Tourism Equity Fund: NDT & SEFA briefing; Impact of SONA on tourism sector

Tourism

16 February 2021
Chairperson: Ms L Makhubela-Mashele (ANC) (Acting)
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Meeting Summary

Video: Portfolio Committee on Tourism

President Cyril Ramaphosa: 2021 State of the Nation Address (SONA)

In a virtual meeting, the Portfolio Committees on Tourism and Small Business Development received a briefing from the Department of Tourism (DT) and the Small Enterprise Finance Agency (Sefa) on the Tourism Equity Fund (TEF), and thereafter received an analysis of the State of the Nation Address on issues relevant to the tourism sector.

The Minister of Tourism, in her opening remarks, clarified that the Tourism Equity Fund was not a relief fund, but a fund designed to transform and bolster the tourism sector. She said the Department would defend any action brought against it by AfriForum and Solidarity with regard to the criteria for the rollout of the fund. The TEF was a R1.2 billion fund, with R540 million coming from the Department over the next three years, while the balance of R594 million would come from the major banks in South Africa, with a contribution of R120 million from Sefa. The Department undertook to learn continuously from its experiences, and would respond rapidly to any irregularities and challenges by ensuring accountability, transparency and sustainability.

The DT’s presentation highlighted that fewer than 45% of tourism enterprises in the sub-sectors of accommodation, hospitality and travel had met the target of 30% ownership set out in the Tourism broad-based black economic empowerment (BBBEE) Codes. Only one in ten tourism businesses were estimated to have black shareholders by black people. Access to finance in tourism was difficult for black-owned enterprises and new entrants into the sector. It was also challenging for them to acquire equity in existing businesses. Many factors limited access to finance, such as a perceived lack of viable and feasible business plans, limited experience in tourism, limited equity contributions, and a highly competitive industry.

Sefa described the criteria required for applications, and advised that up to a maximum of R20 million in grant funding could be made available to an applicant. In line with the need to promote local tourism, there would be a focus on villages, townships, small dorpies, and struggle and heritage tourism, amongst others. It also responded to criticism that the application process involved too much red tape, which would have a negative effect on its success, pointing out that some requirements were only “where applicable,” as the requirements were not meant to turn away new entrants from applying for funding. There was also a need for the grant funding to be geared towards people with disabilities, women and the youth. Sefa informed the Committee that it had a target to create 5 016 jobs in the tourism sector through grant funding.

Through its collaboration with the Small Enterprise Development Agency (Seda), non-financial support would also be provided, as this was a critical component in ensuring overall sustainability of the fund. Mentorship support would be provided to those who required financial, technical or business support. To enhance sustainability, market access would be facilitated with various industry partners. Investment monitoring and support would be given. The Committee raised the point that the business and financial management skills of new entrants to the tourism sector needed to be developed.

The Committee insisted that transformation should be biased towards emerging enterprises in villages, townships and small dorpies (VTSDs), as unemployment, poverty and inequality was more prevalent in these areas. They also urged the Department and Sefa to ensure that there was a mechanism in place to remove unnecessary red tape which would exclude start-up businesses in the application process.

Another concern of Members was that the TEF had a grant and loan element, and given the current economic situation and the slump in the tourism economy, some beneficiaries may struggle to repay the loan element, particularly those businesses in the VTSD areas. The Department and Sefa should take cognisance of this and explicitly outline the process to be followed when beneficiaries default on loan repayments to avoid the risk of the banks repossessing properties that had been partly funded through taxpayers’ money.

Meeting report

Nomination of acting Chairperson

The Committee Secretary for the Portfolio Committee (PC) on Tourism said that the Chairperson, Mr S Mahumapelo (ANC) may join the meeting later on. He was travelling to Cape Town. He suggested that the Members appoint an acting Chairperson. The rules of the National Assembly state that if the Chairperson was not available, Members must elect another Member of the Committee so that the meeting could proceed as scheduled. He requested the Members forward a proposal to him, so that the meeting could start.

Mr H Kruger (DA) proposed that Ms V Siwela (ANC), Chairperson of the PC on Small Business Development, chair the meeting. Another Member proposed that Ms L Makhubela-Mashele (ANC) chair the meeting. Mr K Sithole (IFP) also proposed that Ms Makhubela-Mashele chair the meeting.

Ms S Xego (ANC) said that she was going to second the proposal that Ms Makhubela-Mashele chair the meeting.

Ms Makhubela-Mashele was chosen as acting Chairperson for the meeting.

Acting Chairperson’s Opening Remarks

The acting Chairperson greeted the Members, and appreciated the leadership responsibility bestowed on her for this meeting. The agenda for today would be looking into the recently-launched Tourism Equity Fund (TEF), which was launched by the Minister of Tourism, Ms Mmamoloko Kubayi-Ngubane, together with the President, in mid-January. The Committees were meeting a few days after the State of the Nation (SoNA) address by the President, and had noted what the President asked. He was reporting on progress made from the previous SoNA, and giving tools and key points to take things forward in 2021.

She welcomed the Members, including those from the Portfolio Committee (PC) on Small Business Development, led by Ms Siwela. She commented that colleagues from the PC on Tourism had steered and taken issues on tourism forward, and had taken their oversight responsibility to the next level.

Minister’s opening remarks

Ms Mmamoloko Kubayi-Ngubane, Minister of the Department of Tourism (DT), thanked the Committees for this opportunity for the Department to come and share its work on the Tourism Equity Fund. She said the Deputy Minister was not able to join due to ill health, so he had submitted an apology. The delegation included Ms Mmaditonki Setwaba, Deputy Director-General: Tourism Sector Support Services, DT. The last time the PC and Department interacted, Ms Setwaba was Acting DDG. The Minister indicated the Department had done interviews and filled the position, and she had become the full-time DDG in the position. The delegation from the Small Enterprise Finance Agency (Sefa) included Mr Martin Mahosi, Chairperson, Mr Mxolisi Matshamba, the Chief Executive Officer (CEO) and Ms Tumi Sefolo, Executive Manager: Direct Lending. The Minister’s advisers were both present, namely Dr Lufuno Marwala and Mr Njabulo Sithebe. The Parliamentary Liaison Officers (PLOs) were also in the meeting.

The Minister said that she was happy to be meeting for the first time, and was looking forward to a productive year. She was hoping that the tourism sector would become better with the roll-out of the COVID-19 vaccine, and see international travellers coming in, and that there would be an increase of domestic tourism. It was a privilege to have the President join the Department on 26 January to launch the Tourism Equity Fund (TEF), which was one of the programmes that was in the Department’s annual performance plan (APP) for this financial year. Initially, when it was announced, the DT anticipated working with the Industrial Development Corporation (IDC) on the implementation, and a lot of discussion had happened around the Department’s work. Unfortunately, there was a point where it was realised that was not on the same page regarding the priorities of what it wanted to achieve. The Department had looked for a partner that would be able to help it fulfil this obligation, and also make sure that it could meet its targets on time, as it was committed to the nation and to Parliament.

When the Department approached Sefa, it was fortunate that it was willing to come on board. Sefa was not only willing to come up on board, but had also assigned officials who worked around the clock to be able to give the Department a product that it launched on 26 January. In its initial allocation, it had received about R180 million for the three years that it was going to launch the project. Subsequent to that, it had received a revised amount of R540 million, which was going to be allocated for the three years, which the Department regarded as a trial or pilot period, in which it would learn lessons. However, the Department would not wait for three years to learn lessons; it would continue to ensure that it learnt lessons in between, as it went, and make sure that it was able to respond positively.

As the Department launched the project and the TEF, there had been quite a lot of feedback, as the Minister had participated in webinars, interviews, etc. The first point she wanted to address was the issue of transparency and accountability. A lot of people raised the point that sometimes the Department created these funds, but they never reached the intended recipients. The DT had assured the nation that it would ensure that this was done in a manner so that the entrepreneurs would really benefit. She wanted to assure Members that nothing would be swept under the carpet. In dealing with the TEF, the Department would ensure that everybody who was intended to benefit in terms of the qualifying criteria within the funds available to the DT, would not get discriminated against.

The second issue that had come into the public domain was confusion, because some of the people confused the TEF with the Covid Relief Fund. That was what had transpired when she had engaged with Solidarity and Afriforum last night. She wanted to reiterate that this was not a relief fund -- it was a transformational fund. It was an equity fund that was meant to assist the Department with transformation in the tourism sector.

If one looked at the state of transformation in the tourism industry and the report from 2015, and compared it with the report from 2018, one would note that tourism was regressing as a sector. Those who had seen the report that came from United Nations Development Programme (UNDP) that analysed the impact of COVID-19 for example, in South Africa, would have noted that the UNDP had determined that a black woman would become, and remain, the face of poverty in South Africa, and would be worse off with no prospects of getting out of poverty post-COVID-19, unless government did interventions that would assist in turning the situation around.

There were those who were saying, “instead of launching a new fund, shouldn't you take this, and give the existing funds to the existing players, and not to a transformation fund?” The objective of this fund remained even more relevant and more urgent, especially after COVID-19. The Department sees the product of what COVID-19 was doing, or the outcomes of what COVID-19 was doing in terms of the tourism sector. It would be an indictment of the leadership of this country, and especially of this Department, if post-COVID-19 or in two years to come, one found a sector that looked like pre-1994, where previously disadvantaged individuals did not exist. That was what the Department could not afford, because it would not be sustainable. South Africa could not build an economy that was exclusionary. The Department’s mandate and objective remained to ensure that South Africa had an inclusive society and an inclusive economy.

One had to acknowledge upfront that apartheid existed, but equally, people say, ‘Minister, you have been in power for 25 years -- why is it that you have not been able to do this work?’ The reason was because every time negotiations were done on transformation, the industry advocated for “the middle ground.” The DT had gone for the middle ground, and progress was not made. That was why she was saying that the implementation of the Tourism Equity Fund was more urgent, and more relevant today than yesterday. If the Department had not previously compromised, if it had not previously looked for middle ground, it would not have a sector that looked like this today, 26 years down the line.

In building South Africa, both black and white South Africans needed to accept that there was a need to address the injustices of the past. South Africans needed to be able to say, “The past was a painful one; let’s discuss our healing; let's help them heal faster by ensuring that the majority of South Africans can play a meaningful role in the economy of their country.”

The Minister thought that those who were saying that the Department should not create this fund were wrong and misguided. As the Department had reiterated, it respected the rights of all South Africans to access to the courts, should it happen that the DT ended up in court. It would defend this, because it was worth defending. It was a fight that the Department was prepared to take up, because it was a just fight. A just transition had to happen in the economy of this country, and tourism was part of the economy. Tourism was one of the backbones of South Africa’s economy, so the Department had to make sure that the majority played a meaningful role, not just as workers, but also as owners. People could remain workers, but they could not be just workers, but also owners of the products that were within the tourism sector, and of the businesses in the tourism sector.

Update on Tourism Equity Fund (TEF)

Mr Victor Tharage, Director- General (DG), DT, presented and update on the TEF.

Sectoral Overview

The South African tourism economy had been shown to have been one of the best performing economic sectors and had shown further potential to grow even further over time. A National Tourism Sector Strategy (NTSS) for 2016-2026 had been developed to position the tourism sector as a significant contributor to the economic growth and development of South Africa. Inclusive growth was a core focus of the NTSS, as it underpinned the broader development imperatives of South Africa, including addressing barriers to growth and the building of a transformed and inclusive tourism economy. The NTSS was based on five pillars which provided a framework for the actions of this strategy. Pillar five of the NTSS addressed the broad-based benefits in the tourism sector. This pillar focused on transformation, rural and township tourism development, enterprise development and investment.

On 20 November 2015, the Minister of Trade and Industry had published in the Government Gazette the Amended Tourism broad-based black economic empowerment (B-BBEE) Sector Code in terms of Section 9(1) of the B-BBEE Act No. 53 of 2003, as amended by B-BBEE Act No. 46 of 2013, to advance transformation in the tourism sector. While promoting black ownership of enterprises was a priority element within the amended Tourism B-BBEE Sector Code, few enterprises achieved the targets set for ownership. Less than 45% of tourism enterprises in the three sub-sectors --accommodation, hospitality and travel -- had achieved the 30% ownership target.

Linked to the objectives of transformation and expansion of the tourism economy was access to finance for development. Access to finance in tourism was difficult for black-owned enterprises and new entrants into the sector. This was true for investment finance, working capital and finance for acquisitions. Many factors limit access to finance – a perceived lack of viable and feasible business plans, limited experience in tourism, limited equity contributions, and a highly competitive industry, amongst others.

Access to Finance

The DT had identified the need to expand the existing funding offering in order to address some of the challenges contributing to the slow progress in the Code’s implementation. While the Tourism Transformation Fund (TTF), which was introduced in May 2018 in partnership with the National Empowerment Fund (NEF), offered some financial support for sector transformation, it had had some limitations, such as:

-The R5 million grant funding cap limited the programme to smaller investment projects.

-The TTF grant funding component was not available for any form of acquisition transaction.

-It also did not allow for fully blended financing.

State of Transformation

In 2012, the targets were lower, because these were the targets that came from 2009. It was around 21% black ownership. It looked as if there had been positive movement in that period, but in 2017 the qualifying small enterprises’ (QSE’s) target was 30%. The result was 25%. If one looked at management control in 2017, the target was 50% for the QSEs. The result was 12.8%. The target was 50% for large enterprises, and the result was 11%. Transformation was moving at a slower pace in the sector. When comparing the results of 2012 to 2017, 2012 looked “slightly better.” The figures for 2018 also showed relatively low percentages in the target areas. The movement to the 80% level in the area of enterprise and supplier development was not there yet, for example.

(See presentation for the full details.)

Resolutions of Transformation Summit: 2017

The Resolutions of Transformation summit conference made several recommendations on the ownership element. It noted with concern that only one in ten tourism enterprises had a black shareholding. It was recommended that the DT should explore an equity fund to support majority black-owned and controlled enterprises in the tourism sector. Big business would need to put money into this. The Department should also explore the feasibility of a transformation fund, using the Net Profit After Tax (NPAT) under the Enterprise and Supplier Development (ESD) element to support black businesses to access the market. The conference further recommended that National Treasury should explore a set aside 30% of procurement budgets for township, rural and 51% black-owned businesses. To support the growth of black businesses, Government should settle procurement bills within 30 days. The Department participated to ensure that BBBEE were codes infused into that instrument. Large enterprises should support the government by investing in enterprise development to create increased numbers of Black-owned Band 1 enterprises.

Black Industrialist Scheme and Tourism

The tourism sector was not a beneficiary of the Department of Trade and Industry’s (dti’s) Black Industrialist Scheme (BIS) in its current form, wherein the beneficiaries of the scheme were required to be involved in the manufacturing sector of the economy as outlined in the Industrial Policy Action Plan (IPAP). Funding tourism investments required a substantial equity contribution – a minimum of 40% unencumbered cash and assets. Without the support of schemes like the BIS, transformation of the tourism sector in line with the NTSS and the B-BBEE Policy was proving difficult to achieve.

Mr Tharage added that the issue with tourism was that the investment that was required was substantial. One needed a lot of available cash. If one had a room for guests] it was unlike other stock where if one did not sell it today, one might be able to sell it tomorrow. If one lost the room today, that room was gone for good -- it was not going to come back. One had to have quite a lot of cash and assets that were liquid, and that was where the real challenge came in. It had been a challenge to get what the NTSS and the B-BBEE policy were saying done, without having to bring in instruments that were the equivalent of the BIS.

Tourism Equity Fund Rationale

There were a limited number of medium size businesses owned and controlled by black people in the tourism sector, let alone large business. The majority of tourism enterprises had not met the 30% ownership target as per the tourism BBBEE Codes. Most black entrepreneurs indicate that access to funding had been the main challenge for them to either acquire equity in existing businesses, or to start new businesses in the sector. The existence of mainly family-owned businesses that may always seek to do business with government put a drag on transformation efforts, as there was no incentive to transform in such instances. The entrepreneurs point to a funding gap and a demand for collateral, whether they were dealing with commercial banks or development finance institutions (DFIs). DFIs had also pointed to the need for financing instruments that closed the gap between what they were willing to provide and what was required for the project. All these factors gave rise to the need for a dedicated funding mechanism to support majority black ownership and control at 51%.

Establishment of the Tourist Equity Fund

To ensure that the 51% black ownership and control target became a reality in the tourism sector, a request was made to participate in the Black Industrialist Scheme (BIS). The 51% was approved in terms of Section 9 of the B-BBEE Act, 2003 as amended, but the Department of Trade, Industry and Competition (DTIC) indicated capacity constraints to administer participation of tourism in the already existing BIS. The Department of Tourism was advised to work with the DFIs in this regard. Initially, the DT had identified the IDC as a partner and manager of the fund. However, due to the need to leverage commercial banks’ funding and the provision of non-financial support, Sefa became the preferred partner and implementation manager. However, currently there was a threat of litigation against the Fund.

Objectives of the Tourist Equity Fund

The objective of the TEF was to accelerate the quantitative and qualitative increase in participation by black tourism industrialists in the tourism sector, as reflected by their contribution to growth, investment, and employment creation. This emphasised the focus on the scale in the levels of participation of black people in the sector. In addition, the TEF sought to achieve an increase in black controlling ownership equity in the sector, to stimulate investment in rural, township and small towns’ tourism assets, and to empower women, youth and people with disability.

Overview of the Tourist Equity Fund

The Fund totalled about R1.2 billion, comprised of grant funding and debt financing. Initial seed funding amounting to R77 million was authorised for this financial year (2020/21), after approval by National Treasury. Thereafter, the DT would contribute equal amounts of R180 million per annum for three years, starting in the 2021/22 financial year, amounting to R540 million for grant funding and low interest loans. The repayment of the loan component would recapitalise the fund for sustainability.

The grants would be capped at a maximum of R20 million, and project values were set at a minimum of R10 million. The remainder of the debt finance was provided for by Sefa and a commercial bank partner for the blended financing model.

Sefa briefing on Tourism Equity Fund

Mr Martin Mahosi, Chairperson: Small Enterprises Finance Agency (Sefa), briefed the Committee on the Agency’s role in managing the TEF,

Purpose of the Tourism Equity Fund

He said the TEF was an equity acquisition fund that would be managed by Sefa on behalf of the DT, which intended to pilot the TEF in partnership with Sefa for a period of three years with a view to promote the participation of black enterprises within the tourism industry. The TEF would be capitalised by the DT to the value of R540 million over three years. This funding would be utilised as a capital injection of a grant contribution in funding acquisitions to a maximum of R20 million per enterprise. This capital injection would be used to leverage at least 50% in additional funding per transaction.

Objective of the Tourism Equity Fund

The objective of the TEF was to fund commercially viable and sustainable majority black owned (minimum 51%) tourism enterprises, including enterprises in rural and township to promote alleviation of poverty, inequality and growth of black controlled tourism enterprises. It would de-risk the funding provided to tourism enterprises through patient capital that would ease the debt repayment ability of black controlled enterprises, and facilitate the participation of targeted groups such as women and youth in the priority tourism sectors, as defined by the BBBEE sector codes.

 Focus of the Tourism Equity Fund

The fund would focus on the majority black owned (51%) and black management-controlled tourism enterprises in the following sub-sectors:

.-Accommodation -- hotels, lodges, resorts and self-catering units, backpacker facilities;

-Hospitality and related services -- conference and convention venues attached to a substantial accommodation element, privately owned attractions in already developed tourism nodes;

-Travel and related services, such as tour operators;

-Any other tourism related product and initiatives not referred to above which support tourism development imperatives and economic impact in terms of job creation, geographic spread and strengthening the tourism offering of South Africa.

Mr Mahosi added that the reason he raised the point of geographic spread was that there was a clear recognition that tourism, with the experience of COVID-19, and what Sefa foresees as a slightly slower re-entry of international visitors, South Africa would have to rely on domestic travel, at least in the short-term. That was what made it even more important that there was a geographic spread that at least covered the key areas of South Africa’s regions. Sefa did that, while mindful that funds were limited.

Governance of the Tourism Equity Fund

The Sefa Board would approve the investment guidelines of the TEF, based on the agreed Memorandum of Agreement (MOU) with the Department of Tourism. The Sefa board had approved the guidelines in November 2020. The TEF was designed within the delegation of authority of Sefa.

The Sefa board would approve the co-option of representatives from DT to the Sefa executive committee (EXCO). The Fund would follow Sefa approval processes and would require a specific delegation for the Sefa EXCO to approve the maximum R20 million grant and the applicable debt portion funded by Sefa. A dedicated portfolio management strategy would be applied to the ring-fenced fund with regard to funding allocations, accounting and reporting. Sefa would report to the DT on a quarterly basis on the performance of the Fund, as well as consolidate the performance and outcomes of the Fund within its annual financial statements and annual report. It would also hold quarterly meetings with representatives from the DT to discuss matters relating to the performance of the Fund and other matters related to the Fund.

Financial and Non-Financial Support of the Tourism Equity Fund

Financial support would be provided on the following basis:

-Funding to acquire controlling equity in entities in the tourism sector;

-Funding of the assets of existing entities in the tourism sector for the explicit purpose of setting up a new entity operating in the sector;

-Asset finance and working capital that would be required in relation to the acquisition of the tourism entity for expansion or operational purposes;

-New developments and expansion projects as applicable and in relation to the identified tourism sub-sectors.

The total funding required would be split between grants (Department of Tourism) and loans (Sefa), based on the approved scorecard, including the leveraged financing from the commercial bank.

The grant capital injection would be up a maximum of R20 million, as determined by the scorecard for the fund, while the Sefa loan would be according to the following terms:

-Funding of up to a maximum of R15 million per enterprise;

-The term of the funding would be determined by the business cash flows up to a maximum of 120 months per enterprise, with a maximum moratorium of 12 months;

-The loan would be priced according to the Sefa pricing matrix.

Non-financial support was a critical component in ensuring overall sustainability of the fund. Mentorship support would be provided to investees that require financial, technical or business support based on needs analysis assessments. In order to ensure that entities were sustainable, market access would be facilitated with various industry partners. There would be investment monitoring and support, with the technical committee of the DT officials to assist enterprises with qualification requirements.   

Mr Mahosi added that as part of the small business ecosystem, Sefa ordinarily worked with the Small Enterprise Development Agency (SEDA), a sister agency within the Department of Small Business Development’s portfolio. SEDA had already been brought into the programme to assist with mentoring support. It would also assist applicants with meeting the application requirements where there was a need.

Qualifying Criteria, Funding Requirements & Application Process

Qualifying Criteria

Applicants for funding would have to meet a number of qualifying criteria. They must be a registered legal entity in South Africa in terms of the Companies Act, 1973 (as amended), the Close Corporations Act, 1984 (as amended), and the Cooperatives Act, 2005 (as amended); 100% owned by South African citizens; predominantly black-owned (51%); registered and compliant with the South African Revenue Service (SARS); majority black owner-managed and controlled; and  the entity must be operating in the qualifying sectors

Funding Requirements

The funding requirements would include the entity’s business profile; a BBBEE certificate (in line with the Amended Tourism Sector Codes) or affidavit; company statutory documents; Finance Intelligence Centre Act (FICA) documents; certified identity document (ID) copies of directors/members; 12 months’ bank statements, and latest annual financial statements and management accounts not older than three months from date of application; five-year cash flow projections, with clear assumptions, where applicable; and relevant industry certification and facility Statements of other funders, where applicable

Mr Mahosi added to point on the five-year cash flow projections, that when funding was provided to these enterprises, although Sefa provided for a maximum of ten years payment, on average they would tend to be able to repay their debt in six to seven years. It would depend on the funding mode and the capital required for funding such an enterprise. One would want to see in the case of a new applicant, for example, a clear understanding and appreciation of the industry, and there was a clear understanding of the manner in which the establishment would be run, and the ups and downs of the industry. There would also be the strength of the applicant’s own feasibility study that they would have done that supported their business plan. The applicant must support the strength of what they proposed in their business plan. The narrative side must match the cash flow side.

Application Process

The following application process would be applied:

-All qualifying applications should be submitted to Sefa with the application form and required documents to the dedicated email address: tourismequityfund@sefa.org.za. Sefa also had regional offices in every province, and also co-locations with SEDA in a number of areas; there were thus locations where people could hand-deliver applications.

-Sefa investment professionals would review applications and conduct the vetting, due diligence and financial viability assessment for presentation to the approval committee.

-The approval committee would be the Sefa EXCO as per the Sefa delegation of authority, with two co-opted members from the Department of Tourism.

-Legal contracting and disbursements would be conducted by Sefa internal teams.

-Once Sefa had processed the due diligence and established viability, the proposal would be submitted to the participating bank for co-funding processing.

Fund Capitalisation, Allocation & Performance Indicators

Mr Mahosi said it was proposed that the fund be capitalised as follows over three years:

-Department of Tourism: R405 million (used as a grant);

-Department of Tourism: R135 million (senior debt at concessionary rates);

-Sefa: R120 million (senior debt);

-Total fund: R1.254 billion.

The ring-fenced funds were dependent on the contribution towards the recurring fund from the Department of Tourism     

Performance Indicators

It was proposed that the fund be capitalised over three years, with R1.254 billion available for investment to enterprises. The anticipated average deal size would be R40 million, involving 31 enterprises, creating 5 016 jobs and an average cost of R250 000 per job. The target was 40% black women ownership, 30% black youth ownership, and 40% on enterprises in peri-urban and rural areas.

Mr Mahosi added that the R10 million minimum funding in the application was not supposed to be exclusionary, knowing that within the DT there were funds available to fund sizes of deals that were lower than R10 million. Within Sefa, it did fund different ventures. It could still be possible that an applicant may have approached Sefa in the past, and it would have funded the applicant for a deal size that was less than R10 million. There was a general lack of funding for small businesses in South Africa. Sefa believed that for the design of this fund, it had to make sure that a deal size of a minimum of R10 million be set aside. This was a window within which, as the sector was depressed, it could be possible for Sefa to make a dent in the numbers that the Director-General (DG) had alluded to in relation to the goal of transforming the tourism sector.

Discussion

Mr K Sithole (IFP) said that when checking the performance indicators, it seemed that there was no allocation for disabled people. Why was there no programme for disabled people in the performance indicators? He asked about funding requirements. If Sefa said that it needed 12 months’ bank statements and a five-year cash flow projection, he wanted to check if there were hindrances for those who were newcomers. What system or programme was there for the newcomers? Those requirements of the 12 months’ bank statements and a five-year cash flow projection meant that Sefa was closing newcomers out of the business. What system did the tourism sector have to help those making an entry into the industry?

With the equity fund, it said that the majority of tourism enterprises had not met the 30% ownership target, as per the tourism B-BBEE Codes. What was the Department doing about this? They were talking about transformation, which was very difficult, and which was coming along at a very slow pace. What system did the Department have to speed up this transformation? The presentation had stated that most black entrepreneurs had said that access to funding had been the main challenge. It seemed that if that was the main challenge for black entrepreneurs was to either acquire or increase the funding in their existing businesses. It meant that there were a lot of things that the Department was supposed to do now.

He was happy with the opening remarks by the Minister, because it indicated the mission and vision of the Department. However, he was trying to find out what system the DT had. He was worried that if one could check the R5 million grant, it seemed that the Department was just catering for the smaller investments projects which were already existing. What would it do with the newcomers? If one looked at the resolutions of the 2017 transformation summit, there was nothing that had been implemented. Could the Department give details of the implementation carried out after that summit?

Ms H Winkler (DA) referred to the efforts to encourage growth in ecotourism, as well as looking at tourism that factored in climate mitigation and adaptation, and asked if South Africa was trying to encourage development of those sectors in tourism by making those criteria for applicants, or at least some of them, to perhaps satisfy this objective, so that South Africa was forward-thinking when it came to those challenges.

There was a problem with oversight and accountability when large sums of money were being administered by the government. That had been seen with the COVID-19 relief fund, where there had been lots of corruption and mismanagement. To mitigate against these sort of fallbacks, was it possible to have a database where the PC, the public and applicants were able to monitor and track the number of applicants that came through, those that met the requirements, and those that were paid sums of money -- and the amounts they were provided. That would allow the process to be transparent and open, and have a lot of accountability. It would also make sure that the money was going to people who really needed and deserved it. It was about time that the management of finances was taken far more seriously, because South Africa had a track record where things could go terribly wrong in a very short space of time.

As Mr Sithole mentioned, there seemed to be some very specific requirements that may be a barrier to entry for some new applicants into the sector. Would it not be wise to also have a tourism youth development programme that ran concurrently, to give access to young people to enter the sector? Having both programmes would complement each other very well. South Africa had a huge amount of youth unemployment, and it needed to give young people an opportunity to enter the sector, but they would need a lot more than funding opportunities. The youth tourism development plan should teach them about business, responsible finance management, etc.

Mr H Kruger (DA) thanked the DT for enlightening the PC about this programme. The red tape for small businesses to apply for finance was “unbelievably high.” Most entrepreneurs that apply for finance give up halfway along the line because of red tape. That happened with Sefa quite a lot of times. When starting a business, there was a window of opportunity for one’s business to be successful. Most of the small businesses waiting on the government for financial assistance often missed this opportunity because of this “unbelievable amount of red tape.” What was the DT doing to ease the application process for entrepreneurs to have access to this fund? This was one of the big problems. If one looked at the World Bank’s “Ease of Doing Business” report, one of the main problems was access to finance. The government was always bragging about money being available, but the minute an entrepreneur wanted to get his hands on this money to run or extend his business, the amount of red tape was “killing business”. What was the Department doing to reduce red tape and make it easier for potential entrepreneurs or potential business owners to have access to this money?

Ms S Xego (ANC) thanked the Minister for her opening remarks. Tourism was the biggest contributor to economic development in South Africa. The national tourism sector strategy for 2016-2026 expressed itself in a transformed and inclusive tourism economy. The launch of this Fund was also an answer to that. The biggest problem that faced South Africa’s previously disadvantaged community was ownership and access to finances. The fund was a positive response to that challenge. As a Member of the PC on Tourism, she welcomed the move and initiative of the government to set aside this fund to advantage black-owned businesses and new entrants.

She was in support of Mr Sithole’s concern: When there was a mention of a five-year cash flow plan among the requirements for people to qualify, she “shivered”, because new entrants were the ones who the fund was targeting if one talked about transformation in the industry. The objectives of this fund were to respond to real challenges, which were equity, special groups, and paying attention to rural tourism and small towns’ tourism development.

Since there was a court process that was looming, what was the Department doing to prepare? Was it ready to defend its decision on the programme? It was clear that in society, there were people who were against the B-BBEE policy. There was no problem when the PC adopted the APP, but when the Department was implementing the APP, the PC was being challenged. She asked about the role of the DT when there were problems in the implementation of this programme by SEDA. When there were problems such as delays, disputes and unintended consequences, what did the Department plan to do as a means of intervention? She also wanted to know what the Minister was doing to publicise the programme, and make South Africans ready, so that people prepared themselves by creating business plans and making applications to Sefa as soon as the agency was ready.

Ms B Mathulelwa (EFF) said the programme was excluding the new businesses by the requirement of five years of experience. What strategy was being used by the Department to include new small businesses in this fund? She was disappointed by the exclusion of people who lived with a disability. It seems that it was “a song we were singing about this.” The issue of excluding people who lived with a disability was always raised, but this was continuing.

Referring to the needs of small businesses, she said the ones that were needy were the ones who were new, and had very little experience. They were the ones that needed the most help, but it seemed that the TEF was only for businesses already existing in the sector. It would not attract people. South Africa was currently in difficult times. This fund was not attracting new businesses, and because of these difficult times, people needed to live a life in which they created their own businesses, as opposed to working for someone else’s business. The DT needed to address this issue, and draw up a strategy to attract people to start their own businesses. It needed to take into consideration that five years was not what needed to be celebrated regarding this fund. For small businesses, such a requirement was not fair.

Mr F Jacobs (ANC) said that equity and transformation was important in this sector. He lamented that there was still a long way to go for South Africans to ensure that all people benefited from tourism. Tourism was a job creator, and it was an economic development priority, and it must be shared. An appeal must be made to all South Africans, all tourist operations, that transformation, equity and inclusive growth was good business sense. Those that wanted to still cling on to white privilege must be exposed for what they were. In the Western Cape, and in Cape Town in particular, tourism was booming, but black people by and large had been excluded from ownership and management of tourism. In the City of Cape Town, residents of the Bo-Kaap experienced tourists bussing into the area every day. People were treated like animals in a zoo. Everybody took photos of those people and their heritage -- the slave history and the heritage of the Muslim community, and the community in general. People did not get to be active partners, because they were not tour operators, and were not owners of tourism businesses in the area. The same could be said across the Cape. In Mitchells Plain, Langa, Swellendam, etc, there was lots of tourism happening, but people were still largely being marginalised.

The PC wanted to make sure that the applications were accessible, inclusive, developmental and focused on all people. He expressed appreciation for the targets that had been set out for youth, rural people and women. People with disabilities had to be added. These were not just targets to be ticked. These were targeted communities that had been voiceless and marginalised. He agreed with the sentiments expressed that they needed to make sure that they help their communities, to ensure that bureaucratic processes did not keep out the very people that they wanted to target. The Sefa team must be developmental in its approach. Lessons must be learned from the last year, that it was better to give more people a little bit of money, than to give a few people great sums of money.

He shared the sentiments that there must be transparency in the applications and the procurement process. Current tour operators must also be incentivised, and local travel within South Africa had to be encouraged.  The tourism industry had to accept that it must transform -- it could not be owned only by white people. It must embrace all of South Africa’s cultures and its diversity.

Those who submit applications could be monitored, and one could check the tour operators and incentivise those who were willing to create inclusive growth. One could also expose those tour operators who were not prepared to create a good environment.

He shared the call for support for ecotourism and marine tourism, and said it must be encouraged. He shared the sentiment about a tourism development fund where new entrants could be nurtured. He thought that township tourism and heritage tourism, where tourists were brought into people’s areas, and struggle tourism, must be encouraged. If he wanted to go into a town, he would also want to experience the people, the culture and the heritage of “our proud nation.” Overall, he thought it was a good initiative, and offered support. Transformation must happen, and those that did not want transformation must be convinced.

Mr H Gumbi (DA) was in agreement with Mr Kruger’s comments on the excessive red tape, and called for its removal for small businesses so that it was easier for them to access funds and assistance and become part of a growing economy. This touched on an issue previously raised in the PC on Tourism, where there had been agreement across all political parties on the idea of making grading free of charge. That was something that had long been pushed for, but it still had not happened. The Department could be launching a bunch of new initiatives, and completely ignoring the PC’s demand that grading be free of charge. That would assist new businesses that wanted to come into the sector. The idea of removing certain taxes on businesses would make it easier, so that they were paying far less and could therefore compete.

He referred to the effect of other state departments failing in their functions: When police failed to provide security around popular tourism areas, it meant that the small businesses had to get private security, which created a financial burden for them, and anyone who ran a small business could not afford that in comparison to a big business.

How many jobs did the Department intend to create through using this Tourism Equity Fund? There could not be any new initiative that the government introduced where it did not have a target for the number of jobs it was creating. It needed to make sure that new jobs were being added and would contribute to the sector. He agreed with Mr Jacobs that there should be an open and available application database, and a database of who was awarded the grants and loan funding. Could it be available for public scrutiny, so it was not just the PC, but civil society as well who could view it? People would be able to buy into seeing this transparent list, and be able to assist the Committees in being able to root out the kind of crooked connections that enabled some to get contracts ahead of other people. That should be a principle agreement that was applied across the board to any kind of fund where there was going to be a lot of public money disbursed. The risks that came with it were known, and therefore the details should be completely publicly available -- both the applications as well as who got grants -- so that people could see the position in real-time, and not five years later when there was an audit or investigation that showed that things had gone wrong.

Ms V Siwela (ANC), Chairperson of the PC on Small Business Development, congratulated the Minister on her well-informed political overview on issues of transformation in the tourism sector. The issue of transformation included doing away with middlemen, and doing away with exclusivity, and this programme sought to include everyone. She also appreciated the initiative made by the DT to include and bring small business on board. The PC on Small Business appreciated that. It was a challenging issue, but they believed that through a joint venture with tourism, they would succeed.

As her other colleagues had indicated, there was the issue of the red tape of bureaucratic processes in those institutions. For example, municipalities must be in favour of this programme on the basis that the Department was not just looking out for established entrepreneurs, but was bringing on board new entrepreneurs. She also expressed appreciation for the targets on the percentage of women and youth. She also wanted to emphasise the issue of people with disabilities. Although she understood that people with disabilities were part of the youth group or the women, people with disabilities must be respected in terms of the South African Constitution, which did not discriminate. She urged the DT to try to make sure that this programme reached the people who were supposed to be reached. They needed to make sure that this programme was highly popularised and explained on how one could apply.

The two Committees were ready to support the Minister to make sure that people, who were supposed to be assisted, were assisted. There was a high percentage of unemployment. She appreciated that the Minister had mentioned in her overview that the tourism sector had been identified as a sector that had potential for economic growth, but if they did not focus on that space properly, it would grow, but it would not benefit the disadvantaged people. The programme needed to address the various challenges which the country faced, and the effects of the system of apartheid had to be dealt with in order to make sure that black people did benefit in this sector. It needed to be popularised, and it had to be easily accessible.

Regarding applications, she had heard the Sefa chairperson saying that it had centres, but she was not sure whether there was a relationship between those offices and the municipalities. The only institutions which had to assist them were the municipalities and the traditional authorities. She mentioned these institutions, because the newcomers would have to get land, and access to land relied on municipalities and traditional authorities. One could not keep on talking about those who were already in the sector, because the majority of them were white. There was a need to “get in there where white people are”, so that people were influenced to launch businesses. One could not want to start a tourism business in a place was not conducive for tourism, so new entrants had to be assisted.

She wanted to know about the current situation with the TEF, and asked how many people had so far applied for funding.

The Chairperson said she wanted to give the Department and Sefa a chance to respond to the first round of questions and comments. She would come back to take a second round of questions.

Reponses

Mr Tharage responded to the questions on transparency, which had been a message the Minister had addressed from the beginning. The Minister had published all 4 000 beneficiaries of the Tourism Relief Fund. That information had been made public, and everyone could scrutinise that information. The Department would consider measures to ensure transparency. It would also request that as it did so, it did not compromise business ideas and business secrets of the people who had made applications. That was crucial in the sense that people had the right to protect their own information. If one considered what the Department was compelled to do regarding tenders, one would see that upon the tender process conclusion, there was publication of who got which tender. The Department did that in a short space of time. It believed that that was something that was crucial, and it would still have to follow that particular process.

Regarding red tape, one of the things done in this specific programme was to avoid overloading requirements. He had heard Members alluding to aspects such as green growth, etc. That was important, but it was a separate programme altogether that the Department did with the IDC, that deals with that particular aspect. The fewer the requirements, such as those involving aspects that may not necessarily be at the core of the objectives of the Fund, the better in terms of reducing red tape, so that everyone could follow the steps easily and get to a point where they would be in a position to lodge their applications. For example, if the Department were to go for the green aspects, that would require a lot of technical expertise that would have to come on board. That would add costs and delays, with applications having to go through certification bodies for the requisite evaluations and all those types of things. That was an example where a programme should be straightforward and go straight to the objective, and have less of the other objectives.

The Tourism B-BBEE Codes make a provision for 2% of people with disabilities. This was the same provision for the government across the board, and ensured that it did not have a mechanism that excluded people with disability. The code states that there were added points in the event that the 2% was exceeded. As the Chairperson of Sefa said, this programme was largely guided by the B-BBEE Codes.  

Ms Setwaba responded to questions on ecotourism, which was related to adaptation. The Department was not only focusing on increasing participation through the TEF, but there were also other measures that it had come up with to ensure that businesses remained sustainable. The DT was running a green tourism incentive programme against the backdrop of increasing participation and ensuring sustainability of businesses. The green tourism incentive programme ensured water and power efficiency. That was the way that the Department was supporting sustainability under responsible tourism for participants in the tourism sector.

On easing the requirements for incentivising, or making available access to participants in the tourism sector, though this would be related to the relief fund, and taking into consideration that the TEF was not the relief fund, there was a method to support tour guides. This was one instance where the Department did not call for applications, but instead worked with provincial tourist guides. It had set a trend where it was able to receive the particulars of tourist guides and then begin to dispense much-needed funds. She was showing that there were instances where the Department would go all out to ensure that it dealt with red tape.

There was a question asking what the Department was doing to ensure that the requirements would be met. So far, it was running a number of projects that would increase small, medium and micro enterprise (SMME) literacy, increase the ability to come up with business profiles, increase skills, and make sure that people were able to be directed regarding access to funds available outside the DT. For that purpose, the Department also had an agreement with SEDA, where it was partnering to increase accessibility to skills, experience and funding from businesses within the tourism sector. Sefa would address the criteria agreed upon, but there were laws that would require certain instruments to be provided, such as tax certificates, RICA, etc. that would be required in terms of the law.

On the allocations for youth, people with disabilities and rural or peri-urban businesses, that was reflected clearly in the allocation of the fund. There was a 30% allocation for people with disabilities, women were at 40%, and 40% was for those in rural and peri-urban areas. There were programmes for youth development, and for attracting youth to participate in the tourism sector. The Department was currently running a technology innovation hub to encourage the youth to come up with technological solutions to increase the contribution of the tourism sector to the economy. This was besides other programmes that leant heavily towards making sure that youths had the necessary skills and capacity to be able to participate. The TEF did lean towards the youth in terms of the set-aside allocation that was earmarked for them.

Regarding access to land, there was a programme in the DT which involved partnering with municipalities. There was a learning network. The TEF would feature heavily in terms of intergovernmental relations with municipalities and provinces, making sure that the three spheres of governments’ responsibilities were clearly articulated. Within the non-financial support, the issue of land would be taken up. The Department’s role did not end up being only about funding made available. It had a responsibility to ensure that it supported businesses in terms of them being able to apply. For that, it had an Enterprise Support Development (ESD) programme that had business incubators within itself, but also identified opportunities in other portfolios, where the Department could support people who were already in the sector, and those who wanted to participate. The Department provided various skills and directions regarding where to get the extra support needed to be able to participate.

Mr Tharage responded to the question on the mechanisms that the Department had in place for dispute resolution in the event that something did not go right. It was confident that the beginning of the relationship that it had started with Sefa symbolised what was to come, and it foresaw that it would have a very good working relationship with Sefa. The Department did have a veto agreement, and it did provide for dispute resolution. Within government, as organs of state, it was preferred that parties should go the route of the intergovernmental relations framework, which allowed trying to solve matters before invoking other approaches.

Mr Mahosi spoke about the issue of disability. He said the Chairperson of the PC on Small Business Development had spoken for Sefa. When it spoke about the numbers in the presentation, it was trying to project the spending that was targeting those designated developmental impacts. It was not suggested that Sefa would exclude people with disabilities, and had noted this aspect with the seriousness it deserved. Sefa had a responsibility to discharge this fund. It did not claim that it would be 100% foolproof, and would do its best to achieve what it could achieve. It believed that in what it did, it should be guided and supported by all players, including the PC Members, as the people that played an oversight role in programmes that had to do with the state.

He said that there had been a misunderstanding with what Sefa had said. There was a slide on the latest financial statements. If one refers to point “g” on the requirements slide, it said “where applicable” at the end. With the five-year cash flow projection, the slide also said, “where applicable.” On the relevant industry certification and facility statements of other funders, it also said “where applicable.” Sefa had to be mindful of the fact that it was dealing with state funds, and it had to bring in all sorts of measures to ensure that it was prudent in the spending of those funds.

The 12 months of bank statements that Sefa had referred to was for the purposes of Sefa to understand. It said “where applicable,” because there would not be 12 months unless it was an enterprise that had been in existence. It was referring to applications from enterprises that would have been in existence. “In existence” might mean that a black-owned company was going to acquire a company that had been in existence. Even if that player was a new entrant to the industry, it was important that Sefa got to see the financial performance of the enterprise that a black person was trying to acquire. Sefa did that, mindful of the fact that South Africa had been going through a pandemic since March last year, and therefore the tourism industry had suffered. Sefa would not use the requirements as a measure to be punitive towards the applicants. It was meant for Sefa to understand the historical performance of an organisation, in line with its responsibility that it be prudent. This was not meant to be a fund that must be anchored on the principle of it being a grant. It must be anchored on the principle of Sefa funding enterprises that were sound enough to be funded, and that those enterprises had the potential to be funded, based on the team that was there, the potential that was supported by the feasibility study, and the plan written by those who were proposing to be funded, to show that the applicants could be responsible, and could demonstrate that they would grow that enterprise, and would be able to repay the money lent to them.

Sefa had put measures in place to make sure that it could “separate apples and pears.” The “five-year cash flow projections” were not five years of a company having been in existence. It wanted to see cash flow projections for that company, and see what the cash flow would look like from the time it lent someone money, to the next five years. Sefa was taking into consideration that even if it were to give someone money in the next two months, the person would still go through a couple of months where there would be difficulty. After those months of difficulty, Sefa anticipated that the sector would have revived, and there would be a recovery, so it wanted to see what an applicant’s plans were as to how they would manage the flow of funds as they built an enterprise. In no way was the presentation suggesting that Sefa only wanted to fund people who were already in the sector. It would fund new entrants, and those who wanted to expand existing enterprises.

The key issue Sefa emphasised was that because of the nature of this fund and what it aimed to achieve, it had set minimum criteria that if one was applying to be funded, one must apply for an amount that was at least R10 million. That was the only thing that could be a hindrance. Even if there was a R10 million minimum that Sefa would accept as an application, it did not mean that there were no other funds. Such funds were limited elsewhere. There were existing programmes within the Department of Tourism, and even within Sefa itself. If a person came with a strong plan to have a R5 million project funded, and Sefa could see that it was viable and in the tourism sector, then it would fund such a project. The key issue was what the programme wanted to achieve.

Sefa had noted a point about looking at environmentally friendly projects. It was open to be guided, and it was a good point for it to note. This was a pilot project. As Sefa implemented it, it would be mindful of any input that helped to shape it for the better going forward.

Sefa agreed that if it was dealing with state funds, especially considering the negative sentiment in the country, it had to be extraordinarily careful. It had to make sure that it did all in its power to manage this fund in a manner that was as corruption-free as possible, and that it mitigated against any risk of corruption. It agreed fully on the issue of transparency -- that whatever it did, it should report or publish those applications that were successful, and that it should track the performance as it ran through the application. It would publish all approvals. In South Africa, it was important, even in the midst of negativity, to pick up on positivity. There had been all sorts of allegations against various people, but there were many people who held ethical standards in high regard, and as far as Sefa was concerned, that was what it would do.

Mr Mahosi said that even with the COVID-19 programmes, Sefa had been one of the few players from the state that had been given a clean bill of health as far as the implementation of the COVID-19 relief programme was concerned. It did not have any challenges as far as malfeasance or corruption was concerned. With the roll-out, one of the biggest challenges it faced had been that it had never processed so many applications in such a short period of time, and still be able to emerge on the other end with a clean bill of health, and corruption-free. He wanted to assure Members that the funds were in good hands. He requested that if there was any instance of suspicion of anything being wrong, they should please alert Sefa, and it would act decisively to intervene in that regard.

Regarding support for youth, Sefa agreed with Ms Winkler that it was not only about money -- it was also about support. Sefa knew that money was “very exciting” and could “get people to do the right thing.” When it approved funding for R10 million, it did not just write a cheque. In the case of an acquisition, there might be differences in how it moved the tranches. In the case of an expansion, for instance, it would support the roll-out of that programme, timed with the sequencing of the capital outlay that was required for that venture. Sefa made sure that if it dispensed the first tranche of the money, by the time someone got the second tranche, it wanted that person to account for what it should have covered the person for. It was not a free-for-all blank cheque. Sefa had a tight approach, and it put all the measures and governance processes (such as internal audit) in place to support it in tracking any possible malfeasance.

It committed that it would publish the recipients once the applications closed. The reality was that this was not a lot of money. In the case of a country where people were desperate for funding, and people believed that if they put up a presentation and a business plan, they would be funded, it would be important that the information was clear. Members should be mindful that Sefa was going to get a lot of criticism. The first thing that would come from the media was that R1.2 billion had been spent, and it had been spent very unfairly. The reality was that Sefa did not have R100 billion to fund the deficit that was there, which it had to cover. It would do its best, and it agreed that it should spread the money as much as possible. It was a fine balance between making a dent in transformation, but also making sure that it spreads the money geographically, as well as in terms of the players.

One thing that was not reflected in the presentation was that there would not be a case where one applicant would get approved in one fund and also approved in another. Somebody would not be able to double dip. If someone qualified, Sefa would give them approval for that funding once -- that person would not get into another fund. They were not there “to fund buddies,” but were there to fund people who deserved to be funded.

There were many initiatives to popularise the programme it. Sefa agreed with the PC on Small Business Development that its visibility in the market left much to be desired. There was a lot of work that needed to be done to improve the brand position of Sefa and to improve its visibility. It was a work in progress. There was dedicated funding that had been provided by the Minister of Tourism. Sefa was looking at ways it could do that, such as using radio, through interviews and other programmes, or using infographics in print media. It was doing its best to work on something that would assist.

Sefa was confident that it should be able to provide the necessary support, including the networks of co-locations that were spoken about. It would have to improve, and put more effort into working with municipalities, because the latter was the first point of contact, and if provided with information, the municipalities could help Sefa to popularise and facilitate access to the funding application process for people in those municipalities’ jurisdictions.

The DG had already dealt with dispute resolution, and as long as state entities had an attitude that they should work in collaboration in a cohesive manner, they should be able to move far. Sefa did think of a dispute -- there might be “glitches” that it would address. The key point for it to emphasise was how it would partner, and if parties would support each other where they fell short. It may encounter many other stakeholders it had maybe not considered at that stage, and ask if they would join and assist Sefa, and take the process forward. Perhaps on the market access side, there would be other players who might be thinking that they had a role. Sefa would be open to engage with them and see how best it could assist the applicants to make good progress with the scheme.

Sefa noted Mr Kruger’s point about red tape, and agreed that there would have been people who would have been dissatisfied before with how the process had been run. Institutions such as Sefa had over the years automated their processes. Sefa did not have automated processes yet. An automation process would deal with the initial elements of the application process, particularly an online application. Having an automated process relieves the burden on those who process the applications, enabling Sefa to process applications within a reasonable turnaround time. Not all applications were ready to be processed. Sefa may find that when a person submits an application, there were omissions that they made that may not be picked up, and it would add time because of the lack of agility within institutions. Sefa agreed that the process should be as fast and efficient as possible, to make sure that it helped people. It needed to be borne in mind that pressure would be put on it by the volume of applications and the need to be prudent, and that this may or may not result in delays. Sefa could not make careless mistakes. This would come on top of the normal business that Sefa did, so it had to balance everything at once, whilst giving priority to the applications, because it understood the urgency at which it was supposed to move.

Mr Jacobs had raised the issue of disabilities. He thanked Mr Jacobs for his words of encouragement and support.

Sefa agreed that it needs to be developmental. When it was developing the programme, the Minister had raised a critical point on heritage. Sefa agreed that tourism in South Africa had its own unique character through the history from which it had come, Sefa could not induce applications, but it hoped that there would be those with a heritage character. It agreed that the township economy was a development indicator that Sefa needed to respond to.

Mr Gumbi had asked about the number of jobs that would be created. The number of jobs Sefa intended to create was 5 016. That was the number it anticipated. It might be able to beat that number, but it could not foretell what the applications looked like. It understood tourism to be a “labour-absorbing sector,” so it believed that that was a reasonable number to put out there.

There was no agenda for crooked connections in Sefa. It processed an application when it came. If an application was strong enough to be funded -- it met the criteria that Sefa had set and the person demonstrated the ability to run the enterprise, it would provide funding if that person was a citizen who needs money and could create jobs. Mr Mahosi said he was mindful that there was a negative perception, but he thought that as South Africans, people should gradually begin to spread the message that there were people who wanted to do something positive. The economy could not recover with negative sentiment.

Ms Mathulelwa had raised the point about vulnerable people. Mr Mahosi emphasised that Sefa did not want to create the impression that the TEF was anchored on grants -- it must be a programme that was sustainable. Vulnerability would not, in the context of the programme, talk to potential sustainability. Those were two separate words. Vulnerable meant that one was talking about a rescue case, which probably did not fit into the profile of what Sefa was talking about. Sustainable, potential and positive indicators -- that was what Sefa was supposed to be funding. Without necessarily excluding anybody, it would be making sure that those that deserved it were funded.

The Chairperson invited a second round of questions.

Discussion

Mr P Moteka (EFF) said that many things had been said before -- the promises had been made before; the summits had been held before; and the economic indabas had been done before -- but “we were still here”. He hoped that the Department would produce positive results. He wanted to know how they would ensure that this initiative of positive intentions would bring results to the marginalised and neglected people in rural areas, villages, townships, and small towns. In line with the principles set by the Committee itself, the bias should go to the villages, townships and small towns. Looking at what had been presented, he did not see the requirements favouring those who were targeted by the Committee as the group of South Africans that deserved to be included in the economy.

The presentation had spoken about an inclusive economy. An inclusive economy needed to do things that had not been done before. One may become unpopular, but those were the things that one must expect, and one must face them when they come. Transformation was a disruption of those who were in a comfort zone -- those who were the beneficiaries of apartheid. Such people would fight, so let them fight while the process of transformation was happening.

He wanted to challenge the requirements which he said were not favouring new entrants, especially from those areas that the Committees were looking at -- the villages, townships and small towns. How would this new initiative differ from those that had failed to deliver before? He wanted to look at the resolutions of 2017, for example, the 51% of the procurement budget having to be biased towards black ownership. Did that happen? The answer was no. The reason was because the systems, the requirements and the selection criteria were not strictly stipulated and clear. What happened could not be repeated. All the slogans and summits had been done during “the 27 years of nothing.”

Was this a loan scheme, or was it a government initiative to fund those who were not equal to others? He saw that Sefa had brought in R120 million, and the rest was from Department, but there was a loan scheme within it. Was the government starting a loan scheme, or was Sefa bringing its own R120 million to run a loan scheme while administrating the funding of the Department? What the Committees wanted to see when it talked of villages, townships and small towns, was for the residents throughout the country who had never tasted the economic benefits of the new era, benefiting from this fund.

When he was looking at the requirements, he thought that they were completely excluding these people. One example was the 12-months of bank statements. Where was the new person, who still had to learn about these things, going to get a 12 months’ statement? He had heard that the Chairperson of Sefa was talking of sustainability and other things. Mr Mahosi had to bear in mind that the majority of the neglected communities did not have the potential that he was talking about. The Department had responsibility to go out and make sure that from those vulnerable areas, it also developed and funded people who would benefit from this good initiative.

The way to get there was very difficult because of the red tape that was in the requirements. His proposal was that if this fund was meant for transformation, the requirements must be redone. If one was looking at the requirements for funding from the banks for business loans, they were the same as the fund’s requirements. Government could not be run like a private bank. They needed to think of the people who had been turned away by the banks. They should put clear targets on which provinces, districts and villages were going to get what percentage of the funding, and how many people would be assisted, so that when the results were examined later, one see if they had been achieved. If matters were be left like they were, all those slogans and stories that came before would repeat themselves.

Ms P Mpushe (ANC) wrote in the chat box that she highly appreciated the opportunity being provided for small businesses, because they could not be small businesses forever -- they had to grow. She applauded the DT and Sefa for this initiative.

Ms Siwela said that since the Minister indicated it, it was important to say that there were differences among those who were trying to take the Department to court. The Committees was in support, because this programme sought to transform the inequality which was rife in society.

Ms Winkler said she appreciated that the Members’ concerns on clarity and transparency had been taken very seriously. Besides a list of the successful recipients, the Committees also needed a list of the applicants. Although the intentions may be very good, it was known that often vested interests interfered with candidate selection, so in the interests of ensuring that there were no challenges to how applicants were selected, perhaps one should also get a list that was open to scrutiny on all those who applied, as well as all those who had received funding. The last speaker had also made a very good point that if one was looking at transformation, there had to be serious transformation that included the rural areas, really getting those communities to benefit from tourism initiatives, and allowing them access into the economy. Incentives might also be included in the qualifying criteria, where one would get higher points, for instance, if one came from a rural community, if one was disabled, if one was a young person, if a person’s initiative was “green,” or if an initiative was climate resilient and spoke to adaptation.

Responses

Minister Kubayi-Ngubane responded to Mr Moteka’s question, and said the Department had committed to ensuring inclusivity. Since the advent of the Sixth Administration, it had not paid lip service to what it said. If one looked at how it was reworking its programmes to ensure impact, it was able to give an account to the PC on what it was doing and where. An example was the Minister’s domestic tourism activation campaign with the Deputy Minister. If one looked at the areas that the Department had prioritised, they were in the townships and rural communities, where it had promoted those facilities as part of domestic tourism. From the results of that campaign, one would see that the results were evident. As the Department was committing to the TEF, it would do its best to ensure that it implemented it within the prescripts that it had set to meet its obligations, in order to ensure that there was real transformation. Members needed to note that this was just R1.2 billion. The need in the tourism sector was “huge”. This was just the tip of the iceberg.

From the DT’s side, one of the things that it wanted to do related to why the Chairperson spoke about sustainability. It was grateful to Sefa and how it had developed the mechanism and structured this fund in a way that ensured sustainability, as it would be able to fund more that way. The way the fund had been structured now gave the Department an opportunity to say that if it was funding ten people, as it carried on it would be able to bring in another ten people. It gave the Department an opportunity to increase the numbers as it went along – it would not just do ten people, and then the fund was done. As those ten people made the repayment, the Department would be able to bring another ten on.

The Department was doing things differently to the banks. If one went to a bank as an entrepreneur, to seek funding for a business, the bank would ask if the person had surety, or if they had a guarantee. The Chairperson of Sefa had addressed the issue of financial statements. The Department also wanted people to take responsibility -- it could not just give money. It knew the history. There were lessons to be learned from how other schemes did not make it, because people who took money would buy a big BMW or go and buy a big house, and then the business was not sustainable. The Department did not want that. It wanted people who were serious about the business, who were going to commit to it, and would roll up their sleeves and appreciate that their government was supporting them. What the Department was doing compared to the banks, was that it was saying that it understood that if an applicant did not have surety, the rate of repayment to a bank would be difficult. The Department was assisting people to survive as entrepreneurs, so that they could build into their business, and therefore the repayment would be lower. That was why the Department was providing a portion of it as a grant. From the beginning, the Department had conceived of the fund this way -- it had included it as part of its APP, and it was always going to be a portion of a grant and a portion of a loan.

The added advantage of partnering with Sefa was bringing bank credit. The reason why it was important for the banks to come in was for the credit facility. When the Department did the review of the credit guarantee scheme, it realised that the majority of the black businesses did not qualify because they did not have a relationship with a bank. The banks did not know about these businesses. The Department was introducing these beneficiaries to having access to a banking facility, and building a relationship with the bank. What this would do for a person who had been very successful and wanted to expand the business, was that they would not have to wait for the government and another TEF, because they might not qualify, but it would give them an opportunity to go to the bank that they now had a relationship with, where it would be easy to access the expansion facilities, because they have built that relationship.

The fund was conceptualised to assist, and for sustainability, not only in terms of finances, but also in regard to non-financial support. It addressed what Mr Moteka had been saying, that there was a person from a rural area who might find it difficult to run a business. The Sefa and SEDA partnership that was giving non-financial support provided the opportunity to mentor the person as an entrepreneur -- as an entrant to the tourism space -- in order to have a successful business. The DT was responding to those issues that Mr Moteka had raised in terms of real transformation to ensure that what it was doing spoke to all the engagements the Department had had in the past with the PC, as well as what society and the majority of South Africans had been saying to the government.

There was no need for the Department to review the facility now. It must allow the facility to be implemented in terms of the criteria that the Department had established, and be committed to learn lessons. The Chairperson of Sefa had said that Sefa would provide the Department with quarterly reports. Quarterly reports would encompass the Department’s reporting to the PC. This spoke to what Ms Winkler had been talking about, where the Department would account in terms of the performance of the fund quarterly, as required by the legislation. With accountability, the Department should not create new things that were going to complicate the system. It had an accounting mechanism between the Executive and the Legislature, and within that framework, the accounting mechanism allowed for Parliament to play its oversight role, and for the Executive to report and account.

As a former chairperson of a PC, the team knows that she was very particular about respecting the PC and ensuring that the Department was able to account. The DT would provide the necessary reports to the PC, and was clear that the reports it would provide would comply with the law. It would not give reports that infringed on an individual’s right to privacy, for example. The Department would have to ensure that it protected businesses, because they were in a competitive environment. Within the confines of what the Department was allowed to do and what it was able to do, it would provide the necessary information as it accounts to the PC.

The Minister had heard the message from the Members that the TEF was necessary and needed to be implemented. There would be bottlenecks from time to time, based on its experience, and any red tape issues had to be resolved to ensure that one simplified the process.

One of the issues of feedback she wanted to address was when the Department did the tourism relief fund, it had been assumed that everybody had access to the internet, or that people were going to upload on the internet. With this fund, the presence of Sefa in the provinces allowed the Department an opportunity to be more accessible even in the remote rural areas. The Department was committed to implementing this programme. It had been ready from day one, in terms of understanding based on the previous challenge of the introduction of the TEF, its support of the tourism relief fund, and the challenge of BEE.

The DT had won the court cases brought against it. It had started preparing. It had been engaging with state law advisors, though it was not yet in agreement with them, because it initially wanted to assemble a legal team upfront and go through the process with it should it go to court. It did not want court action to derail the project. It would do its best within the confines of the law to ensure that this was not derailed. She assured Members that the Department was preparing itself for getting the right people who understand BEE and the need for people who were experts in this area. It had been overwhelmed by support from South Africans from the day it was announced that AfriForum and Solidarity were likely to take the Department to court. Many legal minds were saying that they were willing to come on board to support the Department, because they believed that this was a just cause that it needed to take on. The Department was “truly humbled”, and appreciated the support from all South Africans across all race groups. There were many who said that they thought it was a misunderstanding. There was an organisation from the Eastern Cape that had said it wanted to assist her in communicating, and that if it was perhaps said by them, many would understand what it meant, as some might think she was just a black minister who was “racist. The organisation wanted to assist as white people who understood the importance of this transformation. The Minister said that her door was open for them, and those organisations who had reached out to engage. There were some who were asking how this fund worked. As the Department had explained, it realised that people were confused. Some people had got the wrong message.

The Chairperson thanked the Minister. On behalf of the PC on Tourism, she appreciated the engagement with both the Department and Sefa.

The PC extended congratulations to the new DDG, Ms Setwaba. She had been responsible for what was previously the domestic tourism programme, and which was now Tourism Sector Support. The PC looked forward to working with her

SoNA: tourism insights

The Chairperson called on Dr Sibusiso Khuzwayo, PC Tourism Content Advisor, to take the PC through the analysis on the State of the Nation Address (SoNA).

Dr Khuzwayo said that Ms Sisanda Loni, Committee Researcher, would be presenting.

Ms Loni said the focus of the presentation would primarily be on some of the issues raised during the SoNA that related to tourism.

Tourism Statistics

Ms Loni said the numbers for the past few years had been very good. However, with the impact of the pandemic, the statistics were looking at how tourist arrivals worldwide actually grew by 4%, reaching about R1.5 billion in international tourist arrivals across the world. This translated to about R81.9 billion in terms of total foreign direct spending, which was quite significant. Good numbers had also been witnessed in 2018, with about 1.5 million jobs created by the sector, both direct and indirect, and one was looking at about an 8.6% contribution to the country's GDP. These numbers basically made South Africa one of the largest tourism economies in Africa.

With the outbreak of the coronavirus, many countries or governments across the world had shifted their focus from international tourism to domestic tourism. Domestic tourism had always been the “stepchild” of the tourism industry. Now a lot more countries were starting to look at how they could actually invest more within the domestic tourism market, and were essentially seeing it as a driver of recovery for the tourism sector across the world. This could actually also be evidenced by local statistics, which show the value of this particular market to South Africa from April 2019 to February 2020. About 28.2 million overnight domestic trips were taken. This was a significant growth on the previous year. People were spending about three nights at destinations. This added up to about 86.7 million bed nights, which was more than was recorded in the previous year. What that tells the Committee and the country was the fact that this was quite a significant market for tourism in South Africa. There was a lot of potential there, and in terms of its bias towards villages, townships and small dorpies (VTSDs), the Committee was not amiss in seeking more funding and more marketing activities to be directed towards these particular markets. The potential was there, and a lot more could be derived from this particular market focus.

Ms Loni provided an outline of the changes and numbers when it came to domestic tourism performance. These numbers were actually available from the South African Tourism dashboard. In 2019, South Africa recorded about 28 million total domestic trips, but this had decreased drastically. In 2020, it had gone down to about nine million total domestic trips that were taken by South Africans. That had affected spending as well, and a consequent decrease. These numbers needed to be closely monitored, especially if one was looking at domestic tourism as a driver in terms of recovery of the sector.

Tourism Budget

As explained by the Department and Sefa, something that would continue to be a problem over time was ensuring that the Tourism Equity Fund reached the targeted numbers. This comment was made in view of what had happened last year. The Department also had a tourism transformation fund that it had introduced, and it had been running for a number of years. However, what had been seen there was that in terms of distributing funds, the numbers were not necessarily very good. For instance, in 2019, out of R40 million that was allocated towards that fund, only R2 million was actually distributed within the financial year. That was a significantly low number, compared to what was envisaged. The hope was that it would not be the same with the TEF.

UIF Scheme

The UIF scheme had been extended, which was welcomed by the sector. However, the President had mentioned that the sectors that would benefit from this extension were still to be announced. It was hoped that the tourism sector, which had been adversely affected by COVID-19, would be included in that regard. The scheme had been provided temporary relief to a lot of workers within the tourism industry. However, the advent of the second wave had had an impact on tourism, especially with regard to a lot of attraction sites that had closed down during one of the busiest tourism periods. There were predictions of a third wave, and a lot of headlines had been coming out with regard to that. Those predictions were premised on global trends. For the tourism sector, this indicated a rocky road ahead for this particular year. The hope was that schemes like these would be extended beyond March 2021.

Roll-out of e-Visas

This was something that the sector welcomed, especially as it had been a thorn in its side for a number of years. One problem was that was that South Africa, in terms of its openness as a country, was ranked quite low on the Africa Visa Openness Index. In 2019, it ranked 34th out of 54 countries. South Africa was not necessarily as open as it would like to be, compared to the rest of Africa, and that meant that it restricted how much South Africa could benefit from markets that were willing, or wanted, to come into the country. The roll-out of e-visas from these countries that had been mentioned by the Department of Home Affairs was welcome. However, it would be prudent for the Committee to make sure that there was clarity when it came to timelines in terms of when this would actually happen in view of the current market and also, at the same time, ensuring that there was capacity within the different offices that would be serving these travelers into the country, to ensure that people's applications were processed as efficiently as possible.

Another issue to highlight was with regard to the marketing and optimising this opportunity of markets coming into the country, by ensuring that the marketing was actually biased towards the VTSDs. In the past, as one had seen and continued to see, marketing efforts were continuously skewed towards major cities and towns.

District Development Model

Although this was not necessarily focused on tourism in the SoNA speech, it was a current focus of government and the way forward. It had a number of impacts for tourism development at the local government level. The Committee had met with the Department of Cooperative Governance and Traditional Affairs (CoGTA) on 24 November last year to engage on how this model would effectively benefit tourism overall. It was known that there were challenges that the tourism industry had with local government in terms of service delivery and a lack of a conducive environment for business development and growth. The key here was to encourage the Committee to continuously engage with not only CoGTA, but also the Department of Tourism, because in the APP it did mention that it would be developing tourism implementation plans that would be aligned to the district development model. It was vital that the Committee keep track of and monitor this to ensure it would benefit businesses on the ground and communities at large, especially community-based organisations, and how these would be able to effectively use this to grow and ensure sustainability.

Creating a Conducive Environment for Business

This was not a new issue. It was something that had been there and was actually mentioned in the 2019 SoNA. There were many issues around creating a conducive environment for development, specifically with regard to tourism. However, the one that was very important and continued to be important was the issue around tour operator permits, which continued to be a challenge to the sector, and the need to ensure that these were dealt with efficiently. This continued to be a problem, and engagements were still ongoing. This was something that the Committee also needed to monitor and ensure that it was resolved, especially at a time when a lot of businesses were closing down. One did not need more red tape or bureaucracy to serve as hindrances when people were just trying to survive day by day.

Another challenge with regard to this was also with regard to the electricity supply shortfall that had been predicted. That in itself would continue to pose a challenge for both the emerging as well as the established businesses in the sector.

Impact of Climate Change on the Sector

Climate change continued to pose a threat to the tourism industry’s sustainability. Tourism packages in the country were highly dependent on a number of natural resources. These were vulnerable to the impact of climate change, especially if one was looking at the VTSDs around the country. The recent cyclone also showed how vulnerable to Mother Nature South Africa’s destinations could be. In 2011, the Department had published the National Tourism and Climate Change Response Programme and Action Plan. This was something that the Committee needed to pick up with the Department going forward, to ensure that destinations were crisis ready for events of this nature, and what collaborations were in place between local governments, disaster management units, the Department of Environment, Forestry and Fisheries, etc. to ensure that when things of this nature occurred, what systems would kick in to ensure that South Africa’s tourism products were protected.

Vaccination Roll-out Programme

South Africa was currently sitting with the South African COVID-19 variant, which had created a very negative narrative for the country. This was not good for brand management issues around tourism. This was something where Brand South Africa, as well as South African Tourism, needed to conduct a robust global public relations (PR) exercise to counteract this particular negative narrative for the country. The focus should rather be more on the efficiencies and capabilities of South Africa’s medical fraternity, instead of using this particular term to fuel Afrophobia, which was evident in the term “South African COVID-19 variant,” which was not necessarily the case because it had been diagnosed in other countries without some of those people actually having traveled to South Africa. This was something that really needed attention from the South African side. There was also a point on the efficient rollout of the vaccination program, especially to ensure that perceptions regarding the country's safety improved, and also to deal with issues around the international travel bans that had been instituted against the country.

Those points were suggestions of what the Committee might need to focus on going forward and ensuring that in this time of COVID-19 or a “new normal,” the country was able to find pockets of growth and recovery, and maximised the opportunities that were there.

A last point was with regard to the pending changes with the re-evaluation of mandates for state-owned enterprises (SOEs), as this had a specific impact on their own entity as a Committee, and that of South African Tourism.

Discussion

Mr Sithole said that the Committee should appreciate the analysis from Ms Loni. He thought it might be unfair for Members could discuss it, because it was analysis. He asked if the Committee could discuss the analysis next week.

The Chairperson said that his comment was taken. The suggestion from Mr Sithole was that Members accept the analysis as presented to it, and then go further to consume it in their own time, and then engage with the analysis in the next meeting if time permitted.

Ms Mpushe commended the presentation, and seconded the proposal to note the analysis for discussion in the next meeting.

The meeting was adjourned.

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