Kenya banks on emerging markets to grow tourism

Eurozone debt crisis is keeping many policy-makers on the edges of seats.

It is a major concern because the world is just emerging from a damaging financial crisis and meltdown that saw job cuts, riots, and heavy business losses.

Reports that austerity measures are on the way are keeping markets alert as riots have started in Greece for fear of another round of pain, soul-searching and economic misery.

As is expected, the development will affect travel markets and known destinations like Kenya are all-ears.

Having suffered in 2008, tourism marketers are turning to their Plan B in case the volatility in Europe hits the local industry.

Led by the Kenya Tourist Board (KTB), strategists are deepening involvement with emerging markets such as the eastern countries to cushion itself.

The Eurozone is faced with a debt crisis as a result of the Greek financial situation that has led to the European Union and IMF unveiling a rescue package of close to $1 trillion in May.

The impact of the crisis is being felt on the white sandy shores of Mombasa’s coastline, where dwindling numbers of European visitors have left a gap in earnings.

“There is a high possibility that the traditional source markets will be slow due to what is going on in Europe, but at least we have been moving to new markets,” said Ndegwa Muriithi, the managing director of KTB.

However, the growing crisis threatens gains made so far in terms of recovery efforts.

In 2008, when Kenya was hit by political chaos, tourism earned Sh52 billion, down from Sh65 billion a year earlier, which has been used as the benchmark for success.

While the debt chaos are threatening to affect arrivals, players in the local scene are optimistic and are turning to emerging markets such as Asia.

The shift started in earnest last year, when declining revenues from European visitors, hard hit by the economic crisis, prompted a review of strategies with the sole goal of expanding markets.

Apart from Asia, Kenya has been gunning for African markets.

In global travel, Europe is the largest and most mature market, accounting for 53 per cent of the world’s arrivals and 50 per cent of receipts, according to 2008 figures.

The UK, US, Italy, Germany and France are Kenya’s key markets.

Others are Spain, Netherlands, Belgium, Denmark and Norway, among others.

The UK has been the leading and accounted for 14.5 per cent of the total 336,179 visitors between January and April 2010.

Europe accounts for at least 50 per cent of Kenya’s visitors.

In the first quarter of the year, KTB’s statistics show the region is yet to fully rebound to 2007 levels; it is at 78 per cent.

Italy, Germany and France are also yet to record 100 per cent recovery.

Arrivals from Germany, the destination’s fourth largest source markets, dropped by 27 per cent during this period compared to 2009.

This is the only destination that recorded a decline.

Mike Riungu, the head of research at KTB, attributed the drop in Germany to the financial woes affecting the region.

In its global economic prospects published in June, the World Bank says that developing countries and regions with close trade and financial connections to highly indebted high-income countries may feel the heat of the Eurozone crisis.

Local players, however, remain optimistic the sector will outperform its benchmark year of 2007, marginally.

Mr Muriithi says Europe is yet to recover compared to the emerging markets KTB has been eyeing.

Tourism minister Najib Balala says 2010 will be the turning point thanks to investments made to diversify into new markets.

Despite these key source markets having not recovered, the industry recorded a 16.1 per cent growth in the first four months compared to same period in 2009 and 80 per cent in 2008.

Tourist arrivals stood at 336,179 in this period compared to 289,518 in 2009 and 186,243 in 2008.

The positive growth has been attributed to increased marketing especially in the new markets, which have surpassed the 2007 arrivals.

However, the share of these markets is still smaller compared to traditional sources.

“We are seeing an increase in the number of arrivals from the emerging markets but the question is if the numbers will compensate the difference from the key markets should they slow down,” Mr Muriithi said.

Most tourists will come from emerging markets like Brazil, India and China, says the UN World Tourism Organisation (UNWTO).

Kenya has been eyeing these and has trained sights on Russia, Eastern Europe, Gulf Cooperation Council, Australia and South Africa among others.

Since 2008, the government and sector players have invested billions of shillings to open new markets.

Part of the campaign has been an elaborate advertising drive on major international media channels.

Markets like South Africa, India, Russia, Netherlands, Tanzania, China and the UAE have recorded growth beyond the 2007 numbers.

These smaller markets have performed better in percentage growth.

With the high volume markets going through a slower recovery, the country is spreading the risk in the drive to expand horizon.

The UNWTO says travel depends on economic conditions such that strong growth will increase disposable income, creating room for tourism and other leisures.

“A relatively large part of discretionary income will typically be spent on tourism in the case of emerging economies,” the organisation says.

The World Bank projects that the global GDP growth will be between 2.9 and 3.3 per cent in 2010 and 2011; in 2009, there was a decline of 2.1 per cent.

As countries recover from the financial crisis, travel trends are also changing where people book for holiday’s last minute or travel on debit.

KTB is faced with the challenge of meeting these emerging trends, most of which are in the traditional markets.

Mr Riungu said visitors from certain markets have also changed shopping preferences.

‘Staycation’ (stay at home vacations) have become popular in Europe as individuals or families opt to stay home or take trips near their home, or the region.

This form of travel became popular during the financial crisis and is continuing in Europe as the value of the euro depreciates, making holidays overseas significantly expensive.

“The weakening of the euro is not good for the country, as it could be seen as expensive destination,” says KTB chairman, Jake Grieves-Cook.

The French now travel on debit while the Germans have reduced frequency.

Last-minute bookings are a product of budget squeeze and a way of pushing for best deals.

Previously travellers booked for as long as 10 months; they have reduced to as late as two months.

Major culture

Rates have been going down thanks to feverpitch competition and preference for increased exclusivity.

Mr Grieves-Cook says the woes notwithstanding, holidaying was still a major culture in these markets.

“Overseas holiday is key for some of these people so they will travel, though to destinations they are sure of,” he said.

According to the UNWTO World Tourism Barometer of April 2010, international demand is regaining momentum since the last quarter of 2009, when arrivals increased by two per cent after 14 months of negative results.