BUDGET PREVIEW

Kenya's tourism sector and the impact of Covid-19 on the industry

What Kenya needs to do to revive tourism sector post Covid-19

In Summary

•The Government should ease its taxation of the sector by repealing both the tourism and catering levy and other charges that impact the tourism sector. 

•The Government should promote public-private partnerships in conservation and investment

 

Tourism is a powerful vehicle for economic growth and job creation all over the world. The World Travel & Tourism Council (WTTC) estimates that the tourism sector is, directly and indirectly, responsible for one in ten jobs (330 million) and 10.3 percent of the world's gross domestic product. In Sub-Saharan Africa, the potential for growth in tourism is significant and compelling. The region boasts of abundant tourism resources, expansive beaches, plentiful wildlife, and extensive culture and adventure opportunities.

The economic survey in 2020 indicates that Kenya's tourism earnings grew by 3.9 percent from Sh157.4 billion in 2018 to Sh163.6 billion in 2019. The number of international visitor arrivals increased by 0.4 percent to 2,035.4 thousand in 2019. The remarkable growth of international travel was due to an increase in connectivity enabled by globalisation together with the rise of the middle class. Hotel bed-nights occupancy expanded by 6.3 percent to 9,160.8 thousand during the same period. The boom in the tourism sector was a result of improved infrastructure, extensive promotion, and marketing as well as political stability and reduced civil unrest in the country.

In recent times, new risks continue to reshape the tourism sector from rising geopolitical and geo-economic tensions to global economic slowdowns, terrorism, and shifting health threats. There have been instances when Kenya has been perceived as a risky destination due to being a target of terrorist attacks and this has greatly impacted the tourism sector. The fear has only been amplified by the travel advisory issued by other nations. Since December 2019, the outbreak of the COVID-19 has had a devastating impact on the tourism sector. Reports from the United Nations World Tourism Organisation (UNWTO) suggest that the international tourists' numbers could fall by 60-80 per cent in 2020. This is largely due to the closing of borders by major travel destinations as a measure to curb the spread of the COVID-19. The domestic tourism has not been spared either due to the night curfews and lockdowns of the coastal cities that serve as a major destination for local tourists in Kenya. Globally, the pandemic threatens the livelihood of up to 120 million people who rely on the sector however its full impact remains unknown.

Given the high stakes, new solutions will be required at both national and international levels, bringing together all relevant stakeholders to jointly respond to today's risks. To manage and mitigate the impact of COVID-19 pandemic, recovery plans, and programs recommended by the UNWTO should be adopted locally. This includes reviewing the taxation regime and regulation of the hospitality and tourism sector. Flexible regulations governing tourism and hospitality companies will reduce the administrative formalities for operators. The Government should ease its taxation of the sector by repealing both the tourism and catering levy and other charges that impact the tourism sector. It should also consider exempting or temporarily suspending Valued Added Tax (VAT) as well as postponing corporate tax for the next 12 months. This will make it easy for key players in the sector to continue operating thereby safeguarding the millions of jobs that are currently at risk of loss.

The Government should promote public-private partnerships in conservation and investment. The collaboration will enable joint responsibility for policy choices and hence lead to effective tourism during the crises. Also, strong political support for tourism is needed to remove policy bottlenecks and mobilise resources for the sector. The government can create an attractive environment for investors and tourists by building highways, repairing bridges, and upgrading airports over the long-term.

The Government should also provide an emergency package to accelerate the nation's slowing tourism sector. The stimulus package shall be primarily focused on tourism infrastructure which is the basis of tourism development. As a long-term measure, higher spending on expressways, high speed trains, airports, ports and traffic management shall meet the needs of tourist and contribute to their satisfaction during their stay in the country.

The package should also include a special incentive for companies that retain their workers and provide a monthly payment to low-income households that are the most vulnerable group. To prevent liquidity challenges for companies in the sector, interest-free credit should be availed to small and medium businesses that have been hard-pressed for credit during the pandemic. Finally, travel restrictions should be lifted for tourists that are tested and proven to be negative.

The international nature of the tourism industry means that an effort to address the current pandemic and to prevent future crises requires a coordinated response between the various states. The world is facing increasingly complex challenges and interconnected events and Kenya is no exception. While globalisation has enabled unprecedented growth in tourism and travel; global transformations have simultaneously given rise to a new set of tests.

Kenneth Maina is a Tax Advisor at EY. The views expressed herein are not necessarily those of EY.