Tourism

Emerging risks for tourism and hospitality stocks on the ZSE

BATANAI MATSIKA

McKinsey & Company recently published a report on the implications of Covid-19 on businesses across different sectors.

In the report, the consultancy illustrates a range of possibilities by outlining three potential economic scenarios which are a quick recovery; a global slowdown and a pandemic-driven recession. In a quick recovery scenario, global GDP growth for 2020 falls from previous consensus estimates of about 2.5% to about 2% whilst Sub-Saharan African (SSA) growth drops marginally from 3.97% to 3.94%.

In a global slowdown, resulting demand shocks cut global GDP growth for 2020 in half, to between 1% and 1.5% and pulls the global economy into a slowdown, though not recession.

Under this scenario, SSA growth drops from 3.97% to 3.18% and there is also potential for health systems to be overwhelmed.

Finally, in a pandemic and recession scenario, global growth in 2020 falls to between –1.5% and 0.5%.

Overall, while all sectors will be impacted by Covid-19, tourism and hospitality as well as aviation are seeing the most severe consequences.

This is because that as more geographies experience continued Covid-19 case growth, it is likely that movement restrictions will be imposed to attempt to stop or slow the progression of the disease.

In the case of Zimbabwe, the tourism sector remains a key component of the economy given its foreign currency generating ability.

Tourism contributed 7.2% to GDP in 2018 and contributed USD62m in H1 2019.

Cases of social unrest and violation of human rights in the country has been the main cause of changes in traffic numbers.

An analysis of tourist arrivals into Zimbabwe indicates that tourists from Africa continue to dominate international arrivals.

Visitors from Africa consistently account for over 80% of total international arrivals into the country.

The majority of traffic from Africa comes from South Africa, Malawi, Zambia and Mozambique.

In a worst-case scenario where case numbers grow rapidly in current complexes while new centres of sustained community transmission erupt, international arrivals may plummet and negatively impact sectoral growth throughout 2020.

Already, low traffic inflows are expected from Asia given the outbreak of the Coronavirus.

Cases of the virus have spread to other regions such as Oceania and Canada and may also affect tourist numbers from these regions until the outbreak is successfully contained.

The risk is that fundamentals for the sector may continue to deteriorate.

Our concern has been that the low disposable incomes in Zimbabwe have led to consumer-demand headwinds and this has not helped domestic tourism in any way.

Further, there is also a general notion at industry level that the nation’s competitive tourism attractions are not adequately marketed to ensure the growth of the industry.

Our take is that risks in the tourism and hospitality space remain elevated, particularly in the short to medium term.

While we continue to watch global developments and assess the impact of Covid-19, investors on the ZSE should trade tourism and hospitality stocks with caution given the high levels of uncertainty.

Batanai Matsika is the Head of Research at Morgan & Co and he can be contacted on +263 78 358 4745 or email: batanai@ morganzim.com

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