User:Joliswaniso/Tourism in Livingstone, Zambia

Tourism in Livingstone, Zambia''' '''

Country Profile - Zambia

Geography

Situated in southern Africa 15° south of the equator and 30° east of the prime meridian, Zambia is a landlocked country in savannah land. Its terrain is mostly high plateaus with some hills and mountains. The highest point in the country, Mafinga Hills is the source of the Zambezi River which spills into the Victoria Falls, one of the seven wonders of the natural world. Natural resources are plentiful; mainly copper, cobalt, zinc, lead, coal, emeralds, gold, silver, uranium and hydropower. Droughts are a periodic natural hazard and tropical storms are expected in the rainy season – November to April. Environmental issues are air pollution in mining towns, chemical runoffs into watersheds, poaching of wildlife; soil erosion; deforestation; desertification; and a lack of adequate water treatment posing human health risks.

People

Zambians are arguably the friendliest people in southern Africa – possibly to a fault. With a population of 11.9 million, there are seven native languages and numerous dialects, but the official language English is widely spoken even in the most remote areas. Despite the fact that most children drop out of school at primary level – 7 years of schooling; government expenditure on education is 2% of GDP compared to 8.7% for Botswana and 5% for OECD countries. That said the national literacy percentage of 82% is higher than the sub Saharan rate of 63%. At 2% growth, the population is poised to double in 50 years despite the mass exodus of skills (1 out of 385 persons), to mainly South Africa, the UK and the USA as the country loses the global skills battle. Christianity is the main religion but religious and tribal tolerance prevails. The greatest challenge of the times is the HIV/AIDS pandemic that has reduced life expectancy at birth to 39 years. There are 1.1 million people living with HIV/AIDS most with little or no medical support in this highly urbanized country creating a large and new generation of street children and orphans.

Political Outlook

Veteran politician Rupiah Banda, the country’s fourth president, was elected, after Levy Mwanawasa’s death in 2008 amidst accusations of vote rigging. Banda served under Zambia’s first president Kenneth Kaunda as a diplomat and politician from the 1960’s till his retirement in 1988. His political comeback was based on tribal alliances by a then desperate Levy Mwanawasa who was facing an unprecedented surge of unpopularity, particularly in the urban areas. Opposition politicians made comparisons of living standards between “foreign investors” and locals, encouraging a climate of xenophobia and sometimes downright racism, particularly towards the Chinese business community. President Banda has been a strong ally of the Chinese and he continues to beat the drum in their favour. In June 2009 Michael Sata’s PF and Hakaimbe Hichilema’s UPND formed an alliance to gain constituent votes but neither leader will be drawn into a discussion of who will lead the alliance to the polls. In Zambia, as in most African countries, the president is all powerful and the general elections focus on the presidency. PF is hugely popular amongst the urbanites, whilst the UPND has a huge rural tribal following, although the two parties couldn’t be more different. PF represents the frustrated poor masses in the urban areas. It is led by a colourful and autocratic former police constable and veteran politician, popularly called King Cobra, who has a penchant for rough-speak and knows how to stir the grass root electorate. UPND’s HH (Hakainde Hichilema), as he is popularly referred to is an MBA, former CEO of Grant Thornton who talks economic issues that get “lost in translation”. He is uncharismatic, considered elitist and his party still has to convince voters that it is not a tribal outfit. In the eyes of western donors, HH is the ideal presidential candidate, but he lacks initiation in the political shenanigans required to garner votes. The pact between HH and King Cobra if well consummated has a high chance of ousting President Banda.

Infrastructure

Telephone line infrastructure is dated but in better condition than most sub Saharan countries. There is 1 telephone line per 130 people and 1 in 5 people have a mobile phone. There are several internet service providers and 4% of the population use the internet. Hi speed internet is available but broadband penetration levels remain low and upload/download capacities would frustrate a north American elementary school student. This July, ZAMNET Communication Systems announced the establishment of an end-to-end optic fibre connection from their server room to Europe via Namibia and the Atlantic. Current connections via satellite are expensive, stretched for capacity and sluggish. When launched, fibre optic technology should enable internet user’s access high speed internet, the use of modern technologies such as Video conferencing, raising Zambia to a more level international information technology plane.

Of 101 airport runways only 9 are paved and 2 service international routes. There are 91,000kms of roadways of which only 2,000kms are paved, albeit poorly. Crude oil is transported from Tanzania to Indeni Oil Refinery in Ndola, the heartland of Zambia at a distance of 771kms. Once processed, the refined oil is redistributed around the country’s road network resulting in higher prices as transportation costs are factored into the pump price. Every so often the entire country runs out of petrol and diesel, especially when the archaic refinery is “closed for maintenance” sometimes for up to two weeks. The Zambian pump price for diesel and petrol is rarely less than $1.40 per litre. The railway network is polar, with no east or west tentacles. Built in the 1970’s as Chinese aid, the railways are underutilized, undercapitalized and poorly managed. Medical infrastructure is appalling, save for expensive and not so great alternatives offered by the private sector. Medical personnel continue to leave the country en-masse, government hospitals and clinics are ill equipped and hardly stock prescription drugs. Road accident victims are regularly stitched without anaesthesia and this June nurses staged a one month strike over pay and benefits. Each of the nine provinces has one main hospital; the largest of which is the University Teaching Hospital in Lusaka, jokingly called the “departure lounge”, due to the several deaths that occur there.

There are two state universities in Lusaka and Kitwe which are crowded, ill equipped and grossly underfunded. Lecturer strikes and student demonstrations which frequently turn ugly and spill out onto the streets are a feature that a university graduate would have experienced at least once. Political energy is expended in weakening the apparently anti-establishment student union and government security agents sometimes allegedly hijack ‘the student cause’. Several private primary and secondary schools offer an alternative to government education; curriculums vary from Zambian syllabus to UK GCSE, International Baccalaureate Diploma and the U.S. High School Diploma. The offers are generally expensive and standards vary but are higher than the “free education” offered by the state. State run ZESCO produces, transmits and distributes electricity countrywide produced by a hydro power plant at Kariba, on the Zambia/Zimbabwe border. Electricity consumption is 92% of the 9.3BN kilowatt hours produced and the shortage of capacity results in regular power outages, sometimes affecting the entire country for days. Businesses and the more resourceful individuals have expensive back-up generators that kick in when the national grid fails. Desperate calls to invite foreign direct investment to invest in energy have fallen on deaf ears and the government is reluctant to privatize its largest corporation.

Economic outlook

In December 2000, Zambia qualified for debt relief under the HIPC programme administered by the World Bank and the International Monetary Fund. Donor nations pledged balance of payments relief in the sum of $2.5BN in net present value terms – equivalent to 5 years current account deficit financing. Regular donor financing is important to Zambia as it represents 50% of GDP. Whereas western donors attach aid to corruption and good governance, China attaches its aid to the country’s reception to Chinese business interests. Currently, the Chinese are rebuilding Lusaka’s Independence Sports Stadium and have pledged to build two more stadiums in Ndola and Livingstone. Independence Stadium is Zambia’s largest stadium, but FIFA have declared it unsafe for inclusion in the 2010 World Cup finals and a panicked Zambia is looking to China for help. In its Doing Business 2009 report the IFC ranked Zambia as 100/181 in terms of ease of doing business. The lowest score for ease of doing business went to Congo Democratic Republic. 2008 GDP was 17BN with real growth of 5.3%. The market value of publicly traded shares is $2.4BN, comprised of less than25 companies which are largely foreign held corporations. Few Zambian companies have grown and gone public. GDP per capita for 2008 is $1,500 but this is expected to fall to less than 2006 and 2007 levels of $1400 in 2009. The service sector employs 9% of the labour force but contributes 57% to GDP, whilst agricultures 85% labour force contributes only 16% to GDP. Agriculture is at the raw material stage and there has been no impetus to create value beyond the raw product – manufacturing is virtually non-existent. The Kwacha/US dollar exchange rate has broken the psychological K5000/1$ ceiling that the central bank tried so hard to contain for several years. The greatest determinant of Zambia’s exchange rate is copper and the drop in prices from an all time high of $4.08 in 2008 to around $2 per pound this year, crushing the Kwacha’s value by 40% in one year. The foreign owned copper mines have either scaled back production or closed operations. The government has lashed out at these “selfish” investors, going so far as to nationalize a mine in Luanshya town which remains closed whilst government seeks new investors. The Bank of Zambia has once again started a campaign against the “dollarization” of the economy, insisting that goods and services be quoted in kwacha and calling for the public to invest in government bonds. Considering the global recession and the flight of foreign capital, the Kwacha may plateau at above 5,100 for the remainder of 2009. Non traditional exporters such as rose and vegetable farmers have been hurt by the currency appreciation of previous years, resulting in huge staff layoffs and a refocus to production for local consumption rather than export. The weakening exchange rate should bode well for the ‘mom and pop’ investor coming in from within the region. The private sector is growing, with a trickling but steady flow of investors from South Africa, Zimbabwe and Europe establishing small businesses in the cities, in agriculture and in tourism. After government, small businesses are the largest employers. These new entrepreneurs are changing Zambia’s business listings, bringing in new skills and their visible success in comparison to the Zambian dinosaur corporations is enviable. According to Central Statistics Office, June 2009 inflation was 14% compared with averages of 12% and 11% for 2008 and 2007 respectively. Estimating inflation levels in Zambia is made even more complex because of the disparities between the vast majority whom are poor and the few financially able whose index includes necessary purchases such as electricity and fuel. Treasury bills yield is 16% to 19% and since banks make over halftheir earnings via interest on government securities, they are not incentivised to lend to business. Prime rates are in the 20% mark and unsecured lines of credit don’t exist in any form. Credit is short term, i.e. not exceeding 12 months and must be supported by collateral, usually in the form of a titled building. Procedures for obtaining financing are stringent, with requirements for business plans, property valuation reports, personal guarantees etc. The foreign investor has an upper hand, coming in with relatively cheap money obtained on more flexible terms whilst the Zambian start up is swimming against the tide. The government has not encouraged private sector lending as it is competes for loans with financial institutions to finance its deficit. This financing gap is somewhat being bridged by the numerous financial institutions that have sprung up across the country lending to individuals and businesses at loan shark rates but with more expediency and flexibility than banks.

Livingstone - An overview of the tourism industry

Background

Livingstone town, named after the intrepid Scottish explorer and missionary – the first white man to see the Victoria Falls, is Zambia’s tourist capital and its former colonial capital. The border town mirrors Victoria Falls town in Zimbabwe, with the Victoria Falls, the Zambezi River and the Batoka Gorge separating the two countries. Livingstone’s population has grown from 103,000 in 2000 to an estimated 120,000 in 2009 (Appendix 1) transforming itself from a sleepy hamlet to a sprawling little city. Prior to 2001, Zambia didn’t even hit the radar with regards tourism. In 2001 Mother Nature’s grace made Zambia the best place on earth to view the total solar eclipse. Thousands of tourists flocked to the country which was totally unprepared for the sudden rush of tourists; accommodation was inadequate and many tourists slept in tents on farmland and in people’s backyards. Tourism has traditionally comprised of game viewing, hunting and bird safaris; but the poor state of roads and safety concerns meant these never developed into anything substantial. The biggest tourism attraction is now the Victoria Falls. Victoria Falls town in Zimbabwe which mirrors Livingstone town in Zambia had a mature tourism industry and was aptly named after the landmark waterfalls. Hence, many tourists believed that the Victoria Falls were actually in Zimbabwe – talk about branding! In 2001 Sun International, Africa’s largest hotel and casino group opened the Royal Livingstone and Zambezi Sun; 5 star and 3 star hotels with 212 rooms and 173 rooms respectively. This was the single largest investment in real estate the town had seen. The 5 star Royal Livingstone has great views of the Zambezi River whilst the Zambezi Sun has a private access to the Victoria Falls. With its financial muscle and industry experience, Sun sells Livingstone as a destination via its offices in Johannesburg, South Africa. Tourists visiting other Sun destinations are sold packages that include Livingstone as an extension of the South African offer. With this captive high value audience, Sun made all the major activity operators to sign up as affiliated service providers, with Sun taking 10% of earnings. Since Sun ‘owns’ the tourist, this network of affiliate service providers enables the company to provide a seamless package to its customers. Sun obtains the payment directly from the tourist and the service provider is paid monthly based on activity. Both sides are winners of a sort and Sun has successfully transformed the tourism business model in Livingstone. Zimbabwe’s collapse in 2001 was a great stimulant as industry skills migrated from Victoria Falls town to Livingstone. There has however been no corresponding transfer of capital from Zimbabwe to Zambia as the mature Zimbabwean operators preferred to close shop entirely or maintain a presence merely to keep their infrastructure somewhat intact.

Industry attractiveness

Tourism has extensive support sectors and its definition can become nebulous as activities blend. However, save for viewing the falls, Livingstone is clearly an extreme activities destination. Most activities that were available on the Zimbabwean side have migrated to Zambia and investors still trickle in from South Africa, the United Kingdom and Australia. The menu of activities is structured so that Sun has preferred vendors for all activities without exclusivity to vendors. Still, competition amongst activity providers is low and there is little rivalry. Entering the activity space requires a unique product offering or a complete reconsideration of the prevailing industry business model as designed by Sun.

Industry development stage

The tourism sector in Livingstone is still in an infantile stage, growing from 5.9% of total international air traffic to Zambia in 2001 to 19.6% in 2008 (Appendix 2). In 2005, it had peaked to 25.4% of total inbound international traffic but there has since been a decline with Ndola and Lusaka seemingly becoming more attractive, presumably in line with the global surge of commodity prices. Domestic travel to Livingstone remains low but is on an upward trend at 13% of total domestic travel (Appendix 3). Overall passenger travel to Livingstone is in decline (Appendix 4), with less international travellers than the previous five years. The sector is too dependent on Sun for marketing and if Zambia is less of a priority to Sun planners then the entire industry suffers. It would appear that industry developmental tactics are stale and maybe the private sector need meaningful engagement with government at municipal and state level.

The effect of exchange rates on tourism numbers

The Zambian government has historically taken a protectionist stance to preserve the value of the kwacha, presumably because Zambians have a high propensity to purchase imports, but a strong exchange rate has been ticketed as a symbol of economic success, creating a foolish sense of pride. The annualized average Kwacha/ US Dollar rate of exchange has yo-yoed from 4,776 in 2004 to 5,340 in July 2009, with a low of 3,636 in 2006 as copper prices rallied. Non traditional exporters were tremendously hurt by this strengthening of the exchange rate and numerous businesses closed down. Likewise, the tourism industry suffered as local costs spiralled but this didn’t hurt international travel. One can assume that since tourists are invoiced in US Dollars they are indifferent to currency fluctuations, after all these holidays are planned several months ahead.

Suppliers of activities and affiliated services

Since the industry started to bloom, various suppliers of products e.g. transportation, food and beverages have seen an upturn in business. Local businesses have flourished and some farmers have taken on the arduous task of growing fresh vegetables, such as lettuce which is hard to grow at low altitudes. The larger part of the entrepreneurial pool making up the tourism industry is of expatriate talent. Establishing business in Zambia is challenging. Bureaucracy is tremendous and there is no clear route for permanent residency for non Zambian investors. Non Zambians need an Investment Licence in order to run a business, to purchase land or to obtain a restrictive work permit. Citizenship is a long shot and the government doesn’t encourage it – there is a tendency of equating being Zambian with being black, irrespective of one having been born in Zambia, how long one has lived in the country, or ones contribution to society. As such, expatriate suppliers of skills take strong bargaining positions as they build their businesses compensating for their fluid status.

Industry value chain

A ‘back of a napkin’ analysis of the Industry Value Chain (Table 1) shows that the greatest profits in tourism are directed towards accommodation and activities. For each dollar of profits in this sector 72 cents go to accommodation and activities, leaving 24 cents for distribution between airport transfers, food and beverage and mementos. The latter sections require high volumes to establish meaningful profitability, whilst accommodation requires substantially more capital to obtain par earnings with activities. Sun International’s business model is designed to capture growth from all sectors of the industry – so its performance is reflective of the entire industry, sort of an all share index.