Can tourism save our economy?

Tourism is a great way to kick-start an economy after a recession.

Many of us follow the ups and downs in dairy prices as closely as we follow the All Blacks. As a country we depend a lot on the price cycle of dairy - many commentators would argue too much. The key problem is that milk is a commodity that is mass-produced in other places, especially since the EU has lifted its quotas.

But we do have a unique selling proposition with tourism. We may not notice it when we are stuck in our daily traffic jams but New Zealand is blessed with features that make it a very attractive destination. The scenery is stunning, it is compact, the main language is English and it is generally safe to travel here. That's why international tourism has grown to a $10 billion industry, edging closer to dairy as our No 1 export earner. Travel and tourism (including domestic) constitutes close to 15 per cent of the country's GDP.

The problem is that tourism is also highly cyclical, even more than the economy as a whole. Holidays are the first thing consumers cut back on when the economy turns sour. So if a country goes through a downturn, visitor numbers from that place dry up, especially because New Zealand is a faraway destination for 99 per cent of the world's population.

My research has shown there are several things we can do about this. While we cannot control the world's business cycles, we can ride them better. For most sectors, ups and downs in business cycles are different in nature: downs are quick and deep, and ups are slow and gradual. Interestingly, this does not hold for tourism. Compared to the rest of the economy, tourism bounds back faster after a downturn. When consumers have just gone through a recession, they want to reward themselves with a nice holiday. So tourism can be the engine for kickstarting the economy after a recession.

Another insight is that countries do not go through peaks and troughs at the same time. Unlike dairy prices, where we put all our eggs in one basket, international tourism is driven by the economic situations in different countries. For example, Europe and Australia go through quite different cycles, and the same applies for North America and Southeast Asia. So if one region is sluggish, we can turn our attention to other, improving regions.

Another interesting finding is that countries are more responsive to our tourism marketing in downturns because there is less competition from competing destinations. I have also found those countries with the most volatile economies have the biggest long-term growth potential for tourism to New Zealand - China, Indonesia, and South Korea are good examples.

Another natural buffer is that many visitors come here to visit friends and relatives. This group is much less sensitive to the business cycle than regular tourists. In the light of the recent surge in immigration numbers, especially from Asia, we can expect many followup visits by friends and family members in the years to come.

As a country we can - and should - further boost visitor numbers through tourism marketing. Tourism New Zealand spends roughly $120 per year million on promoting this country overseas, which may sound like a lot but it is about 1 per cent of international tourism revenue.

After analysing the return on New Zealand's tourism marketing investment, I found for every dollar spent, we earn around a net $2 for the economy. That is a great return on investment, and I believe Tourism NZ should be applauded for its efforts. But we could earn even more if the Government and its partners invested more in marketing, and if they invested it smarter.

Many international firms, as a rule of thumb, spend 5 per cent on marketing and big firms sometimes even up to 20 per cent. Given the effectiveness of the spend, I believe the Government should increase its international tourism marketing budget by at least 50 per cent.

I have also calculated the return on Tourism NZ's current marketing spend if it was allocated differently, with an eye to diversifying better across countries and the business cycle. I am confident that a nett gain of around $80 million can be made for the economy.
Making New Zealand more accessible also helps a lot. The country achieves great returns every time the number of flight connections increases. Direct routes from Auckland to populous countries like India, Brazil, Philippines, Indonesia (other than Bali) or Mexico could do wonders.

We also need to think about the way we promote our country. For too long, New Zealand has relied on its scenery to appeal to tourists. As a result we attract a lot of backpackers and tour buses visiting the obligatory highlights. Catering for a wide range of holiday styles allows us to spread tourism streams more evenly over the seasons and around the country. 100% Pure New Zealand is great, but limited, and it's time to diversify the experiences we market as well.