Impacts and reactions to the fall in tourism due to COVID-19 in Costa Rica

The initial impact of the pandemic caused by the Covid-19 virus has not yet been felt in all the depth that some voices predict. The virus has not only put public health at risk but has also caused an economic slowdown that has shaken global capitalism. For the first time in a long time, the world seems to be discussing how to solve the health threat while seeking alternatives to revive local, national, regional and, of course, global economies.

Costa Rica is no stranger to this situation, as of May 2, 725 cases and 6 deaths have been confirmed, according to the John Hopkins Resource Center, concentrated mainly in the central valley of the country. Since the national emergency was decreed on March 16, efforts to address the threat have involved greater institutional coordination. First, to contain the ascending curve of the virus under the direction of the Ministry of Health, the Costa Rican Social Security Fund and the Ministry of Security in the closing of international borders, businesses and vehicle transportation restrictions. At the same time, the central government has coordinated actions with decentralized institutions to adopt measures, provide subsidies and extraordinary incomes to people who have seen their economic inflow affected.

Among the main measures adopted for the entire population are the postponement of the payment of utility taxes and of the Value Added Tax for the months of April, May and June. The suspension of orders to cut off the service of potable water for non-payment to domiciliary, residential, preferential and commercial users for 60 days with the possibility of extension. As well as a 50% tariff reduction of the electric light service for commercial and industrial clients of the Costa Rican Electricity Institute (ICE) for 3 months.

One of the sectors that has suffered the most from the impacts caused by Covid-19 has been the tourism industry. Tourism is a strategic axis of the country's macroeconomic policy. On it rests not only the Costa Rican brand, but also links a whole chain of resources and services ranging from local to national. Although the long-term effects are not yet easily seen, we can consider the effects and measures taken since the epidemic broke out last March.

What is happening in the tourism industry?

The latest study carried out by the Central Bank of Costa Rica in 2016 indicates that tourism contributes to the national economy around 6.3% of GDP, that is, about 2,712 million dollars annually [1]. According to the State of the Nation Program, the sector has had sustained growth above the national average since 2012. The importance of tourist activity lies not only in the direct employment it generates, but also in a whole series of productive chains and services. throughout the country. It is worth mentioning that 94% of the lodging companies with a tourist declaration are made up of small and medium-sized companies [2].

As an extension of the declaration of national emergency on March 19, through a presidential statement, all international borders were closed. This executive order meant that on March 23, "Season 0" was officially declared by the National Chamber of Tourism (CANATUR). This means a period of zero income for the sector, that is, the complete stoppage of the chain of services linked to tourism. Such as the mandatory closure of lodgings, tourist transport and activities aimed at tourists.

The cancellation of hotel reservations, the prohibition of international arrivals and the mandatory closure of the main tourist destinations in Costa Rica such as beaches and Protected Wild Areas (ASP) caused a contraction in local economies. According to data from the Costa Rican Tourism Institute (ICT) and the Ministry of Labor, as of April 15, 25,085 direct workers in the sector had seen their income affected, due to layoffs, temporary suspension of contracts and / or reduction of working hours. These data do not include complementary services and products that are produced through chains of services or by informal workers linked to tourism.

The estimations that are being made about the duration of this situation by its two main organizations, ICT and CANATUR, is that the crisis will last 15 months. This is 3 months of zero income for the sector and later 12 months of a slow recovery; depending on the international context and the evolution of the pandemic. These estimations are in the best scenarios, although an ICT calculation estimates that the losses for the Costa Rica economy for the month of April alone will be of 366 million dollars. If this trend continues, the gap caused by the crisis will be very deep and the sector's recovery may take even longer. Beyond the impact that this crisis may have on the economic stability of the country, some of its consequences have already become visible, as well as social reactions to the seriousness of the situation.

Local impacts

The main Costa Rican tourist product is that of Sun and Beach. The coastlines are not only the first option for the national tourist, but it is the main activity carried out by foreign tourists. Seven out of ten non-resident foreigners affirmed to the ICT that they had spent at least one night on a beach before leaving the country through international flights [3]. That is why the coastal provinces of Limón in the South Caribbean, Puntarenas in the Central Pacific and Guanacaste, in the North Pacific, had special attention from the media in recent weeks, since the order of closure of all coastlines was decreed. Here are some cases.

On March 28 and April 4, roadblocks were reported in the South Caribbean and at the entrance of the Paquera Ferry, the port of entry for the beaches of the Gulf of Nicoya in Puntarenas. Both aimed to stop the entry of national tourists during Easter. Local residents of both destinations argued that the arrival of tourists from the center valley of the country represented a threat to local health due to the spread of the virus and that tourism sooner or later will return to normal.

Meanwhile, in the province of Guanacaste, despite the fact that there were massive arrivals from different parts of Costa Rica, there were no actions to stop the arrival of tourists. In the media, the news emphasized the temporary or permanent layoff of the workforce linked to international hotel chains and businesses. For example, the main hotel chains located in the province have applied the recent approved bill of "Authorization for the Reduction of Working Hours". This bill empowers employers who demonstrate a drop in gross income by at least 20% compared to the month of the previous year, this way the employers can make a unilateral reduction in working hours, and therefore the worker's salary, of up to 50% of hours of the ordinary day. Hotels such as Dreams-Las Mareas, RIU, Westin Golf Resort & Spa, Andaz Resort, Westin Resort and the W Hotel in Playa Conchal have chosen to suspend contracts with gradual salary reduction to three months until paying only 35% of the full salary. At the same time, CANATUR has communicated that there sources indicate that during the month of April there would be around a thousand dismissals in the province of Guanacaste. These layoffs mainly in small and medium-sized hotels, as well as restaurants, supermarkets and complementary services.

So far, what has been reflected in the media is that while in the South Caribbean and the Gulf of Nicoya there have been direct actions to prevent the entry of tourists by local communities, the prominent issue in the province of Guanacaste shown in the media the impact on the labor market. Guanacaste is the main thermometer with which the impact of the pandemic on the Costa Rican tourism industry is measured, as it is the place that concentrates the largest number of international hotel chains. While in the South Caribbean and in the Gulf of Nicoya, actions to reject the arrival of tourists suggest that, although tourism is a fundamental part of their income, health concerns take on greater importance. Far from being somewhat surprising, this difference once again highlights Guanacaste's greater dependence on tourism, which leads to a greater exposure to risk.

Proposed measures

One of the main measures to address the crisis and reduce public debt that the executive branch has proposed was the "Bill to stop the growth of state debt", which aims to transfer the surplus of eleven autonomous institutions to the executive, including ICT. This initiative aims to raise a total of 396 million dollars in a single box. The ICT executive board has been against the intention of transferring the institutional surplus of more than 24 million dollars to the central government to respond to the national emergency. It argues that these funds are key to help the sector recover and, above all, promote Costa Rica as the first destination to visit in new markets, mainly countries that have shown greater resilience to the pandemic and that could allow eventually tourists to visit Costa Rica in a shorter time.

As an immediate support measures for tourism, the ICT approved the suspension of the payment of the tourist tax of 5% to tourist companies, suspension of judicial collections, suspension of the collection of loans to tourist SMEs; all this for a period of three months with the possibility of an extension. Measures that are added to others already underway such as the "Protect Plan" and the "Relief Program, " [4] promoted by the government. These two measures seek to provide a subsidy to the families' pockets, as well as to give sustainability to the SME sector in Costa Rica.

In addition, ICT has designed a three-phase work plan to implement a rescue strategy in conjunction with chambers and tourism associations. The first phase consists of a review of the current state of tourism activity under three major work areas: domestic and foreign tourists; business fabric of the Costa Rican tourism industry; and professionals in the tourism sector. With eight priority topics: attraction of airlines, marketing, tourist products, tourism companies, training and employment, foreign and national investment, cruises and the Gulf of Papagayo Tourist Pole. In the second phase, concrete actions will be defined, as well as the budget available to execute them. Finally, the third phase will be a review and analysis of the plan by the Executive Board and interested public to then execute the actions. The ICT hopes to have the strategy ready to implement it in the second half of the current year.

The president of the ICT, María Amalia Revelo, has repeatedly emphasized that national tourists will be a key piece in the recovery of the sector, as it is the first line that could be counted on. Previously, during the world financial crisis of 2008-2009, national tourism was a key element through the creation of platforms such as the “Vamos a Turistear” program, dedicated to facilitating tourism for the resident population.

Public Institutions put to test

These first two months of crisis have been marked by the measurement of the health and economic impact and by the response of the public-institutional sector. The actions proposed and promoted by the institutional apparatus have been aimed to sustain the national economy through state intervention, filling the void left by the economic crisis. This has implied a discount in the payment of fiscal obligations and public services for the general population. At the same time, it aims to guarantee regardless of the labor market a minimum income to people directly affected by the crisis.

It is still too early to see when and in what way the sector will be able to regain the dynamism that has characterized it. The measures proposed by the ICT seem to indicate that the first step in the recovery is to sustain the sector with state support, then to ease national demand, and finally, depending on international health regulations, the re-entry of foreign tourists. The thermometer that should be taken into account is to keep a close eye on whether the communities that depend to some degree on tourism are really going to benefit from both the general measures and those that ICT will carry out. In order to recover normality or if, we will be on the verge of major changes in the tourism sector.