When terrorists attacked the national museum in Tunis last March, cruise lines quickly suspended calls to Tunisia, dealing a severe blow to that country’s efforts to revive the cruise liner business there after the Arab Spring.
Tourism is among the first economic activities to suffer from any kind of terrorist act, confirming the industry’s fickleness. However, since tourism is a very lucrative industry, countries do their best to beat, or at least minimise, downswings in business caused by events that are beyond their control.
Wise governments usually try to steer their country’s economy away from over-reliance on tourism. A few weeks ago, a credit rating agency spotlighted the island’s vulnerability in this respect when it said that Malta’s reliance on tourism and other industries catering to foreign demand exposed the economy to external shocks.
The eye-opener was generally overlooked, with media reports and the reaction by the government and the Opposition practically all concentrating on the positive assessment of the economy. Maybe the agency’s remarks were taken so much for granted that they did not feel any need to react to them.
Yet, in the wake of so much political turbulence in so many parts of the world today, the agency’s warning ought to make the island keener to ensure that the economy has a diversified base that will enable it to avoid a massive impact if adversity hits one particular sector.
Even though the country is making great strides in branching out into new areas of economic activity, it is important that the exercise is kept up all the time. Of course, it is not just a terrorist act, or a natural calamity, that can hit tourism. Other factors, such as rising costs and a rapid deterioration in quality standards, can well earn a tourist resort a bad name.
The credit agency DBRS warned “although tourism emanates from a diverse set of wealthy economies, Malta could be adversely affected by a downturn in European economic activity. If sustained erosion in tourist arrivals or other shocks in external demand were to have an impact on domestic real estate prices, this could have a serious impact on household finances and financial stability. The island economy’s competitive position could also be eroded as stability returns to nearby North African countries, or as domestic costs rise”.
Although there appears to be no end to strife and political instability in Libya and countries in the Middle East, the agency’s remarks are worth considering. Malta is attracting 1.7 million tourists a year, accounting for a 12.5 per cent “direct and indirect” contribution to the gross domestic product.
The average annual increase in tourist arrivals is at five per cent. Tourism has become such an important contributor to the island’s GDP that it is often described as a main pillar of the economy. The hope is that it will continue to remain an important revenue earner. However, irrespective of forecasts showing that tourism is set to keep growing, the country should not lose sight of the industry’s fickleness.
This is one reason why it is often argued that, while it is important to keep developing the services sector, as each successive administration has done, it is also wise to work for the expansion of manufacturing industry, particularly sectors that may raise the value-added content of the country’s export trade.
Besides, there is a limit to which the country can expand its tourist industry. Having a balanced mix of economic activity will act as an insurance against adversity, or slowdowns, in particular sectors.