Tourism is now bigger than construction was during the real estate bubble.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Since hitting rock bottom in 2013, Spain has been one of the biggest engines of economic growth in Europe, expanding at around 3% per year. But according to a report by the Bank of Spain, most of the factors behind this growth — such as cheaper global oil prices, the ECB’s expansionary monetary policy, and the subsequent decline in value of the Euro — are externally driven and transitory in nature.
This is particularly true for arguably the biggest driver of Spain’s economic recovery, its unprecedented tourism boom, which some local economists are finally beginning to call a bubble.
In large part the boom/bubble is a result of the recent surge in geopolitical risks affecting rival tourist destinations like Turkey, Egypt, Tunisia and, in smaller measure, France, which helped boost the number of foreign visitors to Spain in 2016 to a historic record of 75.3 million people — an 11.8% increase on 2015.
Based on first-half figures for this year, the trend is set to continue, at least for a little while longer. Between January and June 2017 36.3 million foreign visitors came to Spain — an increase of 11.6% on the same period of 2016. But if recent developments are any indication, this year’s surge in visitors could well represent Spain’s tourist boom’s final swansong.
Rising “Tourism-phobia.” After years of growing public opposition to the unrestrained growth of the Barcelona’s tourist industry, the city has witnessed a rash of coordinated attacks against tourist targets led by Arran, the youth wing of the radical separatist CUP (Popular Unity Candidacy) party. Arran’s highly publicized actions have spawned a flurry of copycat attacks in places like Palma de Mallorca, San Sebastian and most recently Tenerife.
The Spanish Prime Minister Mariano Rajoy condemned the acts of vandalism, warning protesters that the tourism trade is essential to the country’s prosperity.
He’s absolutely right: Spain’s tourist industry represents around 13% of the entire economy. That’s two-and-a-half percentage points larger than the contribution of Spain’s construction sector at the peak of Spain’s mind boggling housing boom in 2007.
Tourism has also played a vital role in Spain’s economic recovery, accounting for 26% of the 1.4 million new jobs created since 2013. Without those jobs, the total number of unemployed in Spain would quickly surge back over the 20% mark. The impact on Spain’s biggest tourist regions such as Catalonia and the Balearic Islands would be even more pronounced, since almost 40% of the new jobs created there since 2013 there depend on tourism.
Biting the hand that doesn’t quite feed you. What Rajoy conveniently ignores is that the benefits of Spain’s massive tourist boom have been enjoyed almost exclusively by businesses and property owners, while the externalities (sky-high prices and rents, overcrowding, noise, overstretched public services and infrastructure, the erosion of the town or city’s distinctive character, and the gradual formation of a mono-dimensional economy) have been distributed far more broadly.
Profits across virtually all categories of the sector (apart from five-star accommodation) are up on average by 10% year on year, according to Spain’s national statistics agency. Yet those profits are not being shared evenly. So far this year there have been 139 collective bargaining agreements in the sector, which have led to a median wage increase of just 1.28% — not enough to even cover “official” inflation, which in July was 1.5%. In other words, for the 519,373 people covered by these agreements, their wages have actually gone down in real terms over the last year.
Many employers, in particular large hotel groups, have refused to raise salaries at all for their workers despite the eye-watering profits they’re making. All this is happening against a backdrop of soaring rents. In July rents in Spain increased year-on-year by 9.6%. The trend is most pronounced in the most popular tourist destinations like Santa Cruz de Tenerife (15.7%), Alava (15.6%), Barcelona (14.3%), and the Balearic Islands (10.1%).
The limits of growth. For many businesses, investors and lawmakers, the sky is the limit when it comes to the tourist industry’s future growth potential. Yet many of Spain’s hot spots are already so saturated that even the tourists are beginning to complain. In a recent study by the Barcelona City Council, 40% of the tourists surveyed thought that prices in the city were too high, while 59% believed that the streets and main sights were too crowded.
Things have gotten so bad in Barcelona that even the Chamber of Commerce is calling for action, including a large hike in the tax day-tripping tourists must pay to visit the city. 17 million of the 35 million people who visit the city each year do not even stay the night. The Chambers president Miquel Valls lamented that Barcelona is living through a “tourist invasion” and he called for fewer tourists and more quality.
According to the world’s biggest tourist operator, German-based TUI, Spain is already far too overcrowded and European tourists should begin to look elsewhere for better deals, such as Cape Verde and Bulgaria. “If demand is very high and prices are high, other destinations benefit because they are more accessible. That is what is happening now,” said the group’s CEO, Fritz Joussen.
Brexit backlash. British holidaymakers accounted for 23% of all foreign visitors to Spain last year. For the moment, Brexit has not affected the British appetite for Spanish holidays — in fact the number of visits actually increased by 12.6% in 2016. But if the pound sterling continues to fall sharply against the euro or a hard Brexit becomes a reality, Spain will probably receive fewer British tourists, and that is likely to have a major impact on the number of visitors.
Taken together, these recent developments should give serious cause for concern among Spanish businesses, authorities and investors, both domestic and foreign. Tourism may have saved Spain’s economy from an even deeper economic malaise, but it is also replacing other activities and displacing locals and their economic contribution.
One of the main reasons behind Spain’s tourist boom is that the country is broadly perceived as a safe, stable destination. Unless the government and business community address the causes of public hostility to mass tourism, including sharing the spoils more equitably and combating some of the externalities it produces, that perception could change very quickly. And by now it’s abundantly clear that without the recent spectacular growth in tourism, Spain’s “miraculous” economic recovery would come to a shuddering halt. By Don Quijones.
It’s not just the weather that’s heating up in Spain’s second city. Read… Chaos Hits Barcelona’s Tourist Industry
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The same story everywhere; businesses and the 0.01% reap all the benefits while the general public pays for it through inflation and taxes. We are going back to the days of feudalism. Remember that in most part of feudalistic Europe there was a tradition “Droit du seigneur” or “right of the first night”. So, good lock if you are not amongst the 0.01%
Oh, so you think starting a business is foolproof and the business owner just sits back and rips the tourists off and collects riches? Or do you think the people who bought property knew prices were going to rise and AirBnb was going to make them rich? Do you even know the risks present in starting a business, or buying multi family? These people took risks in order to better their lives. Even here in Sacramento, I know several small business owners who risked their entire savings to open businesses (a thrift store, a small Pakistani/Indian grocery store and a smoke shop). They work their butts off. I think they add value to our small neighborhood community. No one knows the future, and no one knows if their invested money is going to produce a profit. Be thankful for those who take those risks.
Actually, I’ve been through setting up business myself 3 times. Maybe you should read more carefully. We are talking about big business, and not your tiny little store.
I hope that new movie “Detroit” isn’t a harbinger of things to come.
Yes, that’s how it plays out everywhere under the sun. A very small percentage of people are winners and a very large percentage losers. And mostly they are chosen long before the game starts. And damn, those winners will do whatever it takes to make sure their rug isn’t pulled out from under them. They generally get lots of support from gov. policies, but also from the ignorant sheep, who think they might be the next one called to be a winner.
Isn’t Spain full of small bars, coffee shops etc. unlike the US model where most stuff is chains?
Recent studies of these small outfits in Ontario reveal that many of them are so low profit they would have difficulty paying the planned $ 15 minimum wage. In some of them, an employee would make more than the owner, who often works there too. I would think it would be tougher in Spain.
Collective agreements? Do the mom and pops do those?
Sounds like that is about big hotels etc. not the smaller ones.
Of course ‘business= bad’ is the mantra for many commenting, but the kid waiting tables in Spain with 25% unemployment may need the gig more than they do.
Could you link the Ontario study?
Sorry, but it was in the Globe and Mail biz section in last five days or so. If you entered Globe and Mail Ontario minimum wage it should pop up.
PS: the low profit of independent restaurants (non chain) can be confirmed by their rate of failure- probably the highest of any business with premises.
Forget the studies. Nothing makes economic sense any more in the workers’ paradise of Ontario. The province has a massive accumulated debt and has to pay out almost C$1billion per month in interest just to service that debt. They have no credibility left.
Tourists should stop going all together. Then the people there could have their cheaper rent prices, an actual drop in wages, and less money cycled in the economy.
I’m so tired of hearing about the “misery” tourists cause. It’s not like Spain has many options. I’ve been to Barcelona many years ago. It’s a nice place and my better half wants to go there. But that’s going be a big no if their government wants to tax the hell out of me and I have to deal with hoodlums that are cranky because they are not seeing a part of the action.
I say the tourists should replace what some sneer at as “trickle down” economics to “trickle nowhere” economics. Then they can all be equal, just like in the Utopia of Venezuela or North Korea.
You don’t live in a place that’s awash in tourists, do you?
With regards to places to live, the less people the better. But I would not live in a city and complain that there are to many people. Likewise, I can’t complain about not having many eateries that I would find back home.
I certainly can understand the NIMBY attitudes of the locals not connected to the tourist industry, but if people want government services, it has to be paid for somehow.
These things, like everything else, have tradeoffs. The problems with issues like this is that the negative consequences are often more apparent than the positive aspects. I also ask, if Spain were to lose this industry, what will it replace tourism with?
Unfortunately, this is true: if the only paying job in town is sawing off the branch which you are sitting on, then you have to do it. The kids would be stuffed with this mass tourism, and many of the small bar owners and their suppliers.
The Marxists of Europe who exclaimed in horror at the ‘slavery’ of the capitalist factory system in the 1970’s (‘concentration camps’ of capitalist exploitation they called them) are now throwing up their hands in indignation at the ‘rubbish’ employment provided by mass tourism. Ah, the nostalgia for the shop floor…..
The ‘radical’ Left in Spain now want -irony of ironies –
mass industrial employment (with Green credentials) to come back in the place of mass tourism: it simply isn’t going to happen. Everyone longs for factory work, so they can’t campaign against that any more, therefore anti-tourism is the new great cause.
In Pamplona, the radical Left who are officially against the cruelty of bull-fighting, allow the running of the bulls to continue unmolested, as they know it would be electoral suicide to ban the event.
My uncle, a Red firebrand, makes useful extra income packing Americans and Northerners into his house on bunks, complete with cardboard cut-out Ernest Hemingway in the breakfast room.
But he’s an anti-capitalist Revolutionary, you understand, a Revolutionary! :)
The Roma do That’s what I remember about Barcelona Getting our camera stolen from under the table Politically incorrect Maybe but the truth if you can handle it Oh and the architecture was interesting
I have been living in Santa Cruz de Tenerife in the very center of the city for the last 10 years and without tourists this town (more than 300000 people) would be just dead ! I am renting a small flat and the price has not changed during the last five years except this last month ( + 1 %) mainly because the higher cost of water which is included in the rent … This year the number or tourists in the Canaries archipelago is expected to be more than 17 millions. This means that the Canaries is the first tourism destination in the world with about 3 million permanent residents !
“Barcelona is a nice place”, that’s the understatement of the year! LOL having lived in Ibiza and Barcelona in the late 70s and 80s (yes the hippie years) it was paradise,a magnet for kids from all over the world. mass tourism was in existence at the time but mainly in the beach cities of Benidorm and such. today those cities look like mini Manhattans. the Spaniards where always known to be exceptionally tolerant regarding the masses invading their lands (unlike the Greeks) and this new hostility just tells me they are at the breaking point and fearing loss of their identity and they are questioning the money equation. as a German i can proudly say that the annual competition for the Crown of “worst drunk and abusive tourist trophy usually goes to the Germans but is always contested by the British. there are towns on the islands and the mainland that are 100% controlled by drunk Englishman and Germans will stay clear. the opposite applies as well of course. some places are truly open to all cummers like Rolex Beach on Ibiza where the international Jet Set mingles naked and free of any judgements as long as you are beautiful and loaded. if you have some time,spend a few weeks on the spanish coast and the south of france,your eyes will be opened! make sure you go in the winter,the Spanish people may actually be happy to see you.
I’d actually like to visit somewhere in France that was still identifiable as France. I know the people around Normandy are gracious, but am still open to some other suggestions.
You should try the Southwest of France, more specifically the area traditionally known as Gascony. Just Google it and you will know what I mean.
Inland France, the South West, the more rural the better still very French.
There are many towns untouched by mass tourism and in lovely countryside, great for walking. For instance, Mauleon.
The same for Catalonia: go deep inland. Barcelona is just degraded and swamped, like Florence to which wild horses couldn’t drag me now.
What they’re going to have to do is what we’ve been forced to do in the U.S. National Parks, ration. Only allow so many in per year and either decide who is allowed in by lottery or by bidding, or best, by a combination of both.
Of course, even this won’t work if the poor workers aren’t seeing a good chunk of the money. Otherwise they’ll just continue on with the riots killing the Golden Goose for everyone.
Unfortunately, most businessmen and politicians are too stupid to realize this so I expect the tourist industry there to totally collapse, after all who wants to visit a city constantly on the verge of social revolution?
Cuba is regulated in most things and still has a booming tourist industry. Is about time they start to regulate things in Barcelona and other tourism hot spots in spain.
Cuba has two main differences.
First is the physical cost of getting there. Yes, there are low cost airlines bringing tourists to Cuba but tickets cost several times internal EU ones. This alone ensues Cuba gets a fraction of the tourists Spain gets.
Second is the Cuban model is based around the concept of resorts. There aren’t that many hotels in the cities tourists would find palatable. Things are changing, but at the usual snail pace: for foreign investors it’s usually easier and cheaper to just build a resort than renovating a pre-Revolution hotel or building a new one.
People who haven’t been to coastal areas in Spain (the interior, apart from Madrid and a few other places, is still acceptable) have no clue of what the place has become. Even those who have been to Spain a decade ago, when tourism was already in full swing, would struggle to recognize the place.
To get an idea, go Flightradar24.com and center on the triangle of airports composed by Barcelona, Palma de Mallorca and Ibiza. The neverending lines of jetliners belonging to budget/low cost airlines tell you all you need to know.
Budget airlines are what changed tourism in Spain, Greece and, to a far lesser extent, Italy and Portugal: before they became commonplace, all places were dirt cheap (especially for Northern Europeans) but getting there was hard and/or expensive, at least for your average lager lout looking to get drunk in the sunshine on a tight budget.
Now all four places are far more expensive than they once were (still cheap if you are from Sweden, Denmark, The Netherlands etc though) but getting there is ridiculously cheap and easy. Just get somebody to drop you and your drunken friends off to the nearest airport and you’ll be in Spain in a moment courtesy of Ryanair, Thomas Cook Airlines, TUI, Jet2 and their pals.
I’d make an Animal House joke here, but at least John Belushi was always damn funny. There’s nothing remotely entertaining here.
MC You forgot Turkey Unfortunately we have our share of those drunken Brits here as well Islamophobia will keep Many away which is fine with me
When Messi leave town, it will be all over.
Where the average tourist is in Spain for five days, where his holiday spend is largely retained by his tour-operator in his country of origin and where his loyalty towards Spain is low. By contrast, we who live in Spain as foreigners know full well that we are here for a long time, that we are more valuable to the economy and, as well, far more loyal to the country than the tourists. We may be a small nuisance in certain cases, but we are generally quietly and benignly ignored by the authorities. We have no political voice beyond the frontier of our municipality and, following Brexit, we can presumably expect even less. Other European residents will also find themselves further isolated politically as the ‘foreign’ vote is watered down. Will local politicians spend much time on issues that don’t bring any political return? Well, no.
Spain has never spent much effort on attracting settlers from elsewhere (unless they apply for a Golden Visa, whose first requirement is half a million euros). Fully half of Spain’s 8,000 municipalities are losing population, but there is no interest in reversing this trend through encouraging new home-makers. We could be the Florida of Europe, but it’s not a project that has any interest for the Ministry of the Interior. Meanwhile, Spain continues to debate how many tourists it can fit on the head of a pin… and for how many weeks in the year.
Tourism trends always come and go. I read earlier in the year in the Telegraph that Spain was a fashionable destination this year, though it’s just had an attack in Barcelona that will probably impact on future tourist numbers.
While the tourism boom has indeed been very good (for some) and been a great provider of (mostly low wage) jobs in Spain, it is a misleading to give it too much credit for the Spanish recovery down to tourism. Manufactured exports have increased strongly since2008 and are worth twice as much. Agricultural exports too. Service exports have also increased and the domestic economy has been expanding strongly (at last!) in the last three or four years.