Ina Opperman
Business Journalist
5 minute read
27 Jan 2021
10:57 am

Tourism Equity Fund launched amid worst time for sector

Ina Opperman

'This partnership between government, public entities and commercial banks is a great example of the kind of collaboration that is required as we forge a path towards a sustainable economic recovery.' - President Cyril Ramaphosa.

Table Mountain in Cape Town. Picture: iStock.

The Tourism Equity Fund (TEF) was launched on Tuesday amid the worst time for the tourism sector ever experienced in South Africa and the world due to the pandemic, on the same day StatsSA reported that 88,6% less overseas tourists visited South Africa in November and beaches in the country remain closed.

The fund is a collaborative initiative between the department of tourism and the Small Enterprise Finance Agency (Sefa). It forms part of South Africa’s Economic Reconstruction and Recovery Plan and is aimed at driving transformation by advancing equitable opportunities in the sector to ensure inclusive economic growth.

The Department of Tourism will provide initial funding of R540 million to the project, which will be matched with a contribution of R120 million from the Sefa and R594 million from commercial banks, amounting to seed capital of R1.2 billion.

Speaking at the virtual launch of the fund, President Cyril Ramaphosa said the fund is “transformation in action”.

“This launch is taking place when the tourism industry is admittedly facing severe challenges. The nature of the pandemic, together with restrictions to protect public health, has dramatically impacted the tourism industry negatively: from the smallest bed and breakfast to major hotel chains, from local tour companies to airlines.”

He pointed out that the World Travel and Tourism Council 2020 recovery scenarios project that global travel and tourism will have experienced losses of over $2 billion in the best case scenario, and as much as $5.5 billion in a worst case scenario.

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Tourism directly accounts for 2.9% of South Africa’s gross domestic product (GDP) and 8.6% indirectly and supports about 1.5 million direct and indirect jobs.

“But this is not nearly enough. South Africa’s tourism base is significant, and we are one of the world’s most popular long-haul destinations.”

Ramaphosa said the tourism sector is labour-intensive and therefore has immense job creation potential, that supports a vibrant and complex value chain, generates foreign direct investment and significant export earnings and stimulates and supports the development of small businesses.

“Overall the tourism sector is among those with the greatest potential for long-term sustainable economic growth. It is also one of the economic segments that can play a pivotal role in transforming the economy and contributing to changing patterns of ownership, management and control.

“If the tourism sector is to play its role in aiding the economic recovery in the wake of Covid-19, it must grow and transform. This effort is going to contribute to this sector growing, but at the same time it must transform,” he said.

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Federated Hospitality Association of South Africa (Fedhasa) national chairperson, Rosemary Anderson, said the association welcomed the initiative to assist South Africans to enter the hospitality and tourism space.

“We hope the mentoring in this initiative will produce sustainable results so that the businesses started are successful, grow to good heights and create more jobs so as to contribute to our fragile economy.

“As Fedhasa we are really glad this sector is starting to receive the attention it deserves. Now our sector must just to try to survive the current restrictions and pending long journey ahead of recovery.”

She said if there ever was a silver bullet for South Africa’s economic woes, the most cost effective option would be to boost international tourism and hospitality.

“There is no cost in building anything directly related to the industry  – since we were gifted with our natural beauty, sterling attractions and wild life and we already have an abundance of hospitality and tourism infrastructure. We have so much untapped potential as a country.”

TEF objectives

The objectives of the TEF are to:

  • fund commercially viable and sustainable majority black-owned (minimum 51%) tourism enterprises, including those in rural areas and townships, promote alleviation of poverty, inequality and the growth of black-controlled tourism enterprises
  • de-risk the funding provided to tourism enterprises through patient capital that will ease the debt repayment ability of black-controlled enterprises
  • facilitate the participation of targeted groups, such as women and youth in the priority tourism sectors as defined by the amended tourism B-BBEE sector codes.

With a minimum project value of R10 million, the funding will include a grant up to a maximum of R20 million, a concessionary loan and a Sefa loan up to a maximum of R15 million, with the balance covered by a loan from a commercial bank.

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Financial support

Financial support will include:

  • 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 eligibility and scoring criteria for applicants, places significant weight on majority black ownership (>51%) and level of black management control, as critical developmental factors. Other factors that will be considered include women ownership, youth ownership, jobs facilitated, location and stage of the business cycle.

Qualifying enterprises

The fund will focus on tourism enterprises in accommodation, hospitality and related services, travel and related services and any other tourism-related products and initiatives that support tourism development imperatives and economic impact in terms of job creation, geographic spread and strengthening the tourism offering of South Africa.

Eligible entities must be a registered legal entity in South Africa, 100% owned by South African citizens, be predominantly black owner-managed and controlled (51%), registered and compliant with the South African Revenue Service and operate in the qualifying sub-sectors.

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