Milking The Balearics' Cash Cow

A ten per cent economic impact on the whole of Spain's tourism is what tourism in the Balearics contributes to the national economy. Good thing, bad thing? Forty-five per cent of Balearics Producto Interior Bruto (PIB or GDP) is derived from tourism. Good thing, bad thing?

Exceltur, the alliance for touristic excellence, has calculated the contributions of tourism to the PIBs of regions of Spain. The Balearics' contribution is greater than that of any other region. Significantly greater. The Canaries lag some fourteen percentage points behind in second place. And behind the Canaries, a long way behind, are Valencia (Benidorm and all with 12.6%) and Andalusia (Costa del Sol and all with 12.5%). Exceltur, to the delight of the regional government, was able to show that the tourism PIB in 2013 had leapt above the level for 2008, the year before the effects of crisis really took hold. It has taken five years for there to be recovery, but recovery there has been and in 2013 the PIB increased by 5.7%.

On the one hand this is good news. Very good news. But on the other hand it isn't good. It is very bad. Almost half the islands' economic activity is generated by one industry. The Balearics is about as close as you can get to having a single-product economy. Tourism is a strength, a mighty strength, but it is also a mighty weakness. If the Balearics were a nation, the panic buttons would have been pressed long, long ago. Compare the Balearics with nations that have a high reliance on tourism. The Dominican Republic, according to the 2014 World Travel and Tourism Council's report, generates 13.3% GDP from tourism. In The Maldives it is 28%. Two developing economies, but with far lower dependence upon tourism. The Balearics is not a developing economy. It is developed, but a developed economy is not supposed to have only one main industry.

When one looks at how Exceltur arrives at its 45% calculation, one wonders why this percentage isn't in fact greater. Three-quarters come from direct effects, such as hotel and restaurant activity. The other quarter is made up from ancillary and supply industries, one of them being construction. It would be interesting to delve deeper into this calculation. Much construction, such as roads, unarguably has an effect on tourism, as does, for instance, building for medical services. When Jaime Martínez, the tourism minister, announced provisions within the recent tourism decree, he said that "all infrastructure has much to do with tourism". He was not wrong in this regard, even if he was bending an argument to justify the legalistic regularisation of land on which Son Espases is built and its inclusion within the framework of tourism legislation.

Fortunately, the Balearics is not a nation. Fortunately for Spain and for the Spanish economy, the Balearics can provide a hugely significant contribution to national wealth. And also fortunately for the nation, Balearics tourism generates almost 40% of the islands' tax revenues that are deposited with the national treasury. These economic and tax contributions make the Balearics the nation's largest tourism cash cow. One region, one industry, and the cow is milked for all it's worth.

One should look at these figures in the context of arguments that the regional government has with national government over financing. The direct investment fund for Balearics infrastructure is low by comparison with other regions, while the income the Balearics receives via the redistribution of tax revenues generated by all regions is vastly inferior to revenues the islands raise, 40% of them coming from one industry. The unjustness of this distribution should be obvious, and it is made more unjust because of the massive reliance on tourism.

When such a reliance exists, there is an inherently high level of risk, especially as tourism can be a volatile industry. The Balearics is lucky in this respect. Despite volatility, Balearics' reliability allows it to withstand shocks to the system. Tourism PIB slumped by 6% in 2009, but recovery was relatively swift. But luck and reputations for safety and reliability should not be allowed to dominate. The treatment of Balearics tourism as a national cash cow badly needs addressing. Economists, academics and even some journalists have been saying so for years. There should be a greater level of state financing but it should come with the proviso of being targeted at economic diversification in the Balearics. 45% tourism PIB is untenable, as is the 35% of employment - direct and indirect - which comes from tourism but that gives rise to the absurdity of the six-month working year.

45% sounds good, but it isn't. The regional government might be able to glow in the light of the increase, but it should be planning the opposite. When that 45% is down to a less dependent level will be the time to celebrate.