Hotel industry suffer cancellations over Eurozone crisis, insecurity

By Macharia Kamau

MOMBASA,KENYA; The economy may have posted a stronger performance this year during the third quarter, but it still remains shaky with some of its key sectors reporting a significant slowdown, a trend that is expected to spill over into next year.

The economy grew 4.7 per cent in the quarter between July and September, the best quarterly performance so far. However, growth in a number of key sectors declined, a  signal that the economy may still not be out of the woods yet, and might not get to Treasury’s projected  levels of 5.1 per cent this year and 5.6 per cent next year. 

Decline in tourists

Growth in hotels and restaurants slowed down. There was a similar decline in construction, wholesale and retail trade. The Kenya National Bureau of Statistics (KNBS) Quarter Three Report  said the construction industry grew 0.6 per cent in the quarter to September compared to 3.6 per cent over a similar quarter last year, mostly due to high interest rates.

The hotel industry, a key sub-sector of tourism, grew 1.1 per cent in the third quarter of 2012 compared to 2.3 per cent last year. The slow-down was attributed to a decline in the number of international tourists visiting Kenya.

The KNBS report also said  wholesale and retail trade decelerated. The three industries have been pivotal to the Kenyan economy and being labour intensive, the two are crucial in the creation of jobs.

Industry players and analysts expect mixed fortunes for the two industries in 2013. It is an election year and everybody is expected to exercise caution.

“I think that the economy as a whole is sluggish at the moment as we go through a period of uncertainty.  All sectors are experiencing tough times,” said Nikhil Hira of Deloitte East Africa.

Real estate developers are still apprehensive because even with the recent reduction in interest rates among commercial banks, interest rates remain high.

“Developers may try and pass these costs onto home buyers through more aggressive payment plans.  Borrowing in foreign currency may lower rates but carry with them the risk of forex fluctuations which in the long run could be disastrous,” said Hira

High interest rates

“The drop in interest rates will certainly help the construction sector but we still have some way to go.  Rates are still high (although not as high as they were).” “Whether we see better performance in the first quarter of 2013 is difficult to say given that we are headed into an election.” 

Mr Mike Macharia, the chief executive Kenya Association of Hotelkeepers and Caterers, said the hotel industry had been affected by decline mostly due to the European debt crisis, the forthcoming General Election and increased insecurity.

He expects the industry to experience slow growth until after the March 4 elections. “The Eurozone crisis that is affecting Europe where we get a huge number of clients, the insecurity in the country resulting in negative publicity and the elections have been key in slowing growth,” he said.