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Macroeconomic Assessment of the Impacts of COVID-19 on Tourism in Namibia and Strategic Recommendations for the Recovery and Revival of the Sector

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Macroeconomic Assessment of the Impacts of COVID-19 on Tourism in Namibia and Strategic Recommendations for the Recovery and Revival of the Sector Macroeconomic Assessment of the Impacts of COVID-19 on Tourism in Namibia and Strategic Recommendations for the Recovery and Revival of the Sector Project: UNDP Contract Reference Prepared by: Prof. Heinrich Bohlmann Prepared for: UNDP Namibia Date: 10 December 2020 Macroeconomic Assessment of the Impacts of COVID-19 on Tourism in Namibia and Strategic Recommendations for the Recovery and Revival of the Sector Final Report This document serves as Deliverable 2 described in the contract relating to the Macroeconomic Impacts of COVID-19 on Tourism in Namibia prepared by Prof. Heinrich Bohlmann for the UNDP in Namibia Page | 3 Contents 1. Introduction and Background ……………………………………………………..…….. page 5 2. Overview of the Namibian Economy .…………………………………..………….……. page 6 3. The Tourism Sector in Namibia …………………………………….………………...…. page 8 4. Baseline Projection ………………………..……………………….…………………..…. page 12 5. Tourism Policy Scenarios ………………………………………………………………… page 14 6. Simulation Results ………………………………………………………………………... page 16 7. Summary and Policy Recommendations …………………………….….…………….… page 21 8. Key References ………………………………………………………..………………….. page 24 9. Appendix ……………………………………………………………….…………………. page 27 COVID-19 / Tourism / Namibia December 2020 Page | 4 List of Tables and Figures T1 GDP at market prices from the income side T2 GDP at market prices from the expenditure side T3 GDP at basic prices by sector T4 Namibia TCCI components ranking T5 Namibia TCCI sub-index breakdown T6 Macro baseline projections as of October 2019 T7 Macro baseline projections as of October 2020 T8 Simulation B1 results T9 Simulation B2 results T10 Simulation P1 results T11 Simulation P2 results T12 Simulation P3 results T13 Simulation P4 results T14 Simulation P5 results F1 Beds and rooms occupancy indices March 2019 to March 2020 F2 Beds and rooms occupancy indices September 2019 to September 2020 F3 Regional and international arrivals and departures indices March 2019 to March 2020 F4 Regional and international arrivals and departures indices September 2019 to September 2020 F5 Index of pre- and post-COVID projections for tourist arrivals A1 Sub-Saharan Africa TTCI 2019 scores A2 Namibia Tourism Satellite Account A3 Namibia top ten overall tourist markets in 2019 A4 Namibia top ten overseas tourist markets for holiday visits in 2019 A5 Namibia top ten overseas tourist markets for business visits in 2019 A6 Main economic sector and industry classification COVID-19 / Tourism / Namibia December 2020 Page | 5 1. Introduction and Background Tourism is a priority sector in Namibia’s Fifth National Development Plan (NDP) and a key contributor to employment and gross domestic product. This report aims to assist policymakers in the Ministry of Environment, Forestry and Tourism (MEFT) to better understand the macroeconomic effects of the ongoing COVID-19 pandemic and to provide strategic guidance for rebuilding and reviving the tourism sector. In order to achieve this, we combine qualitative and quantitative data analysis alongside a computable general equilibrium (CGE) model of Namibia to estimate the economy-wide impacts of the pandemic, provide a medium-term macroeconomic baseline outlook and to test the impact of proposed policy interventions. Evidence-based decision making is important to ensure the credibility of the response by policymakers and optimal allocation of scarce resources. With tourism and its related activities uniquely exposed to the pandemic, policymakers and stakeholders must act quickly and creatively to safeguard the immediate future of the sector and the livelihoods of those that depend on it. The fortunes of Namibia’s tourism, wildlife, conservation and environmental sectors are closely tied. Much of the tourism sector is built around Namibia’s natural beauty and wildlife reserves that simultaneously promotes the conservation of this habitat. Tourism business models in many key areas tend to favour a more exclusive experience and higher price point targeting wealthy local and international visitors. This model allows for a lower environmental footprint from tourism and related activities whilst generating significant income for the domestic economy. Based on Namibia’s strong tourism growth over the last decade, this strategy has proved remarkably successful. Unfortunately, the pandemic and subsequent containment measures have decimated international travel and tourism activity around the world during 2020. In many countries, including Namibia, regulations also limited domestic travel and shut down hotels and restaurants for a period of time to help limit the spread of the virus. For a sector and business model so dependent on attracting visitors and tourists, the economic impact has been catastrophic. During 2020 Q2 and Q3, statistics showed a year-on-year drop of over 80% in hotel and other short-stay occupancy rates and, not surprisingly, very few international tourist arrivals given the restrictions imposed. Of further concern is the fact that tourism is projected to recover much slower than other sectors. Despite borders in Namibia and many other countries reopening (at least partially) during 2020 Q4, the fallout from the pandemic will continue to severely impact the sector well into 2021. Risks of a second wave of infections in key tourism markets such as Europe in 2020 Q4 and subsequent travel restrictions further exacerbate the uncertain outlook facing the tourism sector. Whilst the unprecedented socio-economic impacts of the pandemic are a crisis for both the tourism sector and economy as a whole, it does present certain opportunities to reset and rebuild for an even more successful and sustainable future. Within this context, the Namibian government launched its Tourism Revival Initiative (TRI) in September 2020 to help kickstart the recovery process. A Tourism Task Force (TTF) comprising key stakeholders was also established as part of the TRI. Various avenues for research were identified to best achieve both the short-term and long-term goals of the broader recovery effort, including the work commissioned in this report. Details of the strategy to rebuild Namibia’s tourism sector are currently being finalised by policymakers with elements of this report, complemented by firm-level surveys and analysis produced by other researchers, designed to feed into the overall recovery and revitalisation initiative. The key deliverables of this report include: i) an assessment of the tourism sector pre-COVID versus post-COVID; ii) projections of possible baseline scenarios; iii) economic modelling of proposed recovery interventions; and iv) recommendations for a medium-term strategy to rebuild the sector post-COVID. Following government’s commitment to support the tourism sector, the recovery strategy is expected to deliver on the following areas: i) mitigating the socio-economic impacts of COVID-19 on livelihoods; ii) boosting competitiveness and building resilience; iii) advancing innovation and digital transformation of tourism; iv) fostering sustainable and green growth; and v) coordination and partnerships to restart and transform the sector in a responsible and coordinated manner. COVID-19 / Tourism / Namibia December 2020 Page | 6 The rest of the report is structured as follows: Section 2 provides an overview of the Namibian economy and Section 3 takes a more detailed look at the tourism sector. Details of the baseline, modelling scenarios and simulation results that relate to some of the key deliverables of this report are contained in Sections 4 to 6. Section 7 concludes the report with a summary of the findings and recommendations for the tourism recovery and revitalisation initiative. 2. Overview of the Namibian Economy Namibia is a small open economy heavily dependent on trade linked to its agriculture, mining and tourism industries. It is also a country with immense natural beauty, mixing dramatic desert landscapes with an abundance of wildlife that attract many international visitors. Namibia’s commitment to achieving its targets for the Sustainable Development Goals (SDGs) – now institutionalised in its NDP – has created a progressive economy that carefully seeks to strike a balance between extracting economic benefit from its natural resources and conservation. In trying to understand how to best go about the task of boosting the tourism sector in Namibia post-COVID, attention must the given to the overall structure of the economy, key inter- linkages with other sectors and what indirect effects may be triggered elsewhere by possible interventions. The basic structure of the Namibian macroeconomy has changed relatively little over the last two decades. As is common in developing economies, the share of labour (compensation of employees) in GDP has steadily increased over time, rising from under 40% in 2000 to over 45% in 2019. Of some concern is the drop in investment spending and volatility of exports relative to GDP in recent years. Investment (gross fixed capital formation) peaked in 2014-15 reaching a share of over 33% of GDP but has since fallen to below 20% of GDP. A widening trade deficit following the Global Financial Crisis (GFC) in 2008-09 has also placed pressure on Namibia’s macroeconomic stability. Real GDP growth was strong up to 2015, especially in the years after the GFC, but has slowed significantly since then on the back of various internal and external shocks that have caused investment to stagnate and the economy to fall into recession. Unfortunately, the slowdown prior to COVID-19 has placed the country’s
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