Synopsis:
Tourism is an important driver of economic growth around the world, supporting an estimated 277 million jobs, generating $7.6 trillion in indirect revenue, and supplying 9.8% of global gross domestic product in 2014.
With tourism a significant source of exports and foreign investment in Africa, the industry will continue to be a major economic engine moving forward.
While there are opportunities, some characteristics of the global industry might impede Africa’s development if policymakers do not design strategies to address the many constraints encountered by firms and other stakeholders.
This paper explores the overall landscape of the tourism industry and how it influences Africa’s competitiveness. It is most interested in two broad categories of travel that have distinct actors and global characteristics: leisure and business tourism.
Key findings:
Tourism global value chains (GVCs)
- Leisure and business tourism can both be divided into three sub-categories of actors: consumers, distribution intermediaries, and service providers.
- Lead firms in the leisure tourism GVC assemble and package individual services into cohesive travel experiences. Lead firms are able to draw on the capabilities of large, global networks of service providers, while also having direct access to consumers or travel agents. Most often, these actors are the distribution intermediaries that populate the ‘online package’ and ‘package booking’ distribution channels.
The ‘online package’ distribution channel accounts for the tourism industry’s greatest recent growth. The global industry is fragmented, with the 10 largest distribution intermediaries (measured by revenue) accounting for just 31% of what was an $821 billion industry in 2014. However, Expedia and Priceline are experiencing standout growth.
The ‘package booking’ distribution channel consists of a network of travel agents, global tour operators, inbound tour operators and destination management companies (DMCs). A key differentiator between online agencies and the traditional network of travel agents, tour operators and DMCs is the latter’s ability to sell itinerary-based tour packages. Depending on the location, travel agents, tour operators and DMCs further distinguish themselves by helping with visa applications and the acquisition of wildlife and park permits.
The lead firms in the business tourism GVC are travel management companies (TMCs), which offer travel management and analytical services that are designed to help clients reduce costs during trips. Depending on the demand for travel to a location, TMCs will either open wholly owned subsidiaries or joint ventures, or pursue partnership arrangements in new markets to manage client travel.
African tourism value chains
- Key characteristics of the African tourism value chain:
- the traditional ‘package booking’ distribution channel has proven to be more durable in Africa than elsewhere;
- low domestic demand for African tourism elevates the position of global lead firms;
- the pre-eminence of global lead firms influences the linkages vs. leakages dynamics observed in Africa;
- business tourism constitutes a greater share of overall tourism receipts in Africa than in other locations; and
- government policy encourages bottlenecks among critical service providers that impair African tourism.
- Local tour operators in certain African locations are constrained by low levels of domestic demand for tourism. Most Western visitors use lead firms such as Abercrombie & Kent, Cox & Kings or Wilderness Safaris, which are based outside the region.
- With foreign tour operators, hotel companies and investors often controlling supply chain decisions and procurement opportunities, linkages between tourism and supporting industries can remain underdeveloped.
- Studies on South Africa, Ethiopia and Rwanda all show strong linkages from the tourism industry to local agribusiness production. Linkages with local construction industries also occur.
- High local demand for business travel promotes the development of African TMCs. Satguru is an example of a Rwandan TMC that now operates in 43 African countries.
- Government policies in some African countries restrict the availability of leisure accommodation.
- Deregulation of domestic and regional air markets could increase the development of low-cost carriers (LCC) and secondary airports, and support the development of tourism value chains.
- Barriers to LCC development are: (1) prominent market distortions, including the power of state-owned carriers and restrictive bilateral agreements; (2) substandard air transport and air traffic control infrastructure; (3) mediocre safety and security records; (4) high input costs, especially fuel and airport taxes; and (5) low demand owing to minimal tourism consumption.
- Travel to Africa is not as price sensitive as to developed markets.
- Rwanda Development Board’s public–private partnership (PPP) with African Parks improved tourism-related infrastructure, marketing, and cost effectiveness, and is an example of value chain product upgrading.
- Marketing is a key process-upgrading challenge for domestic tourism companies.
- Functional upgrading occurs when distribution intermediaries begin as service providers (local guides) before becoming local tour operators, and then progress to DMCs and finally inbound tour operators.
- Chain upgrading can occur when domestic firms become affiliates of TMCs, or enter the business conference industry.
- Tapping into American and Asian tourism markets represents end-market upgrading.
Recommendations
- Access to consumers: On the demand side, efforts can be made to facilitate product upgrades that appeal to African travellers, such as the Rwandan PPP indicated above. On the supply side, tourism boards can perform direct outreach to consumers in critical markets through travel and trade shows or concentrated marketing campaigns among African-focused travel agents. Tourism boards also play a role in boosting the communication skills of domestic tour operators or travel agents through professional development events and other training.
- Skills training: Management, organisation, communication and computer skills are critical for distribution intermediaries and service providers who seek to upgrade their position in the chain. Africa only has two schools with certification – Utalii College in Kenya and the Hotel & Tourism Training Institute Trust in Zambia. Governments can play a role in either exploring the creation of hospitality programmes at existing institutions or providing funding mechanisms and scholarships for domestic students to study in Kenya or Zambia.
- Concession, investment and management policies: Governments can take different approaches to regulating investment; minimal regulation may make it more difficult for domestic service providers to enter value chains. One study found that the stringency of environmental regulations was one of the largest determinants of global tourism. While some African countries lack capacity to nurture natural resources, outside organisations such as African Parks can provide management assistance.
- Infrastructure: Improving road, air and Internet connectivity development is key to attracting tourism.
- Institutionalisation: Formal institutions such as ministries of tourism and tourism boards can encourage coordination that ensures that stakeholder interests are aligned. National or regional investment departments can also play a role in ameliorating some of the challenges associated with the construction of capital-intensive projects. Specifically, they can create or maintain databases of qualified construction contractors, sub-contractors and suppliers that investors can access before projects commence. On the supply side, national development boards can educate local firms about upcoming construction projects and help networking efforts to assist foreign investors.