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Yang Ming Shan

Yang Ming Shan
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Friday, August 24, 2012

Empirical Relationship among International Tourist Arrivals, Export, and Economic Output: A Case Study of Indonesia and Malaysia: A Background Analysis

Indonesia and Malaysia are two of Association of Southeast Asian Nations (ASEAN) member-countries that have significant economic growth in recent years. Both countries have almost similar factors and characteristics in boosting their economic growth. Some important tools for their economic growth are Tourism Industry and Export. Southeast Asia is showing stronger signs of resilience to global turbulence than the rest of Asia as buoyant domestic spending offsets struggling exports, while low debt levels give governments more room than their cash-strapped counterparts in the West to deliver stimulus. Indonesia's economy, the largest in the region, grew 6.3 percent in the first quarter from a year earlier, enviable by Western standards although its slowest pace in six quarters. At the same time, foreign direct investment surged 30 percent as Jakarta regained coveted investment grade credit status. Malaysia continues to invest heavily in infrastructure to meet demands of people and investors (http://www.abs-cbnnews.com, June 1st 2012). Indonesia’s improving growth prospects and sound macroeconomic policy have many analysts suggesting that it will become the newest member of the “Brazil, Russian, India, and China (BRIC)” grouping of leading emerging markets. In December 2011, Fitch Ratings upgraded Indonesia’s sovereign debt rating to investment grade. A similar upgrade to investment grade is expected from Standard and Poor’s and Moody’s (Bureau of East Asian and Pacific Affairs, U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/2748.htm, January 2012). In 2010, Indonesia has seen an increase in manufacturing output and exports, with relatively cheap labor and a complementary large and growing domestic market. Exports of natural resources, such as oil and gas, coal and crude palm oil (CPO) have made up around 50% of Indonesia’s exports and have been key drivers of growth. With the share of total exports to fast-growing emerging markets increasing and demand for commodities likely sustainable, export growth is likely to remain buoyant. In contrast, imports may grow even faster with infrastructure development and strong domestic demand growth. Net exports will likely continue to diminish and, with higher net income outflows (the counterpart to large portfolio inflows), it is expected the current account will eventually shift into deficit in the medium term (Bureau of East Asian and Pacific Affairs, U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/2748.htm, January 2012). Indonesia's exports were $158 billion in 2010, a rise of 35% from $116.5 billion in 2009. The largest export commodities for 2010 were oil and gas (17.8%), minerals (14.9%), textile and footwear (8.9%), crude palm oil (8.54%), electrical appliances (8.2%), and rubber products (4.7%). The top destinations for exports for 2010 were Japan (16.3%), China (11.6%), the U.S. (11.1%), Singapore (8.5%), and Korea (8.3%). Meanwhile, total imports in 2010 were $136 billion, up from $96.83 billion in 2009. Indonesia is currently our 28th-largest goods trading partner with $23.4 billion in total (two-way) goods trade during 2010. The U.S. trade deficit with Indonesia totaled $9.5 billion in 2010 ($6.9 billion in exports versus $16.5 billion in imports) (Bureau of East Asian and Pacific Affairs, U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/2748.htm, January 2012). Indonesia was ranked 81st out 133 countries in the World Economic Forum Tourism Competitiveness Report for 2009, it has since risen to 74th place in 2011 yet has the scope to be far higher. The country has faced various obstacles in getting its tourism industry going such as the Bali bombings in 2002 followed by bombings in Jakarta in 2005 and 2009 as well as natural disasters. With many Western countries still posting travel warnings for Indonesia, it has been a challenge to get a positive message across. Effectively marketing the country on the global stage has failed to take hold thus far as few are familiar with international representations of the country, such as known brands. Still, the sector has shown resilience in tourism numbers despite these hurdles which is testament to the natural attributes the archipelagic country has. The 2010 revival of the national airline, Garuda, which had previously been grounded for a poor safety record and mismanagement, will play a role in promoting Indonesia’s image in the immediate future while expanding the number of long haul routes (Global Business Guide, http://www.gbgindonesia.com, 2011). Indonesia’s main source of tourists comes from the ASEAN, being the fourth largest receiver in the region. Trends have remained relatively unchanged for the past 5 years with Singapore, Malaysia and Japan followed by Australia being the main sources. Numbers of Chinese tourists have been increasing significantly by 19.54% from 2008 to 2009 and numbers to Bali in particular were up by 175% in 2010 from the previous year. India is another emerging tourism source while the United Kingdom remains the main long haul tourism source followed by France and the Netherlands. The main destinations within Indonesia include Bali, which received 2.576 million tourists in 2010 or nearly 37% of total arrivals and maintains strong hotel occupancy rates throughout the year at an average of 59%. This is followed by Jakarta for both business and leisure travel as well as other secondary cities in Java such as Yogjakarta which is the ‘spiritual centre’ of the island. Other popular destinations include Kalimantan, although the majority of the existing tourism numbers are accounted for by business travellers to date (Global Business Guide, http://www.gbgindonesia.com, 2011). Tourism numbers have been growing from 5.51 million in 2007 to 5.3 million in 2009 and 7 million in 2010 according to Statistics Indonesia. These figures have been called into question considering that they count arrivals of foreign residents and business travellers under one single category making reliable figures difficult to come by. That being said, tourism numbers are increasing in line with increased government efforts under the Ministry of Tourism & Culture’s various ‘Visit Indonesia’ campaigns. Yet these numbers pale in comparison to that of Malaysia that received 24.5 million tourists in 2010 as well as Singapore that received 11.6 million during the same period (ASEAN Tourism). The Ministry is aiming to increase tourism numbers to 7.7 million for 2011 under the new ‘Wonderful Indonesia’ campaign, however building up the brand and competing with the likes of Malaysia will require significant investment. Spending on tourism promotion has increased drastically from $15 million USD in 2009 to $47 million in 2010 (State Budget 2010) yet it appears as though the message is still not being received effectively. Indonesia still has to strengthen its internal capacity in terms of infrastructure to start building a strong and identifiable brand (Global Business Guide, http://www.gbgindonesia.com, 2011). The national target of 20 million tourists every year by 2025 seems ambitious in comparison to the numbers of 2010. However, it is achievable with improvements in the main areas of transportation, leisure facilities and human resources which will all contribute to building Indonesia’s global image that has long been subject to misconceptions. The country has plenty to offer to differentiate itself from other countries in the region such as having the world’s longest coast line giving rise to marine and eco tourism that is as yet unexploited. The inherent cultural diversity of the population coupled with a natural disposition for hospitality are fundamentals that are bound to bring in increasingly greater numbers of tourists from every part of the world in the future (Global Business Guide, http://www.gbgindonesia.com, 2011). Since it became independent in 1957, Malaysia's economic record has been one of Asia's best. Real gross domestic product (GDP) grew by an average of 6.5% per year from 1957 to 2005. Performance peaked in the early 1980s through the mid-1990s, as the economy experienced sustained rapid growth averaging almost 8% annually. High levels of foreign and domestic private investment played a significant role as the economy diversified and modernized. Once heavily dependent on primary products such as rubber and tin, Malaysia today is a middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world's largest exporters of semiconductor devices, electrical goods, solar panels, and information and communication technology (ICT) products (Bureau of East Asian and Pacific Affairs, U.S. Department of State, http://www.state.gov/r/pa/ei/bgn/2777.htm, January 2012). The Minister of International Trade and Industry (MITI), YB Dato’ Sri Mustapa Mohamed announced that Malaysia’s total trade in 2011 reached RM1.269 trillion, an increase of 8.7% compared with the year 2010, the highest total trade ever recorded. Malaysia’s trade performance for the year remained strong despite the slow economic recovery in the United States of America (USA), uncertainties arising from the debt crisis in the Euro zone, pockets of unrest in West Asia following the Arab spring, supply chain disruptions due to the tsunami in Japan and floods in Thailand. These factors impacted global trade for many economies in varying degrees last year. Exports showed a positive growth with an increase of 8.7% to RM694.55 billion for the year 2011 and imports rose by 8.6% to RM574.23 billion. Trade surplus expanded by 9.4% to RM120.31 billion, making it the 14th consecutive year of trade surplus achieved since 1998. This was comparable to developed countries in the region whereby Singapore and Republic of Korea (ROK) recorded similar achievements (Malaysia External Trade Statistics, 2012: 1). The increase in exports in December 2011 of RM3.48 billion from a year ago was largely contributed by higher exports of both manufactures and commodities namely liquefied natural gas (LNG), palm oil, machinery, appliances and parts, rubber products, crude petroleum, chemicals and chemical products, iron and steel products as well as processed food. Australia, Japan, the People’s Republic of China (PRC), Indonesia and ROK were among the markets that contributed to the increase in December 2011 exports. Main products that contributed to the increase were petroleum products, LNG, manufactures of metal, machinery appliances and parts, electrical and electronic (E&E) products as well as iron and steel products. Exports to ASEAN were valued at RM14.71 billion, accounting for 24.2% of Malaysia’s total exports in December 2011. Exports of chemicals and chemical products as well as machinery, appliances and parts registered an increase in exports to ASEAN while crude petroleum and E&E products registered declines (Malaysia External Trade Statistics, 2012: 2). Exports to the European Union (EU) increased by 4% to RM6.27 billion due mainly to higher exports of palm oil. Except for exports to Germany which declined by 18% or RM299.7 million and Italy declined by 33.7% or RM122.6 million, exports to all other major markets in the EU recorded increase. Exports to the USA decreased by 2.8% or RM146.2 million to RM5.06 billion, mainly due to lower exports of palm oil. Products that recorded increase in exports to the USA for December 2011 were E&E products, increased by 4% or RM108.4 million and rubber products, by 16.1% or RM52.1 million (Malaysia External Trade Statistics, 2012: 3). The tourism industry in Malaysia is an important foreign exchange earner, contributing to economic growth, attracting investments and providing employment. The focus of the government is to enhance the country's position as a leading foreign tourist destination, while promoting domestic tourism. Opportunities abound for entrepreneurs, business owners and investors who support the government's direction (Malaysia Government’s Portal, http://www.malaysia.gov.my, June 2012). Tourism industry in Malaysia is ranks 35th in the international tourism market. Travel and tourism associated activities are expected escalate to yield profits of 33.6 billion in the year 2007. Tourism industry in Malaysia is assumed to rise by 4.5% in the year 2007. This figure is likely to go up by 6.6% every year. Opportunities in employment are ascertained to attain a figure of 1217000 thereby contributing 11.6% of total employment (Economy Watch, http://www.economywatch.com, June 2010). Malaysia is expecting about 60 million tourist arrivals nationwide this year which will be a remarkable notch over the previous year which recorded 24.7 million arrivals with RM58.3 billion in tourism receipts. Ministry of Tourism Secretary-General Datuk Dr Ong Hong Peng said the targeted arrivals would improve Malaysia's position to be within the top 10 of global receipts which was in line with the Malaysia Tourism Plan to 2020 target (The Sun daily, http://www.thesundaily.my/news/352666, April 18th 2012).

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