Sign up to access the complete lesson and track your progress!
Unlock This Course
While tourism often brings economic benefits to destinations, it can also create economic challenges. In this session, we'll explore three key economic challenges: leakage, seasonal employment and opportunity costs.
Key Definitions:
Economic leakage happens when tourist money flows out of the local economy rather than benefiting local people and businesses. This is a major challenge for many tourism destinations, especially in developing countries.
Import leakage: When tourism businesses must import products (food, drink, materials) because they aren't available locally.
Export leakage: When foreign companies own tourism businesses and profits are sent back to their home countries.
The UN Environment Programme estimates that for every £100 spent by a tourist:
- Only £5 stays in a developing country's local economy
- Up to £80 may leak from all-inclusive package holidays
- Less than 10% of tourism spending in Africa stays in the local economy
Several factors contribute to economic leakage in tourism destinations:
Large international hotel chains, tour operators and airlines often dominate tourism in developing destinations. Profits are repatriated to their home countries.
Many tourism businesses import food, drinks and other supplies rather than sourcing locally, especially when catering to international visitor expectations.
Higher-paid management positions are sometimes filled by expatriates rather than locals, meaning their salaries leave the local economy.
The Gambia is a popular winter sun destination for European tourists. Studies show that up to 85% of tourism revenue leaks from The Gambia's economy because:
This means that although tourism is The Gambia's largest industry, much of the economic benefit flows back to Europe rather than helping local communities.
Many tourism destinations experience high and low seasons, creating a pattern of seasonal employment that brings significant challenges.
Tourism jobs that only exist during peak visitor periods, such as summer beach holidays or winter skiing seasons. Workers may be unemployed during off-peak times.
For workers: Income insecurity, difficulty planning finances, need to find alternative work in off-season
For businesses: Difficulty retaining skilled staff, training costs each season, maintaining facilities year-round with reduced income
For communities: Fluctuating population, pressure on services during peak times, ghost towns in off-season
Seasonal employment creates several economic and social challenges:
Cornwall is a popular summer holiday destination in southwest England. The tourism industry faces significant seasonality issues:
To address these challenges, Cornwall has been developing year-round attractions like the Eden Project and promoting winter breaks to extend the tourism season.
When a destination develops tourism, it makes choices about how to use its resources. These choices always involve opportunity costs – what is given up by choosing tourism over other options.
Land used for hotels, golf courses, or theme parks could have been used for agriculture, housing, conservation, or other industries.
People working in tourism could have applied their skills and labour to other sectors like manufacturing, education, or healthcare.
Government money spent on tourism infrastructure (airports, roads) could have been invested in schools, hospitals, or other public services.
Opportunity costs aren't always negative – sometimes tourism provides better returns than alternatives. The key is making informed decisions about resource allocation.
Cancún was developed from a small fishing village into a major tourism resort in the 1970s. This development involved significant opportunity costs:
While tourism has created jobs and economic growth, these opportunity costs have changed the region's economy and culture permanently. Some traditional livelihoods and skills have been lost in the process.
Destinations can take steps to address these economic challenges:
While tourism can bring significant economic benefits to destinations, challenges like economic leakage, seasonal employment and opportunity costs can reduce these benefits. Understanding these challenges helps destinations develop more sustainable tourism models that maximise local economic benefits while minimising negative impacts.
By implementing strategies to keep tourism spending in the local economy, address employment seasonality and make informed decisions about resource allocation, destinations can create tourism economies that work better for local communities.