Tourism for Development Rebuilding Tourism Competitiveness: from Crisis to Sustainability Expecting the Unexpected: Tools and Policy Considerations to Support the Recovery and Resilience of the Tourism Sector June 2022 ©2022 The World Bank Group 1818 H Street NW Washington, DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org All rights reserved. This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expresse in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. The World Bank does not guarantee the accuracy of the data included in this work. The boundaries, colors, denominations, and other information shown on any map in this work do not imply any judgement on the part of The World Bank concerning the legal status of any territory or the endorsement or acceptance of such boundaries. 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Page 2 Page 3 Acknowledgments This report was authored by the World Bank’s Trade, Investment and Competitiveness Global Tourism Team, including Alex Pio, Andrew Beath, Louise Twining-Ward, Shaun Mann, Jessie McComb, Ryan Kuo, Jose Miguel Villascusa, and Alba Suris Coll Vinent; with guidance and contributions from Martine Bakker, Abid Butt, John Perrottet, Christopher Imbsen, Tiffany Misrahi, and Dan Fenton. Rinku Chandra, Seidu Dauda, Hannah Messerli and Ana Soria contributed to the report. The team is grateful to technical reviewers who provided insight at various stages, including Tanja Goodwin, Shamsah Dhala, Leyla Castillo, Vincent Palmade, and Esperanza Lasagabaster. Mona Haddad and Martha Licetti provided overarching guidance and supervision. Page 4 Page 5 Contents Executive Summary 11 Introduction 14 1. Effects of COVID-19 on Tourism 16 1.1 Effects on Demand 17 1.2 Effects on Supply 20 1.3 Effects on Market Structure 25 1.4 Outlook 29 2. Support to the Tourism Sector During COVID-19 30 2.1 Overview of Initiatives to Support Tourism Firms and Workers 31 2.2 Industry Views 37 2.3 Effects of the Pandemic on Tourism Market and Government Failures 40 3. Future Support to the Tourism Sector 42 3.1 General Guiding Principles 43 3.2 Specific Support Options and Considerations for Tourism Sector Recovery 47 3.3 Building Back Better 54 3.4 Operationalizing Sector Interventions Throughout the Tourism Ecosystem 61 3.5 Conclusion 63 Annex 64 Interviewees 65 WBG-WTTC pulse survey respondent regions and subsectors 66 First Pulse Survey (December 2020 – January 2021) 66 Second WBG-WTTC pulse survey (May 2021) 66 References 67 Page 6 Page 7 List of Figures Figure 1: Tourism in comparison to the broader economy 16 Figure 2: Global International Tourist Arrivals, COVID-19 Cases and Travel Restrictions Index (2019-2021) 17 Figure 3: The tourism value chain 18 Figure 4: Considering the current context and your company’s existing situation, when do you think you may be able to restart investment? 23 Figure 5: What types of investments are you planning to make or interested in making in the next 1-3 years? 24 Figure 6: Number of Merger and Acquisition (M&A) deals in the Tourism and Aviation sectors (January 2010 – January 2022) 26 Figure 7: Share of Firms using Digital Transition 28 Figure 8: Hotel and Flight Bookings, Searches and Travel Sentiment 29 Figure 9: Most common financial public sector support initiatives available to the Tourism sector 31 Figure 10: Number of Tourism measures by Income-Level 33 Figure 11: Number of Tourism Measures by Region 33 Figure 12: Number of Tourism Measures by Country 33 Figure 13: Number of Tourism Support Measures by Type (2020, 2021) 34 Figure 14: Types of Tourism Support Measures by Income-Level 35 Figure 15: How important do you think the following fiscal policies or financial support programs have been for businesses? 37 Figure 16: What are your most important financing needs (by sub-sector)? 38 Figure 17: Joint Equity Funds for SMEs 46 Figure 18: Summary of Considerations for Firm and Worker Support Programs 50 Figure 19: Tourism Resilience Building Cycle 57 Figure 20: Tourism Sector Structure and Ecosystem Framework 61 Figure 21: Green, Resilient, Inclusive Development (GRID) Framework for Tourism Interventions 62 Page 8 List of Boxes Box 1: The Tourism sector’s financing and ownership structure 21 Box 2: Detailed Examples of Tourism Sector Support Programs 36 Box 3: Supporting Tourism SMEs in Navigating and Accessing Support Measures 38 Box 4: Common Market Failures in Tourism 40 Box 5: Designing SME-Conscious Interventions 44 Box 6: Programs for Greening Tourism Firms 45 Box 7: Destination-Level Financing Instruments 46 Box 8: Market Research is Key to Adapting Firms and Destinations to Changing Trends 52 Box 9: Improving Air Access and Services in Victoria Falls 52 Box 10: Leveraging Digitalization to support SMEs and Destinations 55 Box 11: Towards a Resilient Tourism Framework 57 Page 9 Acronyms ACI Airport Council International ADR Average Daily Rate ALHA American Lodging & Hotel Association ASTA American Society of Travel Advisors AUV Average Unit Volumes BEST Business Employee Support and Transfer CARES Act Coronavirus Aid, Relief and Economic Security Act CCG Central Guarantee Fund (Caisse Centrale de Garanatie) CGS Credit Guarantee Schemes CLIA Cruise Lines International Association DMO Destination Management Organization EIDL Economic Injury Disaster Loans IATA International Air Transport Association ICAO International Civil Aviation Association IFC International Finance Corporation IPF Investment Project Financing F&B Food and beverage FDI Foreign Direct Investment GDP Gross Domestic Product GRID Green, Resilient and Inclusive Development HNW High Net Worth IATA International Air Transport Association M&A Merger and acquisition MICE Meetings, Incentives, Conferences & Exhibitions MSMEs Micro, Small and Medium Enterprises NPLs Non-performing loans OTA Online Travel Agencies PPP Paycheck Protection Program REITs Real Estate Investment Trusts RRF Restaurant Revitalization Fund TEF Tourism Equity Fund T & T Travel and Tourism SBA Small Business Association SEFA Small Enterprise Finance Agency SMEs Small and Medium Sized Enterprises UFI Global Association of the Exhibition Industry UN United Nations UNWTO United Nations World Tourism Organization VAT Value Added Taxes WBG World Bank Group WTTC World Travel & Tourism Council Page 10 Executive Summary The COVID-19 pandemic and the sudden demand-side contractions in travel and tourism activities during 2020 and 2021 precipitated unprecedented shocks to the entire global tourism economy. Page 11 Tourism has been, and continues to be, one of the most objective is to build resilience and increase inclusion in affected sectors by the pandemic, resulting in negative the sector. socio-economic consequences for host communities All tourism sub-sectors and their suppliers have been in destinations as well as for underlying endowments impacted, including lodging, tourism transport, tour that rely on tourists’ expenditure for maintenance and operators and travel agents, food and beverage, and management. Early in 2020 as governments attempted to protect their populations, lockdowns, quarantines, excursions/guides. The effects on the sub sectors can and restrictions on national and international mobility be connected to different changes in the global tourism were implemented. This, coupled with the decision market. For instance, the nature of demand is changing of consumers to limit international travel resulted in both in short and long-term, including the acceleration of a sharp contraction for the tourism sector with severe digital adoption, surges in domestic demand and nature- economic consequences, particularly in tourism- based, small group and independent travel products, dependent low-resource countries. In 2020 international increased length of stays and remote work. Supply tourist arrivals declined by 74 percent globally and by changes to firms, destinations, workforce composition an average of 85 percent in emerging economies. The and planned investments have been driven by these situation persisted in 2021 marked by volatility due to demand shifts, and have resulted in unsustainable debt emerging variants, with global international arrivals levels, delayed consolidation, increased automation and remaining 61 percent below pre-pandemic (2019) levels. fixed-cost reductions. In 2021, the economic contribution of tourism improved However, distributional impacts and transmission by US$300m over 2020, however this was still US$1.6 channels vary. Changes have not impacted countries, trillion below pre-pandemic values. While travel in 2022 firms, or workers equally nor through the same is increasing, and the prognosis for many hotel and transmission channels. Studies on some emerging tour operators is optimistic for the rest of the year, the economies have indicated a reduction in the quality effects of the prolonged demand contraction on supply- of tourism jobs available, with tourism workers side enterprises and destinations has been devastating. moving to lower paying, informal sector jobs, while in Analysts continue to expect the sector’s full recovery more developed countries, skilled tourism labor was to take a number of years, an outlook that has been reallocated to higher paying sectors, aided by workforce recently dampened by inflation, the Ukraine war and support and retraining programs, and amidst historic related geopolitical and macroeconomic instability. labor shortages. Particularly in countries where tourism The aim of this report is to provide insights regarding is a significant economic sector, governments are facing the types of interventions governments have already difficult policy decisions with respect to their role in implemented and policy considerations for supporting mitigating the socio-economic impacts of the pandemic the recovery and resilience of the tourism sector going on local livelihoods. Emerging economies were much less forward, particularly in light of structural demand and likely to implement tourism sector support programs, supply-side transformations precipitated or accelerated and more likely to deploy tax-related measures and less by COVID-19. The report studies the challenges for likely to deploy debt finance measures than advanced recovery faced by governments and the sector from the economies. Evaluating previous crises and their context of preexisting market and government failures government interventions has shown that there is no that have been exacerbated by the crisis, as well as those one-size-fits-all approach for the recovery and resilience emerging from the pandemic. The report includes several of the Tourism sector, and that public and private key findings and recommendations. sector stakeholders of each destination need to design context-specific and fit-for-purpose approaches based First, the pandemic confirmed the complexities of on their tourism development stage, size of the sector, tourism for development outcomes. In particular, the sector structure, fiscal space, scope and scale of impact crisis demonstrated i) the inter-linked nature of tourism of the crisis, and policy priorities. These approaches also with macroeconomic stability -specifically, its important depend on the different types of market demand and role in foreign exchange generation- as well as its deep strategic segments that each destination attracts (or can and cross-cutting value chains, ii) the lack of resilience attract in the longer term). of the sector in certain contexts, especially in situations of low market and product diversification, iii) inequities Second, public sector tourism interventions that respond within the sector with respect to value capture, and iv) to specific pandemic-market failures and are careful of the precariousness of small and medium enterprises as any unintentional effects that they may generate are more well as informal tourism businesses and workers. Some likely to be effective. Sectoral policies and interventions of these can be characterized as long-standing and should not be considered in isolation from the rest of systemic challenges that have been exacerbated and the economy and should focus on addressing prevailing accelerated by the pandemic while others are newly market failures while not generating additional emerging. For countries heavily dependent on tourism, government failures. In response to a potential for mass these challenges need to be addressed early on as part bankruptcies and unemployment in the tourism sector, of a forward-looking reform agenda, particularly if the many governments extended various forms of support to Page 12 tourism firms and workers. Economic rescue programs source markets, adapting products and re-establishing provided relief by: (i) directly subsidizing or deferring connectivity. fixed costs (including tax and licensing fee deferrals); (ii) Finally, the pandemic has created opportunities through workforce retention & support programs; (iii) for increased sector innovation, productivity and via indirect support to de-risk financing and investment; and (iv) by supporting alternative demand generation. development impact. The sector is expected to emerge Decisions to continue, modify or end such support should stronger and more profitable than pre-COVID, but be informed by how such interventions contribute to unless it is properly structured and managed, it may market and government failures, in addition to context- result in a more unequal landscape with a narrower set of specific considerations. beneficiaries. Specific policies, instruments and initiatives should be put in place to seize this moment to rebuild When evaluating further firm-level specific support, towards a more competitive, resilient, green and inclusive governments may want to follow market-principles. sectors, incentivizing tourism types that generate positive In extending further assistance to the Tourism sector, externalities while discouraging negative ones. This governments should prioritize market facilitation includes improving access to finance through innovative wherever possible and ensure that, where decisions are instruments such as FinTech lending platforms and value made to continue firm-level support, that such support chain financing; leveraging digitalization to support does not crowd out more efficient or equitable forms of firm-level and destination-level adoption of technologies, public spending and/or inhibit the reallocation of land, facilitating liquidation and restructuring processes, labor and resources. As guiding principles, governments and development partners should seek to: (i) prioritize stimulating entrepreneurship and improving the tourism market facilitation; (ii) target pandemic-specific market regulatory environment. Programs and financing should failures; (iii) address general market failures; (iv) develop be developed to build resilience to future crises, climate public-private financing mechanisms; and (v) address change should be integrated into tourism planning and existing government failures, while not creating new development, sustainability measures should be scaled- ones. In addition to considerations regarding support to up and diversification of source markets and products sector stakeholders, key reopening and response actions needs to be accelerated. Local supply chains should can include reopening safely by standardizing protocols, be strengthened, with programs developed to reduce ensuring effective communication and coordination, barriers for women as well as micro and small enterprises and taking data-driven decisions; as well as stimulating in entering and moving up the tourism value chain in demand through the targeting of domestic and regional order to increase the inclusiveness of the sector. Short-Term Medium & Long-Term Supporting Reopening Stimulating Building Back Stakeholders Safely Demand Better Facilitate firm liquidity, Target Domestic and Build Competitive cost reductions and Standardize Protocols Regional Source Markets Tourism Markets access to credit Support, Retain & Communicate and Promote Green & Adapt Products Retrain workers Coordinate Resilient Tourism Finance Destinations & Create Inclusive Data-Driven Decisions Re-establish Connectivity Natural/Cultural Assets Value Chains CROSS CUTTING Tourism governance, infrastructure, digital innovation and skills Page 13 1. Introduction This report is part of a World Bank Group Global Engagement project that seeks to understand and respond to the impacts of COVID-19 on the global Tourism sector, and to support its recovery. Page 14 In the face of a crisis in demand precipitated by the companies, financial providers, insurance companies, pandemic and subsequent government restrictions, industry associations, Destination Management tourism firms, workers, attractions, and destinations Organizations (DMOs) and tourism advisory firms. around the world are at risk. At this stage, it is not clear Twenty-three interviewees’ operations have global which trends are here to stay and which mismatches are coverage, with the remainder being country or region- temporal, nor which ones are desirable from a public specific operators in Morocco, Tanzania, Portugal, policy view. Nevertheless, the aim of this initiative is Turkey, South Africa, Mauritius, Canada, Africa, and to examine impacts of COVID-19 on the sector, review Asia (See detailed list in Annex). In-depth interviews support measures that have been applied to date, and provided a deep dive into the views of key industry to present options and key considerations for sector informants about structural changes, investment recovery and resilience going forward, taking into perspectives and the use and effectiveness of the available account the evolving nature of the pandemic and the financial and policy instruments. Interview findings sector’s reopening. were supplemented by a series of joint WBG-WTTC pulse surveys to WTTC members. The first survey was This study is informed by the results of industry carried out between December 2020 and January 2021 surveys and stakeholder interviews carried out by the and aimed to understand the evolving recovery trends World Bank, in collaboration with the World Travel in the Tourism sector. This survey received responses and Tourism Council (WTTC). A total of 28 in-depth from 65 stakeholders (33 percent of WTTC members), interviews with industry leaders from across the world who represent a broad variety of geographic areas and were conducted in May and June of 2021, including industries (see annex). The second pulse survey was C-Suite executives of large corporations as well as carried out in May 2021 and included analysis of 24 representatives of destinations and SMEs across global respondents (14 percent of WTTC members). regions. The interviewees represented accommodation providers, tour operators, cruise lines, travel technology Page 15 Globally, the tourism sector has been more heavily 1. Effects of COVID-19 on Tourism impacted and has been slower to recover than the Tourism has been heavily impacted by the COVID-19 broader economy or international trade (see Figure 1). crisis, with unprecedented effects on jobs, businesses, While international arrivals collapsed by one hundred and cultural and natural assets. The tourism sector is percent in April 2020 global trade just dipped by ten affected by two concurrent forces on supply and demand: percent. For the whole of 2020, international visitor a shock followed by a gradual and uneven recovery, and spending decreased by 69 percent, while domestic visitor an accelerated structural transformation. In 2019, global spending fell by 45 percent (WTTC, 2021). This caused tourism was experiencing its best recorded year as one of the economic contribution of tourism to fall from US$ the world’s largest sectors, accounting for 10.4 percent 3.5 trillion in 2019 to US$ 1.6 trillion in 2020. Given of global Gross Domestic Product (US$ 9.2 trillion), 10.6 health risks, travel restrictions and related uncertainty, percent of all jobs (334 million), and was responsible for many consumers shifted their disposable income creating 1 in 4 of all new jobs globally (WTTC, 2021). spending from international travel towards goods and As a result of COVID-19, in 2020, the Tourism sector domestic travel during the first year of the pandemic. suffered losses of almost US$ 4.5 trillion. The sector’s In 2021, tourism revenues improved to $ 1.9 trillion, contribution to global Gross Domestic Product (GDP) however this is still US$ 1.6 trillion below pre-pandemic declined by 49 percent in 2020 compared to 2019, equal value. Globally, export revenues from international to a 4 percent decline in the global economy (WTTC, tourism remain less than half of 2019 numbers, at US$ 2021). 700 billion in 2021 (UNWTO, 2022). Figure 1: Tourism in comparison to the broader economy 120 15 PMI: Deviation from 50 10 100 Index (2019=100) 5 80 0 -5 60 -10 40 -15 -20 20 -25 0 -30 Jan 20 Mar 20 May 20 Jul 20 Sep 20 Nov 20 Jan 21 Mar 21 Jul 21 Sep 21 Nov 21 Jan 22 Mar 22 International tourist arrivals Global manufacturing PMI: New orders (right axis) Global merchandise trade Global services PMI: New business (right axis) Source: World Bank staff analysis based on data from UNWTO, IMF, IHS Markit, JPMorgan. The pandemic and its effects combined with shortfall compared to pre-COVID projections of around macroeconomic and geopolitical headwinds are shifting 11 percent among the 40 countries with the greatest the situation from a health and tourism demand shock share of tourism in GDP, compared to 6 percent for to a broader financial and economic crisis. Countries less dependent countries (The Brookings Institution, are facing inflationary and balance of payments crises, 2021). Many of these economies saw their current in part due to the gap in foreign exchange earnings left account deficit widen (or their surplus shrink), resulting by the tourism sector. In a study on tourism-dependent in increased international borrowing, a reduction in economies, Brookings found a median GDP growth imports and lower payments to foreign creditors. Page 16 1.1 Effect on Demand Despite these signs of recovery, this is still 72 percent below pre-pandemic volumes (UNWTO, 2022). The The pandemic precipitated a crisis of demand, with effect on traveller confidence has been protracted due to infections, public health precautions, government health concerns from the pandemic itself, government restrictions, uncertainty, and diminished traveller restrictions and high uncertainty. The Asia-Pacific region confidence resulting in an unprecedented drop in has been hardest hit, with a 94 percent reduction in tourism. International tourist arrivals fell by 73 percent arrivals in 2021 compared to 2019. The Caribbean, on between 2019 and 2020 to 400 million visitors. Data the other hand, has experienced the strongest recovery, for 2021 shows a 4 percent increase in arrivals from with international tourist reaching nearly two-thirds of 2020 to 415 million international tourist arrivals. 2019 levels by end 2021 (UNWTO, 2022). Figure 2: Global International Tourist Arrivals, COVID-19 Fatalities and Travel Restrictions Index (2019-2022) Confirmed Covid-19 fatalities 120 450 400 100 350 (Thousands) 80 300 Index 250 60 200 40 150 100 20 50 0 0 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Jan 22 Feb 22 Mar 22 International Tourist Arrivals Index (100=2019) International Aviation Seat Capacity Index (100=2019) Travel Restrictions Index (100=most restrictive) Confirmed Covid-19 Fatalities (right axis) Note: For individual countries, the Travel Restrictions Index takes the following values: 100 = complete border closure, 75 = ban on arrivals from some regions, 50 = quarantine arrivals from some or all regions, 25 = screening of arrivals, 0 = no restrictions. The global index is a simple average across countries with available data. Source: UNWTO (tourist arrivals), Our World in Data (infections), Oxford CGRT (travel restrictions index). 1.1.1 Impact on Tourism Sub-Sectors As a cross-cutting sector, the tourism value chain touches almost all aspects of a destination’s economy,1 with All core Tourism subsectors have been impacted by the related revenue losses in the retail, construction, and steep drop in demand and concomitant restrictions, transport sectors, among others (WTTC, 2021). including lodging, tourism transport, tour operators and travel agents, food & beverage, and excursions/guides. 1 For every US$ 1 generated in direct Tourism GDP globally, more than US$ 2 is generated on an indirect and/or induced basis (WTTC). Page 17 Figure 3: The Tourism Value Chain Tourist Organization Food & Transport Accommodation Excursions Shopping of travel Beverage Excursions and Commercial Travel Agent Airlines Hotels Restaurants Event Operations Retail Local Tour Operator Cruise Lines Lodges Local Guides Bars Bazaars Individual Car Rental Experiences Artisanal Camping Place Cafes (Online Booking) Services Offered through Centres Digital Platforms Other Transport Peer-to-Peer Catering Services Accommodation Natural assets in tourist destinations Flora, fauna, environment, historical sites, identity groups Source: Tourism for Development: Tourism Diagnostic Toolkit (World Bank, 2019) Tour operators, Travel Agencies and Online 2021). Booking Holdings Inc. (an OTA) reported Travel Agents 2021 Q3 gross travel bookings at US$ 23.7 billion, a 77 percent increase from the prior year quarter • 2020: Operators experienced a steep decline that (Bookings Holdings Inc., 2021). persisted throughout the year, with an increase in demand for personalized services as travel resumed. Air Passenger Transport Services According to American Society of Travel Advisors • 2020: Aviation was one of the most severely and (ASTA) member survey, average travel agency immediately affected tourism sub-sectors. IATA business income was down 82 percent in 2020 reported that in 2020, International passenger compared to 2019 (ASTA, 2021). demand was 75.6 percent below 2019 levels • 2021: A substantial recovery for this sub-sector, and domestic demand was 48.8 percent below while still operating considerably below pre- 2019 (IATA, 2021). International Civil Aviation pandemic demand levels. TUI Group reported that Association (ICAO) reported that in 2020 just 1.8 bookings in the fourth quarter of 2021 were around billion passengers took a flight in 2020 compared 50 percent of a normal booking year (TUI Group, with around 4.5 billion in 2019. This has resulted Page 18 in a loss to the airlines of around US$ 370 billion, 42.9 percent and the third quarter’s 36.4 percent with airports and air navigation services providers (Johnston, 2022). Carnival Cruises experienced losing a further US$ 115 billion and US$ 13 billion, a 45 percent increase in bookings from March to respectively (ICAO, 2022). May of 2021, and Royal Caribbean reported having all ships fully booked for July-August 2021. Cruise • 2021: Airlines have been steadily adding more Industry News estimated 239 cruise ships would capacity and routes as the recovery continues. These be operating commercially by December 2021, a additions are closely linked to the easing of travel fifteen-fold increase from December 2020 (Cruise restrictions. International aviation travel demand Industry News, 2021). By the end of 2021, Royal in 2021 remained 75.5 percent below 2019 levels Caribbean had returned 50 out of 61 ships to and domestic demand in 2021 improved markedly operations across its five brands, representing over from the previous year, down only 28.2 percent 85 percent of its worldwide capacity. compared to 2019 (IATA, 2022). Uncertainty on recovery timelines, and volatility in bookings and Lodging cancelations due to new virus variants are leading to difficulties in fleet management, staffing and • 2020: A steep and immediate reduction in demand planning. for lodging was followed by a marked recovery by year’s end. In April 2020, STR reported a global Car Rentals occupancy rate of 47 percent below that of 2019. By December 31, 2020, the change in occupancy rate • 2020: Global car rental revenue dropped from US$ compared to 2019 was 25 percent. Private rentals 91.1 billion in 2019 to US$ 40.6 billion in 2020, a were also reduced, but to a lesser extent than hotels 124 percent drop (Cotton, 2021). The uncertainty given their more isolated nature. In April 2020, around border closures, travel regulations and AirDNA reported a 29 percent decline in short- testing requirements has caused a shift from flying term rentals. By December 31, 2020, this drop had to car travel, which has been reflected by rental car decreased to only 8 percent as more people shifted shortages in some areas given both this increased to private rentals over traditional lodging options. demand and decreased inventory stemming from • 2021: Global hotel occupancies almost recovered the shedding of assets by car rental companies to pre-pandemic figures, although with high early in the pandemic (along with unrelated global variability between countries. STR reported that semiconductor shortages) (The Economist, 2021). hotel occupancies globally have recovered to 10 This has led to increased rental rates, with revenue percent below 2019 figures in 2021. The recovery per day and rental days increasing even compared has been uneven, with hotels in urban markets to pre-pandemic. continuing to be particularly affected due to the • 2021: While still facing vehicle shortages, the global drop in business and group travel as well as reduced car rental market size has grown from US$ 96 demand for city trips (Hospitality Net, 2021). For billion in 2020 to an estimated US$ 102 billion in example, Marriott’s third quarter occupancy rates for 2021 topped 58 percent, driven largely by 2021, an improvement over even 2019 (Precedence continued strength in leisure demand. Average daily Research). Avis, for example, has seen a 9 percent rate, which was only 4 percent below 2019 levels increase in revenues in Q3 of 2021 compared to the for the quarter, has been recovering much more same quarter in 2019. quickly than in the past two downturns (Marriott International, 2021). Cruise Lines • 2020: Early cruising bans halted the cruise industry Food & Beverage in the first months of the pandemic. Cruise Lines • 2020: The food & beverage sub-sector was among International Association (CLIA) announced that in the most impacted, with a highly protracted recovery. 2020, the industry carried 80 percent less passengers Global research found a sit-in decline of 90 percent than in 2019. The 3 largest cruise companies – worldwide in the early months of the pandemic, Carnival, Royal Caribbean and Norwegian Cruise caused by forced closures and other lockdown Line lost a combined US$ 900m each month during regulations combined with decline in tourism. 2020 (CLIA, n.d.). Globally, restaurants had laid off or furloughing • 2021: Operations have gradually resumed over 80 percent of staff in 2020 (Dube, Nhamo, & throughout 2021. Royal Caribbean’s occupancy rate, Chikozi, 2020). In the US, 17 percent of restaurants closed long-term in 2020 (Tillman, 2020). at 59.3 percent for the fourth quarter of 2021 is a significant improvement from the year-ago quarter’s • 2021: Demand recovery has been highly context- Page 19 specific and volatile, being affected by both new most countries have also implemented at least some variants and changing restrictions. In the US, controls (i.e., restrictions on what tourists and citizens JPMorgan estimates that 15 percent of independent can do within a country). As with international travel US restaurants will close permanently (Garcia, restrictions, countries in East Asia and the Pacific have 2020). Emerging economies that have a high on average the strictest restrictions, while countries percentage of independent F&B establishments in Sub-Saharan Africa have lighter restrictions on and those located in destinations that are highly average. Unlike with travel restrictions, which have reliant on international travellers are expected to been re-imposed with the outbreak of new variants, experience the slowest recoveries. in-destination restrictions are trending towards being relaxed over time. In the initial stage of the Pandemic, when tourism firm Demand has not only reduced but is also changing, in revenue streams were halted, the immediate priority both short and long-term ways that are likely to impact for businesses was cash flow management. Businesses firms and the sector’s structure as a whole. Digital sought to scale back or eliminate variable costs (staffing, adoption has grown considerably among travellers, with marketing, utilities), while deferring fixed costs (rent, an increased interest for direct business engagement, mortgage, maintenance, and upgrades). Various opted to booking flexibility, and strong digital branding. In close temporarily or were forced to, due to government- many countries, an increase in domestic demand, which imposed restrictions, while others operated at reduced benefitted in some places from domestic travel incentives, capacity or adapted their products and offerings to has spurred some of the busiest years in memory for pivot towards other markets such as domestic visitors, specific types of lodging, such as caravan parks and workspaces for residents, serving as quarantine hotels private home rentals. Some segments, such as nature- or housing/feeding medical staff and patients. Firms based tourism and luxury markets are recovering faster with existing lines of credit relied on them for immediate than others, particularly those catering to domestic and liquidity, and while this was effective in the short-term, non-flight-based travel (O’Neill, 2021). Length of stays credit lines quickly reached their limits with severely have increased significantly, and ‘workations’ – working reduced or absent revenue streams. remotely away from home – have created new market Compared to medium and larger firms, micro and small segments during the pandemic. These trends have firms have been more vulnerable to the COVID-19 crisis resulted in both short-term and structural changes to the and its financial shocks because they have limited access sector and the supply of tourism services. to financing and lower digital and management capability to mitigate the impact and plan for recovery (WBG, 1.2 Effects on Supply 2020). This is important given that SMEs make up In many countries, closures, reduced operating around 80 percent of the tourism sector (OECD, 2020). capacities, travel bans, and lockdowns were mandated by Industry interviews indicated that larger establishments governments, resulting in businesses across the tourism with close relationships to financiers were generally able value chain severely reducing their activity, often with to raise funds through bond issuance, while smaller little notice. Entry restrictions have been and continue to establishments had fewer tools and were forced to rely be most pronounced in Asia and the Pacific, followed by more on cost containment. Two years into the crisis, the Middle East, with the Americas and Africa applying cash flow remains a central concern for tourism firms, the least amount of air travel restrictions (University of along with high levels of debt many operators have Oxford, 2022). Beyond restricting international travel, accumulated in order to remain solvent. Page 20 Box 1: The Tourism sector’s financing and ownership structure Tourism firm ownership and financing structures are complex, fragmented, and vary greatly between high- and low- income economies and subsectors. Tourism firms tend to i) comprise an elevated amount of self-employed/owner- operators with less formalized financing, accounting and management systems, ii) include a disproportionate number of ‘lifestyle’ investors with motives other than purely profit, iii) be highly fragmented in their ownership, operation and financing arrangements, iv) have limited collateral and immovable assets (against which to raise financing), and v) be highly dependent on an ecosystem of stakeholders that together deliver a competitive tourism value proposition (WTO-ILO, 2014; Getz & Carlsen, 2000; Ngoasong & Kimbu, 2019). In general, tourism micro-enterprises face the greatest challenge in accessing finance, while small and medium firms find the cost of finance most problematic (The World Bank, 2020). Globally, the United Nations World Tourism Organization (UNWTO) found that between 2014 and 2019, an estimated 70 percent of hotel investments were undertaken by investors with diverse portfolios incorporating multiple sectors (UNWTO, 2021). However, in emerging markets, which often lack sophisticated financial sectors, hotel owners often rely on self-funding, friends and relatives, High Net Worth (HNW) individuals and local institutional investors for the bulk of expansion and M&A financing. Tourism firm ownership in emerging economies tends to be largely independent and domestic, although trending towards consolidation. Large multinational chains are not common and smaller and informal (unlicensed) lodging often make up a large percentage of not only rooms, but businesses across the value chain. The illustration below from Sri Lanka is a typical structure for accommodation supply in an emerging economy. Sri Lanka’s Lodging Ownership Structure 64 Hotels, generally 4-star, 7,000 Rooms, typical ADR $100. Owned/Managed by four large local conglomorates: Altken Spence, Hayleys, Jetwings 25 ,0 and John Keels. Other than Jetwings, diversified A Big Four TD 00 across sectors and long-established SL Ro ith o ER m w A dozen foreign branded, generally sR TI ed locally-owned hotels with 3,000 eg ON Foreign er ist ist rooms FR Branded Hotels er eg ed sR ON Very diverse, from very high w m ith TI o quality chains with ADRs Ro VA SL of $1,000 to $9,000 0 TD NO ,40 ‘unclassified’ rooms Small Hotel Chains A IN 40 and Single Hotels Guesthouses with average of 7 rooms in each of the 2,145 15,000 Rooms in Supplementary Establishments registered properties > 20,000 Unregistered Rooms Source: The World Bank. Sri Lanka Tourism Strategic Plan. 2022. Page 21 1.2.1 Destinations job losses are temporary or permanent remains unclear. Initial indications point towards a shift of employment The interconnected ecosystems of natural, cultural, to more productive sectors in advanced economies, and and built attractions and tourism service providers that towards less productive jobs in developing countries. make up a destination have been seriously affected by the pandemic. Transport and lodging restrictions are In emerging economies workers have moved into the bottlenecks to destination viability, given the anchoring informal sector and were shifted to lower paid tourism properties of these sub-segments. Reduced capacities in sub-sectors, decreasing the quality of jobs available. these areas have reverberated throughout destination In Viet Nam, for example, paid informal tourism jobs value chains, impacting SMEs that rely on anchor firms increased by 3 percent as employment shifted away for distribution and market access. Destination-specific from paid formal tourism jobs during the pandemic, financing instruments such as tourism tax-supported which experienced an 11 percent decrease. Similarly, the bonds are often issued by municipalities and qualified only reported tourism job growth between 2020 and authorities to finance capital projects. These instruments 2021 was for women in F&B, the lowest-paid tourism have suffered during the pandemic due to the short-term sub-sector (ILO, 2021). In more developed countries increased risk of non-repayment and have been placed however, tourism jobs were buoyed by workforce by rating agencies on Rating Watch Negative, limiting support programs (see Section 2) and where labour their ability to support recovery efforts (Fitch Ratings, reallocation occurred, it was prevalently workers with 2020). In the medium-term, highly tourism-dependent transferable skills moving to higher paid jobs in other destinations, such as Fiji and the Yukon in Canada, sectors (Noack, 2021). This led to a shortage of skilled are concerned that the closure and consolidation of workers in the Tourism sector, leaving businesses to firms will result in a loss of diversity in tourism SMEs, operate at reduced capacity due to the inability to hire, which could reduce destination attractiveness and resulting in rising sector wages in advanced economies.3 competitiveness (IFC, 2020; WBG-WTTC, 2021). Accelerated automation and digitization leading to Unique and independent establishments can particularly increased productivity may decrease the long-term enhance a destination’s vibrancy and appeal, leading to demand for low earning and manual labour such as increased visitor satisfaction (Liang & Andris, 2021). housekeepers, particularly in more advanced economies. This is an important trend as the employment of such 1.2.2 Workforce entry-level positions is one of the tourism sector’s key Job losses are one of the most serious impacts on the sector, pro-poor transmission channels (León, 2021). In the with an estimated 62 million tourism jobs lost globally US, as of July 2021, more than half of the tourism in 2020. This 18.5 percent reduction in jobs compared jobs lost during the pandemic were yet to recover (U.S. to 2019 was felt across the entire tourism ecosystem Bureau of Labor Statistics, 2018), and Unite Here, a (WTTC, 2021), but at different levels regionally. Africa union for hotel workers estimated that eliminating daily was the region with the greatest percentage decrease housekeeping - which many hotels have instituted and in employment, at -29.3 percent, followed by North may make permanent- would remove 180,000 jobs in America (-27.9 percent), then the Caribbean (-24.7 the US, resulting in US$ 4.8bn in lost wages, mostly for percent). The Asia-Pacific region was most impacted in women of colour (León, 2021). If managed properly and terms of absolute job losses, comprising more than half paired with retraining initiatives, however, this transition of lost tourism jobs globally at 34.1 million (WTTC, has the potential to lead to increased productivity at 2021). An International Labour Organization study of firm level and the potential to shift workers into higher five Asian countries2 found that job losses in tourism skilled and more valuable jobs. were four times greater than in non-tourism sectors, and average working hours for tourism staff were reduced by 1.2.3 Planned and Future Investments between two and seven times compared to non-tourism The pandemic has delayed tourism investment pipelines workers. Women have been particularly impacted as they by an estimated one to two years, with investments in are more likely to be employed in entry-level positions. the insurance, travel tech4 and digital intermediary In Turkey for example, female workers were three times subsectors anticipated to recover more quickly. In more likely to become unemployed than male ones (Baez 2020, JLL Hotels & Hospitality estimated a 60 percent & Demirgüç-Kunt, 2021). The extent to which these 2 Brunei Darussalam, Mongolia, the Philippines, Thailand and Viet Nam. 3 In France, an estimated 150,000 workers have permanently left the sector; and Germany’s unions estimate that one out of six tourism workers (around 300,000 people) left the industry in 2020. 4 This includes Global Distribution Systems, Online Travel Agencies, short-term rental platforms, metasearch platforms and online travel management companies. Page 22 drop in capital raised in closed-end funds for global cancelled due to the crisis. However, travel tech and hotel assets compared to 2019, when hotel valuations travel insurance companies were already experiencing a were at their all-time historical highs (WTTC Member rebound in early 2021, with 50 percent of them reporting Interviews, 2021). Foreign direct investment (FDI) that their delayed investments had restarted (see Figure in tourism dropped by 73.2 percent in the first half of 4). Overall, investors remained bullish on the sector’s 2020 compared with the same period of 2019 (UNWTO, prospects but acknowledged that it was still too soon 2021). This is corroborated by the findings of the WBG- to expect largescale Mergers and Acquisitions (M&A) WTTC pulse survey of WTTC members (conducted to ramp up while sector operators continue to focus on in January 2021), where respondents indicated that managing the crisis (WTTC Member Interviews, 2021). an estimated US$ 1bn in investments were delayed or Figure 4: Considering the current context and your company’s existing situation, when do you think you may be able to restart investment? 100% 9% 9% 10% 90% 19% 18% 33% 80% 13% 30% 36% 70% 18% 60% 10% 50% 38% 18% 40% 27% 50% 30% 30% 18% 13% 20% 9% 10% 13% 18% 18% 17% 20% 0% 6% Accommodation DMO/Consulting/ Tour Operators TravelTech and Other Marketing (Multi-Service, ITO, OTO, TA) Insurance Don’t have delayed investments Investments already restarted Within 3 Months Within 6 Months Within 1 Year Within 2 Years Within 3 Years Source: World Bank Group and WTTC Member Survey - Pulse 1, January 2021 The WBG-WTTC pulse survey results illustrate a focus respondents also planned to invest in diversifying or on technology and digitalisation investments across most pivoting their business. Restaurant chains planned faster subsectors as well as expansions in existing and new expansions than expected in smaller markets due to a destinations by end of 2020 (see Figure 5). The latter reduction in competition from the closure of many F&B demonstrates a level of optimism for tourism recovery in establishments, as well as increasingly affordable and the coming years. Notably, 55 percent of accommodation vacant prime real estate (Garcia, 2020). Page 23 Figure 5: What types of investments are you planning to make or interested in making in the next 1-3 years? 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Greening Expanding Expanding Acquiring Diversifying Gaining Physical Technology / Business / in Existing in New Other Business / Access to Assets Digitization Resource Destinations Destinations Businesses Pivoting New Markets Efficiency Accommodation DMO / Consulting / Marketing Other Tour Operators (Multi-Service, ITO, OTO, TA) TravelTech and Insurance Source: World Bank Group and WTTC Member Survey - Pulse 1, January 2021 The crisis is beginning to result in an increase of new In the medium-term, financing is expected to become business formation across sectors and particularly in available for planned and future investments in similar tourism and its related value chains, as entrepreneurs capacities to pre-COVID, however initially steeper rates take advantage of new trends and more affordable leases with stricter due diligence are expected. This focus will to launch new endeavours. This rise in entrepreneurship likely be on a narrow segment of the tourism sector: is expected to continue into the medium-term as the already well-capitalized and high-performing attrition paves the way for innovation (Kunthara, 2021). medium and large companies that present lower risks to Botswana for example, saw a 31 percent increase in its creditors. Private equity and hedge funds have capital licensed tourism firms between April of 2019 and May available both for debt and equity deals but will expect 2021, punctuated by a 48 percent increase in licensed high returns or increased guarantees to offset the mobile safari operators and a 39 percent rise in Bed & perceived increase in sectoral risk. Many investors are Breakfasts as operators responded to new and different waiting to better understand the recovery and are split forms of demand (Botswana Ministry of Environment, between expecting a bottoming out for insolvencies to Natural Resources Conservation and Tourism, 2021). occur once government support programs are phased In the F&B subsector, as demand returns in the most out (particularly debt moratoria) and predicting a affected areas (such as city centres) a modest surge in strong recovery to stave off defaults (WTTC Member entrepreneurs opening F&B establishments is expected Interviews, 2021). In emerging markets, high net worth with a six-month lag time, as operators take advantage individuals and portfolio companies are likely to lead of technology and more affordable leases to introduce post-pandemic M&A, as institutional investors are less new products (Bliss, 2021). In addition to new market present due to low levels of capital market sophistication opportunities, various micro-entrepreneurs have been and increased macro risks. driven by furloughs or layoffs to set up businesses. Page 24 1.3 Effects on Market Structure credit guarantee programs faced bottlenecks in 2021 due to high utilisation rates and finite budgets, coupled In addition to COVID’s immediate health and economic with operational capacity limits of financial institutions impacts on the sector, the pandemic has resulted in administering these programs. structural changes by exposing and exacerbating sectoral weaknesses and accelerating innovation and digital Unsustainable debt levels are a growing concern at the adoption. Outcomes of these structural shifts will likely firm level, across financial institutions and tourism- result in augmented efficiency resulting from cost cutting dependent economies. Credit has been heavily utilized and increasing productivity, efforts to improve traveller to stabilize tourism sector firms, particularly in the confidence, and a new importance placed on diversifying early stages of the pandemic. Strategic sectors, such as demand bases. This section of the report will discuss aviation, and large ‘anchor’ firms have been able to secure pandemic-related impacts on debt, consolidation, loans and access lines of credit to make up for revenue digitalisation and automation, and fixed-cost reductions. shortfalls. Conversely, lending to tourism SMEs has been The pandemic has also highlighted i) the inter-linked perceived as high risk given the volatility of short-term nature of tourism to macroeconomic stability as well income. Banks are seeking to avoid additional exposure and are increasingly reluctant to extend capital unless as its deep value chains, ii) the lack of resiliency of the there is a clear line-of-sight to revenue streams. Many sector in certain contexts, particularly in situations of banks and more risk-averse investment funds are likely low market and product diversification, iii) inequities to prioritize other sectors and lower-risk investments in within the sector with respect to value capture, and iv) the coming years, while alternative lenders are extending the precariousness of informal tourism businesses and loans at a substantially high cost of capital making it workers. prohibitive for SMEs. Together, the significant levels of debt incurred by the financial sector and frequently 1.3.1 Debt backed by the public sector can threaten the health of Credit support measures initiated by governments have these markets as the risk of defaults is increasing. been highly utilized, including loan guarantee schemes and concessional finance mobilized through public 1.3.2 Consolidation banks.5 Many guarantee agencies processed up to The consolidation of the sector, from i) individual twenty times the transactions of previous years (ECB ownership to portfolios of businesses and ii) independent Economic Bulletin, 2020). During the Pandemic, many to branded properties, has been a long-term trend. This advanced and emerging economies launched largescale trend was expected to accelerate due to the pandemic. loan guarantee programs through domestic public banks Early movers with access to finance began to expand to support businesses, for example France and Peru into new destinations through M&A as well as pursuing launched programs worth 12 percent and 8 percent of vertical integration. For example, in Sub-Saharan Africa, their respective GDPs. In Morocco, guaranteed loans, the Kasada Hospitality Fund made several large capital particularly to tourism firms, have been channelled investments since the start of the COVID-19 pandemic. through the public institution Central Guarantee Fund In January 2021 it acquired eight hotels across three (CCG). Between March 2020 and June 2020, they countries (Ivory Coast, Senegal, and Cameroon) offered special loans that guaranteed 80 to 95 percent of comprising a total 1,602 hotel rooms and in May 2021 working capital loans for urgent expenses such as wages the fund announced the acquisition of the 414-key Safari and utilities. Of the guaranteed loans, 95 percent of the Hotels and Conference Centre in Windhoek, Namibia funding went to SMEs. During the period from April to with a total equity commitment of US$ 500 million. July 2020, gross flows of guaranteed loans were higher In North America, exclusive cruise provider Lindblad than overall net lending flows in all large countries that Expeditions is vertically integrating by acquiring smaller use the Euro as currency, implying a shift from non- competitors such as the DuVine Cycling + Adventure guaranteed loans into guaranteed loans (ECB Economic Co. and U.S. National Park specialty tour operator Off Bulletin, 2020). Despite record mobilization, many the Beaten Path. 5 A credit guarantee scheme (CGS) provides third-party credit risk mitigation to lenders through the absorption of a portion of the lender’s losses on the loans made to SMEs in case of default. The reduction in losses on loans made to businesses incentivizes lenders to provide financing to firms. Page 25 Number of M&A Deals Number of M&A Deals 0 5 10 15 20 0 20 40 60 80 Jan 2010 Jan 2010 May 2010 May 2010 Aug 2010 Aug 2010 Dec 2010 Dec 2010 Apr 2011 Apr 2011 Aug 2011 Aug 2011 Dec 2011 Dec 2011 Apr 2012 Apr 2012 Aug 2012 Aug 2012 6a: Number of M&A deals in Tourism Dec 2012 Dec 2012 Apr 2013 Apr 2013 Aug 2013 Aug 2013 sectors (January 2010 – January 2022) Dec 2013 Dec 2013 Apr 2014 Apr 2014 6b: Number of M&A deals in the Aviation sector Aug 2014 Aug 2014 Dec 2014 Dec 2014 Apr 2015 Apr 2015 Aug 2015 Aug 2015 Dec 2015 Dec 2015 Mar 2016 Mar 2016 Jul 2016 Jul 2016 Nov 2016 Nov 2016 Mar 2017 Mar 2017 Jul 2017 Jul 2017 Source: World Bank staff analysis based on Refinitiv (previously Thomson Reuters) M&A data, Jan 2010 – Jan 2022. Nov 2017 Nov 2017 Mar 2018 Mar 2018 Jul 2018 Jul 2018 Nov 2018 Nov 2018 Mar 2019 Mar 2019 Jul 2019 Jul 2019 Nov 2019 COVID-19 Nov 2019 COVID-19 Mar 2020 Mar 2020 Jul 2020 Jul 2020 Nov 2020 Nov 2020 Figure 6: Number of Merger and Acquisition (M&A) deals in the Tourism and Aviation Mar 2021 Mar 2021 Jul 2021 Jul 2021 Oct 2021 Oct 2021 Page 26 Feb 2022 Feb 2022 However, the large-scale wave of mergers and In the tourism sector, this includes i) front-of-house acquisitions predicted in the pandemic’s early days has technology such as mobile check-ins and digital payments, yet to materialize (see Figure 6). Data from Refinitiv ii) back-of-house technology to increase productivity, shows the number of M&A deals in the tourism sector target digital marketing and optimize returns, such as remains almost half of pre-COVID volumes, with a AI-powered revenue management systems; and iii) the particular drop between May and September 2021, a reliance on global platforms for sales and distribution, trend similar is seen in the aviation sector (see Figure such as Online Travel Agencies (OTAs) and private rental 6). This is consistent with emerging evidence across platforms. Historically, these digital platforms have different sectors, showing that although insolvencies overtaking traditional corporations: Booking holdings were initially expected to grow in 2020 leading to has a market capitalization worth more than Marriott increased opportunities for M&A dealmaking, many International, Hilton Worldwide and Accor combined, economies appear not to have experienced high levels at US$ 77.8bn. However, the uncertainty caused by of bankruptcies, and some have experienced reductions the pandemic has started a shift back to direct hotel (WBG, 2021). Three key factors are likely driving this booking and away from digital intermediaries. Asia, delay. First, firm support programs have likely helped for example, experienced a 64 percent increase in direct to mitigate and postpone insolvencies, providing less hotel bookings between 2019 and 2021 (D-Edge, 2021; attractive deals than expected for private equity. Second, PhocusWire, 2021). This has been bolstered by interest investors with cash on hand are waiting for more clarity from digital native travellers for more direct engagement on the timeline and scope of the recovery in case funds with businesses and increased transparency in pricing. are needed to navigate a longer than expected recovery While findings from sector-agnostic surveys show that period. Third, creditors want to avoid failing firms being digitally transformed firms post-COVID experienced on their balance sheets, as occurred during the Global an eight percent lower decline in sales, tourism SMEs Financial Crisis, and therefore they are being more continue to lag in digital investment (The World Bank, lenient with their repayment terms to avoid insolvencies. 2021). A World Bank business survey in Indonesia Firms interviewed for this report continue to expect showed that digital transitions by creative economy consolidation to occur- through M&A or otherwise-, and tourism firms occurred at a considerably lower but at more of a lag than initially predicted given the rate than high value-added services and manufacturing remaining uncertainty over the pace and evenness of firms, even well into the pandemic. Investment levels the recovery. When consolidation does happen, industry in digital equipment and software were also lower for analysts expect it to involve primarily distressed creative economy and tourism firms but was increasing individual or small portfolio SMEs and be to be mostly as the pandemic continued. IFC’s Rapid Diagnostic locally and regionally driven. of Indonesia Tourism Digital Transformation found that tourism firms of all sizes are struggling to justify 1.3.3 Digitalisation and Automation the cost of digital investments when compared to the Automation and digitisation are pre-COVID trends cost of labor; in many cases the returns for digital in driven by profit maximization and customer preferences terms of productivity is not high enough to warrant the that have been heightened by the pandemic (WBG, 2021). investment. Page 27 Figure 7: Share of Firms using Digital Transition in Indonesia ALL FIRMS STRATA SIZE Creative High Value- Economy and Manufacturing Micro Small-Medium Large Added Service Tourism 99% 99% 97% 94% 88% 89% 82% 80% 76% 74% 68% 66% 64% 63% 61% 58% 60% 53% 41% 39% 34% June 2020 October 2020 March 2021 Source: The World Bank. Indonesia COVID-19 Business Pulse Survey. 2021 Digitalization measures driven by COVID are becoming pandemic. Apart from labour savings from digitalization, permanent, but mostly for larger firms. Measures to industry analysts expect services to become increasingly contain the spread of COVID have also led to a rethinking unbundled, such as on-demand housekeeping and a of the frequency and intensity of customer touch points, reduction of included breakfasts. This trend mirrors the and firms have begun to make permanent some personal unbundling of fares that the airline industry undertook in services reductions that were required during the height the 2000s. Some stakeholders predict a similar path for of the pandemic, such as offering housekeeping only upon the tourism sector, particularly for branded, standardized request, and adding mobile check-ins. Importantly, large establishments within mature markets. This is likely to businesses have been more effective at adopting digital result in increased productivity and profits for firms that solutions than small ones, leading to a widening gap in have the capacity to implement these changes. competitiveness between firms (WBG, 2021). Within the Many operators, particularly those in franchise and accommodation sector, the IFC study in Indonesia found management contracts are shedding their assets, moving that even large, independent hotels struggled to invest in towards a reduction of fixed costs that make them digital solutions as they were not able to negotiate the more responsive to fluctuations in demand. Moving same deals on hardware as franchised hotels with large to asset-light setups can reduce access to credit in less room stocks. Unless coupled with retraining and capacity sophisticated financial markets that are dependent on building, the acceleration of digital transformation risks traditional, unmovable assets as collateral. Apart from widening inequalities within the sector (Ivanov, 2020). moving to leasing arrangements, hoteliers reported that outsourcing of services (housekeeping, laundry, 1.3.4 Fixed-Cost Reductions F&B) has been increasing. This can provide new Largescale global operators report an acceleration in business opportunities for these outsourced services at the trend towards increased efficiencies and reducing a local level, while at the same time passing on capital fixed costs, driven by the need to stem losses during the investment risks to firms down the value chain. Page 28 1.4 Outlook travel—has even exceeded January 2020 levels (Figure 8). Despite stronger than expected growth in the first Forward-looking travel indicators suggest pent- quarter of 2022, stagflation concerns are impacting the up demand for international tourism but persistent headwinds to the actual realization of travel. Consumer sector’s recovery. Booking lead-times have changed with spending started to shift from goods back to services the emergence of new variants as visitors are unable in early 2022. The level of hotel and flight searches on to plan for the near future. This volatility has made Google has nearly recovered to pre-pandemic levels, and it difficult for firms and destinations to manage their TCI Research’s Travel Sentiment Score—which analyzes staffing, cash flow and marketing as well as to plan for social media regarding consumer sentiment towards recovery. Figure 8: Hotel and Flight Bookings, Searches and Travel Sentiment 120 60 100 50 Travel Sentiment Score Index (2019=100) 80 40 60 30 40 20 20 10 0 0 Jan 20 Feb 20 Mar 20 Apr 20 May 20 Jun 20 Jul 20 Aug 20 Sep 20 Oct 20 Nov 20 Dec 20 Jan 21 Feb 21 Mar 21 Apr 21 May 21 Jun 21 Jul 21 Aug 21 Sep 21 Oct 21 Nov 21 Dec 21 Jan 22 Feb 22 Mar 22 Hotel bookings Hotel searches Flight bookings Flight searches Travel Sentiment Score (right axis) Source: World Bank staff analysis based on data from UNWTO Tourism Recovery Tracker, with data from: International Civil Aviation Organisation (ICAO), ForwardKeys, STR, Sojern, TCI Research and AIRDNA. Globally, scenarios run by UNWTO indicate that developments could continue to disrupt the recovery. international tourist arrivals could grow by 30 to Any volatility may further exacerbate pressures on 78 percent in 2022 compared to 2021. This could tourism-reliant economies and firms, compounding be enough to stem further losses for firms that are an uneven resumption of demand amidst challenging continuing to operate as countries are beginning to shift macroeconomic environments that include rising strategies to treating the virus as endemic, however the inflation, the prospects of a global economic slowdown, recovery has been stymied several times by new travel high debt volumes and disrupted supply chains. restrictions sparked by virus variants, and further Page 29 2. Support to the Tourism Sector During COVID-19 Many economies implemented unprecedented firm and worker support programs during the pandemic. In numerous cases, tourism firms were eligible for and benefited from economy-wide stimulus packages as well as sector-specific support. Page 30 2.1 Overview of Initiatives to Support that given the ongoing nature of these interventions, it Tourism Firms and Workers remains too soon to systematically assess their efficacy. However, section 2.3 highlights some important market Figure 9 provides an overview of the ten main and government failures in tourism and section three of instruments used by governments to address the crisis this report presents a set of guiding principles to help which are discussed in this section. It should be stressed avoid the risk of market distortions. Figure 9: Most common financial public sector support initiatives available to the Tourism sector Type of support Description Examples Direct financial support To cover fixed operating Austria: Enterprises closed during lockdown received (grants / subsidies) costs and acute liquidity between 80 percent (e.g., accommodation, gastronomy) and shortages mostly for 20 percent (retail) of their turnover of the same period last businesses that experienced year (December 2020 up to 50 percent; from January 2021 extreme reduction in demand onwards new combined model to cover up to 30 percent). due to lockdown and other regulations. Jamaica: Several grant programs for tourism firms including one-off grants for small craft vendors and transportation providers as well as the Business Employee Support and Transfer (BEST) grant program for registered tourism firms. Reduction in Taxes, Tax holidays, reductions Seychelles: Postponement of Corporate Responsibility Fees, and other Public and/or relief from fees Tax, Tourism Marketing tax and Business Tax. Obligations for Firms  charged by the public sector for various types of Malaysia: exemption period for license renewal fee as authorizations including well as additional licenses for tourism operators and tour licenses, registrations, guides permits, certifications Legal adjustments to firms Temporary suspension Australia: The threshold for a bankruptcy notice being (Insolvency/ bankruptcy of the obligation for issued against a debtor, and for a creditor’s petition being support) companies to file for presented to the court, has been increased from A$ 5,000 bankruptcy to give the to A$ 20,000. company and creditors sufficient time to consider Italy: Applications for the declaration of bankruptcy filed recapitalizing, restructuring between 9 March to 30 June 2020 were frozen. of debt or other alternatives. Spain: The obligation of the debtor to file for bankruptcy within two months of becoming insolvent is suspended and courts will not process involuntary bankruptcy applications during the state of emergency Rent deferrals and debt Eviction moratoriums for Singapore: Combined rent waiver program and rent moratoria commercial businesses that deferral program for business who have seen a drop of have been impacted by the 35 percent or more in their gross income COVID-19 crisis; grant programs to pay for rent; Egypt: Rent payments were suspended for tourism and mandatory rent deferral food service businesses at state-controlled landmarks programs. Page 31 Figure 9: Most common financial public sector support initiatives available to the Tourism sector (continued) Type of support Description Examples Financial support for Prevents travel companies Netherlands: Government provided € 400 million to cancellation refunds from becoming insolvent supplement the refunds that firms had to refund to due to having the (legal) customers starting March 2021 obligation to pay out vouchers to customers New Zealand: The Scheme is funded to a maximum of NZ$ 47.2 million, to 30 June 2021. Job retention schemes Subsidy program to Cambodia: 20 percent of the workers’ minimum wages (employment, wage qualifying employers to employed in hotels, guesthouses, restaurants, and travel assistance support and offset payroll costs with the agencies. Workers are first required to attend a short furlough schemes) goal to avoid lay-offs. course delivered by the Ministry of Tourism Seychelles: 100 percent wage assistance to employees of firms that were affected by the crisis. The scheme was phased out in March 2021. Investment incentives Temporary investment tax Portugal: Co-investment fund for enterprises with a incentives reduce the user strong social impact dimension with a public minimum cost of capital of € 50.000 and a maximum of € 2.5 million. Iceland: A special ISK 15 billion investment acceleration initiative including several projects that are aimed at supporting tourism: including e.g., private/municipal tourist sites). Domestic Demand Support To stimulate demand from Costa Rica: Approved a law to move all holidays of the (domestic) market by 2020 and 2021 to Mondays providing incentives in the form of vouchers, fiscal Italy: Initiated Holiday Bonus (Bonus Vacanze) for incentives or moving bank families under certain conditions. The holiday bonus holidays to create long offered a contribution of up to € 500 for stays in hotels, weekends or marketing and campsites, holiday villages, farmhouses, and bed & promotion breakfasts in Italy Further examples can be found in the WTTC’s publication Government Policies Enabling Travel & Tourism Recovery During COVID-19. The World Bank’s Markets, Competition and middle income (18 percent) and low-income countries Technology Global Unit has identified 587 individual (see Figure 10). Support measures by low-income policy responses across 119 countries in the tourism countries remain limited, and rollout has taken longer sector between January 2020 and October 2021 (The than more advanced economies, often due to data, World Bank, 2021). Among these, high-income countries capacity, coordination and fiscal constraints. There were have deployed the majority of interventions. As of zero support measures applied by low-income countries October 2021, high-income countries had deployed 53 in mid-2020, which increased to 4 percent of global percent of the identified interventions, with the balance measures by October 2021. composed by upper-middle income (25 percent), lower- Page 32 Figure 10: Number of Tourism measures Figure 11: Number of Tourism Measures by Income-Level by Region 2% 2% 4% 6% 18% 8% 10% 53% 53% 25% 19% Europe & Central Asia East Asia & Pacific High Income Upper Middle Income Middle East & North Africa Sub-Saharan Africa Lower Middle Income Low Income Latin America & Caribbean North America South Asia Source: The World Bank. Markets, Competition and Technology Unit. Industrial Policy Tracker. 2021 Countries in Europe and Central Asia have deployed the increase in regional share of support measures since largest share of the identified interventions (53 percent), early in the Pandemic, when it made up 36 percent of followed by East Asia and the Pacific (19 percent) and global support measures in June 2020. Among individual the Middle East and North Africa region (10 percent) countries, Indonesia has deployed the largest number of (Figure 11). Europe & Central Asia has seen the largest identified interventions, followed by Egypt (Figure 12). Figure 12: Number of Tourism Measures by Country 1 24 Source: The World Bank. Markets, Competition and Technology Unit. Industrial Policy Tracker. 2021 Page 33 Tax-related measures are the most frequent type of on an increase of tax-related measures - which grew identified interventions, followed by debt finance and from 15 measures in 2020 to 235 by October of 2021 other finance, subsidies, and grants (Figure 13). As the - compared to debt finance, which dominated support pandemic has continued, more measures of each type early-on. have been applied, though governments have relied most Figure 13: Number of Tourism Support Measures by Type (2020, 2021) 235 Tax 15 94 Debt Finance 29 Other Finance / 92 Subsidies / Grants 4 67 Business Costs 7 34 Employment Support 5 Business Climate and 22 Regulations 2 15 Support to Demand 5 12 Support to SOEs Action Plan / Strategies / 9 Frameworks 6 Business Upgrading 1 Price Controls 0 75 150 225 June 2020 October 2021 Source: The World Bank. Markets, Competition and Technology Unit. Industrial Policy Tracker. 2021 Measures in high-income countries have been balanced Pulse and Enterprise Survey results show that large firms across different types of interventions, while low-income (30 percent) were more likely to receive support than countries were more likely to deploy tax-related measures micro firms (18 percent), and the probability of receiving and less likely to deploy debt finance measures (Figure firm support is around four times higher in high income 14). Additionally, a large variance exists in the availability countries (53 percent) than low-income countries (11 and access to support programs. World Bank Business percent) (The World Bank, 2021). Page 34 Figure 14: Types of Tourism Support Measures by Income-Level 100% 90% 34% 80% 44% 46% 70% 72% 60% 12% 50% 20% 17% 27% 40% 30% 15% 18% 6% 20% 4% 12% 6% 10% 8% 5% 6% 8% 5% 0% 6% 4% 4% High Income Upper Middle Income Lower Middle Income Low Income Price controls Debt finance Other finance/subsidies/grants Business costs Employment support Business climate and regulations Support to demand Support to SOEs Action plan, strategies, frameworks Business upgrading Tax Source: The World Bank. Markets, Competition and Technology Unit. Industrial Policy Tracker. 2021 Page 35 Box 2: Detailed Examples of Tourism Sector Support Programs South Africa set up specific tourism relief funds for spend in 2021 and injected US$ 157m into the sector SMEs. The South African government announced in (WTTC, 2021). This induced and leveraged additional 2020 a Coronavirus COVID-19 Tourism Relief Fund visitor spending as well as provided tourism firms with with a total budget of US$ 15 million. The funding was revenue to address their pressing cash-flow obligations. 6 deployed quickly, supporting 4,000 beneficiaries with a maximum of US$ 3,500 per company (Rogerson & Rogerson, 2020). In 2021, the government announced Canada has implemented tourism rescue and recovery the Tourism Equity Fund (TEF), a collaborative initiative funding for vulnerable regions. Yukon, in the northwest between the Department of Tourism and the Small of Canada is the smallest territory in the country and Enterprise Finance Agency (SEFA). Only companies that highly dependent on tourism. The government of Yukon are 51 percent black-owned, managed, and controlled set up several programs and funds to specifically support are eligible for the fund. The minimum project value for tourism SMEs in the territory including tourism specific TEF applications is US$ 700,000. The funding provided grant programs for SMEs who received maximum includes a grant up to a maximum of US$ 1.4 million, eligibility under the general Yukon Business Relief a concessionary loan, a SEFA loan up to a maximum of Program. The Department of Tourism and Culture also US$ 1 million and the balance is to be covered by a loan doubled the marketing fund and temporarily waived from a commercial bank (South Africa Department of the co-financing requirement. Another initiative, “The Tourism, 2021). The government also ran the Temporary Employer Relief Scheme (COVID-19 TERS) in 2020. Yukon Elevate Tourism Program”, which is   funded Only employers that had made monthly contributions to by the Canadian Northern Economic Development the regular Temporary Employers Relief Scheme could Agency  and implemented by the Tourism Industry apply for the scheme and laid-off employees would Association of the Yukon, provides tourism SME’s with receive anything between 38 percent to 60 percent of up to C$ 20,000 per application within two funding their current income (PKF South Africa, 2020). streams: 1) Professional mentorship (up to C$ 5,000 of professional services and business guidance), and Argentina deployed travel vouchers for domestic tourists 2) Adaptation projects (up to C$ 15,000 in funding to encourage local travel and provide some demand for toward a project to modify or enhance existing visitor tourism services. These travel coupons, used by 600 experiences and services in response to the necessary visitors, covered 50 percent of a visitor’s domestic travel adaptions related to COVID-19 (TIA Yukon, 2020). 6 The WTTC Member Survey recommended that if utilized, voucher programs should ensure a long timeline and flexibility with spending conditions to maximise their use and effectiveness while leveraging additional spending (WTTC Member Interviews, 2021). Page 36 respondents to the WBG-WTTC pulse survey stated that 2.2 Industry Views workforce support programs were ‘important’ or ‘very This section presents the tourism industry’s views on important’, the most of any category of support measures support programs and financing needs going forward, (see Figure 15). Similarly, a recent study among 669 based on the WBG-WTTC pulse survey as well as hotel employees in Egypt showed that government wage interviews with key private sector and destination support had a positive effect on job retention (Salem, stakeholders carried out between December 2020 and Elkhwesky, & Ramkissoon, 2022). October 2021. In general, industry stakeholders have Enterprises viewed payroll protection programs as viewed tourism sector-specific support programs as important in protecting employment and in some cases more effective in meeting tourism firm needs than sector- keeping businesses solvent. This was most important agnostic programs due to their more targeted nature. in the subsectors that were heavily impacted, such as Although research is not yet available to assess the the Meetings, Incentives, Conferences & Exhibitions effectiveness of such programs and the efficacy of using (MICE) industry. A survey undertaken by the Global public funds in this manner (see further discussion in Association of the Exhibition Industry reported that 54 Section three) it is important to consider the implications percent of MICE companies reduced their workforce, of such programs for existing and the creation of new with half of these by more than 25 percent. Forty- market and government failures (section 2.31, 2.32). four percent of companies benefitted from some level 2.2.1. Workforce support programs of public financial support, and results showed that regions with increased financial support measures had Tourism firms considered furlough and payroll the least workforce reductions. Similarly in Mauritius protection programs among the most effective types of payroll support reduced unemployment but it also support provided. In addition to supporting vulnerable reduced labour-market mobility from services to retail workers’ livelihoods—in some cases covering as much resulting in productivity losses. The industry reported as 90 percent of lost wages—operators reported that being concerned that phasing out of workforce retention many programs reduced layoffs, allowing companies programs prior to demand recovery could undermine to bring their employees back more rapidly in response progress and risk firm closures and job losses that have to a resumption in demand. Eighty-four percent of so far been averted (WTTC, 2021). Figure 15: How important do you think the following fiscal policies or financial support programs have been for businesses? 100% 20% 17% 19% 17% 90% 22% 31% 27% 34% 80% 55% 53% 70% 23% 28% 33% 28% 60% 44% 28% 50% 31% 44% 40% 25% 28% 41% 30% 23% 31% 22% 31% 16% 14% 20% 11% 11% 5% 6% 8% 9% 11% 10% 8% 9% 9% 8% 9% 13% 13% 17% 2% 0% 9% 11% 11% 8% 9% 6% 6% Government Grants Debt Financing / Refinancing Tax Holidays / Reductions Licensing Cost Reductions Investment Incentives Rental Deferrals for Local Properties Insolvency / Bankruptcy Support Incentives for Tourists (eg. Vouchers) Financial Support for Cancellation Refunds Employment or Wage Assistance Support Not Important Low Importance Somewhat Important Important Very Important Source: World Bank Group and WTTC Member Survey - Pulse 1, January 2021 Page 37 2.2.2 Direct Financial Support to Firms  support programs (see Figure 15). Additionally, the speed at which financial support was made available Survey respondents’ second-most preferred modality of direct public support during the rescue phase was was important. A study on Indonesian tourism SMEs, government grants. The WBG-WTTC pulse survey for example, showed that the form of cash injection showed that grants were considered vital by the (grant or loan) was less important for the survival rate of respondents in meeting their financial gaps, with 78 SMEs than ensuring that the funding is rapidly available percent of respondents stating that grant programs were without excessive administrative hurdles (Nugroho & ‘important’ or ‘very important’, second only to workforce Negara, 2020). Figure 16: What are your most important financing needs (by sub-sector)? 100% 89% 90% 85% 80% 70% 63% 60% 50% 50% 50% 50% 50% 50% 46% 40% 38% 33% 33% 30% 25% 22% 23% 20% 20% 17% 17% 17% 13% 10% 10% 0% 0% 0% 0% 0% Working Capital Property Expansion Green Renovations Marketing Accommodation DMO / Consulting / Marketing Other Tour Operators (Multi-Service, ITO, OTO, TA) TravelTech and Insurance Source: World Bank Group and WTTC Member Survey - Pulse 1, January 2021 Box 3: Supporting Tourism SMEs in Navigating and Accessing Support Measures A tourism sector survey carried out by McKinsey & and the Western Cape (South Africa) set up a COVID-19 Company found that worldwide, two-thirds of tourism Support Finder Tool for MSMEs. WESGRO had found firms were unaware of available government support that the majority of SMEs that sought financing had a programs (Mckinsey & Company, 2020). World Bank limited understanding of available public and private research shows similar results across all industries, with COVID support funding channels across the country. awareness being lowest in countries with less GDP per The portal utilized information submitted by businesses capita (The World Bank, 2021). This highlights the and compared it against the mandates of more than 300 funders, and over 600 financial products and importance of facilitating access to support programs, provided tailored support in selecting and qualifying particularly for stakeholders with lower capacities. for funding sources. Smaller firms in particular benefit when programs include technical assistance in finding, To help remedy these situations, WESGRO, the Tourism, applying, securing, and administering support through Trade and Investment Promotion Agency for Cape Town trusted local intermediaries. Page 38 2.2.3 Outlook term (McKinsey & Company, 2020). Reopening will Demand for short-term rescue programs remained strong likely require almost full operating costs with gradual as of mid-2021. WBG-WTTC pulse survey respondents resumption of demand, therefore further exacerbating cited grants (51 percent of respondents were interested in cash flow issues. the financing option) and medium to long term financing Medium and long-term financing for both expansion and (49 percent) as their greatest existing financing gaps (See refinancing of existing debt continues to be problematic, Figure 16). At the same time, many governments have a perennial issue for firms across economies. The WB- begun phasing out firm support programs under fiscal WTTC Tourism Pulse Survey results showed that pressure as well as inflationary concerns, while others, medium and long-term financing are considered by 49 such as Morocco, have replenished programs in light of renewed shocks such as the Omicron variant. percent of the respondents as a financial product with unmet needs, followed by secured loans (34 percent), In 2021, immediate financing needs remained focused and are by far the most needed financial product for on liquidity. Survey respondents overwhelmingly cited accommodation providers. This is both because some working capital as their most important financing need, firms are over leveraged, as well as due to structural particularly for lodging (89 percent) and tour operators access to finance challenges facing developing markets. (85 percent). Estimates on recovery timelines vary and Available bank loans for Tourism SMEs, especially in are being continuously updated; for example McKinsey low-income countries have mostly been short term (less and Company forecasts a recovery time of two to five than five years) while there is an indicated need for years to reach 2019 visitor volumes (by 2023-2026), longer term loans (7-8 years). indicating that over-supply issues and managing cash flow will likely remain a high concern for the medium- Page 39 2.3 Effects of the Pandemic on Tourism economic activity, tourism is associated with a special Market and Government Failures set of market and government failures (see Box 3). The tourism sector has distinct characteristics—principally, The changes wrought by the pandemic to both the the direct interaction by consumers of tourism services structure of the tourism sector and government with non-local people, environments, and economies— interventions have created both new market and that distinguish it from other economic sectors. While government failures. This section describes such government intervention can correct these market failures in relation to the pandemic; Section 3 then failures, poorly designed policies may create government provides recommendations for addressing market and failures that damage the public interest by, for instance, government failures in the Tourism sector’s recovery limiting competition, creating inflation, suppressing through principles and support options. As a unique employment, or over-taxing the population. Box 4: Common Market Failures in Tourism Non-Economic Externalities: Tourism often has suppressed by tourists not being aware of products and substantial (positive and negative) non-economic impacts experiences they would otherwise consume. on host environments and cultures. For example, some Coordination Failures: Tourism destinations ordinarily forms of tourism can pollute, while others can protect comprise complex value chains. Often, a tourism firm and regenerate ecosystems and bolster revenues for will not be viable without the existence of firms in other conservation. segments, creating a need for coordination between Economic Externalities: Tourism may alternately firms. For example, a hotel may not be viable without an enhance or undermine the productivity of other economic airline to serve the destination, yet the airline would not activities depending on the nature of work of those be viable without a lodging at the destination. Tourism employed by the sector. If tourism helps workers acquire value chains are particularly susceptible to the loss of new skills that carry over to future jobs, other sectors firms serving segments which exhibit high fixed costs, may experience positive benefits. Tourism jobs which human capital specific to both the location and the task, do not expose workers to technology may, however, and relatively low levels of competition. have minimal productivity spill-overs. Additionally, by Potential for exercise of market power: Due to the generating foreign exchange, tourism benefits sectors importance of coordination to tourism value chains, that utilize imported goods. vertical integration is common in the tourism sector. Information Asymmetries: Information asymmetries High fixed costs, increasing returns to scale, and/or are inherent in tourism as tourists are—absent a network effects may predispose certain segments to trusted information source—generally uncertain of the natural monopolies, as for instance is the case in online quality and safety of local products and services and booking platforms and airlines. This may result in higher may accordingly reduce their consumption due to the costs and fewer choices for consumers, thus reducing the associated (perceived) risk. Consumption may also be competitiveness of destinations or segments. 2.3.1 Market Failures make it difficult for destinations to offer competitive offerings in the wake of the pandemic. Coordination Failures Market Consolidation Over the course of the pandemic, the prospect of coordination failures has imperilled the viability of The pandemic is expected to accelerate the long-term tourism value chains sustaining numerous destinations trend of consolidation of tourism sub-sectors. As across the developing world. The dramatic fall in discussed in Subsection 1.3.2, although the large wave tourism revenues induced by the pandemic put many of M&As has not yet occurred, consolidation may ‘anchoring’ firms (such as airlines) at risk, which in turn accelerate in the future due to firm insolvencies and threatened the viability of whole tourism value chains. increased vertical and horizontal integrations. This will As ‘anchoring’ firms encompass critical skills and assets increase the market power of existing and expanding specific to destinations, the collapse of such firms could firms and the concentration of the corresponding sub- Page 40 sectors. Unless firms exiting the sector are replaced by or good business practices—especially to help them be new firms, the resulting lack of competition in such sub- more resilient and improve their positive externalities. sectors will adversely affect the price and quality of the Excessive Public Expenditure associated products, resulting in a degradation of the competitiveness of a destination’s offering. This, in turn, Public expenditure to support the tourism sector can can hinder the positive effects of tourism on economic create various economic risks. While the recession development (See Section 3.1.2). generated in many countries by the pandemic provides a rationale for expansionary fiscal policy, financial Information Asymmetries support provided by the government to firms and/or The effect of information asymmetries on the behaviour workers generally results in increases in public debt or of tourism consumers has been increased significantly reductions in spending on public goods and services. In by the pandemic. The pandemic caused tourists to either case, public welfare can be adversely affected by place a high value on information about the risks of the additional expenditure associated with such support. infection when visiting a particular destination. As such, In particular, support to the tourism sector may divert information i) on whether a destination is adhering to funds from more inclusive public spending such as social appropriate health, hygiene, and testing protocols, ii) spending or investment in public infrastructure. on the prevalence of infection in the destination, and iii) on eventualities in the event of infection are much more Allocative Inefficiencies consequential for consumers of tourism than prior to Interventions to sustain unviable firms can adversely the pandemic. Where potential tourists are unable to affect the process of ‘creative destruction’. Government procure such information, they may opt to defer trips interventions to forestall the collapse of firms that are that they otherwise may have taken. illiquid or, in the extreme, insolvent—through such measures as payroll support, reductions of fees and 2.3.2 Government Failures taxes, or alterations to restructuring procedures—can Government interventions create a risk of producing inhibit the reallocation of land, labor, capital to more inefficient economic outcomes and measures undertaken productive uses, although there is no definitive means to throughout the pandemic are no exception. Direct systematically determine whether such reallocations will public support to businesses, where properly targeted be efficient. at key firms, skills and/or assets can help reduce the Information Asymmetry risk of coordination failures and decreases in market competition. However, such intervention can also result Uncertainty around travel restrictions also represents in government failures—that is a situation whereby an information asymmetry that potentially suppresses the public would be better off in the absence of the tourism demand beyond public health emergencies. intervention. Throughout the pandemic, many governments-imposed travel restrictions to contain outbreaks and limit Moral Hazard7 community transmission. Such restrictions are often The bailing out of distressed tourism firms by well justified in the interests of public health but can governments can result in moral hazard. Firms being create uncertainty for potential tourists that cause them bailed out may, for example, engage in risky investments to delay or postpone trips. Tourists may be concerned, that may either result in bankruptcies if further bailouts for instance, that they will have to cancel a planned trip are not forthcoming, or excessive public debt if further due to the introduction of travel restrictions or that they bailouts are forthcoming. In addition, bailouts can may incur unplanned expenses and personal disruption reduce the incentive for firms to engage in good business if a travel restriction is introduced while on vacation. practices such as adhering to accounting standards, Governments and the private sector can potentially reducing debt, and maintaining cash reserves. This risk mitigate the information asymmetry created by travel can be mitigated if governments can credibly signal restrictions by developing measures to financially protect that the bailout is a one-off event and if bailouts are tourists from disruptions that arise from new travel conditioned on the adoption by firms of restructurings restrictions. 7 Moral hazard occurs where interventions reduce the private risk associated with investments or other behaviours and encourage economic actors undertaking risks they otherwise would not take, resulting in outcomes that are detrimental to the general public. Bailouts of and other public assistance provided to distressed private firms can result in moral hazard as firms may subsequently be encouraged to engage in excessively risky investments based on the expectation of future bailouts if such investments are unsuccessful. This is an inefficient outcome as, if such investments fail, governments must choose between either letting firms collapse, potentially given rise to a coordination failure and a recession, or the assumption of debt by the public that will constrain other forms of public expenditure. Page 41 3. Future Support to the Tourism Sector As the pandemic evolves, governments may need to adjust the form and scope of support they provide. Page 42 3.1 General Guiding Principles failures; (iii) address general market failures; (iv) develop public-private financing mechanisms; and (v) address As the pandemic enters its third year, it has evolved from existing government failures, while not creating new a global health and demand shock to a more variable and ones. localized crisis. Certain countries continue to face strict demand restrictions while others have fully reopened 3.1.1 Prioritize Market Facilitation with demand recoveries. Many are still adapting to new Governments should focus on improving the functioning short and potentially long-term trends and structural of factor and product markets and provide direct changes. Uncertainty and volatility remain, and some support to firms generally as a last resort. Credit economies—particularly tourism-dependent ones markets, which can provide loans or purchase bonds with weaker public finances—are facing financial and or equity, should be the first resort of firms facing economic crises. These are precipitated by a shortage financial difficulty. Efficient credit markets—by virtue of tourism foreign exchange revenues, complicating the of the information, experience, and capabilities to which balancing act between facilitating the viability of a key they have access—are best positioned to assess and economic sector and ensuring efficacy in the utilization price risk and make investment decisions accordingly. of scarce public funds. This is especially pertinent for In the face of economic shocks such as the onset of emerging economies, which face more severe fiscal and the pandemic which inhibit the functioning of credit capacity constraints that reduce their abilities to respond markets, governments and development partners should early-on in the crisis and can narrow their options as first explore options to enable credit markets to function the crisis continues. This evolving situation suggests that more effectively. Such options may include short-term government approach to firm support needs to be more measures such as financial injections into capital markets creative, leveraging other sources of capital from the or partial credit guarantees and medium-term reforms to private sector and various bilateral and philanthropic reduce risk, such as the creation of credit registries, the donors. streamlining of bankruptcy proceedings, and reductions Interventions by governments to support the recovery in the barriers to firm entry (see section 3.3.1). of the tourism sector should generally seek to address In cases where these more economically efficient options market failures (Section 2.31, 2.31) that inhibit are infeasible due to political or other constraints, the investment in and the productivity of the private sector provision of public assistance may be justified. However, overall and encourage inclusive and/or environmentally such assistance should be provided in such a manner as friendly activities. Such interventions should not, to reduce existing market failures and limit the potential wherever possible, discourage investment, degrade for the creation of additional government inefficiencies. productivity, hinder the allocation of land, labor, and Regardless of whether interventions are directed at capital to their most productive uses, or encourage factor markets or direct support, governments should private sector activities that are not inclusive, or which ensure that all firms—including SMEs (see Box 4)—have are environmentally unfriendly. As guiding principles, equal and fair access to support so as not to entrench the interventions by governments to support the recovery of market power of large, dominant firms or state-owned the tourism sector should generally seek to: (i) prioritize enterprises (SOEs) through discriminatory access to market facilitation; (ii) target pandemic-specific market support. 8 Factor markets refer to markets that allocate factors of production such as labour, capital and land. Product markets refer to the marketplaces where final goods or services are sold. Page 43 Box 5: Designing SME-Conscious Interventions SMEs often possess a different set of needs and Given the importance of SMEs to the Tourism sector, circumstances than larger firms operating in the tourism government interventions should thus account for sector, requiring tailored market-level interventions. For such differences in capabilities and access in terms of example, SMEs often have limited access to traditional the way in which they deliver support. For example, sources of financing such as commercial banks, governments may consider incentivizing creditors to lend particularly in emerging economies, —even when they to tourism SMEs via targeted credit guarantee programs, represent viable lending and investment opportunities— expanding asset-based financing (e.g., allowing mobile due to underdeveloped credit markets and lack of asset collateral, factoring, purchase order financing, connections with lenders. Relatedly, SMEs are less likely etc.), developing private equity markets, or specialist to be aware of available government support programs platforms for the public listing of SMEs (OECD, 2015). (Constantin, Saxon, & Yu, 2020) and have more limited From a capacity perspective, upskilling programs can capacity in business and financial management necessary address information asymmetries by providing training to access credit. Women owned SMEs often face on accounting practices to allow them to access loans additional barriers in some markets given restrictions on and setting up platforms to educate SMEs on available land ownership, discriminatory practices, lack of credit support programs. history, and low accessibility. 3.1.2 Target Pandemic-Specific Market Failures  3.1.3 Address General Market Failures Where governments must intervene directly, the priority Interventions should wherever possible seek to address should be to first target market failures created by the externalities and other general market failures. The pandemic. The key market failures in the tourism sector subsidization of commercial activities that generate created by the pandemic are: i) health risks associated positive economic, social and/or environmental with a failure to adopt health protocols and/or by the externalities is generally warranted, as is the taxation—or unavailability of health services, ii) threats to the viability outright preclusion—of activities that generate negative of destinations’ value chains arising from the collapse of externalities. Governments should support mechanisms firms in anchoring sub-segments, and iii) the risk of a that facilitate the structuring, planning, development loss of destination competitiveness due to accumulation and operation of tourism that generates positive of market power by specific firms - including the loss of externalities for the public through the protection and SMEs and therefore a loss of diversity and destination regeneration of local ecosystems and cultures (and are, competitiveness. Governments and development as such, aligned with Green, Resilient, and Inclusive partners should first explore the potential to address Development (GRID) principles). On the other hand, such market failures by reducing barriers to the entry for governments should be discouraging the generation of new firms into the sector. These may include reducing negative externalities for the environment, society, public foreign ownership restrictions or streamlining business health, and/or the overall economy. Once out of the registration and operating licenses. Such support, where rescue phase, governments should consider developing necessary, should be targeted to ensure the continued financial instruments to systematically address the viability of firms occupying anchoring sub-sectors while externalities generated by tourism. Such instruments ensuring that all firms operating in such sub-sectors have may include public credit guarantees, green and blue fair and equal access to support (e.g., that support is not bonds, sustainability-linked bonds, and gender bonds. exclusively targeted at SOEs and dominant incumbents). Property-linked efficiency financing or insurance for Governments should also be aware of the risk of green assets tied to environmental and social criteria can firms acquiring too much market power (See Market also be explored, ensuring that private solutions are not Consolidation in sections 1.3.2 and 2.3.1).  crowded out (OECD, 2018). Page 44 Box 6: Programs for Greening Tourism Firms  The IFC has launched a global US$ 800m Hotel Green energy efficiency, and waste practices. Financing is only Revitalization Program, set up as a Risk-Sharing Facility provided to firms that have or are in the process of being and focused on sustainable retrofits to SME hotels green tourism certified.  affected by the pandemic. The program will provide A combination of publicly supported financing medium tenor, local currency liquidity through financial instruments can support greening.  In Mexico, the institutions, providing SME hotels with financing UNDP supported the government in piloting a green for immediate health and safety upgrades, while also energy program in the Yucatan Peninsula.  The program providing for retrofit greening measures that will enhance provided training, technical advice, and financing their longer-term operational efficiency and support for independent hotels to install solar water heating faster returns to profitability. Investing in greening systems.  In terms of financing, the program provided tourism operations usually leads to reduced operating loans for up to 5 years, as well as credit guarantees costs (OECD, 2018), a factor that has gained prominence through its development bank Bancomext, and interest- at a time where firms are looking to minimize overheads rate subsidies from Mexico’s Trust Fund for Energy to improve their resilience.   Transition and Uptake of Sustainable Energy Systems.  Linking firm-level green certifications to financing can The pilot program installed 2.5 million square-meters of incentivize greening. In the UK, Triodos Bank provides solar heating systems, supporting an equivalent of 3,000 loans to tourism businesses, financing sustainable hotel rooms (OECD, 2018).  infrastructure and practices including renewable energy, 3.1.4 Develop Public Private Financing Mechanisms  seek to partner with private financial institutions. These institutions are able to provide their expertise to risk To address both systematic and pandemic-specific assessments and to ensure the incentives of investment market failures, governments and development partners officers are aligned with the success of the investment. should seek to partner with financial institutions and Financing for working capital requirements can be investors. The information, experience, and skills that increased by creating instruments with revolving credit private financial institutions and investors have access facilities focused on working capital needs and increasing to allow them to assess risk and creditworthiness more capital available for banks to grow lending for working accurately than other institutions, including governments capital.  For example, in 2020 IFC invested US$ 50m and development partners. As such, when leveraging in the Bank of Maldives to allow the bank to provide public financing for facilities to support key firms, skills, working capital finance to tourism firms (IFC, 2020). and assets in the tourism sector, governments should Page 45 Box 7: Destination-Level Financing Instruments Few destination-level financial instruments exist to stakes in multiple SMEs at once, and ii) developing a support the sector’s response and recovery. One potential standardized valuation methodology to avoid lengthy concept is to explore joint equity funds for tourism SMEs. due diligence procedures for each asset. Governments These tourism-specific government-backed equity funds could co-invest or set up the structures for private could reduce risk profiles for investors while facilitating investors. Similar bundling could work for distressed investment in a related basket of tourism SMEs. They assets, which would allow for funds to invest in bulk could be applied within the tourism sector, a subsector and return them to productive use more quickly. Such a value chain, or a destination (McKinsey & Company , fund may be feasible only in sophisticated markets with 2020). This mechanism would require i) the creation of experience in securitization. an equity-holding structure or securitization of equity Figure 17: Joint Equity Funds for SMEs Illustrative Model Indivual Institutional Sources of Investment Terms Investors Investors Funding Process Private • Standard • Fixed exit investors valuation timeline (eg. Sellers: Local Banks (eg. Individual calculation 5 years) and Brokerage Firms and applied across • Non- institutional portfolio controlling investors) • Portfolio share of Security or approach to operators Holding accelerate due diligence SME 1 SME 2 SME 3 SME 4 20% 5% 10% 40% Source: McKinsey & Company, 2020 3.1.5 Address Existing Government Failures, While many countries is adversely affected by complicated and Not Creating New Ones costly visa systems that deter visitors. To ensure that Governments and development partners should also tourism sectors can recover rapidly as the pandemic seek to facilitate the recovery of tourism by addressing subsidies, governments should examine and address these government failures that deter visitors and/or inhibit government failures. During the pandemic, governments investment and productivity in the sector, while being must seek to avoid creating additional government careful to avoid creating new ones. In many countries, failures that divert public resources from their most investment in and productivity of the tourism sector efficient allocations, provide perverse incentives to are artificially suppressed by unnecessarily cumbersome regulations and protocols and by the failure of investors and entrepreneurs, and/or artificially distort governments to provide high-quality public goods and the allocation of factors (labour, capital, entrepreneurial services.  For example, the tourism sector specifically in talent) to more productive sectors. Page 46 3.2 Specific Support Options and facilitated by improved access to and use of market data. Considerations for Tourism Sector In parallel, governments need to ensure that there is a Recovery  minimum viable product of tourism ecosystem services operational and market ready. In the medium-term, a This section explores short and long-term tourism sector raft of structural improvements should be instituted to support options, and provides considerations, in line build resilience and strengthen the foundations of the with the market failures explain in section 2.31 and sector (see Figure 18). For instance, institutional, legal, 2.32 and principles explored in section 3.1, to consider and regulatory frameworks and governance structures when weighing the application and effects of specific need to be updated and streamlined to enable a more measures. That is, particular attention should be given efficient, innovative, and responsive private sector. when applying direct public support to firms, given its Better coordination, planning, improved destination capital-intensive and potentially distortive side-effects. management and communication is needed across Future support to the tourism should also be framed government and with the private sector to build a more by short and longer-term priorities. In the short-term, sustainable and equitable sector. Overall, policies and addressing struggling firms and reinvigorating demand regulations around sustainability, inclusion and greening by getting tourists back and moving around destinations the sector should be part of a future transition to ensure safely is the most important priority and can be the sector’s long-term resilience and competitiveness.    Page 47 3.2.1 Supporting Stakeholders support program to sustain aggregate demand (avoiding the depression downward spiral) and to ensure the most Direct Financial Support to Firms  vulnerable have access to key goods and services. Appropriately targeted firm-based support may mitigate Reductions in Taxes, Fees, and other Public coordination failures and inefficient market power Obligations for Firms concentration, but less well-targeted support could potentially have undesirable economic and non-economic The effects of reductions in taxes and other fees generally consequences. As detailed in Subsection 2.1, various mirror those of grant-based financial support, although governments have extended grants to help tourism firms elimination of fees associated with the registration of cover fixed costs over the pandemic. Such support, new business may prompt competition and mitigate when provided to anchor firms, may help forestall consolidation of sub-sectors. Various governments have coordination failures that could imperil entire tourism provided tax holidays or otherwise reduced government value chains. In addition, this support may also help fees for various licenses, registrations, permits, and preclude an inefficient concentration of market power certifications to improve the liquidity of firms in the in particular subsectors and, if well targeted, may ensure tourism sector and forestall bankruptcies. Policies the viability of firms that provide positive economic or that reduce the cost of entry also reduce the cost of non-economic externalities. formalization and may thereby assist informal firms gain registration and avail related benefits. Direct financial support to tourism firms by governments was reasonable in the initial period of the pandemic due As demand returns and firm liquidity constraints are to the dramatic fall in demand for tourism services; the reduced, governments should generally not continue slow response by the credit markets; and the assumption to reduce taxes. As with grant support to firms, the that the pandemic would be relatively short-lived. continued provision of reduced taxes for firms in However, as the world enters the third year of the tourism specifically is not generally recommended as pandemic with uncertainty over the timeline and nature it risks crowding out more efficient and/or equitable of the recovery of tourism demand, governments should ways of allocating public resources and hindering consider alternatives to prolonged firm-level support. the reallocation of capital, labour, and skills to more Direct support—particularly if prolonged—may crowd productive applications. Governments should generally out more efficient and/or equitable forms of public prioritize measures to improve the functioning of product spending and also crowd out private financing (see and factor markets over tax reductions or other forms of Section 2.3.2). Prolonged grant support to tourism firms financial support provided universally to tourism firms. also risks preventing the reallocation of under-utilized Loan Repayment or Bankruptcy Moratoriums assets to other sectors where the marginal productivity may be higher. Legal adjustments intended to reduce costs for firms or forestall bankruptcies can have unintended effects on A preferable option is for governments to empower other sectors and may prevent efficient reallocations credit markets—through reforms and, where necessary, of capital, labour, and skills from insolvent firms. capital injections—to make well-informed investments to Various governments have developed legal or regulatory support tourism firms that they asses as viable concerns. remedies to reduce on-going costs for tourism firms and/ Where this is infeasible, or constrained by separate or to forestall bankruptcies directly. For instance, some market failures, firm-level support should be seen by governments have established eviction moratoriums, governments as a last resort to prevent the collapse of loan repayment moratoria or have suspended obligations critical firms with very high positive economic and/ for firms to file for bankruptcy or have extended the or non-economic externalities. Taking into account mandated periods for restructuring. Measures such the need to manage political economy considerations, as eviction or loan repayment moratoriums, unless these could include those in anchoring sub-segments, paired with measures to support landlords or creditors, and which possess critical subsector-specific skills and transfer the effects of the loss of demand induced by the assets or provide specific tangible and intangible benefits pandemic on other sectors of the economy, such as the for local communities and the environment. Support financial sector or ultimately the public sector. As such, could be provided where circumstantial factors prevent these policies create various problems for other sectors such firms from acquiring support from credit markets that would otherwise be imposed on the tourism sector. or other sources following a careful and transparent process of evaluation/selection.  Support to the other During the early stages of the pandemic, policies that firms and workers should be part of the economy wide attempted to directly forestall bankruptcies, and limit Page 48 consolidation and coordination failures were justifiable. markets, the provision of debt finance guarantees could The continuation of such policies now, however, may be implemented as a means of limiting coordination inhibit overall economic efficiency by preventing the failures and consolidation in the tourism sector (see reallocation of capital, labour, and skills to more Section 2.3.1). Governments may want to continue such productive uses.  policies until demand has recovered or until factors inhibiting the functioning of the respective credit markets In deciding whether to continue measures that provide have been addressed. legal or regulatory adjustments to reduce costs for tourism firms or to forestall bankruptcies, policymakers should Vocational Training for Employees carefully consider the unintended consequences of such policies in addition to the timing of the lifting of such Vocational training to furloughed or unemployed policies. Measures such as loan repayment moratoriums workers in the tourism sector can enhance the that transfer the effects of the fall in tourism demand productivity of workers employed in tourism sector to other sectors should be avoided in general and in following the recovery. Various governments, such as particular at this stage in the pandemic. However, the the state government of Assam in India, have assisted lifting of these moratoria should be carefully calibrated, workers in the tourism sector by providing subsidized timed with the removal of travel restrictions and the vocational training and/or stipends to trainees. As with introduction of demand-stimulation activities, and other forms of government expenditure, this could sufficiently communicated so that beneficiary firms are potentially crowd out alternative allocations that are able to plan for their phasing out. more efficient or equitable. However, such assistance is generally a relatively efficient form of government Temporarily Easing Access to and Reducing Cost of expenditure for several reasons. Finance for Firms  First, it may provide an alternative source of income Measures that ease access to finance and/or reduce the for those workers who have been made redundant, who cost of finance for firms can help alleviate the effects have been furloughed, or have otherwise been deprived of credit market frictions. Various governments have of their primary source of income because of the effects assisted firms access finance throughout the pandemic of the pandemic. Second, such assistance—if effectively through the provision of debt finance guarantees. This implemented—increases both the productivity of exposes the government to the risk of assuming the workers in future employment in the tourism sector debt of failed private firms and, in so doing, potentially and the quality of tourism services delivered at the creates a government failure, but debt finance guarantees destination. Accordingly, the provision of this assistance can also relieve coordination failures and/or frictions may enhance the positive economic externalities of in credit markets that limit access to finance for viable tourism activities and thereby enhance overall economic firms. efficiency.  It may also address structural changes that The continuation of policies that ease access to finance have been accelerated by the pandemic, such as a reduced and/or reduce the cost of finance is advisable in the need of manual labor and increased demand for digital absence of other measures to address frictions in credit skills by improving digital literacy required to remain markets. In cases where viable and critical firms in competitive in the sector, and simultaneously increasing tourism are unable to acquire financing from credit productivity. Page 49 Figure 18: Summary of Considerations for Firm and Worker Support Programs Support Type  Advantages Disadvantages Direct Financial Support to • Rapid implementation • May crowd out other public spending and private Firms • Strong supply response financing or encourage moral hazard • helps prevent coordination • May prevent reallocation of labour, land, and capital failures and consolidation   (factors of production) to more efficient uses • Delays stripping down of assets, increasing asset supply  Reduction in Taxes, • Rapid implementation • May crowd out other public spending Fees, and other Public • Prevents coordination • May prevent reallocation of labour, land, and capital to Obligations for Firms  failures and consolidation  more efficient uses  Legal Adjustments for • Prevents coordination • May create market failures in other sectors Firms  failures and consolidation • May prevent/delay reallocation of resources to more efficient uses • May compromise the policy objective of the underlying regulation Easing Access to and • Provides increased liquidity • Uncertain supply response Reducing Cost of Finance to otherwise viable firms • May create public liabilities and crowd out other for Firms, including debt • Rapid implementation spending; may prevent reallocation of resources to more Finance Guarantees efficient uses. • Prevents coordination failures and consolidation  Vocational Training for • Rapid implementation • May not prevent coordination failures and consolidation Workers  • Potentially increases • May crowd out other public spending  productivity of tourism workers and quality of the product Source: Authors’ elaboration 3.2.2 Reopening Safely are applied and lifted based on pre-determined criteria can help increase consumer and travel trade confidence. Standardizing Protocols and Communicating Effectively Data-Driven Decisions The standardization of travel policies, testing, tracing, The collection and use of data can inform the application and compatibility of vaccination verification measures is and lifting of firm and policy support measures in a fast- important to reduce information asymmetries (Section changing environment. To better inform the allocation 2.3.1) and transaction costs for travellers. Institutions of scarce fiscal resources, the ongoing monitoring of should leverage technology to facilitate measures that the impact of the pandemic and its shocks on tourism establish and authenticate traveller identities and firms and destinations, and how firms, workers and health/vaccination statuses, ensuring integration and assets are reacting to shocks, as well as the evaluation interoperability between country systems, guaranteeing of effectiveness of government responses is critical. data privacy and security as well as speed, usability, Governments can undertake regular tourism business and integrity of processes. In addition to standardized pulse surveys, hold frequent public-private dialogue protocols, clear, consistent communication of such forums, and set up real-time market intelligence measures is key to minimizing economic damage from platforms to monitor and better respond to changes in uncertainty. Transparency with how and when protocols visitation and demand preferences. When embarking on Page 50 data programs, governments should seek to collaborate campaigns targeting both travel trade and visitors. across the private sector on data pooling, ensure data The marketing of a destination generates substantial access equity, and provide capacity building on turning positive externalities and requires a coordinative role data into actionable recommendations for firms. to ensure consistent branding and messaging. In various - particularly subnational - cases, public funds can be 3.2.3 Stimulating Demand most efficiently utilized by implementing such initiatives through Destination Management Organizations or Targeting Available Source Markets Tourism Marketing Boards as PPPs, with private sector Many economies have pivoted to domestic tourism, and inputs on targeting and messaging, and supplemented where viable, cross-border regional tourism to sustain by private funds or levies. In South Africa, for their sectors during the pandemic, providing subsidized example, the budget of South Africa Tourism (SAT), travel vouchers, consolidating public holidays, and the agency charged with national tourism marketing, is investing in marketing and products developed for these supplemented by a private sector initiative governed by specific markets. Domestic demand support, one of the Tourism Business Council of South Africa (TBCSA). the most applied demand stimulation strategies during The TBCSA, a nonprofit private sector association, administers a voluntary additional tourism levy on bed the pandemic, may mitigate coordination failures and nights that generates US$600,000 per year. These funds consolidation and limit the depreciation of tourism skills are then used to supplement SAT’s marketing budget, and assets, but for smaller countries and those that rely and the TBCSA has considerable influence over the use on international tourism for foreign exchange revenues, of these funds. This ensures increased resources, private domestic is no substitute for the resumption of foreign sector input and demand-driven targeting of marketing demand.  However, such measures can provide temporary initiatives. relief for tourism firms and encourage innovation to adapt to new types of demand. They can help diversify Adapting Products the demand base and build long-term resilience for the sector, as domestic tourism tends to be more inelastic to Demand and travel motivations have shifted in both shocks. Decisions to continue domestic demand support temporary and structural ways and responding measures, such as travel vouchers which go above and facilitating the adaptation of products and itineraries can accelerate the recovery. Travellers are prioritizing open- beyond typical tourism interventions, must be based on air activities, nature-based tourism, and rural products, careful consideration. Vouchers in particular may crowd driven by a pronounced increase in domestic tourism out forms of public expenditure that are more efficient and travel close to home (see Box 6). It is unclear at this and/or equitable. stage which changes are short or long-term, but given the As virus cases and restrictions are reduced, traveler protracted length of the crisis, firms and destinations that confidence increases and additional markets reopen, have been able to use data to rapidly pivot to embrace destinations can use real-time market intelligence these trends—such as Barbados with the setup of digital platforms and relaunch marketing campaigns targeting nomad visas—have benefitted. Implementing changes to an increasing subset of markets, leading to a full re- sites, facilities and experiences should be complemented opening and decreasing the need to rely on voucher by adapted marketing, packaging and policy changes programs. Marketing and promotion budgets can be that can allow new products to be piloted and launched scaled up again and augmented to support reopening rapidly. Page 51 Box 8: Market Research is Key to Adapting Firms and Destinations to Changing Trends Market research conducted by the World Bank during selection. A total of 66 percent of respondents fell into 2021 found that while traveling for relaxation and market segments that have a focus on sustainable travel beaches remained a top travel motivator (76 percent or sustainable living, which spend between US$ 4,171 of respondents), nature-based tourism (45 percent) and and US$ 5,741 per leisure trip, significantly higher than adventure tourism (35 percent) were the next highest global averages. travel motivators. In the UK, 81 percent of travelers In terms of COVID-19, being vaccinated is the most preferred a “peace and slow” destination for their next important consideration for resuming travel (65 percent trip (compared to 19 percent preferring a mainstream or of respondents rate this as very important), followed by popular destination). Sustainability is also of increasing destination hygiene and sanitation levels (60 percent), importance to consumers, with 75 percent of respondents healthcare quality (56 percent), and having certainty in feeling that a destination’s focus on sustainable living is travel restrictions (54 percent). important or very important in a holiday destination Source: The World Bank. Small Island Developing States Travel Consumer Research. 2022 Re-establishing Connectivity is particularly important given the increased resilience of domestic and neighbouring markets. Public air route Re-establishing connectivity between source markets and destinations, as well as connectivity to new, high- development programs should ensure transparency value markets can accelerate the recovery. Monitoring and a level playing field in participation and access to the aviation sector’s recovery and facilitating targeted information to ensure preferential treatment of specific air route development programs can bridge information carriers is avoided. Improving connectivity also means asymmetry and coordination failures in facilitating reducing barriers to cross-border travel, including visa the resumption of demand (see Box 9). Increasing facilitation measures, which are one of the most high- intra-regional and domestic air connectivity through value reforms that can be undertaken to increase tourism regulatory, planning, data and infrastructure investments competitiveness (WTTC, 2019). Box 9: Improving Air Access and Services in Victoria Falls The IFC Zimbabwe Destination Development Program • The in-depth assessment of Victoria Falls’ air transport, (ZDDP) implemented an air route development program tourism and enabling environment factors to identify in 2021 to strategically position Victoria Falls as a demand- and supply-side gaps and opportunities, and competitive air transport gateway to Zimbabwe and reform priorities the region. The program recommended a set of enabling The analysis of global air transport datasets and local- • environment reforms and facilitated direct engagement level data to assess route demand and develop robust with 11 airlines for route recovery, new frequencies, business cases for presentation to airlines and/or new routes. As part of this program, Eurowings Facilitation of negotiations between airlines and • Discover (Lufthansa) has established the first long-haul destination stakeholders on route terms and incentives, route from Europe to Victoria Falls. Key factors for based on the local context and current international successful program implementation included: best practices; and • The establishment of a multi-stakeholder Air Service Building of relationships with parallel agencies able • Development (ASD) Committee to lead ASD efforts, to incentivize deals—such as the Zimbabwe Tourism and building of its capacity, to guarantee longer-term Authority to provide ‘in-kind’ marketing support on technical ASD leadership new routes. Source: IFC Zimbabwe Destination Development Program. 2021 Page 52 3.2.4 Ancillary Sources of Support loans to its supplying farmers for meeting sustainability standards (Wayne, 2016). Such initiatives can be adapted Private sector operators - and other private firms and to the tourism sector as sustainability, inclusion, or non-governmental organizations - can provide essential resilience bonds in supporting a tour operator, lodging support to stave off coordination failures and reinforce provider or cruise company’s supply chain. the viability and competitiveness of tourism value chains. Financial Institutions: Financial institutions can use Large Anchor Firms: Large anchor firms can provide tourism corporations as intermediaries to pass through loans or grants to SMEs in their supply chain. In the financing by lending to a chain operator of hotels, for case of the cruise industry, Silversea Cruises extended example, and the operator then lends to the owners of small loans to SMEs in their port of call destinations to the properties it manages. This can provide firms with maintain the vibrancy and diversity of offers for their liquidity, reduce transaction costs, and minimize risks passengers. Similarly, Royal Caribbean provided up for financial institutions, while enabling bulk financing. to $40 million in interest-free business loans to travel This may be able to be applied to the travel tech space as agents to preserve its distribution network, and through well through Online Travel Agencies. the RCL Cares program, travel agents can also receive professional advice on how to navigate and apply for Philanthropic Financing: Philanthropies linked to the Paycheck Protection Program (PPP) in the US (Royal tourism multinationals can partner with governments Caribbean, 2021). In the accommodation subsector, to support SMEs. The TUI Care Foundation, partnering Radisson has supported its laundry and housekeeping with the company Enpact and the German development suppliers to adopt technologies and streamline their agency GIZ, are funding a Tourism Recovery Programme operations, helping them reduce costs and passing on launched in 2020 to provided support to 330 firms in some of these savings to Radisson (WTTC Members, Egypt, Jordan, Ghana, Kenya, Indonesia, and Mexico. 2021). Small and medium firms under 250 employees must propose social, technological, or environmental Bond Issuances: Value chain financing can be scaled- innovations and prove their pre-COVID viability, and up through the issuing of bonds, such as green or blue then are eligible to receive training, targeted mentoring, bonds, and corporate bonds to support a tourism and financial support (up to € 9,000 per firm) over a destination’s ecosystem or an anchor firm’s supply chain. period of six months (enpact, 2021). For example in 2016 Starbucks issued its first Corporate Sustainability Bond in a US$ 500m offering to support Page 53 3.3 Building Back Better assets (IFC, 2016).  However, financial institutions and regulatory frameworks often favour immovable This crisis has highlighted the importance of addressing assets as collateral.  By reforming regulatory the tourism sector’s structural weaknesses and underlying frameworks, improving collateral registries, and market and government failures, and the need to do so in reforming the legal basis for secured transactions, new and innovative ways. As the pandemic subsides and financial institutions can use many of a grantor’s destinations reopen, countries can introduce a number movable assets as collateral.  In the US, for example, of policies and initiatives to ensure the long-term movable assets comprise around 70 percent of competitiveness of tourism, maximize its development SME lending (IFC, 2016).  Both Jamaica and Saint- impact and improve its resilience to future crises. This Lucia, two economies highly reliant on tourism, can be addressed by i) building competitive tourism have recently drafted updates to their legislative markets, ii) promoting green and resilient tourism, and frameworks to facilitate MABL, focusing on secured iii) creating inclusive value chains. transaction legislation accompanied by an online 3.3.1. Building Competitive Tourism Markets securities registry.  Policy reforms that address market and government FinTech Lending Platforms: Fintech Lending failures inhibiting investment in and productivity of Platforms can help overcome data gaps and tourism-related firms represent the most durable and accelerate loan relief.9 FinTech solutions, which effective means that governments can support the reduce transaction and borrowing costs, have recovery of the sector.  Governments should prioritize gained prominence throughout the pandemic in reforms to facilitate the entry and exit of firms into the both established and emerging markets, with online tourism sector and remove barriers to investment, as well lending providing fast and affordable financing for as address perennial access to finance barriers facing the SMEs in a scalable manner (Lara, 2020). Whereas sector and SMEs more broadly.  Such reforms will help the pandemic has rendered traditional lenders minimize the depreciation of critical sector-specific skills more cautious, many FinTech platforms’ data- and assets in the wake of firm bankruptcies, while also centric approaches allow them to more confidently enhancing competition across tourism sub-sectors.  Key assess an SME’s ability to borrow, particularly in reforms that governments may focus on include:  volatile times and with imperfect information, and provide loan relief quickly. In South Africa, for Improve Access to Finance instance Lulalend, a FinTech platform, has utilized Undertaking reforms aimed at removing barriers to AI-driven technology to help underwrite increased the efficient functioning of financial markets and heir bridge financing requests to fill salary and supplier enabling regulatory environments are key to building repayment gaps in the rescue phase, which have now resilience and long-term competitiveness of the sector. shifted to growth and reopening -related financing Two initiatives to highlight involving financial access requests such as inventory and equipment purchasing. and inclusion are collateralization and the facilitation of In many countries with less sophisticated financial FinTech lending. sectors, policy reforms are required to facilitate the emergence and regulation of FinTech platforms, and Collateralization: Asset registries are critical to regulators have been seizing this policy window. facilitating investment and movable asset-based A joint World Bank and Cambridge University lending (MABL) can be particularly important to survey of 114 jurisdictions found that 37 percent of bridging the traditional collateral constraints of regulators have taken at least one regulatory step to SMEs in the tourism sector.  In developing economies, enable increased use of FinTech since the pandemic movable assets such as equipment, inventory, and began, including opening the provisions of digital receivables make up around 78 percent of a firm’s financial services to new providers (CCAF, World capital stock, compared to 22 percent for immovable Bank and World Economic Group, 2020). 9 FinTech, or financial technology, is the term used to describe the advances in technology that have the potential to transform the provision of financial services spurring the development of new business models, applications, processes, and products. Page 54 Box 10: Leveraging Digitalization to support SMEs and Destinations The private sector and destinations have been leveraging points in order to drive visitors to specific destinations digitalization to create financing and SME support and businesses. The program has a specific goal of systems through firm-level partnerships, some with supporting small and local businesses that struggle to the explicit intention of benefitting struggling tourism generate repeat business. Similar destination loyalty SMEs. Two examples include loyalty programs and programs are being launched in the Maldives and Saudi subscription platforms. Arabia. Digital Wallets and Loyalty Programs: SMEs are Subscription platforms: As a way to generate more often at a disadvantage in terms of access to data and consistent revenue and provide a credit mechanism for direct customer engagement as they only serve a small risk-adverse travellers, new subscription models are portion of the overall visitor economy. Larger companies emerging for the tourism industry. Be Right Back is a are able to leverage their considerable customer base to European based travel agency that offers a monthly collect, analyse and monetize data, and create customer subscription service for UK travellers providing a loyalty schemes that generate revenue (through points European holiday every four months. The service extends purchasing) and lower the cost of marketing per discounts and bonuses as well as concierge services customer. Destination-led initiatives can increase data to match users with destinations. Since Be Right Back access equity, share the benefits of loyalty schemes, launched in 2018, more subscription travel services have and drive customer engagement. For example, Visit been introduced including Inspirato for luxury travel. Mexico partnered with financial technology company For emerging destinations, identifying opportunities Rêv to launch a digital wallet via a points-based loyalty to partner with these new businesses and ensure funds program tied to a debit account. The app, linked to a flow regularly is one method to create more consistent multi-currency debit account, gives tourists a locally revenues on the ground and spread benefit to smaller accepted e-payment method and offers discounts and businesses less connected to global distribution channels. Source: Skift, Inspirato, Techweek Facilitate Liquidation and Restructuring potentially help mitigate the consolidation of market power by incumbent firms as their competitors declare Cumbersome or otherwise inefficient liquidation and bankruptcy and may also help informal firms transition restructuring procedures generally discourage investment to the formal sector. More upstream, facilitating and delay the redeployment of skills and assets from a dynamic startup ecosystem, including improving insolvent to creditworthy firms.  By developing best the enabling environment for startup financing and practice procedures, governments can improve the increasing access to foreign capital, skills and ideas climate for new investments in the tourism sector and can support the efficient reallocation of resources and limit the depreciation of skills and assets critical to the accelerate innovation in products and services to re- tourism sector in a given destination. Insolvency process dynamize hard hit sub-sectors. reforms are context-specific; see the World Bank report on Supporting Firms in Restructuring and Recovery, Improve the Tourism Regulatory Environment and the Overview of Insolvency and Debt Restructuring The regulation of tourism providers, activities and Reforms for detailed information. destinations is important to ensure safety, fairness, and competition in tourism markets, and to control for Stimulate Entrepreneurship externalities, information inadequacies, coordination, Reducing the barriers to new firms entering into the and planning failures. This must be balanced with the tourism sector – through temporarily or permanently transaction and monetary costs of complying with reducing firm registration costs and simplifying sector regulations and their effects on sector dynamism, registration procedures – can help increase new firm innovation, informality, as well as industry cost creation and ensure a dynamic tourism sector, particularly structures and price competitiveness. In many cases, in the wake of the pandemic, which has resulted in both tourism regulations exist as a patchwork of requirements new business opportunities as well as firm closures. spanning various regulatory bodies, levels of government Measures that lower entry barriers to the tourism sector and time-periods. Regular reviews of tourism sector Page 55 regulations and their frameworks can help streamline created to tackle new coordination and market failures, and remove unnecessary regulations while ensuring to regulate the sharing economy, digital competition, or critical ones are sufficiently robust. Where possible, the climate impacts. Pakistan, for example, created its first digitisation and consolidation of licensing, registration, National Parks Service as part of its COVID Recovery renewals, fees, and taxes into one-stop-shops for Green Stimulus Initiative, to better protect wildlife and e-government can further reduce transaction costs. biodiversity while creating conservation and tourism jobs. Strengthen Institutional Capacity 3.3.2 Promoting Green & Resilient Tourism Governments should seek to strengthen sector associations, agencies, and ministries. The pandemic Plan for Future Crises has thrust a number of additional roles onto Tourism ministries, such as designing and administrating stimulus Shocks, both natural and human-caused, are inevitable, programs and coordinating travel and health protocols.  and sufficient preparation can reduce the fallout It has also increased the importance of more traditional and accelerate recovery from a crisis or disaster. It roles, such as coordination, public-private dialogue, and is important for the sector to have a comprehensive sector advocacy as well as data and demand forecasting.  crisis preparedness framework that includes planning Capacities will need to be built, commensurate with initiatives, capacity building programs, resources funding, to ensure these roles are mainstreamed into that can be rapidly mobilized (such as crisis escrow agency and sector operations to build long-term sector accounts), communications protocols and safety and resilience.  This includes coordinative structures to span security arrangements (see Box 8). Such frameworks the often-fragmented agencies and departments with should be regularly updated and developed in tandem tourism mandates which result in silos and slow decision- with the private sector in order to ensure their relevance making in times of crisis. New institutions may need to be and coordinated rollout when required. Page 56 Box 11: Towards a Resilient Tourism Framework In 2019, the world recorded nearly 400 natural disasters outlines a five-stage resilient tourism framework for causing an estimated US$130billion in economic destinations, the private sector, development partners, losses, which are likely to intensify in the future due financial institutions and tourists to better manage to climate change. The COVID-19 Pandemic, and and mitigate disaster risk (see Figure 20). This includes more recently the conflict in Ukraine, illustrate the improving access to disaster risk financing and risk diverse scopes and scales of crises that can affect the insurance, developing resilience knowledge bases and Tourism sector. Together, these shocks have revealed crisis playbooks, linking financial support and subsidies the sector’s global interconnectedness, its vulnerability to compliance with resilience criteria, and expanding and exposure to risk. The World Bank Report Resilient training and certification programs in tourism crisis Tourism: Competitiveness in the Face of Disasters management. Figure 19: Tourism Resilience Building Cycle 1. Understanding Risks Identifying disaster and climate risks that threaten the tourism sector and analyzing their potential impacts for destinations and firms. 1. Understanding 2. Planning and Prioritization 5. Long-Term Resillience Actions Risks Planning and prioritizing tourism development and investments to build resilience and avoid or MITI GA minimize negative impacts. RY TI VE Resilienc O try 3. Mitigation and Preparedness CO e N us 2. Planning and &P RE d Prioritization Steps for In Implementing resilience acations and REPA EDNES 4. Response and Recovery investments in advance to lessen the impacts of R 3. Mitigation and disasters and climate change. Preparedness 4. Response and Recovery S E RESPO NS Taking good response decisions and actions during and after disaster events to minimize Disaster Strikes disruptions and losses, and as a result, maintain and enhance competitiveness. 5. Long-Term Resilience Actions Planning for the long-term competitiveness of the sector through climate change mitigation actions. Source: Adapted from World Bank 2020 Act on Climate Change allocation of financing for their implementation. This can comprise upgrading sites and destinations with The tourism sector is highly vulnerable to climate change, however, many destinations have not adequately climate-resilient and nature-based infrastructure, which studied and planned for the impacts of climate change can reduce long-term disaster recovery and adaptation on the sector’s firms, sites, and revenues. The sector also costs. China’s Meishe River Greenway, for example, urgently needs to accelerate efforts to cut emissions and has regenerated wetlands and engineered bioswales scale-up climate action. Governments can improve the to build resilience to climate-change linked flooding monitoring of climate change and its impacts on sensitive while creating tourism and recreation infrastructure for destinations, for example through the use of Sustainable wildlife viewing, walking & biking trails. The project Tourism Observatories, as well as the publication and intentionally adopted a nature-based solution as opposed implementation of tourism climate mitigation and to traditional grey infrastructure such as sea walls to adaptation strategies and action plans, including the provide a more long-term and sustainable solution. Page 57 Build Economically Integrated Destination Increase Uptake of Sustainability Measures and Landscapes Certifications Many tourism destinations include nature-rich land and Investing in environmental measures can safeguard seascapes that have traditionally been reliant on tourism key sector assets, reduce long-term costs, better meet revenues to support government- or donor-funded consumer demand, and provide positive marketing conservation efforts. The opportunity to diversify and branding opportunities. Governments can reduce beyond tourism values to, for example, carbon and information and coordination failures by providing biodiversity credits, and ecosystem services values offers information on and incentivizing the uptake of firm these destinations the chance to build more economic and destination sustainability certifications, creating resilience through developing a market for those assets. sustainability awards and providing promotional As private capital becomes increasingly interested in opportunities to highlight eco-certified firms and carbon and biodiversity credits, there is an opportunity destinations. This includes programs to raise awareness to unlock this market further by developing clear systems of the environmental and cost savings of investments in that allow private developers to initiate and scale carbon renewable energy, green and climate-smart technologies. projects in specific country contexts. The business case is created by Article 6 of the Paris Agreement that allows Pursue Diversification countries with low emissions to sell their extra allowances The diversification of tourism source markets and to larger emitters, within the context of Nationally products can improve the long-term resilience of a Determined Contributions (NDCs). This presents a destination and its firms by spreading the risk across business opportunity for both investors (buyers) and multiple sources of demand. This is a long-term, active countries/destinations (sellers). It allows businesses to process involving coordinated national and destination- invest internationally and directly deliver on climate level strategic planning, product development, market change mitigation goals in other countries, and it allows research and marketing functions to ensure a varied selling countries that have exceeded their NDC targets visitor mix as well as reforms in related sectors such as to attract private capital to maintain and expand carbon visa and aviation policies. Diversification initiatives often and biodiversity-rich landscapes. Linking carbon and also entail geographic dispersal of tourism, which can biodiversity values to land and seascapes that form the extend tourism’s economic benefits - and its externalities basis of a destinations’ tourism endowment can result in - to less developed areas while relieving the pressures of climate-positive outcomes and improve the resilience of over-tourism to a country’s flagship destinations. destinations. Ensure Effective Site and Destination Planning, Strengthen Circular Economy Opportunities Development, and Management Circular Economy (CE) interventions seek to shift Enacting and enforcing land-use plans and zoning economic activities and business models from linear to policies to ensure an appropriate spatial development regenerative systems, creating value through restoration, of tourism and its support services—particularly in regeneration, and re-use of raw materials. Integrating naturally and culturally important and sensitive areas— CE principles into the tourism sector can help maximize can both build resilience to natural and climate-related the positive environmental externalities of tourism, disasters as well as assure sustainable development by contribute to mitigation and adaptation to climate safeguarding the assets upon which tourism relies. It is change, protect destinations and ecosystems and create also important to invest in destination infrastructure economic benefits through new business models. This and site upgrading. Many destinations have suffered can be achieved by integrating CE principles in tourism- from deferred maintenance and reduced investment related legislation and policies, facilitating supply chain during COVID. Changing demand trends have in some cooperation, increasing data sharing and harmonisation, instances increased pressures on certain products— promoting increased circular innovation, and facilitating such as nature tourism products accessible by domestic access to knowledge, information, and finance on visitors—which often have insufficient visitor facilities circularity. Addressing plastics pollution and food waste to cope with the influx of new visitors. Destinations can are two tangible areas that can lead to both reduced costs increase investments in visitor facilities and site upgrades and externalities for tourism firms and destinations. to prepare for the reopening, and where appropriate to Page 58 adapt products to changing trends. Exploring PPPs in return to the tourism workforce as they face structural managing and developing public assets, such as protected and cultural barriers and disproportionately provide area concessions, can help ease the burden of investing household labor and care commitments. Destinations in the tourism asset base in times of stringent fiscal should i) ensure gender-disaggregated tourism data is constraints and has the potential to increase operational collected and reported, including on COVID impacts; efficiencies. ii) include women in recovery planning decisions; iii) foster women’s tourism networks and associations, and 3.3.3 Creating Inclusive Value Chains iv) address gender gaps and barriers through legislation, communication and financing, including underlying Strengthen Local Value Chains cultural and systemic barriers. For more information, The Tourism sector’s strong multiplier effect has meant see the World Bank Report on Women and Tourism: the impacts of the pandemic have been felt throughout Designing for Inclusion. its value chain and its suppliers. Concomitantly, global supply chain bottlenecks can provide opportunities Foster Tourism SME Distribution Linkages to foster local linkages and strengthen coordination Studies show that the ability for tourism MSMEs to between industries to improve their resilience to future effectively connect to global value chains depends heavily crises. Governments can facilitate the provision of market on the quality of the business environment, access to information and improve market structures to increase finance and labor skills (OECD, 2013). Improving online buyer’s incentives to purchase locally. Interventions can government to business interactions and facilitating be guided by detailed value chain analyses of tourism sub- digital adoption can help tourism MSMEs increase sectors and their suppliers. Successful inclusive tourism productivity. Digitalization can also help MSMEs development programs combine supply-side (data, assume more control over key nodes in the value chain training, financing), with demand actions (marketing, by accessing source markets more directly, thus reducing distribution linkages). For more information see the ODI their reliance on key anchor firms and intermediaries to and SNV Report How can governments boost the local drive demand. This can lower costs and enable increased economic impacts of tourism?. agility in responding to demand and supply changes. Address Informality Empower Subnational Tourism Institutions Facilitating the formalization of tourism enterprises Strengthening subnational tourism institutions and can improve their resilience by increasing options for governance frameworks can increase inclusion by accessing finance and sector support measures in future bringing decision-making and implementation closer crises. Formalization can also help track and monitor to those most impacted by the sector. Concerted efforts the tourism sector’s true size, economic impact and are required to ensure subnational initiatives are aligned health to more accurately inform the scale and scope with national strategies and campaigns, and, where of future crisis response measures. It is important that appropriate, that subnational institutional capacities are basic licensing categories are introduced with minimum built commensurate with dedicated funding streams to standards and reduced fees that minimize regulatory develop, manage, enforce and promote tourism locally. and transaction cost burdens for smaller operators, for Destination Management Organizations and/or Tourism example of guest houses or non-star hotels. Improvement Districts, whose finances have been particularly affected due to declines in visitation-linked Reduce Barriers for Women revenues (and in many cases suspended firm membership/ Women business owners and employees have been district fees), can be particularly important subnational disproportionately affected by COVID-related economic institutions for the coordination of local-level product impacts and job losses, and they have been slower to development, coordination and marketing linkages. Page 59 Page 60 3.4 Operationalizing Sector Interventions the specific approach, tools, investments and initiatives Throughout the Tourism Ecosystem required for a competitive, green, resilient and inclusive recovery are highly context-specific. These depend Operationalizing the menu of support and recovery on a variety of factors such as the country’s tourism options discussed in section 3.1 to 3.3 will require development trajectory, level of pandemic impacts, sector financing and technical support. It will also require management and governance, status of its enablers, state contextualization. While the general consumer trends of its tourism enterprises and clusters as well as their towards sustainability and global concern over climate resource base. Figure 21 shows the tourism ecosystem change and gender equity cut across all destinations, and its various components. Figure 20: Tourism Sector Structure and Ecosystem Framework LEVEL 1 LEVEL 2 LEVEL 3 LEVEL 4 SECTOR MANAGEMENT ENABLERS TOURISM ENTERPRISES RESOURCE BASE AND GOVERNANCE CLUSTERS (SUSTAINABILITY) (JOBS AND GROWTH) Training and Goods an Services Vision Natural Environment Education Supplying Tourism Legal and Sector Policy Access and Transport Culture and Heritage Regulatory Licensing and Sector Strategy Accommodation Urban Areas Standards Public Institutional Investments and Access Activities, Facilities and Arrangements to Finance Attractions Institutions Image and Marketing Community Based and Physical Civil Society Involvement Infrastructure Competitive Sustainable Planning and Monitoring Security, Health and Inclusive Value Chains Results Framework Safety Environmental and Information and Cultural Management Statistics Public Private Dialogue Business Efficiency and Mechanism Competitiveness Source: The World Bank. Tourism Diagnostic Toolkit. Page 61 Whilst the basic principles of a successful tourism to be successful, deficiencies in these components need ecosystem remain the same as before COVID-19, the to be assessed, mapped and prioritized, according to importance of issues such as health and safety, thriving potential impact and feasibility of improvements, in local supply chains, environmental impacts and public- order to create a road map for sector competitiveness. private dialogue have been emphasized by the pandemic. It is important to consider the inter-relatedness of these These factors create the basis for sustainable and factors when planning sector interventions, as activities competitive tourism sectors, and each are required may be required at different levels or across multiple to be addressed in a holistic manner for the sector to components to generate the desired impact. function effectively. For tourism development projects Figure 21: Green, Resilient, Inclusive Development (GRID) Framework for Tourism Interventions Build Competitive and Promote Green & Create Inclusive Productive Tourism Markets Resilient Tourism Value Chains • Improve access to finance • Implement sector resilience and • Strengthen local value chains • Stimulate entrepreneurship crisis management • Address informality • Update policy, legal and • Plan for and act on climate • Reduce barriers for women regulatory environment including change • Foster Tourism SME linkages on reopening • Strengthen circular economy • Empower subnational Tourism • Improve business enabling opportunities institutions environment  • Increase sustainability measures • Promote digitalization • Strengthen institutional capacity and certifications • Ensure stakeholder involvement • Facilitate market access and • Pursue diversification and empowerment demand stimulation • Alignment of Tourism policy laws • Enable investment promotion and regulations for sustainability and planning • Effective Tourism and site planning, development and management • Enable sustainable financing Source: The World Bank In order to utilize tourism as a tool for economic and It is important that GRID interventions are considered human development, and to ensure the sector itself as key objectives when structuring and developing is green, resilient, and inclusive, each of its ecosystem the tourism sector rather than as auxiliary activities. components and destination needs should be addressed Critically, given scarce public funds, priority should be through a GRID filter. Pillar one in the diagram above placed at minimizing the sector’s negative externalities highlights the importance of building competitiveness while maximizing its positive spillovers. Leveraging in recovery, this needs to be accompanied by work to private funds for these objectives, and ensuring that increase resilience and sustainability and build inclusive incentives are aligned to encourage green, inclusive and supply chains (See section 3.3). These activities, when resilient decisions throughout the tourism sector (from customized to the local context, can form the basis of visitors to firms and public entities) are key in producing tourism projects, action plans and roadmaps to ensure a impacts at scale. GRID approach to the sector and its recovery. Page 62 3.5 Conclusion become more localized. Policymakers must consider the appropriateness of tools and policies on a case-by-case The tourism sector is not just affected by a temporary basis, taking into consideration the nature of the crisis supply shock, but by a prolonged transformation and its effects on the respective destination(s), the form of demand and gradual recovery. This report has of the recovery or lack thereof, and the externalities examined the rationale for government intervention generated by different firms along the value chain.  in tourism along with options to assist sector recovery Data will be critical as will ensuring flexibility to adjust and considerations of their potential effects. The crisis support programs to respond to the volatile nature of is ongoing, and it is not yet clear what mechanisms the recovery. Regardless of short-term support measures, are most effective or desirable from a public policy policy reforms and initiatives should be pursued to make perspective. Nevertheless, this report provides some the sector more competitive, resilient, sustainable, and guiding principles to aid governments in context-specific inclusive in the long-term. These should aim to address decisions. Looking to the future, decisions on the forms of the specific market failures without exacerbating or future support are likely to be more nuanced and context creating new government failures. specific as the pandemic’s effects, severity and measures Page 63 Annex Page 64 Interviewees Name Position Organization Region Abdelmoughite Abdelmoumen Strategy & Cooperation Manager Central Guarantee Fund Morocco Morocco Sirili Akko CEO Tanzania Association of Tour Operators (TATO) Tanzania Stewart Alvarez Head of Industry Affairs Americas Amadeus Global Luis Araújo President Turismo de Portugal Portugal Deputy General Manager - Business Events and Turkey Tourism Promotion & Development Agency Elif Balcı Fisunoğlu Turkey Tourism Product Development Chema Basterrechea Executive Vice President & Chief Operating Officer Radisson Hotel Group Global Brian Beall Vice President, Government Affairs Cruise Lines International Association Global Martin Cowley Executive Chairman Travica Global Shamsah Fatima Dhala Principal Investment Officer IFC Global Simon Dunn Operating Partner Global Leisure Partners Global Dan Fenton Executive Vice President JLL’s Hotels & Hospitality Group Global Andrés García-Tenorío Del Cerro Finance & Strategy Director Hotelbeds Global Charles Human President HVS Europe HVS Global Robin Ingle CEO Novus Health Global Hamish Keith CEO EXO Travel South Asia Tom Klein Senior Managing Director Certares Global Mahima Khanna Economist IFC Global Pamela Kwiatkowski Senior VP distribution & Client experience Novus Health Global Olayinka Charles Laswon Investment Officer IFC Global Monika Luel Chief Marketing Officer Wesgro South Africa Rajat Malik Investment Officer IFC Global Blake Rogers Executive Director Tourism Industry Association of the Yukon Canada Marta Sanchez-Sache Senior Investment Officer IFC Global Managing Director – UK, Ireland, Middle East & Peter Shanks   Silversea Cruises Global Africa Sylvia Shelukindo Partner Bankable Africa Mark Siegel Managing Director Golfasian Asia Steven S. Siegel Partner & Chief Operating Officer KSL Capital Partners Global Paul Slattery Director Otus & Co Global Craig Smith Group President, International Marriott International Global Tammy Tullis Board member Pro-Natura International Africa Belinda Udhin Tourism Promotion Officer Mauritius Tourism Promotion Authority Mauritius Koto Ueda Investment Analyst IFC Global Peter Vlitas Senior Vice President – Airline Relations Internova Travel Group Global Devang Vussonji Partner Dalberg Advisors Global Page 65 WBG-WTTC pulse survey respondent regions and subsectors First Pulse Survey (December 2020 – January 2021) Pulse Survey Respondent Region Pulse Survey Respondent Subsector 3% 6% 14% 26% 11% 28% 15% 17% 18% 18% 25% 19% Middle East South America TravelTech & Insurance Other Mexico & Caribbean Europe Accommodation DMO / Consulting / Marketing Asia Pacific USA & Canada Tour Operators (Multi-Service, ITO, OTOs, TAs) Other Pulse Survey Respondent Headquarters Location Pulse Survey Respondent Subsector 2% 8% 14% 1% 21% 13% 33% 11% 21% 9% 38% 29% North America Latin America & Caribbean TravelTech & Insurance Other Western Europe Middle East & North Africa Accommodation DMO / Consulting / Marketing Sub-Saharan Africa South Asia Tour Operators (Multi-Service, ITO, OTOs, TAs) East Asia Pacific Page 66 References Page 67 AHLA. 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(World Bank, Interviewer) Page 72 Page 73 Tourism for Development Rebuilding Tourism Competitiveness: from Crisis to Sustainability For more information, email us at tourism@worldbankgroup.org Engage with us on social media at #tourism4dev