Tourism in 4x4 territory

Jo-Maré Duddy – Less than 30% of players in the tourism sector who partook in an FNB/Fenata survey on the industry believe business will be “very good” in the next three months.

“Rising costs continue to dampen growth,” Josephat Nambashu, analyst and FNB Namibia and compiler of the FNB/Fenata Travel Index, says.

Compared to the first quarter of 2017 the index dipped by 16.2% in the three months ended June.

“Despite the bed occupancy rate improving from the previous quarter, lower than expected load factor numbers have been recorded causing the overall index to slide, Nambashu says.

The majority of the survey respondents indicated that input costs and inflation drove up prices from the first to the second quarter. Nambashu says inflation in the tourism sector remains “upwardly sticky”, quoting June’s year-on-rate of 11.4%. The price monster is flexing on the back of a relatively stronger rand, he says.

“The currency index declined by 13.4% quarter-on-quarter, which could potentially further worsen the performance of the sector.”

Prospects

Increasing operational costs resulting in higher prices are making it more difficult for the Namibians - whose income does not increase proportionately - to enjoy the sector’s hospitality, Nambashu says. “Not only does this make it more difficult for local people; it can also result in dominance by outsiders in the sector that erodes economic opportunities for the locals.”

Respondents’ revenue expectations for the next quarter were lowered, mainly on the back of increased operational costs and a strong currency. The index measuring this stood at 3.12 points in the second quarter, down from 4.01 in the first quarter. The index is scaled between -10 for extremely negative and 10 for extremely positive. (See graph.)

Workforce numbers in the sector remained flat according to the survey. Nearly 56% of the respondents expect no change in their staff capacity over the next three months, Nambashu says.

The index measuring future employment prospects came in at 0.26 points in the second quarter, down significantly from 1.54 in the previous one. This is the lowest this index has been in a year. (See graph.)

Challenges

Fluctuating economic and political conditions coupled by limited accommodation for larger groups were highlighted as drawbacks to demand in the tourism sector, Nambashu says.

“Furthermore, escalating operational costs, particularly the cost of electricity and food, were also prominent on the agenda with respondents noting these as impediments to the industry’s growth.”

He says although there were more tourists on average in the second quarter, they spent a lot less money at tourism establishments, as they opted for self-drive holidays and camping.

“While this may be of good news to car rental and camp site operators, it disadvantages hotel and lodge operators who have much larger fixed overheads to carry.”

Some respondents also felt the industry lacked qualified and well-trained staff to improve service delivery, while a few commented on the dilapidating road infrastructure.

Externally, South Africa and Botswana poses the biggest competition due to their concerted marketing efforts and aggressively cheaper pricing, Nambashu says.

“Overall performance for the year is expected to remain flat compared to last year unless a third quarter numbers surprise on the upside,” he says.