malawi travel and tourism

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December 2010

Document of the World Bank

Report No. 62353-MW

MalawiTravel & Tourism

Finance and Private Sector DevelopmentAfrica Region

Realizing the Potential


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Abbreviations and Acronyms

AP African Parks

CAMAL Coffee Association of MalawiCAWS Central African Wilderness SafarisCBNRM Community Based Natural Resource ManagementCEM Country Economic MemorandumCOMESA Common Market for Eastern and Southern AfricaDNPW Department of National Parks and WildlifeDoT Department of TourismESA East and Southern Africa (Region)GEF Global Environment FundGoM Government of MalawiICA Investment Climate Assessment

KIA Kamuzu International AirportMCCCI Malawi Confederation of Chambers of Commerce and IndustryMGDS Malawi Growth and Development Strategy (2006)MoF Ministry of FinanceMoIT Ministry of Industry and TradeMSE Malawi Stock ExchangeMTAc Malawi Tourism Association (private sector membership body)MTAu Malawi Tourism Authority (proposed regulatory & promotional body)MTWC Ministry of Tourism, Wildlife and CultureODI Overseas Development InstituteNSO National Statistical Office (Zomba, Malawi)

PAYE Pay As You Earn (Payroll Tax)PPI pro-poor impactSADC Southern African Development CommunitySSA Sub-Saharan AfricaT&T travel and tourismTFCA Transfrontier Conservation AreaTHB Tourism and Hotels BoardTSA tourism satellite accountsVAT value added taxWTO World Tourism Organization (United Nations)WTTC World Travel and Tourism Council

Currency EquivalentUS$1 =Malawi kwacha (MK) 152 for the purpose of calculation, unless otherwise stated.


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Acknowledgement

This analysis was prepared at the request of Malawis Ministry of Tourism, Wildlife andCulture and guided by the stewardship of Mr. Jeffrey Kanyinji, Principal Secretary,Ministry of Tourism, Wildlife and Culture. The goal of this work was to assess thesectors current situation and provide insights into its potential and constraints. Workingwith Jason Agar of Kadale Consultants as the lead researcher, the World Bank teamincluded Hannah Messerli (Senior Private Sector Development, Tourism, Africa Region,Team Leader), Brian Mtonya (Senior Private Sector Development Specialist, MalawiCountry Office) Andres Garcia (Economist, Finance and Private Sector Development,Africa Region) and Eneida Fernandes (Tourism Consultant, Africa Region). There werefurther analytical contributions through which the team greatly benefitted from SandraBloemenkamp (Country Manager, Malawi), and Samuel Maimbo (Lead Financial SectorSpecialist, Africa Region).

The World Bank and consultancy team involved with this reports preparation and

dissemination are particularly grateful to the Directors of Tourism (Mr. Isaac Katapola),Parks and Wildlife (Leonard Sefu) and Culture (Dr. Elizabeth Gomani). A number ofother individuals at the Ministry, particularly Mr. Charles Kachelenga (Principal TourismOfficer) and Mrs. Patricia Liabuba (Assistant Director, Safety and Standards) werehelpful in gathering key information on the sector. In addition to thoughtful input fromstakeholders across the public and private sectors during preparation and dissemination,the study benefitted from keen insights from the peer reviewers, namely: Dr. RonaldMangani (Department of Economics at the University of Malawi), Jean-Michel Pavy(Senior Environmental Specialist, Zambia World Bank Country Office) and Iain Christie(Tourism Consultant).

Such an analysis of Malawis tourism sector could only be possible through tapping thefrank opinions of private sector tourism operators who propel the travel and tourismsector, and who gave valuable information and data for this review. Their commitment tothe sector---today and tomorrow--- is noted and appreciated. The authors hope that thisstudy supports on-going public/private dialog integral to Malawis tourism sectorbecoming both sustainable and economically productive.


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Table of Contents

Abbreviations and Acronyms .......................................................................................... 2

Executive Summary .......................................................................................................... 6

Malawis Tourism Sector: Overview ............................................................................ 14

A. Introduction and Study Outline .............................................................................. 14B. Context ................................................................................................................... 17C. Malawis Tourism Assets ................................................................................... 17

1. Travel and Tourism Sector Profile ............................................................................ 20

A. Economic Review ................................................................................................... 20B. Policy and Enabling Environment ......................................................................... 27C.

Tourism Hubs and Linking Infrastructure ......................................................... 31

D. Market Structure and Dynamics ........................................................................ 36E. Resorts and Leisure Centers .................................................................................. 38F. Product Offerings ................................................................................................... 44G. Human Resources and Training ......................................................................... 46H. Visitor Analysis .................................................................................................. 48I. Marketing and Promotion Activities ...................................................................... 53J . Conclusions ............................................................................................................ 55

2. Value-Chain Analysis ................................................................................................. 57

A.

Definitions and Methodology ................................................................................. 57

B. Analysis of T&T Product Lines .............................................................................. 58

3. Poverty and Environmental Impacts ........................................................................ 65

A. Pro-Poor/Poverty Linkages and Impacts ............................................................... 65B. Environment and Land ........................................................................................... 69

4. The Case for Travel & Tourism ................................................................................ 74

A. Malawis Commodity Dependence ........................................................................ 74B. Travel and Tourisms Transformative Potential .................................................... 76

5. Constraints, Opportunities, and Recommendations ........................................ - 79 -

A. Summary: Constraints, Opportunities, and Strategic Actions ........................... - 79 -B. Constraints ......................................................................................................... - 82 -C. Opportunities and Recommendations ............................................................ - 87 -D. Way Forward .................................................................................................. - 94 -


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Annex 1: Persons and Organizations Consulted ...................................................... - 96 -

Annex 2: Sources ......................................................................................................... - 98 -

List of Tables

Table 1: Cross-Country Comparison of T&Ts Contribution to GDP ............................. 22Table 2 Output multipliers in Malawi 2005. .................................................................. 24Table 3: Visitor Access to Malawi by Mode of Transport, 2006-09 ................................ 31Table 4: Market Share of Domestic and International Air Passengers, 2001-07 .............. 33Table 5: Comparative Long Haul Flight Costs, 2009 ....................................................... 34Table 6: Air Travel Comparison Selected East and Southern African Countries ............. 34Table 7: Beds available Nationwide, 2008 ....................................................................... 40Table 8: Hotel Room and Bed Occupancy Rates by Zones, 2006-09 .............................. 40Table 9: Hotel Room and Bed Occupancy by Month, 2008 ............................................. 41Table 10: Type of Accommodation Used, International Visitors 2006-09 ...................... 42

Table 11: MIT Student Enrolment 2005-10...................................................................... 46Table 12: International Visitors Annual Growth Rates, 2004-09 ..................................... 48Table 13: Reason for Visit by Source Market, 2009 ........................................................ 51Table 14: Top 5 Source Countries for Visitors on Holiday or Vacation, 2009 ................ 51Table 15: Top 5 Source Countries for Visitors on Work or Business, 2009 .................... 52Table 16: Top 5 Source Countries for Visitors to Friends or Relatives, 2009 .................. 52Table 17: Mineral Sector Direct Economic Benefits, annual constant US$ 2008-20 ...... 76Table 18: Summary Constraints, Opportunities and Strategic Actions ........................ - 79 -

List of Figures

Figure 1: T&T Sector Contribution to GDP in Malawi .................................................... 21Figure 2: Comparison of T&T Multiplier Rates, Selected Countries ............................... 23Figure 3: Trends and Projections in T&T Employment, 19882020 ............................... 25Figure 4: International Visitors to Malawi, 19942009 .................................................... 49Figure 5: Purpose of Visit, 19942009 ............................................................................. 50Figure 6: Source of International Visitors (2009) ............................................................. 51Figure 7: Safari Cost and Revenue Analysis .................................................................... 58Figure 8: Lakeside Cost and Revenue Analysis ............................................................... 60Figure 9: Urban Lodge Cost and Revenue Analysis ......................................................... 61Figure 10: Mountain Hiking/Climbing Package, Costs and Revenue Analysis ............... 63

Figure 11: Extracted Table on Negative Claims and Responses ...................................... 66

Figure 12: GDP and Export Relationships, 1960-2007 .................................................... 74


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Executive Summary

1.TOURISM IS A VALUABLE ECONOMIC DEVELOPMENTTOOL FOR MALAWI

Malawi sits amid a vibrant travel and tourism (T&T) region that is growing rapidly andincreasing its world market share. Proximate to countries with thriving T&T sectors,Malawi has a relatively underdeveloped diversity of natural, cultural, and man-madeattractions. It is challenged to embrace effective policies that would enable public andprivate sector alignment to achieve a viable niche as an economically productive, multi-experience destination in its own right.

It is important to view tourism as a national priority across sectors and ministries inMalawi. Despite significant growth during the past decade, the T&T sector in Malawistruggles to become a national development priority. There is some level of uncertaintyregarding the specific merits of supporting T&T as a source of economic growth and toolfor poverty reduction. The uncertainty is aggravated as the sector has to compete across

borders with well-established destinations such as Kenya, South Africa, and Tanzania.Thus, there is the need to better understand the economic potential of Malawis T&Tsector and recommend strategies to promote a level of competitiveness that leads tofurther economic growth, employment generation, and poverty reduction. With its cross-sectoral foundation, tourism can integrate natural, cultural, and man-made assets,enabling economic productivity while also protecting the environment and conservingculture. Achieving these results requires collaboration across ministries to assuresustainability.

The goal is to identify the economic potential of T&T in Malawi.The objective ofTravel and Tourism in Malawi: Delivering Economic Growth and Diversification is toanalyze the value of T&T in Malawi. Specifically, the study provides an economic review

of the sector through a synthesis of previous sector analyses and a value-chain analysis. Abetter understanding of the potential of T&T in Malawi is expected to lead to a morecoordinated effort among government, private sector, donor, and local communitystakeholders to promote and invest in T&T as a productive development tool.

The T&T sector is active, growing, and needed.T&T investment is taking place inMalawi with more activity and momentum than previously anticipated. Malawis T&Tsector has grown twice as fast as its overall economy since 1996. Using the World Traveland Tourism Councils (WTTC) broad economic measure, the T&T sector contributedUS$184.8 million (5.8 percent) of Malawis gross domestic product (GDP) in 2008.Direct and indirect activities cascade to support multiple sectors, notably transport,

infrastructure, and agriculture. An additional benefit of the T&T sector is that itsperformance is not impacted by variable weather patterns that make the agriculturalsector vulnerable and less reliable as a growth source.

While Malawis T&T sector directly provides a higher than average proportion ofGDP than in other countries in the Sub-Saharan African (SSA) region, limitedlinkages translate to a weak multiplier. Using WTTCs wider T&T economy GDPmeasure, Malawis performance is lower than the SSA average, suggesting relativelyweak linkages and a lower multiplier. Despite lagging behind key regional competitors,


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these data are encouraging on the current performance of the sector and indicates largepotential gains if the multiplier can be improved.

There is an opportunity to increase export earnings through T&T. Malawis T&Tsector generated US$39.5 million in visitor spending in 2008, equivalent to 63.4percent of service exports. WTTC estimates Malawis T&T exports will account for 3.5

percent of total exports for 2010, but this compares poorly to other countries in T&Tcontribution to exports. In the SSA region, international visitors will generate 6.6 percentof total exports in 2010, and an estimated 6.1 percent for the world economy. Thishighlights the potential to increase export earnings from Malawis T&T sector.

T&T is an important source of employment. Based on WTTCs economy measure, in2008 T&T provided 140,000 direct and indirect jobs across the economy (4.5 percent ofemployment). Of these, direct T&T industry employment was 68,000 jobs, equal to 2.2percent of total employment (WTTC). Many of these jobs are in remote areas and oftenprovide people with their first formal employment. Further, the impact of tourism wagesis multiplied across the economy, supporting others through subsequent rounds ofspending. For example, operators out of the main cities mostly had their own initiativesfor promoting local suppliers, particularly for perishable food stuffs.

T&T is an important source of revenue for the Government of Malawi (GoM)through tax and nontax revenues. For fiscal year 2010/11, the Ministry of Tourism,Wildlife and Culture (MTWC) has a revenue target of MK 65.28 million (US$430,000).More significantly, T&T operators generate tax through direct and indirect taxes. Value-chain analysis found that an international visitor paying US$2,327.00 for a two-weeksafari-lakeshore package yields direct and indirect taxes/charges of US$684.41 for GoM(30.5 percent of the price). This excludes tax revenue from discretional visitor spendingand international flights.

T&T combines economic growth with poverty reduction, environmental

preservation, and promotion of Malawis cultural heritage.The T&T sector has apro-poor impact through employment and business opportunities, often in remote areaswhere there are few other opportunities. Furthermore, it plays a key role in conservingand improving Malawis natural assets, many of which are degraded or facing theconstant threat of degradation. The T&T sector also has a vital role to play in maintainingand promoting the countrys rich cultural heritage sites and events.

This study identifies the key constraints to development of Malawis T&T sector.They include (i) data collection and analysis limitations, (ii) a weak multiplier, (iii)insufficient supply of well-trained staff, (iv) fluctuating and high tax share of revenues,(v) weak institutional arrangements, (vi) non-specialist investors, (vii) underdeveloped

destination positioning, (viii) limited effect of destination marketing, (ix) insufficientattention to cultural sites and events, (x) weak product innovation, (xi) natural assets thatare facing degradation, (xii) risk of community-investor conflicts, (xiii) high cost of airtransport and poor air access, (xiv) (some) below standard local and international accessroads, (xv) poor quality utility supply, (xvi) insufficient zoning of land for T&T, (xvii)high operating costs, and (xviii) inconsistent dialogue on key policy changes andimplementation.


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2.REALIZING THE POTENTIAL OFT&T IN MALAWI

The economic review and value-chain analyses conducted in this study provide a clearerpicture of the constraints and opportunities that the T&T industry currently faces. Toaddress the constraints and take advantage of opportunities (see section 5), particularattention is required in four areas:

Improve the economic performance of travel and tourism Improve public sector performance and create policies that attract investment Improve marketing to make Malawi a more attractive destination to travelers Embrace policies that encourage competitiveness

Increase the Economic Performance of Travel and Tourism

Improve supply chain linkages (multipliers) and pro-poor impacts.To maximize theeconomic value of the T&T sector to Malawis economy, there is a need to increase themultiplier effects through improved supply chain linkages. This could be addressed by

stimulating a stronger supply chain response to opportunities generated by existing T&Tproviders, notably by developing and utilizing more domestically produced goods andservice supplies through supplier initiatives.

Increase the quantity and quality of trained staff, supervisors, and managers.Current graduates from public and private institutions are not sufficient in their skill sets,quality, and numbers. The curricula of public and private institutions should be reviewed,as should the quality of the teaching. This can be undertaken as a public-privatepartnership better suited to satisfy the needs of the T&T industry. As part of a sustainablesector, the T&T industry needs to focus on creating careers and not just jobs.

Expand response by international T&T investors and train existing, domestic non-

specialist T&T operators. Involvement in T&T has been mostly opportunistic inMalawi, particularly by non-specialized domestic investors interested in nicheopportunities. Given the competitiveness of the sector across borders, standards should beimproved to progressively professionalize all T&T operations in the country. This can bedone by full implementation of the grading system. The benefits would lead to a morecompetitive T&T sector that would be more attractive to international investors.

Restore and improve tourism and cultural assets.The tourism segment is built onaccessing Malawis natural assets, some of which have been badly degraded. Restoringthe natural environment and rebuilding the resource base has been demonstrated inMalawi to increase T&T opportunities. The Liwonde and Majete success stories and theNyika Transfrontier Conservation Area (TFCA) are models for going forward.Replication and expansion are viable paths for sustainable and economically productivedevelopment. Public and/or development partner investment is a necessary first step,supported by more effective protection and enforcement.


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Improve Public Sector Performance and Policies to Promote Investment

Stimulate investment in the T&T sector to generate medium- and long-term GoMrevenues.The T&T sector needs a tax structure that attracts investment while protectinggovernment revenue over the medium to long term. The nature of T&T investmentincludes high initial investment (hotels, restaurants, vehicles, and so forth) and high

overheads. Recent changes to the tax treatment of T&T investment have made medium-and long-term investments less attractive and less viable. Therefore, a balance must befound, allowing for continued and increasing tax revenue while encouraging the largecapital investment required in the T&T sector.

Improve T&T institutional performance.The institutional arrangements for the T&Tsector are not effective or indicative of best practices. For example, MTWC undertakesoperational activities in licensing, grading, and destination marketing that are normallythe functions of a public-private tourism body. In countries such as Kenya and Tanzania,tourism ministries are dedicated to policy formulation and analysis while public-privatetourism boards handle cross-cutting policy and regulatory implementation. Consequently,the GoM may consider creating a public-private T&T body that focuses on promotionand regulation of T&T investments. This approach has been successful in countries suchas Tunisia, Mexico, and more recently Mozambique.

Increase data gathering and analytical capacity to support T&T-sector decisionmaking. Insufficient domestic data collection and limited ongoing analysis makes itdifficult for policy makers to determine the value of the sector and intervention priorities.As a result, increased data collection and analytical capacity are needed in the keyorganizations that operate in and support the sector: notably, the MTWC, NationalStatistical Office (NSO), Tourism and Hotels Board (THB) or successor body, Universityof Mzuzu, and private sector associations. Efficient, focused data collection and analysisthrough the establishment of tourism satellite accounts (TSA) in the medium term would

allow the government to better monitor the T&T sector and find areas where support isneeded the most.

Engage in cross-sectoral public-private dialog to establish policies that achieve theintended effects. For example, it is entirely appropriate for GoM to seek to reduce theuse of public resources and time spent on meetings, such as at the lakeshore. However,the policy may not be having the intended effect, as meetings are moved to other, non-lakeshore venues out of Lilongwe. Implementing policies can have disproportionateeffects on particular groups of investors, employees, and localities. More broadly, thisissue reemphasizes the importance of wide stakeholder dialogue on policy decisions inthe T&T sector, so that implementation can be more effective.

Improve Marketing to Make Malawi a More Attractive Destination to Travelers

Improve Malawis destination positioning. Malawi is competing in a global T&Tmarket against many better resourced, more established, and better known destinations.Yet Malawi offers relatively undiscovered attractions that collectively offer visitors adifferent and diverse package compared to competitive offerings in the region. Theoverall destination positioning is important and could be improved to present Malawi as a


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multi-experience destination in its own right and as a complementary destination to othercountries for those that have visited the iconic attractions of its neighbors.

Improve the effectiveness of public and private resources to promote Malawi.Thelimited amount of destination marketing activity and low international visibility of

Malawi constrains the number of international visitors. Given financial constraints in theT&T sector, efforts should be focused on Worldwide Web presence and attendance at keytravel markets. There need to be attention to key current source markets rather thandissipating spending and clearer messages and information for business travelers.

Stimulate innovation in product offerings.This requires developing and packaging amore innovative set of product lines. It could be supported through a challenge fundapproach as well as technical assistance.

Use and promote cultural heritage as part of Malawis main visitor attractions.There is considerably more value to be gained from Malawis rich cultural heritage. Thanis currently being generated This requires improved recording and preservation ofcultural sites, improved presentation of cultural events, and increased attention inmarketing to the cultural asset base.

Promote Competitiveness

Improve accessibility and reduce air access cost to Malawi. The cost of air transportto Malawi and poor access options are major constraints for operators targetinginternational business and tourist visitors. Malawi has long been a signatory to theYamoussoukro Declaration on open skies, but it has not implemented this as a policy.Although politically difficult, a solution has to be found that would enable a substantialincrease in air access at lower cost.

Improve road quality and access to key T&T locations. Access roads are a keyconstraint for particular operators that depend on them. Creating access to Malawisnatural assets, such as parks and reserves, requires continued investment in roads.International road access for international visitors is more important than air in volumeterms. Important domestic tourism roads should be prioritized in national decisionmaking, together with improvements to busy border post infrastructure and staffing.

Increase the competitiveness of the lodging sector. In the urban and the lakeshoreareas, increasing supply requires effective planning and zoning. An increase in lodgingsupply should encourage a more appropriate T&T accommodation development mix thatover the medium and long terms will help to increase competitiveness and reduce prices.

3.THE WAY FORWARD

The findings and recommendations presented in this study provide more clarity on theeconomic potential of tourism. An increase in dialogue among the public sector, privatesector, and development partners can identify synergies to promote investment in T&Taimed at job creation and poverty reduction. Also, findings in this study highlightopportunities for moving toward a better framework for cross-sector support, enhancing


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stakeholder collaboration and technical assistance, and strengthening the private sector.These findings are summarized in the following table.


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The Way Forward

Objective/Outcome

Opportunity Strategic Actions Key Stakeholders

1. Improve the economic performance of T&T1.1 Improve supply

chain linkages(multiplier) andpro-poor impacts.

Stimulate a stronger supplychain response toopportunities by existing

T&T providers by usingmore domestic goods andservice supplies.

Analyze supply chain operationand areas of low response;develop a T&T supplierinitiative.

MTWC, with Minof Industry and

Trade (MoIT) andMalawiConfederation ofChambers ofCommerce andIndustry (MCCCI).

1.2 Increase thequantity andquality of trainedstaff, supervisors,and managers.

Improve the flow andquality of entry level T&Tgraduates from MIT andUniv. of Mzuzu.

Improve short-term trainingfor employed staff,

supervisors, and managers.

Review T&T sector trainingprovision and demand forecasts;institutional review of MIT;reach agreement on public-private funding of T&T sectortraining.

MTWC withMalawi TourismAssociation(MTAc) and (T&T)private sectoroperators, MIT,Univ. of Mzuzu &

Min of Finance.1.3 Increase response

by internationalT&T investors andtrain existing,domestic non-specialist T&Toperators.

Investment promotiontargets domestic andsmaller T&T specialistregional investors, withstandards progressivelytightened to encourageincreasedprofessionalization.

More focused investmentpromotion; implementation of thegrading system; training andtechnical support for domesticnon-specialized operators toprofessionalize.

MTWC withMalawi InvestmentPromotion Agency(MIPA), THB,MTAc, and privatesector operators.

1.4 Restore andimprove tourismand cultural assets

Restore and maintain keynational parks, forest, andwildlife reserves throughpublic-private-community

partnerships;preserve and promotecultural sites and events.

Develop restoration andmanagement plans for targetednatural and cultural assets.

Dept. of NationalParks and Wildlifeand Dept. ofCulture with MoF,

MTAc, and privatesector operatorsand communitybodies.

2. Improve public sector performance and create policies that attract investment2.1

Stimulateinvestment in the

T&T sector togenerate taxrevenues

Balance and maximizeshort- and medium-term taxrevenue by encouraginginvestment, foreignexchange, jobs, and longer-term GoM revenues.

Conduct comprehensive andregionally comparative review oftax policy for T&T sector;restructure incentives to balance

jobs, investment, foreignexchange, and tax revenues.

MoF with MTWC,MTAc, and privatesector operators.

2.2Improve T&Tinstitutional

performance

Regulatory and destinationmarketing role is

transferred from MTWC toa functioning public-privatebody.

Reach policy decision oninstitutional housing of

regulatory and marketing roles;develop shared public-privatefunding mechanism.

MTWC withMTAc and private

sector operators,and MoF.

2.3Increase datagathering andanalytical capacityfor decisionmaking

Improve capacity atMTWC, NSO, Dept. ofImmigration, THB/Malawi

Tourism Authority(MTAu), private sectorassociations, and Universityof Malawi (Mzuzu).

Assess key policy and decision-making information needs andcapacities; develop linkages withUN World Trade OrganizationAfrica Statistical CapacityBuilding Program; developcapacity-building program.

MTWC.


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Objective/Outcome

Opportunity Strategic Actions Key Stakeholders

2.4

Improve dialogueon T&T policies

and mechanisms

Engage in dialogue on keyT&T policy changes withprivate sectorassociations/representatives

to determine impacts andbest methods to implement

Review alternative approachesthat limit meeting expenditure inways that do notdisproportionally impact

particular groups of investors,employees, and communities;establish regular mechanisms fordialogue on key T&T policies.

MTWC and MoF.

3. Improve marketing to make Malawi a more attractive destination to travelers3.1

Improvedestinationpositioning

Position Malawi as both amultiexperience destinationin its own right and as acomplementary product tothe regions iconicattractions.

Refine positioning statement andcommunicate position through allavailable media.

MTWC withMTAc and privatesector operators.

3.2Improveeffectiveness of

limited resourcesto promote Malawi

Greater utilization of theWeb with better targetingof business visitors andmore focus on key currentsource countries.

Increase compliance with levythrough better collection andincentives to comply; increasetechnical support for destinationmarketing initiatives.


3.3Stimulateinnovation inproduct offerings

Increase the extent anddiversity of visitor T&Toptions.

Provide technical support forproduct innovation;create challenge fund to supportinnovative T&T productdevelopment.


3.4Use and promotecultural heritageas part ofMalawis mainvisitor attractions

Increase attention forMalawis cultural heritageand events as a key part ofits diversified attraction.

Improve recording andpreservation of cultural sites;improve presentation of culturalevents; increase attention tomarketing.

Dept. of Culturewith MTAc,private sectoroperators, andculturalassociations/

bodies.4. Embrace policies that encourage competitiveness4.1

Improveaccessibility andreduce air accesscost

Increase competition in airtransport and improvefacilities.

Review how competitiveness canbe increased, includingimplementation of the

Yamoussoukro declaration.

MTWC, Min. ofTransport, Dept ofCivil Aviation,MTAc, privatesector operators,Airlines.

4.2Improve roadquality and accessto key T&Tlocations

Improve key bordercrossing facilities andlinking roads. Improveaccess roads to naturalassets and T&T resorts.

Identify and prioritize key roadsby T&T stakeholders;lobby within GoM for higherpriority.

MTWC, Ministryof Transport, MoF,MTAc, and privatesector operators.

4.3

Increase thecompetitiveness ofthe lodging sector

Increase supply of lodgingin urban areas wheredemand is highest;improve management ofremaining undevelopedlakeshore sites suitable fortourism.

Implement zoning on thelakeshore;improve prioritization of sites forurban accommodation units.

MTWC, city andtargeted districtassemblies, MTAc,and private sectoroperators.


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Malawis Tourism Sector: Overview

A. Introduction and Study Outline

1. Malawi is land-linked to three better known and more developed international tourismdestinations: Tanzania, Zambia, and Mozambique. The wider East and Southern Africa(ESA) region, within which Malawi sits, includes other countries with well-developedtourism sectors, notably, Kenya, Mauritius, Botswana, Namibia, and South Africa. Overthe next three to four years a revitalized Zimbabwe could put itself back on the tourismA list. Having better-established tourism neighbors means that Malawi has to competehard for each tourism dollar.

2. Although countries compete for tourism visitors, the 2010 World Cup demonstratedthat there are spillover benefits from being located in a region that attracts high-endinternational tourists. There is no other region of the world that can offer the classicsafari experience and such iconic natural attractions as Mt. Kilimanjaro, Victoria Falls,the Okavango, and the Namib and Kalahari deserts as well as so many relativelyunspoiled tropical beaches. Malawi can leverage its location within the ESA region as arelatively under-explored destination in combination with visits to the better stockedgame reserves and the big ticket attractions of the regions other countries. In particular,Lake Malawis beaches are more accessible to Zambias and Zimbabwes visitors than isMozambiques coast, attractive as it is. Several operators already operate across the ESAregion, packaging multi-country visits that combine a range of tourism products. Someof these have recently invested in Malawi.1

3. Although Malawi has no single must see, internationally recognized attractionssuch as Victoria Falls, it does offer a rich combination of natural and man-madeattractions due to its geography, history, heritage, and diverse ecological zones.2 While

not well known outside of Malawi, destinations such as Lake Malawi, Nyika Plateau,Liwonde National Park, and Mulanje Mountain have potential to attract internationalvisitors in their own right. The combination of these and other secondary attractionssuggests that Malawi has a viable market niche as a multiple-experience destination andas a combination destination alongside its regional competitors.

Definitions

4. Travel and Tourism (T&T) is a unified sector, but is difficult to define and capture instatistics,3 because it encompasses many diverse and hard-to-measure areas of economicactivity, including remote rural activities and intangible services. The tourism part ofT&T refers to international and domestic travelers visiting a place for their own

recreation, leisure, and pleasure for at least one night away from home, including visits to

1 For example, Robin Pope Safaris of Zambia has established a high-end resort at Pumulani and is now developing alodge in Majete National Park.

2 Malawi sits at the southern end of the Great Rift Valley, combining highland plateau (Nyika), Lake Malawi (and otherlakes), and Southern Africas second highest mountain (Mount Mulanje).

3 A higher proportion of T&Ts economic value in developing countries is informal and not easy to capture, but thisalso increases its potential for pro-poor impacts.


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family and friends. The travel part of T&T includes travel for work, business meetingsand conferences, and any other non-leisure reasons. In this report T&T refers toall formsof leisure and work-related travel, accommodation, meals and refreshments, andentertainment.Tourism in this study refers to travel primarily for purposes of leisure,recreation, and pleasure. As found in this study, travel for business and other purposes,

particularly meetings and conferences, is an important market segment and larger thantravel for leisure.

5. This study utilizes the World Travel and Tourism Council (WTTC) definition fortravel and tourism asthe activities of persons travelling to and staying outside theirusual environment for not more than one consecutive year for leisure, business and otherpurposes not remunerated from within the place visited.4 This study analyzes T&Tbroadly, covering tourism, travel, and hospitality for reasons of leisure, business,conferencing, and events, both domestic and international.

6. Within the T&T sector, the term hospitality includes accommodation, meals,refreshments, and entertainment. Hospitality is utilized by all segments of the T&Tmarket. There are other important, related services, such as transport, incorporatingflights, transfers to accommodation, car hire, game-viewing vehicles, boat trips, and soforth, that are also integral to the T&T sector.

7. The term visitor is used in Malawi as the basis for statistics collected by theGovernment of Malawi (GoM). Visitor categories include people visiting for tourismpurposes (narrowly defined) as well as those visiting for work/business andconferences/meetings and for visiting friends or relatives. GoM statistics focus oninternational visitors, as these are more readily captured through the immigrationprocess.5 Domestic T&T is more difficult to record and capture, resulting in the tendencyto focus on international visitors. For this study,visitor refers to a person visiting Malawi

for any T&T purpose. If that is primarily for a tourism purpose, then the visitor is morespecifically referred to as a tourist. To encompass both international visitors anddomestic users of T&T products, the termclient is used.

8. The range and complexity of T&T products6 is also broadmost T&T clients usecombinations of goods and services tailored to their particular needs. Some are standard(-ized) packages, but even these often have elements added at the front and back ends topartially customize them. The T&T sector is characterized by combinations of two ormore packages, such as flights, transfers, accommodation, excursions, hospitality, carhire, and leisure activities. At the middle and high end of the T&T market, individual

4 See http://www.wttc.org/bin/pdf/original_pdf_file/2008_methodology.pdf . The definition draws from UnitedNations Statistics Division, Statistical Office ofthe European Communities, Organisation for Economic Co-operation and Development, and World TourismOrganization (2008).

5 All visitors must complete entry and exit cards.

6Product is used here to encompass all T&T goods and services. This reflects the dual nature of the sector, whichcombines tangible and intangible offeringsa good example is a meal at a restaurant.


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packages are assembled specifically to the clients wishes and budget, which makesdefining and measuring tourism products difficult.

9. Within the segment for people travelling for work/business is a subsegment forconferences. In this context, the termconferencemeans any meeting of any number of

people where a meeting room/facility has been hired for at least part of a day. Typically,the conference operator provides a room with necessary facilities, plus refreshments,snacks and meals. Conference delegates may or may not stay overnight as part of, or inaddition to, the package. Most conferences are single meetings rather than largecontiguous events that the termconferencecan imply. The term is used here because it isthe most common term used to cover the wide range of meetings serviced.

10.This study, commissioned by the World Bank in collaboration with the GoMsMinistry of Tourism, Wildlife and Culture (MTWC), analyzes the economic, social, andenvironmental significance of the T&T sector in Malawi and considers the potential foreconomic impact and benefits. The purpose of the study is to determine the economicpotential of tourism in Malawi. Based on discussions with stakeholders and review ofprevious analytical work, it is proposed that the scope and direction of the Tourism ESWbe focused on quantifying the sustainable growth opportunities of tourism to Malawiseconomy.

11.Data have been drawn from domestic and international sources. Secondary sourcesinclude MTWC, the National Statistics Office (NSO), other GoM ministries andagencies, published studies, and key international bodies, such as the WTTC and WorldTourism Organization (WTO). A list of secondary sources is included in Annex 2: Inaddition, primary research was undertaken through interviews with key public- andprivate sector organizations and individuals in Malawi. This included GoM ministriesand agencies as well as private sector tourism operators.

12.There are considerable difficulties obtaining information on the sector that probablyreflects its low priority but also the more general difficulty of measuring services. Muchof the MTWC data are based on self-reported visitor data taken from entry and exit cards,which relies on manual collection and collation. Although the use of Satellite TourismAccounts is an attractive option in terms of data reliability and accuracy, realisticallyMalawi is a long way from being able to produce these; they would require a significantinvestment. More realistic are options to improve the existing sources in timeliness andaccuracy. Limitations to the data are indicated where applicable.

13.Section 0 of this study provides a profile of the T&T sector in Malawi; Section 20provides a T&T value-chain analysis; Section 3 analyses the poverty and environmentalimpacts, while section 4 makes the case for more investment in T&T. Finally, section 5summarizes constraints, opportunities, recommendations, and the way forward. Annexesinclude details of interviewees and secondary sources.


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B. Context

14.The Malawi Growth and Development Strategy (MGDS)7 highlighted the role oftourism under Theme One (Economic Growth), Sub-Theme One: Maximizing theContribution to Economic Growth through the Potential Sectors of Growth (Tourism,Mining and Manufacturing). It stated that Malawi will be established as a principal and

leading eco-tourism destination in Africa and domestic tourism will be increased.Strategies to be pursued include: increasing capacity to service additional tourists ininternationally competitive accommodation; improving transport links to tourismdestinations; increasing attractiveness of national parks for tourism and eco-tourism; andimproving tourism marketing regionally and internationally. Tourism was alsoidentified as an element in Sub-Theme Three: Export Led Growth, and Sub-Theme Four:Conserving the Natural Resource Base. The stated aim was to increase the contributionof the tourism sector from 1.8 percent of gross domestic product (GDP) in 2005 to 8percent of GDP by 2011. At the time of the MGDS formulation, tourism enjoyedprominence in GoM thinking and strategy because it was underdeveloped, had potentialto bring additional export revenues, had pro-poor impacts, and would help conserve and

restore the natural environment.

15.The MTWC with support from the Commonwealth Development Corporationproduced a Tourism Sector Strategy, 200813, updating the earlier 20026 document.The overall positioning shifted from Malawi as a principal eco-tourism destination to abroader range of T&T opportunities, including improving the enabling environment andinstitutional development.8

16.Tourism has fallen lower on the priority list for GoM over recent years and is notcurrently included in the nine priorities given by the State President in his 201011statement to parliament, having previously been in the top 10 priorities. The budget forMTWC increased from MK 37.5 million (US$470,000) in 200203 to MK 118 million(US$840,000) in 200910, reflecting an increasing priority during that period, but it hasbeen cut back to MK 110 million (US$730,000) for 201011.

17.It is within this overall strategic context that this analysis of the T&T sectorseconomic potential has been undertaken.

C. Malawis Tourism Assets

Natural Assets

18.Malawi promotes itself as the warm heart of Africa, with both natural and culturalattractions. Malawis most important tourism assets are its national parks, wildlifereserves, mountain plateaus, lakes, and diverse ecology. Malawi has five national parks:Nyika in the Northern Region; Kasungu in the Central Region; and Liwonde, Lengwe,

7 Government of Malawi (2006).

8 A review of the previous strategy (200206) and the new strategy are set out inTourism Intelligence andCommonwealth Development Corporation (2008).


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and Lake Malawi National Parks in the Southern Region. There are four wildlifereserves: Vwaza and Nkhotakota Reserves in the north and Mwabvi and Majete in thesouth. In addition there are forest reserves that have the potential for visitor activity,including Dedza and Zomba, as well as private game parks, such as Nyala Park and KutiRanch.

19.Lake Malawi, formerly Lake Nyassa and called the Lake of Stars by DavidLivingstone,9 covers almost 20 percent of the country. It is a major attraction fordomestic and international (mainly regional) visitors, with resorts offering a range ofpackages, budget to high-end. These are clustered in the south around Monkey Bay andMangochi and accessible from Lilongwe and Blantyre. As well as hosting high-endresorts and being part of the backpacker trail, the area around Cape Maclear is aUNESCO world biodiversity site, where there are high concentrations of brightly coloredmbuna cichlid (fish). Lake Malawi is estimated to have close to 1,000 species of fish, ofwhich 800 are endemic and close to half not yet documented. In the central lakeshore,Salima provides a cluster of resorts within two hours drive of Lilongwe. Further north,there are resort clusters around Nkhotakota, Chinteche, and Nkhata Bay. As well aslakeshore resorts, there are several important islands for tourism, including Likoma Islandwith its Gothic Cathedral, and Mumbo and Domwe Islands. The lake is popular for watersports, with some high-quality snorkeling and scuba diving opportunities.

20.In addition to Lake Malawi and smaller lakes such as Malombe, the country hasupland areas of interest to visitors. Sapitwa peak on Mount Mulanje is the highestsummit in south-central Africa, at 3,000 meters above sea level. With 1,700 meters ofrope climbing, the west face of Chambe peak offers a true challenge on what is claimedto be the longest rock climb in Africa. Zomba plateau is another well-visited mountainplateau, rising above what is often called Malawis university town, the city of Zomba.Finally, the Nyika plateau offers a unique upland environment with the opportunity to

combine game viewing and horse riding. Nyika National Park is Malawis largestnational park and offers diverse and rare flora such as orchids and proteas, just some ofMalawis 6,000 species of plants. The eastern edge of the Nyika Plateau forms thesouthern tip of the Great Rift Valley. The plateau is home to Livingstonia, one of themission stations established by Livingstone. It offers many colonial era buildings.Overall, Malawis parks and reserves host around 650 species of birds, offering unusuallyhigh concentrations for bird watchers.

21.Liwonde, Lake Malawi, Mount Mulanje, and Nyika are known to some extent outsideMalawi and are capable of drawing visitors in their own right or as the focal point for amultidestination holiday. However, Malawi lacks a widely recognized nature-based

iconic attraction comparable to Victoria Falls, Okavango Delta, Kilimanjaro, Serengeti,or Masaai Mara. Instead it offers a diverse range of ecological zones and naturalattractions.

9 Livingstone took a number of missionary journies to and within Malawi, establishing mission stations and creatingpart of Malawis colonial and religious heritage. Blantyre, which is Malawis commercial capital, is named afterLivingstones birthplace in Scotland.


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Cultural and Heritage Assets

22.Malawi offers diverse cultural attractions, including ethnic and cultural festivals(Chewa, Lomwe, and so forth) and cultural villages, a range of museums (such as thedinosaur museum at Karonga), colonial era buildings (government offices in Zomba,Mandala Offices), independence struggle monuments (Providence Industrial Mission at

Chiradzulu), and religious buildings and monuments (Livingstonia, monuments/buildings/places associated with David Livingstone, Likoma Cathedral, and so on).

23.New cultural events initiated in recent years attract domestic and internationalattention to different degrees, such as the Lake of Stars music festival that is now arecognized part of the international music festival circuit and the Lake Malawi YachtingMarathon in its 25th year. The Yachting Marathon covers over 500 kilometers and is thelongest freshwater race in the world; it was featured in 2010 on the Southern AfricanDSTV network. There are also the ethnic-based cultural events being actively promotedfor various groups (Chewa, Lomwe, Ngoni, and so forth). Finally, there are smallerspecial interest events, such as the Mulanje Porters Race, Luwawa-Lake trail bike race,

and the Mangochi Bicycle race that attract domestic and some international attention.Many of these events are relatively new but have been gaining in popularity. While theseevents do not draw large numbers of visitors, they add to the diversity of special interestofferings available and incrementally contribute to T&T visits and incomes.

24.In addition to the above, there are other important visitor opportunities, such as earlyhominid and dinosaur sites close to Karonga, the Chongoni rock art area close to Dedzawhich is a UNESCO World Heritage Site, and various mission sites, such as MuaMission famous for its wood carvings and the Ngoni heritage museum.

25.Although not a large segment, there are development-related tourism visits,including those for supporters of nongovernmental organizations (NGOs),10 faith groupsand schools/colleges/universities.11 Often these are linked to understanding developmentthrough visiting projects that the sponsoring organization is supporting or running.However, they often involve undertaking some small task alongside a community, suchas building/decorating a classroom or orphanage. These are primarily solidarity-buildingexperiences rather than serious technical help; they engage sponsors in hopes of havingthem continue and increase their support.

26.Links such as those with the Scottish Government and even publicity aroundMadonnas visits help raise Malawis profile, encouraging people to visit and understandpoverty and efforts to address it. One tour operator organizes trips to the MillenniumVillages Project, near Zomba. Others, such as Central African Wilderness Safaris

(CAWS), organize overnights or at least meals in villages as a way to let visitors engagewith Malawians in their communities. These visits can lead to longer term person-to-person and organization-to-organization links that have valuable spin-off benefits.

10 OXFAM, Plan International, World Vision, Traidcraft, and so forth..

11 For example, Englands Leeds Girls High (subsequently Leeds Grammar School) has undertaken regular visits toMalawi with students for at least the past six years.


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1. Travel and Tourism Sector Prof ileA. Economic Review

Overview27.T&T employs 235 million people worldwide (8.1 percent of total jobs), accountingfor 9.4 percent of world GDP, in 2009, according to WTTC. In 2008, there were 924million tourists, three-quarters of them from developed countries, of which 40 percentvisit developing countries. According to the Overseas Development Institute, tourismhas been described as the worlds largest voluntary transfer of resources from rich to poorpeople (Mitchell and Ashley 2010). The authors estimate that this transfer amounts toUS$295 billion per year, approximately three times the amount of overseas developmentaid flows.

Gross Domestic Product Growth28.In 2008, the T&T sector directly contributed US$91.8 million (2.9 percent) toMalawis GDP (WTTC 2010a). The contribution for 2009 and 2010 is estimated atUS$90.7 million and US$104.4 million, respectively. However, this WTTC measure

excludes indirect effects generated throughout the supply chain and other tourism-relatedinvestment, collective publicspending, and export-relatedtourism goods (WTTC, 2010b).

29.WTTC uses a broader measureto account for the wider economiccontribution of the T&T sector,incorporating the componentsabove and thus describing howT&T feeds into other economicsectors. Under this metric, theT&T sector contributed US$184.8million or 5.8 percent of GDP in2008, equivalent to US$14.13 percapita.12

30.Figure 1 shows the relativecontribution of the T&T directindustry and economy-widemetrics from 19882008.

12 Population of 13.1 million per NSO, 2008 Census.

Travel and tourism economy GDP is thebroadest measure of T&T sector economiccontribution. It records the activity of traditionalT&T providers (lodging, transportation, etc.),plus T&T-related investment, public spending,and export of goods. It includes direct andindirect effects of T&T spending via the supplychain.

Travel and tourism direct industry GDP is a

narrower concept that measures the direct valueadded of the traditional T&T industries,excluding any indirect effects generatedthroughout the supply chain. It also excludes alltourism-related investment, collective publicspending, and export of tourism-related goods.

Source: WTTC (www.wttc.org)


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Figure 1:T&T Sector Contribution to GDP in Malawi

Source: World Travel and Tourism Council data.

31.T&T has doubled its share of Malawis GDP since 1996, from less than 3 percent toclose to 6 percent by 2008. Aside from stronger growth in the T&T sector over theperiod, the rising share from 2000 to 2005 partly reflected weak overall growth rates inMalawi that were a function of volatile agricultural performance and macroeconomicinstability in that period. More recently, T&Ts share of the economy has grown lessquickly due to, and partly contributing to, higher GDP growth rates since 2006. Theexception was the leap to close to 7 percent share of GDP in 2005 (see figure 1), a

drought year with poor agricultural performance. Therefore, the potential for T&T tocontribute a higher share of GDP partly depends on what is happening with the widereconomy, in particular the agricultural sector. Important for Malawi, T&Ts contributionis not linked to the cyclical weather patterns that the country faces. This provides a veryvaluable contribution to the economy when the agriculture-related part of the economyfaces a major negative weather shock.

32.Looking to the future, real growth in Malawis T&T sector is expected by WTTC toremain high, with 10-year annualized real growth of 8.7 percent for the wider economyGDP measure. This places Malawi third out of 181 countries ranked by the WTTC forT&T growth prospects. The basis for predicted strong real growth in tourism given by

WTTC is a function of the factors discussed later in this report, including (i) newinvestment, (ii) growth in T&T in the ESA Region, (iii) the trend for tourists to seek outnew underexplored destinations, and (iv) the overall strong performance of the Malawieconomy stimulating domestic T&T demand. It should still be noted that Malawis T&Tsector is growing from a relatively low base, compared to other countries in the ESARegion that have focused heavily on T&T, such as Kenya, Tanzania, Mauritius, andBotswana.


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33.However, while T&Ts share of Malawis GDP has increased steadily, WTTCexpects this to level out over the next decade while at the same time predicts continuedhigh T&T growth rates. The leveling out is a function of the high growth rate of theoverall economy in recent years, which is predicted to continue. Since Malawis overallgrowth rate is closely linked to agricultural growth, if T&T continues to grow at its

current high rate, then T&Ts share of GDP would leap in a poor agricultural production(drought) year. As the sector and economy both grow larger, T&T can provide an evenmore important contribution in a drought year.

34.Malawis T&T sector directly provides a higher than average proportion of GDP thanacross the Sub-Saharan African (SSA) region. However, using WTTCs wider economyGDP measure, the performance is less robust than the SSA average, suggesting relativelyweak linkages and a weak multiplier. Overall, despite the country lagging behind keyregional competitors such as Kenya, Tanzania, and Mauritius, the data provideencouragement for the current performance of Malawis T&T sector and indicate thatthere may be large potential gains if Malawi can close the gap with SSAs average widereconomy performance.

Table 1: Cross-Country Comparison of T&Ts Contribution to GDP

Contribution of Tourism to GDP (%)

Direct Industry Economy200007(annualavg.)

2008(annual)

2009(annual)

200007(annualavg.)

2008(annual)

2009(annual)

Malawi 2.6 2.9 2.4 5.3 5.8 5.0

Zambia 1.3 1.1 1.2 4.2 3.7 4.0

Mozambique 2.3 2.6 2.5 5.8 5.8 5.5

Tanzania 4.2 4.4 3.4 9.5 10.2 8.4

Botswana 3.2 3.8 3.8 7.7 8.5 8.6

Kenya 4.4 4.8 4.1 10.2 10.3 9.0

Gambia 6.5 6.0 5.1 15.1 14.1 12.6

Mauritius 11.8 13.0 11.8 26.0 27.2 25.9

SSA Average 2.5 2.3 2.2 7.2 7.6 7.0

World Average 3.6 3.2 3.2 10.1 9.6 9.4


Tourism Multiplier

35.A concern from the cross-country comparison in Table 1 is the apparent limitedmultiplier effect of direct T&T GDP to Malawis economy. T&Ts direct contributionappears not to stimulate as large a response in the supply chain, public spending, andtourism-related investment than across the SSA region

36.This can be seen more clearly in Figure 2, which shows how much extra economicactivity is associated with $1 of direct T&T spending:


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Figure 2: Comparison of T&T Multiplier Rates, Selected Countries


37.For Malawi, US$1 of real GDP (in year 2000 US$) in the T&T sector led to anaverage US$1.08 of increased economic activity associated with T&T in the widereconomy (200008). In contrast, the figures for SSA and the world were US$1.77 andUS$1.81, respectively. Zambia had a response of US$2.17, though it should be notedthat Zambia recorded its T&T sector with a lower GDP contribution on both direct andeconomy measures. Mozambique and Tanzania also had higher multipliers than Malawi.

38.While the multiplier on tourism-related spending in Malawi is disappointing relativeto other countries, it suggests there is potential to increase T&Ts impact throughimproving the multiplier. This could include stimulating a stronger supply chain

response to opportunities generated by the existing T&T providers through utilizing morelocal goods and service supplies.

39.Using the NSOs 2005 input-output table, output multipliers were calculated for 13industry groups, with the tourism industry group represented by hotels and restaurants.Hotels and restaurants are a narrower group than that used by WTTC for its cross-countrysector comparisons, and typically likely to have higher multipliers than the wholetourism sector. While multiplier analysis makes assumptions and has its limitations,13comparing industry output multipliers brings valuable insight into the relative effects ofexternal investment in tourism compared to other sectors. The multipliers in Table 2show the magnitude that an external investment would generate in the economy, typically

through exports or government investment.

13 For the results of multiplier analysis to apply, two important assumptions must hold simultaneously. First, supply-side constraints to economic expansion are not binding. As a result, the level of demand determines the level ofeconomic activity. Second, either it is assumed that prices are constant or that preferences and technology are of theLeontief form. In other words, consumers consume in fixed proportions and producers use inputs in fixed proportionseither because fixed relative prices provide no incentives to change those proportions or because preferences andtechnology are specified in that way. Furthermore, multipliers do not consider either distributional or dynamic effects.While these are limitations, the data give an indicative picture of the likely effects.


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40.The strongest multipliers are found in ownership of dwellings, construction, andtourism. In 2005, investment in tourism would have generated more economic activitythan in agriculture, manufacturing, or mining. This is not surprising, as tourism requiresinputs from other industries, notably agriculture, manufacturing, transport, andcommunication.

Table 2: Output Multipliers in Malawi, 2005Industry Multiplier RankOwnership of dwellings 3.78 1Construction 3.08 2

Tourism 2.70 3Mining and quarrying 2.36 4Wholesale and retail trade 2.33 5Manufacturing 2.33 6Electricity, gas and water 2.27 7

Transport and communication 2.04 8Personal services 2.02 9Real estate, renting and business activities 2.02 10

Agriculture 1.91 11Financial services 1.71 12Forestry and fisheries 1.61 13

Source: NSO data, 2005.

41.The data from the WTTC cross-country comparisons and from the NSO output dataappear to be at odds. Part of the difference is in that NSO data are more narrowlyfocused on hotels and restaurants, which are likely to have higher multipliers, and part ofit is likely to be different methodologies and data sources. The WTTC data give aparticularly low multiplier for Malawis tourism sector that is probably understating thetrue sector multiplier. However, the WTTC data are primarily a comparative analysis,calculated on a consistent basis, suggesting that even if Malawis tourism multiplier is

higher, it is lagging other countries when calculated on a comparative basis. Therefore, itis reasonable to conclude that tourism does have a relatively high multiplier than othersectors, but that Malawis tourism multiplier is not as high as other ESA countries.

Employment

42.Aside from its contribution to GDP in Malawi, T&T provides much-neededemployment in a country characterized by high un- and under-employment. According toWTTC, direct T&T employment accounted for over 68,000 jobs in 2008, or 2.2 percentof total employment (see Figure 3). T&T touches many sectors of the economy; takingthis into account, the sector is estimated to account for 140,000 jobs, 4.5 percent of totalemployment, formal and informal.14 Employment in T&T has steadily risen, andprojections suggest jobs associated with T&T will reach 178,000 jobs by 2020 (WTTC,2010a), as per Figure 3.

14 Estimates for 2009 suggest a small fall in employment to 59,900 (direct industry) and 123,100 (wider economy).


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Figure 3: Trends and Projections in T&T Employment, 19882020

Source: World Travel and Tourism Council.

43.It is important to note that T&T has a positive impact through creating scarce formaljobs in rural and remote areas, as well as providing entry level jobs for those that havenever been employed.

Export Earnings

44.Another important dimension of T&Ts economic role is export earnings throughspending by foreign visitors (Mitchell et al. 2009). According to the WTTC, in 2008T&T generated US$39.5 million in visitor spending, equivalent to 63.4 percent ofMalawis service exports. This records spending from the balance of payments accounts

while travelling, as well as on transport services. WTTC estimates these will account for3.5 percent of Malawis total exports for 2010.

45.However, Malawi compares poorly to the rest of the region and the world as a whole.International visitors are predicted to generate 6.6 percent of total exports for the SSAregion this year (WTTC 2010b), while for the world economy T&T export earnings areestimated to be 6.1 percent (WTTC 2010c) of total exports. This suggests there ispotential to increase Malawis share of exports through increased international visitorsand increases in their spending. Adopting strategies that increase international visitorsand foreign exchange receipts would have clear benefits for the economy.

Government Revenues

46.The T&T sector provides an important source of GoM revenue through tax andnontax revenues. For the 2010/11 fiscal year, GoM set the MTWC a target of MK 65.28million in tax and nontax revenues,15 equivalent to US$430,000. It is expected that entryfees to Malawis nine national parks and game reserves will generate MK19.5 million;

15 Taxation on goods/services at MK 31.5 million and revenue from sale of goods/services at MK 33.78 millionaccording to the Ministry of Finance.


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the Department of Tourism (DoT) within the MTWC is expected to collect MK 30million in local excise duties.

47.Aside from revenue received through the MTWC, T&T enterprises pay employeeincome tax deducted through pay-as-you-earn (PAYE), collect value added taxes (VAT)on sales, pay excise and customs duties on imported items, pay excise taxes on the sale of

selected luxury products (for example, alcohol), pay corporation taxes on profits, anddeduct withholding taxes from suppliers as advance payment on their tax liability.16

48.Employees pay income tax from MK 10,000 per month (US$66 per month) at 15percent, increasing to a top rate of 30 percent for all income over MK 13,000 per month(US$86 per month). Even with low wage employment, the PAYE revenue yield for GoMfrom 140,000 employees is substantial.

49.The VAT is 16.5 percent and applies to most T&T services, notably accommodation,meals, (domestic) flights, and car hire. As well as making a significant contributionthrough collecting output VAT, current rules do not allow VAT registered users to claimmeeting rooms, conference costs, accommodation, and meals as offsetting input VAT,

which is a tax anomaly. The effect is to substantially increase the net effective yield ofVAT from the T&T sector, though the converse is that it increases the net effective costof these T&T services to users, potentially reducing usage and demand.

50.Duties are set according to different categories, but typically up to 25 percent. Excisealso varies, but is set at 30 percent on imported spirits. Tax revenue on the sales ofalcohol alone through hospitality outlets, which are part of the T&T sector, are likely tobe substantial. In the 201011 national budget, much to the concern of investors in thesector, GoM recently removed many of the duty exemptions on the T&T sector, includingon buildings and vehicles. It is yet to see what impact this will have on investment andrevenue yields, but as T&T investments are often longer term than other categories ofinvestment, with time horizons of 10 to 25 years, there is merit in tax concessions at the

front end to attract incremental investment.

51.The corporation tax rate is 30 percent for Malawi-registered companies and 35percent for branches of foreign companies (Deloitte 2010). Withholding tax rates rangeup to 20 percent of cost and aim to capture income/corporation tax from informalunregistered suppliers.

52.Since July 2009, a tourism levy at 1 percent of sales was reintroduced on food andbeverages, accommodation, and other tourism-related services charged irrespective of theuse/user of the service (tourism and nontourism). According to MTWC, this levy yieldedMK 47 million (US$310,000) in fiscal 200910 and is projected to reach MK 100 million(US$660,000) in fiscal 201011, its first full year of implementation, based on improved

enforcement activity and the introduction of incentives to comply. MK 100 million froma 1 percent levy on VAT-able invoices equates to MK 1.65 billion (US$10.9 million) ofoutput VAT. This is an underestimate for VAT, given that there is more evasion onpaying the tourism levy; VAT is more rigorously enforced by the Malawi RevenueAuthority.

16 Withholding Tax (WHT) is important in an economy where there are many informal suppliers of services and goods,most of which do not ultimately pay tax on their profits.


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53.Using the value-chain analysis presented in section 0, it is calculated that aninternational visitor for a two-week safari and lakeshore trip (excluding flight costs)yields US$519.71 (23.67 percent) in direct taxes,17 and at least US$164.61 (6.83 percent)18through indirect taxes on a package of US$2,327.00. The total tax yield on such a two-week trip is calculated to be in excess of US$684.41 (30.5 percent of revenue). In

addition, there are revenue from fuel levies on transport used, supplementary purchasesby the visitor, and multiplier effects. Although this is a high-end package, the figuresindicate that potential tax revenue to be generated by T&T is significant for GoM. Therelatively high tax take is a source of complaint by operators in the sector, as is theunpredictability of the tax regime. The latter is a response to the removal of incentivesthat had been introduced in recent years. Operators commented on the lack of dialogueon this major change; most stakeholders were surprised by it.

B. Policy and Enabling Environment

Policy and Ministry Role

54.The MTWC is responsible for the T&T sector through four departments, each headedby a director: Tourism, National Parks and Wildlife, and Culture, all supported byPlanning and Finance. The MTWC role covers policy and strategy formation as set outin the National Tourism Policy and the Tourism Sector Strategic Plan 200813.

55.The National Tourism Policy sets out roles for the ministry under (i) facilitation andimplementation, (ii) coordination, (iii) planning and policy making, (iv) regulation andmonitoring, (v) development promotion, and (vi) provision of infrastructure andsupporting services.19Facilitation and implementation include conserving wildlife andother natural and aesthetic resources. Although this involves direct action through theDepartment of National Parks and Wildlife (DNPW) and the Department of Culture, it is

necessary to ensure that key tourism-related natural resources, monuments, and sites ofantiquity are preserved and conserved where necessary. Coordination coversinternational and regional coordination within GoM and between sector stakeholders.Planning and policy making involves policy formulation and integration with districtand national government plans. Regulation and monitoring includes setting regulationsand providing guidelines as appropriate, ensuring the industry is environmentallyresponsible and enforcing compliance with regulations. Development promotion ispromoting the development of tourism destinations within Malawi that have potential,engaging the local communities, and promoting major tourism projects. Finally,provision of infrastructure and supporting services includes working with otherministries and stakeholders to provide roads, airports, telecommunications, and

electricity.

17 In this calculation, direct taxes include the VAT, tourism levy, concessionaire fees, permits and licences, and parkentry fees that are included in the package.

18 Indirect taxes in this calculation include PAYE on wages/salaries, estimated duties, and excise taxes on vehicles,beverages, and other luxury items used.

19 Section 8.1 of the policy.


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56.These are the expected roles of a tourism ministry. Responsibility for theDepartments of National Parks and Wildlife and for Culture ensures better integration ofMalawis natural and human attractions. Overall the policy sets appropriate roles for theMTWC, including directly managing parks, wildlife, monuments, and heritage facilities.

57.The MTWC works with a number of subsidiary boards and trusts, notably theTourism and Hotels Board (THB), the Gaming Board, and the Malawi Institute of

Tourism (MIT) Trust. It also has an ex officio seat on a number of T&T-related boards,such as the Air Malawi and the National Lotteries boards. However, the MTWC hasfaced difficulties with resources needed to carry out these roles and functions. Forexample, the THB is constituted as a board but does not have its own secretariat. Rather,it depends on ministry staff to support and implement its functions.20

Regulation

58.Customer-focused, standards-based regulation of the T&T sector was established in1968 through the Tourism and Hotels Act. Over the past 40 years, the scope, application,

and content of that regulation

has evolved to cover the full range of establishments thatoffer T&T-related services, and the particular standards to which they are subject havebeen updated. The Tourism and Hotels Act of 1968 provides the basic framework forregulation of the T&T sector. It originally applied to hotels only but was extended in2005 by the Tourism and Hotels (Enterprises) Order to cover other T&T establishmentssuch as restaurants, tour operators, and car-hire firms. The framework is based on alicensing system whereby individuals/entities wishing to establish any of theseenterprises must, themselves, be licensed by the THB. That licensing requirement is thebasis on which the THB can test and control the suitability of persons managing T&Tenterprises, as well as the qualities of the enterprises they wish to operate. It provides amechanism for ensuring reasonable minimum standards of provision across the industry.

59.Applicants pay a tourism license application fee and must meet minimum workingcapital and turnover thresholds. They are then subject to inspection and approval.Operators in the study reported no major difficulties obtaining the license fromDepartment of Tourism as long as they were compliant with the requirements. Tourismoperating license fees are based on the size of the unit. There are separate licenses forfood and alcohol service and a license from the local government body within whose areathe services operate. Like other businesses, T&T enterprises are subject to inspection bythe Malawi Bureau of Standards. Such provisions are common in regulatory regimes,with the aim of protecting customers and providing confidence in the operation of anindustry, but it is important to ensure that the fees and capital/turnover requirementsdistinguish between different types of businesses and are set at appropriate levels.

Private sector operators indicated that there is an overlap of responsibilities in licensingwith either competing inspections on the same issue or no inspections at all. Reviewingand streamlining processes would make entry into the T&T sector less expensive andeasier, particularly for smaller enterprises on whom the burden of regulation always falls

20 In this case, the minstrys Standards and Safety Division.


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most heavily, as they have more limited capacity and resources to manage the processand fulfill the requirements.

60.Licensing can bring the MTWC into conflict with private sector operators, as hashappened in the past during facility inspection and enforcement of closure. Licensing in

many countries is placed with a body outside the ministry, such as a tourism board, whichhas both governmental and private sector representation. The legislation and policy inMalawi anticipate such a body, but MTWC is not able to implement this in the absence ofa THB secretariat or resourcing for it. It is unlikely that the T&T sector is sufficientlylarge to resource this through a levy, which may add too much to the price to clients. Anysuch body would need to utilize public, private, and development partner funding.

61.The regulatory framework provides for maximum charges to be applied by hotels tobe applied, although maximum charges have not been enacted. There is also provision forvarious industry levies to be established. These can help ensure that costs of regulatingand developing the industry are both targeted and proportionate; it is also critical thatthey be transparent to avoid creating unnecessary entry barriers or operational costs. Thereintroduction of the tourism marketing levy at 1 percent has generally been accepted asnecessary, though most operators interviewed would not welcome any further increase.Operators want to be fully involved in discussion on how the levy is spent and how it canbe integrated with other marketing initiatives. This is achieved through the marketingcommittee, which is scheduled to meet every three months. Overall, private sectoroperators felt that the levy was being better spent than in the past and that thetransparency, accountability, and visible outputs had also improved.

Classifying and Grading

62.The Tourism and Hotel (Grading) Regulations of 2005 provide for a standardizedsystem of classifying and grading21 hotels and lodges using a mixture of objective andsubjective scoring systems tailored to different types of outlets.22 This combination offactors reflects relevant differences per category and yet provides a reliable basis forcomparison between establishments. The MTWC announced that the delayedimplementation of the grading system would commence in September 2010, though itwas subsequently further postponed to November 2010.

63.A grading system that is applied in a consistent and transparent manner, with goodcommunication of the grades and criteria to customers, can build confidence and correctinformation asymmetries. An official system may also be seen to be more objectivethan a private grading system, though it has to remain objective and free from beingcorrupted.

21 Classifying is the determination of the different categories and standards within them. Grading is the awarding of aparticular classification to a particular operator.

22 For example, with different standards for lodges and hotels; an elevator is a valuable feature in a city centermultistorey hotel, but not in a one-story game lodge.


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InstitutionalStructure

64.A detailed review of the institutional structure has recently been performed forMTWC and recommendations were made for a new Tourism Law to reform theinstitutional structure and update and expand the established grading system.23 Amongthe proposals is the establishment of the Malawi Tourism Authority (MTAu) to take on

the regulatory and licensing functions as well as marketing and internationalrepresentation. This would enable the MTWC to focus more on the policy and planningfunctions, but the issue of resources still remains. In countries with developed industries,such a body would be funded by a mixture of government allocations and sizeablecontributions by operators through a levy. However, the resources required relative to thesize of the T&T sector at present make unlikely that this scenario would be sustainable inMalawi. For now the function might have to remain de facto within MTWC and theTHB, focusing on what could realistically be done within the available resources, even ifthat means not all the desired regulations can be implemented in the near term.

65.More broadly, the business enabling environment for Malawi is addressed in keypublications, such as the World Banks Doing Business series, the 2006 InvestmentClimate Assessment (ICA) and the Country Economic Memorandum(CEM) documents(200910). For Malawi as a whole, key constraints include (i) utilities (electricity andwater), (ii) roads and the cost of transport, (iii) key skill shortages in human resources,and (iv) foreign exchange. All these were confirmed as significant constraints ininterviews with T&T private sector operators. Access (roads) and utilities (electricity andwater) are particularly important for the sector as many tourism enterprises are, by theirnature, located in less accessible undeveloped locations with poor roads and utilities.Significant constraints specific to the T&T sector include (i) the cost and ease ofinternational access by air and (ii) the degradation of the natural environment.

66.Operators in urban locations highlighted the importance ofutilities, as most of theirservices depend on the availability of power and water for preparing and serving mealsand refreshments. Guest services for rooms, including air conditioning and television,also depend on electricity. Without water, it very quickly becomes impossible to provideaccommodation and hospitality. Clients paying a premium price expect to have theseservices for the duration of their visit, resulting in most providers investing additionalsums in backup generators and water supplies. The additional operating costs andinconvenience result in higher charges and poorer service.

67.As highlighted in section 2 on value chains, the roads and the cost of transport,particularly vehicles and their operation and maintenance, were a significant proportionof overall operational costs. Poor roads, particularly for regular transfers to and into

National Parks, add to already high maintenance costs.

68.The issues around human resources are set out in section 1G below in more detail.In summary, T&T is very dependent on its human resources, yet the quality, number, andrange of skills among trainees and graduates in Malawi are insufficient for the sector.The impending opening of the new conference hotel in Lilongwe will also place a

23Tourism Intelligence and Commonewealth Development Corporation (2008) .


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considerable strain on the sector, as it will require at least 400 staff. These will mostly berecruited from existing providers, resulting in a major hiatus in the labor market, asplayers seek to both retain and attract staff. This is likely to provide upward pressure onemployment costs and a drop in quality and service in those units that cannot retain orattract good quality recruits. There are no related measures being implemented to increase

the supply of graduates, such as through MIT.

69.Shortages offoreign exchange over recent years was highlighted as a constraint bysome operators, particularly those with a mainly domestic client base. These operatorsneed to sustain critical imports that are integral to their service, but have limited access toforeign exchange to obtain them. This does encourage them to use domestic suppliers,but there are quite a number of inputs that cannot be obtained in Malawi. The result isthat operators buy from small-scale traders who travel to South Africa with foreignexchange purchased from the Forex Bureau at higher prices and provide key items. Thisis an inefficient and expensive means to import goods, resulting in even higher pricesthan direct importing.

70.The cost and ease of international access by air and limited international anddomestic air services are viewed as major constraints for T&T enterprises with aninternational focus. These are considered in the section on Tourism Hubs below (section1C). Some operators that target international clients noted that the overvaluation of theMalawi kwacha exchange rate relative to the major trading currencies was making theirpackages relatively more expensive than neighboring countries. The recent devaluationof the Mozambique metical was given as an example of how a competing country hadbecome much more price competitive to visitors at a time when there is weakness ininternational tourism demand.

71.Another major T&T-specific issue is related to the degradation of the naturalenvironment and wildlife resources, which was a concern for operators whose investmentis based on access to these resources. This is considered in section 3B.

C.Tourism Hubs and Linking Infrastructure

72.All modes of transport showed an increase in numbers of visitors using them to enterMalawi from 2006 to 2009 (

Table 3). Air transport marginally increased its share from 31.5 percent to 33.2 percentof all visitors by 2009. Road had a small reduction in its share over the period, but wasstill the most dominant form of access in 2009 with 62.0 percent of visitors. Rail andwater accounted for less than 5 percent of visitors in 2009.

Table 3: Visitor Access to Malawi by Mode of Transport, 200609

Mode of transport used: 2006 2007 2008 2009 2009

No. No. No. No. %Air 200,919 231,700 227,143 250,960 33.2Road 425,969 484,129 487,539 467,788 62.0Rail 6,015 9,743 12,821 14,759 2.0Water 4,869 8,860 14,955 21,524 2.9


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Total 637,772 734,432 742,458 755,031 100.0

Source: Department of Tourism Annual Statistics

73.Some 63.5 percent of those visiting Malawi by air came

malawi travel and tourism

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