Revitalising Affected Sectors

National Economic Recovery Plan
Chapter 7



Tourism industry has been identified as a key subsector of the services sector in generating foreign exchange earnings for the country. The growth of the sector during the period 1990-96 was commendable and culminated in tourism receipts of RM11.3 billion in 1996, making the sector the second largest foreign exchange earner.

In 1997, a series of mishaps such as the haze, coxsackie virus, cholera and the currency crisis in the Asian region, have adversely affected the tourism industry. The number of tourist arrivals declined substantially by about 13% and tourism receipts dipped by 7% to reach RM10.5 billion. Besides the downturn in business for tour agents, Malaysia Airlines and the hotel industry, the drop in tourist arrivals have also affected retail trade, restaurants, as well as other transport operators, which have strong linkages with the tourism sector.

At present, the industry faces the following issues and challenges:

  1. There is increasing competition from developing countries within the Asian region such as Vietnam, Cambodia, China and India to gain a market share of the tourist industry. At the same time, well-known industry players such as Thailand, Hong Kong and Singapore are launching aggressive promotions to attract tourists particularly from Europe.

  2. As the won, yen, baht and rupiah suffered the regional currency crisis, there will be a decline in tourist arrivals from South Korea, Japan, Thailand and Indonesia.

  3. The tourism industry have yet to benefit from the depreciation of the ringgit as a ëtop value for money destinationí since there is a time lag between promotional efforts and decisions by tourists on their holiday destinations.

  4. Tour operators face financial constraints due to the slowdown in tourist arrivals and tight credit situation. Feedback from the industry indicated that 85 per cent of tour bookings for September to December 1997 were postponed or cancelled. At the same time, there is a decline in outbound travel. The earnings among tourism related companies are forecasted to drop sharply by about 30 per cent to 40 per cent for the fiscal year 1997/1998. Small-sized travel agents that concentrate purely on ticketing and outbound travel are facing cashflow and capitalisation problems.

  5. Low tour bookings continue to be recorded for the first quarter of 1998 because of the uncertainty that the haze might recur.

  6. Foreign tourists are concerned about their personal safety when travelling in the Asian region.

  7. The hotel industry is facing an oversupply of hotel rooms particularly in the Klang Valley. In 1997, the number of hotels had increased to 1,365 and over exceeded the target under the Seventh Plan of 1,340 hotels by the year 2000.

  8. There is a tendency for taxi operators to overcharge foreign tourists.

  9. Past experience in promotions indicated a direct correlation between expenditure on promotions and tourist arrivals. However, in line with the Governmentís decision to reduce public sector expenditure in 1998, the allocation for tourism promotion has been reduced from RM79 million in 1997 to RM63 million in 1998.

  10. Statistics on tourist arrivals are not current. The latest available data on tourist arrivals is for the January to May 1997 period. Timely feedback on the number of tourist arrivals is required to plan for more focussed promotions.

Since the tourism sector is private-sector driven, companies involved in tourism would have to take painful adjustments during this critical period. To facilitate the recovery of the sector, the following measures are recommended:

  • Promotions
  1. More emphasis should be given to strategic markets that are not affected by any economic crisis, such as Australia, Hong Kong, Taiwan, India, China, Europe, the United States as well as the Middle East.

  2. Haze preventive measures should be implemented speedily and concerted bilateral efforts are required to overcome the haze problem.

  3. To optimise the effectiveness of promotions based on limited resources and to avoid duplication, the States and Federal Tourism Boards should team up with MAS to jointly promote tourist resorts, such as Langkawi, Labuan, Pangkor, Pulau Besar, Tioman and Pulau Perhentian.

  4. Aggressive promotion campaigns should be undertaken with respect to domestic tourism in order to increase local awareness of attractive tourist facilities in the country. The increase in domestic travel for leisure would help to offset the low occupancy rate in hotels during off-season foreign tourist arrivals.

  5. Tourism Malaysia should provide more effective promotional information to reach consumers particularly through the use of the electronic media.

  6. To promote Malaysia as a shopping paradise, there should be further tax liberalisation on luxury goods. Tour packages for shopping should be organised by tour operators. In addition, the promotion of Malaysia as a shopping destination should be linked to the marketing of locally manufactured products.

  7. Government departments and agencies as well as private institutions that are members of international bodies and institutions should influence such bodies or institutions to hold meetings or conventions in Malaysia.
  • Fiscal Measures

At present under Section 13(1)(b)(ii) of the Income Tax Act, employees are granted one leave passage between Malaysia and any place outside Malaysia and three leave passages within Malaysia in any calendar year for the employee and members of his/her immediate family. To further curb travel abroad, the incentive for travel abroad should be removed and reviewed when the economy improves.
A study should be undertaken on the possibility of imposing a travel exit tax.

  • Review of Government Regulations and Procedures
  1. Review visa application process of strong potential markets such as China and India without sacrificing national security.

  2. The Ministry of Home Affairs and the Immigration Department should consider granting a more liberal transit visa such as extending the 72 hours transit visa to 6 days for genuine tourists.

  3. To ease the cost of operations of tour agencies, the exemption of tour guides for point to point transfers should be considered.

  4. In view of the glut in hotel accommodation, new projects for the development of hotels should be rejected.

  5. Flexibility should be given for the conversion of hotels into apartments based on market demand and supply conditions.
  • Other Recommendations
  1. The development of tourist resorts, such as hotels on mountains or hill tops, should be low density and low rise to retain the cool temperature as a main attraction of these locations.

  2. The relevant authorities must ensure that security measures are enforced at all times.

  3. The relevant authorities should ensure that taxi operators do not over charge tourists.

  4. Treasury should review the budget reduction of the Ministry of Culture, Arts and Tourism as well as Tourism Malaysia that affects the promotion of tourism.

  5. Approval should be granted for the extension of the services of 20 contract officers to update data in the Department of Immigration. In addition, computerisation of the new Immigration Control System should include the input of data on tourist arrivals as contained in the Immigration Card 26.

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