81835 POLICY NOTE NO. 40 OCTOBER 2013 TradePolicy AfricaTrade Africa Notes PolicyNotes Iain Christie, Eneida Fernandes, Hannah Messerli, and Louise Twining- Ward Tourism in Africa: Harnessing Tourism for Growth and Improved Livelihoods HIGHLIGHTS Africa Rising This more than any other time is the moment for pursuing tourism as a Tourism is one of the key dynamic development option in Sub-Saharan Africa. Although Africa was industries driving the current badly hit by the global crisis, the continent avoided an even worse growth economic growth in Sub-Saharan shortfall in 2009, thanks to prudent macroeconomic policies by governments and financial support from multilateral agencies, and Africa (SSA). From a small base rebounded in 2010. Africa’s private sector is increasingly attracting of just 6.7 million visitors in investment from the United States and Europe, with China, India and 1990, SSA attracted 33.8 million others also investing heavily in the region. Private capital flows are higher visitors in 2012. than official development assistance and foreign direct investment is higher than in India. Returns to investment in Africa are among the highest in the The four pillars of successful world. The public sector has set the conditions for the exponential growth of tourism development are information and communications technology (ICT), which could also help financial, economic, to transform the continent. With incomes rising, SSA countries’ poverty rate environmental and social declined from 59% in 1995 to 50% in 2005. Given this scenario, the World sustainability. Without any one Bank concludes that SSA could be on the cusp of an economic takeoff, much like China was 30 years ago, and India was 20 years ago. of these four conditions the sector will falter. Tourism is one of the key industries driving the current change and tourism could be a transformative tool within this takeoff. From a small base of just Studies commissioned by the 6.7 million visitors in 1990, SSA attracted 33.8 million visitors in 2012. Africa Region of the World Receipts from tourism in 2012 amounted to over US$36 billion and directly Bank found that airfares were contributed 2.8% to the region’s GDP (total contribution, including direct, almost 50% more expensive to indirect and induced, stood at 7.3% of GDP). (WTTC, 2013) SSA, and charter tours were 20- 30% more expensive than to Tourism as an Economic Development Tool comparable destinations elsewhere. Managed sustainably, tourism is an effective development tool. When tourism’s environmental, social, and economic and other constraints are addressed, tourism energizes economies. With the full knowledge that tourism is a complex sector with tentacles into a myriad of other economic activities, all of which require careful management, countries with tourism assets are fully justified in deciding to prioritize tourism as a development tool. WORLD BANK 1| www.worldbank.org/afr/trade Several entities are primarily responsible for the success of the sector. The government’s political support at the highest level for tourism is essential. The government’s role is to initiate the formulation of a strategy for the sector and then play the crucial coordinating role among the different public sector agencies involved, the relevant private profit and non-profit entities, and local communities. The government must also address market failures that affect the tourism sector and should create an enabling environment for private investment and, above all, must provide political and social stability. The tourism investments, low levels of tourism skills, government will also have to supply basic lack of security, safety and high crime, public infrastructure and assist in the promotion of the health, visa requirements, and red tape and country for marketing and investment. Without bureaucracy. Fortunately, individual countries the private sector’s investment in can provide successful examples of policies and accommodation, attractions, and tourism services actions that have resolved these issues; most and facilities, and its knowledge transfer, there depend on the political will of governments for can be no tourism sector. Local communities their resolution. Other critical constraints, where must be receptive to the tourists that intrude into the resolution is dependent on the actions of their communities and, to be so, they must government and of external service providers participate in the benefits of tourism. External include: donors can provide the critical capital and technical assistance to support the sector and Air transport. SSA’s distance from source help raise it from one development level to markets creates an acute need for higher quality another. Without any one of these active and more competitive air access. Despite having participants, the sector cannot grow to its full 15% of the world’s population, the continent is potential—or even, in the early stages, begin to put served by only 4% of the world’s scheduled air together a tourism package for visitors. service seats. Nevertheless, this seat supply grew by 6.5% between 1998 and 2009, and Cape The potential for tourism growth in SSA is Verde, Ethiopia, Mozambique and Tanzania significant. The region has abundant assets, with experienced double-digit growth. A few foreign expansive beaches, plentiful wildlife, extensive carriers dominate long-haul connections; only a natural and cultural attractions, and adventure few national carriers continue to operate, some in opportunities. Considerable opportunities for cooperation with international carriers. expansion exist in safari, beach, business, and diaspora tourism, including in regions of Studies commissioned by the Africa Region of destination countries that have not yet benefited the World Bank found that airfares were almost from tourism. Furthermore, SSA has great 50% more expensive to SSA, and charter tours potential to expand products that are more were 20-30% more expensive than to comparable recently in greater demand, such as destinations elsewhere. The irregularity or non- nature/adventure tourism, cultural heritage availability of intra-regional air connections and of tourism, and travel for wellness, health and internal air transport constrains access to internal retirement purposes. destinations and also prevents progress with multi-country tourism packages. The private Constraints sector has invested in some local airlines to compensate for specific deficiencies in routing To achieve its tourism potential SSA will have to and the high costs of internal and intraregional address a number of existing constraints: land travel. Aviation has been slower to liberalize than availability, investor access to finance, taxes on other sectors in SSA but further liberalization of 2| www.worldbank.org/afr/trade all forms of air transport will be essential to per room for a mid-market hotel; in Ghana the improve the accessibility of the region for tour cost is US$250,000 per room. Median hotel operators. Liberalization will have to be development costs elsewhere in the world are accompanied by major investments in US$200,000 per room for a full-service hotel. infrastructure, training and safety equipment. The occupancy rates and profitability of hotels in SSA show great disparities. Yet, despite these Road transport is notoriously poor in much of concerns, 23 international hotel corporations Africa, so it cannot compensate in most countries currently operate in SSA and the accommodation for the inadequacy of internal air transport. Yet, sector is expanding rapidly with several large both Namibia and South Africa are examples of hotel projects by major hotel chains in the destinations that through consistent investment in planning or construction stage. infrastructure are now able to attract large numbers of self-drive tourists. The Competitiveness of Tourism In today’s globalized market, every tourism product competes with every other at its price point. Although the prime decision maker is the individual traveler, the size of the flow of tourists to a particular destination is to a considerable extent determined by the world tourism industry, represented by tour operators, travel agents and transport services in the countries of tourist origin. Destinations can influence these external industry managers through effective and continuing promotion and marketing campaigns Tour operators. UK and US tour operators but will be successful only if there is a high-quality report that a higher proportion of tourists to SSA product to sell that is competitive in value and not use tour operators (some 50-70%) than in other just in price. parts of the world (10-15%) because of the greater complexities of obtaining visas, booking SSA tourism sectors must maintain accommodation and making tour arrangements competitiveness through: when travelling to SSA. The tour operators considered that the countries with the highest • The quality of their tourism assets potential for tours during the next five years to • High standards in visitor accommodation be: Botswana, Cape Verde, Namibia, South • Efficiency and safety in transport to, from and Africa and Tanzania, plus ten other emerging within the country destinations. • Adequacy of a variety of infrastructure components Accommodation. Just 10% of the region’s • The receptiveness of local populations to 390,000 hotel rooms are estimated to meet tourists international standards, and South Africa has • The skills of the range of officials and about half of this stock. Kenya, Mauritius and employees with which tourists come in contact Seychelles have established hotel • The safety and security the destinations offer investment/development markets; maturing visitors. hospitality markets are in Nigeria, Senegal, Tanzania and Zambia. Unbranded guesthouses As already noted, the limited and costly access to and lodges comprise the largest share of SSA destinations from major tourism supplier accommodation facilities. High hotel costs are markets and the infrequent, irregular and primarily due to high hotel development costs inadequate transport access within countries both and the cost of debt financing. In Nigeria, hotel have major implications for the competitiveness construction costs are upwards of US$400,000 of SSA countries with other destinations 3| www.worldbank.org/afr/trade SSA Countries by Tourism Development Level And World Bank Income Ranking Upper-middle Tourism Development Level Low Income Lower-Middle Income Income Central African Republic, Chad, Comoros, Republic of Congo, Equatorial Guinea, Pre-emerging Democratic Republic of Congo, Eritrea, Guinea, N/A Sudan Guinea-Bissau, Liberia, Niger, Somalia, Togo Benin, Burundi, Ethiopia, Madagascar, Mali, Angola, Cameroon, Cote D'Ivoire, Potential/Initiating Gabon Mauritania, Sao Tome and Principe, Sierra Leone Lesotho, Nigeria, Swaziland Burkina Faso, The Gambia, Malawi, Emerging/Scaling Up Mozambique, Rwanda, Senegal, Uganda, Zambia, N/A The Seychelles Zimbabwe Botswana, Mauritius, Consolidating/Maintaining and deepening success Kenya, Tanzania Cape Verde, Ghana Namibia, South Africa worldwide. Furthermore, tourism is highly Potential. These fifteen countries initiating dependent on a range of infrastructure facilities, tourism have shown some interest in tourism but which are often lacking or inadequate in many lack adequate governance of the sector. They SSA countries. The absence of any one of the have some basic infrastructure for tourism but infrastructure components, e.g., potable water, still face market failures, such as with regulation, can seriously hamper tourism development or resources, and institutions, which also affect the cause heavy capital and operating costs for the macro economy. private sector managers of the tourism product. Emerging. These ten countries are scaling-up Tourism Performance tourism. They have solid institutions, are prioritizing tourism, and are performing To understand better which SSA destinations are reasonably well in terms of quality and the highest performers and why, the Tourism competitiveness. The market failures that are Team in the Africa Region Financial and Private evident (e.g., the high costs of access to the Sector Development (AFTFP) of the World destination, financing, and hotel construction Bank, developed a typology of SSA destinations, costs, together with continuing difficulties in land which ranked the 47 SSA countries by level of access) are mostly related to government market tourism development. The methodology entailed failures, though the small scale of tourism an analysis of the current situation and future contributes to the high access costs. prospects of the tourism sector and of its macroeconomic setting, using five key indicators. Consolidating. These eight countries are working The typology produced four distinct groups of on deepening and sustaining tourism success, countries in SSA. The characteristics of the four have relatively mature tourism sectors, are groups are: committed to tourism, and have the highest economic and tourism performance in SSA. The Pre-emergent. These fourteen countries have not management quality and capability of the private yet developed their tourism sectors. The 14 SSA sector is reflected in the accolades that selected countries classified as having pre-emergent hotels receive. Countries at lower levels of tourism sectors represent countries where market tourism performance should be encouraged to failure is almost complete. They have little note that success in tourism is not dependent on governance or security, have shown low interest income level. As the table below shows, two low- in tourism, and have poor short- to medium-term income countries are among the highest tourism tourism growth prospects. This group also performers in SSA and nine are in the includes three countries with little or no tourism “Emerging/Scaling up” category. Tourism could data: Equatorial Guinea, Liberia, and Somalia. potentially create millions of jobs, among other economic benefits, if it is developed successfully. 4| www.worldbank.org/afr/trade Yet, so far, just eight of SSA’s 47 nations have achieved significant tourism success and employ 4% or more of their workforce in tourism. Ten other countries could achieve that same success in the foreseeable future, with fifteen others lined up behind. Strategic Decisions Governments that are contemplating initiating tourism or moving tourism from one development stage to another need to make strategic decisions on main issues from the outset Sustainability in consultation with all stakeholders at the national and regional levels. These issues include: The four pillars of successful tourism the scale of tourism development, the development are financial, economic, sustainability of the sector and financing of environmental and social sustainability. Without tourism and economic rents. any one of these four conditions the sector will falter. The Scale of Tourism Development Before embarking on a program to initiate or Financial sustainability: Financial sustainability of scale-up tourism, governments must decide what the investments in accommodation and tourism the scale of the development should be. One of services depends on the competence of the the most significant planning decisions is size: private sector, together with the creation of a whether to build large resorts, boutique hotels, supporting policy environment and provision of mid-sized projects, ecolodges, or some infrastructure by government, and the acceptance combination of the above. The scale of the of tourism by the local population. development will determine the extent of the transformation that the investment can achieve, Economic sustainability: The range of products but, as noted below, if the development exceeds and services that can be developed for tourism the absorptive capacity of the assets and resources demand makes tourism a catalyst for available to manage the sector, negative entrepreneurial activity. Sound government consequences will ensue. Related issues are the policies will help to extract the maximum income market that the destination should target. economic benefits from tourism. There may be Planners will also have to decide, if there are sources of financing available to governments, several parts of the country suitable for tourism such as economic rents, to help them maintain a development, whether they want to consolidate healthy and productive sector. their efforts in one location or disperse tourism developments to several regions. Starting with an Environmental sustainability: Though often anchor project in one location was the choice of referred to as a ‘smokeless’ industry, the countries that are now very large, successful dependence of tourism on natural resources destinations, such as Dominican Republic, makes any negative impacts more conspicuous. Indonesia and Mexico. A government—or a Tourism can only be sustainable if the natural public private tourism authority or statutory body assets on which it is based are protected from –will also have to decide whether tourism degradation. This is particularly true in Africa, development should be treated as an immediate which is variously marketed as a nature, wildlife, once-and-for–all activity or as a continuing resort and cultural heritage destination. program with investments scheduled over a series Consequently, a well-managed tourism sector will of five- to ten-year periods. protect its natural resource base in new developments and mitigate negative impacts on the environment from previous developments 5| www.worldbank.org/afr/trade and from external sources. Carefully the value that natural or cultural assets add to management tourism can become a tool for man-made structures. Economic rent is defined environmental protection and for financing as a profit above normal market rates of return conservation. The costs of regulation, that is obtained from an asset that is in fixed preservation and monitoring can be high not just supply and scarce. The public good is served financially but technically for governments. when the economic rents are used to ensure the Multilateral and regional agencies, as also sustainability of the asset. User fees, taxes and bilateral agencies, NGOs and foundations can auctions are among the ways to monetize and provide both financial and technical assistance to capture part of the value added by natural and SSA governments to assist them to manage their cultural assets. environments. Recommendations for Tourism Social sustainability: A critical concern for Development in SSA Countries tourism managers everywhere is how to extend the benefits to the poor and to local The particular recommendations appropriate for communities. Hotel managers or owners, in such countries at each stage of tourism development varied destinations as the Eastern Cape in South follow the typology already discussed: pre- Africa and Fiji, have deliberately involved the emergent, potential/initiating tourism, local community in their activities, sometimes emerging/scaling-up tourism, and consolidating with outside technical assistance. /deepening and sustaining success. The one stage Interdependence between the local community of development for which no recommendations and the tourist accommodation generally can be made is the pre-emergent. In most cases improves relations between the two and the these fourteen pre-emergent countries are either benefits are mutual. Sustainability considerations war-torn, suffering civil strife or have recently have graduated from being a minor additional emerged from these situations but have not yet component to a central concern for corporate reached stability. Little can be done by external risk management, with the specific objective agencies until responsible, democratic being to gain the support of the local community governments are empowered to establish stable for the business that is occurring on their political regimes and ensure the safety and doorsteps. security of local populations. The Financing of Tourism Initiating Tourism: Making land available for tourism development and improving transport The main sources of finance for tourism are: the policies and infrastructure in countries at the government’s budgetary resources and the private beginning of their tourism journey requires a sector through its investments in accommodation practical approach, which requires a focus on the and tourism services, promotion and marketing tourism asset with the highest potential. Countries internationally, and, where the government has such as Dominican Republic, Indonesia, Mexico, failed to provide it within its project area, through and Turkey, focused scarce resources on the its investments in infrastructure, sometimes by locations and market segments with highest public private partnerships. Additional financing growth potential. This effective strategy removed, comes from local communities and the NGOs in each location, some critical constraints, such as that represent them, which can contribute land infrastructure, security, and lack of skills, and and labor in a partnership with the private sector, from the outset attracted world-class investors. donors or NGOs to add value to their land and These “first movers” played a critical role in donors, which can assist governments, the private launching the destination. Targeting areas of high sector, and local communities with a myriad of potential also enables destinations to focus supporting services for the sector. A neglected promotion activities on one or two iconic source of government funding may well be the attractions, to pilot key and delicate policy economic rents that tourism generates. In the reforms for land and air transport, and create tourism context, an economic rent is created by appropriate institutions with coordinating 6| www.worldbank.org/afr/trade mechanisms in a contained setting. The success managed the of these first developments, which had public viability of sector and donor support, encourages new resorts is investors to finance projects in other areas and threatened. carried these countries to the next stage of Costa Rica best development. illustrates the successful Scaling-up: At the next stage, with political management of support, airline access, and land availability for higher tourism tourism development assured, investment and numbers destination promotion becomes critical for through an attracting investors. Destination promotion escalation of involves marketing campaigns, source-market already high awareness building, and positive image standards and enhancement. Investor promotion involves by focusing on providing information that will build confidence its brand image of nature conservation, and streamline the process of investment. Some complemented by the introduction of “green” countries have opted for a one-stop-shop where certification for hoteliers and service providers. investors can find a centralized source of information and guidance for investing in a Increasing visitor arrivals in the non-peak season country. or seasons can best be achieved by pricing incentives, by diversifying the tourism product, Professional investment conferences are held and by the scheduling of special events, such as around the world, at which investors, lenders, film or music festivals, in the off-season. The insurance companies, real estate agencies, and benefits of non-peak tourism accrue to the financial institutions meet, network, and discuss providers of accommodation and their topics of interest. In Tanzania, for example, an employees, who might otherwise be released or investment promotion forum and an outreach work part-time, but also to the many beneficiaries program organized by MIGA in 2002 resulted in of the tourists’ considerable discretionary over $100 million in investment in the following spending. two years. The main components were an investment forum and a follow-up investor Implementing Change outreach program. Investors can be attracted by direct financial assistance, such as bonds or In order to implement the specific special-purpose taxes, indirect assistance (e.g., recommendations noted above, all countries zoning), and fiscal measures such as tax breaks. must also address issues of political support and Although these may not be necessary for viable capacity building for tourism. Specifically, the projects, tourism is replete with incentives and private and public sectors must address the investors are not shy to seek them. following: Sustaining and Deepening Tourism Successes: • Encouraging tourism managers to focus on the As growth increases, strategies are needed to value of their product to be competitive in the disperse tourists to different areas and, where international market. possible, to distribute arrivals more evenly during • Garnering strong political support for tourism the calendar year. Tanzania’s northern circuit is at a high level in government. It is essential for overloaded and the country is trying to create new the government to take the lead in creating areas for tourism growth in the south, in the effective institutions and coordinating Pemba and Mafia Islands, the Selous Reserve, mechanisms to maintain a dialogue with all and Zanzibar. Clearly, sun and sand destinations stakeholders. may be easier to replicate than those involving • Understanding the vital role played by the wildlife, cultural or historic sites. If growth is not private sector and the need for government to 7| www.worldbank.org/afr/trade create an enabling environment for investments, • Understanding the current constraints to as well as to provide supporting infrastructure for tourism and illustrations of solutions by other those investments. countries to the issues of: land availability, • Engaging with donors and leveraging their investor access to finance, taxes on tourism capacity to assist the tourism sector in many vital investments, low levels of tourism skills, lack of areas, such as infrastructure, training, and pro- security, safety and high crime, public health, visa poor tourism. requirements and red tape and bureaucracy. • Understanding the needs of investors for • Assessing the scale of development that is information and the value of setting up “one- appropriate to the country’s assets and stop” shops for such information. management resources and determining where • Addressing the critical role of air transport and and when development will take place. the necessity to liberalize air policies. • Noting the four pillars of sustainability for • Addressing the poor connectivity within tourism: financial, economic, social and countries and regions, and the need to improve environmental, all of which are essential for road and internal air access to these; whether sustained tourism growth. through private sector entrepreneurship or • Understanding the potential for financing government investments or a combination of tourism by appropriating to government the both. economic rents that tourism generates. 19 24 This policy note has been adapted from Tourism in Africa: Harnessing Tourism for Growth and Improved Livelihoods, a World Bank publication that is part of the Africa Development Forum series. References World Bank, Africa House, and ATA (Africa Travel Association). 2010. The State of Tourism in Africa. Joint publication of Africa House at New York University (NYU), the Africa Travel Association (ATA), and the World Bank 1 (1): p. 2. World Bank. AFTFP (Africa Finance and Private Sector Development). 2011. “Africa Tourism Strategy: Transformation Through Tourism”, Unpublished Draft Report, World Bank, Washington, DC. World Travel and Tourism Council (WTTC). 2013. “Travel & Tourism Economic Impact 2013 Sub Saharan Africa”, WTTC, London, U.K. 8| www.worldbank.org/afr/trade