribbean Development Bank, 2008). The industry has several divisions such as the travel agents, international and domestic airline industries, hotels and restaurants, and several other tourism boards. In many areas around the world, the tourism industry has stakeholders such as the foreign embassies, tourism associations, international organizations, and mass media to promote the industry, tourism information centres, and travel writers (Lauder, 2008).
For the past sixty years or so, the tourism industry has continually diversified and grown to be ranked among the largest fast growing sector in the economy all over the world. More destinations have over time opened up and more investments have been made in the development of the tourism industry. Modern tourism has been a key-driver for the socioeconomic progress. Some countries in the world can barely stand without tourism. It has become very important in the international trade market. Large amounts of money in terms of foreign exchange are earned from the tourism industry.
The export income that is generated by the international tourism is currently ranked fourth after automotive, chemicals and fuel products. Developing countries benefit a lot from tourism. In fact, it is the main source of income and number one export. Tourism industries in the developing worlds have created employment opportunities for masses and at the same time leads to other developments such as infrastructural development. The world has in the recent years been hit by the financial crisis.
How then will the global financial crisis be reflected in the tourism industry? Mladenovic & Zlatkovic, 2009) The industry as has been explained before is a very important sector in the economy of many countries. It has positive impacts on the economy of the host country through the foreign exchange earnings. More still, the host country benefits as jobs for the citizens have been created, relieving the country of the unemployment burden. Poverty is eradicated in the process and social services and infrastructure improved. In the overall, tourism leads to the development of the host country and the world in general (OPPapers. com, 2010).
Impacts of the global financial crisis on the tourism industry The current global financial crisis has disrupted the tourism industry; the efforts that have been made by the industry have borne little or no fruit. Huge are the losses that have been suffered by the tourism industries all around the world (OPPapers. com, 2010). The United Nations Tourism Organization had predicted that till December 2008, the tourism sector’s growth would be slowed down by about 2-3% by the global financial crisis. The impact of the crisis, as reported, would still be felt in the year 2009.
True to their word, tourism arrivals decreased significantly in several ports of the world such as in Polonia Airport in Indonesia. There was 85% tourism decrease in this particular port (Wieke, 2008). As Laude reported in an article on, Global financial crisis bites tourism industry, “As the global financial crisis bites, the …international tourism market is headed for its worst downturn in two decades “(Laude, 2008). In Austria, a forecast that was prepared for Tourism Austria had warned that the international tourists’ numbers to Austria would significantly be cut by 4% or more in the year that followed.
All around the world, the number of tourists have been cut off (Lauder, 2008). As had been pointed out earlier, the tourism industry provides job opportunities to the citizens of the host country, and earns foreign exchange to the host country. When the tourists’ numbers are cut out, many people are bound to lose their jobs in the process as well as reduced foreign earnings putting the country at a greater economic crisis (Lauder, 2008). According to an article by Lauder on, Global financial crisis bites tourism industry, “Global tourism is already feeling the effects of the financial crisis” (Lauder, 2008).
The United Nations Tourism Agency had on October 16th 2008 warned that tourism industry would experience sharper downturn in months that would follow (Lauder, 2008). Businesses are affected in the process such as those that sell products to tourists. The consumer demands have fallen in the tourism leisure sectors. These businesses are very supportive to the economy as they pay taxes to the government. This means that the economy is in turn affected by the reduced taxes (UN News Centre, 2008). In addition when there is a global economic crisis, the amount of disposable income shrinks.
The small tourism businesses such as the local travel agencies and the tour operators that cater for both domestic and international tourist suffer a major setback when individuals’ level of disposable income decreases. The locals also constitute to the tourism industry but when the economy is tight on them, they spend less on domestic tourism (Kaar, 2009). In the northern hemisphere for instance, the international tourism had grown by 5% in the year 2008 as compared to the year 2007. However, this was short lived as it began to take a downward slide especially during summer holidays.
Numerous businesses in the world are suffering from credit crunch as many customers cut back their travel spending (UN News Centre, 2008). In Vietnam, it was not until the collapse of Lehman Brothers in the mid of 2008 that it dawned to the world that the financial crisis was enormous. The financial crisis that was facing the US shook the globe with credit. Asia, a world that had seen high growth rates with stringent banks and large domestic consumers, was not spared as it has suffered greatly as a result of the financial crisis (UN News Centre, 2008). Global financial crisis and its impact on the tourism industry on developing worlds
The crisis that hit the world also affected the developing worlds. In the year 2009, the developing world’s economic growth was projected to be at 1. 7% as compared to the 8. 3% of the year 2007. Consequently, there has been a decline in direct foreign investment, export revenue which also includes the tourism revenue and remittance. As a result, many sectors such as the tourism industry have been affected. Many people have also lost their jobs. Others, who are lucky to have jobs, have been pushed to take low-income jobs. Poverty has resulted as a result of the global financial crisis (Commonwealth of Australia, 2010).
The economic crisis that the world is facing has had major impacts on the developing countries. The international financial flows and the private financial flows to the developing countries have rapidly fallen rapidly. The international resource flows as well as the private capital flows have been affected, for instance, the Foreign Direct Investment (Mladenovic & Zlatkovic, 2009). As UNWTO in an article on, Tourism and financial crisis reports, “The tourism sector is suffering from reduced consumer demand -business and leisure- and tourism business are already feeling the credit crunch” (UNWTO, 2008).
The members of UNWTO Executive Council had experienced market deterioration in the tourism sector (UNWTO, 2008). For the last two years, the financial crisis in the world has hit newspaper headlines. The tourism industry just like any other has not gone unaffected by this economic depression. The tourism industry has been greatly affected because it is extremely fragile and volatile unlike other sectors that do not feel any effect. As the United Nations World Tourism Organization observes, the situation is getting even worse in the sector.
First, there has been a big drop in the demand of tourist goods as well as tourist leisure. The slow down is greatly felt during summer holidays when there is high expectation of a rise in the number of tourists storming the northern hemisphere (Tourism-review. com, 2010). The UNWTO had however given these predictions that the financial crisis would affect the tourism industry in the years 2008 and 2009. The organization had even set a Resilience Committee whose work was to support the members through providing them with accurate analysis of the economy as well as response mechanisms.
The secretary-general of the organization, Franesco Frangiali had admitted that the financial crisis was bound to decrease the travel and the leisure spending. He also admitted that the situation created by the global financial crisis was not as bad as the one that had surfaced during SARS outbreak in the year 2003. The SARs as he claimed caused a lot of harm in the tourism industry (Tourism-review. com, 2010). “Because the financial crisis is global, the fears and impacts of it are global as well” (Tourism-review. om, 2010). These are words picked from an article, Financial crisis impacts on the tourism industry, by Tourism-review. com. According to a report by the International Monetary Fund, the global crisis made a major impact in Caribbean, an island where the tourism industry is a very important boost to the economy (Tourism-review. com, 2010). In Kenya, the Minister of Tourism, Najib Balala had expected escalation of food prices as well that of other essential commodities as a result of the global financial crisis.
The tourism sector in the country could be badly damaged again just after it had recovered from the violence that erupted after elections in the year 2007. As had been feared, the tourism sector took a downward slide in the two years that followed as a result of the global financial crisis and it has not yet recovered from the shock (Tourism-review. com, 2010). The tourism industry is a very important sector in the economy of Tanzania. For many years, it has had positive effects on the Tanzanian economic development. It is not until recently when the financial crisis set in that the tourism industry was weakened (Lyimo, 2009).