BUSINESS CLIMATE REVIEW SUSTAINABLE TOURISM SECTOR UNITED REPUBLIC OF TANZANIA

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1 UNITED NATIONS CONFERENCE ON TRADE AND DEVELOPMENT (UNCTAD) United Nations Inter-Agency Programme on Trade and Productive Capacity BUSINESS CLIMATE REVIEW SUSTAINABLE TOURISM SECTOR UNITED REPUBLIC OF TANZANIA Prepared by ROBERT TRAVERS (Contract 47522) October 2014

2 Document control Document Name Business Climate Review: Sustainable Tourism Language(s) English Responsible Unit UNCTAD Division of Investment and Enterprise Creator (individual) Robert Travers Subject (taxonomy) Social Science, Economics, Tourism Effective Date December 2014 Suggested Review End of project Audience UNCTAD, UNOPS, UNIDO, ILO, World Bank, Government ministries and agencies, tourism industry, other partners and donors. Applicability UNCTAD Replaces n/a Is part of United Nations Cluster on Trade and Productive Capacity Programme Related documents Joint programme document (2014) UNCTAD Record Ref. TBD Date Author Version Change Reference 10 October 2014 Robert Travers, 0.0 Original draft created NOTES The designations employed and the presentation of material in this publication do not imply the expression of any opinion whatsoever on the part of the United Nations concerning the legal status of any country, territory, city or area, or of its authorities, or concerning the delimitation of its frontiers or boundaries. ACKNOWLEDGEMENTS The consultant wishes to thank the staff of the Tanzania Investment Centre, the Ministries of Industry and Trade, and Natural Resources and Tourism, Responsible Tourism Tanzania and the Tanzanian Confederation of Tourism for their assistance in the United Republic of Tanzania and in the compilation of this report. 2

3 Acronyms BEST-AC BRIC BRN CSR EAC FDI FIT GCI GDP ICF ILO ITC KATO MICE MNRT NCAA NGO OECD PAD PROTECT PSP RTTZ SADAC SARS SECO SIDA SME STCAA TALA TANAPA TATO TAWA TCT TRA TTB TTC UNCTAD UNESCO UNIDO UNOPS UNWTO USAID VAT WEF WTO WTTC WWF Business Environment Strengthening in Tanzania: Advocacy Component Brazil, Russia, China and India Big Results Now Corporate social responsibility East African Community Foreign direct investment Free independent tourist Global Competitiveness Index Gross domestic product Investment Climate Facility for Africa International Labour Organisation International Trade Center Kenya Association of Tour Operators Meetings, incentives, conferences and exhibitions Ministry of Natural Resources and Tourism Ngorongoro Conservation Area Authority Non-government organisation Organisation for Economic Cooperation and Development Pre-arrival declaration Promoting Tanzania s Environment, Conservation, and Tourism project Private sector participation Responsible Tourism Tanzania Southern Africa Development Community Severe Acute Respiratory Syndrome Swiss State Secretariat for Economic Affairs Swedish International Development Cooperation Agency Small and medium-sized enterprise Sustainable Tourism Certification Alliance Africa Tourist Agency Licensing Authority Tanzania National Parks Tanzania Association of Tour Operators Tanzania Wildlife Authority Tanzania Confederation of Tourism Tanzania Revenue Authority Tanzania Tourist Board Tanzania Tourist Corporation United Nations Conference on Trade and Development United Nations Educational, Scientific and Cultural Organisation United Nations Industrial Development Organisation United Nations Office for Project Services United Nations World Tourism Organisation United States Agency for International Development Value-added tax World Economic Forum World Trade Organisation World Travel and Tourism Council Worldwide Fund for Nature 3

4 CONTENTS 1 INTRODUCTION BACKGROUND MAIN FOCUS OF THE REPORT STRUCTURE AND CONTENT OF THE REPORT KEY FINDINGS AND RECOMMENDATIONS STRAGIC FRAMEWORK FOR SUSTAINABLE TOURISM POLICIES AND STRATEGIES LEGISLATION ROLE OF MINISTRIES, AGENCIES PROPOSED LEGISLATIVE CHANGES CURRENT SITUATION, PROGRESS AND TRENDS REGIONAL TRENDS UNITED REPUBLIC OF TANZANIA TRENDS SIGNIFICANT NEW DEVELOPMENTS UNDERWAY SUSTAINABILITY AND POTENTIAL COMPETITIVENESS OF TOURISM PRODUCT ATTRACTION OF INVESTMENT BUSINESS CLIMATE LABOUR DOING BUSINESS IN TOURISM TOURISM INDUSTRY ISSUES: FREEDBACK FROM MISSION Destruction of natural assets Skills gap and restrictive labour laws Incoherent policies, institutions and regulation No regulatory oversight No meaningful public-private partnership Multiplicity of taxes, levies and fees Inadequate marketing and branding Limited tourism infrastructure Inadequate incentives for inward investment Other issues

5 5.2 CONSUMER CONCERNS BUSINESS ENVIRONMENT REFORMS TO PROMOTE SUSTAINABLE TOURISM RESPONSIBLE TOURISM MARKETING LEADERSHIP AND STRATEGY TOURISM TRAINING REDUCING THE COST OF DOING BUSINESS STIMULATING EFFICIENCY, INNOVATION AND ENTREPRENNEURSHIP GREEN GROWTH AND PROTECTED AREAS SUGGESTED PRIORITIZATION REFERENCES AND OTHER DOCUMENTS CONSULTED PUBLICATIONS WEBSITES AND OTHER ELECTRONIC MEDIA ANNEXES ANNEX 1 SUGGESTED WORKSHOP AGENDA ANNEX 2 CONSULTATIONS ANNEX 3: SUMMARY OF ISSUES LISTED IN TERMS OF REFERENCE LIST OF TABLES TABLE 1: International tourist arrivals and 7-year growth (millions) TABLE 2: Percentage shares of visitors to East Africa (000s) TABLE 3: East Africa Percentage Shares of Tourism Receipts ($ millions) TABLE 4 Visitor arrivals by region TABLE 5: Visitor arrivals by purpose of visit TABLE 6: Overall travel and tourism competitiveness index TABLE 7: World Bank ease of doing business rankings TABLE 8: Most problematic factors for doing business TABLE 9: Global corruption index and ranking TABLE 10: Human resources country ranking TABLE 11: Licenses and charges applying to tourism businesses

6 1 INTRODUCTION 1.2 BACKGROUND The review forms part of the United Nations Conference on Trade and Development (UNCTAD) contribution to the Swiss State Secretariat for Economic Affairs (SECO) United Nations Cluster on Trade and Productive Capacity Programme 1 Market value chains relating to horticultural products for responsible tourism market access. This SECO Trust Fund programme is implemented by United Nations agencies, the International Trade Center (ITC) 2 and national counterparts. In August 2014 as part of Activity 3.4 the UNCTAD Division of Investment and Enterprise commissioned this review of the Business Climate for Sustainable Tourism in the mainland of the United Republic of Tanzania. UNCTAD is the United Nations body responsible for dealing with development issues, particularly international trade. The organisation works to provide analyses that form the basis for recommendations to economic policymakers, to help them make informed decisions. To this end, a mission was conducted in September 2014, the findings of which are detailed in this report, together with related desk research and recommendations.. A workshop is planned to present and discuss findings (annex 1). Consultees to date are listed at annex MAIN FOCUS OF THE REPORT The Inter-Agency Programme Document (2014) notes that the tourism sector in the United Republic of Tanzania creates many linkage opportunities for other sectors of the domestic economy, thereby generating demand for their output (output multiplier effects). Tourism is found to have high output backward linkages as well as forward linkages, which are quite evenly distributed across other sectors. This suggests that as the sector develops it provides services that can be utilized by other sectors. The Inter-Agency Programme s linkage analysis also shows tourism ranks second in employment linkages after agriculture. The high multiplier and linkage effects imply that tourism can add more value to the economy and become a strong catalyst for structural transformation. In order for this to happen the tourism sector must develop and grow. Under output 3 of the Joint Programme it is noted that The Tourism Sector currently has a policy and regulatory environment that has prompted sustained concerns by the business sector. The perception is that issues are not addressed and/or misunderstood due to a lack of objective up-to-date data, statistics and studies that inform policy decision making. The new Tourism Act (2008) and its constituent regulations, though addressing key aspects of the industry, does not provide provisions for the expected enabling environment or investment-friendly regulations. A comprehensive tourism-specific review of the Business Climate, that directly addresses trade-related Responsible Tourism issues and the concerns of the private sector, is needed. The process of arriving at a business climate review will be anchored in the Ministry of Tourism s newly established Public Private Dialogue (PPD) mechanism and logistical support will be provided to the Ministry to assist with convening 1 The United Republic of Tanzania is a "One UN" country that voluntarily adopted an integrated approach in the formulation of the United Nations assistance to the country. This programme involves the United Nations Office for Project Services (UNOPS), UNCTAD, the United Nations Industrial Development Organisation (UNIDO), and the International Labour Organisation (ILO). 2 ITC is the joint cooperation agency of UNCTAD and World Trade Organisation (WTO) for business aspects of trade development. 6

7 the necessary platform events. Given their on-going work in the area, ILO will provide specific contributions to the Review in relation to workplace conditions. 3 This report therefore explores the policy and regulatory environment to see how though better publicprivate dialogue the growth of the sustainable tourism sector (with significant forward and backward linkages and its significant employment-creation impact) might be better facilitated through the removal of barriers identified by the consultant and consultees, and through positive Government and private sector investment and interventions. 1.3 STRUCTURE AND CONTENT OF THE REPORT The main body of the report is organized as follows: Chapter 2 examines the strategic framework for tourism in the United Republic of Tanzania. Chapter 3 looks at trends, patterns and other characteristics of tourism, paying particular attention to similarities and differences across competitor countries. Chapter 4 focuses on competitiveness issues arising. Chapter 5 examines feedback on policy, the business climate and attractiveness to investment, as well as other industry issues of concern, particularly issues raised during the mission. Chapter 6 discusses the main findings and policy recommendations regarding possible business environment reforms. Finally prioritisation and issues for exploration in a follow up workshop are outlined. The scope of work commissioned by UNCTAD required a wide range of sustainable tourism issues to be addressed in the wider strategic environment. A summary of recommendations relating to these questions is included at annex 3. The methodology adopted was a rapid situation analysis based on a two week fact finding mission in Dar es Salaam and desk research. This report is the beginning of a process which will be elaborated and expanded through workshops and other research being taken forward by the SECO-United Nations Inter-Agency Programme. It is noted that the Inter-Agency Programme and its partners have commissioned or are planning to commission the following additional tourism-related studies: A study on tourism labour (ILO), to be annexed to this report. A tourism product development strategy (MNRT); A geographical study of areas with tourism potential (ILO); A study on e-registration of licensing in tourism (UNCTAD and the Tanzania Investment Centre [TIC]); A study on quality management for horticulture links with tourism (UNIDO). These issues will be covered in detail in these forthcoming reports. 3 SECO-United Nations Inter-Agency programme document 7

8 1.4 KEY FINDINGS AND RECOMMENDATIONS The United Republic of Tanzania has a good underlying competitive advantage for sustainable over other countries because of the quality of its wildlife, nature, coastline and landscapes. In addition it has a rich, varied and interesting culture. These advantages are however undermined by inadequate planning at both national and regional levels, poor infrastructure and insufficient investment in marketing, quality and training, all of which are necessary to deliver growth and poverty reduction. The biggest questions for the tourism sector are Can the country s wildlife, natural and coastal environment be protected to ensure the future of the country s primary tourism assets; and Can sustainable tourism spur job creation and economic benefit to improve the living conditions of the country s rapidly expanding population? At present the climate for doing business in tourism is encumbered by a confusing array of licences and charges, cumbersome systems, policy changes and uncertainty at national and local levels. These, together with increasingly limited incentives, undermine the industry s ability to attract investment both internationally and domestically. Tourism is not a Government priority. A steady loss of competitive advantage is the result. The following primary recommendations are made (chapter 6 outlines these in more detail): A more responsible tourism approach needs to be facilitated in the United Republic of Tanzania. Responsible tourism seeks to create better places for local people to live in, in addition to better places for people to visit. Responsible Tourism focuses on a triple bottom line approach (environment, society and economy) based on establishing collective responsibility for destination planning, management and marketing involving real partnership between Government, the industry, host communities, and tourists. Developing consensus on the role of tourism in the economy and how it can better benefit Tanzanians will require considerable effort. It is recommended that a comprehensive planning process be initiated for tourism through a new and significantly expanded tourism master plan. This process needs to bring about and agreed vision and action plans at both national and regional levels. Policy clarity based on consensus is an essential goal. The country s tourism product portfolio is presently limited, and there is scope for business tourism, incentive tourism, cultural tourism and domestic tourism to be added to the existing wildlife and beach product, and for the development of high quality niche products. A new master plan adopted by the Government should o Make clear all tax incentives for tourism and their objectives and targets o Provide incentives through the tax law o Communicate incentives clearly and consistently o Ensure incentives are endorsed by parliament o Regulate and administer incentives fairly and transparently 8

9 o Set clear annual targets for tourism revenues and jobs (in addition to visitor arrivals), and record and broadcast results annually. Despite many years of donor support for tourism training in the United Republic of Tanzania, lack of adequately trained staff at all levels remains a major business constraint. Training is needed in all areas, vocational and managerial. Having an educated, skilled labour force is at the core of tourism innovation and competitiveness and the United Republic of Tanzania is lagging behind competitor destinations. Effective and well targeted national tourism marketing is key to driving growth. It is very important that the Tourism Levy and proposals for its disbursement are quickly and effectively actioned so that it can achieve widespread support and grow. The Tanzania Tourist Board (TTB) and the industry, with support from Business Environment Strengthening in Tanzania Advocacy Component (BEST-AC) project, have put in place a national tourism marketing strategy: This now requires the implementation of robust annual marketing plans based on actual resources available. Targets need to be set and progress monitored. Licencing policies are in urgent need of rationalisation. This is possible to achieve relatively easily if there is a political will, both in terms of speeding up procedures and collection through e-registration. It will be important to ensure justification for licenses exit and that they give benefit, and to minimise cost and ensure transparency. Licencing needs to become a means of business-enabling, and not be seen as primarily a source of Government revenue. The issue of VAT is currently contentious, but there would be merit in reducing the multiple charges in inputs with one main tax on outputs, paid by the consumer and collected centrally. Agreeing a common VAT rate across the East African Community (EAC) would make sense in terms of competitiveness. It is difficult to start a legally-compliant tourism business in the United Republic of Tanzania due to the regulation maze. It is also difficult to borrow money in-country to get started or to expand. Access to finance can be a critical constraint to tourism growth for new players, in addition to those seeking to expand businesses without international funding partners. Commercial banks are reluctant to fund tourism projects due to a lack of confidence and the policy vacuum. There is a lack of realisation that the underlying trends for tourism to sub-saharan Africa are very positive, of opportunities are grasped and business facilitated. Tourism can play an important role in a green economic strategy. The Tanzanian hotel industry has yet to catch up with global trends in reducing carbon footprints and ensuring environmentfriendly design and operation. These approaches can also help to reduce operating costs. Protected areas and their buffer zones have particular a market incentive to go green: Their client base increasingly expects it. The following business reform initiatives are recommended: Responsible tourism 9

10 Representative associations should gather industry data on corporate social responsibility (CSR) initiatives by their members and publicise this activity through annual reporting and press releases. Larger tourism businesses should be encouraged to introduce CSR accounting, and allowed to write of expenditure on improving local facilities and education against taxation. A high profile national Responsible Tourism Awards scheme should be initiated. The awards should be licensed by the World Responsible Tourism Awards. Training programmes and a tool kit for Responsible Tourism should be developed, bringing Government agencies engaged in tourism at all levels and private sector operators together. The process of Responsible Tourism certification through the non-government organisation (NGO) Responsible Tourism Tanzania (RTTZ) should be expanded through training more auditors and creating greater industry awareness of the benefits of certification. To monitor the effectiveness of responsible tourism certification, case studies should be undertaken of companies which adopt the RTTZ Sustainable Tourism criteria, in order to help measure the impact of sustainable tourism in the United Republic of Tanzania. Linkages between organic agriculture suppliers and certified Tanzanian suppliers should be highlighted and promoted. More businesses should be encouraged to take part in these schemes. Leadership and planning: Establish at the highest level a tourism master plan steering group involving Government and private sector representative associations. It is important that all relevant ministries are engaged, not just MNRT. This body should agree terms of reference and secure donor support. Issue international tender. The master plan should be more strongly focussed on socioeconomic objectives to benefit Tanzanian people than the 2002 strategy: It should centre on market-led initiatives which will preserve the environment and wildlife, create employment for Tanzanians in tourism, crafts and other linked sectors, and lift people out of poverty across the country through creating more tourism clusters. Following master plan consideration of future demand for existing and new products, commence a comprehensive process of regional planning for tourism in line with master plan. This should include both regions and protected area administrations. Identify special tourism investment zones to spread tourism and establish market-competitive incentives. Develop incentives for local participation, for example a consortium that includes local investors might secure longer leases. Initiate web-based Land Administration Information System for processing land transactions. Develop business incubation support for new zones and regions with developing tourism clusters. Various appeal processes are not effective (Village Land Councils, Ward Tribunals, Courts of Appeal, etc. under different ministries) and this requires review and a tourism-specific policy. Compensation for displacement should also be reviewed. 10

11 Review TTB Cultural Tourism Programme to ensure marketability of product and enhance linkages with private sector. Consider introducing a digital approach to hotel classification based on consumer reviews in order to raise standards and highlight best practice. Hotel classifications and online guest reviews can be combined incorporated to reduce the gap between guests' expectations and experiences, and to ensure greater objectivity and transparency. A Government International Cooperation Department should coordinate donor aid for tourism following the master plan agenda. Training There is a need for a concerted, coordinated and comprehensive national strategy for tourism which is practical to implement, and which learns from the failure to sustain previous donor support initiatives in tourism training. A key need is ensure that training is employee-benefit centred. I.e. it should result in a globally recognised qualification which leads to opportunities not only in the United Republic of Tanzania, but also in the EAC, and further afield. The industry will need to adapt to give positive career paths to more staff so as to retain and develop them. In the context of a future master plan projecting the expansion of accommodation supply and staffing numbers required, it will be necessary to establish the extent of human resource needs in terms of employment by category, and the ways to resolve a key constraining issue. An updated national tourism Training Needs Analysis is needed, in coordination with tourism training institutions and the Ministry of Labour, Employment and Youth Development, the Ministry of Education and MNRT. Apprenticeship programmes should be reviewed and possibly expanded. Investment incentives should be offered to the private sector to develop internationally accredited tourism training colleges. The National Tourism Training College s targets and performance should be subject to continual review. Tourism curricula at all levels require constant review and update. All tourism staff need to meet high hygiene standards, and be educated about the benefits of improved hygiene and protection from mosquitos. The tourism sector can have a positive ripple effect in improving the basic health of its employees and their associates. Provide training to MNRT and TTB on market research, and to the National Bureau of Statistics on tourism satellite accounting. Work permit approval processes for tourism staff need to be put on line and speeded up. Costs of work permits should be brought into line with competitor destinations. Marketing Strengthen tourism research capabilities at MNRT, TTB, National Bureau of Statistics and the Central Bank of Tanzania. Develop target-driven annual action plans for TTB (and the new Tourism Authority). 11

12 Upgrade national tourism website and develop mobile technology versions. Enhance information technology and e-marketing skills across the industry. In terms of domestic tourism a communication toolkit and campaign should be initiated to target corporate (mining companies, diplomatic missions, NGOs) to encourage the use of use Responsible Tourism certified products in urban centres in the United Republic of Tanzania to help influence their decision on purchasing of both sustainable tourism and organically certified products. Reducing the cost of doing business Tax issues need a coordinating mechanism between Government and the private sector. Establish a Government-mandated review body to rationalize the current cumbersome licensing and tax regime. Government should also discuss any proposed tax increases on tourism entities in this forum before introducing them. Strengthen and empower regulatory authorities by increasing their independence and oversight powers, and providing capacity building for staff. Ensure each license applying to tourism has a clearly defined benefit: Work to illuminate nuisance licenses and petty regulations. Work towards replacing multiple licences and input charges with one tax on outputs, centrally and transparently collected by the Tanzania Revenue Authority (TRA). Introduce electronic tax filing system to tourism businesses and reduce frequency of VAT returns. Allow CSR contributions to be written off against tax. The Tourism Agency Licencing Authority (TALA) charge and work permit licenses should be reviewed, benchmarking against other EAC countries. Following development of a master plan which sets clear policy priorities, reintroduce selective investment incentives for tourism, focussed on new areas away from existing honey-pots and on increasing the supply of internationally accredited tourism training facilities and language schools. Delay implementation of VAT on tourism businesses owing to the likely impacts of Ebola on African tourism. Set an internationally competitive VAT rate for tourism enterprises. With EAC, work towards common VAT rates for EAC countries on various categories of tourism businesses. Discuss further the rationale and possible macroeconomic consequences of the dual currency payment systems in tourism, which demand that some licenses, levies, and fees be paid in United States dollars and others in Tanzanian shillings. Introduce equity between foreign and international charge levels. 12

13 Enhance One Stop Shop services for tourism investors at TIC. Develop links with investment expertise at MNRT, TTB, Tanzania National Parks (TANAPA), etc. and establish a tourism desk at TIC linked to an investment desk at MNRT. 4 Stimulating entrepreneurship Accelerate the simplification and on line processes for business registration and licensing. Allocate specific funds for tourism entrepreneurs from o Mwananchi Empowerment Fund o President s Fund for Small Entrepreneurs o Small Entrepreneurs Loan Facility o National Entrepreneurship Development Fund Secure donor support for a Tourism Enterprise Loan scheme, to offer tourism finance at a lower interest rate and administered through a development bank. Funds might be mobilised from the World Bank or the African Development Bank, borrowed as lines of credit to the Central Bank and then channelled through commercial banks and blended with the commercial banks own funds and administered by them. Train micro-finance institutions in business dynamics of tourism and encourage them to finance tourism SME projects. For larger projects in urban areas, consider tax incremental financing, which involves using writing off capital gains taxes on future increases in real estate value to fund expansion. Secure donor support for a Tourism Challenge Fund targeting new businesses and business expansion Green growth and protected areas Accelerate RTTZ activity and aim for zero carbon tourism products. MNRT bring together TANAPA, Ngorongoro Conservation Area Authority (NCAA), Tanzania Wildlife Authority (TAWA) and the Tanzania Association of Tour Operators (TATO) to discuss ways to streamline fees to parks, such as using a single debit-card payment system. Revisit the Wildlife Management Area model to ensure tourism benefits adequately reach communities. 4 At present the Department of Immigration, Ministry of Labour, Business Registration and Licensing Agency, Ministry of Industry and Trade, TRA and the Ministry of Lands and Human Settlement Development have officers with approval authority based at TIC, but not tourism. 13

14 2 STRAGIC FRAMEWORK FOR SUSTAINABLE TOURISM 2.1 POLICIES AND STRATEGIES The United Republic of Tanzania was formed 50 years ago, on 26 April 1964, as a result of the union of mainland Tanganyika and the Zanzibar archipelago. Tourism is not a union matter and Zanzibar has a separate tourism ministry and tourism policies. This report focuses on mainland Tanzania, where tourism began with the establishment of game in the 1920s for hunting. Following independence and the union, between 1967 and 1985 the country followed policies based on ujamaa (communality) and kujitegemea (self-reliance). A state body, the Tanzania Tourist Corporation (TTC) was established to oversee the main tourism functions like promotion, running of hotels and travel services. Since then the United Republic of Tanzania has made progress in moving from a centrally planned economy to a market-based regime. A National Tourism Policy was adopted in 1991 and reviewed in 1999 to take into account the increasing role of the private sector in tourism development. In 1997 the Tanzania Investment Act opened up the country to foreign investment. 5 In 2009 the Government Roadmap for Improving the Investment Climate was launched. In 2002 an Integrated Tourism Master Plan was published, centring on sustainable tourism development. It was acknowledged in the Master Plan that coastal tourism and tourism in other areas outside national parks needed to be the focus of tourism expansion and diversification along the coast and the pristine Southern regions. The Master Plan has now passed the end of its forecast scope (to 2011), and while much was achieved, many strategic issues relating to access, accommodation, diversification, marketing and geographic spread remain to be addressed. In 2010 the Second National Strategy for Growth and Reduction in Poverty (MKUKUTA II) was launched. 6 It seeks to s to reduce poverty through three broad outcomes: growth and reduction of income poverty; improved quality of life and social well-being; and good governance and accountability. The vision is to move Tanzania to middle income status by 2025 by modernizing agriculture and increasing supportive industrial and service activities in the rural and urban areas, which will require a 6 to 8 per cent annual rate of economic growth. The National Five Year Development Plan resulting seeks to scale up the role of the private sector in economic growth by improving the business climate, investing in people and infrastructure development. A World Bank review of tourism policy highlights tourism s employment potential: Tourism is potentially a significant force for growth and poverty reduction consistent with MKUKUTA II s overall objectives. 7 From 2002 to 2008, every two to three tourist arrivals directly generated at least one new job and another less directly in the broader tourism-related economy. This has been a fairly consistent trend, and one which can be counted on to continue as long as industry growth can be sustained. Thus taking direct and indirect employment impact, every one tourist creates one job in the economy. 8 5 Its provisions are now considered to some extent overly complex and outdated (OECD, 2013) 6 Tourism is hardly mentioned in MKUKUTA II (only one short paragraph). 7 Although, as noted above, tourism was not a priority in MKUKUTA II. 8 Wayne, S. (2009). 14

15 Despite this potential, tourism was once again not among the sectors chosen as priorities by the national initiative Big Results Now (BRN) 9 however NMRT is are grouped as resource facilitators meaning a sector to generate resources to fuel BRN in its second phase. It remains an industry without significant Government support. In 2013 in a public-private initiative the Tourism Development Levy (TDL) was established and that intends to channel funding collected in the form of a levy from the private sector into developing the industry. The resulting public-private Tourism Trust Fund will focus on support to four priority areas: I. marketing; II. research and development; III. training; and IV. tourism development (e.g. allocating land investments). According to MNRT, it is envisaged that up to 60% of the funds will be used for marketing, however the detail of strategy for expenditure is not clear. At present the levy is being collected, although expenditure mechanisms are not yet fully agreed. An International Tourism Marketing Strategy has been drawn up LEGISLATION As part of its policy review process over the past decade the Government of mainland Tanzania has replaced the Hotel Act, 1963, and the Tourist Agency Licensing Act, 1969, with the Tourism Act, Regulations issued under the Act will elaborate legal authority to charges applying to the industry. The Tourism Act is the primary legal instrument governing tourism, although as in any country business is bound my many other laws which govern cross cutting areas. These include commerce, the environment, health and safety, employment and employee relations, 11 planning, wildlife protection and many other areas. 2.3 ROLE OF MINISTRIES, AGENCIES Ministry of Industry and Trade The Ministry of Industry and Trade works to create an enabling environment for the sustainable growth of industry, trade, marketing and small and medium-sized enterprise (SME) sectors through effective policies and strategies, private sector participation (PSP), entrepreneurship development, and facilitating diversification of production, services and markets thereby creating employment, generating income and improving quality of life. The Ministry is the lead Government partner in the United Nations Cluster on Trade and Productive Capacity Programme Ministry of Natural Resources and Tourism 9 The BRN initiative commenced in 2013 and is supported by the Government of Malaysia and is based on the Malaysian model of development. It has a strong focus on Key Performance Indicators. The initiative focuses on six priority areas of the economy: (i). Energy and natural gas (ii). Agriculture (iii). Water (iv) Education (v). Transport (vi). Mobilization of resources. 10 TTB & TCT (n/d) 11 ILO report (to follow) 15

16 MNRT is the highest institution charged with tourism matters in mainland Tanzania. The ministry's mission is to formulate policies and strategies that would lead to sustainable conservation management of natural, cultural resources and environment, promote and diversify tourist attractions and increase sector contribution to national income and foreign exchange earnings. 12 MNRT has a strong regulatory role and issues tourism licenses. Tanzania Tourist Board TTB was formed to replace the TTC following its dissolution in TTB and was charged with the main function of marketing and promoting domestic and international tourism. It has information offices in Dar es Salaam, Arusha and a representative office in New York. It also has a basic website, and represents the United Republic of Tanzania in various promotional tourist fairs. The Board also operates the Tanzania Cultural Tourism Programme, a community-based tourism initiative originally initiated in 1996 with SNV, a Dutch NGO. There are some 50 communities involved. Most communities focus on offering cultural experiences including: experiencing people s way of life, traditional dances/ceremonies, sampling of local cuisines, home-stays, daily homestead chores, handicrafts, community development initiatives, indigenous knowledge, historical heritage, nature walks, and local folklores. TANAPA The primary role of TANAPA is conservation. Fifteen national parks have been set aside to preserve the country s rich natural heritage, and to provide secure breeding grounds for fauna and flora. Tourism provides valuable revenue used to support the conservation work of the national parks, as well as wildlife research, and the education and livelihood of local communities. In addition, tourism helps to generate international awareness of conservation issues, while the physical presence of tourists can help deter illegal poaching activity, assisting the park rangers with their game management work. Most tour operators are dependent on continued sustainable management of TANAPA assets. A percentage of park revenues is used to assist community development initiatives, such as schools, health dispensaries, water schemes and roads. Villagers are encouraged to develop cultural tourism projects to cultivate their own financial returns from park visitors. Throughout the Tanzania National Parks system there has been a steady growth in nature-based tourism. Tourist attractions have been diversified to enhance visitor experience. New products include walking safaris, canoeing, and night game drives. Traditional products such as day game drives, ballooning, sport fishing, chimpanzee tracking and mountain climbing. 12 Mussa, I.,

17 Tanzania Investment Centre TIC is under the Prime Minister s Office and promotes and facilitates investment in all economic sectors including tourism. The Centre was established in 1997 by the Tanzania Investment Act to be the Primary Agency of the Government to coordinate, encourage, promote and facilitate investment in the United Republic of Tanzania and to advise the Government on investment policy and related matters. TIC provides one-stop advisory services to potential investors, including tourism investors. TIC attends investor fairs and advertises the United Republic of Tanzania as an investment location. The agency deals with all enterprises whose minimum capital investment is not less than US $ 300,000 if foreign owned or US $ 100,000 if locally owned. Enterprises engaged in tourism follow the approval process contained in the Tourism Act, however TIC seeks to assist all investors to obtain permits, authorization etc. required by other laws to set up and operate investments in mainland Tanzania. 2.3 PROPOSED LEGISLATIVE CHANGES Tanzania Tourism Authority It is planned to totally reform the Tourist Board into a larger semi-autonomous body called the Tourism Authority. The Tourism Development Fund will be used to support this Authority and it will be charged with overseeing the effective delivery of the fund. MNRT hopes that the legal framework will be in place by Once operational, the Ministry will then focus primarily on policy issues. VAT changes The first revenue policy measure announced in the 2013/2014 Citizens Budget was To reduce tax exemptions including abolishing VAT exemptions on tourism services; reviewing the Tanzania Investment Act in order to reduce exemptions and retain only few which will attract strategic investments. 13 This implies a strong determination to phase out exemptions from VAT, although the Deputy Minister for Natural Resources and Tourism, reacting to the operators' concerns, recently said here recently that the VAT issue was still open for debate and suggestions from players in the industry. According to the Tanzania Association of Tour Operators Tourism-related segments that will be in future subject to VAT include tour guided game viewing, water and sea sports, animal and bird watching, (tented) accommodation, park fees, tourist charter services, ground transport or transit services. 14 Hotels already pay VAT and micro-businesses under the VAT threshold will remain exempt. The draft budget outlines proposals for development expenditure (31% of total expenditure, the rest being recurrent expenditure) on the following sectors: Education Health 13 < 14 TATO September

18 Agriculture Water Transport Energy and minerals Industrial sector Employment creation Tourism is not specifically mentioned as an area for development expenditure. 3 CURRENT SITUATION, PROGRESS AND TRENDS 3.1 REGIONAL TRENDS In terms of visitor arrivals, sub-saharan Africa has performed well through the global economic crisis of : An annual increase of 7.1% was achieved over these seven years. This is close to double the world average. TABLE 1: International tourist arrivals and 7-year growth (millions) /2005 growth Europe % Asia and the Pacific % North America % Sub-Saharan Africa % Middle East % World , % Source: United Nations World Tourism Organisation (UNWTO) Horwath Hotel, Tourism and Leisure s August 2014 review of hotel performance in East Africa reports a continued diversification of niche tourism products, ranging from the development of resort cities, increased number of premium safari parks, adventure, religious, eco or food tourism as well as golf courses and conference facilities development, however few of these developments are taking place in the United Republic of Tanzania. Other capital cities in the region have experienced a steep increase in hotel room supply over the last few years, also due to the large demand stemming from the worldwide meetings, incentives, conventions and exhibitions (MICE) industry that has earmarked the region. The MICE market is valued at $30 billion, with hotels accounting for 60% of the total value. Hotel operators such as Marriott International, Carlson, Rezidor, Protea Hotels and Kempinski are constructing additional guestrooms to come onto the market within the next 18 months. Recognizing that tourist attractions in their countries to a large extent complement each other, the six EAC partner states have agreed to work together to promote the industry and maximize gains. Horwath reports that funding remains one of the biggest challenges for the tourism sector in East Africa, despite the what been identified for Tourism potential the region. 18

19 3.2 UNITED REPUBLIC OF TANZANIA TRENDS Overview The United Republic of Tanzania has also performed well, particularly in comparison with Kenya which has seen increasing political violence. The outlook in the short term is admittedly less positive: Flight bookings to sub-saharan Africa may drop as much as 50 percent over the next four months as a result of geographic misconceptions about Africa and fear of the Ebola virus. 15 This is likely to have a significant negative impact on the business environment for tourism in However the tourism s rapid recovery in 2004 after a global scare regarding Severe Acute Respiratory Syndrome (SARS) illustrates the tourism industry s ability to recover quickly. Underlying long term growth projections for tourism to and within Africa are positive. Investment in the United Republic of Tanzania s busiest airports is taking place, and more carriers are featuring the destination: These are important developments for tourism, however taxes and landing fees, as well as fuel costs, are higher than competitors, in particular Nairobi. 16 Market share Regional tourism statistics are published by the EAC. While this data does not report purpose of visit, it shows that the United Republic of Tanzania s performance is none-the-less volatile and vulnerable to wider East African events. Although the country is the largest in Africa, visitor volumes reported are similar to Rwanda, one of the smallest (table 2). This highlights the United Republic of Tanzania s potential. TABLE 2: Percentage shares of visitors to East Africa (000s) Burundi 2% (165) 2% (183) 2% (195) 4% (228) 3% (205) Kenya 19% (1,203) 16% (1,490) 15% (1,609) 34% (1,823) 32% (1,874) Rwanda 19% (704) 16% (651) 15% (666) 17% (908) 18% (1,076) Uganda 33% (844) 36% (1,095) 36% (1,275) 29% (1,530) 28% (1,634) United Republic of Tanzania 23% (764) 26% (714) 28% (783) 17% (868) 18% (1,077) Total 100% (3,681) 100% (3,844) 100% (4,236) 100% (4,978) 100% (4,961) Sources: EAC and National Statistics Offices In 2011 and 2012 Kenya made significant gains, however this is because Kenyan tourism has been recovering following a sharp decline as a result of post-election violence in December 2007, assisted by a European Union (EU) funded global advertising campaign in Kenyan tourism figures have been negatively impacted by the fire at Nairobi airport in August 2013, the September 2013 attack on 15 Euromonitor PLC tourism forecasts (2014). There was an Ebola outbreak in the Democratic Republic of Congo (which borders the United Republic of Tanzania) in 2014, and in Uganda in OECD (2013). 19

20 the Westgate shopping mall and the country s growing terrorism threat. Uganda is also showing a decline. Tourism revenues In terms of revenue performance the United Republic of Tanzania claims a higher percentage share than simple visitor arrivals would indicate. As shown in table 2 above and table 3 below, the United Republic of Tanzania attracts 18% of East African arrivals, but is estimated to capture 31.5% of tourism receipts. The rates of growth over the past four years however indicate that tourism receipts in other East African countries have all been growing faster than in the United Republic of Tanzania: The average total growth in tourism receipts for the five countries is 58% from 2009 to The highest percentage and absolute growth in tourism receipts is 82% for Kenya; the lowest growth is 35% for the United Republic of Tanzania. This indicates a loss of market share in terms of inward revenues. TABLE 3: East Africa Percentage Shares of Tourism Receipts ($ millions) Burundi 0.1% (2) 0.1% (2) 0.1% (4) 0.1% (3) Kenya 34.9% (1,124) 41.3% (1,620) 42.0% (1,844) 40.1% (2,044) Rwanda 6.9% (223) 5.7% (224) 6.8% (298) 6.6% (337) Uganda 21.2% (683) 20.4% (802) 22.0% (967) 21.7% (1,105) United Republic of Tanzania 37% (1,192) 32.6% (1,279) 29.2% (1,283) 31.5% (1,605) Total 100% (3,224) 100% (3,927) 100% (4,396) 100% (5,094) Source: World Bank Although loss of market share is occurring, tourism is one of the United Republic of Tanzania s significant success stories. It accounts for an estimated 5% of GDP 17, generates over US$ 1.26 million for the economy, employs over 430,000 people (making it one of the country s top three employing sectors) and all sources agree that it the potential to grow very significantly, if it receives investment and is responsibly managed. Visitor numbers In terms of visitor numbers, the United Republic of Tanzania s tourism economy has weathered the recession well. 18. Statistics from the Immigration Department indicate that the number of tourists visiting 17 WTTC A detailed case study on impacts of the global recession on tourism in the United Republic of Tanzania is contained in UNWTO s 2013 publication Economic Crisis, International Tourism Decline and its Impact on the Poor. 20

21 in 2012 was 24.1% up on 2011, passing one million for the first time. The majority of overnight visitors come from Africa itself (in order of numeric importance Zambia, Burundi, Uganda, South Africa, Zimbabwe, Rwanda and Mozambique), however the largest single markets were the United Kingdom of Great Britain and Northern Ireland (183,269), the United States of America (69,680) followed by Zambia (65,110). Other major non-african markets are Italy (51,187), Germany (43,194) and France (28,091). Table 4 illustrates the trend in arrivals to the United Republic of Tanzania over in recent years. TABLE 4 Visitor arrivals to the United Republic of Tanzania by region /2011 growth Africa 392, , , % Americas , , % Asia and the 66,655 61, , % Pacific Europe 242, , , % Middle East 10,521 15,281 21, % Total 782, ,077, % Source: MNRT Tourism Statistical Bulletin (2010); National Bureau of Statistics and Central Bank of Tanzania (2011 and 2012). Table 4 shows the impact of the global recession (and recovery) on North America and Europe, and growth from some buoyant Brazil, Russia, China and India (BRIC) economies. In particular China was up 53% 2012 on 2011 to 13,760. India is the largest Asian source market (22,862 arrivals in 2012, up 29%) with strong ethnic and business ties. In addition displacement of safari tourism demand for Kenya to Tanzania is likely to be a factor (although regional violence and health scares undoubtedly supress international demand for all East African countries). A very high proportion of visitors come for leisure purposes: business tourism is by contrast weak (and was even weaker during the economic crises of 2008/2009). Purpose of visit is illustrated in MNRT data in table 5: 21

22 TABLE 5: Visitor arrivals by purpose of visit Leisure, recreation, holiday 81% 87% 90% 90% 86% Business and professional 11% 8% 5% 4% 7% Other 8% 6% 5% 6% 7% Total 100% 100% 100% 100%!00% Source: MNRT Other indicators Length of stay has declined very slightly during this period, from 11 to 10 days. Visitor arrivals to the United Republic of Tanzania as a whole are not markedly peaked: The busiest months are July, August, September and December; the least busy months are March to May. Across the United Republic, tourist accommodation is highly concentrated in Zanzibar, and on the mainland in Northern Tanzania and Dar es Salaam (the business hub). National Parks and other reserves lay a significant role in spreading tourism, although there is widespread agreement that Southern Tanzania and much of the coastline has particular unexploited tourism potential. The forthcoming Inter-Agency Programme study on geographical areas with tourism potential will explore these matters further. 3.3 SIGNIFICANT NEW DEVELOPMENTS UNDERWAY An international convention centre was opened in Dar es Salaam in 2013, and hotel development is zoned on the coast immediately south of Dar es Salaam. Some business tourism opportunities may arise from mining and natural gas (mostly during the construction phase). Regional airports are being developed, including Mwanza on Lake Victoria, and major airport expansion is underway in Zanzibar and Dar es Salaam. It is important to note however that in comparison to most leading tourism destinations in the world, mainland Tanzania does not currently have significant strategic tourism developments or many major hotel and resort complexes in the process of construction. With tourism numbers to sub-saharan Africa forecast to grow steadily in the medium and longer term, there is a danger that Tanzania s accommodation sector will become increasingly uncompetitive due to limited supply and lack of competition. A lack of forward strategic planning to capture the significant long term global growth in tourism to Africa forecast is evident and a paucity of investment incentives. The country s most recent overall Tourism Master Plan was written in 2002, however global tourism demand, consumer needs and marketing methods have changed very considerably since that time, not least due to the rise of the sharing economy 19 with peer-to-peer networks becoming the dominant information source for travel and tourism. 19 Technologies such as mobile devices, social media, the internet, and networked communications allow individuals and organizations to directly share existing resources rather than wait for third-party businesses or governments to deliver the desired goods and services. These people-to-people or peer-to-peer models create a new opportunity for individuals, communities, Governments and corporations to transact and collaborate. 22