January 29, 2020 |
A new year started. A new opportunity for growth, innovation and progress. The year however opened on a sad note, with Australia fighting a raging fire, resurfacing tensions in the Middle East and a virus outbreak in China.
And here I am drinking a cup of coffee at Grounded in Stepney Green, London – looking for signs of progress, for signs of humanity defying entropy.
And the signs arrived. Literally an “OPEN” sign on the street calling people into the café I’m sitting at, some of them Middle Eastern refugees, others born and bred east-Londoners and they were all starting the new year with smiles, despite the cold, despite the rain and despite the gloomy economic outlook.
And I wondered how else this industry helps humans on the planet, other than with smiles and good moments?
Well you would be surprised to find out the economic multiplier of the industry for your market. An economic multiplier is a factor, in this case the F&B industry, that when it changes, it also changes related industries and the economy as a whole.
It is only relevant to speak about an economic outlook during the last or first month of a year, and let’s be honest if you release it in December, you’re missing one of the strongest months for data, and an indicator of propensity to spend by your base of consumers. I remember one of the projects I looked after in New Zealand used to generate over 20% of yearly revenue in the month of December, and changes in that month were closely linked, and positively related to changes in revenue for the months of January, February and March.
So, I have put together an outlook of 2020 economic growth for hospitality and tourism, using data from the IMF, world bank, regional economic agencies and private banks.
The decision to include East Africa, the United Arab Emirates, and the United Kingdom is based on Figjam’s current presence with projects or research assignments. The United States and South East Asia are included for comparison purpose to get the greater picture, so it only makes sense to take a closer look at their indicators as well.
Now let’s talk data! The global economic growth this year is expected to be at around 3.3%. Some countries are punching above their weight while others have had economic conditions that throttle their growth and will continue to do so. Advanced economies are largely amongst the latter, but is that a deterrent to invest in these economies’ hospitality industry?
Not really, as the fact that an economy is not growing at certain pace doesn’t mean all the economic drivers are performing at that level, and so one needs to look at their internal market to actually see what contribution hospitality and tourism (H&T) has on total GDP.
The table below shows the share contribution of hospitality and tourism, the total GDP value, and what is the expected growth in percentage and its relative equivalent in US dollars.
So even when the UK economy for example is expected to grow only 1.6%, H&T is expected to outperform this by growing 5.9% and estimated to contribute 19% to the total GDP of the 2.6 trillion economy.
Doesn’t look that gloomy does it? When computing the date above one can say that US$ 29 billion of additional revenue will be poured into that sector in the UK in 2020 alone.
In contrast let’s look at South East Asia, which is an economy of similar size. Here, the expected overall GDP growth is 4.5% and the hospitality and tourism input is also outperforming GDP by growing 5.3%. However if we look at the monetary value in absolute terms this translates into a growth of “only” US$ 8 billion, which makes the opportunity 3.6 times smaller compared to the UK.
Counter-intuitively to one’s idea that larger growth percentage will automatically mean a better place to do business across all sectors the numbers above paint a different picture. That is one of the perils of percentage driven decisions, and although better than gut-feeling decisions, they are still very risky. We need to look closer at the absolute terms and see what it means for our respective economy in order to make the best decisions to push our businesses ahead. Opportunities, it seems, are plenty.