Economic Leakage In Tourism: What Is It, And What Can Travel Brands Do About It?

Economic leakage refers to the portion of tourist spending that flows out of the local economy and into foreign-owned businesses or suppliers. This can happen when international hotel chains, booking platforms, or imported goods and services dominate the tourism market, capturing most of the revenue while leaving only a small share for local communities.

For many destinations - particularly in developing regions - economic leakage reduces the positive impact tourism could have on local jobs, infrastructure, and community development. This means that, unbeknownst to many travellers, the economic opportunities brought by tourism may reinforce or even worsen existing inequalities in these communities.

There’s clear evidence of the problem, in a new report from the Travel Foundation.

The report found that on average, leakage is between 50% and 80% of total tourist spend, with the least developed countries bearing the brunt of those higher percentages. The report also found that:

• For every 100 dollars spent by a tourist from a developed country, only around 5 dollars stays in a developing destination's economy
• The least developed countries are disproportionately affected by economic leakage
• A luxury holiday to a 4 or 5 star hotel in Bali typically has 55% leakage – so if you spent £2,000, the destination would make just £900
• In the Caribbean region, tourism leakage is currently estimated at a staggering 80%

To create a fairer system, tourism’s benefits must be more equitably distributed. Achieving this requires greater local control over resources, which is often undermined by commercial-scale businesses and global franchises.

Destination management should prioritise local needs above all else. To build a more equitable tourism model, DMOs must assess who reaps the rewards—and who bears the burden—focusing on Equity-Driven Management.

Addressing economic leakage in tourism is a complex challenge, but not an impossible one. A common misconception is that all forms of international tourism inherently harm local economies, overlooking the fact that well-designed tourism models can generate substantial local benefits. The report by the Travel Foundation lists dozens of case studies where tourism is having a positive impact – promoting economic, environmental and cultural equity.

Similarly, efforts to reduce leakage are sometimes dismissed as infeasible, due to a perceived higher cost associated with local sourcing or community-based initiatives. And yes, these strategies may require some upfront investment – but this often leads to more sustainable, resilient economies and arguably, better visitor experiences.

Another challenge is combating greenwashing.

When businesses exaggerate or falsify their ESG claims and over inflate their local benefit, it doesn’t just undermine genuine efforts – it erodes trust among consumers. And to top it all off, it can be a devastatingly costly business mistake, too.

Systemic issues, like limited local infrastructure or lack of capacity-building initiatives, can hinder efforts to keep revenue within destinations. Overcoming these hurdles requires transparency, collaboration, and a long-term commitment to sustainable practices that benefit all stakeholders.

So, what actions can DMOs take to better reduce issues of leakage?

Encourage local partnerships

DMOs can foster collaborations between local businesses—hotels, restaurants, and activity providers—and international tour operators to drive direct spending into the local economy. This approach creates culturally immersive experiences while supporting community initiatives.

Tour operators Travelsphere and Just You have been working with Planeterra since 2019, the world’s leading non-governmental organisation turning travel into impact in global communities, by helping local projects and social enterprises earn an income from tourism. A key part of their Jordan: A land of Ancient Treasures and Empires tour – is visiting Beit Khayrat Souf, a women-owned and managed café, which began with the purpose of combating women’s unemployment and building a strong community of women leaders. With 25 women currently employed by Beit Khayrat, the café allows guests to immerse themselves in Jordanian culture and cookery whilst learning about this crucial project.

Support community-based tourism

DMOs can help keep more tourism revenue within the destination by working with local communities, tour operators and NGOs to create authentic tourism experiences. Supporting community-owned businesses, like guided tours, homestays and locally made crafts, builds an economy where residents directly benefit.

A great example of this can be found in Rwanda. Red Rocks Rwanda is an eco-tourism destination offering accommodations, tours, and community engagement activities. Red Rocks’ homestay experiences allow tourists to stay with local families, who receive hospitality training while preserving their traditions. This initiative has created more opportunities for local entrepreneurs to enter the tourism sector and has financially benefited the families offering it. Visit Rwanda actively promotes Red Rocks as a key tourist attraction on its website.

Ultimately, tourism must be regenerative, and community led. There are plenty of destinations out there that are bringing community-based tourism to the forefront. Michael Pullman, Head of Marketing at Wild Frontiers, discusses Cambodia as one example:

“Cambodia is genuinely trailblazing when it comes to the intersection of forward-thinking sustainability and community-based tourism, without sacrificing luxury. Jaya House River Park in Siem Reap is an equal opportunity employer and plastic-free property that supports the local environment and community and offers tropical serenity, while the luxury tented camp in the jungle at Shinta Mani Wild was created in collaboration with the Wildlife Alliance and the Cambodian Government.”

Promote local sourcing

Encourage hotels, restaurants, and other tourism operators to source products locally. This can significantly reduce economic leakage, and DMOs can incentivise this by creating a local supplier directory, or awarding businesses that prioritise local sourcing a “preferred supplier” status. This strengthens local supply chains, reduces dependency on imports, and supports small businesses.

Prioritise local needs

Remember, it’s all about putting local needs first; who reaps the rewards, and who bears the burden? If the balance is always in favour of external parties in developed nations, then it’s not a fair and equitable system – it’s exploitative.

By making changes and even just staying mindful of the impact it has, destinations can retain more economic benefits, helping to improve community wellbeing, and protect local cultures and environments.

To ensure more of your revenue stays within the local economy, the first thing to do is measure your impact. Analyse your financial flows to determine how much of the revenue stays within the local economy versus how much is lost to external sources. This involves tracking spending on local versus imported goods, assessing the origins of suppliers, and evaluating whether profits are reinvested locally or sent abroad. You can also review your reliance on high-commission OTAs compared to direct bookings and engage with local stakeholders to gauge the broader economic impact of tourism in the area.

By assessing these factors, you can identify areas of leakage and take steps to ensure more revenue benefits the local community. So, what kind of steps can you take?

Hotels play a crucial role in determining how much of a tourist’s spending stays within a destination. While independent hotels tend to retain more money locally than international chains, both can take steps to minimise economic leakage and maximise benefits for the local economy.

Independent hotels are typically locally owned, meaning their profits stay within the destination rather than being funnelled to foreign headquarters. However, they can further reduce leakage by:

• Sourcing locally – Using regional suppliers for food, furniture, décor, and amenities instead of relying on imports. Our client FORESTIS, a CO2 neutral mountain retreat, only uses locally sourced or foraged ingredients.
• Hiring and training local staff – Prioritising local employees and investing in career development to reduce reliance on foreign workers.
• Partnering with local businesses – Recommending locally owned restaurants, tour operators, and artisans to guests. Lake Garda’s Cape of Senses works with local partners to host their concierge experiences, from tasting delicious olive oil at the local olive grove, to sampling locally owned wine at the nearby vineyard.
• Encouraging direct bookings – Reducing dependence on large online travel agencies (OTAs), which take high commission fees. You can do this through your PR, by promoting website links to encourage direct bookings.

• Adopting local procurement policies – Sourcing more food, materials, and services from local suppliers.
• Empowering local employees – Prioritising local hiring, leadership development, and fair wages.
• Creating local partnerships – Working with independent tour operators and businesses to ensure tourism spending benefits the community.
• Reinvesting in the destination – Supporting community projects, conservation efforts, and sustainable tourism initiatives. By taking these steps, both independent and chain hotels can help keep more of the economic benefits of tourism within the destinations they operate in, ultimately contributing to a more sustainable and equitable tourism industry.

Although tour operators are more likely to contribute to economic leakage due to their global operations, to operate a business outside of the host country, there will always be incurred costs that result in leakage. However, these can (and should) be low.

It’s important to note that not all international businesses are the same; some will invest in sourcing locally and developing the local workforce, others might not be able to. There are so many tour operators taking steps to mitigate the issue and make their operations more sustainable.

• Invest in destination communities – Large operators can invest in long-term sustainability programmes that reinvest profits into local environmental and social projects, reducing the impact of leakage. Take our client Wild Frontiers as an example. They launched the Wild Frontiers Foundation in 2009, which provides a platform to create awareness, raise money and deliver funding to community projects in countries where the company operates. Meanwhile, TravelLocal launched their Fund For Good campaign, distributing 1% of their revenue to four global charities.
• Work with local partners and governments – Prioritise locally owned hotels, homestays, experiences, and excursions, ensuring that tourism revenue benefits the community. Employing local guides adds authenticity to the experience while directly supporting the local economy. By also working with local governments and NGOs, larger operators can ensure their operations contribute to local development and help reduce leakage.
• Promote local engagement without local-washing – Place local communities at the heart of your operations and customer experience, integrating meaningful, sustainable local interactions. This will not only benefit the destination, but you will attract more ethically minded travellers into your customer base. However, it’s important to avoid any kind of local-washing when marketing community-led engagement. This is when a company claims to support local communities, while still directing most profits to foreign owners, offering superficial cultural experiences or failing to fairly compensate local people. Be sure to focus on genuine local partnerships and pay local staff and guides fair wages. When talking about your community impact, be specific about who benefits. Avoid making vague claims without clear evidence, and consider including case studies as examples.
• Collaboration – Shifting the dial on tourism is a team effort. There are many organisations like The Conscious Travel Foundation and The Long Run who provide valuable guidance and resources. Lemongrass is part of Travel by B Corp – a collective of companies that team up to make travel a force for good (and we’re among good company, hi, Selective Asia!). Meanwhile, Much Better Adventures co-founded the ‘Tourism Declares a Climate Emergency’ movement, partnering with organisations like the Travel Foundation to see this launched as the Glasgow Declaration at COP26. It takes a village to make a difference, so don’t feel you need to do it alone!

By adopting these strategies, both independent and larger tour operators can minimise economic leakage, ensuring that the benefits of tourism are more evenly distributed and contribute to the long-term sustainability of the destination.

Whether you’re a DMO, or travel brand trying to make a difference, there are a number of things you can do to mitigate against the effects of economic leakage. We must continue to innovate, educate, and ultimately, drive systems change.

Most importantly, we need tangible solutions that have a positive impact; not more greenwashing. As the Travel Foundation report demonstrates, this is more than possible to achieve.