Until the Covid lockdown and border closure, tourism had become our largest export earner and our largest industry. The statistics were impressive:
In 2010, tourists numbered 2.5million, in 2015 – over 3million, in 2019 – 3.9million. That is a 56% increase in ten years.
Revenue from international visitors in 2019 amounted to $17.2 billion and from domestic tourists, $23.7 billion. Tourism’s international earnings exceeded earnings from dairy by about $1.5 billion that year.
Tourism directly accounted for 5.8% of GDP in 2019. Industries supporting tourism generated a further 4% of GDP.
Tourism directly employed 229,566 people, 8.4% of total employment in 2019. It indirectly employed a further 6% of the workforce, around 163,900 people. Together that was 14.4 % of all people employed in New Zealand, amounting to around 390,000 people. Tourism is labour intensive, it especially offers many lower skilled jobs, so it was beneficial as technology ate into lower skilled jobs in other sectors. Tourism contributed to the low skill-low wage-low productivity conundrum which has so dogged the New Zealand economy for more than 50 years; but plenty of these tourism jobs have been filled by foreigners, usually working on some kind of work visa. (I have been amazed how many young Brazilians worked in tourism around Queenstown, for example ).
Overseas tourism has been uniquely advantageous as an injection into the economy, because it represents final demand – consumption without permanent population.
Closed borders after Covid will have major repercussions for New Zealand and its economy. Until the borders reopen, $17.2 billion annual revenue from international visitors has gone altogether. That is a major hole in our external earnings. Yes, there will likely be an increase in domestic tourism compared to pre-Covid levels but certainly not enough to take up the slack left by the total exclusion of overseas visitors. If we said a third of New Zealand tourism’s total revenues would be lost while the borders remain shut, it is possible to suggest the industry may shed 100,000 jobs, once the wage subsidy ends, until the borders reopen. One mitigating factor may be that many foreign workers in the industry will head home and not have an impact on New Zealand’s unemployment numbers.
PRE-COVID TOURISM DRIVERS
What drove these large tourism gains prior to the Covid border closure? Perhaps it was a fortuitous combination of favourable general world conditions and favourable conditions peculiar to New Zealand. The world prior to Covid was steadily getting wealthier (at least for a good number of people). Populations were living longer, air travel had steadily declined in real cost, more airlines were flying around the world. Visas, health and travel restrictions generally relaxed (perhaps to our disadvantage, when Covid arrived). Travel, in short, steadily became cheaper, easier and more commonplace. The number of Cruise Ships around the world exploded, catering especially for the retired.
Then there were the conditions favourable to New Zealand, which I have commented on elsewhere in these chapters. We are well regarded and liked as a nation. Tell people overseas that you come from New Zealand and it was common to be told New Zealand was on their short list of countries to visit – if they have not just been here. A trip to New Zealand was generally seen as safe, low risk and easy (at least by comparison with plenty of more challenging destinations in the world).
Our isolation also became a positive rather than a negative. People from the Northern Hemisphere increasingly felt the need to get away from the pressures of large populations, large problems and pollution. New Zealand, with its relative isolation, low population, great scenery and outdoor activities, conveniently met those needs to escape.
The Hobbitt/Lord of the Rings movies were a major international boost for New Zealand’ tourism. (Initially I was unhappy to see us paying subsidies to Warner Brothers but I now concede the movies have been a great advertisement for the country).
National and international factors combined to create a very favourable market for New Zealand tourism. The planets all aligned, resulting in substantial increases in visitor numbers and revenue over the last 10 years. But all this good fortune hid serious weaknesses.
THE FRAGMENTED STRUCTURE OF NZ TOURISM
Before the Covid lockdown and border restrictions the industry did not appear to have a grand plan. Tourism, like other industries in New Zealand, was blazing ahead with limited policy and forethought and inadequate overall direction. Were we emphasising quantity over quality as we pumped the tourist numbers? Were we reaching the point where too many visitors threatened over-tourism and contradicted the clean, green, uncrowded image we successfully used in our marketing to get those tourists here in the first place?
I started to research who is in control of the overall direction of the New Zealand tourism industry, arguably our most important industry. We have a Minister of Tourism. The last one I remember was Sir John Key. After research, it turns out today its Kelvin Davis. Without wishing to be critical, Mr Davis did not appear active as a minister prior to the Covid shutdown. One suspects that since Mr Key, tourism has lacked adequate guidance and planning from its minister.
Then there is the New Zealand Tourism Board, otherwise known as Tourism New Zealand. It is a body established under the NZ Tourism Board Act, 1991. Its object is ‘to ensure that New Zealand is so marketed as a visitor destination, as to maximise long term benefits to New Zealand…’ It’s functions are, ‘to develop, implement, and promote strategies for tourism, and to advise the Government and the New Zealand tourism industry on … those strategies..” The Board has no fewer than five and not more than nine members, all appointed by the Minister of Tourism.
The board was set up to replace the former Tourism Department in 1991, some 29 years ago. It was established at a time tourist numbers to this country were a fraction of what they are today. This does suggest that even before Covid, a review of the way the industry is administered was overdue.
The main action of Mr Davis as Tourism Minister prior to Covid, was to cut the Tourism NZ budget by around 5% and change the composition of its board to one with a far more obvious Maori emphasis. Can we have confidence the Minister of Tourism and Tourism NZ will charter an appropriate path forward for the industry? Before Covid, unlikely. After Covid, even more unlikely. Tourism NZ recently embarked on a large overseas promotion of New Zealand while our borders remain closed for the indefinite future. Would a private tourism company advertise in our overseas markets at such a time? I doubt it.
There is another strange quirk about New Zealand tourism. To the extent that Tourism NZ does not fulfil a departmental role, oversight of tourism comes under the Ministry of Business Innovation and Employment (MBIE). The ministry produces some quite extensive tourism statistics. MBIE has a senior leadership team of 10. Below the CEO are a series of Deputy CEO’s with responsibility for different areas – immigration, labour and the rest. Tourism does not appear to have an MBIE Deputy CEO assigned to it. So government administration of our most important industry again appears somehow to slip through the cracks.
OUR MAIN TOURIST ASSETS ARE IN THE HANDS OF DOC AND LOCAL BODIES
Then there is the Tourism front line. Important assets for New Zealand tourism are our national parks run by Department of Conservation. Tourism is not the main focus for DOC, even if the department has belatedly started doing things like charging overseas tourists much more to use its huts. DOC is rightly primarily focused on conservation rather than tourism; and conservation will surely remain its focus.
Other major tourism assets are in the hands of local bodies – public toilets, camp grounds; viewing platforms, parking areas, cycle routes. We are short on them all, and when they are established by local bodies they then need cleaning, maintenance and upkeep. In parts of New Zealand, local bodies struggle to focus on tourism at all. Where they do, they very quickly complain they are being asked to provide and maintain tourism infrastructure without being given a revenue source to meet these costs. It is a valid point. A recently introduced border levy of $35 per head doesn’t help because it appears to be largely going to DOC for conservation. So a disparate and poorly funded local body sector is generally a reluctant partner in tourism. Local government is certainly not likely to jump up and take a lead in driving the overall tourism industry.
In summary: the official central support structure underpinning New Zealand tourism appears fragmented. Its major assets are held and administered by DOC and by local bodies- neither of which has tourism as their primary focus. Overall, the formal structure of tourism in New Zealand suggests an industry lacking in overall planning, direction and purpose.
COMMERCIAL INTERESTS DRIVE NUMBERS
Alongside this fragmented centre of the industry sit a number of very strong commercial players: Air New Zealand, Auckland Airport, major hotel chains, campervan and rental car companies, Maori investment in tourism. Pretty much all of these strong players are incentivised to drive tourist numbers; and in most cases did so. Auckland Airport for example, had as a primary focus, encouraging new airlines to begin flying to Auckland. New airlines would clearly only come if they were able to fly full planes here. And so the absolute number of tourists increased.
Given the weak and fragmented ”official’ industry structure, these powerful commercial interests appear to have had a pretty free hand in driving tourist numbers. And rising numbers before the arrival of Covid 19 show they were very successful in doing so- even if the numbers of international tourists did plateau in the last couple of years.
The 2019 Annual Report of Tourism New Zealand recorded a levelling off of overseas arrival numbers with holiday visitors almost flat. It went on to note, ”Consumer consciousness around sustainability and climate change is rising in a number of key markets, with potential impacts on the consumer view of New Zealand as a destination..’
To an observer the problems were not hard to see: too many campervans. Not enough adequate public toilets and facilities. Small white tour buses taking parties of asian tourists from asian restaurants to asian owned gift shops and the like, adding little value but significant extra numbers to our tourist centres. Too many people on tracks in our national parks. In some places we were definitely reaching the point of over-tourism.
DOC put up the charges for tourists in its huts. Commercial users in Abel Tasman National Park (our busiest park) were licenced with controls on the number of trips they could run. Queenstown came down hard on campervans freedom camping. But these were piecemeal measures.
There has been fragmentation right through the industry, lots of small time operators with variable business standards. If we are intent on giving tourists a really good experience, do we need a comprehensive ”quality assurance’ system, like the ‘Appellation Controlee’ system France has for grading the quality of its wine? Yes, we have Qualmark and other systems but are they strong enough and well enough known to give tourists confidence that they will get a good standard from a business that has been appropriately checked and certified?
IS THERE LIFE AFTER LOCKDOWN?
It would be hard to imagine a set of circumstances more adverse for tourism than Covid19. The pandemic has dealt our major export earner and largest industry a blow arguably more severe than an outbreak of Foot and Mouth disease would deliver to our primary industries (shudder). The shutdown hit restaurants and accommodation hardest. They were the last businesses allowed to reopen and when they did they were subject to rules of social distancing that applied for longer than in other sectors. The large number of small businesses in hospitality made them particularly vulnerable to suspended cash flow. Unlike businesses working out of offices, the sector was generally unable to work remotely or do much to alleviate the effects of the shutdown using delivery services such as Uber eats.
These domestic impacts of the lockdown are going to be multiplied by the far longer INTERNATIONAL shutdown. The borders are clearly the main danger of renewed Covid infection. At the time of writing, failures to police them properly have lowered confidence that an early reopening can be safely achieved. The revival of case numbers in Victoria have similarly set back hopes of an ‘Australasian bubble’. During July, Covid numbers were accelerating rather than declining in many parts of the world. And then of course the second lockdown in Auckland in August, just as this website was going to go live.
The full duration of at least some border closures looks likely to be years rather than months. When the borders fully reopen (which will probably not be until after there is a vaccine, and that vaccine has become widely available around the world) there will be a lead time before international travel becomes common again. People may begin booking New Zealand holidays again but it will take a while for those people to arrive and spend money here. It is not difficult to imagine that between the time a successful vaccine is first discovered and international tourists from all countries (not just Australia) start to arrive in significant numbers, could take two tourist seasons.
Tourism is a ‘luxury good’. If world economies turn down after Covid, resulting in plenty of people struggling financially, the first thing they will do is put off their next overseas holiday. People can never defer eating; they can defer taking a holiday. So a world economic slowdown post-Covid would potentially hit the tourism industry more than most other economic sectors.
There is also a confidence issue. Cruise liners gained much negative publicity from Covid. Long haul flights also worry people as a source of infection. Even when borders reopen there may be initial reluctance among potential tourists to book long haul international holidays and cruises. The necessary confidence may take time to rebuild. Airlines have already said the aviation sector will never be the same again.
Covid has already become a watershed for tourism. It is therefore an appropriate time to take stock. It is an opportunity to get clear what size, shape and future we want the New Zealand tourism industry to have as it begins to rebuild after the pandemic.
WHAT WILL TOURISM’S FUTURE LOOK LIKE?
A crisis in which there is NO business is not an ideal time to advocate restraint, quality, sustainability, value, and longer term horizons than the industry had pre-Covid. But Covid has undeniably introduced, for the tourism industry at least, those scorched earth conditions from which real change becomes possible. What might be some sensible suggestions for the future of the industry if we were to take advantage of the opportunity now open? Here are some suggestions:
- We need a powerful new central structure which can set policy and direction for the industry – i.e., more than just market the country abroad as Tourism NZ has primarily done. If set up early enough, that new body could help get the industry back on its feet after the lockdown. Make sure the structure involves only top people and is independently appointed so that it can’t be stacked with cronies of politicians
- Give tourism its own ministry. Being a minor part of MBIE seems inadequate for our major export earner. One worries about creating a new bureaucracy but until now the industry appears to have lacked adequate control and direction.
- Give local bodies a separate and significant source of revenue to provide and maintain tourist infrastructure. The border levy by itself is insufficient (it will be minimal for a while after the lockdown in any event) and it appears to have been diverted to DOC. A stamp duty on property transactions (see the chapter on housing) could be channelled to local bodies to fund infrastructure, especially for tourism. Alternatively, divert a proportion of GST raised in their areas to local bodies to fund tourism, (although with the Government’s finances already well into the red it seems unlikely in the foreseeable future that central government will be able to afford to give up any of its present revenue sources).
- Make some immediate capital grants available from central government for new tourism infrastructure to help the industry through its most challenging times. These projects should probably be carried out through local bodies (regrettably, the 2020 budget seems to have missed that opportunity). New tourism cycleways, toilets, carparks, camp grounds for example, can be planned and built quickly. Handing out large government sums to private tourism operators, (rather than building new tourism infrastructure) does not seem appropriate.
- At the same time, develop a better system for approving local body projects. Some of their projects have been excellent, some have been poor. If any funding is offered to a local body at the moment they will spend it in their district, wisely or not. There needs to be much better central monitoring of all tourism related local body projects to make sure only the best proceed. One suggestion: all projects in excess of $5 million (or a similar suitable figure) should have to be approved by the new Infrastructure Commission before they can proceed. Then projects across a number of local body districts could be compared and just the best selected.
- Given the impact the tourism industry has sustained by comparison with other sectors of the economy, give its operators extra Government support. How to do this? Perhaps invite NZ owned tourism operators ( I am less clear this should be offered to overseas hotel chains) to register with the new Tourism Department as an approved operator, then offer such registered operators a subsidy (say 10% or even 20% ) on the wages of New Zealand resident staff they employ until say 6 months after the borders reopen. That would help tourism businesses to remain open. It would be cheaper than having their business closed, and those staff on the unemployment lists. It would help businesses get back on their feet as overseas tourism slowly rebuilds. And it would establish a database of approved tourism operators which can perhaps later be the subject of certification of their quality standards.
- The border levy could be increased, but waived if the tourist stays more than, say, 12 days. That would be a minor disincentive for short stays and an incentive to stay longer.
- Licence campervans for commercial hire. Limit the number of licences that can be issued. Require all such licensed campervans to be properly served by top quality toilets, not the current ”self sufficient’ vans, many of which are clearly second rate.
- Set up a far more rigorous system of inspecting, monitoring and granting quality certification to tourist operators. It could initially be voluntary – operators could apply for the seal of approval if they chose. If successful, consideration could be given to making such a certification system compulsory. It is a way of ensuring our tourism industry delivers a quality product. Just as I write I learn of someone going to an upmarket hotel in Christchurch only to find it was half full of Covid quarantine ”guests’. The hotel had not disclosed this when it took the booking. Tourism operators are ambassadors of our country and I question whether all of them always represent us well. It is time we took steps to drive better standards of behaviour right across the industry.
- Put in much more study about how to maximise the value of our national parks for tourism without compromising conservation values. Perhaps build some state-owned small hotels in the national parks, which would be available for tourists walking the tracks. DOC cannot make decisions like this, it is a body too focused on conservation, not tourism. Perhaps establish a DOC tourism division tasked with developing and regulating tourism in national parks without compromising conservation. Develop further the licencing of businesses and numbers coming into the national parks to limit overcrowding there. Perhaps minimise camping facilities, again to avoid too many low value users.
- Continue working with farmers, to clean up waterways. We can’t sell the country as clean and green, and not make strenuous efforts to keep it that way.
- Identify places around the country where we need more quality hotels (such as Waitomo and Mt Cook). If a new hotel or facility is put into a development plan by the new national tourism body this should overrule the Resource Management Act and obviate the need for planning approval.
- Statistics suggest tourists from mainland China are big spenders but one all too frequently sees their operators bringing tourists to New Zealand, driving them around, using only compatriot facilities. These operators seem to bring numbers rather than wider benefits for the economy. Should they be licensed and their numbers limited?
- Review on-line promotion and booking. Up until now, international on-line IT websites have been skimming a significant amount off the top of the New Zealand tourism industry. Can this be changed in any way when the industry reopens?
- Another driver of numbers rather than quality prior to Covid was Auckland Airport encouraging more airlines to fly here. Yes, more airlines adds revenue for the airport. Yes, they add choice and competition for travellers and probably mean cheaper airfares. And almost certainly, adding more airlines flying here adds to the numbers of tourists coming here with some of the downstream quality issues I have then outlined. If a new central tourism body set targets for numbers of tourists each year, then those targets would need to be applied to the number of flights and airlines coming here. No longer should these decisions be left solely to airports.
This list is not exhaustive. It could definitely be added to and refined by experts in the industry. It will no doubt be overshadowed initially by short term measures to kick start the industry after the borders re-open. But long term there are significant structural issues the tourism industry needs to address. Hopefully the horrendous impact of Covid on the industry will provide an impetus for the industry to look at itself afresh, and to reorganise on a more value-driven, sustainable basis, emphasising quality over quantity. We need to live up to our ‘clean green’ image in the future, not use it just as a convenient marketing tool. We need to take a longer term view in administering our tourism industry post Covid.
WHAT WE DID NOT WANT TO SEE HAPPEN
On Saturday August 1st, there were news reports of a $325 million ‘Strategic Tourism Splurge’. A committee of 5 politicians, being the Ministers of Tourism, Finance, Maori Development, Conservation, and the Under Secretary for Regional Development, announced 126 tourism businesses which would receive government assistance (consisting of grants of $500,000 each, with soft loans on top of that grant). An average of over $2.5 million per business benefited. Politicians picking tourism winners, 7 weeks out from a general election (having just picked out Hackett Bungee for a large payment quite soon before the ”Tourism Splurge’). I have tried to be objective rather than political in everything I have written; but such an approach is really unfortunate. It illustrates the lack of any effective governing structure for the NZ Tourism industry; the lack of any coherent tourism policy; and is likely to add significant extra sums to Government debt, with little tangible future benefit to show in the tourism sector. It is doubly unfortunate, when there are local bodies all over the country short of funds to build and maintain badly needed tourism infrastructure in their districts; and many small tourism dependent businesses really struggling. It is a good example of how ”Free Money’ as the Economist described present monetary and fiscal policies, risks leading to poor quality and wasteful expenditure, which is creating debt which our children and grandchildren will then have to pay back. UNFORTUNATE.
DISCLOSURE OF INTEREST. David Schnauer’s son Ian, is the owner of a Queenstown based cycle tours business called ‘Escape by Cycle’. David is a director of Ian’s company, and as a retired commercial lawyer takes a paternal interest in Ian’s operations; but David has no financial interest in the business, which is wholly owned and operated by Ian. Ian had no input to anything which is written in the above chapter.
Covid – Catalyst for Change 