Recently, Kenya’s President Dr. William Ruto made headlines when he publicly took a stand on the de-dollarization move.
President Ruto was quoted asking business persons who were hoarding dollars to dispose of them, followed by an ambiguous reason as to why he made this public request.
De-dollarization describes the move by countries to reduce reliance on the U.S. dollar as a reserve currency, medium of exchange or as a unit of account.
Kenya is not alone in this journey as countries referred to as the ‘BRICS’ are at the forefront in this matter. These are Brazil, Russia, India, China and South Africa.
Interestingly, South Africa ranks third among the most toured countries in Africa after Egypt and Morocco.
Some of the proposers of de-dollarization see it as a way of reducing transaction costs during trade as well as giving power to the country in terms of its economy.
Brazilian President, Lula Da Silva insists that, “by using its own currency a country can control its own economic destiny.” President Silva believes that this allows a country to strengthen their own currency.
According to an article in Nigeria’s business day, that singular reliance on a currency foreign to Africa costs the continent over $5 billion in transactions per year.
Reducing dependence on the dollar is then expected to help connect African markets more seamlessly and help businesses scale up more.
African Tourism Industry’s dependence on the dollar
One of the few studies that have tried to link dollarization to tourism is one conducted in Zimbambwe after the country adopted the dollar in 2009.
The study published by the International journal of development and sustainability in Africa on the impact of dollarization on Zimbambwe’s tourism sector showed a growth from going down in 2008 to going up in 2009, followed by further increases in 2010 and 2011.
In the research paper titled ‘The impacts of dollarization on Zimbabwe’s tourism industry’, the researchers reveal that before dollarization of Zimbambwe, tourists deemed Zimbambwe as an expensive destination due to the exchange rate regimes used at the time.
Shockingly, tourists visiting attractions located at borders would prefer going to the neighbouring countries like Zambia for Kariba and Victoria Falls. Some, apparently even preferred going through South Africa for one day excursions to Victoria Falls.
However, the study revealed that since 2009, the number of arrivals and bed occupancy in hotels significantly increased from 2009.
Interestingly, the average amount of money spent per tourist also increased considerably in the same period.
Another research dubbed, The journey towards dollarization: The role of the tourism industry states, that while tourism is unarguably advantageous to the economy, the dollarization enhancing tendencies cannot be ignored.
The research interestingly found that tourists travel with internationally traded currencies (say US dollars, euro, and pound sterling, to name a few major currencies) with the aim of converting these currencies to the local currencies of their destination country.
“Tourism industry has been documented to be affected by exchange rate regime of the destination country (De vita, 2013). Hence, countries with relatively stable exchange rates have the potential to attract inflow of tourism,” reads the research in part.
Impact of de-dollarization on African Tourism
Seeing as reducing the use of the dollar will affect tourism, the question remains, whether the continent is as heavily dependent on tourism as it seems.
Well, the International Finance Corporation (IFC) in an article dubbed “A ticket to recovery. Reinventing Africa’s tourism” done in May 2021, stated that the dependence of Africa on foreign travel was revealed during COVID.
So bad was the situation that IFC had to create a recovery plan for Rwanda and South Africa.
This plan was pegged purely on increasing domestic and regional tourism as foreign travel was not an option at the time.
Luckily for Kenya, pivoting to local travel was easy and honestly a saving grace to the country’s revered tourism sector.
But how sustainable would local and regional tourism be in the event that de-dollarization takes effect, reducing the number of foreign tourists?
This is the question that heads of African states must grapple with.
Should we ditch the dollar, we are bound to run into a few issues in the short term.
Firstly, de-dollarization may lead to fluctuations in exchange rates, making it more expensive for tourists to visit African countries.
If the national currency depreciates against the US dollar or other major currencies, it can result in higher costs for international visitors, including accommodation, transportation, meals, and attractions.
This increase in costs may deter some potential tourists and affect the overall tourism demand.
African countries heavily reliant on tourism often receive significant investments from foreign sources, including in infrastructure development.
De-dollarization will undoubtably impact the flow of foreign direct investment (FDI) and international financing, as investors may have concerns about currency stability and potential economic uncertainties.
However, it is not all doom. In some cases, de-dollarization can improve the competitiveness of our tourism destinations.
If the national currency depreciates, it may make the overall cost of visiting the country more attractive to international tourists.
Countries with lower costs relative to dollar-denominated destinations may experience an increase in tourism demand, as travelers seek more affordable options.
Similarly, if the local currency becomes more favorable against the US dollar, it may encourage domestic travelers to explore their own country rather than traveling abroad.
This shift in focus could lead to increased domestic tourism spending and a boost to local economies.
Over-reliance on the US dollar can sometimes hinder economic diversification efforts.
Encouraging local spending and investment can lead to increased job opportunities, improved infrastructure, and a more sustainable tourism sector.
In a nutshell, Africa cannot run away from the fact that foreign tourists contribute significantly to the juicy returns recorded each year in the tourism basket.
In 2021 alone, according to Business Insider Africa magazine, South Africa received a total of 2.3 million international tourists.
Last year, the World Travel and Tourism Council’s latest Economic Impact Report (EIR), found that Egypt was the most visited country in Africa with 17 million tourists visiting the country followed by Morocco with 10.9 million tourists.
Tunisia was third with 6.437 million tourists while South Africa was fourth with 5.7 million tourists.These are numbers that must be factored in when the debate on de-dollarization of African countries is had.
The process of reducing use of the dollar must be done slowly and most certainly in a keen manner. It must not only be seen as a precursor to a better economy but be dissected in how it will affect the tourism sector in a way that does not hurt this important sector.