State- Sponsored Debt Forgiveness

David Collins, Co-Founder and Chief Operating Officer for The Great National Group, suggests that state-sponsored debt forgiveness may be the ‘silver bullet’ that the tourism industry needs as it looks to re-emerge from Covid-19.

C19 has brought about lots of restrictions, most are worthy and warranted. The protection of front-line staff is unquestionably, undoubtedly critical and welcome. Equally citizens now, more than ever before, need to actively ensure personal restraint for their own safety and that of others. This is an unseen enemy which knows no boundaries although it does need to be said that it may perhaps have been enabled by the serial under-investment in public health to the point that it seems governments are now forced to bid for knock-off, sub-standard PPE from the very country that is the origin of this viral pandemic. Go figure.

Leaving all that aside, what’s happening now on the world stage is concerning and will only compound the challenges facing the tourism industry. Once united nations are now beginning to adopt unilateralist, self-protectionist measures, literally becoming silos in survival mode. Case in point, the European Union’s 60 year-old-plus history has been undermined in less than 6 weeks as countries start to do solo runs on fiscal, social and economic policy.

Unchecked this could pass a tipping point where an emotional tsunami – fuelled by wide-scale bereavement, enforced self-isolation and raging uncertainty – will overcome even the most resolute to the point that society itself might collapse. This is not unthinkable by the way. And if you think it is, who would have thought that the entire world could be brought to its knees within a matter of weeks by a bat. Or a pangolin. Or whatever species of animal/mammal it was. The mind boggles.

To be kind, there is no precedent for the scale of what is being experienced globally therefore is it fair to focus on inefficiencies in preparedness? Probably not. It is instead the response that communities, institutions, governments deploy that provides the context for how this calamity is being dealt with.

The tourism industry has largely stepped up to the mark. Pubs have closed. Restaurants have shut. Hotels lie vacant. Obviously this has not been entirely self-imposed: state lock-downs and enforcement rules have made it impossible to trade what is essentially ‘social’ business. What is marked however is that there have been few if any operators that have attempted to defy these bans with a universal acceptance and compliance obvious from the get-go. This despite the fact that this could prove terminal. And in some cases has already done so.

As attention turns to ‘what next’ in terms of how do we re-emerge the economy, there’s talk now that the tourism industry will be among the last, if not the last, sector to be permitted to re-open for business .. so basically it looks like we’re first to close and the last to open.

And whereas again there may be a general acceptance for this – the practicalities are in truth hugely challenging – the stoic-ness shown by tourism operators to date should not be taken for granted. Nor should the sheer number of people employed in the industry be forgotten .. 250k in Ireland, nearly 4m in the UK and 300m+ globally.

Many other sectors will be taking the initiative so as to at least keep them at the forefront of policy-makers’ minds – after all if you’re not at the table, you’re on the menu – so it falls to ourselves and all our colleagues throughout the tourism industry, to actively engage in figuring out a blueprint for going forward. Leadership from trade associations and lobby groups will be key here but more importantly, I would suggest leadership from amongst operators on the ground.

As to a solution for helping the tourism industry to re-emerge from this calamity, grants and loan holidays in themselves while welcome will simply not cut it such is the scale of the challenge facing our industry. Lateral thinking is what’s needed here so for example is it not reasonable to suggest some level of debt forgiveness as regards rates, water charges, VAT and corporation tax, much in the same way in the last crash debt was taken off banks’ balance sheets to allow them space to regroup and stabilise for recovery? Similarly business, and in particular small to medium sized businesses such as is typical in tourism, should likewise be provided with this opportunity.

Unprecedented? Well, sort of but not really. Again refer to my point above about the banks. But then again we’re now in unprecedented times and uncharted territory, and as such the old rules simply don’t apply. We need new rules for a new normal to allow us as an industry to reboot whilst continuing to enable the controlled management of this pandemic which has beset us all.

‘Moral hazard’ will likely be deployed to argue against state-sponsored debt forgiveness as it could ‘encourage bad behaviour’, etc.. And yes, while there may be a few operators that would take advantage of such a write-off or even a write-down, the vast, vast majority of operators are honest, hard-working citizens concerned about their livelihood and the livelihood of their employees who have done the right thing, and now turn to the State to likewise do the right thing.

What is therefore needed is an extension of the ‘Social Contract’ deployed by Governments and Citizens who combined symbiotically to respond to C19 and now need to do this again to create an accelerated resurgence. Society will be the ultimate winner, the prize being stability, inclusivity and community .. and a fast-tracked recovery. In terms of how this might be structured, there are folks on a much higher pay-grade than myself on this issue but it is surely within the gift of governments to for example create a C19-related Special Purpose Vehicle or SPV whereby the associated costs of dealing with the pandemic plus this proposed write-off, are bundled together and capitalised or written off over 100 years? As a colleague of mine pointed out, this money is not owed to some divine power that has to be repaid under punitive terms.

And as to managing C19, it will be with us it appears for a while to come so again the hotel industry has a responsibility here in adapting to rolling lock-downs and restrictions on operations: for example, implementing social distancing will leave some restaurants half-empty. But that said, at least they’re half-full ..

What will certainly emerge will be a new model for the tourism business, for how we operate, how we engage with clients, how we price, etc.. It will however be lessened as a challenge perhaps as we’re all effectively in the same boat including each of our competitors and customers so there may be more space and tolerance than we might think for adapting to this new normal.

Critical to this however will be equality and transparency in terms of enabling practical solutions for business as there’s now a heightened sensitivity to and expectation for the State and its bodies to do – and be seen to be doing – the right thing. This is in fact a huge, ‘once-in-a-generation’ opportunity to recalibrate the global economy for the better, to address systemic dysfunction and to enable sustainability.

As they say, never waste a good crisis.