Tourism Empowerment Council of South Africa: discussions

Meeting report

Tourism Empowerment Council of South Africa (TECSA) Briefing
Mr Tami Sokutu, Chairperson, Tourism Empowerment Council of South Africa, briefed the Committee on the state of transformation in the tourism industry. Even though tourism was one of the fastest growing sectors in the economy, the industry did not see it as a priority. Therefore, TECSA needed the government to drive the promotion of SA as a tourist destination in overseas markets, promote tourism domestically, to support the needs of small start-up companies and to increase funding within the tourism industry.

The Council was mandated to facilitate communication of the tourism Charter and to facilitate implementation of programmes to fast track Broad Based Black Economic Empowerment (BBBEE) in the sector to ensure a favourable environment for BEE to flourish. TECSA’s goal was to encourage the private sector to achieve Tourism BEE Charter targets and to report on the sector’s achievements, and to influence organs of State to act in accordance with the Tourism BEE Charter and use their buying power to support empowered entities. Currently, TECSA had major BBBEE deals with Peermont/MIC, City Lodge/Vuwa, Tourvest, Tsogo Sun and Southern Sun.

Some of TECSAs achievements included the development of the self-assessment tool, a completed study on funding and advisory services and the successful alignment of the charter scorecard with the Department of Trade and Industry’s Codes of Good Practice.

TECSA faced challenges such as the cost of verification agencies for Small Medium and Micro Enterprises (SMMEs) that made up the majority of the industry, and lack of access to finance by black entrepreneurs. Provincial government strategies were uncoordinated and did not take tourism sector codes into consideration. The skills shortage resulted in difficulties in sourcing and retaining qualified Black Economic Empowerment (BEE) candidates. 

Mr Dennis George, the General Secretary for TECSA, addressed the issue of funding for small businesses. He stated that, from a labour point of view, the tourism industry was very difficult to organise. Entrepreneurs in the tourism sector told the Council that they were entirely on their own when it came to funding. Even if they received funding, the transaction costs were too high. This was a challenge for small businesses. Something had to be done to help entrepreneurs if the government wanted to see transformation in tourism. He informed the Committee that some banks, such as Nedbank, had proposed a campaign where they would help small businesses that were younger than two years. The Council needed to do a specific study on the cost of the funding and they needed to look at what could be done to address the particular challenges that small businesses faced. He added that there was a study that was done by the Organisation for Economic Cooperation and Development (OECD) on the BEE issues and other challenges that South Africa faced. He informed Members that they could download this from the OECD website. The study showed that there were areas in the economy that needed a lot more attention, such as finance and human resource development. He knew that the government was working on a new document called the Human Resource Development Strategy for 2010-2014; however, the education system in the country did not provide enough people with the proper skills. Skills levies benefited the country because once citizens became empowered; they paid back the investment that civil society made in them by paying taxes as active participants in the economy.

Mr Jeffrey Ndumo, a member of TECSA, added that it was very expensive to do business in South Africa because the cost of obtaining capital was too high. The Council made sure, particularly on the BEE side, that it provided certain exemptions to some tourism businesses. The Charter stated explicitly that there were a few companies that were expected to meet BEE standards, such as large and medium enterprises. Many small and micro enterprises could be exempted from complying with BEE standards, depending on their turnover. The Council wanted to be clear that in terms of performance in BEE, a number of small businesses would be exempted from meeting BEE standards if their turnover was less than R5 million. The businesses that would be exempted would enjoy an automatic level 4 recognition in terms of BEE performance. The “levels of performance” were articulated in the Codes of Good Practice and ranged from level 1 to level 8. Level 1 meant that a business was doing extremely well in terms of meeting BEE requirements. Therefore, if a company had a level 4 recognition it meant that the company was performing adequately and would enjoy a 60% benefit on the scorecard. 60% of Small Medium and Micro Enterprises (SMMEs) would not be engaged in BEE in the tourism sector.

There was still a challenge that was impacting on transformation of tourism in South Africa. This was around the relationship between the Codes of Good Practice and the Public Procurement Act in South Africa. Some entities, particularly those that needed to reform, had realised that the Public Procurement Act did not require broad based ownership or BEE to be implemented. The Act was narrowly based and only looked at ownership and management as a requirement to meet BEE standards. Therefore, these companies were not playing their role in the transformation of tourism. The Council was working with the National Treasury and the Department of Trade and Industry to ensure that these companies played their particular roles.

Ms Anitha Soni, Deputy Chairperson of TECSA, stated that the Council had been grappling with certain issues ever since they brought all the stakeholders together to negotiate the scorecard on tourism. It was clear that people saw transformation in tourism as something that was “nice to do” rather than an imperative. Transformation would constantly be pushed to the side. TECSA had adopted a tourism growth strategy so that they could transform the industry. As a result, all the work that was done by various entities was driven by the idea of transformation. TECSA was the only institution within the tourism sector that drove the industry. Transformation in tourism had to be seen as everybody’s business. There were assets, such as national parks, that belonged to the people of the country and that could be used to drive the transformation agenda. She wondered how to put a programme of action in place that spoke to the objectives that TECSA needed to monitor and report on. TECSA’s role was to watch how transformation was taking place and to monitor and report on the findings, but it was everybody’s role to drive transformation. The one thing that TECSA was aware of was that transformation would only work in the sector if people supported sustainable and demand-driven businesses.

Ms Sindiswa Nhlumayo, Deputy-Director General for TECSA, added that people needed to think about why they needed transformation in South Africa as a starting point. They then needed to think about what was happening in the tourism sector. She knew that figures showed that the tourism sector had grown. However, people needed to interrogate these figures, as the reality was that South Africa still got the same tourists that it used to get in the past. People coming into the country were not interested in the new products that were being brought out. The country had to look at transformation in tourism from an integrated point of view. They had to look at whether the country was being marketed in the way that ensured that the types of tourists that came to the country would be interested in the type of products that would be offered by the country. For transformation to happen, there had to be different players playing different roles. The Committee had to talk about how they could grow the economy if they wanted to move forward and transform the tourism industry. 

Discussion
Mr D Maluleke (ANC) stated that people were not able to utilise their own initiative to ensure that they were able to put bread on the table. For example, Soweto was a tourist destination, but when tourists came to Soweto all they did was take pictures and then leave. The people of Soweto wanted tourists to spend the night in Soweto and to spend their money there. He wanted to know what TECSA was doing to ensure that disadvantaged markets were prepared for the tourists that visited them. He wondered if disadvantaged communities would benefit from 2010.

Ms Beulah Mosupye, Acting Chief Executive Officer for TECSA, stated that TECSA had partners that they worked with that assisted them in delivering on the tourism scorecard. One of these partners was the Tourism Enterprise Partnership (TEP). One of the projects that TECSA had with the TEP focused on precisely the matter raised by Mr Maluleke. According to the scorecard and enterprise development, companies were supposed to spend at least 3% of their net profit after tax on enterprise development. Enterprise development was the TEP main objective. One of the challenges was having insufficient finance to develop various enterprises. TECSA was in discussions with the TEP about TECSA’s role as a facilitator of transformation, and how TECSA could lead enterprises to private sector funders. TECSA was looking at having an enterprise development fund where 3% of some companies’ net profit after tax would be set aside for empowered establishments in the tourism sector. The fund would identify businesses that could benefit from the money. The current strategy that was used was identifying the key challenge that most black-owned enterprises faced, which was the access to markets. Usually single guesthouses were being offered. The new strategy would put the various guesthouses and products into clusters and market them to international tour operators. In this way, when people were looking for accommodation in a certain area, they would instantly know where there were rooms available. This system would show what the community had to offer and made it more attractive for people to start seeing certain areas as areas in which to stay over and spend their money. TECSA could not be directly involved in this process, but they were looking at ensuring that the private sector stakeholders channelled their money to TEP to allow for the clusters to be developed. 

Mr Frank Kilbourn, Chairperson of the Audit Committee, TECSA, stated that one international hotel group opened in Soweto recently and that five other holiday chains were building hotels in Soweto. These major holiday inns had the power to get tourists to stay in that area. This allowed smaller entrepreneurs also to establish enterprises in the area that would feed off the major hotel chains. Tourists tended to stay at the major hotels for their first visit and then looked at other local hotels and guesthouses for their second visit. This would transfer economic benefits into the area. 

Mr Eddy Khosa, Member of the council of TECSA, added that when tourists visited places like Soweto they were expected to purchase goods but there was nothing to buy. Many of the goods came from places such as Zimbabwe and the Democratic Republic of Congo, not from local manufacture. Most people undermined the responsibility of tourism development. The country had to ensure that it created products that tourists could buy. Mr Khosa wondered what structures provincial and local governments put in townships to ensure that tourists spent their money there. 

Mr I Julies (DA) noted that there were difficulties in finding finance, but said that the businesses that found funding had inadequate success rates. The government had to take BEE companies and lead them until they were powerful enough to stand on their own feet.

Mr Sokutu stated a bigger problem than access to funding was the failure rate of small entrepreneurs. Looking at the lifecycle of small businesses was probably going to be the key to success in South Africa. It was important to look at the financial readiness of companies and their ability to use the funds as a successful entrepreneur. In order for TECSA to have any chance of succeeding, they needed to focus better.

Mr G Morgan (DA) commented that tourism contributed about 8.4% to the country’s Gross Domestic Product (GDP) and had tremendous potential for growth. He wanted to discuss the issues of creating drivers and supply in the tourism sector, as these two issues needed to go together in any discussion. Mr Morgan realised that the tourism industry was heavily decentralised, but said that many of the products, whether advertised domestically or internationally,  that were offered were too similar. There needed to be more work in driving tourism in different areas and to enterprises that were majority black owned.

Mr Morgan informed the Committee that he had questioned every single Minister on his or her department’s use of graded establishments in South Africa. He stated that the results were astonishing. The Government itself was not using graded establishments in South Africa. Grading included issues of transformation as well. He questioned the Grading Council about this, however he noted that there were issues of flexibility, as there were always limitations.

Mr Morgan agreed that the State owned national parks should be put to better use. There were only two national parks in South Africa that were financially viable. Every other park in South Africa had to be cross subsidised. The “gate-takings” at these parks were poor and were not enough to sustain them. National Parks were public assets but commercialisation of products within parks was very skewed towards certain parks only. Those parks that did not have high “gate-takings” could look at domestic tourism, adventure activities or could be used to create drivers to an asset that was not being used nearly enough in South Africa.

Mr Morgan said the cost of capital and the corresponding regulations were challenges that all small businesses had to face. He wondered if there was an opportunity for the so-called “one stop shop” that could be syndicated around South Africa. One of the comments raised was that there was a lack of information, “hand-holding” and negotiating with banks. The “one stop shop” seemed like a viable way and a good source of public money because of the potential to negotiate ways through regulations and accumulating capital. He wanted to hear some comments from the Tourism, Hospitality and Sport Education Training Authority (THETA) and wondered if it was possible that skills training could be magnified with better use of the skills levy. He noted that the Council had a noble mandate. There were many competing interests in South Africa and there were unique products that the country had barely begun to grow. He wondered if there was a role for some members to take a more activist stance on certain decisions. He asked this question because he was looking at the Minister of Minerals and Energy’s recent decision to mine the Wild Coast. The considered position of the Department and the Minister of Environmental Affairs and Tourism was that tourism was a sustainable industry that could create thousands of jobs. The Minister of Minerals and Energy; however, had pursued the mining license, which would create 250 jobs or so. Even though he respected that there would sometimes be conflict between different government departments, he wondered if there was a role for activism in this regard. The Council could say that this was a part of South Africa that had not reached its potential and would now possibly never do so.

Mr Muzi Mwandla, Tourism Chamber Coordinator for THETA, stated that there was an important relationship between skills development and BEE. THETA had enterprises that provided training avenues for skills development. The way that THETA defined and looked at existing enterprises differed from the way that the Department of Trade and Industry (dti) looked at enterprises. THETA looked at SMMEs by their payroll and whether they were exempted from paying their skills levies, and they were also defined by looking at the number of employees working for the particular enterprise. When THETA took stock of enterprises it showed that there were over 40 000 enterprises in the tourism sector of which 20 000 were registered with THETA. Out of the 20 000 registered enterprises there were about 1 000 enterprises that participated in skills development. Therefore, there was a small fraction of the R159 billion generated by the industry being allocated to skills training. 98% of the tourism industry consisted of SMMEs and they were exempted from paying the skills levy.

To date, this year, THETA received 10 000 applications asking for learnership placements but the THETA could only fund about 1 000 people. There were learnership programmes and various projects in place that addressed skills development issues but there was insufficient funding for the projects. There was also insufficient capacity and resources to distribute the funds that THETA had. The way that the Department of Labour (DoL) designed the levy model said that THETA could only use 10% of their income to administer and to do everything else that they needed to do. This resulted in the THETA having capacity issues.

The Chairperson noted that 60% of the players in the tourism industry were not supposed to be involved in BEE implementation. He wanted to know how much revenue these businesses generated. He also noted that a very small percentage of players controlled 70% of the industry. He wanted to know if that 70% was driven by domestic or international tourism. The Chairperson wanted to know why there was not “handholding” in South Africa, as there were wonderful examples of conditional handholding throughout the world. He also asked if TECSA had a sense of determining the kind of tourist that visited South Africa.

Mr Ndumo stated that 20% of the players in the sector controlled 70 to 80% of the industry. Most of these entities were making moderate to good profits. The rest of the industry constituted small, medium and micro enterprises. 60% of the small, medium and micro enterprises fell within the ambit of making a profit of R5 million revenue and below per year. They qualified, according to the scorecard, to be exempt from BEE requirements.

He stated that the generic Codes of Good Practice could never capture BEE funding, it could only be expressed by the sector codes. The sector code could tell of the amount of money that was available to fund empowerment in South Africa.

Mr Ndumo stated that “handholding” was never something that the country invested in. There was an agency called the Small Enterprise Development Agency (SEDA) that could play this role, but it was never given enough resources. He thought that SEDA needed to be given much more resources, as it had to deal with small businesses in every sector of the economy and therefore its requirements were great.

Mr Sokutu stated that there were examples of “handholding” in certain government departments, but there was no systematic way in which it was done or monitoring of the lifecycles of small business entrepreneurs. The Tourism Enterprise Partnership’s purpose was to promote the development of small business entrepreneurs within tourism. There were other institutions working toward transformation in tourism.

Ms Nhlumayo informed the Committee that tourism contributed R159 billion to the country’s economy. Therefore, it meant that 20% of R159 billion was the contribution of the smaller players to the economy.

Mr I Cachalia (ANC) asked TECSA to elaborate on the obstacles identified amongst the lack of foreign languages and foreign infrastructure.

Ms C Zikalala (IFP) wanted to know how TECSA was formed. She also noted that women representation in the Council was not up to standard. She added that it was everybody’s duty to educate the people of South Africa and to tell them what products they should prepare and sell to tourists.

Mr Sokutu answered that TECSA was formed in October 2005 at the government’s initiative. The people who were appointed to TECSA were appointed in their individual capacity. The Minister also wanted to ensure that the members came from diverse backgrounds and disciplines, and they were to exercise objectivity and independence of mind. TECSA was the first council that was formed by government in terms of the Tourism BEE Charter. There was an executive arm that was responsible for day-to-day activities and projects. All of the council members had fulltime jobs elsewhere so they were all non-executive members. TECSA operated as a business unit in tourism and reported to the Minister directly.

Ms P Sekgobela (ANC) stated that there were many women who wanted to enter the industry but did not have any way of getting in. It was also very difficult for women from rural areas to find a way into the industry.    

The Chairperson stated that TECSA had to ascertain how much the government spent on hospitality. TECSA could come up with a model or measuring tool that would ensure that small and medium businesses benefited in the hospitality industry.

Mr Sokutu stated that government, for many years, had not provided sufficient funding for projects that were supposed to be undertaken by small or medium enterprises. Government had always refused to put the necessary resourcing behind the objectives that they wanted the enterprises to meet, and TECSA too was inadequately resourced to do what it was supposed to do.

Mr Sokutu added that government spent between R3 billion and R4 billion a year on travel and public sector related services per annum. He stated that TECSA probably had to understand the patterns of expenditure in government so that they could follow the spending patterns. TECSA could look at the sectors that the government spent on and make recommendations accordingly.

Ms Mosupye stated that TECSA’s public sector liaison manager looked at how much government departments spent on procuring empowered products, and how broad-based they were in terms of BEE. 

Ms Mosupye stated that there were many things that TECSA was trying to do to address many of the issues that were raised by the Committee. They were very aware of the problems given TECSA’s limited capacity.

Mr Kilbourn stated that when discussing transformation in tourism, the Committee had to look at transformation of existing businesses, and also at bringing new products to the market that would transform the face of the tourism business. The more profitable businesses were, the stricter the requirements on them should become. It took TECSA 18 months to develop the scorecard. Out of the 20% of the total enterprises in tourism that controlled 70 to 80% of the industry, most had implemented BEE, enterprise development, and had management programmes in place. The difficulty that the country faced was that the bottom end of the market found it challenging to implement BEE requirements. TECSA had asked a service provider to do a detailed evaluation on the funding options available for the tourism industry. This found that very few banks in the financial institution had dedicated departments that dealt with tourism businesses. Smaller businesses received funding via home loans rather than getting funding as tourism enterprises. In many instances it was found that banks worried about the profitability of those tourism enterprises, so a demonstration to the financial institutions of how much money tourism actually generated would help the banks to have more dedicated tourism departments. The second concern was the lack of inherent profitability as a lot of tourism businesses looked attractive but they did not make much money.

In order to transform the face of the tourism industry, the Tourism Board had to work hand-in-hand with TECSA, Department of Environmental Affairs and Tourism (DEAT) and the Department of Trade and Industry (dti). From a marketing point of view, more exposure had to be given to products than established businesses. The standard of the products had to match people’s expectations. He stated that the split between international tourism and domestic tourism was about equal. International tourism was powerful because it meant there was new money coming in to the country, whereas domestic tourism just meant that the country’s money was moving from one form of spending to another within the economy. Much the actual value that was created in the country was created by foreign tourism. SA Tourism had been driving the demand for authentic South African products.

Mr Kilbourn stated that in the past there was a dti scheme that facilitated investment in rural areas, where they would receive a certain percentage of the capital that the tourists spent. He knew of a certain number of tourism enterprises that used this incentive to establish hotels. This created many job opportunities. If certain products were linked to BEE requirements then it would help the country to develop quality products and it would also give small enterprises the necessary incentive to spend capital and produce goods. SA Tourism needed a greater budget so that it could spend more money on issues that were very important to the country. South Africa’s contribution to the demand for products that needed to be marketed in a very competitive international market place was declining. SA Tourism’s ability to work with TECSA and to market new products was declining simultaneously. To have more successful black-owned businesses, the country needed intervention from the government, the dti and DEAT.

Mr Khosa stated that there were a lot of people in townships who were interested in running guesthouses but that occupancy of the guesthouses was low. The position of bed and breakfasts as well as guesthouses was important. He informed the Committee that it also had to look at the people who were involved in the restaurant and transport or tour operating businesses. The licensing process was a problem, as it took too long, and often led to repossession of the vehicles before those licences were received. The re-zoning process was a nightmare as well. Local structures needed to ensure that there was consistency in terms of the licensing processes. People would not be able to benefit from 2010 without licenses. It was important that the systems responded to the transformation agenda.

Mr Maluleke noted that South Africa was blessed because it had human resources. Unfortunately, even if South Africans had the skills that were needed, they did not have the knowledge and businesses perspective to approach banks for loans to start businesses. There were also a lot of people in the country with Master in Business Administration (MBA) degrees yet were unemployed. These people should be showing others how to draw up business plans. Government needed to lead by example.

Ms Nhlumayo stated that without addressing the fundamentals, the sector would not move forward. The country needed to build the industry, to build and diversify products that were on offer and to broaden marketing; however, if the sector were not funded then this would not happen. TECSA had a meeting with the National Treasury the previous week and were told that the only additional funding that the Treasury had would go toward Eskom and the 2010 FIFA World Cup. There was no way that TECSA could transform the sector with the budget that they received. TECSA had engaged with representatives from Singapore who told them how they had capitalised on their service excellence. The lesson that South Africa needed to learn was that everything happened by design; however, if this was not funded then there would not be transformation. Singapore capitalised on using people by developing the service industry. Their government invested in this strategy and it worked. South Africa needed the government to put mechanisms in place so that there could be transformation in tourism. The Committee had to look at whether funding for the tourism sector was adequate to take the country to where it wanted to be. 

Mr Sokutu stated that TECSA had discussed a number of issues that were raised in the meeting year after year. Unfortunately, there was not much movement forward. TECSA would take the Committee’s recommendations forward.

The Chairperson commented that TECSA needed to look at a forum for black people who were affected by tourism. The government needed to know who they were and to engage with them. He added that if TECSA was having problems with the National Treasury then they should come to the Committee, as it was possible to try to amend the Money Bill and TECSA might just receive the money that they needed. The Treasury should explain why this labour-intensive sector was not being supported.

The meeting was adjourned.