1 Policy Context and Overview of Transformation of the Tourism Industry Presentation to the Parliamentarians 15 May 2007.

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Policy Context and Overview of Policy Context and Overview of Transformation of the Tourism Transformation of the Tourism

IndustryIndustry

Presentation to the Parliamentarians

15 May 2007

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Index

• Background• Policy Context• Rationale for Transformation in the Sector• Strategic Approach by the Council• Outcomes of the Baseline Study• Challenges• Recommended Actions

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General BBBEE Background• Colonialisation and apartheid resulted to significant imbalances in South

African economy

• Government is firmly of the view that when we talk about Broad Based Black BEE, we should talk about such empowerment that helps the economy to grow

• BBBEE should result in increased participation by Black people in the main stream economy

• Tourism Specific Background• Tourism fastest growing sector• Not transformed• Prioritized in terms of ASGISA• Broad Based Black Economic Empowerment Act of 2003• Codes of Good Practice• Tourism Charter and Scorecard• Charter Council

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Total arrivals to South Africa broke the 8m barrier in 2006

7,368,742

8,395,833

5,787,370

6,677,8396,504,890

6,429,5835,890,514

5,731,424

4,944,430

4,488,272

3,668,956

5,872,254

5,140,124

1,500,000

2,500,000

3,500,000

4,500,000

5,500,000

6,500,000

7,500,000

8,500,000

9,500,000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Foreign Tourist Arrivals to South Africa (1998 - 2006)

Source: SAT Arrival Statistics, 2004

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65

67

67

70

76

77

77

79

79

81

82

82

82

88

95

96

50 70 90 110

Transformation is not seen as a priority by the industry – therefore requires government intervention

Percentage of respondents

Priority of Government Interventions Identified by the Industry

Drive promotion of SA as tourism destination in overseas source markets

Improve general infrastructure in the country (roads safety & security etc.)

Promote tourism generally within SA

Improve information and communication infrastructure

Promote specialized education and training programs to upgrade tourism workers

Strictly enforce government regulations (i.e. standards to protect environment etc)

Ensure stability of the exchange rate

Increase predictability of government policies

Simplify compliance procedures related to government regulations

Support particular needs of start-up companies

Direct new investment expenditure within the tourism industry

Increase funding for special research institutes within the tourism industry

Encourage black economic empowerment within the tourism industry

Catalyze partnerships among government agencies industry and universities

Catalyze collaboration amongst industry participants

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Positioning and Strategic Objectives

• Transformation Partner and enabler• Identify public sector levers to drive change• Increase private sector compliance with the

Charter• Provide support tools to the industry and

beneficiaries• Facilitate creation of innovative mechanisms to

drive change

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Background• In order to execute its mandate, the Council needed to ascertain the

state of transformation in the tourism industry• This would serve as a foundation for future strategies, built on an

accurate reflection of the status quo• The Council appointed Yarona Management Consultants as its service

provider, after conclusion of a tender process.• This presentation sets out the key findings of the study undertaken by

Yarona

Important Year One Initiative: Baseline Study on the State of Tourism

Transformation

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Objective• Review state of tourism transformation in South Africa using

a relatively larger sample to attain a 95% confidence factor

Scope• Large listed and unlisted tourism businesses• Small, medium and micro enterprises• Performance against the seven indicators• Progress with respect to sub sectors• Report on trends by sub-sector: Accommodation,

Hospitality and Travel distribution• Report on trends by province

Ambit of the Study

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Confidence Factors

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Statistical Relevance of the data set

To achieve 95% confidence level the following number of responses were needed for different segmentations in order to

distinguish differences of 7.5% between sub-sets:

Total Samples Required

Segmented by Province & Sub-

Sector

Segmented by Province

Segmented by Sub-Sector

3,244 1,348 502

These numbers show that the study has achieved the required response rate to qualify the results as being statistically valid at

the required 95% confidence levels, for segmentation by province or by sub-sector, as well as for both.

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Data profile of companies with Turnover more than R10m

Notes:Number of entities = 156Aggregate Turnover = R 28.8 billion

 Accommodation

SectorHospitality Sector Travel Sector TOTALS

Eastern Cape 3.2% 3.2% 2.6% 9.0%

Free State 2.6% 2.6% 1.9% 7.1%

Gauteng 3.2% 3.2% 7.7% 14.1%

KZN 4.5% 4.5% 4.5% 13.5%

Limpopo 3.2% 2.6% 2.6% 8.4%

Mpumalanga 1.9% 2.6% 1.9% 6.4%

Northern Cape 1.9% 1.9% 1.3% 5.1%

North West 1.9% 2.6% 1.9% 6.4%

Western Cape 3.8% 8.3% 5.1% 17.3%

Multiple Provinces 5.8% 3.2% 3.8% 12.8%

TOTALS 32.0% 34.7% 33.3% 100.0%

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Data profile for companies with Turnover R5 m to R10 m

 Accommodation

SectorHospitality

SectorTravel Sector TOTALS

Eastern Cape 3.0% 4.5% 1.9% 9.4%

Free State 1.1% 2.3% 1.1% 4.5%

Gauteng 4.1% 4.9% 6.8% 15.8%

KZN 8.6% 7.5% 4.1% 20.3%

Limpopo 1.5% 2.6% 1.5% 5.6%

Mpumalanga 2.6% 3.4% 1.5% 7.5%

Northern Cape 2.6% 3.0% 1.1% 6.8%

North West 1.5% 2.3% 1.1% 4.9%

Western Cape 10.5% 9.0% 5.6% 25.2%

TOTALS 35.7% 39.5% 24.8% 100.0%

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Interpretation of Results

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Respondent Opinion - Indicators

0% 5% 10% 15% 20% 25% 30%

Ownership

StrategicRepresentation

Employment Equity

Skills Development

PreferentialProcurement

EnterpriseDevelopment

Social Development

Relative FOCUS

Most challenging

Past Focus

Future Focus

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State of transformation by turnover class

Scorecard ElementLarge & Listed

Large & Unlisted

Medium-sized

Small & Micro

Ownership Moderate Poor ModerateNot

applicable

Strategic Representation

Moderate Poor Moderate Poor

Employment Equity Excellent Moderate Moderate Poor

Skills Development Excellent Moderate Moderate Poor

Preferential Procurement

Moderate Moderate Moderate Moderate

Enterprise development

Moderate Moderate Moderate Moderate

Social Development Excellent Moderate Moderate Moderate

Aggregate VALUE Moderate Moderate Moderate Moderate

KEY:

Poor Performance: Areas where the aggregate score for individual scorecard elements was in the range of 30 to 50% of target [marked in RED];

Moderate Performance: Areas where the aggregate score for individual scorecard elements was in the range of 50 to 80% of target [marked in YELLOW]; and

Excellent Performance: Areas where the aggregate score for individual scorecard elements was in the range of 80 to 100% of target [marked in GREEN].

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Element of the Tourism BEE Scorecard [ALL

DATA; but excluding the too small businesses]

Accommodation Hospitality Travel Overall

1 Ownership 44.4% 45.5% 45.6% 44.8%

2 Strategic Representation 39.8% 42.0% 40.0% 40.1%

3 Employment Equity 49.2% 51.8% 54.6% 50.3%

4 Skills Development 47.5% 49.0% 52.2% 48.5%

5 Procurement 58.9% 55.6% 64.7% 59.8%

6 Enterprise Development 64.2% 73.1% 79.0% 66.5%

7 Social Development 68.6% 64.1% 72.4% 67.0%

AGGREGATE 51.9% 53.5% 57.1% 52.7%KEY:

State of Transformation by Sub-sector

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Aggregated Tourism BEE Scorecard (excluding TOO SMALL companies)

0% 20% 40% 60% 80% 100%

Ownership

Strategic Representation

Employment Equity

Skills Development

Preferential Procurement

Enterprise Development

Social Development

% of Target

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Positives• The study revealed a largely positive attitude towards empowerment and

a commitment to transformation• This is shared across the various sectors and provinces• The council’s benchmark of achieving a 40% minimum level against the

scorecard has been met• The scorecard emphasis of 2009, on human development, has been

recognised by the industry

Challenges• Significant uncertainty around the codes/scorecards still exists• Small, medium and micro enterprises indicated that they found access to

capital, partners and executive talent difficult• Transformation needs to be visible to be powerful and major challenges

exist iro ownership and strategic representation

Conclusion

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Lessons Learnt from data set

• Configuration of the industry– Industry dominated by smaller players (80% contribute to 20% of

the total Tourism GDP to the South African Economy– 20% of the players generate 80% of the revenue– Majority of SMME players are marginal players and not making

excessive profits– Family owned businesses– Management control rest in owners– SMMEs lack ability to pay for skilled resources, which limits

transformation opportunities– Level of pertinent financial data lacking in the industry, resulting to

breakdown in a structural risk assessment process– Barriers to entry in the capital intensive parts of the industry

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Challenges – Large and listed enterprises

Ownership •Financing of larger equity deals on the whole no the same profit generation with which to finance deals, e.g. mining

•Finding suitable partners – thus ensuring distribution

Preferential Procurement

•Long standing contracts with non BEE suppliers

•Market knowledge of suppliers

•Scales of economies, level of sophistication, logistics and national coverage

Employment Equity

Strategic Management

Lack of training of HDI managers

High level poaching of skilled senior HDI resources

Low level of staff turnover leading to slow transformation process

Skills Development

Insufficient level of training done by training institutions

High poaching of skilled Black Staff

Theta not functioning properly

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Challenges – Small and Micro enterprises

Ownership •Lack of involvement of Blacks makes it difficult to correct ownership through employee shareholder schemes•Difficulty in finding Black Partners•Low profitability and low equity in business•Equity tightly held and often represents life savings

Preferential Procurement

•Market knowledge of suppliers•Insufficient resources to reach fragmented and large market of smaller enterprises•High level of competition, low margins and risk adversity make them unwilling to experiment with new suppliers

Employment Equity

•Ownership and management are generally flip sides of the same coin and very limited scope of outside participation in management•High level of poaching•Low level of staff turnover

Skills Development

Small or no budget for training

Training more ad hoc and less sophisticated

No career path development

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Solutions

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Codes of Good Practice• Generic Codes exempt businesses with turnover of less

than R5m• Process underway to align the Charter with the Codes• Consultation underway to determine threshold for

exemption• Exemption of businesses with turnover of less than R5m will

mean the majority of the sector will remain untransformed• Codes present an opportunity for small businesses to chose

4 out of 7 indicators, thus exempted from strategic management and ownership which is a challenge to implement

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Required Interventions from Government

• Use of lever to drive transformation (procurement, regulatory and other powers)

• Greater THETA delivery on skills development mandate• Implement programmes to educate black entrepreneurs

about opportunities in tourism• Provide incentives to black businesses to participate

and invest in the sector• Affirmative procurement• All spheres of government to drive transformation

agenda

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Required Intervention from Private Sector

• Report annually on their BEE status• Actively search for black suppliers for procurement

purposes• Make tourism assets available to black companies at the

same rate as white companies• Invest in at least mentoring black entrepreneurs• Facilitate partnerships with black entrepreneurs• Engage Blacks on opportunities that exist• Initiate in house training programmes• Promote career opportunities• Implement collaborative marketing agreements

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Required Interventions from Black People

• Actively market themselves as business partners• Proactively engage private sector on the business

supply and employment opportunities that exist• Establish collaborative marketing agreements with

private sector• Organise into clusters or associations to enable

lobbying• Engage government on investment opportunities• Engage THETA on setting direction for skills

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Programmes underway from the Council

• Matchmaking database• Black Talent Database• Database of CSI projects• Enterprise Development Case Studies• Recognition Systems and Framework• Verification System to enable annual

reporting• Self Assessment tool

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Programmes underway from the Tourism Branch

• Tourism Enterprise Programme (more than 75% of SMMEs assisted by TEP are HDE)

– Business Linkages– Training (HR, Finance, Marketing and Business Development)– Exhibition assistance– Business support (grading assistance, business plan development etc)

• Tourism Skills Audit– National Skills conference held in October– Declaration signed by government, business, labour and community– Skills audit undertaken and identifies scarce and critical skills– Findings presented at Indaba 2007

• Ongoing Language Training in partnership with other Countries– Spanish, Chinese and French

• Development of a Tourism Second Economy Strategy– Interventions targeting Second Economy operators – Interventions focused on mentorship, marketing, product development, route

development and association development

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