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Are strong ‘Benjamins’ spooking tourists away from Zimbabwe?


More expensive? ... Tourists enjoying the majestic Victoria Falls

28/11/2015 00:00:00
by David Mutori
 
Tourism ... David Mutori
 
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THE Ministry of Tourism is known to have forecast visitor numbers of more than 3 million in 2015 but recent forecasts suggests that Zimbabwe would be lucky if she hosts 1.9 million visitors. This implies a very small increase on the number of visitors in 2014 (1 883 000). Zimbabwe’s growth in visitor numbers for 2015 is expected to be below that of the Sub-Saharan Africa average which most analysist estimate at 5.5%.

When Zimbabwe adopted a multi-currency regime a few years ago, the US dollar emerged as the main currency with all prices and trade being conducted in US dollar. The US dollar or ‘Benjamins’ (nick name derived from Benjamin Franklin’s image on the $100 bill), as they are called on the streets of Harare has strengthened significantly against majority of major currencies in recent times.

Currency fluctuations change costs of imported and exported products and services without changing the products or services. This therefore means that the prices stability that has been brought in by the US dollar has unforeseen ‘side effects’.

A strong dollar means that those who import from countries like South Africa have benefited but those who export will be struggling as their customers now find their products too expensive. The prices of Zimbabwean services, while steady in US dollars, have increased significantly in the currencies of countries where a lot of the high paying tourists come from.

As an example, the drop in the value of the South African Rand (ZAR) against the US dollar from ZAR11 in January 2015 to ZAR14 in November 2015 means that something with a price of US$1 in Zimbabwe costs 11 rand in January 2015 and is 14 rand in November 2015. That is an increase in rand price of more than 20%.

International tourism is mostly classified as an export industry as the country sells services to international visitors who pay for these services in foreign currency. Although it has not been quantified, the US dollar is known to have impacted on the number of tourists visiting Zimbabwe in 2015.

While this article focuses on the strength of the US dollar, it is important to note that there are other factors that affect visitor numbers such as political stability and crime rates. These other factors are assumed to have remained fairly constant throughout the period. The Ebola Virus* had already been factored in when 2015 visitor number forecasts were prepared.

Zimbabwe’s international tourism sector has been affected adversely by the strengthening dollar. There has been a dampening of expectations amongst tour operators who had forecast higher growth in visitor numbers in 2015 as the actual numbers have turned out to be lower than expected. The appreciation of the dollar value means that tourists from countries that use other currencies find it much more expensive to take holidays in Zimbabwe than 12 months ago.



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Zimbabwe’s tourism facilities are priced in US dollars. Most tourists who visit our facilities come from Europe, USA, Australia and South Africa. These tourists would have prepared their travel budgets using their home currencies. Most tourists make reservations for their travel at least 12 months in advance. They normally pay a small deposit to make the reservation and then then pay the rest closer to the time of their travel.

It is also important to note that guests who visit Zimbabwe for a safari have other alternative countries that they could go to. If the guests expect the same safari experience, they could go to Namibia, Botswana or South Africa. They may choose a different country if Zimbabwe becomes too expensive.

Looking at the costs of holidays to Zimbabwe, let’s assume a traveller wanted to come to Zimbabwe for a ten-day safari and was quoted a cost of $5000 in January 2015. If a tourist was to come to Zimbabwe from South Africa, the trip would have costs ZAR55,000 in January but the same trip would cost them ZAR70,000 in November 2015.

If they were coming from the Eurozone area, the same trip would costs them almost 500 Euro more than it did in January. The strengthening dollar actually means that Zimbabweans will find it favourable to go on holidays in South Africa instead, their dollar will go much further.
Chart 1 below shows how the value of the US$ has appreciated (less dollars for the other currencies) since December 2014.

Chart 1: US dollar for unit of major currencies

Chart 1 (above) shows how much US dollar/cents are required to purchase a unit of the 3 main currencies (Euro, Australian dollar and British Pound) from countries where a significant number of tourists come from. The graph shows that compared to December 2014, you need less US$/cents to purchase a unit of the other currencies. This means that you need more Euros/AU$/£ to purchase a US dollar priced travel package.

Zimbabwe’s situation is made worse by the fact that the South African Rand, Botswana Pula, Zambian Kwacha and Namibian dollars have seen their value depreciate against major currencies in the same period. This means that for people from the Eurozone, as the holidays to Zimbabwe have become more expensive, holidays have been getting cheaper in countries that are around Zimbabwe. Besides, the countries around Zimbabwe are perceived to be more stable politically.

The Reserve Bank of Zimbabwe (RBZ) does not have control over the value of the US dollar. Neither do they have the tools that can affect that dollar value. The value of the dollar is determined by economic fundamentals in the US economy.

Analysts say that the strengthening of the US dollar in mainly because investors have more confidence in the US (not Zimbabwean) economy when compared to other regions like the Eurone area or China.

A number of currency analysts suggest that the bullish US dollar will continue strengthening in the next few months. As the dollar flexes its muscle, visitors from other countries need more of their currencies to pay for holidays in Zimbabwe. This continuing strength of the dollar means that Zimbabwe will continue to be perceived as an increasingly expensive destination.

Given that the RBZ has no control over the value of the US dollar, it is left to tour operators to ensure that their guests volumes do not suffer much. While there are different options to manage currency risk (such as hedging) tour operators could also explore the possibility of using multicurrency pricing model. This means pricing setting prices to customers in their own home currency. Besides, Zimbabwe is already a multi-currency economy.

*Although the Ebola virus was mostly confined to West Africa, a lot of tourists see Africa as if it one country. Tour operators experienced a lot of ‘Ebola’ cancellation of bookings.

David Mutori is a former chief operating officer of a group of luxury safari camps (based in Zimbabwe, Botswana and Zambia) and Zambezi river white water rafting guide. He writes in his own capacity on topical structural issues that affect the development of Zimbabwe. He can be contacted by email on mutorid@gmail.com or Twitter on @DavidMutori 


 
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