Interest rate hikes, inflation threaten tourism investments

The World Travel and Tourism Council’s (WTTC) says the global hike in interest rates is creating challenges for future investments.

In its recently published Travel & Tourism Economic Impact 2023 Global Trends Report, the council says with central banks increasing interest rates to combat rising inflation, the cost of borrowing and products increases.

“Higher interest rates could present a risk to future investment in the sector so it’s crucial that the public and private sectors work together to innovate to ensure the continual strengthening of this vital sector,” said WTTC in the report.

WTTC data shows that from 2010 to 2019, investment grew steadily at 4.3 percent compound annual growth rate, growing from $754.6 billion in 2010 to $1.1 trillion in 2019, or 4.5 percent of all economy-wide investment.

Covid-19 hit hard, leading to a 24 percent decline in 2020 and a further 8 percent in 2021.

Reserve Bank of Malawi Governor Wilson Banda last month announced a 200 basis policy rate hike to 24 percent from 22 percent.

According to the third sitting of the Monetary Policy Committee (MPC) Meeting of 2023, the move had been necessitated by price pressures which have intensified, such that inflation is projected to remain substantially above the medium-term target for longer.

The policy rate was static at 12 percent since 2021 and the central bank indicated that it was meant to support economic recovery from the Covid-19 pandemic.

The Malawi Government recognises tourism as a priority sector that can be used as a vehicle for economic growth and poverty alleviation as outlined in the Malawi 2063 blueprint.

To promote investments in the sector, which is touted as Malawi’s third foreign exchange earner after tobacco and tea and considered a catalyst for economic and social development, Treasury introduced a number of incentives.

They include free import excise and free value added tax on the importation of a number of goods.

Tourism contributes about 5.8 percent to the gross domestic product. n