Before 2020, tourism in Lao PDR was one of the largest sources of foreign exchange earnings, only behind mining and electricity. International tourism arrivals reached a peak in 2019 as 4.79 million visitors came to Laos and spent $934 million dollars. This makes for a contribution of tourism spend to the Lao economy of 9.1%. It also created employment for 300,000 people in Lao PDR.
COVID-19 has paralysed the tourism industry, with a decline of international tourism arrivals around 74%. Tourism businesses experienced a huge drop in revenue of somewhere between 70 and 80%. Almost all workers in the tourism sector, both directly and indirectly, have been impacted through unpaid salaries, loss of income and increase in outstanding debts (water bills, electricity bills etc), the negative impact on households’ disposable income and a decline in domestic demand.
The biggest challenge tourism businesses in Lao PDR have reported as a result of COVID-19 is the high risk of needing to terminate their business due to cashflow issues and lack of working capital. At least 50% of tourism businesses have reported cashflow issues as a result of COVID-19, and up to 65% of formal businesses have reported a high risk of needing to terminate at least part of their operations. In interviews as well as the stakeholder consultation workshop, the private sector stressed that financial support to tourism businesses should be an immediate priority, to avoid the sector to collapse in the short to medium term.
The tourism recovery road map considered three options to support the recovery of the tourism sector in Lao PDR:
1. Domestic tourism: the immediate response to the closure of borders (to protect the population from COVID-19) and to prop up the tourism sector was to (re-) focus on domestic tourism, in order to compensate for the immediate halt in international tourism arrivals. Many countries are implementing a domestic tourism strategy, which can be successful for countries that a) had a strong domestic tourism segment prior to the COVID outbreak; b) have plenty of substitution options for air-based travel (car, train); and c) where the economy is sufficiently strong so spend on tourism products and services continues. Applying these factors to the Lao context, it seems unrealistic to assume that domestic tourism, in the short term, will provide the cash flow to tourism businesses in Lao PDR to survive the immediate crisis. The private sector confirmed this thinking: Whilst a re-focus on domestic tourism provides businesses with a professional development opportunity and a means to keep good quality staff, the revenue raised is not sufficient to keep businesses going in this time of crisis, due to the low population, low buying capacity and lack of typical tourism behaviours amongst the domestic population. Domestic tourism should not be downplayed or forgotten either: whilst it is unlikely to provide the financial relief in the short term, in the mid-term it will help boost the sector’s resilience and will help manage the peaks and throughs of the high and low season that are typical of international tourism arrivals.
2. Travel bubble: this should be given a high priority as it has the opportunity to provide immediate cash flow to the sector. It would require efforts with developing strong health protocols, the ability to respond quickly when the pandemic situation shifts again and, importantly, more market intelligence on travel sentiment and preferences of the source markets of the bubble. This will support the tourism sector to make adjustments to reflect these preferences.
3. Greening of tourism and sustainable tourism: outdoor activities are more popular amongst consumers because of the lower likelihood of infection – nature-based tourism can facilitate this. Studies indicate that the sustainability driver as part of consumer decision making behaviour has a lower impact than for example the attractiveness of domestic destinations and transport alternatives to air transport, therefore it is wise that the main focus of the tourism recovery roadmap in the short term should not be on this option, it should be considered as a medium to long term priority.
