Federated Hospitality Association of Southern Africa (FEDHASA) on tourism growth, development and job creation


21 February 2012
Chairperson: Mr D Gumede (ANC)
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Meeting Summary

The Federated Hospitality Association of Southern Africa spoke on tourism growth, development, job creation and statistics. The issues of transformation and job creation in tourism were high on the list of priorities for the Committee and FEDHASA reported that real transformation was not taking place in the tourism and hospitality industry. There were too many barriers to entry which small businesses faced. One of the biggest being obtaining finance. Members were disappointed to hear that it was practically impossible for emerging small businesses in the tourism industry to access the Department of Trade and Industry’s Incentive Grant. There was a common feeling that the requirements attached to the grant were unreasonable. It was placed on record that the DTI Incentive Grant excluded persons located in the major metros such as Johannesburg, Cape Town and Durban from applying for the grant. What was the reason for the exclusion? There were small players who needed funding in the metros as well. Members were very disappointed to hear that emerging small businesses had to face an upward battle to get their properties rezoned. The costs of rezoning were high and the process took a long time. There was agreement that domestic tourism had to be encouraged. Also noted was that the Tourism Empowerment Council of SA (TECSA) had ceased to operate as the term of its councillors had ended.

Meeting report

The Chairperson said Members were interested to know what inroads had been made to address job creation and transformation. What incentives would FEDHASA suggest should be given to encourage rural development and did FEDHASA think government was pulling its weight?

Federated Hospitality Association of Southern Africa (FEDHASA)
Mr Eddy Khosa, Acting CEO and Chairman of FEDHASA, was an enthusiastic representative and said, as much as a presentation document was available, he preferred to speak off the cuff. He pointed out that the Department of Trade and Industry (DTI) provided grants to small players in the tourism and hospitality industry but that the rules to access the funds were problematic. The DTI were willing to provide a portion of the funding required by the applicant. It however required the applicant to provide it with proof that the rest of the funding had been secured elsewhere by, say, a financial institution. What financial institution would provide finance to a small business without collateral? Hence the application for the grant would be unsuccessful. Providing proof that there were shareholders in your small business was still not good enough to secure the grant. On transformation in the industry, he noted that most of those wanting to enter the industry were blacks. However the industry was still dominated by whites. In expectation of the 2010 FIFA Soccer World Cup many blacks had invested in ‘bed and breakfasts’ but in the end derived no benefit from the tournament. Post World Cup, many black business properties had been repossessed by financial institutions. It was no secret that the hospitality industry was not doing well. The biggest customer of the hospitality industry in SA was government itself. Tourism and hospitality were the first point of entry when money needed to be saved. It seemed it was easier to cut tourism and hospitality budgets. He gave an example of a government department which had decided to train its staff only in Gauteng. He appealed to all government departments when making decisions on hospitality to consider their own province first. Which convention centre was black owned? Was transformation taking place? Yes, there were places like City Lodge and Protea Hotels but smaller black-owned accommodation places also existed. Small Medium and Micro Enterprises (SMMEs) needed to be supported. Another consideration would be supporting smaller restaurants and pubs. After 1994 most middle class blacks moved to the suburbs. There were no more role models in the townships. Members of Parliament were role models whom kids aspired to be. Sustainable job creation needed to be linked with business tourism. The National Convention Bureau was a positive move in that it would allow SA to bid for conferences to be hoisted in SA. There was huge potential in business tourism and hosting of conferences as accommodation, transport and entertainment needed to be provided.

The point was made that many ‘bed and breakfasts’ grappled with rezoning their properties. It was a very expensive exercise for small businesses. He suggested a moratorium be put in place to allow black operators to get their businesses in order. He personally did not believe that SA had experienced an economic meltdown.
There was a Tourism Empowerment Council of SA (TECSA) but its term had ended. He asked why it was not considered a priority to appoint new councillors. Even though it ceased to operate, its secretariat still existed. It had been located within the National Department of Tourism (NDT). At one point TECSA was a standalone with its own budget. Research and development in hospitality and tourism was important. How would one gauge what was Africa’s contribution towards tourism in SA. What were inter-provincial tourism figures? FEDHASA worked with the NDT on this type of research. StatsSA was also taken on board. There need to be a commitment for a research budget, otherwise research would not be done.

Tourism was being taught at schools by teachers who had never even been in a hotel room. The NDT was introducing an Educators Programme. He had made enquiries as to whether a budget had been allocated to the programme. The answer received was in the negative. He noted that the Minister had called for one million bed nights; the idea behind the programme was to encourage SA to travel.

Mr Khosa wanted it placed on record that the DTI Incentive Grant excluded persons located in the major metros such as Johannesburg, Cape Town and Durban from applying for the grant. What was the reason for the exclusion? There were small players who needed funding in the metros as well.
The Chairperson was surprised that TECSA was not operational. If government was the biggest customer in the hospitality industry, then there should be more encouragement to support smaller ‘bed and breakfasts’. It was a fact that smaller operators in the tourism industry had complained that they had not derived any benefit from the 2010 FIFA Soccer World Cup.

Mr S Farrow (DA) stated that Mr Khosa had made his presentation with passion, accompanied with a fair measure of anger. He understood that frustration could make those emotions emerge. What association did FEDHASA have with the National Department of Tourism? FEDHASA after all represented a major constituency. He asked why FEDHASA had not raised the issues mentioned in the presentation to various Ministers, such as the Incentive Grant Programme. He pointed out that when banks grant financial assistance they need to be assured of the sustainability of the business they invest in. Did business plans drafted by potential small businesses not take supply and demand trends into consideration? A great deal of hope was put on the 2010 World Cup to boost small tourism businesses. Unfortunately it did not happen and people had to understand that tournaments like the World Cup came and went. The occupancy rate of hotels dropped from 80% to 50% - 60% after the 2010 World Cup. The reason could have been the economic recession which had followed the tournament. It had to also be understood that tourism in SA was seasonal. He was a bit perturbed by the rezoning issue as to why it was expensive and it took a long time to complete. Rezoning was a local government matter but it was an issue that the Department of Local Government had to address. Mr Farrow personally felt that hotels in SA charged too much and one should rather stay in ‘bed and breakfasts’. At the V&A Waterfront a meal cost almost twice as much as what it cost in the City Bowl. High prices were also an issue which needed to be looked at. A new trend emerging in the Eastern Cape is that tourists wanted to experience a farm style homestead and preferred to stay with families. The Eastern Cape however had a problem with some of its roads. Conferences were big business but there were no statistics available with which to work. He suggested that perhaps hotels could assist with information about the tourist’s reason for visit was and how long they were going to stay. Hotels could have a simple form on which tourists could tick off the appropriate box in answer to certain questions.

Mr Khosa referring to the issue of supply and demand stated that going into business required capital. The tourism and hospitality sector was especially expensive and huge amounts of capital were needed. From the outside the sector looked very attractive but on the inside it was hard work and capital intensive. He understood the dynamics of the hospitality industry. The location of the business was paramount in the sector. One could have the best facilities but if your location was wrong, no one would pitch up. The issue of developing people was broader. People needed to be educated on the factors they needed to consider. Perhaps there could be a tourism channel on television. It would seem as if tourism was being put on a backseat. Tourism was now in a global space and that was the way SA should approach it. There needed to be a rethink of tourism in an African way.

Ms C Zikalala (IFP) referred to domestic tourism and asked what happened to the Sho’t Left Programme which was aired on television. She was disappointed that it was no longer on television. It had been launched in 2005. What had happened to it? She referred to the mention of Incentive Grants being difficult to access as a result of DTI’s policies and procedures. What were members supposed to tell their constituents who wished to access those funds? People had had high expectations during the 2010 World Cup and were encouraged to upgrade their ‘bed and breakfasts’ with the view to attracting tourists. The reality was that no tourists came to stay at their ‘bed and breakfasts’. She asked what TECSA was.

Mr Khosa explained that TECSA was the Tourism Empowerment Council of SA. The TECSA CEO and Secretariat resided within the NDT which was responsible for transformation in the tourism and hospitality sector. Whether the role and deliverables of TECSA had changed, he did not wish to speculate. He would rather wait until April 2012 when all would supposedly be revealed. The reason that the Sho’t Left programme was no longer aired on television was budget related. FEDHASA contributed R100 million by way of a tourism levy towards the marketing of SA’s destinations. He recommended that the Committee take up the Sho’t Left issue with SA Tourism, who incidentally had new leadership.

Ms M Njobe (COPE) pointed out that it was not the first time that she had heard that it was difficult to access funding from DTI. She asked whether the tourism industry would have preferred funding to be located within the National Department of Tourism. The Committee felt that the NDT budget was too small. The reason for the small budget was perhaps there was the belief that tourism was more in the hands of the private tourism industry. She asked if it was true that when government training was done, it was always done in Gauteng. There were other big provinces like the Western Cape and Kwazulu-Natal as well. On the use of ‘bed and breakfasts’ rather than hotels, Parliament had started on this trend. Why was TECSA not functioning and what were its constraints? She felt that research and development was important. Its importance was evident in Mexico to which the Committee had recently done a study tour. In Mexico a great deal of research was done through academic institutions. In SA, research was not taken seriously. She was also concerned about what was being taught about tourism at schools. Was there correlation between the NDT and the Department of Education on what the course content should be? Who were the teachers teaching students? In Mexico, the Departments of Tourism and Education worked closely together. Domestic tourism had to be encouraged.

Mr Khosa stated that domestic tourism could work but the question was how would it be done. For it to be done you needed a realistic plan, budget and strategy that were achievable. There was a Tourism Empowerment Programme in place. During the December festive season Johannesburg was empty as persons working in the city went back to their homelands for the holidays. This was the reality but there was for some reason still the notion that people needed to travel somewhere. He felt that he had covered the issue of DTI Grants in his presentation. In the business plans of applicants, the numbers of employees to be employed was also looked at. If there was just one or two fewer than what should be employed according to DTI, then the grant would be cancelled. Yes, it would be more comfortable if grants were located within the NDT. He responded that it was not for him to say whether the tourism budget was too small or not. The budgets of countries that SA competed against in tourism such as Australia and Austria, should be looked at and compared. The importance of research was a good point.

Ms J Manganye (ANC) initially spoke in her native tongue Sesotho. She felt that a great deal of work still needed to be done in the tourism industry for the previously disadvantaged to benefit. People should be assisted to create employment. Even President Zuma had stated that tourism was a platform to create jobs. The Committee and the NDT should come together to assess where mistakes had been made. She pointed out that in Tshwane the municipality had a database of ‘bed and breakfasts’. Could other municipalities not follow suit? She agreed that the tourism industry needed more researchers. Greater investment should be given to research.

The Chairperson translated what Ms Manganye had stated in Sesotho. People at grassroots level were questioning what the Committee was doing for tourism. Mr Khosa had articulated what members were experiencing. Transformation in the tourism industry was not evident. 

Mr Khosa said the majority of local governments had databases of ‘bed and breakfasts’. He knew for a fact that the City of Johannesburg had such a database.

Ms J Maluleke (ANC) said that Southern Sun was assisting ‘bed and breakfasts’ by comparing hotel prices with the prices charged by ‘bed and breakfasts’. Most ‘bed and breakfasts’ faced challenges. It was difficult for some to improve their standards. She asked whether FEDHASA assisted these struggling ‘bed and breakfasts’ to lift their standards. On the other hand there were ‘bed and breakfasts’ that had good standards but they did not know how to promote themselves.

The Chairperson said that the issue was about quality control and peer assistance.

Mr Khosa said that the Southern Sun Group had an Adopt a Guesthouse Programme and it was still up and running. Quality assurance sat with TECSA and SA Tourism. FEDHASA did make inputs from time to time. He pointed out that there was a difference between a guesthouse and a bed and breakfast.

Ms X Makasi (ANC) said that there were ‘bed and breakfasts’ that were beautiful but they were not graded. Many ‘bed and breakfasts’ were told to improve their facilities but were still waiting to get graded. The Committee supported smaller businesses but the bottom line was that they needed assistance. On the DTI grant requirements, where were people supposed to get the rest of the funding apart from the grant offered by DTI? The grant was dependant on the rest of the funding being secured. How could these potential businesses be assisted? She knew of a catering company having offered its services to government and now having to wait unreasonably long to get paid for services rendered. It was embarrassing to her. She was continually being phoned by the catering company concerned pleading with her to intervene.

Mr Farrow pointed out that commissions were paid by hotels to travel agents for bringing them guests. He said that the same applied when Parliament put in a requisition, an agent would book members in at a hotel where a commission would be payable to the agent. Proximity to where Members were visiting should be the deciding factor in the choice of hotel, but this was not always the case. He asked who did the grading of establishments and who checked establishments were compliant. From personal experience, he had been to supposed 5-star establishments which in reality did not meet that standard.

Mr Khosa said that the issue of commissions being paid by hotels to travel agents was noted and would be followed up. When businesses were graded they should be given guidelines as to what needed to be done to improve their facilities. For example, additional toilets were needed.

The Chairperson suggested that members should consider looking at financial and non financial support to smaller establishments. Challenges and successes should be both identified. The issue was whether NDT support to smaller businesses was forthcoming. Was the NDT involved in advocacy work? Did the NDT assist FEDHASA with problems it encountered? He also asked what had happened to the Sho’t Left programme broadcast on television. Advertising was in the hands of SA Tourism. It was concerning that government departments were not adhering to the payment-within-30-days regulation as even the President had requested them to do so. High rezoning costs and long waiting times were not good enough as businesses in the meantime could be crippled. The NDT needed to build working relationships with stakeholders such as local government to deal with such issues. He was disappointed to hear that rezoning was a problem.

Mr Khosa noted he had made mention in his presentation that the NDT was undergoing restructuring. FEDHASA had a good working relationship with the NDT. The matter of the Sho’t Left Programme not being aired on television needed to be discussed with SA Tourism. He could not emphasise enough that government should pay players in the hospitality and tourism industry on time. Given the financial crisis in Limpopo, hospitality places there were choking. Cash flow in small businesses was crucial.

The Chairperson said that matters, such as rezoning, would be taken up with ministers responsible. He encouraged members to draft questions which could be forwarded to ministers.

Ms Makasi commented that domestic tourism was needed. Transformation was not taking place in the sector. People must be seen to benefit. Sustainable livelihoods need to be created. The DTI needed to address the Committee on why businesses in the major metros could not access the DTI grants.

The Chairperson asked the Committee to review the Diagnostic Overview and Study Tour to Mexico Reports and provide comments. The meeting was adjourned.


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