Dr. Areef Suleman is Director of Economic Research and Statistics at the Islamic Development Bank Institute.
Kadir Basboga is Senior Regional Integration Economist at the Regional Cooperation and Integration Department at the Islamic Development Bank
A visa-free travel regime is the cornerstone of market integration initiatives as it complements regional economic agreements by facilitating the mobility of humans, who are the primary subjects of economic development. The literature and practical experience offer us substantial evidence on the economic benefits of visa openness and free movement of people. The EU’s Schengen Area is one of the best examples of such benefits from the perspective of uniting national markets, and leading to economic convergence across borders. Currently, the developing world is also taking bold actions in the same direction, despite the challenges posed by the Covid-19 pandemic.
The contribution of visa openness and the free movement of people to economic development is made through three channels. The first mainly concerns the tourism industry, which accounts for 7% of global trade as the third-largest export sector after fuels and chemicals. According to World Tourism Organization data, for some countries, tourism represents over 20% of their gross domestic product. Therefore, any form of travel restrictions, including those related to public health, can have a devastating impact on local economies that rely heavily on tourism revenues. The Covid-19 crisis was indeed a testament to this fact as destinations worldwide saw 1 billion fewer international arrivals in 2020 in comparison to the previous year, representing an estimated loss of USD 1.3 trillion in export revenues.
The second channel of impact of the free movement of people is cross-border trade and investments, which traditionally have been shaped by face-to-face interactions, to a large extent. Even though the pandemic has forced the global business community to switch to digital platforms as a substitute for in-person experiences, it is evident that cross-border greenfield projects and trade in services have a physical dimension that favors physical proximity and face-to-face interactions. This is one of the reasons the pandemic led to the disruption of supply chains and a huge decline in foreign direct investment flows globally. A recent United Nations Conference on Trade and Development study confirms that global foreign direct investment flows fell drastically by 42% in 2020, with a large concentration in developed countries, where they fell by 69%.
Regarding the third channel of impact, travel restrictions continue to shape global migration and overseas employment trends, particularly for low-skilled workers. Owing to recently introduced Covid-related bureaucratic requirements, even fully vaccinated individuals from the global south are not able to seek employment opportunities in advanced economies. However, when it comes to highly skilled professionals, the dynamics are different. For such professionals, who are able to travel despite procedural hurdles, emerging remote work arrangements are opening up a new world of employment possibilities beyond brick-and-mortar workplaces, including the opportunity to work from popular tourist destinations in less-stress environments with more flexibility and autonomy.
The changing dynamics of work also bring new opportunities for countries and regions, according to the extent to which they attract the growing class of digital nomads. With the gradual easing of the pandemic globally, countries are competing to provide a reliable digital infrastructure and access to social networks for remote workers and their families. Indeed, we already see the launching of special residence programs, such as Dubai’s one-year virtual working program, that are directly targeting remote workers.
In this new era, some challenges are on the horizon regarding income taxation and social security procedures. If these matters are worked out on a bilateral basis between countries, we may end up with a very fragmented set of rules and regulations, which would trigger the growth of specialized consultancy services to help individuals and businesses make informed decisions.
Since long before Covid-19, regional economic blocs have been very active in facilitating the free movement of people. In Europe, the Schengen Agreement is one of the main pillars of European integration, and its visa-free travel zone has grown to include 26 member nations since its inception in 1995. In Southeast Asia, the Association of Southeast Asian Nations (ASEAN) member countries are implementing visa exemption for intra-ASEAN travels. In the Middle East, nationals of Gulf Cooperation Council (GCC) member countries do not require a visa to visit other GCC members. And in Africa, there is a progressive move towards fewer visa restrictions, as the 2020 Africa Visa Openness Index study confirms that a record 54% of the continent is now accessible for African visitors who no longer need visas to travel or can obtain one on arrival. This is a remarkable achievement as a perfect complementary to the recently launched African Continental Free Trade Area.
Looking beyond 2022, the tendency of relaxing visa restrictions as a tool for deeper regional integration will probably continue despite some recent hiccups during the pandemic. In order to revive the tourism industry, discussions are already underway to establish regional travel bubbles. There is a fair possibility that these solutions will evolve into more comprehensive travel facilitation arrangements to incentivize more intra-regional trade and investments. This also suggests that human mobility will remain a main driver of regional integration, and travel-related indices such as the Henley Passport Index will remain among the important indicators to keep a close eye on. Concurrently, countries and regions will try to seize new opportunities that are associated with digital transformation and remote work environments. In doing so, regional cooperation platforms will play a key role as facilitators of multilateral discussions to harmonize the rules and procedures of international travel in a post-Covid world.