Thomas White Global Investing
Mexico
Mexico Stamp
October 31, 2008
A Postcard from the Americas
Mexico: Can Tourism Buck the Trend?

Acapulco Beach Founded in 1550, the city of Acapulco has been a fashionable beach resort since the 1920s, even hosting the famous Acafest, an annual Mexican music festival, with Caletilla holding the Fiesta Brava – or bullfight festival. However, concerns over safety of tourists in Mexico are surfacing, as a report by the World Economic Forum ranks Mexico No. 122 in security among global tourist destinations.

Tucked into a small cove on the south side of the Peninsula de las Playas are the sandy beaches of Caleta and Caletilla in the city of Acapulco in Mexico. Underneath a warm sun, the lazy waters of the Pacific Ocean ripple gently. Idyllic, the scene resembles one of Mexico’s picture perfect postcards of solitary beach splendor. In another part of Mexico, in the Yucatan Peninsula, stand the proud Mayan ruins of Chichen Itza, one of the new Seven Wonders of the World. Mexico is a blessed magnet for tourism- a fascinating compendium of beaches, a varied and unique culture, ancient heritage, and a hotspot for the world’s richest biodiversity. In this year where positives have been few, its tourism industry has elevated Mexico to the status of eighth most visited country in the world.

Tourism is the third most important economic sector in Mexico, representing around 9% of the nation’s gross domestic product (GDP) and accounting for nearly two million jobs. In the past two years, however, the country had lost world market share in tourism. Visitor arrivals were slowing, and President Felipe Calderon’s war on drug trafficking, coupled with persistent unrest from a guerilla group, tarnished Mexico’s carefully built tourist reputation. Total tourism arrivals for 2007 touched 21.4 million, almost flat with the 21.35 million arrivals measured in 2006.

Now, despite that slump, and amidst the turmoil of the global financial crisis, Mexican tourism is shining – for the first seven months of this year, almost 14 million tourists visited Mexico, a jump of 5.2% year-on-year. Spending by foreign tourists during the same period caused an influx of $8.47 billion, a 6.3% rise compared to last year. In fact, the contribution of travel and tourism to Mexico’s GDP is expected to rise to a staggering 15.2% ($236.9 billion) by 2018. According to the InterAmerican Development Bank (IDB), the country receives around 30% of its income from international tourism. A majority of the tourists, almost 96% of them, come from North America. And therein lies the tale – this one market is Mexico’s boon and its bane. With this dependency, Mexico will be anxiously watching the effects of the U.S. economic slowdown. In the past, Mexico’s tourism industry was the slowest to recover from U.S. economic slumps (2002-2003) or even the shock impact of the September 11 attacks. Given this, estimates for 2008 are not overly optimistic, but Mexico is leaving no stone unturned – with a new charter flight service, value added tax (VAT) rebates for tourists, a restoration effort worth $42 million for Acapulco, and a cruise agreement with four other Central American countries. For now, the measures are working. It remains to be seen if the ancient Meso-American ruins, sun-kissed beaches, and Spanish churches that adorn Mexico will continue to provide the much-needed succor in a tough year.

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