Tourism: The new leg of the economy

OUR Balance of Payment (BoP) deficit is a ticking bomb. In the first semester of the year, the country’s BoP deficit ballooned to US$3.26 billion, nearly five times more than the US$706-million deficit recorded for the same period last year.
The spike in the deficit is due to the toxic combination of declining merchandise exports, a decelerating BPO industry and the downward trend in OFW remittances occurring in step with a sharp rise in imports. Imports have been growing at accelerated rates due to our ravenous need for iron, steel and cement used for government’s infrastructure projects. We have also been importing massive amounts of machinery and consumer goods.
There are two likely scenarios should the BoP deficit worsen. Either we eat into our treasury reserves or fall deeper into debt. As it stands, gross international reserves (GIR) have already plunged from a high of US$86.12 billion in 2016 to just US$77.68 billion last May, the lowest in three years. Meanwhile, public debt increased from US$115.6 billion in 2015, to US$129.16 billion as of end-2017. Mind you, this does not even include the US$16.75 billion government is borrowing this year.
For nearly a decade, the economy was kept afloat by the electronics industry, the BPO industry and OFW remittances, all of which brought in enough foreign exchange to cover our import bill and maturing debts. This is no longer the case. Our imports have grown so much that we now need new sources of income to cover the imbalance.
This is where the tourism industry comes in. Up until 2010, tourism was not considered a major contributor to the economy. Back then, the country welcomed a modest 3.5 million foreign visitors generating less than US$3 billion in revenues.
In 2017, revenues topped US$8.630 billion on the back of 6.62 million foreign visitors. Tourism is now the country’s fourth-largest dollar earner, comprising 2.7% of GDP. (Note: Domestic tourism is actually six times greater, revenue-wise, but does not infuse new money into the system.)
For context, OFW remittances amounted to US$28.1 billion and the BPO industry raked in US$23 billion last year, representing 8.9% and 7.3% of GDP, respectively.
TOURISM IN 2010-2016
Credit must be given where it is due. Under the baton of then Tourism Secretary Mon Jimenez, foreign arrivals increased by 11% per annum, outpacing ASEAN’s average growth of 7.5% and the global average of 4.5%. By the end of 2016, foreign arrivals was a hairline shy of the six-million mark, raking in US$6.2 billion in revenues. It was in this period that tourism became a strong leg of the economy.
At the heart of Jimenez’s success was a strategic and methodical approach to tourism development. This is embodied in the first National Tourism Development Plan (NTDP) — a plan Jimenez and his team authored.
The NTDP consisted of four components:
The first component involved improving air access to the country and widening domestic connectivity. Unlike most of our ASEAN neighbors who benefit from interconnected highways and railways, the Philippines is only accessible by air and sea. But given the state of our sea ports, as much as 98% of our visitors arrive by air. Hence, it was imperative that government establish direct connections to and from our major markets. It was also vital that flights between Manila and domestic destinations increase in scope and frequency.
To improve connectivity, the Department of Tourism (DoT) established an internal route development team that served as initiator and mediator between air carriers and the CAAP, MIAA, and DFA. Simultaneously, the DoT secured a seat in the decision-making panel of the CAAP where it is able to influence civil aviation policies.
The move proved to be a game changer. Not only was the DoT able to scrap the common carriers tax levied upon airlines (which made landing in the Philippines an unviable venture), it also paved the way for new carriers to begin calling on Philippine ports. As a result, Turkish Airlines, Air New Zealand, Ethiopian Air, China Eastern, China Southern, XiamenAir, Juju Air, Scoot, Vanilla Air, and more began serving the Philippines.
Legacy airlines like Singapore Airlines, QATAR, Emirates, and Etihad, all of whom have operated in the Philippines for many years, have increased their frequencies to and from their central hubs. Direct connections have also been established between select provincial airports and cities like Taipei, Shanghai, Hong Kong, Chongqing, Xiamen, Seoul, Macau, Singapore, and Dubai.
For its part, local carriers PAL, Cebu Pacific, Air Asia, have widened their domestic networks.
Visa requirements have been relaxed for citizens of 150 countries while visas-on-arrival are now issued for certain nationalities, provided they have valid visas from either the EU, US, Canada, Japan, or Australia.
The second component involved the development of world-class tourism destinations and products. Between 2010 and 2016, destinations like Puerto Princesa’s Underground River, Coron, El Nido, La Union, Iloilo, and Batanes burst into the scene as tourist hotspots. It was also in this era that medical tourism, educational tourism, gastronomy (through Madrid Fusion) were developed into niche products. In 2014, the Laoag, Manila, Cebu, Boracay, and Palawan corridor became destinations for cruise liners.
The classification of lodging facilities according to quality and amenities was also part of this initiative. Unfortunately, the project was still-born as hotel operators protested their lower-than-expected ratings.
The third component was to create a culture of tourism among local governments and tourism practitioners. Some 90,000 tour guides, front liners and local government officials have since been trained by the DoT.
The final component was a strong branding and promotional offensive. Without doubt, the “It’s More Fun in the Philippines” campaign is still the most effective marketing campaign we have had so far. Its effectiveness lies in the fact that the slogan reads with clarity whilst speaking the truth. The veracity of the slogan causes us to deliver on our brand promise every time. This is the genius behind the campaign.
Further contributing to the campaign’s success was the strategic ad placements in global television networks such as CNN, BBC, Discovery Channel, ESPN, and the Food Network. Through billboards and roving ads, the Philippine brand had presence in Times Square NY, Piccadilly Square, Ginza, Orchard Road, Central Square Sydney, Alexanderplatz Berlin, and Central Hong Kong, among others.
In the editorial space, the Philippines gained recognition as a preferred tourist destination in such publications as Conde Nast, Travel & Leisure, Paris Match, Esquire, and Backpacker. This had never happened before.
The DoT’s limited advertising funds went a long way, the inertia of which was still felt in 2016 and 2017 when advertising efforts were practically muted. Former tourism secretary Wanda Teo can boast of no significant marketing initiative outside hosting the ridiculously expensive and outdated Miss Universe pageant.
The National Tourism Development Plan of 2010-2016 was designed to enable the country to attract 10 million visitors by 2016. Unfortunately, infrastructure bottlenecks stood in the way of achieving that target.
The good news is that the impediments that weigh down the industry are now being addressed. Wanda Teo is out and replaced by Secretary Berna Romulo-Puyat, an honest and able professional with 12 years of government experience behind her; new airports in Panglao, Puerto Princesa, Bacolod, Davao, Iloilo, and Lagundian will soon follow Mactan as a privately operated airport; a new airport terminal in Clark is being constructed to decongest NAIA; hotel rooms are being constructed by the thousands.
The only missing link is a proper national gateway. We are banking on San Miguel’s Bulacan aerotropolis to fill this void and hope that the DoTr can get the Swiss challenge done so construction of the airport can finally begin.
Secretary Berna Romulo-Puyat stands on a strong foundation built by Mon Jimenez and his team. This should give the incumbent Secretary the leverage she needs to reach her target of generating US$17.7 billion in revenues on the back of 12 million foreign visitors by 2022. By then, tourism receipts should be enough to cover our balance of payments deficit.
Watch out for my next column where I talk about the DoT’s plans and programs from 2017 to 2022.
 
Andrew J. Masigan is an economist