Minia Journal of Tourism and Hospitality Research Vol.

1, Issue 1, June, 2016

Measuring Financial Leakage and Linkage of Tourism in Egyptian

Economy using TSA approach
M.Anter
Tourism department Studies
Faculty of Tourism and Hotels, Minia University
E-mail: anter82@mu.edu.eg
Abstract
This paper explores both financial leakage and economic linkage of
tourism in Egypt. These two cases become challenge for developing
countries and small islands countries which depend on tourism for
enhancing economic performance. World Tourism Organization
developed TSA system to measure the importance of tourism. It is an
accurate tool for estimating the importance of tourism on the economy;
however, TSA output does not represent a real indicator of tourism
importance on national economy. For example, tourism revenues are not
an accurate indicator of economic impacts of tourism, because a
proportion of it may leave the host community for various reasons and
this refers to leakage.
On contrast, developed countries, which have diversification in its
economy and variety of economic sectors and activities, it found that
large proportion of tourism revenues are absorbed in the local community.
This absorb is due to forward and backward linkage of tourism with other
domestic activities and sectors.
A lot of studies tried to measure leakage and linkage but it seems to be
difficult. This paper uses TSA system as a method to measure both
financial leakage and economic linkage of tourism in Egypt. The final
result indicates that leakage is low and is about 16.4% for some activities
and tourism has good backward linkage with other sectors especially
agriculture. Also, a lot of limitations belonging to this method were
mentioned as the external, invisible and pre-visit leakage cannot be
measured from the TSA outputs and there is also a lack of data from TSA.

Keywords
Financial Leakage, Linkage, TSA system, Tourism Sector, Egyptian
Economy

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Introduction
This paper aimed to focus on financial leakage and linkage and how we
can measure and explore both leakage and linkage in Egyptian tourism
sector by exploring the TSA outputs. Also, how we can enhance the
results of this method.
The potential benefits that Egyptian economy gains from tourism revenue
will result in minimal economic benefits for host community if a large
proportion of this revenue leak to other economics. so the importance of
this paper is to discover leakage rates and linkage of tourism sector in
Egypt through TSA outputs which is consider a new method for this
purpose.
1. Leakage
Leakage in tourism industry has been discussed in publications and
academic literature since Sadler and Archer (1975, 181) cited that a large
proportion of foreign exchange earnings from tourism leaks out of
economy again. Many studies after them dealt with leakage in tourism,
but until today, there is no standardized definition of leakage.
It seems that there is confusion among economists and experts of tourism
economy with the terms of leakage. So that, many definitions introduced
from Sadler and Archer (1975) until Sandbrook (2010), but the definition
that is accepted is;
The proportion of income from tourism that leaves the destination country
(supradist, 2004). Boz (2001) argued that the proportion of the total
holiday payments made outside the destination economy.
Thus, leakage is a dynamic phenomenon drops and rises upon the state of
economy structures and activities. Experts noted that, in general,
developing countries, least developed countries and small island countries
are more exposed to leakage than developed ones (Supradist, 2004).
The UNWTO (1995, 53) lists six sources of expenditure in imports that
cause leakage as the following:
• imports for materials and equipment for construction,
• the imports of non-durable goods such as food and beverage,
• repatriation of income obtained by foreigners,
• repatriation of profit obtained by foreigners,
• taxes paid to government,
• Interests paid for foreign loans, marketing expenses abroad.
It is acknowledged that there are some factors resulting in leakage, for
instance, the level of development, economic diversification, business
power integration, state of ownership, government policy, scale of
tourism and time and economic evolution (Supradist, 2004; Sandbrook,
2010).
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Thus, it can be understood that tourism leakage has three types: external,
occurs when overseas investors own hotel chains for example take their
profits back to their home countries. Import (which take place when
tourist demand standards of equipment) food and other products supplied
from abroad. Invisible, which includes the foreign exchange costs or
losses that originate in the economic space of the tourism service provider
(Al zboun, 2014). Pre-leakage, which means leakage taking place before
tourists arrive in their destination, as booking with foreign companies,
tour operator and airlines etc…? (Salvador and Pechuan, 2015).
Tourism leakage can be measured in both national and local levels. Most
leakage studies to date have focused on national scale, such as this paper
that gives overall vision on leakage in an economy. But if the purpose of
the study tend to measure poverty in a community it is better to scale
leakage in local level (Sandbrook, 2010; Chirenje et al, 2013). Also, all
studies have mentioned that there is a distinct lack of empirical data to
back up claims about leakage and its impacts (Supradist, 2004;
Sandbrook, 2010; Pleumaron, 2012; Chirenje et al, 2013)
At the national level, Boo (1990) believed that 55% of tourism revenues
to developing countries leak back to the developing world. Despite of
UNWTO (2001) cited in Large (2011) has been estimated that tourism
leakage for developing countries range from 40% to 50% and 10% to
20% for developed countries. But, generally, tourism leakage tend to be
highest when that local community economy is weak and failed to
produce the quality and quantity of goods and services demanded by
tourism industry (UNWTO, 2001; Anderson and Juma, 2011).
On contrast, at the local level, it seems to be much higher. Walpole and
Goodwin (2000) cited in Sandbrook (2010) found that just one per cent of
tourism spending at the destination reach local people living within
Komodo national park in Indonesia.
But, Supradist (2004) inquires that is leakage always bad. Leakage is a
phenomenon that occurs in every region, as mentioned before. Sandbrook
(2010) argues that there is crucial to note that the relation of locally
significant tourism revenue at the destination does result positively in the
local communities especially in poverty alleviation because this depends
critically on the distribution of tourism revenue and how it is accessed.
Furthermore, Supradist (2004) asked that which is better. A big foreign
hotel employs 200 local people and 300 non people or a small local hotel
which has 100 per cent local people but 100 per cent equals 15 people.
So, the matter depends on various factors.

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2. Linkage
Linkages can be defined as the network of intersectoral supply
relationship between the tourism economy and the rest of the productive
sectors of the domestic economy (Lejárraga and Walkenhorst, 2010, 16).
Mitchell et al (2006) stated that local linkage is shorthand for a variety of
ways in which well-established businesses can build economic links with
micro-entrepreneurs, small enterprise, and residents in their local
economy. Thus, when linkages exist between the tourism economy and
the local businesses and activities inside the economy, it means achieving
higher cost savings.
The starting point in understanding tourism linkage is to determine the
two wings of linkages. It has intersectoral forward linkage (FL) which
measures the relatives importance of tourism sector as supplier to the
other (non- tourism) industry in the economy, but backward linkage (BL)
measures its relative importance as demander. Furthermore, to calculate
tourism’s forward and backward linkages, it is important to use
information from national, regional and local levels (Cai et al, 2005). This
information could be better to understand the structure of an economy and
how it changes over time.
3. Tourism Satellite account (TSA)
TSA is a project approved by the United Nations statistical commission
and World Tourism organization to measure the importance of tourism
sector in the economy. It is a unique set of inter-related tables that show
the size and distribution of different forms of tourism consumption, gross
domestic product, national income, employment and other
macroeconomic measures (Frechtling, 2010).
The TSA has two dimensions: a monetary and a non-monetary one.
Tourism related consumption and output, identified from the demand and
supply side, is quantified in relation to other economic sectors. In this
dimension total tourist consumption by product type profits and wages of
tourism related industries, net taxes obtained from tourism, imports of
tourism related to goods and services ,the employment arrivals and
departures can be also determined (Weaver and Lawton, 2002 cited in
Large, 2011).
TSA suggests the following as a set of relevant indicators of the size of
tourism in the economy (Millington et al, 2007):
• International tourism consumption (in cash and in kind).
• Value added of tourism industries.
• Tourism value added
• Tourism GDP.

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The TSA has a few drawbacks which can be summarized as: the scope,
which means that TSA can only be conducted at national level, so that it
is difficult to measure leakage at local levels. Second, the multiplier effect
cannot be grasped as indirect effects. Lastly, the time gap between
recording and publication of data can range up to three years (Large,
2011).
4. Methodology
This paper aims at measuring leakage and linkage of tourism industry in
Egyptian economy to explain and justify the importance of tourism in the
economy of Egypt. The research methods will be presented in the
following:
4.1 Research Methods
This paper seeks to measure leakage and linkage of tourism in Egyptian
economy by using the out puts of tourism satellite account (TSA) 2013
carried out by ministry of tourism in Egypt.
As all researches mentioned that the lack of data is a critical issue for
measuring leakage and linkage of tourism industry so, the researcher
tends to depend on a mix of methods: a quantitative component, which is
a secondary data, by analysing the TSA outputs of Egypt and qualitative
component, which is a primary as interviews with experts, in order to
obtain additional data on the area which is uncompleted and could not be
found in TSA out puts.
4.1.1 Secondary Research: Tourism Satellite account (TSA)
The secondary data of this paper is the outputs of tourism satellite account
(TSA) 2013 carried out by ministry of tourism in Egypt, which is the lasts
update version of TSA published on August 2015 by the journal of
tourism researches (in Arabic language). TSA indicators are one of the
most scientific statistic methods to measure the importance of tourism in
the economy. As mentioned, researchers emphasised that TSA can
measure import leakage, so that it would be useful to draw Tourism Value
Chain (TVC) to help and complete the overall tourism leakage and
linkage, which could be taken from TSA outputs. Tourism Value Chain
(TVC) is approach enables stakeholders to strategically prioritize
opportunities, constraints and develop high- impact upgrading activities.
This approach also ensures that threats to natural resources and
opportunities to generate more income for conservation are incorporated
explicitly (Inamdar et al, 2001). It is also a good tool to help the
researcher examine the linkage of tourism industry.
41.2 Primary Research: Experts Interviews
In order to obtain full and accurate measure in leakage and linkage of
tourism industry, experts' opinions were gathered in the form of
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interviews. The sample has been chosen respectively, three experts from
UNWTO; they have a great experience with the topic specially building
TSA. There are two experts from Tanzania, they have also a good
knowledge about the topic of the study and they worked together as a
team to measure leakage from tourism in Tanzania. Another one from
Sweden and she had PHD in the topic of tourism leakage. Also, one from
Jordan and had PHD in tourism leakage applying on hotels in Jordan. The
last one is from Egypt and has a good experience in TSA and he
published more than articles about TSA in Egypt.
The researcher has been provided the first two experts the TSA out puts
which is the lasts update version of TSA published on August 2015 by the
journal of tourism researches (in English language) one week before the
interview tack to held on to give them the opportunities to read the TSA
out puts well, also to provide specific knowledge and accurate
information about leakage and linkage of tourism industry in Egypt.
Furthermore, to determine what sort of information lacks in the out puts
of the TSA and how can it manage to measure in leakage and linkage of
tourism industry. Lastly, to provide them information that helps them to
draw Tourism Value Chain for Egyptian economy which helps researcher
to describe the overall picture of backward and forward linkages of
Egyptian economy.
All interviews have been hold on the basis of one to one via internet.
Researcher arranges interviews to be semi-structured to allow
interviewers freedom to answer, explain and adding or omitting questions
during interviewees. Five questions were made and interviews took
between 10 to 15 minutes.
5. Findings and discussions
This part of the study will discuss the findings of both secondary and
primary research. Therefore all findings are brought together in this part
and will analyse to get one result.
5.1 Secondary Data
Here, the researcher will show first data available from TSA then tries to
measure the leakage of tourism sector. Also, from the TSA out puts data,
a researcher tries to describe linkage via Tourism Value Chain for
Egyptian tourism sector with the help of interviewers' answers.
5.1.1 TSA Data
In this part, researcher will show only specific part of TSA out puts which
could provide data about leakage and linkage. This means that the out
puts of table 6 and7 in TSA system will provide what is needed. Table 6
in TSA is the most important table and the core of TSA system which
describes tourism supply and demand (UNWTO, 2008). So, it provides
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data about tourist's consumptions and expenditures for products and

services related or not related to tourism. It also shows ratio of what
tourists consume from tourism products and services (Anter, 2012). But,
table 7 gives information about labours in tourism and all its types
(UNWTO, 2008). Table below shows TSA outputs data about inbound
tourism consumption.
Table1 inbound tourism consumption (in billion Egyptian Pound)
Products Local Imports Local Tourism Tourism
production supply consumption ratio
Accommodation 27.9 - 29.4 23.2 78.7
Food and 52.5 - 53.2 24.1 45.3
beverage
Transportation 62.5 9.2 94.1 23.1 89.3
Travel agencies 5 1.3 6.4 5.7 32.5
and booking
services
Cultural and 28.5 - 29 9.4 96.8
sports services
Products and 4.2 - 6.2 6 42.2
services related
to tourism
Other 2617.8 469.9 3018.5 21 0.7
consumption
and non-
consumption
products
Products related 180.7 10.6 218.2 92.1 42.2
to tourism
Total 2820 480.5 3236.7 113.1 3.5
Source: TSA Unit, Ministry of Tourism, Egypt.
5.1.1.1 Measuring tourism leakage
To sum up, the following table presents relevant findings of tourism
consumption and summarizes the basic information about total local
consumption, supply and imports. To understand the table results, it
would be helpful to determine what is meant by the four terms that they
have been reported in the table:
• Local production is a market value of all final goods and services
recognized locally and which are produced in a country during a
specific period of time (Anter, 2012). In the case of tourism it
means the total tourism products and services which produced
locally then consumed by tourists in Egypt.
• Local supply is referring to the total result of domestic production
and imports, minus exports. In the case of tourism it means the
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total tourism products and services which produced by both local

community and foreigners then consumed by tourists in Egypt.
• Imports are the value of all goods and other market services
received from the rest of the world.
• Tourism consumption refers to the amount paid for the acquisition
of consumption goods and services, as well as valuables for own
use or to give away, for and during tourism trips (UNWTO, 2008).
So, it can be observed that local production is low in its figures from local
supply because the first is referring to total tourism products and services
which produced locally, but the second is indicating to tourism products
and services which produced by both local community and foreigners.
Therefore, it can be easy to obtain the percentage of local production by
dividing local production to local supply.
Products Local Local Local production
production supply ratio from local
supply (in per
cent)
Accommodation 27.9 29.4 94.5
Food and beverage 52.5 53.2 98.5
Transportation 62.5 94.1 66.4
Travel agencies and 5 6.4 78.1
booking services
Cultural and sports 28.5 29 98.3
services
Products and services 4.2 6.2 66.8
related to tourism
Other consumption 2617.8 3018.5 87
and non-consumption
products
Products related to 180.7 218.2 83
tourism
Total 2820 3236.7 87.1
Source: researcher
It can be observed that local production accounted for the large proportion
of total local supply which is the highest percentage in food and beverage
services (98.7%) and in the lowest percentage in transportation services
(66.4%) and in total (87.1%). Experts showed that this gives good an
overall view of the diversification of local economy, the contribution of
the local community to provide tourism with what it needed and also, the
linkage of tourism with other sectors and services in Egyptian economy.

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From the other hand, it can be noted that the total foreign supply formed
low percentage of total local supply (12.9%) which means low proportion
of leakage in Egyptian economy.
Experts also showed that the overall result in tourism leakage it seems to
be difficult because the lack of data in this area in TSA outputs. To
overcome that, researcher puts a base which refers to what is the
maximum tourism leakage in Egyptian economy?. This means that if we
cannot calculate tourism leakage due to the lack of data, it can be easy to
measure tourism leakage in the light the foundation of both foreign
production and tourism consumption. The base is assuming that tourist
consumption begins firstly to consume total foreign production and then
local production.
Thus, foreign production in this base indicates to maximum leakage. So,
if we calculate foreign production in all sectors which provide tourism it
so that means the maximum tourism leakage in Egyptian economy.
Although experts praise this method but they said that this method does
not lead to knowing the exactly size of the leakage, As well as that in the
case of foreign production increased significantly for local production, it
could never measure the size of leakage.
Foreign supply
Local Local Foreign ratio from total
Products production supply supply tourism
(In billion) (In billion) (In billion) consumption
(maximum leakage)
Accommodation 27.9 29.4 1.5 6.5
Food and beverage 52.5 53.2 0.7 2.9
Travel agencies and 5 6.4 1.4 24.5
booking services
Cultural and sports 28.5 29 0.5 5.3
services
Products and 4.2 6.2 2 33.3
services related to
tourism
Products related to 180.7 218.2 37.5 17.2
tourism
Total 2820 342.4 216.7 16.4
Source: researcher
In order to explore the significance of tourism leakage rates in Egyptian
economy, some data were gathered from TSA outputs, however, there is
one limitation of this base will discuss below.
The researcher has calculated the amount of foreign production of goods
and services which provide for tourism in Egypt, through subtracting

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local production of the total domestic supply. The final output reflects
total foreign production. After that, the researcher calculates the foreign
production ratio of total tourism consumption for each element of tourism
consumption. The final out puts indicate for foreign supply ratio from
total tourism consumption which means the maximum leakage in
Egyptian economy.
The results indicate that tourism leakage in Egyptian economy is low,
where total leakage scored (16.4%). The percentage is the average rate for
activities: Accommodation, Food and beverage, Travel agencies and
booking services, Cultural and sports services, Products and services
related to tourism and Products related to tourism. Experts have pointed
out that the real leakage rate may increase more than paper recorded, as
there are some services have not been added in the measurement.
At national level, this gives a true indication of the decline in tourism
leakage rates of these activities. Experts showed that it also refers to
economic diversification and the ability of the host community to provide
tourism services, as well as the existence of a real economic links
between tourism and other sectors, however, Egypt is one of the
developing countries or less developed. Which it was expected tourism
leakage to be rate between 40-50 per cent according to the study carried
out by the World Tourism Organization.
For further scrutiny, it is noted that the highest drop-out rates have been
recorded in products and services related to tourism by 33.3%, followed
by tourism enterprises and booking Services (24.5%). Experts are
referring that to tour operators, which began in control of the global
tourist market through vertical and horizontal integration strategies. TUI
tour operator for example became a global company controlled 30% of
the German tourism market and It also controls 50% Travco (Egyptian
travel agent) Similarly, Thomas Cook, TEZ, and Pegas companies, which
controls the shares of Egyptian companies. This has led to increased
leakage rate in these activities.
On contrast, the results showed lower drop-out rates in the food and
beverage cultural and sports services (2.9% and 5.3% respectively). This
is due to the agriculture sector in Egypt is a vital and important sector and
works in the agricultural sector about 30% of the total labour force , and
contributes about 14.8 % of GDP , and agricultural exports contribute
about 20% of total merchandise exports , which makes the agricultural
sector one of the national income resources in Egypt (Shehawy, 2009).
However, Sandbrook (2010) found that over three quarter of tourism
revenue to BINP in Uganda was lost as leakage and very small proportion
of food were brought in the study area at national level.
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As for leaks tourist imports, TSA outputs have shown the contribution of
the tourism sector in imports, including nearly 7 billion Egyptian pounds,
Which represents 1.5 % of total imports (480.5 billion). This means a
lower drop-out rate.
For more details, Tourist imports distributed in each of the non- tourism
products 40.3%, air transport 24.7%, water transport 17.5%, travel agency
services 17.1% and rental transportation services 0.4%. Experts showed
that this point is unclear and it needs more details to understand the
figures.
There is lack of data in TSA outputs here and did not clarify the exact
volume of imports for each activity and what is the quality of these
imports and this should be taken into account when conducting future
surveys.
Lastly, TSA output showed the volume of employment in the tourism
sector, types and divisions of cost. Where it explained that the size of
Egyptian workers is 1.7 million workers and this represents 6.2% of total
workforce in Egypt. However, pervious leakage studies have been shown
that one third of tourism job were held by non-local staff in Uganda.
The lack of data here is what experts mentioned. So, experts determine
the quality of the data required in which it can measure the leakage rate:
Local and foreign workforce determination and the kind and wage
determination for both Local and foreign labours.
5.1.1.2 Measuring Tourism Linkage
Through the first table, it can be discover links to the tourism sector with
other economic sectors. Although the Tourism Satellite Account has some
limits, which will be mentioned below. However, it can identify linkages
with other economic sectors. To find links to the tourism sector through
TSA outputs, it seems to be difficult, but researcher put a new base which
refers to the size of local production to tourism consumption. If the size of
local production exceeds or equal tourism production this means there are
real link between tourism sector and other economic sectors or it does not.
Products Local Tourism Local production
production consumption ratio to Tourism
consumption
Accommodation 27.9 23.2 % 120
Food and beverage 52.5 24.1 % 215
Transportation 62.5 23.1 % 270
Travel agencies and 5 5.7 % 87
booking services
Cultural and sports 28.5 9.4 % 303
services
Products and services 4.2 6 % 70
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related to tourism
Products related to 180.7 92.1 % 196
tourism
It can be observed from table above that there are good linkages between
tourism sector and other economic sectors in most services which provide
to tourism except Travel agencies and booking services and also Products
and services related to tourism where the local community cannot provide
full what tourism needed.
The researcher can draw backward linkage which appears through the
TSA outputs in the form of value chain.

Accommodation

Food and beverage Tourism Cultural and sports

services

Travel agencies and booking services

It is clear from the foregoing that the TSA system is unable to clarify the
tourism value chain and experts have attributed this to the following
reasons:
• The TSA system is applied at the national level. So, it cannot be
clearly all private tourism links appear.
• TSA system provides outputs of the total overall activities and not
detailed data.
• It's hard to TSA provides data on the forward linkages system.
• Some experts argue that TVC is a good first step tool to help a
region examine linkage, not a tool to calculate it.
5. 2 Limitations:
Although this method is the only way now available to measure the
leakage in the tourism sector, and give a semi-real indicator for leakage in
the Egyptian tourism sector, however, there are set of limits for this
method:
• It gives the maximum leakages in the tourism sector in Egypt not
a real leak, although in the case of the availability of data through

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the Tourism Satellite Account outputs may be the real proportions

of the leakage comparable to rates that have been measured.
• Difficult to measure leakage if local production increases for
foreign tourism consumption. This means that in the case of
increasing foreign production for tourism consumption, The
leakage ratio will exceed 100 per cent. For example, the case of
other consumption and non-consumption products and products
related to tourism. The foreign production for both of two
elements exceeds tourism consumption.
• Also, cannot measure the external, invisible and pre-visit leakage
from the out puts of TSA.
• There is a lack of data from the TSA; it should be determine what
is local and what is foreign for both production and consumption
of tourism.
• It should identify local and foreign people in tourism and the rates
of their income.
• Critical point belongs to transportation, TSA indicates that
tourist's expenditure rises in the case of local transportation, and it
does not mentioned about the amount of expenditures on both
local and foreign carriers.
• TSA can measure only backward leakage not forward leakage.
Moreover, measuring linkage at national level.
6. Recommendation
There are many recommendations for enhancing TSA outputs, it should
tack in consider these points:
For leakage tourism with other sectors
• Improve surveys data carried out by TSA Unit by add some data
for domestic production and foreign production of all goods and
services produced for tourism consumption as shown in 6.1.1 and
next.
• It is important to determine the amounts of expenditures belong to
international transportation for both national and foreign
transportation severally.
• The need to clarify the size of the tourist imports accurately for
each activity or sector severally.
• It should also explain in surveys of employment data Egyptian and
foreign and the size of their salaries.
For linking tourism with other sectors
• Minimizing the benefits of investment and minimizing the costs
by adopting pragmatic and flexible policies by encouragement

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participants between hotel chains and tourism companies' services

and local supply.
• Link tourism with other economy sectors should be a project and
vision coming from the awareness of government to carry out it,
like the project of Jamaica (Linkage Hub) and Botswana project in
linking tourism with other sectors (closed community).
• TSA outputs showed weak in linking tourism with tourism
companies and transportation, so it should be benefit to establish
strong few companies for tourism services and other for
transportation instead of many tourism companies (1866
companies).
• A study of the tourism value chains at the state level to illustrate
the flaws in the value chain and processed and this is a national
project implemented by State.
7. Conclusion
This paper tries to measure tourism leakage and linkage in Egypt
economy, but measuring tourism leakage (specially) and linkage seem to
be difficult task and until now no methodology made for this purpose yet.
With this in mind, researcher tries to use TSA outputs to measure tourism
leakage and linkage in Egypt economy. However, a new base was made
by the researcher to obtain good result in measure tourism leakage and
linkage, but still a lot of limitations belong to this method.
In general, leakage seems to be acceptable as long as the income to the
local community is higher than loss from all kinds of leakage and linkage
at local level as it mentioned. However, at the local community in Egypt
leakage is often less and there are a lot of points of tourism leakage,
which came from local capacity of local community to supply a lot of
goods and services and also skilled and non-skilled staff for tourism
sector.
Lastly, through TSA outputs leakage reported 16.4% at the maximum and
a good linkage with other sectors specially agriculture.
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