Oxford Brookes Bsc(Hons) in Applied Accounting (Acca)

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Business and financial performance in the tourism industry

Tourism is now one of the largest industries in the world. According to the WTO, the export income generated by international tourism ranks fourth after fuels, chemicals, and automotive products. Furthermore, the WTO points out that, for many developing countries, tourism is one of the main income sources of foreign exchange, and creates much-needed employment and opportunities for economic development. The industry has also enjoyed staggering growth over the past six decades. http://www.qfinance.com

The tourism industry is also a major contributor to Zimbabwe’s economy thus I chose to assess the performance of a company in this sector to obtain a clear picture of how the performance of a major player in such a sector would contribute to the economy.

In the tourism industry business and financial performance is highly dependent on the political factors of the host country. Political stability and good international relations are important for the growth of firms in the tourism industry as tourists only go to places where they feel safe and protected.

Spending on tourism and hotels is also closely related to the economic cycle. Certainly, spending on leisure activities such as holidays tends to be one of the first things that consumers cut back in times of economic hardship.


1.2.1 Rainbow Tourism Group Background

Rainbow Tourism Group was established in 1992, and is the second largest tourism group in Zimbabwe and a major player in Zimbabwe’s Tourism Industry. Listed on the Zimbabwe Stock exchange, the company has spread its wings into the regional markets through management contracts and Strategic Alliances. . In Zimbabwe, RTG operates four brands namely, The Rainbow Towers, Rainbow Hotels (three star city and resort hotels), Touch the wild (top of the range eco-tourism lodges offering unique safari experiences)   and Zimbabwe Tourism Services (a destination management services company that caters for travel arrangements). (www.rtg.co.zw)

RTG has a good corporate governance structure and is the second largest tourism group in Zimbabwe the largest being Africansun

RTG’s operating environment

For the period 2007 to 2009 Zimbabwe’s business environment was extremely hostile, most businesses were closing down and the few lucky survivors were scaling down their operations massively. The economy was ranked the worst in the world and inflation at its peak was around 6.5 quindecillionnovemdecillion percent (65 followed by 107 zeros) .

Long term planning was impossible in the industry due to the political instability and bad publicity that the country received following violence surrounding the March 2008 presidential elections as well as cholera outbreaks affected tourist arrivals in 2008, thereby limiting any growth in the economy. The highest decrease in the number of tourist arrivals was reported from traditional source markets, such as the UK and the US. Http.//www.euromonitor.com/Zimbabwe

The managed exchange rate and high inflation rate made budgeting difficult. The introduction of price controls by the government in the sector meant that RTG could not increase their prices in line with inflation as they were supposed to request for price increases first whereas their expenses were increasing therefore cutting down their profits unreasonably.

The rampant shortage of basic commodities such as food and drinks increased costs as supply could not match demand it also meant that hotels and restaurants could not offer services to its customers and therefore a drop in revenues and standards of services.

A high unemployment rate of about 94% and a shrinking economy also meant that the local customers had no disposable income as 98% of the population was living under the poverty datum line and had to cut back on...
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