Brexit tourists: SA’s rand ranked 4th in strongest gains against dollar-mauled pound

2017-01-18 07:40 - Selene Brophy
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Cape Town - As the Department of Home Affairs prepares to release tourism performance stats for the 2016 summer period on Wednesday - one of SA’s key source markets is feeling the pinch when it comes to global exchange rates.

On Tuesday, British Prime Minister Theresa May set out a speech on what the planned Brexit will look like. Fears about the impact of a British withdrawal have roiled global markets since Britain's public voted in June to leave the common market.

As a result the British pound has lost one-fifth of its value since then.

Excerpts of May's speech released by her office say she wants a new relationship with the EU and promises Britain will expand international ties. Most observers think she will opt for the so-called “hard Brexit”, which would entail leaving the single European market. As a survey of business execs by the Bertelsmann Foundation suggests, access to the single market is seen as the most advantageous assets to business, while red tape is a major downside.

South Africa's rand ranks fourth in currencies that have mauled the pound

According to the Telegraph, South Africa's rand ranks fourth in currencies that have mauled sterling since Brexit vote.

Leading is the Zambian kwacha with a 26% gain, Russian ruble at 24%, while South Africa’s rand and the Icelandic krona are tied at 23%. 

While South Africa has been pegged for a record summer for international arrivals - with data for the first part of 2016 seeing a 14.8% growth rate compared to the same period in 2015. The department of tourism figures for the period January-July 2016 show an estimated 5 791 504 visitors, which is an increase of 751 388 compared to the same period of the previous year.

SEE: The Top 10 Countries where most of SA's tourists come from

In 2015 the leading countries for overseas tourists, plus the number of tourist, in 2015 were from the United Kingdom (407 486 arrivals) followed by US (297 226 arrivals), Germany (256 646 arrivals) and France (128 438).

SEE: Weakened pound prompted an influx of bargain hunting 'Brexit tourists'

AFP reports spending by tourists visiting the UK, especially from Hong Kong, China and the Middle East, surged in December with the pound slumping after the Brexit vote, a survey revealed Friday, 13 January.

"Foreign visitors spent over £725 million in December, as the weakened pound prompted an influx of bargain hunting 'Brexit tourists' to the UK over the Christmas period," said a report from card payments processor Worldpay.

SEE: London-only visa proposed as Brexit stokes possible migrant worker crisis

It said spending on foreign cards surged 22% year-on-year, handing an extra 130 million to UK retailers compared with the same month in 2015 - a silver lining perhaps for the UK whose currency is experiencing a 31-year lows against the dollar and eight-year troughs versus the euro. 

Is there concern for SA inbound tourism market?  

According to Nigel Vere-Nicoll FRGS Chief Executive for African Travel and Tourism Association (Atta), the UK market to SA is booming. Atta is the largest global trade association representing the buyers and suppliers of African tourism, promoting the industry across 22 African countries to 37 countries worldwide.

Vere-Nicoll says the crux of the currency matter being the pound to dollar exchange rate, currently at a 31-year low against the dollar.  “South Africa is the only Africa country that has its own first world currency where as other African countries quote in $US  - this means with favourable £ to rand rates,  SA is the affordable, high-quality destination of choice.” “The pound is reasonably strong against the rand and this makes it very cheap for UK travellers.

Vere-Nicoll says to illustrate the damaging effects of the pound’s crash against the $US, the UK which is traditionally the largest contributor to East and Southern Africa’s tourism has  for the first time ever been surpassed by US arrivals in Kenya for example.

According to Vere-Nicoll, who visited SA over the December period, five main SA hotels have reported through an internal survey  a  25% rise in achieved sales revenue compared to 2015, and this ties in with UK booking trends, which sees Britons  opting for the best accommodation and not the cheapest inventory.

'Euro a doomed currency'

He says the boom in travel to SA can be expected to continue. “In terms of Brexit we’ve done exactly the right thing, as the Euro is a doomed currency,” says Vere Nicoll, “It cannot possibly survive in the long term, and with elections in Germany, France  and Holland there will be some dramatic changes throughout Europe in the year ahead.”

“It’s also clear the Schengen agreement hasn’t worked moreover the new president in the US could work in Britain’s favour  with  the Trump administration is openly pro UK, as opposed to the Obama administration which had become increasingly hostile towards Brexit.

“The UK market to South Africa is very vibrant and will remain this way as it is good value for UK tourists – offering far better value than  other tourist destinations and that will continue as long as  there is political stability. Tourism and politics do not go work well together. Travellers will always seek a  peaceful, secure environment , and if  these ingredients are on offer, and there is good value for money the tourists will continue to come,” he says.

'Seasonality still an issue for UK market'

David Frost, Chief Executive Officer of Southern African Tourism Services Association SATSA says figures indicate an 11.7%  increase in UK arrivals for the period between January to October 2016 – however there is still a seasonality issue from the UK with June and July showing the least amount of growth at 1.8% and 4.9% growth respectively. 

“As SA’s biggest source market it would have been better to see stronger growth around this time. 

Frost says it was imported to note that the majority of people, “well over 60% to 70% of UK arrivals still book through trade and considering the industry practice of hedging forward 6 to 12 months in order to provide stability as well as remain competitive – it will take a number of months for the recent exchange rate changes to wash out before any effects are felt. 

As an example Frost says “While the rand declined 36% against the pound in towards the end of 2014, we had to wait until 2015 before we saw that big uptake.”

“Although depreciation happened a couple of months ago - given the strong growth, and while we might see a slowing down of the growth rates in 2017 although the overall expect the same quantum of travel will remain fairly constant.”

According to Cheapflights summer booking data, SA continues to be a destination of choice for the Brits, who make up the most searches for travel to South Africa over this time, increasing 47% compared to last year.    

'Expanding and improving flights between the two countries will only help'

Cheapflights's Managing Director Andrew Shelton says “Even following Prime Minister May’s speech today (Tuesday), it’s very difficult to predict accurately how a Brexit – hard, soft or otherwise – will effect travel to and from the UK and South Africa in the long term. Although her speech sought to set out a clear vision for the process ahead, the actual meaning of the specific terms will remain uncertain for months to come. A sign of that ambiguity is the ongoing volatility in the currency markets, with just this week the Pound dropping to historic lows against the Dollar and Euro before recovering. That kind of factor has an immediate and material impact on people’s holiday spending and how ‘affordable’ a destination feels.  

“Fortunately for South Africa, it is a popular destination for Brits – who love its climate, the people, food and drink, outlook and the great value they get there. Expanding and improving flights between the two countries will only help to drive that popularity upwards, and as uncertainty around the value of other traditionally popular destinations persists, we anticipate they’ll be looking further afield to places like the Rainbow Nation with a keener eye than ever. It’s a fantastic opportunity to South Africa’s tourist industry to capitalise on.”

Similarly it must be said, the weakend pound is good for the South African traveller, as South Africans are also travelling overseas with London ranking third overall as most popular destination for travel over the December period (after domestic destinations, Cape Town and Durban), according to the  cheapflights data.

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