#BTEditorial – Does tourism really build wealth?

The impact of tourism on Barbados, and the wider Caribbean region, has been a topic of discussion for many years. There can be no doubt of tourism’s moniker as the engine of our service-based economy, and that it is a valuable source of income for thousands of workers and ancillary businesses.

But there are thinkers, like Caribbean economist Marla Dukharan, who are questioning whether the industry is truly beneficial or is perhaps a decoy for yet another phenomenon of the reverse flow of wealth from the poorer nations of the South to the rich North.

In her latest economic newsletter, Dukharan argues that the tourism industry is a net drain on foreign exchange and may also be a fiscal drain, although there is admittedly a lack of data available to confirm this. In countries like Barbados and the Bahamas, foreign exchange controls incentivize earners of United States dollars to hold onto their revenue overseas, only bringing onshore what is necessary for local bills, she noted. As a result, many countries in the region carry persistent current account deficits, which are typically financed in the capital account via foreign direct investment and government borrowing.

If the overall economy generated enough US dollars to cover its imports, the current account would not be in chronic deficit. As Dukharan points out, governments in the Caribbean routinely borrow to defend the exchange rate, when they should only need to borrow for major infrastructural investments that have a high import component.

While tourism may generate low-wage jobs and economic activity, it may also constitute a net fiscal drain, as governments across the Caribbean tend to give concessions and other incentives to the tourism sector. Again, there is inadequate data to measure the total impact of tourism on the region’s economies, from a jobs, net foreign exchange earnings, and net fiscal revenue perspective.

Dukharan argues that If the tourism industry cannot or will not fund its own statistics, this is a red flag. We agree. Governments need to have accurate and detailed figures to justify continuing to subsidize tourism. If tourism is genuinely a net foreign exchange and/or fiscal drain, then it constitutes a transfer of wealth from Caribbean people to tourists.

Overall, it takes time to re-evaluate the impact of tourism on Barbados and the wider Caribbean region. If done correctly, says Dukharan, tourism could be pro-progress, but in its current configuration, it seems to be pro-poverty. We, too, find this argument not without merit.

Governments must take a closer look at the data and make informed decisions about how best to support their economies in a sustainable way. After a pandemic that nearly ruined the economy, reminiscent of the kind of panic that would occasionally grip an economy once dominated by sugar, we should take a more serious look at establishing a truly diversified economy. Policy armed by better data could inform better decisions on tourism incentives, air and sea transport, food prices, the lot.

In the long run, our leaders, addicted to the votes of low-wage earners, do the electorate and the nation a great disservice for persisting with an industry that, as currently set up, may be no real builder of wealth.