Tourism as Foreign Aid

A couple of weeks ago, I spent 5 days contributing to the economic wellbeing of a developing nation. To be more specific, I spent 5 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 $1500 per person, just to pick a round number. 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 $1500 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, maintenance of buildings, 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.

2 comments so far

  1. Stacy Mc. on

    I think one of the biggest issues with the hotel industry is that not all hotel chains buy products and goods from the local economy. At least that was the big problem about a decade ago that was highlighted in Jamaica. So when you talk about including the cost of food, labour, alcohol, maintenance of buildings, etc. the only certainty is labor. Food + alcohol is often shipped places like the U.S. I’m not sure about building materials but I am sure design materials were shipped in as well. As the business climate changes and people focus more on CSR this area will hopefully continue to shift as well. But as of now, I think the among of income that goes into the local economy was a good deal less than $675. Though it completely depends on what type of all inclusive you went to. If it is a global chain that is run by an MCN that is the case. If you chose a boutique hotel (which I’m not sure how many all inclusives are local boutique hotels) then it is possible that most of the $675 benefited Mexico.

    • Chris MacDonald on

      Stacy:

      Thanks for your comment. My economic breakdown is admittedly pretty rough. I don’t know what % of a resort’s expenses stay local (certainly lots of the food and alcohol was of Mexican origin).

      Of course, I don’t have any objection to contributing to OTHER economies, either. For almost any industry that takes a slice of that total cost, profits are almost certainly a smaller factor than labour.


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