Negative impacts; leakage

Tourism has many hidden costs, which can have unfavourable economic effects on the host community. Often, developed countries are better able to profit from tourism than poor ones. Whereas the least developed countries have the most urgent need for income, employment and general rise of standard of living by means of tourism, they are, unfortunately, least able to realise these benefits. Among the reasons for this are large scale transfer of tourism revenues out of the host country and exclusion of local businesses and products.

The direct income for an area is the amount of tourist expenditure that remains locally after taxes, profits, and wages are paid outside the area and after imports are purchased; these subtracted amounts are called leakage. In most all inclusive package tours, about 80% of travellers' expenditures go to the airlines, hotels and other international companies (who often have their headquarters in the travellers' home countries), and not to local businesses or workers. In addition, significant amounts of income actually retained at destination level can leave again through leakage. A study looking at tourism 'leakage' in Thailand estimated that 70% of all money spent by tourists ended up leaving Thailand (via foreign owned tour operators, airlines, hotels, etc.). Estimates made for other Third World countries range from 80% in the Caribbean to 40% in India.
On average, of each US$ 100 spent on a vacation tour by a tourist from a developed country, only around US$ 5 actually stays in a developing-country destination's economy.

There are two main ways that leakage occurs:

1. Import leakage: which occurs when tourists command standards of equipment, food, and other products that the host country cannot supply. It is typical of less- developed countries where food and drinks must often be imported, since local products are not up to the tourist's standards or the country simply doesn't have a supplying industry. Thus, in such a scenario, much of the income from tourism expenditures leaves the country again to pay for these imports. According to UNCTAD The average import- related leakage for most developing countries today is between 40% and 50% of gross tourism earnings for small economies and between 10% and 20% for most advanced and diversified economies. However, import leakage is not only typical of developing countries. Even in developed regions, local producers are often unable to supply the tourism industry. Due to the high quantity and quality needs of the 64-room hotel "Kaiser im Tirol" in Austria, an award- winning leader in sustainable practices, the hotel cannot find sufficiently reliable, and good, organic food suppliers in the local farming networks.
2. Export leakage: Often, especially in poor developing nations, multinational corporations and large foreign businesses are the only ones that possess the necessary capital to invest in the construction of tourism infrastructure and facilities. As a consequence of this, an export leakage arises when these overseas investors take their profits back to their country of origin. A 1996 UN study, carried out in the Caribbean evaluated the contribution of tourism to national income, gross levels of incomes and/or gross foreign exchange. The results showed that net earnings of tourism, after deductions for all necessary foreign exchange expenditures, were much more significant for the industry than for the region itself. Significant leakage was mainly attributed to: (a) imports of materials and equipment for construction; (b) imports of consumer goods, particularly food and drinks; (c) repatriation of profits earned by foreign investors; (d) overseas promotional expenditures and (e) amortisation of external debt incurred in the development of hotels and resorts. The impact of the leakage varied greatly across the studied countries, mainly depending on the structure of the economy and the tourism industry. From the data presented, St. Lucia had a foreign exchange leakage rate of 56% from its gross tourism receipts, Aruba 41%, Antigua and Barbuda 25% and Jamaica 40%.