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A study in Iran shows that development of tourism in oil-rich countries is woefully neglected, supporting the argument that oil exporting governments are preoccupied with increasing oil export revenue at the expense of other more lucrative industries.
The study by Hussein Mirzaei, an assistant professor of economics at Islamic Azad University and Sanaz Jalili, a graduate student, sought to compare the effect of tourism on gross domestic product growth in Iran and other regional countries during 1995-2008, the Persian daily Donya-e-Eqtesad reported.
They found that the Middle East’s top oil exporters paid little attention to tourism during that period, but even small investments in the sector had a positive effect on the GDP. The study found that a 1% increase in inbound arrivals resulted in a 0.12% growth in GDP.
“Content with high oil revenue, countries with massive reserves of the black gold feel little need to invest in other sectors, so development of tourism infrastructure is never given the priority it deserves in countries like Iran,” the authors wrote.
They warned that heavy reliance on crude export for GDP growth will prove problematic in the long run for countries that have failed to realize that oil is a finite resource and neglected other sectors, such as tourism, that can be a sustainable source of income.
“If we don’t start investing in tourism now, there’s a good chance we’ll lose the travel market altogether when oil runs out,” they noted.
They also found that despite an increase in travel to the Middle East, the average time spent in the region by foreign tourists has decreased which will eventually result in a loss of revenue if left unaddressed.
Putting Money to Good Use
Since the oil plunge began in the summer of 2014, officials and businesses wonder how long and deep the slide will be and where will all this end. As oil producers and exporters run out of ideas on how to plug the deep holes in their budgets, crude continues to sink to 13 and 14-year lows – in 2014 a barrel cost $110, today it is below $30 – and analysts say it could fall to less than $20 if the world economy continues on the present trajectory.
Iranian officials seem to be aware of the economic hurdles posed by low crude prices, since in the proposed budget bill for the next fiscal year (starts March 20), hardly 25% of the spending is expected to come from oil sales, down from 33% in the outgoing year.
Therefore, the authors suggest injecting big amounts from oil earnings into the travel and holiday industry to develop infrastructure and attract the private sector, in addition to launching overseas promotional campaigns.
They also propose a complete overhaul of investment policies to allow multinationals to enter the market and finance projects in Iran. Building and strengthening diplomatic ties with the comity of nations will go a long way in dispelling safety concerns of tourists, the authors say.
With the landmark climate change deal signed in Paris in December, which targets carbon neutrality by the end of the century and the impressive progress in developing renewable energy, the oil industry may well be unable to make a comeback anytime soon.
Tourism, on the other hand, continues to grow. It generated $7.6 trillion in 2014 — accounting for 9.8% of global GDP — and is estimated to have grown by 3.5% to $7.8 trillion in 2015 (data for last year not yet available).
Environmental degradation and climate change have the potential to dramatically disrupt general tourism patterns and do considerable damage to some destinations. Rising sea levels, desertification, and changing weather patterns have the potential to damage or destroy the very elements that attract tourists.
As a result, tourism and environmental sustainability are fast becoming natural partners, their agendas increasingly intertwined. No other industry has to tread the fine line of environmentally-friendly growth as carefully as the tourism industry; in fact, some may argue, no other industry has as much to gain or to lose.