Leakage in Tourism: Understanding the Concept and Its Examples
Are you familiar with the term leakage in tourism? It is a concept that is often discussed in the field of tourism economics.
Leakage refers to the portion of tourism income that is not retained within the destination country or region but rather flows out to other countries or multinational corporations. In other words, it is the amount of money that does not stay within the local economy but instead leaves it.
What Causes Leakage?
Leakage occurs due to various reasons. One of them is import dependence, where a destination country relies on imported goods and services to cater to tourists’ needs. As a result, most of the money spent by tourists goes towards paying for these imports, which ultimately leads to leakage.
Another reason for leakage is foreign ownership and management of tourism enterprises. In many cases, multinational corporations own and operate hotels, resorts, and other tourist facilities in developing countries. As a result, profits generated by these facilities flow out of the country rather than staying within it.
Examples of Leakage:
Let’s take a look at some examples of leakage in tourism:
Imported Goods and Services:
When tourists visit a destination, they require goods and services such as food, accommodation, transportation, souvenirs, etc. Many developing countries lack the infrastructure or expertise needed to provide these services locally. As a result, they have to import them from other countries.
For instance, when tourists visit an island nation like Maldives or Seychelles with limited agricultural production capacity due to its small size and geography limitations – most food products are imported from neighboring countries like India or Sri Lanka because they have large-scale production capabilities.
Foreign Ownership:
Another example is foreign ownership of hotels or resorts operating in developing countries. These multinational corporations earn profits from their operations but repatriate most of their earnings back to their home countries. As a result, the money spent by tourists at these facilities does not stay within the local economy.
For instance, Club Med is a French multinational corporation that owns and operates several resorts in various countries worldwide, including Indonesia. The profits generated by these resorts go back to France rather than staying in Indonesia.
Effects of Leakage:
Leakage has several adverse effects on the local economy and community. One of them is a reduction in the multiplier effect, which refers to how much income circulates within the local economy. Leakage reduces the multiplier effect as most of the income generated by tourism flows out of the country rather than staying within it.
Another effect of leakage is that it can lead to an increase in poverty. When most of the tourism income leaves the country, there are limited opportunities for locals to benefit from it. This can lead to widespread poverty and economic inequality.
Conclusion
Leakage is a critical concept in tourism economics that affects many developing countries worldwide. It occurs due to various reasons such as import dependence and foreign ownership of tourist facilities. Leakage has adverse effects on the local economy, including a reduction in the multiplier effect and an increase in poverty levels among locals.
Therefore, it is crucial for destination countries to develop strategies that minimize leakage and ensure equitable distribution of tourism income within their economies. Such strategies could include encouraging locally owned businesses or promoting products made domestically over imported goods and services.