Measuring the Economic Impact of Tourism in Malta Using the Tourism Satellite Account

Measuring the economic impact of tourism in Malta using the Tourism Satellite Account Brandon Sacco 1* and Ian P. Cassar 2 Received: 16/10/2018 Accepted: 19/03/2019 1 Senior Analyst at the National Statistics Office of Malta. National Statistics Office, Valletta, Malta; email: [email protected]; Phone +356 79459674 2 Senior Lecturer in the Economics Department of the University of Malta. email: [email protected]. * Corresponding author Coordinating editor: Stanislav Ivanov Abstract This article puts forward an analysis of the first Tourism Satellite Account compiled for the Maltese economy. The resulting Tourism Satellite Account (TSA) compiled for Malta adheres to the European System of Accounts (2010) and is based on the reference year of 2010. It reveals that tourism’s direct contribution to Malta’s GDP is around 6.1% and that the tourism sector directly employs 8.0% of the total population of gainfully occupied persons (employed or self-employed). Both the symmetrical approach and a variant of the net ratio approach are utilised to derive the tourism value added and tourism gross domestic product. The contribution of tourism to the local economy during 2010 is on par with that of what are generally considered to be the key sectors in Malta, however, the direct contribution to GDP is significantly lower than the estimates presented from past studies. The results presented in the article can be of significant use to further understand the various dimensions of both tourism demand and the tourism supply chain. Keywords: Tourism Satellite Account, Tourism Industry, Tourism Contribution Citation: Sacco, B., I. P. Cassar (2019) Measuring the economic impact of tourism in Malta using the Tourism Satellite Account. European Journal of Tourism Research 23, pp. 86-111 Introduction development in tourism statistical Unlike other intermittent key industries in the infrastructure, the Maltese tourism industry Maltese economy, tourism has perpetually stakeholders and policy makers have little been considered an important beacon for the access to statistical information on the economic well-being of the country and its economic impact of tourism. The existence of prosperity for economic growth (E-Cubed, several statistical focal points on a number of 2015; Briguglio, 2002). Despite the ample tourism facets has, over the years, provided This work is licensed under the Creative Commons Attribution 4.0 International (CC BY 4.0). To view a copy of this license, visit https://creativecommons.org/licenses/by/4.0/ 86 RESEARCH PAPER Sacco, B., I. P. Cassar (2019) / European Journal of Tourism Research 23, pp. 86-111 only a limited view on the actual significance of reaching significant influence on Maltese the economic aspect of tourism as an industry. internal tourism as in other EU countries and The measurement of the economic dimension consequently such tourism type may of tourism may have often been limited to sometimes be omitted from particular tourism simply the total expenditure of tourists for a trip economic impact assessments. Although the in Malta reported in surveys. Such data may majority of tourism in Malta is accounted for by provide insufficient information to discriminate inbound tourism, domestic tourism is an between national earnings and other integral part of internal tourism consumption. exogenous supply of tourism services. In The TSA exercise ensures that the notion of response to the statistical vacuum surrounding domestic tourism is accounted for as an this phenomenon, the Tourism Satellite essential element. Moreover, the concept of Accounts (TSA) framework (UNSD et al., 2008) ‘tourism volume’ may vary significantly from emerges as an ideal tool which enables one stakeholder to another, each according to tourism, in its entirety as a satellite industry, to the respective perception and main field of be compared with traditional industries as well interest. For instance, on the one hand, a group as providing a better and deeper understanding of hotels may measure tourism through the of the effective role of tourism in the Maltese utilisation of nights in collective accommodation economy. as this type of consumption would typically reflect in their respective occupancy rate and Malta features as the state with the highest earnings. Hotels operators typically have little tourism intensity in the European Union or no interest in same-day visitors arriving by a (Eurostat, 2017a), and such a social aspect is cruise ship or tourists staying at private certainly felt and acknowledged by the resident accommodation. On the other hand, the Malta population. The tangible nature of the tourism International Airport has limited interest in the phenomenon especially in a small geographical duration of a tourist’s visit but is more likely to area such as the Maltese islands makes it show interest in the head count of their arrivals prone to the amplification of its economic and departures, while an airline operator is significance, possibly due to its social impact interested in the passenger traffic on routes on the society. The number of tourism arrivals which is currently operating or viable for the is, in general, a primary cause for future. overestimating the economic dimension of tourism. Behind the millions of tourist arrivals The TSA framework provides a solution to one reported annually in tourism surveys, which of the primary challenges faced by tourism may sound extraordinary relative to the local analysts, that of measuring the tourism activity population, nights spent in Malta are an in a form which is comparable with other important indicator which allows the derivation industries using the widely-recognised Gross of tourism population – a numerical value which Domestic Product (GDP) approach. Tourism could be compared with the resident activity is, in essence, recognized as a population. Tourism population is a concept consumption kind of activity – thus used mainly for analytical purposes and is acknowledged when the consumption is linked to the intensity of tourism activity by effectuated by a specific type of consumer. neutralising the large numbers of tourism Contemporary statistical instruments such as arrivals and overnights to population the Travel item in the balance of payments equivalents. This is generally achieved by current account and the total final consumption dividing the number of overnights by the expenditure in the form of exports within the amount of days in the reference period. Such national accounts statistical framework does computation yields the average number of not provide a sufficient set of aggregates which tourists present on a particular geographical allow for an appropriate comparison with other area at any point in time during the reference economic activities or indeed the economic period. performance of tourism in other countries or regions. Moreover, the tiny geographical scale of the Maltese islands impedes domestic tourism from 87 Measuring the economic impact of tourism in Malta using the Tourism Satellite Account. The major challenge confronting the cross- Malta (NSO, 2017) demonstrates that tourism industry comparison is mainly the concept of as an autonomous industry in national fitting a final demand ‘satellite industry’ notion accounts is not merely an abstract idea simply into a system which suits the production side used for rhetoric. Furthermore, these results approach of GDP measurement. Meantime, demonstrate that the actual direct contribution tourism may be logically looked at as a final of tourism to the Maltese economy is different demand concept and thus, its economic to what has traditionally been perceived. significance may not be sufficiently measured up to merely its direct economic effects. In turn, Several studies have been undertaken to however, such prospect exposes the inability of estimate the economic contribution of tourism tourism as an industrial sector to be compared to the Maltese economy with significantly on a level playing field with other traditional different estimates between them. Briguglio industries outlined by the European Statistical (2002), estimates that the economic Classification of Economic Activates (NACE), contribution of tourism ranges between 15 to as there is no such classification for Tourism as 20%; using a crude import content assumption. a production activity. The WTTC claims that tourism accounts for 14.2% in direct impact to GDP (WTTC, 2018) Although, a TSA may be considered as the while other studies have estimated that tourism approach closest to measuring tourism in a accounts for 30% (Hoti, S., McAleer, M., & form which is comparable with the classical Shareef, R., 2007) and 25% (Blake, 2003) of ‘production-side’ economic industries, a tourism total Maltese GDP. The inconsistency in satellite industry is still conceptually separate to declared tourism importance on the national the core national accounts and thus cannot be economy also coincided with the global tallied up with the conventional industries to challenges and varied developments in the derive the total economy GVA as it represents measurement of the economic aspect of a collection of tourism-related industries which tourism. The absence of an official position in do not belong to the tourism domain in their Malta regarding the economic contribution of entirety. This means that despite the tourism to the economy paved way for convenient bridge which the TSA provides speculation and various different between the expenditure approach and the

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