A combination of lack of infrastructure, concerns about crime, plus escalating tensions with China are hindering the recovery of the Philippines' tourism sector, according to the Economist Intelligence Unit (EIU).
The domestic tourism industry's uphill battle to regain its pre-pandemic strength stands in stark contrast to the current tourism boom being enjoyed by neighboring Southeast Asian countries like Indonesia and Thailand, said Alex Holmes, EIU's regional director for Asia, in a Dec. 10 report.
Holmes pointed to a need to boost what he described as a "once-powerful" sector that had been a key driver of the Philippine economy.
"Returning the tourism sector to its pre-pandemic growth rates represents a stiff challenge, but there are indications that the government is moving in the right direction," Holmes said.
He cited the ongoing rehabilitation of the Ninoy Aquino International Airport (NAIA)—the country's main gateway, coupled with the expansion of Metro Manila's railway system as positive developments.
"If the upgraded NAIA is successful and delivered on schedule, it could become a symbol of the country's commitment to delivering a competitive tourism experience," he said.
The EIU economist also cited that this year's budget allocation for improving regional airports, alongside some projects traversing the public-private partnership (PPP) route, as a "vital step in improving the tourist experience for those in search of adventure outside of the capital."
"Greater investment in marketing campaigns could also help to reorient the country's international reputation, shoring up visitor numbers from source countries outside China," he added, referring to the ongoing "Love the Philippines" tourism campaign.
But Holmes conceded that "overall, capacity constraints and headwinds to demand suggest a swift turnaround is unlikely."
The EIU forecasted the local tourism industry would "grow more slowly" than the projected annual gross domestic product (GDP) growth of at least six percent from 2025 to 2029.
Holmes further cautioned that tourism is expected to "provide a drag rather than a boost to overall growth, and shrink as a share of output" moving forward.
"Alongside other factors such as labor market fragility and the foregone human capital development from years of lost schooling, the softness of this important sector exemplifies the permanent hit to potential growth in the Philippines from the pandemic -- probably the worst hit among major Asian economies," he explained.
While Philippine tourism grew tremendously pre-pandemic as it accounted for 12.9 percent of GDP and 17 percent of total employment in the country back in 2019, Holmes noted that its post-pandemic rebound has become "slower than elsewhere in Southeast Asia."
"In 2024 so far visitor numbers have averaged around 70 percent of 2019 levels. The equivalent figure is nearly 90 percent in Singapore and Thailand and 100 percent in Vietnam. The latest data from 2023 show that the sector's share of GDP stood at 8.6 percent, while employment was just under 13 percent," he pointed out.
Despite an abundance of scenic tourist spots and an English-speaking population working to the Philippines' advantage, Holmes referred to several factors contributing to its tourism industry's sluggish recovery, including infrastructure lack as well as perceived pervasive criminality here.
"Headwinds loom as none of the sector's main challenges, such as inadequate infrastructure and perceptions of crime, are quickly solved," he warned.
Another growing concern is the Philippines' increasingly tense relationship with China over territorial disputes in the South China Sea.
"The precarious security situation with China represents a risk not just to the Philippines' reputation, but also to the viability of China as an important source of visitors," Holmes explained.
Unfortunately, the EIU believes "none of these problems are easy for the government to solve."
Referring to the Marcos Jr. administration's ambitious "Build Better More" program, Holmes said "infrastructure work is moving ahead, but it may not be enough."
For instance, NAIA's rehabilitation, for the EIU, is "an admirable goal but not one without risk; the government has considered this upgrade for 30 years and we assign a likelihood of about 30 percent that the timeline will be delayed."
While other gateways like the up-and-coming "aerotropolis" in Bulacan province and the upgraded Clark International Airport are fast-rising alternatives for air travel, Holmes noted that airports outside the capital had also "exposed visitors to Manila's notoriously congested major roads."
"Global studies have regularly placed Manila at the very top of indices of cities with the least efficient traffic systems. Here, too, the government is making investments, but only after planned capacities have long been exceeded," he pointed out.
While the current administration is building more roads as well as railways—including the country's first subway system, Holmes said booming sales of motor vehicles may "quickly absorb" additional transportation network capacity.
"In our business environment rankings, we currently rate the quality of the Philippines' air and road transport infrastructure as 'fair' for 2025 to 2029, while its rail network receives the lowest grade. Meanwhile, we rate Thailand's airports as one grade better and its rail network two grades higher. The longer these infrastructure deficiencies remain relative to the Philippines' regional rivals, the more difficult it will be for the country's tourism operators to compete," he said.
Holmes also pointed to "problematic perceptions" of peace and order in the country, suggesting that "the government could also try and shift Manila's reputation for high crime levels."
"The 'war on drugs' led by the previous president, Rodrigo Duterte, received widespread coverage for the state's willingness to commit extrajudicial murder in order to reduce the prevalence of drugs in society. Although there was minimal overlap between the state's pursuit of drug dealers and the holiday periods of foreign tourists, the perception of Manila as host to firefights between the state and drug dealers remained," he noted.
It does not help that the EIU believes the Philippines would "unlikely" become a "destination of choice" among Chinese tourists.
Holmes said that while China has been a major source of foreign visitors -- ranking as the fourth-biggest and up by nearly two-fifths year-on-year as of end-August 2024, the rekindled Philippine alliance with the US under President Ferdinand R. Marcos Jr. had led to intensified tensions between Manila and Beijing.
For Holmes, this raises concerns that China could use its tourism market as leverage, discouraging the Chinese from visiting the Philippines if the latter continues to assert its claims in what it calls the West Philippine Sea.
"If the Philippines complains too loudly about China's actions in the South China Sea, the Chinese government could advise its citizens to holiday elsewhere," the EIU warned.