Why tourism incentives have not been working in Kenya

By Macharia Kamau | Published Tue, April 18th 2017 at 08:20, Updated April 18th 2017 at 08:24 GMT +3

Kenya has for the last four years gifted tourism industry with major incentives to aid its recovery, following a sustained poor performance.

This was due to a mix of factors that included insecurity arising from terror attacks. The industry has been on turnaround strategy from last year with the number of international arrivals by air growing 16 per cent.

This reversed a decline that it had been experiencing since 2012. It is however unlikely that the incentives by Treasury have had a major impact on the industry.

Tourist arrivals reached 874,000 last year, according to data from the Kenya National Bureau of Statistics (KNBS), from 748 000 in 2015.

It is the first time that the industry has experienced growth in numbers in five years but still way below the 1.8 million tourists seen in 2011. It is against this background that the Government and in particular the National Treasury has for a number of years now been giving incentives to the industry in a bid to resuscitate the crucial foreign exchange earner.

In his March 30 budget speech, Henry Rotich Cabinet Secretary Treasury announced plans to exempt locally assembled tourist vans from paying value added tax.

There have been a myriad of such in the recent years that included reduction in visa fees, exemption of VAT from park fees and reduction of passenger fees charged by Mombasa and Malindi airports. The boldest of these incentives was in 2014, when the Government offered to pay for Kenyans to take holidays in a bid to aid the recovery of the industry.

This would be executed through employers paying holidays for their employees and deduct the expenditure incurred from taxes due to the Kenya Revenue Authority (KRA).

Bouncing back

However, Institute of Economic Affairs Chief Executive Kwame Owino noted that while the industry is growing, it is unlikely that the numerous token reduction in fees has played a critical factor in its return to the growth path. “Tourism is bouncing back. Whether because it is because of snippets of policies that the Government has put in place or not is a different matter altogether.”

He noted that while cost might be a factor especially take into consideration growing competition from neighbouring countries, the country needed a well thought out approach to ensure continued industry growth.

“There is need for a more sophisticated approach. I do not think that a tourist who comes to Kenya and on average spends between Sh50,000 and Sh60,000 would care whether a visa into the country is Sh2000 cheaper,” said Mr Owino.

“Increasingly, there is competition from Tanzania, Rwanda and Uganda. The product in East Africa is getting diversified and I think that it is business response is required for new products, more competitive products. But I do not think there is one super move to solving that,” he said.

This year, the Government plans to exempt from VAT tourist vans assembled in Kenya. According to Rotich, this will “promote tourism further and to make Kenya a tourism hub”.

While tour operators have in the past argued it is costly to modify vehicles locally, with a number of them preferring doing it in Tanzania, Treasury’s move is more likely to benefit the vehicle assembly industry.

In 2014, the Government amended the Income Tax Act allowing companies to pay for employee vacations within the country and deduct this expenditure from taxes due to the Government. The move was expected to breath some life into the industry that was undergoing challenges due to rise in insecurity that had seen decline in the number of tourists from traditional source markets.

This was in place for the 2014/15 financial year. There was little uptake of the holiday offer by Government among corporates, with analysts noting that while it offered employees benefits, there were almost no direct benefits for the employers and the process of paying for the holidays and recouping through the deductions appeared complex. “I do not think that worked very well,” said Owino.

Between 2014 and 2015, industry earnings sustained a declining trend, with revenues in 2014 going down to Sh87 billion from Sh93.9 billion in 2013. In the following year, revenue dropped three per cent to Sh84.6 billion. Another measure aimed at growing tourism at the Coast was reduction of passenger landing charges by 40 per cent at Moi International Airport and Malindi Airport.

This was to pull more carriers to fly to the coast. This however did not translate in increased tourists to Mombasa.

KNBS statistics show the number of tourists who arrived through Moi International Airport in Mombasa went down 39.2 per cent from 194,200 in 2013 to 118, 000 in 2014.