The Golden-Eggs Goose is Getting Drained

Anyone pretty much knows that Costa Rica is well known for being the leader in the tourism industry among the central american countries and also among many of the other strong participants in Latin America (such as Brazil and Mexico).  Costa Rica, surrounded by two oceans, beautiful volcanoes, tropical-rain forests and conserved lands has  attracted the attention of visitors for the past two decades and it does not seem to stop in the near future.

Colibri

Something about the “vibe” of Costa Rica appeals to visitors and is capable enough to get within the plot of  many many movie and TV scripts, where characters come or go to Costa Rica (free advertising for the Costa Rica tourism agency).  For example, Gil Grissom (CSI Las Vegas) goes to Costa Rica to meet his love Sara Sidle after retiring from work. In Modern FamilyGreg Kinnear has a guest appearance where his character is in love with Costa Rica.  Also, don´t forget Jurassic Park (1993) was supposed to be located here! (yes, we were “the” Jurassic Park!). Many Americans know Costa Rica just for what they´ve heard and seen on those TV shows and movies and no one can argue that has not helped the country to maintain its source of visitors across the years.

By 2012 Costa Rica received more tourists than ever before reaching at 2.34 million (a lot for nation with about 4 million people and only 19,653 sq miles).  That´s remarkable considering the slow recovery of the economies that are key supplier of tourists, like United States and Europe (situation that by 2010 caused a decreased in the amount of visitors to the country of -7.97%.). In general terms  however, the amount of visitors that get into the country has been steadily increasing since 1988; reaching  to new highs every upcoming year.

The effect that the industry has had in the economy is more than important. Since 1995 Costa Rica´s  largest source for foreign exchange has been the tourism industry while at least 8% of the country ´s GDP  is merely product of tourism. That 8% does not account for the indirect effect that tourism has in other industries, such as private healthcare, construction, education, etc…  By year 2005 the industry was the direct employer of 14% of the population (again without considering informal jobs) and has made the industry of hosting and restaurants the fastest growing industry since mid 90´s.

 

Number of Visitors 1988-2012
Number of Visitors 1988-2012

 So what can go wrong when it all seems to be alright?

There are many underneath issues behind all this data. One fundamental problem is that the number of “visitors” does not exactly translate into the number of actual tourists. Anyone who crosses the boarder (by air, land or sea) is considered a “visitor”. This includes truck drivers (the ones that transport goods from country to country and many times do not spend more than 12 hours in Costa Rica), fishermen and sailors, illegal immigrants (people that claim to be a tourist but then stay in the country) and people involved in illegal activities such as prostitution, drug traffic, etc… It is believed that up to 40% of all visitors are not actual tourists . Therefore while the number of visitors may continue to increase, it is unknown to what

volcan-arenal-costa-rica
Arenal Volcano, San Carlos, Costa Rica

point the actual tourists are. One way to determine the behaviour of the industry is by assessing the occupation level at the hotels. The Costa Rican Tourism Board uses this metric to measure the activity levels of the hotels that are part of the board.

By crunching these two metrics (the number of visitors against the activity index of the hotel industry) it is clearl how the number´s don´t match.  While on 2004 there was a year-to-year increase of 14% on the number of visitors, there was only a 2% increase in hotel activity. Similar results on 2003 where there was an increase in the number of visitors of 13% and only an increase of 3% on the occupancy levels. Considering that most of the tourists choose brand-name hotels (part of a hotel chain like Hilton and Marriot) the cut for the small business owners is low. This is extremely important since many of these small hotels are placed in areas that are not the usual holiday location (such as beaches and national parks) but in rural areas near small towns (many of them focused in “ecotourism”). These small places usually have a direct effect on the local economy as they employ local people that would otherwise have no jobs.  On the other hand, many brand-named hotels bring employees from other countries to support their operation as they require a certain level of skill that is difficult to be found  at low cost.

The decrease on visitors in these hotels has caused for many to close their doors. From 2007 to 2012 the number of hotels decreased by -3.7% while the number of rooms increased in 10%. This is possible considering that while small hotels were shutting down operations, the brand-name hotels built more rooms and facilities.

By 2012 Costa Rica received more tourists than ever before reaching at 2.34 million

One other real problem that the Costa Rica tourism industry has been facing since 2010 has been an “abnormal” valuation of the costarrican currency against US dollar. Since the Central Bank chose to eliminate the fixed exchange rate in 2009, the local currency has gained value to sit at about 500 colones per dolar (the lowest “allowed” exchange rate the government has set). This means that hotel owners (accustom to charge in dollars) are receiving less colones every time, and as they compete with destinations across the world, raising prices (or convert those to colones)  is not an option.

Average exchange rate
US Dolar /Costarrican Colones Exchange Rate

Lastly but not least, Costa Rica may suffer from over-exploitation and to be out-fashioned soon. In the past two decades the baby-boomers have fed the economy by taking their families to our country  and by choosing our tropical paradise as their detestation for retirement. While there is still a lot of vibe and momentum, the twenty-somethings out there may start looking Costa Rica as “too-well known” destination, and may start looking somewhere else (Nicaragua and Belize have beautiful beaches at more affordable prices).  In order to avoid that to happen, the government needs to continue investing in bringing actual tourists to the country while working in mechanisms to allow small business owners stay a float (I do not back up the idea of artificially decreasing the value of the local currency to help those business owners!). In a few years, those small hotels and places are the ones that would save the economy as the hotel industry continues its transformation to a less standardized system (a world where not all hotel-rooms look the same).

images

If Costa Rica fails on keeping its appeal to tourists, the effect that a decrease on the number of visitors, tourists and cashflow to Costa Rica would bring the following three effects:

1. Depreciation of the Colon against the dollar (by a decrease in dollar supply product of the tourists) that would increase gas prices and with that…pretty much every other good and service.

2. Deceleration of the economy, bringing unemployment (specially in the lowest paid workers).

3. An obvious decrease in tax income (product of business making less money and visitors paying less taxes) that would definitely not help our already critical fiscal def.

By all these reasons the Government  business owners and people need to continue taking care of the “Golden-Eggs Goose”, by changing the approach to the industry. For one hand the gov has to ensure safety for all the visitors, clean streets and proper infrastructure, while maintaining tax levels to a minimum. High tax levels raise the prices of the rooms and services and (as stated before) we compete on a very competitive world!

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