Vibrant Tourism Sector Vital To Economic Revival

During its regular session last week, the Council of Ministers chaired by His Highness the Prime Minister Sheikh Sabah Al- Khalid Al-Hamad Al-Sabah, called on the Minister of Finance Khalifa Hamada to urgently solve the challenges hindering the Touristic Enterprises Company from launching major entertainment projects.

Considering that developing the tourism sector would support the economic and financial priorities of the government, one would have expected the authorities to seize every opportunity to promote and develop this vital economic sector. Perversely, that has not happened in the past and it is unlikely to happen now either, though one can always hope that wiser counsel will prevail this time around.

The present scenario of a hurried interest by the authorities in reviving and developing tourism in the country has played out before. Every time oil prices fall and economic travails begin to loom, the government expresses its keenness to revive the tourism sector, but then funds are not available to develop the sector. But the moment international oil prices register a spike and revenues increase, tourism is pushed to the back-burner as a non-priority item, and it languishes there until the next economic downturn.

That the government is now keen to push through tourism projects, and find solutions to problems curbing the development of tourism, is an affirmation, if one was needed, that the economy is once again going through a downturn. Confronted by the economic exigencies and repercussions of the COVID-19 crisis, including a sharp fall in global demand for oil and consequently lower oil prices, the government has had to cope with a severe decline in revenues that led to registering a record budget deficit.

In addition, the near depletion of the state treasury — the General Reserve Fund — and parliamentary objections to borrowing on the international debt markets, have resulted in a liquidity crunch that has compelled the government to initiate unprecedented measures to stay afloat. In the past one year, the authorities have had to hock state assets to the sovereign wealth fund — the Future Generations Fund (FGF) — in exchange for cash infusions. It has also changed the law to make the annual transfer of 10 percent of revenues to the FGF conditional on the country registering a budget surplus.

Plans are also said to be underway to withdraw funds directly from the FGF during the current interim period of parliament. In response to a recent query by parliamentarian Mohalhal Al-Mudhaf, the finance minister admitted that withdrawal from the FGF and issuing of public debt were not solutions to the deep-rooted structural imbalances in the country’s economy and labor market. He added that nevertheless, these temporary measures were needed to transit the current financial crisis and to provide the government time to pursue economic reforms in a gradual manner, so as to achieve financial stability and develop the economy, without impacting the welfare of citizens.

The finance minister also added that permitting the government to withdraw limited funds from the FGF is closely linked to finding long-term solutions to the liquidity deficit currently experienced. Saddled by recurring budget deficits from lower oil prices and production cuts in recent years, and inability to issue debt instruments, Kuwait has been struggling to maintain financial stability and economic growth. Last week, the global sovereign credit rating agency, Fitch Solutions, said that it expected Kuwait’s economy, which suffered a slump of 10.5 percent in 2020, to recover and reach its pre-pandemic level only by 2024.

The agency noted that Kuwait’s long-term outlook remained weak, due to underlying structural imbalances, the ongoing contentious relations between the executive and legislative branches of government, and the fact that export growth, which is a key-driver of economic expansion, will remain sluggish in the coming years on account of relatively lower oil prices and stagnant oil production.

On the brighter side, the recent decrease in number of daily COVID-19 infections and fatalities, the fall in patients seeking treatment in hospital intensive care units, and a rapid increase in the number of vaccinated people, have given rise to a cautious optimism among the authorities that the worst of the health crisis could be behind us. The vaccination program, which is close to achieving its target of vaccinating 70 percent of the population — deemed necessary to achieve the community immunity threshold — has also given rise to a growing optimism among the public that pre-pandemic levels of activities could be resumed in the near future.

For its part, the government had directed that public sector employees will resume work at official timings and with 100 percent attendance from mid-August, and that school would reopen with regular in-person classes resuming from the next academic year in October. Encouraged by favorable epidemiological figures, the authorities have also decided to lift border closures and roll back many of the travel restrictions to and from Kuwait that were imposed over a year ago as part of precautionary measures.

Foreign nationals are now allowed to travel to Kuwait, while adhering to health and safety guidelines, and Kuwait International Airport is slowly limping back to full operational capacity. The travel and tourism sector that was among the worst affected by repercussions from the pandemic, is hoping that after more than 18 months of downturn, a pent-up demand for travel and tourism could see a revival of the industry in the coming months.

Stay-at-home restrictions have limited public entertainments or socializing opportunities for much of the past year and half. The travel industry is hoping that the desire to get out of home and go elsewhere for a change among citizens, and to travel back home to meet relatives and friends by expatriates, will lead to more international travel and help stabilize the travel and tourism industry.

A resilient tourism sector is vital to the economic development of the country and has traditionally offered strong returns to the economy through increases in GDP and labor absorption. In Kuwait, the sector is also crucial in supporting most of the government’s economic revival plans, including in diversifying the economy, encouraging greater private sector participation in the economy, and providing national youth with gainful employment opportunities.

Besides contributing to the holistic growth and development of a nation and its economy, travel and tourism also helps in building the country’s brand value, image and identity. International travelers visiting the country carry back images and perceptions about the land, while travelers from the country to other places are often seen as representatives of the nation. Creating a positive image for the country is thus key to ensuring return visitors and developing more travel and tourism opportunities.

According to the United Nations World Tourism Organization (UNWTO), travel and tourism is one of the world’s biggest economic activities, driving the creation of wealth, employment and development. A recent report by UNWTO noted that the tourism sector is also supported and complemented by several tourism focused industries that offer related products and services, including hotels and other accommodations, restaurants and dining venues, various modes of transport, retail trade, rentals, travel agencies and reservation services, as well as cultural, sports and recreational activities.

Tourism also allows wealth to be injected into a country and to local communities in various ways. A prime benefit of the industry is that it is exceptionally labor intensive and provides direct and indirect employment to tens of thousands. This ranges from directly influenced positions like taxi-operators, tour guides, hotel staff, coach services, restaurants, and laundry services. These businesses not only pay regular wages, but also source goods and products locally, giving a further boost to local industry.

Supporting industries like retail, food production, health and wellness centers that employ a large pool of labor, also benefit indirectly from tourism, although it may not be obvious at first glance. Moreover, many of the businesses that operate within the tourism sector are usually, micro-, small-, and medium-enterprises, where every dinar coming into the industry is felt quickly by business owners and staff, and is directly related to a boost in local spending.

With public-sector jobs in Kuwait bloated beyond belief by providing employment to citizens, and a private-sector that remains reluctant to hire nationals, self-employment through tourism-supporting ventures could be a lifeline for the authorities. The government’s need to provide gainful employment to the large number of national youth entering the labor market each year, could be met to a certain extent by encouraging entrepreneurship in the travel and tourism sector.

Besides the money spent directly by tourists in the economy, the tourism earnings by both businesses and individuals are also usually re-injected into the local economy. This results in tourism having a multiplier-effect, with more money being earned locally from tourism, and that money being spent locally to boost the economy at the community level. The multiplier-effect is fostered each time that earnings from tourism are reintroduced back into the economy, and with more tourist money coming in resulting in larger economic benefit for everyone.

Tourism is also a great asset in that it helps diversify the economy, with the additional revenue buffering the country’s coffers. This provides authorities with additional income to spend on launching or developing more projects, including for developing the infrastructure, and improving spaces and services for the public. The better facilities bring in more visitors, who support the economic development even further.

Kuwait’s economy , which has been hamstrung by its overdependence on oil as the main, and often only, source of revenue to the state, could benefit greatly by diversifying into non-oil sources of income. The government has for the past many years been trying desperately to wean the country from its over-reliance on oil income, but non-oil revenues continue to be dwarfed by the preponderant role of oil in the economy. The country’s revenues from petroleum exports account for more than half of its GDP and 95 percent of government income. Developing a strong tourism sector could provide support to the country’s diversification plans.

According to the UNWTO, developing a tourism sector gives a country’s economy a new lease and creates opportunities for entrepreneurs to establish new services and products, or facilities that would not be sustainable based on the spending patterns of the local population alone. But, in order to consistently attract new tourists, to establish a strong inbound tourism market, and to sustain tourism growth a country needs to do several things right.

The ability of the national economy to benefit from tourism depends in large measure on the availability of investment to develop the necessary tourism infrastructure and on its ability to supply the needs of tourists, including appealing entertainment venues, as well as business and leisure attractions. However, major investment in Kuwait’s tourism sector continues to be thwarted by several legal and bureaucratic hindrances.

For instance, the state property law has been identified as one of the main stumbling blocks to investments in the sector. Degree Law (105) of 1980 related to state property does not give companies investing in tourism projects the necessary flexibility required to achieve its objectives, including the relatively short duration of contracts that make tourism investment in major projects, especially long-term, discouraging to investors.

Law No.7 of 2008 passed regarding the Regulation of Build, Operate and Transfer (BOT) Operations, limits BOT projects to a lifespan of 30 years, after which the projects must be handed back to the state “without any consideration and compensation’. Though this period was extended to 50 years in the new Public Private Partnership (PPP) Law No. 116 of 2014), it still falls short of investor needs and fails to quell many of the other misgivings about investment in this sector.

Tourism project developers and investors often complain of the lack of clarity, and the overlap and conflict between various government regulations and procedures, as well as the lack of incentives for tourism development, as discouraging factors to investments. Besides these, the continued economic repercussions from the ongoing global pandemic, and the present liquidity crisis have forced the government to pursue several austerity measures. This includes canceling, shelving or delaying projects, many of which have a direct or indirect bearing on tourism, which further impacts investments in the sector.

Despite these drawbacks, hope is that realization of the many economic, financial and social benefits of developing a stable tourism sector, and the relative importance of tourism to the overall economic development of the country, will lead to the government deciding on promoting a resilient and dynamic tourism industry in the near future. Let us keep our fingers crossed.

 

 

SOURE  TIMESKUWAIT

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