Tourism and insecurity, where are we standing?

Published in Plaza de Armas, newspaper from Queretaro, March 7^th 2011

During the recent weeks, a lot has been said about the numbers announced by the Ministry of Tourism referring to the increase on international tourism in the country during 2010. There is a lot of incredulity because there are many cities where the arrival of tourists has dramatically decreased due to insecurity problems.

Are the numbers unreal? Let’s analyze the situation of this important sector that represents 9% of the country’s GDP and more than 2 million direct jobs.

First, a clarification of terms. International travelers are foreign people that get into the country, no matter if they stay for a few hours or if they stay the night. Mexican Central Bank (BANXICO) records all those visits, meanwhile Tourism focuses only on the people that stay the night in the country, since they receive the definition of tourists.

This difference is important, especially on the borders where there is a very important flow of travelers that don’t stay the night, and therefore, they are not tourists.

BANXICO reports a fall in the total number of travelers in 2010, precisely because the border travelers that don’t stay the night had a significant decrease (7.8 million less than in 2009).

The groups considered as tourists (border travelers that stay the night and those that get beyond the borders) increased from 21.5 to 22.4 million. This confirms the increasing trend announced by Tourism, with a little different numbers (Tourism announced that they were 22.6 million). A 4.4% increase will always be good news, but we are just reaching 2008 levels.

Then, how is insecurity affecting tourism? Let’s see some data that can give us more clarity.

First result: world tourism increased 6.7% in 2010. Mexico is growing slower, therefore we had a relative decrease that makes us stay with a smaller piece of the world pie.

Second result: the country stopped receiving $230 million dollars on the border zone this year due to the fall of travelers. Besides, many hotels on different cities on the north zone reported occupancy levels of 40% during 2010, against 70% in 2009.

Third result: 3 cruises lines recently announced a reduction or elimination of their travels to Mexico. This sector, classified also as travelers and not as tourists, had an increase in 2010 and represents 8% of international travelers and 5% of foreign currency inflows.

Fourth result: United States, that represents 40% of foreign tourism in Mexico, has traveling alerts for half of the country’s states. This is a big red alert (fortunately, Queretaro is not on that list).

Are there good news? Yes. For instance, foreign currency inflows increased 5% in 2010 (every traveler and tourist spent more money on average). Also, the big national centers for international tourism (Cancun, Mayan Riviera, Cabos) are still outside the alert zones for the United States.

Although the perspectives were positive at the end of 2010, we can’t overlook current risks. We still may have an increase in the number of tourist in 2011 as a consequence of the world dynamic in this sector, but if we don’t have positive changes in the short term, the growing rate will be lower again, and tourists will concentrate more in a few destinations, that are already the ones more visited, at expense of the rest of the country.

	2007	2008	2009	2010	2011 (estimated on Dec. 2010)
International tourists (million)	21.4	22.6	21.5	22.4	22.6 Tourist National Confederation
					26.0 Ministry of Tourism

2007 to 2010 are data from BANXICO

A follow-up on Mexican consumer behavior

Extract of the article published on Plaza de Armas (http://www.plazadearmas.com.mx/), February 28^th 2011.

 This is a follow-up of my post published on November 16^th 2010.

At December 2010, retail sales had a 2.9% annual increase. The good news are that all the areas evaluated had an improvement during the year; the bad news are the existing gaps in different areas compared with 2008.

Dec. 2010 vs. June 2008 (Made with data from the Commercial establishments monthly survey, INEGI)
Retail establishments with growth		Retail establishments with decrease
Establishments	Change	Establishments	Change
Food, beverages and tobacco	13.8%	Home appliances, computers and articles for interiors decoration	-18.1%
Textile products, dressing accessories and footwear	6.9%	Motor vehicles, spare parts, fuel and lubricants	-11.6%
Supermarkets and department stores	4.6%	Stationery, recreation products and other personal-use products	-4.4%
Hardware and glass	1.7%	Health-care products	-4.1%

Although data shows improvement, consumers are still very sensitive to prices on their purchases. According to a study published by American Express, 68% of Mexicans make our purchases based on the cost (more than quality, and a lot more than the ecological impact of the products). This behavior is clearly identified by the big supermarket chains, as Walmart or Soriana, that are growing based on their low-investment and low-cost establishments (Bodega Aurrera Express, and Soriana Express).

The factor that Is having a clear influence on this behavior is employment. The national unemployment rate has been at levels of 4.9% to 5.7% on the last 6 months, way above the 2008 levels.

What is the outlook for 2011? There are three indicators that show a positive trend:

1. There are positive estimates of private consumption (where the families’ expense is included) according to International Monetary Fund (+4.7%) and Banco Santander (4.1%); that means it will be one of the motors for the estimated national economy growth.
2. Credit to consumers has had recently its biggest monthly increases in the last 3 years according to Central Bank (BANXICO) and the Banks and Securities National Commission (CNBV).
3. Consumer confidence is positive for 2011. TNS Research International identified in a recent study that optimism levels and intention to consume have increased for 2011. The confidence index calculated by INEGI had in January 2011 its second biggest level in the last 32 months, with good levels for those components that consider the economic perspectives for the next 12 months.

What are the risks? In the first instance, there are current inflationary pressures due to the increase on several commodities; the second risk is the slow rate in employment recovery we are having. Both issues can affect negatively the consumer’s behavior.

In brief, consumers begin to have more confidence and marginally more capacity to consume, what gives moderate growth perspectives with some uncertainties. Meanwhile, cost will be still an important factor in the purchasing decisions, so you will have to develop initiatives to reduce the cost of your product or service without compromising the basic quality elements that keep you competitive.