Politics, Business & Culture in the Americas

Tourism: Latin America’s Travel Boom and Challenges



Reading Time: 3 minutes

Latin America’s travel and tourism industry took a hit during the 2008–2009 recession. International arrivals slowed and tourists had less money to spend. But over the longer term, tourism has been a success story—and forecasts suggest continued growth.

That should surprise no one. Latin America’s sheer diversity in scenic beauty, cuisine and cultures has combined with an increasingly sophisticated domestic industry to cater to every kind of traveler.

Since 2006, tourism’s direct contribution to GDP in Latin America has grown by 7 percent in real terms—more than double the world average—to reach an estimated $134 billion in 2011. This figure, which is projected to rise to $224 billion in 2022, includes revenue generated by tourism-oriented services such as hotels and airlines, as well as restaurant and leisure industries that cater to tourists. Forecasts for this year suggest tourism’s direct contributions will grow by 6.5 percent, behind only Northeast and South Asia (6.7 percent).

But individual country performance varies. Economic growth and government prioritization of tourism led to a stunning 50 percent growth in direct GDP contribution in Peru, but a decline of over 40 percent in Suriname since 2006. Brazil, the region’s largest country, is also its tourism power player. Tourism directly contributed an estimated $84.6 billion to national GDP last year, with 5.4 million international visitors.

Travel and tourism’s economic contributions to the region jump significantly—to an estimated $364.3 billion in 2011—when taking into account direct and indirect contributions such as capital investment, supply-chain effects and the leisure and household spending of those employed directly or indirectly in tourism. The regional forecast is for these total contributions to increase by 5.7 percent in 2012 and by an average of 4.7 percent annually through 2022.

Increased tourism spending means more jobs. Across the region, the tourism sector employs 5.6 million people directly and 15.2 million indirectly. That’s roughly 8 percent of all employment. Employment growth—at 3 percent since 2006—has grown three times faster than the world tourism average. Through 2022, tourism is expected to create 4 million new jobs in the region, half of which will be in Brazil due to its population and economic growth and, of course, to the 2014 FIFA World Cup and the 2016 Olympics.

One critical factor in Latin America’s tourism boom is the dramatic rise in domestic and intraregional travel, fueled by state-driven economic development. Domestic travelers’ tourism spending has grown 15 percent since 2006, more than three times the world average, and in 2011 accounted for 85 percent of all regional tourism spending. Intraregional tourism is also significant: roughly 60 percent of all international arrivals in Latin America are visitors within the region. As more Latin American countries see rising incomes and as more of their citizens enter the middle class, tourism within the region is expected to increase. Most people will generally travel to a neighboring country; Brazil, Argentina, Chile, and Peru are likely to see the biggest regional tourism increases.

Still, while international tourism reached a record 26 million arrivals in 2011, barriers remain to reaping long-term, sustainable benefits.

Outdated support structures require revitalization to accommodate this surge. Latin America should initiate human resource development programs that cover qualities from basic education (literacy and mathematics) to specialized skills such as marketing and accounting, including management.

The inadequate investment in infrastructure is another key challenge. The sector’s sustainability is highly dependent on adequate airports and roads to meet growing capacity needs. According to the World Economic Forum’s Travel & Tourism Competitiveness Report 2011 on 139 countries, Chile ranks 26th  in quality of air transportation infrastructure, while Brazil (93rd) and Argentina (115th) are below average. To date, however, governments have shown no urgency to address the bottlenecks created by neglect and underinvestment.

Brazil has undertaken a process of airport privatizations to fast-track investment ahead of its mega sporting events. However, the Brazilian model—which exacted high prices from private companies for airport operating licenses, rather than efficiency improvements that enable traffic growth—is criticized.

The regional average of government expenditure on travel and tourism now hovers at a puny 3 percent of GDP, and state capital investment in the sector—at 5.6 percent of total investments—is barely higher than cash-strapped Europe. That leaves a lot of work to be done. Unless governments make tourism an investment and planning priority, the recent impressive performance will be hard to sustain.



Like what you've read? Subscribe to AQ for more.
Any opinions expressed in this piece do not necessarily reflect those of Americas Quarterly or its publishers.
Sign up for our free newsletter