As Malaysia celebrated its 50th anniversary of independence last week, the tourism industry was celebrating what is on track to become a record year for visitor numbers and tourism spending.
As part of the festivities, the government has designated 2007 as Visit Malaysia Year (VMY), allocating $57m for the campaign. Over the past several years, the country has been very aggressive in marketing and promoting itself as a tourism destination, as evidenced by the World Economic Forum's travel and tourism competitiveness index where it was ranked second in attendance for international travel and tourism fairs. A target of 20.1m visitors has been set for the year, an almost 15% increase over the 17.5m arrivals the country received in 2006.
However, Tengku Adnan Tengku Mansor, the tourism minister, told local media the country was likely to exceed its tourism arrival target by almost 4m visitors this year.
"I believe by December, we will have at least 24 million tourists visiting us," he said. So far, the immigration ministry has reported more than 13.5m arrivals.
After manufacturing, tourism accounted for Malaysia's second largest source of foreign exchange earnings in 2006. Today, the service sector accounts for 54% of national GDP, and as Malaysia looks to continue its evolution into a service-based economy, tourism growth is considered a key element in achieving this goal
According to Malaysia's national news agency, revenue from foreign tourist expenditures was $6.84bn for the first half of 2007, an increase of 45.9% on the same period last year. In addition to an increase in visitor numbers, the significant rise in overall tourism revenue is due to the average spend per visit rising by 16.9% to $640.
In terms of where visitors to Malaysia hail from, the Association of South East Asian Nations (ASEAN) countries are the leading contributors, accounting for 63% of tourism revenues. Of visitors from outside the ASEAN region, China leads the group, followed by the Middle East, India, Australia, the United Kingdom and Japan.
Malaysia's tourism figures are all the more impressive when one considers that in 1989 the country had 4.85m tourists - fewer than the estimated 6m who visited neighbouring Thailand to the north and the 5m who visited Singapore to the south. In contrast, the 17.5m visitor arrivals to Malaysia in 2006 exceeded both Thailand (13.6m) and Singapore (9.7m).
While the work of the tourism ministry is laudable, a significant factor in the record receipts seen thus far in 2007 has been an incident-free year for the region. Events such as SARS, bird flu, tsunamis and terrorism, which have plagued the region in the past, have not occurred.
Tengku Adnan told OBG, "People always ask me whether I am happy when something bad happens to affect tourism in a neighbouring country, as they think Malaysia will benefit. Of course I am not happy. When there is a bomb in Indonesia or a coup in Thailand, we are directly affected and it hurts the entire region."
While higher than expected growth is clearly good news for the industry, some are concerned as to whether there exists the capacity to meet and sustain this rapid rise in demand over time.
According to the Malaysian Association of Hotel Owners, hotel occupancy for July and August has been at an all time high, with many tourists complaining they could not find accommodation at their hotel of choice.
While high occupancy rates would typically trigger expansion, with off-peak season occupancy rates for some hotels as low as 30% and past regional events such as SARS significantly hurting travel to the region, many are hesitant to make the investment in capacity.
Tengku Adnan told OBG, "Unfortunately, events like these happen. What we are trying to do to offset these events is to promote more domestic tourism, so that the demand will always be there."
With tourism being a substantial contributor to the GDP of most of the countries in the region, the industry is also wary of the potential for increased regional competition, with countries such as Vietnam and Cambodia continuing to open up as international tourist destinations.
In addition, while Malaysia has done exceedingly well in marketing itself abroad using aggressive and innovative means, some are now are concerned others may follow this lead. For example, Malaysia is currently the leading regional destination for visitors from the Middle East. Should neighbouring countries ease visa restrictions on Middle East visitors or set up tourism offices in the home countries similar to what Malaysia has done, they stand to gain at least some proportion of the market.
Finally, an area of concern is air connectivity, with Singapore, Thailand, and Hong Kong each having three times the number of incoming flights as Malaysia.