Economic, environmental & socio-cultural impacts of tourism: An analysis from Mexico

TABLE OF CONTENTS

COVER PAGE

EXECUTIVE SUMMARY

I. INTRODUCTION

II. MAIN PARAGRAPH
Economic Impacts
Environmental Impacts
Socio-Cultural Impacts

III. CONCLUSION

IV. REFERENCES

Appendices

A. Map oł Mexico
B. Contribution oł Tourism to Economic Growth

Introduction

The Federal Republic of Mexico is located in Middle America, bordering the Gulf of Mexico and the Caribbean Sea in the east of the country and the Pacific Ocean in the west. As one can see in Appendix A, the three adjoining states are the United States in the north and Belize and Guatemala in the south. The capital is Mexico City. The population of Mexico is approximately 105 million of which the greatest part are Mestizos (Amerindian-Spanish). 89 percent of the people are Roman Catholics. Due to Spanish influences Spanish is still the official language. However, over 100 Native American languages still exist.

Cancún is the most visited tourist destination in Mexico. It is located in the east of the country in the State of Quintana Roo at the most southern tip of the Yucatan Peninsula. The resort is divided into a hotel section along the seaside and Cancún City on the mainland. Sports facilities such as golf courses, tennis courts and abandoned lagoons for scuba-divers as well as a great biodiversity make Cancún a destination popular with tourists. The resort earns 25 percent of Mexico’s tourism revenue.

In terms of tourism, Mexico ranks on number eight of the world’s tourism destinations with 21.4 million tourist arriving in 2006 (WTO, 2006). Mexico is Latin America’s leading destination. Despite its dry and mild weather all over the year, the wonderful beaches and beautiful landscape, Mexico has a big advantage over other destinations: its proximity to the US. Approximately 90 % of the tourists visiting Mexico are from the USA, 4 percent are from Europe, 3 percent are from Canada and 2 percent are from other Latin American countries (Kersten, 1997). In the past couple of years, tourism became Mexico’s second biggest earner, behind manufacturing, outrunning the oil industry. With occupancy rates of 86% tourism industry is booming (Friedland, 1999). According to Clancy Mexico became the country with the highest number of foreign affiliated hotel rooms among the developing nations in 1998 (1998).

Economic Impacts

The most significant positive economic impact in the tourism industry is achieved by direct revenue resulting from traveling activity by tourists. As displayed in figure 1, the International Tourism Receipts of Mexico have been growing steadily until 2004.

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Figure 1

Included in tourism receipts are taxation revenues. Two categories of taxation can be differentiated. Taxes charged directly to tourists are entry and exit taxes, air passenger duty, bed- night taxes for hotels and accommodation and also VAT charged by restaurants and groceries. The second group is taxation charged to the tourism business such as fuel taxes, duties on the tourist equipment that is imported to the destination as well as property and corporation taxes. An additional important impact which is directly related to the tourism receipts is the contribution to GDP. According to the World Travel & Tourism Council (2008) the contribution of Travel & Tourism to Gross Domestic Product is expected to rise from 14% in 2008 to 15.2% by 2018.

Tourism has also a direct impact on the employment in the host country. In 2005, 1.9 million jobs were directly associated with the Mexican tourism industry. As the WTTC found out, the contribution of the Travel & Tourism Economy to employment is expected to rise from 6,633,000 jobs in 2008, which is 14.3% of total employment to 8,100,000 jobs, 15.7% of total employment in 2018. This means that 1 in every 7 jobs will be directly or indirect related to the tourism industry. And since low-paid workers tend to spend all additional income on necessities like food and clothing, this creates a multiplier effect that creates jobs. Further, the industry can help local businesses to generate more revenue. According to a research done by Rebecca Torres in 2003, most of the bigger hotels in Cancún have already had direct contracts with local farmers, fisherman or ranchers as suppliers. However, direct contracts with private suppliers still represent only 6% of total food supply. This has to do with the overall mistrust on both – supply and demand sides as well as cultural differences concerning reliability (Torres, 2003).

For Mexico the access to foreign direct investment has improved a lot since the North American Free Trade Agreement (NAFTA) has been approved in 1994. The interest in hosting conventions in Mexico has grown and a lot of foreign investors have been attracted, especially from the United States and Canada (Korn, 1993). Before, in February 1993, a law was passed which deregulates the tourism industry and with it the regulations of rating hotels by SECTUR, Mexico’s Secretariat of Tourism, which also has set up the prices until this stage (Korn, 1993).

In order to increase international tourism receipts, according to Ricardo Ampudia, Mexico’s former Director of Tourism, the country needs more entertainment facilities, such as megaresorts, shopping centers and golf courses, emphasizing that casinos would probably attract such venues and make Mexico more competitive to other destinations (Kersten, 1997).

With the opening of Cancún Convention Center in 1995 the resort is now known for its possibility to hold large scale meetings and conventions. A fixed percentage of the profits which are generated go to an organization that offers various programs, such as educational, sports or housing programs for young people with disadvantages (Korn, 1993).

The negative result incorporated with providing a lot of jobs is cheap labor. The operational costs per worker per day are approximately 18 $ per day, whereas the average room price is 125$ per person per day (Friedland, 1999).

After NAFTA, when a lot of foreign industries decided to invest in projects in Mexico, leakage to international corporations can occur, meaning that the revenue that is generated in the host country will be taken out of the country, usually to the country of the investors. Several studies have done research about the leakage rates regarding tourist expenditure. An IFC study found out that for underdeveloped countries the leakage rate is 55%, meaning that only 45% of foreign exchange earnings from tourism remain in the country. Though, according to a research undertaken by the World Bank (2003), in Mexico the leakage rate is less that 15% (World Bank), indicating that 85% stay in the country.

Corruption and well-connected political bonds that influence decisions are still common in Mexico. A significant lack of clear laws made bypassing rules easy in the past. For that reason Playa del Carmen, a once-lonely coastline has turned into the country’s fastest growing resort area (Friedland, 1999). As Roman Rivera Torres, real estate mogul and developer of the resort said, “I’ve never asked for permission”. Here, the community doesn’t profit. New neoliberal economic regulations have inhibited the agrarian sector by eliminating subsidies and restricting credit. A direct connection to the tourism industry can be seen, as inflated land and labor prices driven by tourism have constrained production. The average salary per month in the tourism industry in Cancún is more than twice as high for an unskilled worker than in the agricultural sector. (Torres, 2003) Also the local community does not necessarily benefit from the tourism industry due to “all-inclusive” vacation packages. The aim is to make people stay in the hotel area during the whole vacation period. With the creation of “all-inclusive”, there is no need for tourists to leave the hotel and the result is enclave tourism.

Infrastructural development needed for the tourism industry is another factor that can result in high costs for the government and the local tax payers. These expenditures could cause the regime to cut investments in other areas such as the health and educational sector. For Mexico, this applies with the development of the “super-highway” from Acapulco to Mexico City.

Further, as illustrated in Appendix C, global political issues can have negative effects on tourism demand. The terror attacks of 9/11 in the United States had a significant impact on the tourism industry in Mexico, due to the proximity to the US. As shown in the table in 2001 the growth of the tourism sector declined until 2003, and started to recover again in the following year.

Environmental Impacts

Although Cancún has been developed by the governmental agency FONATUR the National Fund of Tourism Development that has planned the growth of the resort and was implemented to ensure that there won’t be an overdevelopment, significant environmental impacts can be noticed.

Tourism industry cannot survive without environmental planning. Polluted water and destroyed beaches do not attract tourists. Cancún, originally designed for 300,000 people has reached the 500,000 mark in 1999. The lack of proper housing and potable water treatment will bring the city up to the breaking point in the next years (Friedland, 1999).

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