- The scale of the attacks in Sri Lanka this week, with 359 fatalities, has few precedents.
- Attacks of this nature mark a significant negative shift in the perception of security risk.
- The attacks are also a blow to the top-down investment thesis in Sri Lanka.
Tourist destinations tend to bounce back from security setbacks: Egypt, Indonesia, Jordan, Kenya, Lebanon, Morocco, Philippines, Thailand, Tunisia and Turkey are all examples from the frontier and emerging markets in the past two decades. And, of course, France, the UK and the US, among others in the developed markets, have experienced similar issues.
However, the scale of the attacks in Sri Lanka this week, with about 300 fatalities, has few precedents. To put that tragic figure into context, it would be equivalent to 4,500 in the US, if one adjusts for the scale of the population.
In general, the frontier and small emerging market tourist sector, arguably, is different from that in developed markets for the following reasons:
(1) Tourist sites and amenities tend to be concentrated in fewer locations and cities.
(2) The reliance on international visitors (presumably, more sensitive to security concerns), as opposed to domestic ones, is greater.
(3) Tourism receipts are an important driver of hard currency earnings, particularly in frontier and emerging countries which run current account deficits.
(4) Ease and comfort of travel also has a knock-on impact on foreign direct investment and, to a lesser degree, business travel linked to trade (in reverse, chronic insecurity creates a barrier to entry in favour of local businesses).
Across a broad sample of frontier and small emerging markets, the following have over 5% of GDP directly driven by tourism (the indirect contribution via the growth of adjacent sectors and the multiplier effect from employment in the tourism sector can be double to triple this figure):
- Africa: Egypt, Mauritius, Morocco, Tunisia.
- Asia: Philippines, Sri Lanka, Thailand, Vietnam.
- CEE/ former CIS: Croatia. Georgia.
- LatAm/ Caribbean: Barbados, Costa Rica, Jamaica.
- Middle East: Jordan, Lebanon, UAE.
Tourism is a material direct driver of the economy in most frontier and developed markets
Source: WB, WTTC
- 1 Macro Analysis/Kazakhstan Kazakhstan: NBK keeps base rate on hold at 9%
- 2 Macro Analysis/Russia Russia: Retail sales rise 34.7% y/y in April on base effect, aboove expectations
- 3 Strategy Note/Global Peru election: Leftist Castillo 'wins'– implications for bonds, equities, copper
- 4 Strategy Note/Vietnam The ultimate guide to Vietnam fintech
- 5 Flash Report/Global El Salvador moves to make bitcoin legal tender; other countries may follow suit
This report is independent investment research as contemplated by COBS 12.2 of the FCA Handbook and is a research recommendation under COBS 12.4 of the FCA Handbook. Where it is not technically a res...