Business News of Tuesday, 20 February 2018
Source: dailyguideafrica.com
2018-02-20
John Awuah, Chief Executive Officer (CEO) of Universal Merchant Bank (UMB)
Chief Executive Officer (CEO) of Universal Merchant Bank (UMB), John Awuah, has called on players in Ghana’s banking sector to look at the best ways of supporting the development of the country’s tourism industry to make it attractive.
Speaking at the beginning of a two-day panel discussion on ‘Funding Tourism Investments’ at Kempinski Gold Coast Hotel in Accra, he said there were challenges with financing tourism in Ghana.
Noting that the commercial banking system does not make special provisions for tourism projects, he opined: “All requests for loans are assessed according to their financial viability. The banks, like all commercial financial agencies, also require some collateral and owner equity. Inadequate understanding of the economics of the industry by financial industry players also serves as a big hurdle to financing of the industry.”
The forum, organised by the Ghana Tourism Development Company (GTDC), in collaboration with the Ghana Investment Promotion Centre (GIPC), formed part of the upcoming Tourism Investment Summit in Accra.
It is themed: “Promoting and enhancing tourism investment in Ghana.”
UMB’s role
He said UMB was appointed as one of the three universal banks mandated to collect and manage levies towards the Tourism Development Fund in 2014.
He said collection of the levy started in 2012 with the Ghana Tourism Authority (GTA) collecting GH¢185, 647.
GTA collections inadequate
“GTA collected GH¢11,675,900 in 2017. This represents a 5-year CAGR of 129%. In total, the amount of levies collected within the six years of the tourism levies’ inception is GH¢39 million ($8.8m). In our opinion, although the growth in collected levies is encouraging, the amount collected is woefully inadequate in funding tourism investments/developments in Ghana.”
“In the third quarter of 2017, Hotels & Restaurants sub-sector in Ghana grew modestly by 1.4% year on year. Also, Community, Social & Other Personal Service Activities grew by 1.7% year on year in third quarter of 2017. The modest growth rates in these tourism related sub-sectors were not entirely surprising. Credit advances to the recreational sub-sector in Ghana was only 6.8% of the total GH¢ 7.95bn credits advanced to the Services sector in 2017. This was in fact a decline of the 7.3% recorded in 2016.”
Recommendations
To explore the opportunities available in the tourism industry, the UMB CEO stated: “We must adopt clear strategies based on suitable methodologies for tourism product development. Example is the UNWTO Prototype methodology, which involves discovery phase, technical design, business plan development, going live and supervision and improvement processes.
He also called for the designating of tourism development zones/areas, pursuing flagship development opportunities, preparation of a full product portfolio and investment plan, drawing up a marketing and promotion strategy to support the tourism product developments and implementing a program of marketing communications.
He also stated that a public private investment model should be exploited to develop the industry as it had become an increasingly used model for the financing of tourism infrastructure.
Hurdles
Citing a report from the Caribbean’s financial system, which revealed the high rejection of financing of eco-projects, Mr Awuah also said the capital cost of development was usually too high, adding that the equity base sometimes consisted only of the piece of land to be developed, which was usually insufficient to give the project a feasible debt/equity structure.
He revealed that the cash flows and earning potential were usually too low to provide a reasonable return on equity, as well as a comfortable debt service profile, adding that many projects required at least 15-year financing in order to match the projected cash flows.
Infrastructure hiccups
He further touched on the lack of enabling infrastructure- land/location for hotel/resort development, roads, airports, connectivity, water, electricity, sanitation- which makes it daunting for financing location specific projects.
Other operational issues such as unavailability of local operational skills in destinations, quality assurance and standards, safety and security issues etc. are few of the issues that hinder financing of the sector.
According to Tourism Investment Forum for Africa (INVESTOUR), “Africa has been one of the world’s fastest growing tourism regions, growing from a small base of 15 million visitors in 1990 to 62 million in 2017. Investments in travel and tourism in Africa amounted to USD 28.5 billion, or 6.2% of total investments in 2016.”