GUEST COLUMNIST: How tourism can catalyse economic transformation

Industrialisation, is the current “buzzword”, and in the traditional sense means hiring a massive workforce to convert raw materials to finished products for sale at a profit. The government then expects to collect substantial amount of revenues through direct and indirect taxes from such industries and solve “the unemployment” puzzle. Voila! A win-win!

This was then (read the coal-era), but in the modern world (cool-era) where artificial intelligence embedded in machines replace majority of the workforce, we also need to reimagine the future. In particular, if industrialization is to connote significant opportunities for the workforce, then the service industry and knowledge economy must be part of that future “industrialization”.

Right in front of us stands the hospitality industry with endless opportunities, and yet the Eiffel Tower – a manmade steel structure - attracts more tourists (about 7 million annually), admittedly for a very short time period, than our country does (1.5 million tourists annually) notwithstanding the well-known attractions.

A recent PwC publication (see www.pwc.com/tz for the publication), Hotels Outlook: 2018-2022, provides an overview of the trends and prospects in the hotel industry in South Africa, Nigeria, Mauritius, Kenya and Tanzania, and identifies some of the challenges for the hotel sector.

The report highlights that room revenue in Nigeria and Mauritius showed double digit growth, but Kenya and Tanzania showed declines in revenues. The decline in Kenya was a consequence of political challenges following the Supreme Court overruling of the August presidential result, though by December tourist arrivals had rebounded. For Tanzania, it identifies a drop in guest nights in 2017 as resulting in a 5.5 per cent decrease in room revenue compared to 2016. The report links this decline to various regulatory changes (including the introduction of 18 per cent VAT on tourism services, increased in visa charges for business travel to $200, fixed-rate concession fees for hotels in the national parks – some as high as $59 per person per night), and Government austerity measures.

Looking forward for the next five years, the report projects that hotel revenue growth in Tanzania will rebound and show compound annual increases of 9.1 per cent per annum (marginally behind Kenya (9.6 per cent), but ahead of Mauritius (7.2 per cent) and South Africa (5.6 per cent)) boosted by faster growth in global GDP, more flights and new hotels; but at the same time it notes that higher taxes and rates will remain an impediment to growth - implying that growth would be even higher still were it not for these challenges.

The report notes that over the next five years, seven new major hotels are expected to open in Tanzania (including Rotana, Anantara, City Lodge, Hyatt Regency, Sarovar Portico and Ritz-Carlton) adding 900 rooms by 2019 and 1,200 by 2022, a 16 per cent cumulative gain. This will increase room revenue from $206 million in 2017 to $319 million in 2022 at a projected occupancy rate of 58.5 per cent.

This is a good sign that there is investment coming in and expectations are high in the industry. Nevertheless, with, the country receiving an average of 1.5 million foreign visitors and expected to reach around 1.9 million visitors in 2022, we are still a long way of the 6.1 million goal envisaged for 2025. The government and other stakeholders therefore need to strategize on how to be better placed to achieve this aspiration. I believe more can be done to better understand the needs of visitors, to revisit the competitiveness of our product in terms of price, and to diversify the product.

Data analysis and digital marketing

One tool to use to better understand the market is big data analysis and digital marketing. The current data gathered does not indicate the number of visitors by country, geographical location, age, income bracket, travelers’ feedback et cetera. Collecting the right data will result in accurate and appropriate strategic decisions made from useful information. For example, are the interests of a 20-something tech enthusiast backpacker same as those of a 60-something pensioner visiting the country? Collecting the right data will enable specialized service offerings leading to diversification and growth in revenue streams.

A reduction of costs, specifically taxes and fees which make Tanzania an expensive destination, could also help. In this regard, further consideration should be given to aspect such as visa costs (especially for business travelers), as well as the impact of fixed-rate concession fee for hotels in the national parks. A reduction in these costs would most likely be offset by increased other direct and indirect taxes generated from the additional economic activity resulting from increased number of tourists. Furthermore, there is a need for promotion of local tourism, which begs the question who is local? Currently, East African nationals/citizens are treated as locals, but why not extend this classification to other African tourists, say SADC nationals. This may result in increased number of tourists due to affordability and strengthen relations with member countries.

Most of the visitors in the country come for leisure and business travel. The tourism industry is one-sided where Zanzibar and the Northern circuit – Serengeti, Ngorongoro and Mt. Kilimanjaro generate the most revenues. Therefore, there is a clear need for diversification of locations - in particular, to ensure the Southern, Western and Eastern circuits generate sufficient revenues. Industry stakeholders should figure out a way of increasing tourists to designated circuits. The Government should provide incentives and attract both foreign and domestic investors to such areas. This is a call for public and private partnership to boost tourism as a whole.

Apart from geographical diversification, another opportunity is to diversify the product. Examples from countries who have taken this step include India (with medical tourism, worth around $3 billion), Singapore (as an educational and a tech-hub) and Latvia and Israel (with agro-tourism).

Tanzania can surely position herself to earn tourist revenues other than the traditional safaris and beach destinations. One quick win - and taking a leaf from Rwanda - must surely be business tourism / conferencing - but to do this does need an earnest look at what makes us less competitive on this front; for example, Rwanda visa costs (including for business visitors) are relatively low.

In addition, the Government and the private sector should ensure supporting industries integration in the sector. The sector should ensure most of purchases are locally sourced which will increase domestic production and boost supporting industries, obviously with no compromise on quality. This will result to a huge multiplier effect with a positive effect to the economy. Small and medium size boutiques should play a key role in the industry to cater for budget travelers by providing a memorable experience to tourists as well.

Lastly, local skills and quality of service should be at the top of the agenda to ensure the country hotels and tour companies can compete at the global stage. There is a need to have trained professionals who provide quality service to ensure customer satisfaction – from coffee shops, restaurants to hotels. There is a cry out there (Twitter to be specific) that our customer service is poor and displeasing.

The tourism industry is already a top foreign currency earner - but imagine the even greater economic contribution that it would make if we could reach the 2025 target of 8 million visitors per annum!

Mr Marandu is a senior associate at PwC – Assurance Services. The views expressed do not necessarily represent those of PwC. For PwC updates on tax and other matters do follow @pwc_tz or visit our website www.pwc.com/tz