Blogs & Comment

Tourism, profits and developing nations

What does five days in paradise contribute to a local economy?

(Photo: Philip and Karen Smith/Iconica)

A couple of weeks ago, I spent five days contributing to the economic wellbeing of a developing nation. To be more specific, I spent five days in Mexico, at an all-inclusive resort on the Mayan Riviera. I’m a lucky, lucky man, no doubt. So in what sense does my vacation count as “contributing to the economic wellbeing of a developing nation”?

Now, to be clear, this is a personal example, and so there’s reason for me to worry about the clarity of my own thinking (even now that the margaritas have long-since worn off). Am I just congratulating myself in order to get past the uncomfortable feeling that many people from affluent nations feel at enjoying luxury while visiting a nation rife with poverty? After all, the tourism industry is often portrayed as one that helps mostly-white Northerners visit places where they pay mostly-brown inhabitants of southern climes to call them “sir” or “ma’am”—with the profits going largely to the mostly-wealthy shareholders of the cruise-line or resort chain.

But is that portrayal of the industry accurate? Let’s take a very rough look at the economics, here.

Let’s say a vacation package—flight plus accommodations at an all-inclusive resort—costs something like $1,500 per person. Where does the money actually go? Who does it help? By vacationing in Mexico, am I helping Mexicans, or just the shareholders of some American or Canadian corporation?

A big chunk of that $1500, maybe a little less than half, goes to the airline. Aha! Profits for the airlines!

But wait a minute. Profit margins in that industry are razor-thin—in some years, negative! So most of the airline’s half of that $1,500 isn’t actually going to shareholders in the form of profits, but is instead going to cover the airline’s costs, including fuel, salaries, etc.

The other half ($750) of the total price goes to the resort. How much of that is profit? One source (a few years old) puts profit margins in the resort industry at about 8%. Let’s be generous and round up to 10%. That means $75 profit, which leaves $675 for various costs—including the cost of food, labour, alcohol, site maintenance, and so on. And it’s a truism of economics that $675 in costs for them is $675 in income for someone else.

And so, overall, only a tiny sliver of the money paid for such a vacation goes to the shareholders of the airline and of the company that owns the resort. Most goes to employees, and suppliers, and employees of suppliers, and so on. About half of that stays in Canada (home of the airline) and almost half stays in Mexico (where the employees and key suppliers of the resort are). By my very rough math, I contributed nearly $700 to the Mexican economy, and more specifically to the income of low-wage Mexicans. And it’s a kind of help I’m very happy to give.

So the questions for discussion: “Is my math at least roughly right?” and “Is this the sort of math those of us who aspire to ethical tourism ought to be doing?” Of course, I’m setting aside for now the environmental impact of such a trip. I’ll leave that for a future blog entry. But at very least, it seems to me that a rough assessment of the economic impact of a vacation is a pretty good starting point.