FNB Namibia has said that overall performance of the tourism industry is expected to come in at -13.9 percent at the end of the year when compared to last year, unless third and fourth quarter numbers register unexpected high levels.
“Globally, confidence is fragile and under such fragility, consumers are less willing to travel. Hence in our view, tourist arrivals will stagnate globally and Namibia will be no different. Regrettably, Namibian domestic tourists are not in a position to fill this gap as in the past,” Analyst Josephat Nambashu told the Windhoek Observer.
When asked if the recent criminal attacks on tourists will have any negative effect on tourism receipts, Nambashu said it would. He said coupled with the volatile economic situation, consistent reports of criminality in Namibia, aimed at tourists could damage the country’s reputation by instilling fear to potential visitors from other countries.
“At the moment, it’s not good for the industry. Exchange rates influences spending in a destination. When the Namibian dollar is strong, travel to Namibia becomes more expensive and given the cost sensitivity of tourists at this point in time, they are more likely to search for value-for-money destinations much closer to their own source markets.
“This is part of why we have seen load factors declining as fewer tourists come to Namibia, yet the flight schedules have not adjusted accordingly. This adds to the cost pressures as the fixed cost of long haul travel are distributed amongst fewer passengers and therefore airfares will eventually have to be adjusted upwards to keep the routes profitable. In the highly competitive long haul market, operators are price takers, hence increasing prices can be financially fatal for airlines,” he said.
Responding to whether the current recession has affected the travel, tourism and hospitality industry, Nambashu said locals account for 32 percent of the accommodation occupancies, and with employment contracting and disposable income under pressure and debt servicing costs at an all-time high, Namibians simply don’t have the discretionary income required for leisure travel.
“Furthermore with business and government in a cost management phase, local conference and workshop facilities have gone unoccupied, adding even more revenue pressures on the hospitality sector.”
Nambashu said the current economic climate is still affecting the tourism sector, but many businesses expect a mild improvement, in business performance for the third quarter, which is the peak tourism season.
The Namibian economy, which is still in a technical recession, contracted by 1.7 percent in the second quarter of 2017 compared to a decline of 0.4 percent registered in the corresponding quarter of 2016.
The FNB/FENATA Travel Index dipped by 16.2 percent quarter-on-quarter in the second quarter of this year in real terms as rising costs continue to dampen growth.
Last week, the Namibia Statistics Agency (NSA) also observed that the hotels and restaurants declined by three percent in the second quarter.
Nambashu anticipates an increase in overall arrival numbers, but escalating operational costs coupled with tough competition from neighbouring countries Botswana and South Africa are more likely to hold back the sector.
“Overall performance for the year is therefore expected to remain flat compared to last year unless third and fourth quarter numbers surprise on the upside,” he said.
The FNB tourism industry performance analyst said inflation in the sector remained in an upward trajectory at 11.4 percent in June 2017 on the back of a relatively stronger Rand. The currency index declined by 13.4 percent quarter-on-quarter, which could potentially further worsen the performance of the sector.
Over the past three months (June-August), the tourism industry performed below expectation, but almost doubled when compared to the same period last year. The rise in business performance was largely attributed to an increase in the number of tourists (international arrivals) during that period. Performance is estimated to remain mixed for the next three months with only about 28 percent of the respondents in the FNB/FENATA Travel survey stating that business will be very good.
Financially, tour operators were better off during the second quarter compared to other tourist vendors (activity providers, tour guides, etc.) Revenue expectations for the next quarter were also lowered, mainly on the back of increased operational costs and a strong currency.
Workforce numbers in the sector remained flat according to the survey with nearly 56 percent of the respondents expecting no change in their staff capacity over the next three months.
According to the respondents, increasing operational input costs were the main driver of higher prices in the sector, making it more difficult for the local people - whose income does not increase proportionately - to enjoy the sector’s hospitality. 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.
Fluctuating economic and political conditions coupled with limited accommodation for larger groups were highlighted as drawbacks to demand in the tourism sector. 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. Although on average there were more tourists in the second quarter, they spent a lot less money at tourism establishments, as they opted for self-drive holidays and lower cost camping and self-catering arrangements.
Nambashu said 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.