Finance
Tourism in Africa: Next destination – recovery
It will not be an easy way back for the tourism industry in Africa post the COVID-19 pandemic. It is doubtful that, in the short to medium-term, the sector will get back to anywhere close to the levels before the outbreak of the pandemic. However, the industry has always been characterised and defined by its grit and resilience to adversity.
By Liza Eustace, Sector Head of Healthcare, Construction & Hospitality at Absa Corporate and Investment Banking
The one golden thread that the entire global tourism industry is clinging to is the practical and widespread roll-out of the COVID-19 vaccine, which will hopefully go a long way in restoring the fortunes of worldwide travel and tourism.
The resuscitation of the travel and tourism sector will reignite growth and sub-Saharan Africa’s economic prospects. As Africa’s overall development continues, the long-term hope is that infrastructure spend and construction related to transport, airports, ICT infrastructure and health facilities will be key spurs for economic growth. Combining competitive pricing with unique historical, cultural, and natural experiences, will serve as catalysts for Africa’s tourism potential to be fully realised.
The Shutdown
The COVID-19 pandemic saw the travel and tourism sector haemorrhage jobs at an alarming rate as international travel ground to a halt, and government and corporate travel was suspended. Domestic travel was also severely curtailed, with hotels and the accommodation sector standing closed and empty, while gaming and wildlife resorts became shells devoid of visitors. In South Africa, as the lockdown levels began to ease, we gradually saw an increase in occupancies but to fractions of normalised trading levels (20-30% and based on less than 100% of the portfolio being open). On the rest of the continent, occupancies levels were slightly higher given less stringent regulations, but overall trading for these companies has put pressure on liquidity and covenant levels for those carrying debt on the balance sheet. Whilst many listed companies in South Africa have avoided the need to raise equity, some have turned to the equity market for additional liquidity or have pursued asset sales. The larger corporates have however been resilient under the extreme trading conditions, and have benefited from strong and decisive management teams.
By the middle of 2020, at the height of the pandemic and country lockdowns, the World Travel and Tourism Council (WTTC) estimated that 100 million tourism-related jobs had already been lost globally due to the COVID-19 outbreak. An estimated 8 million of these were in Africa.
The WTTC subsequently projected that, by the end of 2020, some 174 million jobs would have been lost to the pandemic, this as devastating second waves sweep across many parts of the world, including key tourism markets such as South Africa, the UK and parts of Europe. Whilst many tourism and leisure companies have been forced into drastic cost cutting, it is not certain that when the industry is fully operational again, that all these jobs will be restored.
The Potential
Ahead of the pandemic, while Africa lagged other regions in terms of tourism potential and contribution, the sector was making slow but steady gains. According to the Council, Africa’s tourism sector employed around 24.6 million people and contributed USD 169 billion to Africa’s economy, representing just over 7% of gross domestic product (GDP).
In sub-Saharan Africa, in 2018, the travel and tourism sector contributed roughly USD 42.1 billion to regional GDP, with 37.4 million tourist arrivals in the prior year. This constituted about 1.6% and 3% of global totals, respectively.
Encouragingly, sub-Saharan Africa continued to show substantial growth from a relatively low base. The region was on track to have the second-highest growth rate globally for travel and tourism GDP in the decade between 2019 to 2029. Recent statistics for international tourist arrivals showed the region growing at around 6% per annum compared to the global average of 4%. Mauritius, South Africa, and Seychelles all shone on global tourism indices.
All that has, however, now ground to a halt. Countries around the world are re-instituting stricter lockdowns in a bid to curb the spread of the virus. Some markets have banned travel from countries such as South Africa and the UK where the mutated variant of the coronavirus SARS-CoV-2, named 501.v2, with a higher transmission rate, has been identified.
The Challenges
At present, and with secondary waves of the pandemic hitting numerous markets globally, travel is very much a lottery. Travellers are not necessarily afraid of the virus, although caution is still crucial. The greatest uncertainty revolves around the impact of the spread of the virus on travel plans. Your departure country is subject to specific regulations, as is your country of arrival, and both could change at short notice, as could be seen when around a dozen countries banned travel from South Africa recently.
South Africa’s International Relations and Cooperation Minister Naledi Pandor spoke for many when she recently cautioned against international travel amid renewed outbreaks worldwide. “Please note that you will be travelling at your own risk to these countries knowing the current circumstances and the uncertainty going forward.”
Travellers are wary of being stranded abroad with the sudden closure of borders or flights being cancelled and the inconvenience of attempting to recover refunds; that is a huge driver of people not wanting to risk travelling at present and will continue to put pressure on this industry until certainty prevails.
There are other factors which mean that, from a structural perspective, the tourism sector in Africa is unlikely to be the same again. One of these is that governments were significant contributors to hotel and conference bookings before the lockdown. Remote working and video conferencing, allied with government coffers’ emptying due to declining revenue and COVID-19 support spending, means that this vital source of business-driven income will likely be considerably less in future. The same can be said about corporate travel and the realisation that much of this travel can now be replaced by a lower cost online alternative.
And as operating income dissipated, so many businesses in the tourism sector were forced to cut back on workforces. It is unlikely that employment figures will hit those same heights any time soon, impacting the many livelihoods reliant on that income.
So where to from here?
Some governments have made meaningful efforts where tourism plays a critical economic role in supporting role players through aid packages and innovative policies. This aimed to shield the country and industry from renewed infections and help prop up businesses facing huge losses.
In Mauritius, for example, the government put in place a strict set of measures to ensure the virus is contained. Simultaneously, the budget has been adjusted to support the tourism sector by establishing a special USD 2 billion fund via the Mauritius Investment Cooperation.
Ultimately though, the tourism industry in Africa will have to undergo a remake and a reimaging to adapt to ever changing global circumstances, and cannot ultimately rely on cash-strapped African governments to provide the support that is required to sustain themselves.
Operational costs will have to be carefully measured to ensure greater resilience in an environment marked by tremendous instability and fluidity. The industry has – and will need to continue – to cater to a greater degree to domestic tourists who can help make up the international void.
The COVID-19 vaccine will be an essential building block in the recovery, but there is no magic silver bullet, only a slow and steady build towards global competitiveness and sustainability. Much like was the case pre-COVID-19.
END
For more information, please contact:
Aron Luhanga
Head, Marketing & Corporate Relations
Absa Bank Tanzania Limited
+255 768 221 717
About Absa Bank Tanzania
Absa Bank Tanzania Limited is a leading commercial bank in Tanzania that currently boasts a network of 15 branches and 62 ATMs strategically located Tanzaniawide – 21 at all our branches and 49 offsite.
The Bank is a wholly owned subsidiary of Absa Group Limited.
Absa Bank Tanzania Limited, (registered number 38557), is regulated by the Bank of Tanzania.
About Absa Group Limited
Absa Group Limited (‘Absa Group’) is listed on the Johannesburg Stock Exchange and is one of Africa’s largest diversified financial services groups.
Absa Group offers an integrated set of products and services across personal and business banking, corporate and investment banking, wealth and investment management and insurance.
Absa Group has a presence in 12 countries in Africa, with approximately 40,000 employees.
The Group’s registered head office is in Johannesburg, South Africa, and it owns majority stakes in banks in Botswana, Ghana, Kenya, Mauritius, Mozambique, Seychelles, South Africa, Tanzania (Absa Bank Tanzania and National Bank of Commerce), Uganda and Zambia. The Group also has representative offices in Namibia and Nigeria, as well as insurance operations in Botswana, Kenya, Mozambique, South Africa, Tanzania and Zambia, and an international representative office in London and soon in New York.
For further information about Absa Group Limited, please visit www.absa.africa
