- Around P2bn lost annually
- Expatriates repatriate cash
- Tourism companies ‘shun’ local suppliers
- Foreign owned tourism companies ship out profits
The foreign controlled – yet highly lucrative Botswana tourism sector could be losing approximately P2 billion annually as ‘leakages’ to foreign countries, it has emerged.
Initially it was revealed by financial market experts that around 70 percent of tourism sector transactions take place in foreign countries, which means only a fraction is being pumped into the local economy, while the rest was lost as leakages.
However, former Bank of Botswana (BoB) Deputy Governor, Dr Keith Jefferis revealed this week in his first quarter (q1) economic review that the 70 percent figure reported as leakages was incorrect. Dr. Jefferies is Managing Director (MD) at an economic think tank, Econsult Botswana. Together with his team, they estimate leakages in the tourism sector to around 26 percent of the sector’s contribution to Gross Domestic Product (GDP).
Assuming that Econsult’s 26 percent leakages (on average) is anything to go by, it still means Botswana losses billions annually. According to the World Travel and Tourism Council (WTTC), tourism directly contributed P7.13 billion, around 3.8 percent to Botswana economy in 2017.
Econsult believes that leakages are at around 26 percent, while 74 percent goes into Botswana’s economy. It would mean that the value of P7.13 billion added to the local economy by tourism sector in 2017, was actually 74 percent of the actual value after 26 percent was lost as leakages. The 26 percent would calculate to just around P2 billion.
The nature of international tourism operators is that they want bills paid upfront before tourists can even touch their destinations, meaning if you visit Botswana from as far as New York, accommodation fees are paid ahead of your trip. It boils down to a network of foreign based booking agencies, where bookings are done from international agencies based in Switzerland, Geneva or Cape Town or New York. The service fees and associated benefits are being accrued outside the country.
According to Econsult, the bulk of tourism packages are sold on a wholesale basis to travel agents based in the countries from where the international tourists originate, and those travel agents offer Botswana packages alongside tourism packages from other destinations, in order to provide their clients with a wide range of options. To this wholesale commodity, other elements are added in determining the price that the final consumer pays. Econsult said first, the cost of transportation between the tourist’s home country and Botswana. Secondly, the retailer’s margin or mark-up, which represents the costs of distributing the product in the consumer’s country of residence. “These amounts are earned and paid outside of the country, and in economic terms do not represent part of Botswana’s GDP earnings from the sale of tourism product,” Econsult revealed.
Dr. Jefferies and his team mentioned several channels whereby Botswana’s gross tourism export earnings (measured at the border) might “leak” out of the country. They said first, tourism products require the consumption on inputs (e.g. food) that may be sourced within Botswana, or imported. Secondly, some of the employees will be expatriates, who repatriate some of their earnings to their home countries. And thirdly, a part of the ownership of tourism companies may be by non-citizens, who send profits out of the country, according to Jefferies.
“ All three channels result in payments flowing out of the country (balance of payments debits) so that the net foreign exchange (forex) earnings are less than the gross forex earnings. It is this ratio – of net tourism forex earnings to gross forex earnings – that is important from an economic perspective, and is the appropriate measure of “leakage,” said the economists.
They added that the net forex earnings – those retained in the country – are used for various purposes, including taxes, royalties and concession fees to government and the community, wages of citizen staff, inputs sourced domestically, profits paid to local shareholders, and money retained in the business for reinvestment.
The Okavango Delta and other lucrative concessions are controlled by a handful of foreign owned companies in Wilderness Safaris, Chobe Holdings Limited through its subsidiaries Desert and Delta and Ker & Downey. Others are Kwando Safaris and Belmond Safaris to mention but a few.
Econsult said there is need to secure a greater share of the value chain for Botswana by trying to enter the “non-Botswana” components of the value chain.
Further, the think tank said there is need to extend Air Botswana’s services, or to encourage other Botswana-based airlines, to provide more flights into the country, so as to earn a larger share of visitors’ travel expenditure. Another option is to try and earn some of the retail margin, either by directly owning travel agents and tour operators in other countries, or through moving sales towards Botswana-based online platforms.
Other priorities according to Econsult should be attracting holiday tourists to different parts of Botswana, reducing the concentration on the northern wildlife areas, attracting different holiday visitor types (not just high income visitors, for instance, attracting backpackers), developing tourism for meetings, conferences and events (MICE visitors) and attracting visitors from Asia. Further, tourism companies were encouraged to buy a larger proportion of their supplies and other inputs locally.