Hospitality industry predicts hard times

Operators in the hospitality industry are predicting harder times ahead, even after they were allowed to reopen sections of their businesses.

In his latest announcement on Tuesday, May 19, President Museveni permitted shops, hotels and restaurants to resume operations. The President’s announcement has, however, not quelled fears that recovery for the hospitality industry will take a long time.

Despite the reopening, Susan Muhwezi, the chairperson of Uganda Hotel Owners Association (UHOA), says there will be no foreign guests until borders reopen and airlines start operating.

“Before the outbreak of coronavirus, hotel room occupancy rate in Uganda stood at 50.9 per cent,” she says. This number has since reduced significantly, with information from UHOA showing occupancy rates at only 5 per cent.

Data for the occupancy rate provided by UHOA was taken before May 26, when hotels were only hosting quarantine guests and essential workers, but there are fears that the easing of the lockdown measures will not create a significant change.

Jean Byamugisha, the UHOA chief executive officer (CEO), says hospitality industry depends heavily on foreign guests. Foreign guests make up 65 per cent of the occupancy rate, so UHOA expects the hospitality industry to normalise with the opening of borders. Foreign guests are also credited by UHOA for paying the highest rates.

The absence of foreign visitors means the hospitality industry will earn much less in annual revenue. Byamugisha says the industry has been earning $800 million (Shs3 billion) in annual revenue, but this amount is expected to significantly drop, as a result of Covid-19.

With this revenue, Muhwezi says the hospitality industry was able to pay staff and meet statutory obligations such as national social security fund (NSSF) and taxes.

Muhwezi says taxes such as value added tax (VAT), the hotel tax, local service tax, corporation income tax and withholding tax will be hard to meet under the current circumstances. Other expenses for the industry include bar, swimming pool and liquor licenses.
To minimise costs, Byamugisha says UHOA members have been advised to take up cost-cutting measures, so as to delay harsher action.

Other cost cutting measures include hotel staff taking their accumulated leave, with employees remaining on call and the temporarily shutting down selected hotel floors to reduce the workload.

Byamugisha says these temporary measures were necessary to ensure a reduced long-term impact on the hotels, their employees, the hospitality industry and economy.
But the total lockdown of the country since March 27, resulted in complete closure for some hotels. A significant number of staff have also been laid off with a promise to call them back, once business normalises.
“Approximately 400,000 of our staff are at home with no salaries and we are struggling to meet statutory tax obligations, which include 18 different taxes and 7 licenses,” says Muhwezi.

Under normal circumstances, UHOA says they employ 450,000 workers. But they are now retaining only 10 per cent of the staff to ensure cleanliness and maintenance, so that the few guests that come in find ready rooms.

Hotels and restaurants have also kept staff to implement safety measures and serve the few customers willing to spend money on eating outside of their homes.

Way forward
Since hoteliers have cut jobs, they are now asking for government waivers on different taxes and expenses. The Association comprising of 520 member hotels across the country has made proposals to government ministries for a stimulus package. The requests made include waivers on employee related expenses

“We are asking for a waiver on pay as you Earn (PAYE) and NSSF for a period of 4 months when hotel staff are not earning salary,” says Muhwezi who also doubles as the proprietor of Agip Motel Mbarara.

Hoteliers also want government’s intervention in rescheduling their loans. According to UHOA, many members are currently servicing loans whose interest rates stand at 20 per cent. Although Bank of Uganda issued a statement asking commercial banks to reschedule loans based on individual borrowers’ circumstances, this appears not to be working.

There are reports that commercial banks are rescheduling loans on condition that the borrower pays higher interest rates, a proposal that is not ideal for struggling businesses.

The Uganda private sector foundation previously observed that few legitimate businesses can survive, if they have to pay more than 20 per cent in interest rates.

To work around such challenges, Muhwezi says government should create a credit line for hotels to borrow money from Uganda Development Bank (UDB) at zero interest rate. This money will support the hospitality industry to revive operations.

The industry also wants the marketing budget to Uganda tourism board increased. UHOA says tourism is Uganda’s largest foreign exchange contributor to the economy, as it brings in Shs8.4 trillion, which is eight per cent of the country’s gross domestic product (GDP). It also contributes about 700,000 jobs of the jobs in the country.

With such a contribution to the economy, Lilly Ajarova the UTB CEO affirms that tourism and related businesses deserve a financial stimulus to stay afloat.

She adds that UTB deserves extra money from government, which will be used to increase their promotion of domestic, regional, intra-African and international tourism and travel. This will serve as a catalyst to trigger recovery of the hospitality industry.

“The marketing we need to do is not limited to domestic. Globally, destinations have been brought to their knees. Whoever positions themselves strategically will get business first, once travel resumes,” she says.

Ajarova says world over, people are grieving, but wish to change environments. “That is why we need to keep at the top of their mind through digital marketing till they decide to travel whether after one or two years,” she says.

She adds that a marketing plan is underway in consultation with key private sector partners.

Precautionary measures
As the discussion on a stimulus package for the tourism and hospitality industry is ongoing, UTB is urging hoteliers to ensure health standards and restore confidence in the tourism markets.

“UTB as a government regulator for commercial accommodation in Uganda is mandated to inspect all tourist services and facilities in order to ensure conformity with international standards,” says Ajarova.

Ajarova urges hoteliers to adhere to the Standard Operating Procedure (SOP) that will be shared soon.

Together with the ministry of tourism, wildlife and antiquities, UTB has developed the SOP on how tourism players are going to follow the international standard on hygiene and health safety because short of that people will not travel.

She adds that developing it is one thing, but implementation is another. “It requires sensitising the operators in the sector on requirements. This will be followed by inspection and certification of facilities that have necessary measures to allay fear of clients,” says Ajarova.

She, however, says all these new processes require financing, because Covid-19 is a new phenomenon that had not been budgeted for.

As they await guidance from UTB and the ministry of tourism, wildlife and antiquities, some players in the hospitality business are already implementing their own safety measures.

The precautions are aimed at reducing exposure to and transmission of a range of illnesses, which include hand and respiratory hygiene such as Covid-19. The industry will also continue implementing safe food practices, as hotels generally survive or die based on the quality of experience given to guests.

“Your body temperature will be checked at our entrance by one of our executives using a temperature gun,” reads part of a statement from Eureka Place Hotel and Suites, which has put out new operational guidelines in response to the President’s guidance on reopening.

The hotel has also asked guests to wash and sanitise hands at the entrance and to frequently observe social distance of at least one metre. Guests are also expected to cover their mouths and noses with the elbow or tissue whenever they are coughing or sneezing.

“We recommend the use of fresh air rather than the use of air conditioners,” the hotel statement adds.

Effects of covid-19
In addition to limited guarantees on job securities at the moment and most especially among the young people who are in the prime of their careers in Uganda, Ajarova echoes the adverse effect of a huge drop in reservations and increase in cancellations as a result of Covid-19.

Basing on her previous experience in the hospitality industry, Ajarova says the capital intensiveness and high fixed costs in the day-to-day operations of hotels mean the proprietors will have to invest heavily to realise meaningful recovery.

The global community is now trying to come to terms with the implications of the Covid-19 pandemic on the hospitality industry. But previous shocks to the hospitality industry have shown how difficult and slow recovery can be.

When Kenyan coastal towns such as Lamu and Mpeketoni were hit by consistent attacks by the Al-Shabaab in 2014, Mombasa, a major tourist destination in East Africa suffered, with many hoteliers falling into disrepair.

Some hotels had only started renovations in 2019 and 2020, since a reduction in the number of tourists meant reduced capital. Without capital, employment of staff and renovation of buildings fell on the wayside.

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