‘Tourism Leakage’ in South America & Beyond

Terra Sur Travels > Blog > ‘Tourism Leakage’ in South America & Beyond

Do you know exactly where your money ends up when you’re spending whilst on holiday? Are you aware of tourism leakage?

No. Well, you’re not alone. That cute restaurant that you assumed was locally owned. Souvenirs you bought at supposedly local markets. The local tour guide that educated you about the area. Unfortunately, a vast majority of travellers don’t know where profits genuinely end up and are not aware of tourism leakage.

As the tourism industry starts to re-build post-COVID-19, regenerative tourism is becoming increasingly popular. Tourists and travellers are becoming more aware than ever before of overconsumption, leaning towards sustainable tourism. Considerations other than environmental impacts are increasingly in the spotlight.

Regenerative tourism is a framework that creates abundance for all stakeholders embedding conservation, communities, culture and collaboration into recovery and crisis plans. Regenerative tourism will not only help bring valuable income to local communities in South America but also underpins pride in their culture and traditions.

Tourism has great potential for linkages with local enterprises, craft sellers, local guides, restaurants, local food producers and fishing communities but not all of a traveller’s money spent will trickle down into local people’s pockets due to what is known as ‘tourism leakage’. Social, cultural and economic effects on host communities are key to a sustainable tourism industry and minimising Tourism Leakage plays a big part in this.


Tourism leakage in Latin America and beyond

So, what is Tourism Leakage?

Tourism Leakage is the name given to the concept of profit generated by tourism leaving the host community. Also referred to as ‘Economic Leakage’ or ‘Leakage Effect’. Simply put, the money spent whilst on holiday leaks out of the host country, often ending up in the pockets of large, multinational global conglomerates. Already wealthy brands like Coca Cola continue to benefit and local businesses lose out.

It’s not uncommon that 90% of the tourism dollars spent by travelers leak out of the actual destination. For every $100 spent by a tourist on a holiday to a developing country, only $5 remains in the host community. So that’s a tourism leakage of 95% according to the figures published by the UN Atlas of the World.

If you’re not aware of where your money is ending up, then Tourism Leakage can happen anywhere. In developing nations it’s heightened as local companies may not have enough capital to invest and international giants drive up prices. Plus, travellers’ desires for luxury, comfort and familiarity exacerbate the issue in such countries.

A report by The Charles Darwin Foundation suggests that in 2007 the estimated value of Galapagos tourism was $418M of which only $63M enters the local economy. Therefore, only 15.5% of the full value of tourism reaches local residents. A move toward higher volumes of tourists has seen an increase in multinational investment impacting a decrease away from local ownership.

There are two types of tourism leakage:

EXPORT LEAKAGE:– occurs when there is international ownership and therefore profits from the tourism dollars you spend leave the country. For example, staying in the Mercure Alameda Quito, Ecuador means that the profits end up back in France as it’s a French multinational hospitality company.

IMPORT LEAKAGE:– happens when tourists spend money on products and services that are imported. For example, drinking Stella Artois beer in Colombia results in import leakage. Money leaves the country to pay for the import of Belgium beer. Alternatively, drinking Dorda Pils keeps the dollar local as it’s brewed locally in Colombia.

Some countries even import labour. Rather than offering locals jobs they buy in English speaking staff to make tourists feel more comfortable. Or it may be that importing labour is a cheaper option.

One conscious decision is all it takes to help move towards a kinder, more authentic world in which equity is more balanced and ‘tourism leakage’ is reduced.


Strategies to drive positive change and help minimise Tourism Leakage?

  1. Choose local, from transport to shopping, food and drink and accommodation, always try your best to spend with companies that are locally owned. Those welcome tourism dollars will go back into the community and have a positive impact on the lives of locals. Every penny you spend in a responsible way can make a huge difference to local people. Buy local goods and produce from markets and community-owned stores rather than large chains. Choose accommodation owned by locals rather than foreign companies. Spend generously in small local restaurants or street food stalls and use local guides wherever possible.
  2. Do your research, sometimes what, at first, appears to be a local company is actually internationally owned. Pick up the phone or send an email to find out if a business is locally owned if you can’t figure it out online. When you do travel, make it your aim to learn more about the community, the people and their culture. Travelling like this will offer a more authentic and rewarding trip.
  3. Book direct or use a local booking site. Booking sites such as booking.com and Expedia have benefits in that they market local accommodation internationally and to a wider audience that they may be able to do themselves, but they do take a %. By booking direct 100% of the money will go into the local owner’s pocket. Once you’ve found an option on a large internationally owned platform explore whether there is the opportunity to book direct.
  4. Use local experts who have the knowledge such as Terra Sur Travels who offer conscious and valuable experiences with a local perspective across Ecuador, Galapagos, Peru, Colombia and Costa Rica. Terra Sur Travels commits to making a positive impact on the host community not only providing enriching experiences for them but also contributing to the local economy. Local travel experts will be able to support you through the process of booking your trip and answer any specific questions you have on how to keep your travels as responsible and regenerative as possible.
  5. Spread the love and visit less frequented areas outside popular destinations. It’s common that money from tourism is spent in small defined and popular areas. Overtourism has been high on the agenda for a few years now and will continue to be a consideration post-pandemic. Visiting less well-known areas spreads the positive benefits of the tourism dollar outside of well-trodden obvious locations. A couple of weeks in one location can be broken up by staying in different accommodation, this spreads the economic benefits. It also provides the opportunity to meet different local people and to have a couple of experiences. Two holidays for the price of one, now that’s a bargain!

A report from the World Bank found that extreme poverty in Latin America halved between 1995-2011 but that as welcome as the trend is some 220 million of the population are classified as vulnerable existing on just $4-10 a day.

Handicraft in Ecuador

What seems like a small amount of money to you on your South American travels can make a huge difference to the local people. Spend wisely and spend generously but most important of all be aware of where your money ends up.

A better understanding of Tourism Leakage will help minimise its effects and encourage us all to be more mindful of future travels. As responsible travellers, together we can be the positive change that’s needed.

This article was written for Fair Tourism Foundation by Bex Thomas, Founder and Editor at Spending her time between France and Australia, Bex’s responsible travel blog showcases local options in response to tourism leakage. She upholds values around equality and believes the best travel experiences come from staying with and supporting locals. Bex hopes that her blog will inspire and empower you to choose local and help minimise tourism leakage.

Connect with our friend Bex on FacebookInstagram and Linkedin.

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