Tourism in limbo: Terror attacks take their toll on once vibrant sector

By BUSINESS BEAT TEAM

When it comes to the much-awaited recovery of the tourism sector, it seems like it is all the wrong stars that are aligning.

Insecurity is now worse than ever before, value added tax (VAT) has outpriced Destination Kenya and poaching has become a great menace.

And the country’s crop of politicians and economists appear unable to find a quick fix that would turn around the vital sector’s fortunes.

Even the response to terror threats, which is now becoming the country’s Achilles’ Heel, is wanting. Presenting conflicting reports and rounding up thousands does little to assuage fears that Kenya is vulnerable to extremists. 

The Government remains upbeat that the economy will grow by 5.6 per cent this year, but going by the underlying economic undercurrents, this figure could be overly ambitious as all key growth drivers are struggling to meet targets.

Tea, coffee and horticulture, Kenya’s top sources of foreign exchange, have been badly hit by a slump in prices in global markets due to a supply glut, and various crises that have lowered demand.

The combined earnings from the export of coffee, tea and horticulture declined to Sh215 billion in 2013, from Sh218 billion the previous year. This year, the dip could be worse.

Grim outlook

And now tourism’s outlook is grim. The sector directly and indirectly provides jobs for close to three million Kenyans and any instability could likely have far-reaching ramifications on growth projections.

It earns Kenya between Sh80 billion and Sh100 billion a year; it is second to tea in terms of foreign exchange earnings.

At around this time two years ago, most hotels at the Coast and other popular tourist destinations like the Maasai Mara, Tsavo and Samburu were nearly fully booked for the Easter holidays.

But now, hoteliers say bookings for the season have dropped to lows of 15 per cent in some regions.

And if hotels and tourist destinations miss out on the business from the Easter season, it could compound their troubles.

From May, the annual low season sets in, and with bookings almost negligible, most hotels close for soft renovations to reopen just in time for August and December holidays.

The just-ended Sarit Centre exhibition on domestic tourism may have generated substantial interest in Coast vacations for Easter, but security concerns and a ban on night travel for public transport vehicles are likely to put a damper on holiday plans.

Any negative numbers from the domestic front could prove to be the final straw that breaks the industry’s back.

Investors in the tourism sector have warned that there are thousands of jobs at risk if nothing is done to rekindle interest in Destination Kenya. Hotels alone have an estimated 300,000 employees.

Four hotels are already staring at eminent closure or sale.

The owners of Petley’s Inn in Lamu Town have advertised the hotel for sale, while three other hotels at the South Coast are on the market.

Investors warn that if the situation escalates, more hotels will be closed, a situation likely to have huge impact on the local economy.

National disaster

Last Wednesday, Kenya Tourism Federation (KTF) — the umbrella body for the tourism private sector that represents the interests of six organisations — planned to declare the state of the tourism sector a national disaster.

KTF represents the Kenya Association of Tour Operators (Kato), Kenya Association of Hotel Keepers and Caterers (KAHC), Kenya Association of Travel Agents (KATA), Kenya Association of Air Operators (KAAO), Kenya Coast Tourism Association (KCTA), Ecotourism Kenya (EK), and Pubs, Entertainment and Restaurants Association of Kenya (PERAK).

“At a meeting held this afternoon, it was agreed that a press conference be held by the private sector in tourism on Wednesday morning where the state of the tourism sector will be declared a national disaster,” said a memo dated April 7 from Ms Agatha Juma, KTF’s chief executive.

However, it was called off because Government officials would not be in attendance. President Uhuru Kenyatta was away in Turkey and Tourism Cabinet Secretary Phyllis Kandie left for London.

The briefing planned to discuss depressed tourist arrivals and the impact on jobs, destination competitiveness, the runaway poaching menace, and the arbitrary lack of direction and governance in sector State agencies, which have been operating without boards for close to a year.

KTF had also written to Ms Kandie to express their concerns over the Government’s failure to launch and fund a tourism recovery marketing programme.

Ms Juma told Business Beat that the meeting would be held some time this week, and confirmed that occupancy levels in some hotels, especially at the Coast, had gone down to 15 per cent.

She said investors are currently bleeding cash, and the situation may get out of control.

“The occupancy level is worse on hotel and safari circuits like the Maasai Mara, Tsavo and Samburu. The key consequences of the unfolding scenario are job losses, especially on the safari circuit that has employees residing within properties,” Juma said.

However, hoteliers in Nairobi and North Coast are enjoying a slight advantage as their hotels concentrate on conference tourism.

But it still is not enough.

Mr Richard Corcoran, the MD of Liberty Africa Safaris, in a recent blog warned: “One particular agent used to have seven bookings to Kenya for every one to Tanzania. Now, unfortunately, for every one booking he gets for Kenya, he has five for Tanzania and 20 for South Africa.”

Top Government officials are agreed that the situation is dire.

Tourism Principal Secretary Ibrahim Mohammed on Friday admitted that terror attacks had led to a drop in the number of visitors coming to the country.

Kenya Tourist Board (KTB) Managing Director Muriithi Ndegwa also attributed the dip in tourist numbers to insecurity and VAT.

“Terrorism is a global challenge and any country that is faced with continuous terrorism attacks must have a negative impact on the growth of the economy,” he said.

KTB, however, has delayed releasing performance figures on international tourist arrivals.

The board, a State Corporation whose mandate it is to market Kenya as a tourist destination both locally and internationally, says it will release the numbers for July to December 2013 in June.

“It will not come as a surprise that the country will have suffered a reduction of arrivals and reduced revenues in the report set to be released in June,” Mr Ndegwa said.

“The introduction of VAT led to an increase in park fees, making Kenya’s product more expensive.”

Available data shows that the industry recorded a 9 per cent dip in 2012/13 when Kenya suffered a drop in arrivals from 1.3 million to 1.2 million. Revenues over the same period went down from Sh104 billion to Sh96 billion, a decline of 7 per cent.

The highest single reduction of arrivals came from the UK,   with 18 per cent less visitors from the market. This was attributed to travel advisories and negative publicity around visitor safety in Kenya.

Ndegwa said the country is slowly diversifying its market by tapping into the Asian market. China is expected to contribute the largest number of arrivals in the country since the Jubilee Administration took over last April.

 “The Chinese are the leading out-bound tourists in the world, and with the current strong diplomatic ties that Kenya has with China, we expect the country to give us our highest number of visitors.”

He also said Kenya is undertaking measures to maintain the new market from the East.

“When markets shift, countries ought to change strategies to maintain their new tourist and development partners,” he said.

But it does not help that visiting the country has become more expensive.

Mr Corcoran says Kenya’s park fees are now $90 (Sh7,785) per person per day, while Tanzania’s fees are $55 (Sh4,757).

“What makes us think we are so special that we can charge nearly double?” he asks.

“It is very difficult to explain that we have increased park fees to $90, not because of the fight against poaching, or increased patrols or new equipment needed to protect our wildlife, but simply because ‘conservation fees’ now attract VAT. We must be the only country in the world to have VAT on a fee to protect our own product and heritage.”

Mr Mahmud Janmohamed, the managing director of Serena Hotels Africa and head of the tourism department at the Aga Khan Fund for Economic Development (AKFED), says a series of events last year — including the March 4 General Election, Westgate Mall attack and introduction of VAT — are to blame for the downward trend in the tourism industry. 

“The trend we are seeing in the 2014 financial year started much earlier. The effects of last year coupled with the current incidences of terror attacks are likely to continue haunting the industry up to 2015,” he said.

He added that the situation is difficult for investors as occupancy level are below viable levels.

“Most hotel rooms remain vacant as visitors delay holiday bookings. Kenya has a fantastic tourism product that requires outstanding attention.”

KAHC Chief Executive Mike Macharia said hotel bookings have decreased by 33 per cent in all categories of hotels compared to the same period last year, adding that foreign tourists have cancelled bookings due to the current spate of terror attacks.

“The Government all along has failed to institute a recovery strategy,” he said.

“So far, United Nations organisations and New Zealand have advised their citizens against visiting Mombasa.”

Mr Fred Kaigwa, Kato’s chief executive, added that the troubles affecting the tourism industry will affect jobs and investments in related sectors, such as transport, agriculture and banking.

In the last year, more than 100 people have been killed in attacks linked to terrorism, in addition to property worth billions of shillings being destroyed.

Outdone by competition

For instance, in September last year, at least 67 people were killed in the Westgate Shopping Mall attack. As a result, the US, UK and Russia advised their citizens against visiting Kenya.

“This year does not look good for the stakeholders in the tourism industry. We support the Government initiative to fight terror attacks, but equally, we need more assurances for the smooth operation of our businesses,” Mr Kaigwa said.

And Corcoran added: “We as an industry are now down to an 11 per cent gross profit margin, which, even keeping costs to a bare minimum, relates to less than 1 per cent net profit in really good times and huge losses in the bad times. This comes from the extremely high costs and stress of doing business in Kenya.

“Our main problems lie with the Government’s false impression that we are the best, everybody needs us, everybody wants to come here, and we have no competition. They also falsely believe that tourism is a rich industry that is just evading tax. How wrong they are.”

Kenya is known globally for its high-quality tourist attractions, especially wildlife, pristine beaches, and lately, culture and sports tourism. But with the heightened insecurity, the product is quickly losing value.

The dip in the number of tourists is further attributed to rising airfares, both in the leisure and business travel segments.

KTB warns that the rising air passenger duty (APD), airport charges and continued high global oil prices will continue to affect arrivals in the foreseeable future.

The economic crisis facing Europe is also contributing to the sector’s declining fortunes. The region is the leading source market for the Kenyan tourism industry. During the first half of 2013, European visitors were 209,061, down from 246,888 between January and June 2012, a 15 per cent decrease.

According to KTB data, during the first half of 2013, all tourism business segments recorded a decline.

The total international arrivals for the first half of 2013 by air and sea were 495,978, compared to 564,261 in the same period in 2012, representing a 12.1 per cent drop.

Arrivals through the Jomo Kenyatta International Airport declined by 13.5 per cent to 409,130, compared to 473,231 visitors in 2012.

By Nicholas Waitathu, Jevans Nyabiage and Margaret Kanini

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