KENYA TOURISM CLUSTER

– An Analysis –

Apollo JARAMOGI
Atanasio NJERU
Flavius STAN
Master Dicks MFUNE
Vincent Ferrer BUKENYA
Master of Public Management, Bocconi School of Management, Luigi Bocconi University, Milan, Italy

June 6, 2008

Microeconomics of Competitiveness 1 Greta Nasi, PhD; Emanuele Vendramini, PhD

 TABLE OF CONTENTS

Section One: INTRODUCTION............................................................................................................................................3

Why Kenya Tourism?............................................................................................................................................................3
Kenya Touristic Endowments................................................................................................................................................3
Focus of this Paper.................................................................................................................................................................3
Section Two: KENYA’S OVERALL ECONOMIC PERFORMANCE...............................................................................4
Background............................................................................................................................................................................4
Factor Inputs..........................................................................................................................................................................6
Foreign Direct Investment.....................................................................................................................................................7
Social Indicators....................................................................................................................................................................8
Economic Clusters.................................................................................................................................................................9
Ease of doing business.........................................................................................................................................................10
Assessment of the National Business Environment ...........................................................................................................10
Kenya National Diamond....................................................................................................................................................13
Factor Conditions.................................................................................................................................................................13
Context for Strategy and Rivalry ........................................................................................................................................14
Demand Conditions.............................................................................................................................................................15
Related and Supporting Industries.......................................................................................................................................15
Role of Government............................................................................................................................................................15
Role of Institutions for Collaboration (IFCs)......................................................................................................................16
Types of Institutions for Collaboration................................................................................................................................16
Examples of Key IFCs.........................................................................................................................................................16
Section Three: IN-DEPTH ANALYSIS OF THE KENYA TOURISM CLUSTER..........................................................18
Tourism Cluster Overview..................................................................................................................................................18
Kenya (Tourism) Cluster Timeline Development...............................................................................................................18
Endowments........................................................................................................................................................................19
Tourism Cluster Performance..............................................................................................................................................19
Tourism Custer Map............................................................................................................................................................21
Recent Trends in Kenya Tourism Cluster ..........................................................................................................................21
Tourism Cluster diamond....................................................................................................................................................23
Role of Government............................................................................................................................................................25
Institutions of Collaboration................................................................................................................................................25
Section Four: STRATEGIC RECOMMENDATIONS AND CONCLUSIONS ................................................................27
Strategic Challenges and Recommendations.......................................................................................................................27
Enhancing Kenya Tourism Cluster Development...............................................................................................................28
CONCLUSION....................................................................................................................................................................29
REFERENCES:...................................................................................................................................................................30
APPENDICES.....................................................................................................................................................................32
Appendix 1: Composition of the three Travel and Tourism Competitiveness Index sub-indices.......................................32
Appendix 2: Map Showing Kenya’s Role in the Neighborhood.........................................................................................32
Appendix 3: Strategy 2030, Tourism Component...............................................................................................................33

Microeconomics of Competitiveness 2 Greta Nasi, PhD; Emanuele Vendramini, PhD

 Section One: INTRODUCTION

Why Kenya Tourism?

Tourism has been an important sector of Kenyan economy. As early as the beginning of sixteen
century Kenya, especially the coastland, was positioned as trade and tourist destination for the
Portuguese. Today, tourism is identified as one of the key drivers in achieving the goals of Kenya’s
Vision 2030. Tourism accounts for 10 percent of the Gross Domestic Product (GDP). The sector is the
third largest contributor to Kenya’s GDP after agriculture and manufacturing, Kenya’s largest foreign
exchange earner followed by tea and horticulture. Kenya is a gate way to East Africa; main entrance of
transit goods to most of its neighboring countries.

It is a doorway to products coming from Asia/Europe through the Ocean especially because of volatile
Somali borders. Its ports serve the landlocked Uganda, Burundi, Rwanda, southern Sudan, eastern
Democratic Republic of Congo (DRC) and northern Tanzania. Despite Tanzania’s longer coastline
than Kenya’s, the latter enjoys much developed ports with higher cargo holding capacity. Many
industries in various sectors: the largest and most developed than any other East African country.

Kenya Touristic Endowments

Kenya’s tourist attractions focus on its natural endowments. The country boasts of thirty four game
reserves and parks, mountain Kenya, Africa’s second highest peak at 5,199m, the Mombasa beach,
and archaeological sites such as the Rift Valley escarpments. Tourism in Kenya has expanded
dramatically since 1963, and since 1989 it has been the country’s leading source of foreign currency.
Tourist arrivals, mainly from Europe and North America, numbered 1,399,000 compared to the
583,000 in Tanzania in 2005.

Focus of this Paper

In this paper, the team sought to diagnose the Kenyan tourism sector and put forth a series of
recommendations aimed towards complementing and improving the competitiveness of the sector. In
particular, this paper is divided into four sections. (1) a review of the overall economic performance of
Kenya, (2) an assessment of the overall business policy and environment within Kenya (3) an in-depth
analysis of the tourism cluster and (4) an analysis of the strategic issues facing Kenya‘s tourism cluster
and policy recommendations.

Microeconomics of Competitiveness 3 Greta Nasi, PhD; Emanuele Vendramini, PhD

 Section Two: KENYA’S OVERALL ECONOMIC PERFORMANCE

Background

Kenya is a nation of over 32 million people located on the eastern coast of (East) Africa. Kenya has its
neighbours as Uganda (to the west), Tanzania (south), Sudan (north-west), Ethiopia (north), Somalia
(east) and Indian Ocean (south-east). The country is 582,650 sq km and this comprise the Great Rift
Valley bisects low plains with a fertile plateau in the west and with Mt Kenya, highest peak, at
5,199m.

Kenyan gained its independence on 12 December 1963 and later on in 1964 gained its republic status
(Jamhuri ya Kenya) with Kenyatta as president and Oginga Odinga as vice president. The country has
experienced relative peace and tranquillity, the most peaceful so far in the eastern region of Africa not
until recently in the late 2007 up to first quarter of 2008 following the aftermath of the mismanaged
elections. Some political violence ensued, which claimed some lives of people but the situation has
stabilised now with President Mwawi Kibaki sharing power with the Prime Minister position to Raila
Odinga in a government of National Unity, which was mediated by former UN Secretary General,
Kofi Annan.

The evolution of Kenyan real per capita income can generally be classified in to three presidential sub-
periods since independence in 1963 (Figure 1). First, soon after independence, Kenya gained a
reputation as one of Africa’s most stable and prosperous countries during the reign of President
Kenyatta. Second, President Daniel Arap Moi’s 24 year reign was marked by deterioration in the
country’s economic conditions and sporadic political upheavals. In particular, sharp declines in per
capita income were registered during 1982-84 following the 1982 coup attempt by the Kenyan Air
Force, and during 1991-94 following the 1990-92 sporadic political violence and tribal conflict, which
claimed the death of about 2,000 people. Third, in December 2002, Mwai Kibaki won a landslide
victory as the country’s 3rd president ushering in a new hopeful era. During Kibaki’s era, Kenya’s
GDP, compared to other East African countries, doubled and steadily rose from 15.04 percent to
almost 30 percent. See figure one below. However, these gains were heavily threatened and
weakened with the aftermath of political violence of December 2007 mismanaged general elections.

Microeconomics of Competitiveness 4 Greta Nasi, PhD; Emanuele Vendramini, PhD

A regional hub for trade and finance in East Africa, Kenya has been hampered by corruption and by
reliance upon several primary goods whose prices have remained low. For example, in 1997, the
International Monetary Fund (IMF)/World Bank suspended Kenya's Enhanced Structural Adjustment
Program due to the government's failure to maintain reforms and curb corruption. A severe drought
from 1999 to 2000 compounded Kenya's problems, causing water and energy rationing and reducing
agricultural output. As a result, GDP contracted by 0.2% in 2000. The IMF/World Bank, which had
resumed loans in 2000 to help Kenya through the drought, again halted lending in 2001 when the
government failed to institute several anticorruption measures.

Despite the return of strong rains in 2001, weak commodity prices, endemic corruption, and low
investment limited Kenya's economic growth to 1.2%. Growth lagged at 1.1% in 2002 because of
erratic rains, low investor confidence, meager donor support, and political infighting up to the
elections.

In the key December 2002 elections, Daniel Arap Moi's 24-year-old reign ended, and a new opposition
government took on the formidable economic problems facing the nation. After some early progress in
rooting out corruption and encouraging donor support, the Kibaki government was rocked by high-
level graft scandals in 2005 and 2006. As a consequence, for example, in 2006 the World Bank and
IMF delayed loans pending action by the government on corruption. The international financial
institutions and donors have since resumed lending, despite little action on the government's part to
deal with corruption. The scandals have not weighed down growth, with estimated real GDP growth at
more than 6 percent in 2007.

Figure 1: GDP of East African Community member states

GDPof EACmember states
GDP in bn US$

35,00
30,00
25,00 Kenya

20,00 Uganda
15,00 Tanzania
10,00 Burundi
5,00 Rwanda
0,00
Years 2003 2004 2005 2006 2007
Kenya 15,04 16,25 19,13 22,82 29,30
Uganda 6,24 6,80 8,74 9,50 11,23
Tanzania 11,65 12,81 14,17 14,20 16,18
Burundi 0,41 0,46 0,56 0,64 1,01
Rwanda 1,78 1,98 2,39 2,87 3,32

Source: Porter

Microeconomics of Competitiveness 5 Greta Nasi, PhD; Emanuele Vendramini, PhD

In 2005, Kenya’s average annual real income per capita was $442 dollars (in 2000 constant prices).
This makes it the richest country in East Africa, but one of the poorest countries in the world even by
Sub-Saharan African (SSA) standards (Table 1). In purchasing power parity (PPP) terms, Uganda’s
GDP per capita outpaces Kenya and Kenya’s income stays well below the average for SSA. Table 1
also shows that Kenya’s manufacturing sector is larger than that of its neighbors, though slightly lower
compared to SSA’s average. Kenya’s service sector larger than its neighbors’ and even by SSA’s
standards, whereas the agriculture sector is smaller, implying that Kenyan economy is more
diversified.

Table 1: Basic Economic Indicators

Indicator Kenya Ethiopia Tanzania Uganda Sub-Saharan

Africa
Income (2005) and Average growth
GDP per capita, PPP (constant 1042 896 653 1363 1871
2000 international $)
GDP per capita (constant 2000 442 141 330 270 569
US$)
Growth in per capita GDP (2000- 0.85 3.01 4.47 2.13 1.84
2005)
Structure of production (% of GDP) (2000-2005)
Agriculture 29.7 45.6 45.0 33.7 17.8
Industry 17.6 13.5 16.5 21.5 31.1
Manufacture 11.3 5.6 7.3 9.5 13.6
Service 52.7 40.9 38.5 44.8 51.0
Composition of Expenditure (% of Total Expenditure) (2000-2005)
Private consumption 71.6 77.7 79.6 78.7 65.2
Government consumption 16.9 15.5 10.9 14.4 16.8
Investment 17.2 22.6 18.1 20.0 17.8
FDI, net inflows 0.3 3.9 4.6 3.0 3.0
Source: World Development Indicators 2006

Factor Inputs

Kenya’s factor inputs have been portrayed heavily negatively in its rate of growth over the past 10
years or so. The labor productivity has been slow going down with the HIV/AIDS scourge claiming
the productive lives. This is so since a lot labor force is employed in agriculture sector, a sector which
is labor intensive in Sub- Sahara region of Africa. It is also heavily reliant on global prices for
commodity products.

Microeconomics of Competitiveness 6 Greta Nasi, PhD; Emanuele Vendramini, PhD

Foreign Direct Investment
The pattern of expenditure, however, reveals that the rate of foreign direct investment into Kenya is
lower than its neighbors (Figure 2).

Figure 2: Net flows of direct investment by non-residents into the country (five year averages)

What is the reason for the low FDI?

Source: Porter

Figure 3: Foreign Direct Investment into Kenya

Microeconomics of Competitiveness 7 Greta Nasi, PhD; Emanuele Vendramini, PhD

Social Indicators

The World Bank’s business climate survey indicates that corruption, cost of finance, and crime are
some of the major impediments to investment in Kenya (World Bank, 2004). According to the
Transparency International’s Corruption Perception Index, Kenya ranks poorly in comparison to its
neighbors (Figure 4). This is supported by the World Bank governance indicators where Kenya has the
worst regional ratings for ‘Rule of Law’ and ‘Control of Corruption’, with a scores of -1.02 and -0.98
respectively both poorer than the regional averages of -0.73 and -0.83, suggesting that Kenya has not
been able to completely expel its image of being corrupt even after a new anti-corruption minded
administration came into power. (Figure 4 and 5)

Table 2: Corruption Perception Index and Country Ranks

Country 2005 2004 2003 2002

Rank CPI Rank CPI Rank CPI Rank CPI
Score Score Score Score
Ethiopia 137 2.2 114 2.3 92 2.5 59 3.5
Kenya 144 2.1 129 2.1 122 1.9 96 1.9
Tanzania 88 2.9 90 2.8 92 2.5 71 2.7
Uganda 117 2.5 102 2.6 113 2.2 93 2.1
Source: Transparency International, Online Database

Figure 4: Corruption Perception Index, Kenya Underlined

Source: Porter

Microeconomics of Competitiveness 8 Greta Nasi, PhD; Emanuele Vendramini, PhD

When benchmarked against other East Africa countries, Kenya is significantly ahead of its peers on
many social indicators, see below. The HDI for Kenya is 0.521, which gives the country a rank of
148th out of 177 countries with data (Table 3).

Table 3: Kenya’s Human Development Index 2005

Adult literacy
Life expectancy Combined primary, secondary and
rate GDP per capita
HDI value at birth tertiary gross enrolment ratio
(% ages 15 and (PPP US$)
(years) (%)
older)
1. Iceland 1. Georgia 1. Luxembourg
1. Japan (82.3) 1. Australia (113.0)
(0.968) (100.0) (60,228)
148. Kenya 98. Kenya 155. Kenya
152. Kenya (52.1) 129. Kenya (60.6)
(0.521) (73.6) (1,240)
154. Uganda 154. Uganda 99. Uganda
154.Uganda (63) 154. Uganda (-2)
(0.505) (49.7) (66.8)
159. Tanzania 159. Tanzania 159. Tanzania
159. Tanzania (50.4) 159. Tanzania (15)
(0.467) (51.0) (69.4)
161. Rwanda 161. Rwanda 161. Rwanda
161. Rwanda (50.9) 161. Rwanda (-1)
(0.452) (45.2) (64.9)
Source: Human Development Index (HDI)
However, the Kenya government has made significant progress in decreasing unemployment,
particularly from 40 percent in (2001 CIA Handbook) to a considerably lower level, estimated at 29
percent (Ministry of Economic Planning and Development 2008).

Economic Clusters
Kenya’s economy is dominated by four large clusters agriculture (cut-flower, tea and coffee), tourism,
fishing, transport and logistics and chemical products. Agricultural products clusters have growth, in
the past 10 years.
Figure 5: Kenya Cluster Portfolio Measured by Exports, 1997-2004

Microeconomics of Competitiveness 9 Greta Nasi, PhD; Emanuele Vendramini, PhD

Ease of doing business

The working environment and ease of doing business in Kenya have tremendously improved as of
2008 with a 10 steps from 82 to 72. Table 4 shows a summary of the Ease of Doing Business 2008
data for the selected economy for Kenya. Rankings are out of 178 economies).

Table 4: Ease of Doing Business in Kenya

Ease of doing business 2008 rank 2007 rank Change in rank
Doing Business 72 82 +10
Starting a Business 112 115 +3
Dealing with Licenses 9 15 +6
Employing Workers 66 66 0
Registering Property 114 112 -2
Getting Credit 13 32 +19
Protecting Investors 83 81 -2
Paying Taxes 154 156 +2
Trading Across Borders 148 147 -1
Enforcing Contracts 107 105 -2
Closing a Business 76 74 -2
Source: Ease of Doing Business 2008

Assessment of the National Business Environment

Since they signed the signing of a power-sharing agreement that saw the creation of a prime minister
post, – Kenya's President Mwai Kibaki and opposition leader Raila Odinga – Kibaki government is
putting all efforts and initiatives to forge ahead with the process of political reforms. The Economist
Intelligence Unit predicts that the political outlook would stabilize and return to stable. Although,
there were still some notable discontent from small political parties, that they were not considered in
power sharing positions.

There is a great challenge to fight against political violence, reconstruction of the economy;
infrastructure and the financial services from the aftermath of the December 2007 mismanaged general
elections. Many industrial equipment, infrastructure, building and equipment were destroyed and to
attract foreign investment remains haze. Business environment has become more turbulent than ever.
These changes have brought about new business challenges and opportunities. To meet these
challenges and exploit the opportunities available there is need for development of strategic marketing
tools and as such trade exhibitions have become vital marketing tools.

Microeconomics of Competitiveness 10 Greta Nasi, PhD; Emanuele Vendramini, PhD

There are no doubt opportunities for direct marketing, sales demonstration and establishment of
business contacts locally. It will also provide an opportunity to gauge the competitiveness of the
quality of various local products in the local and international markets. Kenya government is
committed to the promotion of trade and private investment that is both local and foreign.

However, product development and quality innovation remains a major challenge especially with the
emerging global markets where business success is based on how fast business responds to the
changing environment. Kenya government therefore has to challenge Kenyan businessmen, today to
be more innovative and creative and in fact emulate their counterparts from abroad. To this end,
Kenya will enjoy the present excellent access to world markets under a number of preferential trading
arrangements which includes Common Markets for Eastern and Southern Africa (COMESA),
European Union (EU) and the United States of America under the African Growth Opportunity Act
(AGOA). Kenya government would also take this challenge to take up these opportunities and exploit
them fully since this will go a long way in creating wealth for our people and hence reducing poverty.

The role played by the National Chamber Of Commerce and Industry is also indeed critical especially
in trade facilitation and provision of access to markets. However, Kenyan government has to make
sure it addresses the competitive agenda outlined in figure 6 below.

Table 5: Toward a Kenyan Economic Strategy

Kenya’s Unique Strengths Some Implications

• Gateway to east Africa
• Nairobi, a regional business and air hub
• Distinctive culture e.g. world class runners
• Competitive strengths in an array of clusters
- Tourism e.g. cultural tourism
- Agribusiness e.g. tea, coffee, cut-flowers
• Strong and entrepreneurial local business
Source: Teamwork product, SDA School of Management, 2008
• Logistics and telecommunications
• Kenya has to be highly open to trade and doing
business
• Kenya has to be highly open to trade and doing
business
• Kenya can only succeed if it addresses
corruption, security, and legal weaknesses
• Kenya’s private sector is one of the country’s
greatest assets and must be mobilized

Microeconomics of Competitiveness 11 Greta Nasi, PhD; Emanuele Vendramini, PhD

Figure 6: Kenya’s Competitiveness Agenda

Source: Porter

Microeconomics of Competitiveness 12 Greta Nasi, PhD; Emanuele Vendramini, PhD

Kenya National Diamond

Figure 7: Kenya National Diamond

Source: Teamwork product, SDA School of Management, 2008

Factor Conditions

Kenya’s national diamond shows a mixed picture: while it has numerous strengthens, in terms of
natural endowments, better educated workforce, proximity and better connectivity to European market
(air, sea), and port and air infrastructure, Kenya also high levels of corruption, judicial system
independence is questionable, has an inefficient legal system for business and poor infrastructure of
roads, public amnesties, telecommunication networks. The 9/11 attacks “extended” onto the
Embassies of western countries, foiled attempt on Israel plane and recently after the 2007 December
general election, the country has experience unprecedented violence which has threatened the peace

Microeconomics of Competitiveness 13 Greta Nasi, PhD; Emanuele Vendramini, PhD

and tranquillity of the country. However, as at present, country has tried to go back to political
stability.

There is peace and tranquillity picking and growing each and every day. The government of Kenya
has worked hard with the international community to stabilise the situation. Just recently, under the
power-sharing agreement signed by President Mwai Kibaki and Prime Minister Raila Odinga of the
Orange Democratic Movement (ODM), the post of Prime Minister was constitutionally created and
ministers appointed to reflect political parties' relative strength in the National Assembly. The Raila
Odinga led party; the ODM is currently the largest party in Kenya's parliament. Under the power-
sharing agreement, each of the two major parties also nominated a deputy prime minister.

The 2007 presidential elections were largely believed to have been flawed with international observers
stating that they did not meet regional or international standards. Most observers suggest that the
tallying process for the presidential results were rigged to the advantage of the incumbent president
Mwai Kibaki, despite overwhelming indications that his rival and current Prime Minister of Kenya,
Raila Odinga, won the election. There was significant and widespread violence in the country –
Clashes in Kenya (2007-present) – following the unprecedented announcement of Kibaki as the
winner of the 2007 presidential elections. The two rivals were later united in a grand coalition
government following international mediation, led by former UN Secretary-General Kofi Annan,
under a power-sharing National Accord on Reconciliation Act, entrenched in the constitution.
Following the agreement, power was shared between President Mwai Kibaki and Prime Minister,
Raila Odinga.

Context for Strategy and Rivalry

There is appreciable level of effectiveness of the Antirust Policy, but success has been uneven, and
many Kenyan citizens and businesses are not participating. There are high levels of business cost of
corruption. Of course, the legendary political quagmire after the mismanaged December 2007 general
elections still remains a thorn in the foot. Worse still, there is very minimal intellectual property
protection, and the market is largely dominated but large and/or multinational business groups. The
inadequate cooperation in labor-employer relations worsens the already disenabling prevalence of
trade barriers.

Microeconomics of Competitiveness 14 Greta Nasi, PhD; Emanuele Vendramini, PhD

Demand Conditions

On demand conditions, membership in AGOA, COMESA and the EAC trading blocs create large
sources of demand as shown by increasing exports, but the low income levels in these countries means
that demand is relatively unsophisticated. Kenya‘s competitiveness gets a large boost from its close
proximity to European markets, especially cut-flower, tourism clusters, which have strong demand for
goods and services which are possible to be produced in Kenya at lower cost than could be produced
in those markets.

Related and Supporting Industries

Since 2002, as relative political stability combined with emphasis on improving business enabling
environment has resulted in considerable improvements. But a serious weakness remains for many
Kenyan businesses as related and supporting industries remain dependant on imports for inputs and
capital goods to perform normal business operations.

In summary the national business environment has improved considerably since 2002, Kenya has been
successful in developing a limited number of vibrant clusters, in such areas as textiles, agriculture
(cut-flower, tea and coffee), and tourism but the chief barriers to firm competitiveness today are
corruption and infrastructure.

Role of Government

The government has clearly outlined in its vision 2030 how it would like to transform Kenya into
global competitiveness. The government has been working on strategies to fill in certain institutional
or infrastructure weaknesses in the economy. As well, social spending and human development
improvement have been a high priority, presumably driven partially by a desire to ensure the ongoing
legitimacy of the political process and reforms. The government has been pursuing policies in the
following areas:

a) Strengthening management of monetary policy by putting in place a Monetary Policy Advisory

Committee, in line with the Central Bank of Kenya (Amendment) Act 2004.

b) Completing the financial sector development strategy.

Microeconomics of Competitiveness 15 Greta Nasi, PhD; Emanuele Vendramini, PhD

 c) Implementing the new strategy on technical skills training in consultation with the private
sector. Revive village polytechnics.

d) Accelerating implementation of governance reforms, and especially the war against corruption.

e) Improving the security conditions in the country as a matter of priority.

f) Implementing civil service reforms; reduce wage bill share of public spending.

g) Evaluating efficiency of the Investment Code in reduction of the period it takes to set-up
business in Kenya; and to lower the cost of doing business in Kenya.

h) Investing more in research and development especially in universities, and national research
centers.

i) Government is approving and implementing the strategy paper on promoting SMEs

j) Accelerating infrastructure rehabilitation and development.

k) Developing a framework on Private-Public Partnerships.

Role of Institutions for Collaboration (IFCs)

Types of Institutions for Collaboration

The National Chamber of Commerce, and Tourism Forum, have all played a crucial role in
spearheading marketing and promotion of Kenya as a tourist attraction hub. These have helped to
open up offices in western countries, Europe, USA and North America to especially attract tourist
from these countries after bad image portrayed after September 11, 1998 attack on USA embassy and
failed attempt on Israel plane in Kenya. There is still tremendous effort required to market Kenya after
the post election violence so that Kenya goes back and exceed its last result of revenue and number of
visitors.

Examples of Key IFCs

a) Travel and Tourism agencies and associations: International and regional organizations such
as IATA, ICAO (Nairobi Office), and; various national bodies like KATO, KTDC, KWB.
KTB, KTDC, BBAK, ACCK and National Chamber of Commerce

Microeconomics of Competitiveness 16 Greta Nasi, PhD; Emanuele Vendramini, PhD

 b) Regional players and bodies include the East Africa Community, and COMESA.

c) Universities and research institutions such as Moi University and Kenyatta International
University offer tourism and hospitality courses

Specific Team Recommendations

With the “return of sanity,” the coalition government, Kenya badly needs a continued strong political will to
strengthen the anti-corruption efforts and make the judicial system completely independent of political
interference in order to bring confidence in foreign direct investment.

This done, strong investment in the development of infrastructure such as roads, telecommunication network, et
cetera, to meet international standards will spur Kenya’s desired development in unprecedented proportions.

Microeconomics of Competitiveness 17 Greta Nasi, PhD; Emanuele Vendramini, PhD

 Section Three: IN-DEPTH ANALYSIS OF THE KENYA TOURISM CLUSTER

Tourism Cluster Overview

Kenya (Tourism) Cluster Timeline Development

Figure 8: Kenya (Tourism) Cluster Timeline Development

Source: Teamwork product, SDA School of Management, 2008

The tourism history dates back from Vasco da Gama in the 16th century but notable reforms started
taking place is the late 1990s with the economic reform and liberalisations and these were
consolidated by the economic reforms and Kenya vision 2030 marshalled by Kibaki when he came
into power. The vision 2030 (see appendix) Kenyan tourism ranks the best among its neighbours and
one of the top ten destinations in Africa, only second to South Africa in the Sub-Sahara Africa region.
(Table 6)

Microeconomics of Competitiveness 18 Greta Nasi, PhD; Emanuele Vendramini, PhD

Table 6: Travel & Tourism Competitiveness Index

Source: The Travel & Tourism Competitiveness Report 2008

Endowments

Kenya‘s natural endowments position it well to compete tourism. It has a large diversity of landscapes:
34 game-reserves and parks e.g. Maasai Mara Game Park and Tsavo, Mt Kenya – Africa’s second
highest peak, Mombasa beach, Archaeological sites e.g. Rift Valley escarpments. One of the highest
concentrations of animals on the planet 23% of its land reserves dedicated to parks – one of the highest
in the world Ancient culture and archaeological traces: over 4.5 million years.

Tourism Cluster Performance

Graph 1: 3 Major Foreign Exchange Earners of Kenya

Performance, the cluster has grown
Major foreign exchange earners of Kenya
substantially over the past decade. The
60,00

50,00
number of tourist to Kenya doubled
Income in bn Kshs.

40,00 from 1997, the tourism cluster ranks 2nd

30,00
in value for Kenya and nets the country
20,00

10,00 significant foreign reserves – 2nd to

0,00
2004 2005 2006 agriculture. The total direct tourism
Years
revenues: $764 million (2007) which is
Horticulture Tea Tourism earnings
an increase of 11.6% growth from 2006
12% of the country’s Gross Domestic
Product over 9% of total. The tourist industry offers employment to over one million people (400,000
formal sectors; 600,000 informal sectors) with spillover revenues in related Industries e.g. agriculture,
fisheries and retail. Source: Teamwork product, SDA School of Management, 2008

Microeconomics of Competitiveness 19 Greta Nasi, PhD; Emanuele Vendramini, PhD

Kenya’s proximity to Europe and its position near to Indian Ocean, more especially, India, Dubai
offers it as an alternative for shopping spree to go to Dubai and the Far East. English language which
is a national language offers good attraction to Anglo-Saxon countries. Air and ground transport
infrastructures are well developed and coastland and the Ethnic Maasai tribes and its position give an
added advantage.

The challenge however, lies in the Kenyan government creating an enabling environment that is stable
and free from political unrest and terrorism attacks. It is hoped that the power sharing government
will prioritize tourism in its endeavor as it was outlines in Kenya’s vision 2030 that it would be of first
class regionally and globally.

Graph 2: Domestic Purchasing Power across Selected Countries, Kenya Underlined

Source: Porter

Microeconomics of Competitiveness 20 Greta Nasi, PhD; Emanuele Vendramini, PhD

Graph 3: Kenya Tourisr Arrivals and Receipts

Tourism Custer Map

Recent Trends in Kenya Tourism Cluster

Tourism has experienced growth after episodes of insecurity and negative travel advisories such that
Kenya earned revenue of KSh 48.9 billion in 2005; 56.2 billion in 2006 from tourism industry. The
government priority of Tourism is well spelt out in country long term vision, Kenya Vision 2030,
whereby it outlines some issue which would help in creation of employment to Kenyans, are:

1. Creating an eco-tourism that will regionally and globally competitive.

• A new plan aims at making Kenya a middle level income country by 2030.

• Plan aims to make Kenya among the 10 long haul tourist destinations.

• Flagship projects for tourism (2012)

• Three resort cities – 2 at the coast and 1 in Isiolo

• Improved marketing of little visited parks

• Underutilized parks initiative –e.g. Ruma, Marsabit e.g. Ruma, Marsabit

• Certification of 1,000 home-stay sites

• Reclaiming all wildlife corridors and migratory routes

2. Liberal environment for most of post-independence period

Microeconomics of Competitiveness 21 Greta Nasi, PhD; Emanuele Vendramini, PhD
 • Growth in arrivals but decline in per capita tourist expenditure, average capita tourist
expenditure, average length of stay …

• A leading export earner

• Considerable competition in sector

3. Tourism revenue receipts grew by 23.5% p.a. between 1980 & 2003
• In 2004, receipts grew by 52%.

• Considerable linkages to agriculture, Kenya Airways, SMEs like curio dealers and taxi-drivers
dealers.

• Tourism is a vital sector in Kenya: 14.9% of GDP (latest economic survey); 3rd largest foreign
exchange earner

The perception is that sector is foreign dominated. However, the tourism perception of Kenya over a
long period of time has been that it is a very safe country to travel to, relatively much safer than its
neighbors except Tanzania, has great wildlife, of course second to Tanzania, but overall Kenya has a
distinguishing factor that its resort have better modern infrastructure and resort amenities than
Tanzania (see figure 9).
Figure 9: Perception/Beliefs of East African Tourist – Regional Benchmarking Exercise

Source: 2002 survey of East African tourists conducted by the OTF Group

Microeconomics of Competitiveness 22 Greta Nasi, PhD; Emanuele Vendramini, PhD

Tourism Cluster diamond

Figure 10: Kenya National Diamond

Source: Teamwork product, SDA School of Management, 2008

Table 7: Key factor Analysis of Tourism Cluster Diamond

Microeconomics of Competitiveness 23 Greta Nasi, PhD; Emanuele Vendramini, PhD
Source: Porter

Figure 11: Travel and Tourism Competitiveness Index

Microeconomics of Competitiveness 24 Greta Nasi, PhD; Emanuele Vendramini, PhD

Role of Government

A full Ministry of Tourism oversees the development, management and implementation of policies
and programmes geared towards the promotion of and reaping big out of Kenya’s tourism potential.
This is assisted by a host of agencies, commissions and programmes aimed to harness the best of the
sector. For example, as cited elsewhere, the National Chamber of Commerce and the Tourism Forum
do play a crucial role in spearheading marketing and promotion of Kenya as a tourist attraction hub.

To illustrate the role the government plays, the team singles out the Strategy 2030, Tourism
Component, with an Overall Objective of supporting products initiated within existing tourism
circuits, in line with regional plans taking into consideration self-sustainability. The Strategic Basis is
that Kenya’s competitive advantage lies in its’ diverse natural resources, on which the base on which
tourism is developed. To secure this, Kenya aims to support conservation efforts that ensure protection
and sustainable management of Kenya’s rich natural resources.

As implementation strategy highlights (see appendix), there are national frameworks and a Regional
Niche that favour Vision 2030. Regionally, for example, tourism development will be guided by
carefully devised regional tourism plans, which will determine the optimum carrying capacities of key
regions, as well as determine requirements for infrastructure and communication networks or security
provisions. Land management systems are surely central to ensuring the country’s physical capital
base is protected and safeguarded.

Institutions of Collaboration

• Travel and Tourism agencies and associations

Communications Commission of Kenya, Kenya Airports Authority, Kenya Meteorological

Department, Kenya Tourism Board – Magical Kenya, Kenya Revenue Authority, Kenya Bankers’
Association, Tourism Trust Fund, Slums JUAKALI, Tourism Federation

• Universities and Research institutions

Kenya Aerotech, Kenya UTALII College, University of Nairobi, Kenyatta University, Moi
University

Microeconomics of Competitiveness 25 Greta Nasi, PhD; Emanuele Vendramini, PhD

 • Various national bodies

Chamber of Commerce, Kenya Association of Tour Operators (KATO), Kenya Tourism

Corporation (KTDC), Kenya Association of Hotel keepers and caterers (KAHKC), Catering Levy
Trustees

• International lobby groups

British Business Association of Kenya (BBAK), East African Association and the American
Chamber of Commerce of Kenya (ACCK), International Air Transport Association (IATA),
International Civil Aviation Organization (ICAO), Health Tourism in Africa

Microeconomics of Competitiveness 26 Greta Nasi, PhD; Emanuele Vendramini, PhD

 Section Four: STRATEGIC RECOMMENDATIONS AND CONCLUSIONS

Strategic Challenges and Recommendations

Source: Teamwork product, SDA School of Management, 2008

The above figure summarizes what the team considers the key strategic areas that Kenya needs
promoting or enhancing in regard to tourism boosting. For, the team identified two areas as now
crucial to the future of tourism, and/or the implementation of Vision 2030, namely: political stability,
safety and security, and; international marketing for the tourism cluster. The team further identified
two key thorns in the foot in each of the two areas, on which the recommendations and/or on-going
action is a sine-qua-non approach if Vision 2030 is to be any near reality.

We strongly believe that, with the “return to sanity,” – the nascent coalition government – Kenya
badly needs a continued strong political will to strengthen the anti-corruption efforts and make the
judicial system completely independent of political interference in order to bring confidence in foreign
direct investment.

Microeconomics of Competitiveness 27 Greta Nasi, PhD; Emanuele Vendramini, PhD

This done, strong investment in the development of infrastructure such as roads, telecommunication
network, et cetera, to meet international standards will spur Kenya’s desired development in
unprecedented proportions.

Enhancing Kenya Tourism Cluster Development

Figure 4: Enhancing Cluster Development – Kenya Tourism Cluster

Source: Teamwork product, SDA School of Management, 2008

The above figure 13 looks specifically into technical areas that the team deems central to the tourism
cluster, which need enhancing to achieve Vision 2030 and beyond.

Microeconomics of Competitiveness 28 Greta Nasi, PhD; Emanuele Vendramini, PhD

 CONCLUSION

Kenya Tourism sector stands out commendable on a couple of steps such as: Tourism in Support of
U.N. Millennium Development Goals. This has unfolded into public-private-NGO partnerships and
alliances for: models of sustainable tourism, cultural and heritage tourism, public-private partnerships
and alliances, education and training, and contribution to poverty reduction.

Other efforts can be observed in: women's economic empowerment, micro-enterprise and small micro-
credit enterprises tourism development, building bridges of tourism, friendship and collaboration,
healing the wounds of conflict through tourism, culture sport or developing community based
ecotourism for peace and sustainability. Also, there are innovative approaches to Expanding
Marketing Opportunities for Africa such as: Advances in Tourism Research: Academic Perspectives,
Volunteer and Philanthropic Tourism, and Enhancing the Environment.

However, there are glaring loopholes, which may rob of Kenya tourism its potential! Key urgent
tourism industry-related issues to tackle, as recommended above, include: political stability, safety,
and security; and International Marketing for the Tourism Cluster. Practically, this will translate into:
country branding and marketing; tourism and hospitality workforce skills; cost competitiveness, and;
cluster strengthening initiatives, et cetera.

Microeconomics of Competitiveness 29 Greta Nasi, PhD; Emanuele Vendramini, PhD

 REFERENCES:

All maps retrievable: http://www.mapsofworld.com/kenya/index.html

CIA World Factbook https:www.cia.gov/liabrary/publications/the-world-facebook

accessed April 2008

Douglas B. Trent, Sustainable Community Development and Conservation, 4th African Conference,
International Institute for Peace through Tourism, Kampala, Uganda, May 20-25, 2007

Global Competitiveness – Implications for Kenya, Prof. Michael E. Porter (Harvard Business School),
Strathmore Business School, Nairobi, Kenya 2007

Government of Kenya, http://www.kenya.go.ke/

http://video.on.nytimes.com/?fr_story=f8ffefc886ef76ea42dd9651c564d8c05273b9ac

http://www.weforum.org/

International air transport association, www.travel.state.gov

International Civil Aviation Organization, Eastern and Southern African Office,

http://www.icao.int/esaf/

Kenya airports authority, http://www.kenyaairports.com/

Kenya civil aviation authority, http://www.kcaa.or.ke/

Kenya Domestic Tourism Hit Hardest, Kenya Airways recommends staff to take leave,
http://www.eturbonews.com/

Kenya tourism board, http://www.magicalkenya.com/

Kenya's Tourism Industry in Shambles, VIDEO CLIP

Map of Kenya, http://www.masai-mara.com/mmvmk.htm

Ministry of tourism, http://www.tourism.go.ke/

Tourism Trust Fund, http://www.ttfkenya.org/

www.iipt.org/

www.easeofdoingbusiness.org

Samuel Mwakubo, KIPPRA, FDI in Tourism and Competitiveness in Kenya, Meeting on the Trade
and Development Implications of Tourism Services for Developing Countries: UNCTAD XIIII pre-
event, Geneva, 19-20 November 2007
Microeconomics of Competitiveness 30 Greta Nasi, PhD; Emanuele Vendramini, PhD
Shariff, Aliya, et al., Tanzania’s Tourism Cluster, MOC Final Paper, winter 2006

UNDP Human Development Organization Country Paper Kenya, 2007

World Tourism Organization: Republic of Kenya, http://www.bdafrica.com/

Microeconomics of Competitiveness 31 Greta Nasi, PhD; Emanuele Vendramini, PhD

 APPENDICES

Appendix 1: Composition of the three Travel and Tourism Competitiveness Index sub-indices

Source: The Travel & Tourism Competitiveness Report 2008

Appendix 2: Map Showing Kenya’s Role in the Neighborhood

Microeconomics of Competitiveness 32 Greta Nasi, PhD; Emanuele Vendramini, PhD

Appendix 3: Strategy 2030, Tourism Component
• Overall Objective: to support products initiated within existing tourism circuits, in line with
regional plans taking into consideration self-sustainability.
• Strategic Basis: Kenya’s competitive advantage lies in its’ diverse natural resources, the base on
which tourism is developed. To secure this, Kenya aims to support conservation efforts
that ensure protection and sustainable management of Kenya’s rich natural resources.
• Implementation strategy: natural resources will provide the basis for identifying and developing
new products, which capitalize on the diverse attractions, such as the Great Northern
Frontier with its rich landscape or the Great Rift Valley with its natural springs and
volcanic activities.
• Regional Niche: tourism development will be guided by carefully devised regional tourism plans,
which will determine the optimum carrying capacities of key regions, as well as
determine requirements for infrastructure and communication networks or security
provisions. Land management systems are also key to ensure the country’s physical
capital base is protected and safeguarded.

• Key components include: Asset Preservation; Promotion of Sustainable Eco-technologies; Local

Capacity Building, and; Marketing Facility for small and Medium Sized Enterprises.

a. Asset Preservation Conservation area plans

– Tourism areas plans for protected and private / community owned wildlife & tourism areas
– Capacity building for locally based organizations in conservation and tourism management

b. Marketing Facility Marketing schemes for launching new products

– Marketing plans including packaging & promoting strategies
– Production of collateral and other promotional materials
– Low cost access to reservation and market information systems worldwide

c. Capacity Building Training and development schemes for SMEs/CBO in business

management,
– Strategic marketing planning and analysis
– Capacity building for sectoral associations
– Support towards and accredited professional guide curriculum programme

d. Sustainable Eco-based Products Guidelines & manuals on best practices in design and
development
– Grants for adoption to ecologically sustainable technologies
– Development and support for national certification scheme
– Environmental Impact Assessments
– Guidelines on best environmental practices in tourism and community wildlife tourism
– Financial and technical support towards sustainable technologies and new product
development process (planning, design, research and costing)
– Provide new product developers with access to information on financial and support
services
– Minor infrastructure improvements in critical spot
– Grants on cost sharing basis to community based and other new tourism products

Microeconomics of Competitiveness 33 Greta Nasi, PhD; Emanuele Vendramini, PhD