Weak Peso and improved safety to boost Tourism Sector in Colombia: Ken Research

Ken Research announced its latest publication on, “Travel and Tourism in Colombia to 2020”, offer insights on the changing trends and key issues within the Travel & Tourism Sector in Colombia. The publication includes an insightful analysis of demand-side dynamics, tourist flows, expenditure patterns, tourism related intermediate industries along with emerging growth opportunities and challenges in the Travel & Tourism Sector in Colombia. The analysis of the aforementioned trends has been done across key categories within the sector: domestic tourism, inbound tourism, and outbound tourism. The report also includes analysis of trips by purpose, mode of transport and customer type-leisure and business travellers.

Brief Overview of Travel & Tourism Sector in Colombia

Colombia’s Travel & Tourism sector is crucial to its economy. The sector has consistently increased its contribution to the GDP. Presently the sector contributes around 2.2% to the GDP. The spectacular growth of the Tourism sector in Colombia has even outpaced the global tourism growth rates as well as the average tourism growth rate of all the South American countries. With rich and diverse geography as well as unique biodiversity, Colombia has a great potential for eco-tourism as well. Some of the popular places to visit in Colombia include Bogota, Cartagena, Medellin, Amazon and the Andean regions; the Caribbean & Pacific Coasts; the desert of La Guajira etc.

Looking at the present scenario, Colombia’s tourism sector is growing with strong growth rates. Two key events influencing the tourism sector in the country are Home currency depreciation &improved safety on account of signing off ceasefire agreement between the govt. and the FARC rebels. Improved safety has positively affected the growth of the sector. While weakening of the peso has significantly changed the consumer preferences over domestic, inbound & outbound trips. Due to weak peso, Colombians are turning to domestic trips over outbound trips. Also, as a result of the weak peso, inbound tourism has witnessed remarkable growth over last few years: 8.2% in 2013, 7.4% in 2014, and 16.3% in 2015. International arrivals, largely from US and Venezuela, totalled 2.3 million in 2015. Outbound tourism has been suffering as a result of falling value of the peso. Outbound trips declined by -1.3% in 2015 while expenditure declined by -0.6%.

The government also plays an important role in the tourism sector. As for example, the introduction of the new tax policy which exempts foreign tourist from paying sales tax on tourism related services; construction plan of new airports while renovating and expanding the existing ones; are totally government efforts for developing the tourism sector in Colombia. However, high congestion at airports urging the immediate construction and expansion of the airport capacity will be a serious challenge to the government as well as for the overall tourism sector.

Key Factors Driving Growth in Colombia’s Travel & Tourism Sector

The strong performance of the Travel & Tourism sector in Colombia over the last several years is due to various factors influencing the demand-side dynamics offering vast growth opportunities to the market players and encouraging them to strategize their business actions accordingly. This ultimately leads to expansion and development of the overall tourism sector. Since, Tourism sector is a crucial part of a country’s economy, hence, government participation through increased investment in tourism related development plans has also played a crucial role in the growth of the sector.

Key factors driving growth in Colombia’s Travel & Tourism sector include:

• Depreciation of home currency

The weakening of Peso has significantly influenced consumer preferences over domestic, inbound & outbound trips. Colombians have turned to domestic trips; hence, declining international departures have led to negative outbound tourism growth. On the other hand, inbound tourism has witnessed impressive growth.

• Improved Safety

The signing of the ceasefire agreement between Colombian Govt. & the FARC rebels to end the 50 years conflict is expected to have a significant impact on international arrivals.

• New Tax Policy

Govt. aiming to enhance the tourism sector outlook has introduced a new tax policy which exempts foreign tourists from the 16% sales tax (VAT) on tourism-related services. This will further boost the rising inbound trips.

• Airport Capacity Expansion &Increasing flights to Colombia

To reduce congestion at airports, govt. has come up with various plans for the construction of new airports. Also, the number of domestic, as well as international flights to Colombia, has been increasing over years. These factors greatly support the tourism sector growth.

• Great Potential for Eco-tourism

With very rich and diverse geography, including the Amazon and the Andean regions; the Caribbean & Pacific Coasts; the desert of La Guajira etc. along with the presence of unique biodiversity, Colombia has great potential for eco-tourism.

Future of Colombia’s Travel & Tourism Sector

Starting from a relatively low base, the tourism sector has shown remarkable performance and is expected to continue with the spectacular growth over several coming years outpacing the tourism market in the South American region. The weakening of the peso and improved safety will play a crucial role in driving tourism sector growth over the coming years. Other factors will reinforce the growth momentum. The weak peso will continue to support domestic and inbound tourism growth while leading to declining in outbound tourism growth. Over the forecast period, domestic trip is projected to grow at an average annual rate of 5.7%, to reach 32.6 million domestic trips by 2020; inbound tourism is forecasted to grow at a CAGR of 6.7% to reach 3.2 million international arrivals by 2020; and declining outbound tourism is expected to reach 5.1 million by 2020.

The construction of new airports as well as the expansion of the existing ones will reduce congestion at airports and also serve in accommodating the rising international arrivals. The implementation of the sales tax exemption policy for foreigners on tourist related services will lead to further rise in inbound trips.

Thus, we can say that Colombia is increasingly focusing on their tourism sector growth so as to firmly establish the country as a leading international tourist destination on the global platform.