Supplied by Kevin Lings, Chief Economist and Stanlib
The Travel and Tourism Development Index, which is updated by the World Economic Forum every two years, benchmarks and measures “the set of factors and policies that enable the sustainable and resilient development of the tourism sector” within 117 countries including South Africa. The 2021 survey was released towards the end of May 2022.
The last two years have, understandably, been extremely challenging for global tourism.
The COVID-19 pandemic has been the worst crisis the global Travel and Tourism sector has faced in modern times. Lockdowns, travel restrictions, consumer fears and economic downturns led to a loss of $4.5 trillion in global travel and tourism activity as well as the loss of 62 million jobs worldwide in 2020 alone.
While increasing vaccination rates, easing of travel restrictions and economic growth have helped kickstart a recovery, it remains slow, uneven and fragile. For instance, although international tourist arrivals increased by 18 million in January 2022 compared to January 2021, (which equals the total increase in all of 2021), they were still 67% below 2019 levels and, according to a recent outlook from the United Nations World Tourism Organization (UNWTO) Panel of Experts, the majority of those surveyed do not expect total international arrivals to return to pre-pandemic levels until 2024 at the earliest.
As of 8 May 2022, 75% of the population in high-income economies had completed an initial COVID-19 vaccination protocol, while only about 52% and 13% of populations in lower-middle-income and low-income economies, respectively, had completed theirs. Lower vaccination rates create more uncertainty around travel policies, reduce consumer confidence and prolong the overall negative impact of the pandemic on the travel and tourism sector.
Most countries are now in the process of reopening their economies following the worst of the COVID-19 crisis, including the revitalization of their domestic and foreign tourism industries. This brings into focus the wide range of factors that contribute to a country’s ability to develop their tourism sector.
According to the 2021 Travel and Tourism Development report, aside from the United States (which was 2nd in the global tourism development ranking), the top 10 scoring countries are high-income economies in the Europe and Eurasia or Asia-Pacific regions. Japan tops the ranking, with fellow regional economies Australia and Singapore coming in 7th and 9th, respectively. Meanwhile, Italy joined the top 10 (up from 12th in 2019) in 2021, while Canada slid out (10th to 13th). The remaining top 10 countries are Spain (3rd), France (4th), Germany (5th), Switzerland (6th) and the United Kingdom (8th). Vietnam experienced the greatest improvement in score (ranked 52nd) on the overall index, while Indonesia (44th to 32nd) and Saudi Arabia (43rd to 33rd) had the greatest improvement in rank. In contrast, Malaysia (29th to 38th), India (46th to 54th) and Mongolia (76th to 84th) had the largest declines in ranking.
South Africa was ranked 68th in 2021, unchanged from the 2019 ranking. Unfortunately, South Africa’s Travel and Tourism Development score is below the global average and similar to the score ascribed to Kazakhstan, Montenegro, Dominican Republic and Serbia. More positively, within Sub-Saharan Africa, South Africa is ranked 2nd after Mauritius – which is ranked 62nd.
A detailed breakdown and assessment of South Africa’s tourism development score provides some interesting insights:
First, South Africa scores high in the category of the index related to the demand drivers of tourism, in particular Natural Resources (national parks and nature reserves, landscapes, richness of fauna, etc), which ranks an impressive 13th in the world, non-leisure resources (factors that drive non-leisure travel including medical travel, ranked 21st) and cultural resources (ranging from archaeological sites to entertainment facilities, ranked 26th). In other words, South Africa has excellent natural and cultural attractions, which provides the country with the potential to develop a significantly larger tourism industry than currently exists. In contrast, for example, the Czech Republic ranks only 83rd in the world in terms of Natural Resources but ranks an impressive 26th in the overall global tourism development index. Similarly, Finland ranks only 67th in the world in terms of its Natural Resources but ranks 18th in the overall global tourism development index. Given South Africa’s Natural Resource ranking, the country should have a substantially larger tourism industry.
Second, in key areas, South Africa’s tourism score is shockingly low, and if these areas of weakness become a real priority for reform by government it would make a big difference to the overall well-being of South Africa’s tourism sector, as well as the broader economy. A key example is South Africa’s global ranking of 112/117 in Safety and Security. In essence, this reflects the extent to which a country exposes locals, tourists and businesses to security risks. Clearly, a high rate of crime and violence are likely to deter foreign visitors. Another clear area of weakness in South Africa is passenger rail and port infrastructure (ranked 73rd). While government has consistently highlighted their intention to improve South Africa’s rail and port infrastructure, as well as reduce the high levels of crime and violence little progress has been achieved. The sad truth is that uplifting South Africa’s transport infrastructure as well as reducing crime would benefit a huge array of industries that extent well beyond the tourism sector. This, in-turn, would lift consumer and business confidence, encourage private sector fixed investment and create employment, thereby boosting government’s tax revenue collection and overall popularity – yet government appears content to merely highlight their policy intentions rather than implement key reforms.
Third, South Africa ranks a respectable 43rd in the world in terms of the price competitiveness of its tourism sector. This measure reflects the cost of a wide range of travel and tourism related expenses, including airfare ticket taxes and airport charges, the relative cost of hotel and short-term rental accommodation, as well as the fuel price. South Africa is known, international, as relative low-cost travel destination, although the market can accommodate both the budget conscious traveler as well as those tourists looking for a more luxurious experience. In other words, there is no intrinsic reason why costs associated with travel and tourism in South Africa should substantially hinder the development of the sector – especially considering that the Rand exchange rate has a tendency to remain undervalued for extended periods.
Fourth, exploring the WEF’s detailed assessment of South Africa’s travel and tourism sectors it can be argued that South Africa’s is being underrated in a few key areas. These include a rating of 109/117 in environmental sustainability, which includes a wide range of factors such as the protection of natural resources, loss of forest cover, degree of extinction risk for species, and exposure to weather related events. While South Africa’s falls-short in some areas of environmental sustainability such as air pollution, water stress, and readiness for climate change, a ranking of 109/117 seems very harsh and underserved. The same can be argued for South Africa’s ranking of 71/117 in tourist service infrastructure, which includes the availability of tourist accommodation, car rental, resort and leisure facilities and ATMs. It would be advantage for South Africa to demonstrate and consistently highlight the gains that have been achieved in the tourism sector over the past couple of decades.
Fifth, the WEF’s Travel, and Tourism Development report does an excellent job in highlighting the correlation between the development of the tourism sector as well as very broad range of social, economic and policy metrics. For example, there is a strong and positive relationship between the efficiency of air transport in a country and the growth of its tourism sector, but a non-descript relationship between the cost of hotel accommodation and growth in tourism. Alternatively, the reliability of police services matters much more to the development of tourism than the cost of hotels. Equally, the extent of power losses (electricity outages), efficiency of train services, or labour productivity in hotels and restaurants makes a bigger difference to tourism growth than ticket taxes and airport charges, visa requirements, as well as the number of world heritage natural sites in a country. Exploring these types of relationship can help identify the most important areas for development – and in all probability these developmental initiatives would benefit numerous other economic sectors, thereby encouraging a broad-based uplift in South Africa’s economic environment.
Overall, South Africa’s tourism sector is in the process of recovering from the impact of the COVID-19 restrictions. Domestic flights have increased substantially relative to 2020, and on some routes (depending on the airline) business is back to around 70% of pre-COVID volumes, while other airlines are simply struggling to remain in business. Unfortunately, while outbound international travel has also increased meaningfully, inbound international travel continues to lag. The most recent data suggests that in the first quarter of 2022, foreign tourists staying at least one night in South Africa amounted to only 39% of the total recorded in the first quarter of 2019 – but at least this is substantially higher than the 14% recorded in the first three months of 2021.
Clearly, South Africa’s tourism industry represents a major growth opportunity, especially given South Africa’s vast array of unique natural resources. In other words, given the country’s natural attractions, South Africa would be expected to consistently rank within the top 30 tourism countries, with potential to move into the top 20. The sector also has the ability to add significant employment given its high level of labour intensity, while there are strong forward and backward linkages to other key economic sectors that tend to have a low import intensity.
Unfortunately, while government has flagged tourism as one of its key growth initiatives, the level of policy implementation in key areas vital to unlocking the potential of the tourism sector continue to lag. The sad truth is that many industries in South Africa would flag similar constraints. However, it is also clear that if government was able to make meaningful progress in improving a few key socio-economic constraints they would simultaneously benefit a vast array of industries, thereby boosting the country’s overall economic performance. In that regard, the most obvious top 5 areas requiring more a responsive, innovative, and caring set of policy reforms are electricity supply, transport infrastructure (including public transport), measures to combat crime and violence, provision of water and sanitation, as well as education that is linked to the requirements of individual industries. Hopefully, government starts to recognize the urgency of policy reform, and is willing to more fully embrace the private sector in partnering to unlock South Africa’s economic potential.