Uganda Development Bank provides relief for struggling tourism sector

June 11, 2022 in Business, Finance, Financial Services, Travel & Tourism by Editor

The tourism sector was hard hit by Covid-19 because of its nature, as it depends largely on foreign visitors, and with various travel restrictions in the country, the number of foreign tourists reduced to 3.7%.

Close to half of the applicants in the tourism industry who sought financial relief from the Uganda Development Bank Limited in 2020 as a result of the Covid-19 pandemic were successful and a second round of disbursement is being planned later this year.

Ronald Wandera, the Monitoring, Evaluation and Learning Assistant at UDBL provides some insights into why and how the bank has been effective in supporting the sector during the two year downturn.

The Covid-19 pandemic has claimed more than six million lives worldwide over the past two years. In Uganda, there were about 163,416 confirmed cases and 3,588 deaths as of 9^th of March 2022, according to Ministry of Health latest report.

To curb the spread of the virus, the government of Uganda imposed stringent mitigation and containment measures including travel restriction and total lockdowns which negatively affected different sectors of the economy.

The biggest impact was on the services sector, with tourism as one of the hardest hit sub-sectors. The tourism sector was hard hit by Covid-19 because of its nature, as it depends largely on foreign visitors, and with various travel restrictions in the country, the number of foreign tourists reduced to 3.7% .

In January 2022, the government fully opened the economy, but the tourism sector is still grappling with uncertainties as to when the situation will normalise.

With the on-set of the Covid-19 pandemic, the hotel occupancy level declined from 51 per cent in 2019 to 4 per centin2020 and the number remained very low through 2021. The total number of international tourists declined by 69 per cent from 1,542,620 to 473,083 at calendar year 2020, meaning that the country only received a third of the 2019 tourist numbers. As a result, Uganda’s tourism foreign exchange earnings dropped sharply by 73 pc from $1.6 billion to $440 million during the same period. Jobs lost at the end of June 2020 due to the pandemic stood at about 70 pc.

On the other hand, at least 30 pc of tourism jobs were recovered by end of March 2021, according to the Ministry of Tourism, Wildlife and Antiquities latest report and with the full opening of the economy in January 2022 the situation is improving. The opening will also result in the increase in the employment within the sector.

In 2020, the government through Bank of Uganda put in place credit relief measures to help stressed borrowers in various key growth sectors cope with the effects of the Covid-19 pandemic.

These measures allowed for; – suspension or reduction on repayment of principal and/or interest, applicable to the outstanding principal loan amounts; extension of the loan repayment period; reduction of interest rate on the loans; and other forms of loan rearrangement provided for under the Bank regulations.

These measures are set to expire in the first quarter of 2022. UDBL, the country’s development finance institution, continues to support the tourism sector to aid its post-pandemic recovery and promote sustainable socio-economic development. The Bank provides relatively cheap medium to long term loans and business advisory services to investors in the same sector, ranging from SMEs to large scale projects.

The Bank also plays the counter-cyclical stabilization role, as it scales up lending operations when other financial institutions experience temporary difficulties in providing credit to the private sector. Indeed, this was done, over the last two years of Covid-19 pandemic.

Additionally, the Bank plays risk absorption role for the state during economic downturns, most especially when sectors are in dire need for credit. In this case, UDBL is a crisis resolution vehicle. The Bank intervened to the pandemic situation by engaging with stakeholders, such as the Ministry of Finance, Planning and Economic Development, and European Union, to cushion the tourism sector from adverse effects of the pandemic through affordable funding and advisory services. UDBL put aside funds and put-up call for applications by 15^th October 2020 to facilitate the sector to stay afloat.

From the first call for applications, 94 applicants applied for the intervention facility and 44 facilities were approved, and 42 of the 44 facilities approved have received funds to a tune of UGX20 billion out of the UGX61.8 Billion that the facility had set aside. The second Call has been opened to seek for applications from companies within the tourism sector. The relief fund has been adjusted to include a greening component and the successful companies will be offered free environmental assessment on request.

To ease access to the funding, eligibility criteria has been relaxed and the application period extended. In addition, to resuscitate the sector from Covid-19 effects, UDBL has put aside UGX 75 billion to support the tourism industry in the year 2022 signifying strong commitment to revive the economy through targeted financing.