Analysis of and Recommendations for Kenya's Tourism Sector

table of contents

LIST OF figures

LIST OF TABLES

List of ACRONYMS

LOCATION MAP

EXECUTIVE SUMMARY

1. INTRODUCING KENYA

2. ANALYSIS OF KENYA’S TOURISM SECTOR
2.1 STEEP ANALYSIS
2.1.1 Social Factors
2.1.2 Technological Factors
2.1.3 Economic Factors
2.1.4 Environmental Factors
2.1.5 Political Factors
2.2 SWOT Analysis
2.3 Tourism Cluster Map
2.4 Comparative Regional Positioning

3. PORTER’S DIAMOND MODEL
3.1 Introducing the Diamond
3.1.1 Factor Conditions
3.1.2 Demand Conditions
3.1.3 Related and Supporting Industries
3.1.4 Firm Strategy, Structure and Rivalry
3.1.5 The Role of Chance and the Government
3.2 Critiques and reasons for using the Diamond Model

4. APPLICATIONS OF PORTER’S DIAMOND IN THE KENYAN CASE STUDY
4.1 Factor Conditions
4.1.1 Tourist Attractions
4.1.2 Human Resources
4.1.3 Infrastructure
4.2 Demand Conditions
4.3 Related and Supporting Industries
4.4 Context for Firm Strategy and Rivalry
4.5 The Role of the Government
4.6 Collaboration of Institutions

5. STRATEGIC CHALLENGES AND RECOMMENDATIONS
5.1 Challenges
5.2 Recommendations
5.2.1 Infrastructure and Utilities
5.2.2 Political Stability and Security
5.2.3Curbing Corruption and Bribery
5.2.4 Marketing and Promotion
5.2.5 Strengthening of Cluster Linkages
5.2.6 Capacity Building
5.2.7 Investment and Finance
5.2.8 Policy and Legal Framework
5.2.9 Conservation of Resources

6. CONCLUSION

bIBLIOGRAPHY

INDEX OF FIGURES

Figure 1: Kenya’s Tourism Strategic Map I

Figure 2: Timeline for Kenya's Tourism Performance

Figure 3: Trends in Tourist Earnings

Figure 4: International Visitor Arrivals

Figure 5: Real GDP Growths, Consumer Prices and Current Account Balances for Kenya

Figure 6: Doing Business in Kenya, Tanzania and Uganda, 2008

Figure 7: Tourism Cluster Representation

Figure 8: Travel and Tourism Competitiveness Index, score (1-7 scale)

Figure 9: Porter’s Diamond Model

Figure 10: Hotel Bed Occupancy by Region, 2008

Figure 11: Hotel Bed Occupancy by Zone, 2008

Figure 12: Tourism Value Chain

Figure 13: Tourism Institutional Structure

Figure 14: Force Field Analysis

Figure 15: Kenya’s Tourism Strategic Map II

LIST OF TABLES

Table 1: SWOT Analysis

Table 2: Overal Competitiveness in Tourism in East Africa, 2008

Table 3: Comparison of Frameworks

Table 4: Tourist Attractions in Kenya

Table 5: Kenya’s Tourism Performance Indicators

Table 6: Prioritization of Travel and Tourism, rank/133 countries

LIST OF ACRONYMS

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LOCATION MAP

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Source: United Nations Educational Scientific and Cultural Organization

EXECUTIVE SUMMARY

This paper analyzes the performance of Kenya’s tourism sector with a view to assessing tourism cluster cooperation, competitiveness and its sustainability impacts on the overall economy. The theoretical foundation is based on Porter’s Diamond Model and builds on the cluster concept and typology. This integrates competitiveness and performance improvements within the economic, social, cultural, environmental and political dimensions. The results of the analysis provide possible strategic guidance for the public sector in regard to tourism policies. Similarly, it provides strategies for competitiveness, interaction, and sustainability between the public sector and the private sector.

The methodology of this paper is based on the following Strategic Map (figure 1). In order for Kenya to achieve its goal of improving and sustaining tourism earnings (where do we want to go?), I examined the nation’s current position (where are we now?) and provided an analytical foundation for cluster development dialogue and design (how do we get there?).

Figure 1: Kenya’s Tourism Strategic Map I

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Where are we now? (Chapters 1-5)

Chapter 1-5 examines the sector’s external and internal environment with the help of the STEEP (Social, Technological, Economical, Environmental, and Political factors) analysis that builds in turn, on SWOT (Strength, Weaknesses, Opportunities and Threats) as an analytical tool. In addition, Porter’s model examines the cluster’s performances, identifies factors that trigger development and sustainability, and the role of the governments and related institutions in the sector.

After the agricultural sector, the tourism sector is the second largest contributor in foreign earnings. In 2008, the sector witnessed a major decline in revenues in as a result of post-election violence. Given that the tourism sector touches all sectors of the economy, the decline in tourism earnings was a huge blow to the nation as the sector employs more than 407,000 people directly and indirectly (World Travel and Tourism Council 2009). Furthermore, the sector has been susceptible to market price fluctuations, increasing competition, political instability, and the recent global recession.

Kenya offers several natural, geographical, historical and cultural assets namely; wildlife, coastal beaches, alternative tourism, which include sports, hiking mountain-climbing, golf, sports, cruise tourism, safari rallies, among others. However, some of these areas are underdeveloped and offer opportunities for diversification of the tourism product and market. The national government’s strategy targets high-end and mass tourism, sustainable tourism development as well as niche markets.

Despite the efforts undertaken by the public and the private sector to improve the situation, the sector still faces a number of challenges. These include: poor infrastructure, corruption and bribery, poor cluster linkages, outdated policies, lack of information, political instability, and inadequate financial structures.

How do we get there? (Chapter 6)

Chapter 6 concentrates on how the country can achieve competitive advantage and improve tourism revenues. With the aid of reviews of the past and current data, policy initiatives, and literature on the cluster, the analysis concludes with recommendations to both the private and public sector stakeholders in order to improve the sector’s performance. Handling the aforesaid resources, a road map for the entire sector is required so as to promote these assets and increase productivity. However, this requires appropriate measures for improving infrastructure, curbing corruption, increasing investments, maintaining stability, implementing environmental policies, and investing on human resources and capability. To ensure a favourable tourism development scenario, it is of vast significance that grounds should be established for harmonious and effectively coordinating mechanisms within the tourism cluster.

Where do we want to go?

As tourism plays an important role in Kenya’s economy, the aim of the country is to improve and stabilize the sector and ensure a permanent source of revenue largely independent from market volatility. Moreover, increased competitiveness and performance of the tourism sector regionally and globally will contribute to the country’s poverty alleviation.

1. INTRODUCING KENYA

The Republic of Kenya is strategically positioned in east Africa, bordering the Indian Ocean, Tanzania, Ethiopia, Uganda, Somalia, and Sudan. Unlike its land locked neighbours, Kenya is the gateway to East Africa. It covers an area of 580,367 sq km, of which 11,227 sq km are covered by water.^[1]

Kenya was declared a British Protectorate in 1880 and became a crown colony in 1920, known as British East Africa. On the 12th December 1963, the country attained full independence with Jomo Kenyatta as its first president. Since then, the country has been ruled by Daniel Arap Moi (1978 - 2002); and Mwai Kibaki (2002- Present).

The Kenyan economy is diversified though most employment depends on agriculture, with the sector producing tea, coffee, corn-wheat, sugarcane, fruits and vegetables, dairy products, flowers. The industrial sector produces small-scale consumer goods (plastics, furniture, batteries, textiles, soap, cigarettes, oil refining, aluminium and steel). The service sectors include banking and investment, tourism, transport, and telecommunication as well as information and insurance. Tourism is currently the second largest foreign exchange contributor to the economy after agriculture.

Tourism in Kenya dates back to the colonial days when overseas visitors and explorers came for game hunting expeditions which are referred to by the Swahili word “Safari”. After independence, the government realized the potential of tourism industry as a tool to eliminate poverty and increase economic growth. Hence, the government undertook measures to upgrade the existing infrastructure and encourage domestic and foreign entrepreneurs to invest in tourism and hospitality. Kenya’s tourist attractions focus on its unique combination of natural endowments, comprising savannahs rich in wildlife, pristine beaches and reefs, scenic beauty, culture heritage, and the diversity of its landscape. Wildlife “safaris” are a very poplar pursuit as most visitors are predominantly interested in seeing the big “five” (the Elephant, the Rhino, the Lion, the Buffalo and the Leopard). Thus, Kenya can be promoted as an ideal tourist destination of exceptional attraction offering travel experiences for both the international as well as the domestic market.

2. ANALYSIS OF KENYA’S TOURISM SECTOR

According to the past surveys by the government, Kenya’s tourism performance has undergone different phases of development (see figure 2.)

Figure 2: Timeline for Kenya's Tourism Performance

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Source: Own analysis

Kenya experienced remarkable growth in the 1960s due to the introduction of low value tourist packages. Global recession and oil shocks in the 1970s contributed to the decline in tourist earnings. Furthermore, the closure of the borders between Kenya and Tanzania led to a decline of cross–border and regional tourism. .Furthermore, a deteriorating tourism infrastructure as a consequence of the spread of Human Immunodeficiency Virus/Acquired Immune Deficiency Syndrome (HIV/AIDS), poor health standards, poor policy implementation, poor transport facilities, and terrorist attacks contributed to a decline in tourism earnings in the 1980 -1990s.^[2]

Kenya’s tourism development strategy is based on low-value tourism or mass tourism. This is described by David Weaver as “…large co-operations, unfettered free markets, high density developments, short term profits and the like”^[3] and is therefore perceived as an insecure base for formulating a strategy in the long-term. Furthermore, mass tourism has led to over-utilization of resources in the country forcing the government to adopt sustainable tourism policies. On the contrary, alternative tourism (high-value tourism) is associated with ecotourism and sustainable tourism and is more controlled. It hinges on the overexploitation of natural resources and yields high revenue by attracting rich tourists to Kenya.^[4]

Since independence, the tourism sector exhibited a steady growth and used to be the country’s main source of foreign exchange. In the late 1990’s, the principal source of foreign exchange was the agricultural sector. Kenya’s service sector that contributes to 69% of the GDP is dominated by the tourism sector. It was the largest foreign exchange earner in the country in 2007, followed by flowers, tea, and coffee. The sector generated US$ 838 million in 2006, up from US$ 676 million the previous year.^[5] However, with the political uncertainties fuelled by ethnical clashes, tourist earnings decreased from US$ 1,031 million in 2007 to US$ 734.7 million in 2008, thus representing a big drop.^[6]

Figure 3: Trends in Tourist Earnings

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Source Kenya National Bureau of Statistics, 2009

The number of international arrivals declined sharply by 33.8% from 1.8 million in 2007 to 1.2 million in 2008. The number of bed-nights occupied by hotels decreased significantly by 46.7% from approximately 7 million in 2007 to 3.5 million in 2008. Similarly, the number of visitors to game parks and national reserves declined from 2.5 million in 2007 to 1.6 million in 2008, representing a decline of 34.5%. Other factors that contributed to the decline of the sectors performance include: the high cost of jet fuel; the global financial crisis; and the rise in commodity prices and the exchange rate fluctuation that occurred in that year.

Figure 4: International Visitor Arrivals

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Source: Kenya National Bureau of Statistics, 2009

The contributions of tourism to the Kenya’s economy are as follows:

Generation of government revenue in form of taxes, duties, licences, visas, among others;

- Employment opportunities at semi-skilled, technical, and managerial levels;
- Contribution to diversification, making the economy less reliant on other sectors such as agriculture;
- Stimulation of the growth of other sectors in the tourism cluster;
- Cultural interaction and exchange;
- Fosters conservation and preservation of natural and cultural resources;
- Encourages learning of new languages and skills;
- Promotes viability of local businesses directly and indirectly through increased spending of tourists or tourism businesses;
- Technology transfer due to the presence of foreign investors and tourists;
- Influences the standards of living.

Nonetheless, tourist benefits have also resulted to an increase in social and environmental costs; leakages in tourism earnings; seasonal employment, and vulnerability of the industry to international market inconsistency, competition, and civil unrest.

Despite high government spending, effective destination marketing strategies and the country’s presence in international fairs and exhibitions, toursim has not developed as expected due to the absence of a shared tourism vision for the future and a long-term development strategy.^[7] A sound strategy needs to be efficiently implemented to ensure sustainable development of the sector. Efforts are required especially in the public sector to convert Kenya into a leading tourism destination and stick out from its competitors.

2.1 STEEP - Social, Technological, Economic, Environmental and Political factors

Analyzing the external and internal environment is an important part of the strategic planning process that influences the success of an industry. Therefore, the outputs of the STEEP analysis provide concentrated information on Social, Technological, Economic, Environmental and Political aspects that have an impact on the activities of the tourism cluster in Kenya.

2.1.1 Social Factors

Kenya’s population is 39,002,772 million whereby 42.3% are under the age of 15 years. Only 2.6% of the total population is above 65 years. The population consists of various ethnic groups, with the largest group being the Kikuyu (22%), followed by the Luhya (14%), Luo (13%), Kalenjin (12%) and the Kamba (11%).The rest of the population consists of smaller ethnic groups and non-Africans (1%).^[8] Therefore, Kenya has a diversity of cultural heritage, and traditions to offer.

An estimated number of 1.4 million are infected with HIV/ AIDS.^[9] Kenya’s social context has extremely troubled the public health sector. The explosive spread of the virus has led to an increase in poverty. Specifically, the percentage of people living below the poverty line is 46%.^[10] Moreover, human capital is declining due the impacts of HIV/AIDS. Despite the government’s efforts to reduce vulnerability to HIV/AIDS, the pandemic is still declared as a natural disaster that requires a radical societal change. The government strategy to curb the spread of the disease has been done by enhancing communication, education, and information awareness. Health facilities required to deliver essential services are inadequately equipped and lack financial resources. Moreover, public expenditure on health is very low at US$ 5 per capita - well below US$ 20, the bare minimum required to deliver substantial services.^[11]

In 2005/2006, the government introduced a new policy for the treatment of malaria, the Artemisinin-based Combination Therapy (ACT). The therapy addresses the problem of resistance to sulphadoxine-pyremethamine which has been used for a long time as the first-line drug for treating malaria in the country. The creation of malaria awareness has been possible through training workshops, information and publication, education, and communication efforts by the government.^[12]

Achievements in education in the country are impressive so far compared to its neighbours, and adult illiteracy is among the lowest in Sub-Saharan Africa. According to the United Nations Common Database 2004, Kenya has 95.8% youth (15-24 years) literacy rate, in comparison to Turkey with 95.5%, South Africa with 93.9%, and United Arab Emirates with 91.4%.^[13]

2.1.2 Technological Factors

The government of Kenya has realized the importance of the Information, Communications and Technology sector (ICT) by reviewing ICT related policies. Challenges facing the sector include: critical infrastructure (electricity, data base services, and financial services), poor regulatory framework, low technology dispersion, and inadequate manpower to implement and execute the resources available. The tourism sector has deficiencies in the existing tourism information capability. Besides, the country lacks tools to accurately evaluate its current performance and impact of the external shocks to eventually tailor their strategies for the economy in the short and long run. Specifically, there is need for better tourism information systems in the following areas: accurate and up- to- date visitor arrival statistics, improved statistics in hotel occupancy and performance, increased application of marketing research techniques, and marketing intelligence.^[14]

2.1.3 Economic Factors

The economic performance of Kenya after independence was impressive. The growth of GDP rate averaged to 6.6% per year between 1964 and 1973 as a result of the government’s promotion of agriculture and increase in demand of export and domestic goods. In the 80’s and 90’s, external shocks such as price volatilities together with cronyism, corruption, and poor fiscal and monetary policies ushered in an era of stagnating economic performance. In 1999 to 2000, a severe drought hit Kenya necessitating water and power rationing led to a decline of GDP by 0.2% in 2000. Kenya’s economy was hampered by numerous factors such as endemic corruption, world price fluctuations, low investment, ethnic violence, deteriorating infrastructure, and limited growth by 1.1% in 2001 and 2002. The country experienced a remarkable sustained economic growth from 2003-2007, with GDP reaching 7.1% in 2007, the eminent growth rate over the period (see figure: 5). However, economic growth shrunk to 1.7% in 2008 as a result of the post–election crisis experienced in early 2008, its spillover effects ware manifested throughout the year and mainly in the tourism and agricultural sectors. In 2008, the sectors’ value added shrunk substantially by 5.1% and 36.1%, respectively.^[15]

The overall annual rate of inflation, computed as a percentage change of the Consumer Price Index (CPI) almost tripled from 9.8% in 2007 to 26.2% in 2008.^[16] Consequently, the high annual inflation led to a reduction in average earnings by 16.2% in 2008. Commercial banks interest rates on savings and deposits declined from 1.67% in 2007 to 1.65% in 2008. Similarly, lending rates for loans and advances and average deposits decreased from 9% in 2007 to 9.98% in 2008.

Figure 5: Real GDP Growths, Consumer Prices and Current Account Balances for Kenya

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Source: Kenya Bureau of Statistics, 2009

The Kenyan Shilling depreciated as reflected by the trade weighted exchange rate index, which increased notably by 18% from 604 in 2007 to 712.9 in 2008. Within the East African region (Kenya, Uganda and Tanzania), Kenya lost against the Tanzanian Shilling and Ugandan Shilling by 7.7% and 7.2%, respectively. The weakening of the Shilling was not only due to the global financial meltdown but also because of the deterioration of earnings from the tourism sector in 2008.

2.1.4 Environmental Factors

Success in tourism depends upon the management of the value added to the resource endowment. Therefore, the development of the sector depends on human, land, water and air resources. Factors contributing to pollution that negatively affect the sector include: vehicle pollution (very high in Nairobi); sedimentation of the ocean beaches, lakes and rivers; improper garbage disposal; and cutting down of vegetation while camping or hiking. Tourist safaris in the national parks exact a heavy toll on the balance of the ecosystem. The drivers carelessly chase over the grasslands to get closer to the animals thus destructing animal patterns. To counteract the results of this recklessness, national parks and game reserves charge fines and entrance fees which are reinvested in the maintenance and preservation of the wildlife. Likewise, the government under Kenya Wildlife Service (KWS) has to deal with various issues relating to the protection of endangered species, wildlife cropping, wildlife hunting, excision of forest reserves, and land use in order to minimise human-wildlife-tourism conflict.^[17]

Although ecotourism is a relatively new field in African countries, Kenya has become a role model for community tourism projects across Africa. In the past five years, environmental technologies and initiatives have been applied to help preserve the natural resources and increase eco-awareness in the country. In addition, the government has made efforts to mitigate the negative impacts of tourism on the environment by introducing a new policy regime that emphasizes the concept of sustainable tourism and wildlife conservation. This has been done by enforcing the provisions of the Environmental Co-ordination and Management Act of 1999 and the introduction of an obligatory Environmental Impact Assessment for all new tourism developments.^[18]

[...]

^[1] Central Intelligence Agency. „ The World Factbook: Kenya” <https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html#> (10.07.2009)

^[2] Ministry of Tourism & Wildlife (MoT&W), The Study on the National Tourism Master Plan in the Republic of Kenya, (Nairobi: Government Printer, 1995)

^[3] David B. Weaver, Magnitude of ecotourism in Costa Rica and Kenya, Annals of Tourism Research, 26(4), (Great Britain: Elsevier Ltd, 1999), p. 797.

^[4] Moses M. Ikiara, Vision and Long-term Development Strategy for Kenya’s Tourism Industry (Nairobi: Kenya Institute for Public Research and Analysis, 2001), p. 11.

^[5] Library of Congress – Federal Research Division. „ Country profile: Kenya” <http://memory.loc.gov/frd/cs/profiles/Kenya.pdf> (20.087.09)

^[6] Kenya National Bureau of Statistics (KNBS), Economic Survey, (Nairobi: Government Printer, 2009), p. 213.

^[7] MoT&W, National Tourism, (Nairobi: Government Printer, 2008), p. 10.

^[8] Central Intelligence Agency. ,,Country report: Kenya” <https://www.cia.gov/library/publications/the-world-factbook/geos/ke.html#> (15.07.2009)

^[9] Ministry of Health, Kenya Aids Indicator Survey < http://www.kanco.org/FW266/html/pfd/KAIS%20-%20Preliminary%20Report_July%2029.pdf > (20.07.2009)

^[10] Kenya National Bureau of Statistics (KNBS) ,,Kenya Integrated Household Budget Survey” < http://www.cbs.go.ke/surveys/kihbs2004/pdf/KIHBS-1st%20Quarterly%20report2-Aug05.pdf> (20.7.2009)

^[11] House of Commons, Department for International Development, Kenya Country Assistance Plan (London: The Stationary Office Limited, 2004).

^[12] Organization for Economic Co-operation and Development (OECD) , African Economic Outlook (OECD, 2009)

^[13] United Nations Environment Programme (UNEP). „ Country: Kenya” <http://globalis.gvu.unu.edu/indicator.cfm?IndicatorID=41&country=KE#rowKE>

(6.08. 2009)

^[14] MoT&W, National Tourism Policy (Nairobi: Government Printer, 2008).

^[15] KNBS, Economic Survey, (2009), p. 14.

^[16] KNBS, Economic Survey, (2009), p. 15.

^[17] Moses Ikiara & Caroline Okech, Impact of Tourism on Environment in Kenya: Status and Policy, (Nairobi: Kenya Institute for Public Policy Research and Analysis, 2002), p. 37- 40.

^[18] MoT&W, National Tourism Policy, (2008).