Kenya Tourism Report Q2 2009

The Kenyan tourism industry has to face the impacts of the global financial crisis even before fully recovering from the damage done to it by the (much unexpected) outbreak of violence that followed the elections at the end of 2007. Tourist numbers fell by 90% in January 2008 then recovered somewhat later in the year to be down just 15% y-o-y at the end of September.

We are not optimistic about the short term economic position. Our outlook has yet again been downgraded, amid a worsening picture for global growth. Although the nation has so far emerged relatively unscathed from the global financial crisis, the effects will certainly be felt over the medium term. Transmission mechanisms will be manifold. For sure, commodity earnings will suffer during the global recession, given Kenya's orientation toward luxury exports such as tea and horticulture.

Investment, too, will decline, owing to the global capital shortage. Private consumption, however, will be affected more insidiously. The effects may well be lagged, but several factors will ultimately take their toll on consumer spending, including waning remittances, a contraction of the manufacturing sector, and a possible bursting of the real estate bubble.

Unemployment is already a pressing political problem in Kenya, and it is set to get worse over the course of 2009. Amid a sharp slowdown in economic activity, we believe the manufacturing industry will see the most job losses, while the telecommunications sector is also of key concern. Rising unemployment will increase the risk of short-term political instability and we believe public protests could occur with increasing frequency over the coming months. None of this is good news for the tourism sector.

In October, Tourism Minister Najib Balala had said that they expected only the “low revenue” sector of the industry to be seriously impacted. This view has changed as the scale of the global downturn became apparent. As one immediate action, Kenya has cut visa fees by 50% and waived them entirely for children under 16. Kenya is also looking at other measures including reducing landing fees and park entry fees.

Central bank data shows 729,000 tourists visited Kenya last year, down from 1,048,372 visitors in 2007.

Regulator Kenya Tourist Board has however yet to give its numbers for 2008. “If we can maintain the same number that we have in terms of arrivals, it would be very good. It is not easy, it is very difficult out there,” Balala told reporters at an investment conference in Nairobi.

Tourism’s contribution to the current account dropped $158 million in 2008 to a $753 million surplus, the bank data showed.

Trade Minister Amos Kimunya said in an interview on 23 March that there is little the government can do to cushion Kenyans from the impact of the global financial crisis. “Major exports of tea, coffee, horticulture, cut flowers, tourism and others are on a downward trend. As a result, most of them are reducing their staff to enable them cope up with the emerging trend,” he said highlighting the major areas of decline. Mr Kimunya pointed out that Kenya cannot risk reversing spending on development projects such as road infrastructure, water, agriculture and information and communications networks.