Driven by tourism for decades, covid was calamitous for the Mediterranean economy. A panel of UHY experts discusses whether it is time for a change in direction.
It is hard to overstate the importance of tourism to the countries bordering the Mediterranean Sea. The 29 countries that make up the region share 46,000km of often sandy coastline and a climate that is generally mild in winter and warm for the rest of the year.
History has favoured the area, gracing it with a wealth of architectural and cultural gems. In addition, technological development and happy accident have placed it within easy reach of millions of people for whom an annual migration to ‘the Med’ has become part of the summer routine.
The result is that, in normal times, a quarter of global tourism receipts are generated in the Mediterranean. But these are not normal times. As the world’s premier tourist destination before Covid-19, it is likely to retain that title in the pandemic’s aftermath. But visitors to Southern and Mediterranean Europe nosedived from 304 to 88 million in 2020, and other
Mediterranean regions were hit harder still.
How will the area react to this calamity? Waiting it out is one option, because the tourists will return eventually. But tourism is in Covid’s frontline, and a fragile recovery in 2021 could be derailed by new variants and new lockdowns in 2022, as well as a sluggish global economy. Beyond Covid, the sector faces longer term threats from both climate change and its potential fixes, including increased taxation on air travel.
With that in mind, Mediterranean tourism appears to be a sector in flux. We asked UHY member firms in the region for their analysis of the situation, and their expert opinions on what tourism-dependent economies can do to meet the challenges of the post-Covid world.
The historic sites, sandy beaches and idyllic islands of Greece welcomed over 31 million tourists in 2019, contributing around a quarter of the country’s GDP. But Covid has been a wake-up call.
Total tourist receipts for the first quarter of 2021 amounted to one sixth of those from the same period in 2020, says Christos Antonopoulos, partner at UHY Axon Certified Auditors S.A in Athens, Greece. A short, sharp shock was to be expected, but Christos worries that tourism’s recovery in the region could be slow, even if current indicators are positive.
“Given that the recovery from a recession primarily related to the services sector is usually slower than a recession mainly affecting the goods sector, the continuation of the situation could push the Greek economy into stagnation,” he says.
The situation is mirrored across the region. Cyprus attracted just under four million tourists in 2018, a historic high. But “the pandemic hit the tourism industry very severely,” says Antonis Kassapis, director of Cypriot member firm UHY Antonis Kassapis Limited. “The economy of Cyprus has for many years been based on services, with tourism being one of, if not the most important.”
GOVERNMENTS STEP IN
Unsurprisingly, governments across the Mediterranean region were forced to step in to protect an industry that will be vital to post-pandemic growth.
In Morocco, as elsewhere, the government prioritised tourist industry jobs. “A natural selection led to technical unemployment and layoffs, because so many establishments remained closed in the tourist seasons of 2020 and 2021,” says Najlaa Ben Mokhtar, partner and audit manager at UHY Ben Mokhtar & Co, Morocco.
“The government provided a monthly allowance to workers in the sector for almost a year, to ensure companies could get back on their feet when visitors return.”
Miriam López Jadraque is national marketing manager at Spanish member firm UHY Fay & Co, which has one of their offices based in the tourist hotspot of Marbella. She says the industry is pressing the government to extend the ERTE, an extraordinary Covid-related job protection scheme, until at least Easter 2022.
Spain is the world’s second most popular tourist destination, and the sector’s importance to the national economy is undeniable. Tourism’s contribution to national GDP fell from 12.4% in 2019 to 5.5% in 2020, according to the Spanish Tourist Board.
The Spanish National Statistics Institute (INE) announced that during the first half of 2021, 5.4m international visitors travelled to Spain compared to 10.8m before the pandemic.
The summer season has been positive thanks to the vaccine rollout and a rise in domestic tourism. “Nevertheless, the occupancy figures for autumn are not looking good and the sector is already asking the government to articulate measures in advance that allow employers to make plans,” Miriam adds.
DOING IT DIFFERENTLY
So how should the region react to such a unique circumstance? There is confidence that tourists will return, and the first truly Covid-clear summer (at least in terms of travel restrictions) may see record numbers as sun-starved consumers spend their lockdown savings.
Despite this, experts in the region are arguing the need for change. They say that the pandemic showed the vulnerability of economies overly dependent on traditional tourism. In the near future, global warming – and measures to keep it under control – may impact international tourist numbers more permanently. They urge governments and businesses to
grasp the opportunity to diversify.
In Spain, diversification is starting with the tourism industry itself. “Tourism companies know they need to become much more efficient in their operations by paying more attention to productivity and competitiveness. They need to become more agile and able to react faster to changes in demand,” says Miriam.
The digitisation of the industry has been predicted for years. In 2020 tourism businesses were forced to act, with digitisation efforts in Spain advancing more in that year than the previous five. In Cyprus, too, there is recognition that tourism cannot return to “business as usual”, and that measures must be put in place to create a more resilient industry. “Diversification is needed not only from tourism to other industries, but also within tourism,” says Antonis. “For example, trying to attract tourists from new markets, or trying to spread tourism as much as possible over the whole year.” Najlaa says that in Morocco the immediate response to the pandemic was to try and encourage more domestic tourism. “Our clients in the tourism sector – hotels, catering, event agencies – turned to the local market to capture more national customers,” she adds.
This has been partially successful, but Moroccan tourism receipts are unlikely to exceed USD 4 billion in 2021, compared to USD 8.6 billion in 2019. Greater efficiency and agility are clearly welcome. New initiatives to encourage more domestic and year-round, activity-based tourism will help to create a more robust sector. But is it enough? After the experience of Covid, do countries in the region need to think beyond the tourist dollar?
Of course, many already do. For all their reliance on tourism, Spain, Greece and Morocco are mixed modern economies with strengths in a number of areas. Despite its relatively small size, Cyprus has well developed specialisms in financial services and shipping. But local non-Mediterranean comparisons show how dependent the region is on its beaches, climate and ancient history. Germany is the eighth most visited country in the world, but in a normal year tourism accounts for around 4.5% of the country’s GDP, a third as much as Spain and less than a fifth as much as Greece.
Is there an over-reliance on tourism? Countries are bound to make the most of their natural advantages, whether that’s the sandy beaches of Andalusia or the ancient wonders of Athens and Marrakesh. But Covid has emphasised the fragility of tourism as the foundation of economic stability.
For that reason, Antonis says that “diversification has been a very important target for a long time in Cyprus, but it is not so easy to do.” The country’s focus at the moment is on strengthening its position as an international and regional business centre, as well as exploiting significant quantities of offshore natural gas. In Greece, Christos says that many tourist businesses are modifying their offer to attract a new breed of digital nomads – freelancers who can work from anywhere with an internet connection. Thanks to Covid, there are more of them than ever. But Greece has been badly hit by tourism downturns before, and Christos believes that for the country’s long term economic prosperity, Covid may be ‘a blessing in disguise’.
“The government’s goal over the next six years is to retain tourism as a significant part of Greece’s economic activity, but also expand the country’s production base, boost manufacturing activity and incorporate new technologies in agricultural production,” he adds.
Christos thinks the country is facing a one-off opportunity to diversify its economy on the basis of new green and digital industries, and that the pandemic has created the conditions for lasting change. He believes Greece will become a more attractive destination for conducting business, other than tourism, post-pandemic.
In Morocco, too, the pandemic has been seen as an opportunity to widen the economic mix. In October, the country officially launched Morocco Now, an initiative designed to position Morocco as a world-class industrial and export platform and to maximise foreign investments. “This is a new economic and territorial signature of the ambitions of the Kingdom of Morocco in terms of international investments,” says Najlaa.
Morocco is already the second most attractive economy for investment in Africa, with well regarded specialisms in automotive, aeronautical and textile manufacturing alongside outsourcing services.
And that enthusiasm to embrace change is evident throughout the region, where the cataclysm of Covid has been met with a new focus on efficiency and economic diversity. Tourists will eventually flood back, to be met by a leaner, more creative sector in which traditional seasonal beach holidays are just one part of a wider offer.
In addition, national and regional governments appear to have recognised the need to widen the area’s economic mix. The strength of their support over the next few years will be crucial in determining how the Mediterranean region rebounds from the next crisis, whether that arrives in the form of a financial crash, an extreme weather event or a global pandemic.