SMALL AND MEDIUM ENTERPRISES IN BOTSWANA: THE CASE OF THE TOURISM SECTOR

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1 Journal of Social and Economic Policy, Vol. 12, No. 1, June 2015, pp. 1-7 SMALL AND MEDIUM ENTERPRISES IN BOTSWANA: THE CASE OF THE TOURISM SECTOR STEPHEN M. KAPUNDA * This study presents a comprehensive picture of the value chain in tourism activities linking the positive effects of foreign direct investment components on citizen owned small, medium and microenterprises such as hotels, suppliers and tour operators of Botswana in the context of development of tourism sector. The study assesses the extent to which local people participate in the tourism sector in Botswana, and evaluates the contribution of tourism to the livelihoods of the local communities. The study reveals that there is relatively lower participation of citizens and lower benefits derived by the locals from the tourism industry in Botswana. The study recommends that the government of Botswana should make adequate efforts, by formulating suitable strategies, to attract more local investors in the tourist sector. 1. INTRODUCTION In Botswana, tourism is the second biggest contributor to GDP, next to diamonds which is the number one export and contributor to GDP. Botswana is among the top 10 developing countries considered as adventure tourism destinations, according to the Adventure Tourism Development Index due to her commitment to sustainable development to tourism.the tourism sector employs double the number of people employed by the diamond sector because of its labour intensive nature. Within the last ten years, tourism in Botswana has experienced an average annual growth of 10%. Its contribution to GDP and total employment is estimated at 5 percent and 9.2 percent respectively (Republic of Botswana 2015). The main objective of the study is to assess the extent to which local people participate in the tourism sector in Botswana, and evaluates the contribution of tourism to the livelihoods of the local communities. As most of the studies done have provided cases of general linkages in the tourism sector with little attention on citizen economic empowerment in Botswana, the focus of the paper is on citizen empowerment in Botswana through the development of SMEs relevant in tourism sector. 2. AN OVERVIEW OF TOURISM SECTOR IN BOTSWANA Tourism in Botswana aims at diversifying the economy from the mining sector and particularly reliance on diamonds. The government of Botswana has taken measures to encourage the growth of tourism in Botswana by having tourism policy since 1990 and establishing a Tourism Board in The Tourism Board, which is currently the Botswana Tourism Organisation, is responsible for marketing Botswana and to attract investment in the tourism industry. Through the Department of Tourism, the Ministry of Environment Wildlife and Tourism provides policy direction and coordinates the * Stephen M. Kapunda, Associate Professor in Economics, University of Botswana, Private Bag UB705, Gaborone, Botswana, kapunda@mopipi.ub.bw

2 2 STEPHEN M. KAPUNDA tourism sector in Botswana.The department which supports a thriving tourism industry in the country has district offices in Maun, Kasane, Tsabong, Gantsi and Francistown. Botswana follows a tourism model of high quality, high cost, low volume policy. This policy aims at protecting the fragile ecology/environment in the tourist areas. In addition to the Tourism Policy, the Botswana Government Tourism Strategy is guided by various policies and statutory frameworks which include the Botswana Tourism Master Plan (2000), Tourism Development Framework (2001) and Botswana National Ecotourism Strategy (2002). (Leechor et al. 2007). Tourism contributes5 per cent of GDP and is forecasted at 10% in 2023 (Republic of Botswana, 2015). Tourism employment forms 9.2 per cent of total employment in Botswana. The percentage is forecasted at 9.8 per cent in 2023 (Republic of Botswana 2015). The main tourist areas include: the Okavango Delta, Chobe National Park, Makgadikgadi Pans and the Moremi Game Reserve. Recently there has been a shift in the Botswana tourist industry from wildlife tourism to eco-tourism, some of which involve Botswana communities and helping them to develop own projects. The government is also encouraging citizens/indigenous Batswana to participate in the tourism sector by granting incentives to non-citizens to form joint ventures with citizens. For example, foreign investors are required to bring in investment capital of US$ However, if they are in a joint venture with citizen investors, the required investment is only US$ Foreign investors are also required to transfer technology and skills to citizen investors by promoting participation of local Batswana in supervisory positions and senior management levels (Leechor et al. 2007). In addition to the above-mentioned policies and regulations, there is also the Tourism Act of 1992 and Tourism Regulationsof The Tourism Act provides regulations for the tourism sector. To mention a few, it makes provision for licensing of tourism enterprises, defines categories of tourism enterprises and makes provision for a grading system for tourism enterprises. The Tourism Regulations established the National Council of Tourism and specifies among other things, the requirements for a tourism licence and hotel grading system. The main strategy of the Ministry of Environment, Wildlife and Tourism over the next five years is to diversify the source markets of tourists and to encourage the participation of the private sector in tourism. In order to achieve this, licensing procedures are being reviewed, citizens participation is encouraged, and a National Eco-tourism programme has been introduced, to provide tourists an opportunity to learn about local cultures, history of Botswana and to encourage the participation of women and youth in eco-tourism (Leechor et al. 2007). 3. LITERATURE REVIEW This study takesa holistic view of the value chain in tourism activities where linkages (forward and backward) of enterprises with FDI components to local SMEs and other nationals tour attractions are examined at various stages, from point the tourist arrives

3 SMALL AND MEDIUM ENTERPRISES IN BOTSWANA 3 at the airport to the time such a tourist goes to the airport for departure. The main SMEs are the hotels, suppliers and tour operators. The theory of externality effect of FDI in less developed countries is still nascent. However, two main branches of theories are identified. Benefits from FDI will lead to economic development in the host country. The other notes that technological benefits from FDI will not necessarily lead to enhanced capacity and economic development of the host country, unless some conditions are satisfied. For details see Hakanson and Snehota (1995) and Kaplinsky and Morris (2000). Empirical Evidence According to UNCTAD (2008) tourism-related FDI has generally displayed an upward increase. This seemingly consistent increase notwithstanding, the share of FDI on tourism in the total national FDI stock is only 2 per cent. Given that tourism contributes 3 8 per cent to GDP, this might suggest that a considerable proportion of investment in tourism is funded from internal resources.the private investment in tourism has grown from US$2.4 million to US$11 million in the last 10 years. Many governments in less developed countries encourage the development of tourism due to its employment creation potential. However, tourism has been criticised for not fully realising its potential to create linkages with the local economy (Meyer, 2008). Tourism linkages arise from the accommodation and transport of tourists into a country, supply of food, furniture and other supplies needed by hotels, lodges and guest houses.theseprovide accommodation to tourists and purchase of souvenirs and other items by tourists. There is a perception that there could be a symbiotic relationship between the hotels, tour operators and the communities. However, in South Africa large tourism businesses failed to establish and maintain linkages with small and medium enterprises (SMEs) due to problems of unreliability of suppliers, quality issues, the capacity of SMEs to produce the required volume of supplies and also lack of finance. In Tanzania there is a deliberate policy reforms that favour FDIs, especially those of the export oriented type. As a result, tourism activities especially investments in hotels, has been one of the prominent FDI in recent years. As noted earlier tourism in Tanzania contributes about 30 percent of total exports (Rutashobya et al. 2011).The increasing role of FDI in less developed countries including Tanzania, however, has created a lot of expectations among the local community, especially in respect of their opportunity and beneficial effect through business linkages. FDIs companies in Tanzania have often come under attack for their failure to promote local business communities through backward and forward linkages (Rutashobya et al. 2011) and Kapunda et al. 2011). 4. METHODOLOGY Data Types, Sources and Collection of Data This study uses both primary and secondary data. The sources for the later include published material, journals articles, government documents and internet sources. Primary data was collected using a survey questionnaire that was designed to elicit

4 4 STEPHEN M. KAPUNDA important information such as SMEs background information, ownership, employment, and sources of supply or inputs. The survey was carried out by the principal researcher and 6 research assistants during July September The data was collected from three main areas of tourism: Gaborone, Maun and Kasane/Kazungula. A total of 61 usable questionnaires were collected, i.e. from 31 hotels, 16 tour operators and 14 SMEs suppliers to the hotels. The following hypotheses tested are 1) there is little participation of local people in the tourism sector, and 2) the benefits of local communities and SMEs from tourism FDI are less than those of foreigners.the analysis was prepared by using computer packages mainly the SPSS. This led to use of mainly descriptive economic statistics. 5. FINDINGS AND THEIR INTERPRETATIONS This section provides empirical findings and their interpretations with reference to local participation in the tourism sector. The findings are based on the analysis relevant to a network and global value chain involving hotels, suppliers and tour operators as SMEs Hotels In this study, hotels also include lodges, camps, guest houses, inns and others that provide accommodation to tourists. Thirty one hotels were analysed and the findings and their interpretations are in order. About 48 percent of the 31 hotels were owned by local people, either as individuals or families. 52 percent were owned by foreigners or were joint ventures with an average of 80 percent foreign components. This implies that the majority of the hotels were foreign owned as illustration in Table 1. These findings are in line with the findings of Mbaiwa (2005b) which showed that 81.5 percent of the tourism registered businesses in Maun and the Okavango Delta had an element of foreign ownership, either 100 percent foreign ownership or joint ventures, and only 18.5 percent were fully owned by citizens. Type/Grade (Star) Table 1 Hotel Ownership in Botswana Ownership Local Foreign Joint venture Total 15 (48.4%) 8 (25.8%) 8 (25.8%) Regarding the gender of the hotel owners, about 58 percent of them were men and 42 percent were women. Female management dominated the smaller hotels (1-2 stars) as shown in the Table 2.

5 SMALL AND MEDIUM ENTERPRISES IN BOTSWANA 5 Star Table 2 Gender of Owners of Hotels in Botswana Gender of Managing Director (Type) Male Female Total (58.1%) 13(41.9%) 31 (100%) Regarding the employment structure in terms of foreigners and local people in the hotels is shown in Table 3. Table 3 Employment Structure: 1 2 Star Hotels (Percentages) Employment Category Foreign Employees Local Employees M F M F Total Top management Middle positions Low level positions From Table 3 it is clear that almost all local employees are in the lower level positions (98.8%) the majority of them being women in the 1 2 star hotels. This applies also in the case of 3-5 star hotels as shown in Table 4. Table 4 EmploymentStructure in 3-5 Star Hotels (Percentages) Employment Category Foreign Employees Local Employees M F M F Total Top management Middle positions Low level positions This implies that the local employees receive lower salaries in conformity with their relative low positions. Our findings are in line with those of Mbaiwa (2005b, UNCTAD 2008) who also found that locals are employed in low paying unskilled jobs such as manual labour, drivers, watchmen, gatekeepers, cooks and maids, while top management positions are held by foreigners. Hotel Suppliers in Botswana About 90 per cent of the top and middle positions were occupied by foreign employees. Almost 100 per cent of the employees in the low position level were local,70 per cent being women. About 95 of the products supplied to hotels were obtained imported

6 6 STEPHEN M. KAPUNDA especially from South Africa. This situation indicates the need to encourage local production in Botswana. Tour Operators in Botswana About 85 per cent of the local operators were foreign or 5 per cent formed foreign and joint businesses.almost all tours (95 per cent) were men. 3. CONCLUSION AND POLICY RECOMMENDATIONS This study has shown generally that there is relatively little local participation and benefits in the tourism industry especially in Botswana. The following specific conclusions can be drawn from the study. Most of the local people are employed in the low positions with low incomes. With regards to ownership and management, it was found that locals own/ manage the relatively small hotels (1-2 stars) while foreigners owned the relatively larger hotels (3 5 stars). Also with regards to gender, women managed the smaller hotels (1 2 stars). There were very few women in top management. Hotel suppliers and tour operators are dominantly foreign due to heavy dependence on South Africa. Based on the findings of the study, it is recommended that: The government of Botswana should make adequate effort to attract more local investors in the tourist sector who will eventually employ more local people in management, middle and low positions. Attractive incentives such as tax holidays may be useful. Foreigners who invest jointly with citizens should not only be required to bring less initial capital than foreigners who invest alone, but should also enjoy tax holidays for a reasonable number of years. Local female investors should be given preferential treatment in terms of training and information needs and raising finances, to make them more competitive in the tourism sector. There is need for government intervention to improve indigenous SMEs access to finance and tenders to supply hotels with local products and services. References Boniface, B. G. and Cooper, C. P. (2001), Worldwide Destinations: The Geography of Travel and Tourism, Butterworth Heinemann. Hakanson, H. and Snehota, I. (1995), eds- Developing Relationships in Business Networks, London: Thompson Business Press. retrieved 2014/10/27. Kapunda, S. M. and B. Magembe (2011), Global Competition and International Financial Trade: The Case of SMEs, Internal Journal of Trade Services, Vol. 3, No. 1, June, pp

7 SMALL AND MEDIUM ENTERPRISES IN BOTSWANA 7 Kaplinsky, R. & M. Morris (2000), A Handbook for Value Chain Research, IDRC. Leechor, C. and M. Fabricius (2007), Developing Tourism in Botswana: Progress and Challenges, World Bank BIDPA (Botswana Institute for Development Policy and Analysis) Gaborone. Mbaiwa, J. E. (2004), The Success and Sustainability ofcommunity-based Natural ResourceManagement in the Okavango Delta, Botswana South African Geographical Journal 86 (1) Mbaiwa, J. E. (2005a), The Problems and Prospects of Sustainable Tourism Development in the Okavango Delta, Botswana, Journal of Sustainable Tourism Vol 13, No. 3; Mbaiwa, J. E. (2005b), Enclave Tourism and Its Social Economic Impacts on the Okavango Delta, Botswana, Tourism Management Vol. 26, Meyer, Dorothea (2008), Pro-Poor Tourism: From Leakages to Linkages. A Conceptual Framework forcreating Linkages between the Accommodation Sector and Poor Neighbouring Communities, Current Issues intourism, 10: 6, Republic of Botswana RB (2015), Botswana Review, RB. Rutashobya, L., Kapunda, S.M., and Magembe, B. (2011), Foreign Direct Investment and Enhancement of Economic Capacity of Small and Medium Enterprises in Developing Economies: A Network and Global Value Chain Analysis, University of Botswana/University of Dar-es-Salaam, M. UNCTAD (2008), FDI and Tourism:The Development Dimension, East and Southern Africa, Current Studies on FDI and Development,(New York and Geneva United Nations).

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