Tackling Leakages in Africa’s Tourism Sector
Africa’s tourism sector can contribute to sustainable development. How can African countries ensure the retention of a larger share of gross tourism revenues within their economies, and increase the sector’s contribution to Africa’s GDP?
Tourism’s potential to contribute to sustainable development is increasingly recognised in policy frameworks, including in the 2030 Agenda for Sustainable Development and the African Union’s (AU) Agenda 2063. In the First Ten-Year Implementation Plan (2014-2023) of Agenda 2063, the AU Commission has identified the doubling of tourism’s contribution to the continent’s gross domestic product (GDP) by 2023 as a target that countries will need to meet for the sector to support Africa’s development aspirations.
Africa’s tourism sector, however, loses significant revenues through economic leakages. Such leakages occur primarily as a result of foreign-owned tourism businesses repatriating profits to their home countries rather than reinvesting them in destination countries. Similarly, the reliance on imported inputs for use by tourism establishments in African countries contributes further to these leakages.
The importance of foreign value added in the continent’s tourism sector reflects its integration into global value chains. From a developmental perspective, however, strong dependence on foreign value added affects the sector’s development in African countries to the extent that it impedes the development of strong intersectoral linkages and reduces the multiplier effect generated through the tourism sector’s demand.
Reducing leakages in Africa’s tourism is thus critical, as it can ensure the retention of a larger share of the sector’s revenues in African economies, which, in turn, can boost tourism’s contribution to the continent’s GDP, and support the achievement of the Sustainable Development Goals (SDGs). This article examines how strengthening linkages between tourism and other economic sectors, increasing the participation of local entities in the tourism value chain, and boosting intra-regional tourism can help reduce leakages and increase the sector’s contribution to Africa’s GDP.
Increasing tourism’s contribution to Africa’s GDP
Despite tourism’s robust growth in recent years, with the sector’s share of Africa’s GDP rising from 6.8 percent in 1995-1998 to 8.5 percent in 2011–2014, its contribution to the continent’s GDP remains below the global average of 10 percent. Doubling the sector’s contribution to Africa’s GDP, from an estimated US$ 173 billion in 2014 to US$ 346 billion by 2023, will be a challenge for many African countries.
While tourism is expected to grow steadily, the sector’s projected total contribution to Africa’s GDP by 2023 is for the moment well below the US$ 346 billion target – the World Travel and Tourism Council estimates it will reach US$ 210 billion in 2022. This implies that for tourism to meet the AU’s target of doubling its contribution to the continent’s GDP by 2023, the sector will need to grow faster than GDP and accelerate its growth rate to levels not seen since the global financial crisis. This will require African countries to significantly raise their investment in the sector.
The issue of leakages
Despite the sector’s potential to develop multiple linkages with other productive sectors throughout its value chain, tourism in Africa is characterised by weak intersectoral linkages, largely due to limited domestic productive capacities across sectors.
The dominance of foreign-owned airlines, tour operators, travel agencies, and hotel chains, and the heavy reliance on imported inputs by tourism establishments in African countries contributes to high economic leakages in Africa’s tourism sector. This not only results in significant losses in foreign exchange earnings and the limited retention of economic benefits in local communities in tourism destinations, but also constrains the sector’s potential to contribute to local economic development.
The charts below use data from the Trade in Value Added (TiVA) database to shed light on the patterns of tourism’s intersectoral linkages and the corresponding degree of leakage in different sectors in South Africa and Tunisia. The analysis distinguishes between source industries and between the domestic or foreign origin of value added content in hotels and restaurants’ final demand.
Figure 1. Value-added content in final demand by hotels and restaurants sector, by source industry and origin, South Africa, 2011
Source: UNCTAD calculations, based on OECD and the World Trade Organization (WTO)’s TiVA database
Figure 2. Value-added content in final demand by hotels and restaurants sector, by source industry and origin, Tunisia, 2011
Source: UNCTAD calculations, based on OECD and the World Trade Organization (WTO)’s TiVA database
As Figure 1 shows, South Africa’s tourism sector is characterised by a generally high degree of leakages by international standards, with foreign sources of value added accounting for almost half of the final demand (45 percent) by hotels and restaurants. Moreover, the reliance on foreign value added is especially high in agriculture and manufacturing, suggesting that linkages with domestic entities are relatively limited in these sectors. Conversely, leakages appear to be significantly lower in Tunisia’s tourism sector. As Figure 2 illustrates, Tunisian hotels and restaurants rely far less on foreign sources of value added, which only account for 25 percent of the sector’s final demand, and domestic intersectoral linkages are more effectively exploited, especially with agriculture and the food-processing industry.
Developing strong intersectoral linkages
Fostering intersectoral linkages in Africa’s tourism sector is essential, as it can go a long way in ensuring that a larger share of the sector’s revenues is retained in African countries, while enhancing the scope for tourism to support economic diversification and broader development objectives.
Critically, developing strong intersectoral linkages can create demand for local goods and services. Besides generating business opportunities for local suppliers, strong backward linkages developed by tourism establishments can indirectly foster employment creation, and generate multiplier effects in other economic sectors, including agriculture, food processing, handicrafts, and other complementary services such as trade, transport, and financial intermediation. Tourism establishments can also develop forward linkages with sectors that stimulate markets for products or services consumed by tourists, such as conference services, handicrafts, or recreation and entertainment.
Intersectoral linkages can be vital in promoting economic diversification into new sectors and tourism market segments, such as cultural and medical tourism, that generate new revenue sources for countries. Medical tourism in countries like Kenya, Morocco, South Africa, and Tunisia can generate foreign exchange earnings from health exports, while driving business growth in sectors such as accommodation and transport, with horizontal linkages contributing to economic benefits beyond the tourism sector.
Viable intersectoral linkages can ensure a greater capture of tourist expenditures, a key determinant in facilitating the transfer of economic benefits from the sector to local communities. Incomes derived from employment and business opportunities created through tourism can improve livelihoods in local communities, and potentially lift millions of Africans out of poverty.
Three policy priorities to tackle leakages in Africa’s tourism sector
In order to reduce leakages and ensure the retention of a larger share of the sector’s revenues in national economies, African countries can take steps to promote local sourcing, encourage local entities participation in the tourism value chain, and boost intra-regional tourism.
Promote local sourcing
Tourism establishments can create demand for local agricultural products and services, with supply opportunities enabling local producers to capture a greater share of tourists’ food expenditures. In addition to fostering the participation of domestic agricultural producers, economic opportunities created through agritourism or ecotourism can reduce poverty in rural areas, and contribute to the achievement of SDG 1 on poverty reduction. As women smallholder farmers dominate Africa’s smallholder agriculture, engaging them as suppliers to the tourism sector can create markets that increase their incomes and offer a path out of poverty, with the economic opportunities fostering social inclusion and advancing gender empowerment.
Critically, constraints that hinder the development of viable agriculture-tourism linkages should be addressed. Enhancing local suppliers’ capacities to meet tourism establishments’ sanitary and phytosanitary standards, and to supply agricultural produce consistently and reliably is vital. Tourism establishments can provide advice on product safety and standards requirements that will enable local enterprises to become viable suppliers. Reducing costs associated with obtaining certification for organic produce that may be required by some tourism establishments, and are often prohibitive for smallholder farmers, can also facilitate market access for local suppliers.
Such measures aimed at promoting local sourcing can play a crucial role in stimulating demand for local products. South Africa’s National Responsible Tourism Development Guidelines (2002), for example, encourage the procurement of local goods and services by tourism establishments from locally owned enterprises that meet quality, quantity, and consistency standards.
Encourage local entities’ participation in the tourism value chain
Encouraging local entities’ participation in the tourism value chain as well can reduce leakages and ensure a larger portion of the economic benefits from the tourism sector are reaped by the local communities in African countries.
Joint venture partnerships between tourism establishments and local communities can allow local communities to participate in and derive economic benefits from tourism. Royalties earned from leasing of community land and other fees paid by tourism establishments can boost local communities’ revenues from their assets. Similarly, stimulating supply opportunities for local enterprises can increase incomes, including through employment created in enterprises, spur local entrepreneurship, and support rural economic development more broadly.
Incentives aimed at encouraging tourism establishments to actively integrate local entrepreneurs and enterprises in the tourism value chain can support local linkages development. An interesting example is Namibia’s community-based natural resource management policy, which provides incentives aimed at enabling communities to earn incomes and other economic benefits from their assets, while sustainably managing environmental resources.
Promoting domestic ownership of tourism enterprises through concrete measures can also strengthen local linkages development and support these businesses’ integration into the tourism value chain. Ensuring access to finance and business development services can significantly enhance the capacity of small enterprises to start and operate viable tourism-related businesses. Zambia’s national tourism policy, for example, encompasses measures aimed at supporting the participation of local enterprises in the sector.
Access to training and capacity building programmes focusing on tourism is also key, as it can enable young people to obtain the skills needed to gain employment in the sector. The Ghana Tourism Authority plans to establish a tourism school that will equip students with the practical skills that the sector demands. Such initiatives, besides addressing youth unemployment on the continent, can support the development agenda on decent work.
Boost intra-regional tourism
Strong demand for local goods and services by intraregional tourists suggests that intraregional tourism could offer opportunities to stimulate the development of viable local linkages that reduce leakages. With intra-African tourism poised to grow as incomes on the continent rise and fuel Africans’ demand for travel, its prospects to further contribute to Africa’s economic development are promising. Moreover, since intra-African tourism is less susceptible to the effects of seasonality – both in demand and employment – that is associated with the North America and Europe-dependent tourism, Africa stands to reap further economic benefits from its growth.
African countries thus need to work on addressing the constraints that hinder intra-African tourism, notably limited air connectivity and high air transport costs, which also impede Africa aviation’s competitiveness. Liberalising air transport can increase airline competition, improve the affordability of air services, and as a result boost intra-African tourism. Results of a study on Africa’s aviation suggest that if 12 countries on the continent implemented the Open Skies for Africa Agreement, this could create an estimated 155,000 jobs and result in an increase of almost 5 million passengers per year, generating almost $1.3 billion in GDP and $1 billion in consumer benefits.
Relaxing restrictive visa requirements that create disincentives for travel within and across regions on the continent can facilitate travel for African tourists. Since abolishing visa requirements for East African Community nationals in 2011, the number of intra-regional tourists to Rwanda increased significantly, from 283,000 in 2010 to 478,000 in 2013. At the regional level, universal tourist visas that allow African tourists to travel within regions, such as the Kavango-Zambezi Transfrontier Area (KAZA Univisa), can facilitate travel and boost intra-regional tourism.
The robust growth of tourism in Africa underpins the sector’s growing importance as a foreign exchange earner. Yet, African countries can reap further economic benefits from tourism and better harness its potential contribution to socio-economic development. The creation of greater economic opportunities, including for women and youth, through supply opportunities and employment in the tourism industry can ensure the retention of a larger share of the sector’s revenues in local economies and contribute to the achievement of sustainable development objectives, in particular by reducing poverty in rural areas. Diversification into new sectors and tourism market segments can generate new revenue sources for countries, including from export opportunities created beyond the sector. Similarly, intra-regional tourism can generate foreign exchange and intra-regional exports, and boost tourism’s share in services exports. Taken together, harnessing the potential of tourism to contribute to socio-economic development in Africa hinges on reducing leakages through enhancing linkages across sectors and market segments and strategically exploiting the scope for intra-regional tourism. This could potentially increase the tourism sector’s total contribution to the continent’s GDP and act as a springboard for economic diversification.
This article is based on UNCTAD’s Economic Development in Africa Report 2017: Tourism for Transformative and Inclusive Growth: http://unctad.org/en/PublicationsLibrary/aldcafrica2017_en.pdf
Authors: Jane Muthumbi, Economic Affairs Officer, Division for Africa, Least Developed Countries and Special Programmes, UNCTAD. Giovanni Valensisi, Economic Affairs Officer, Division for Africa, Least Developed Countries and Special Programmes, UNCTAD. Junior Davis, Chief of the Africa Section, Division for Africa, Least Developed Countries and Special Programmes, UNCTAD.
 The Trade in Value Added database only contains data for these two African economies.
 InterVISTAS, Transforming Intra-African Air Connectivity: The Economic Benefits of Implementing the Yamoussoukro Decision. Bath, U.K: InterVISTASConsulting Ltd., 2014.