SA on the cusp of a major tourism boom
South Africa is on the cusp of a major tourism boom, but it will only materialise if local tourism businesses can resist the temptation to put up their prices as the number of tourists continues to climb.
This is according to Anton Roelofse, Regional General Manager of Business Partners, the leading financier to small and medium enterprises (SMEs) in South Africa. Reflecting on the state of the industry as it enters tourism month, Roelofse sees several factors combining to create a “perfect spring” for one of the country’s most important job-creating sectors, with the most dramatic contributor being the fall of the rand, by as much as 25% over the past 20 months or so, which has once again made South Africa a sought-after affordable tourism destination.
He says that although the weak rand causes widespread pain throughout the economy, tourism is one of the sectors that benefits from it. “Combined with other factors such as the emergence of Europe and the US from hard times, the awakening of a fast-growing African middle class to the pleasures of tourism, and the lingering afterglow of the 2010 World Cup, the weak rand could usher in an unprecedented tourism boom”.
Roelofse warns, however, that it will be short-lived if South African tourism businesses fail to learn from the last boom in the mid-2000s, which could have lasted longer if local operators had not priced South Africa out of the market.
“The local tourism industry has learnt an enormous amount since then,” says Roelofse, who advocates a high-volume, affordable-price approach and increased service levels as the only way to ensure that the whole sector experiences growth.
He says that with restraint and long-term strategy, South Africa has the chance to cement its reputation as an affordable, exciting tourism destination and that this in turn is good news for South Africa’s efforts to boost entrepreneurship, because the tourism industry is in many ways ideally suited for SMEs.
“The tourism sector is not very capital-intensive as it requires the type of personal attention that owners and managers excel at, and it offers a diverse range of opportunities, including accommodation, restaurants, tour operating, shuttle services and adventure tourism.
“Because tourism is an SME-intensive industry, Business Partners remains heavily invested in the sector and has felt the pain that its clients operating within the sector suffered during the global financial crisis.”
He adds that the green shoots of a tourism ‘spring’ are visible everywhere, from the attitudes of recent visitors, through to the amount of money that these visitors are willing to spend. According to a South African Tourism Index, the estimated total foreign direct spend in South Africa in the first quarter of this year was R 1.4 billion more than the R 7.1 in the billion spent same quarter a year ago.
“Even though spend from domestic tourism was down from the previous year, it remains a sizeable market, at R 3.8 billion in the first quarter of this year. The fact that the number of domestic tourists has remained unchanged highlights that South African citizens are keen to travel, but that they do not want to pay exorbitant prices.”
Roelofse says that these figures suggest that, in line with their willingness to spend, the attitudes of inbound tourists are also growing more positive. A whopping 87.6% of the 2.5 million visitors in the first quarter of this year reported no negative experience in South Africa. 52% described locals as hospitable and friendly, up from 43% in the first quarter of the previous year. A similar increase was seen in positive answers to the question asked about local service levels – 41.8% described service as good, up from 32.6% a year earlier. The number of visitors describing South Africa as a value-for-money destination increased by 25% over the same period.
“This is a clearly an industry which we can, and must, grow,” says Roelofse.
He adds that Business Partners has already felt the turnaround in the industry and will not hold back when it evaluates finance applications from viable tourism businesses. “We have in fact increased our investment in the sector to 17% of our total portfolio, up from 13% over the past few years.
An important consideration for Business Partners when evaluating finance applications include the ability of the business to withstand currency and interest-rate fluctuations,” says Roelofse.
Business Partners figures reveal that, apart from tourism being ideal for job creation; it also lends itself to economic empowerment. The figures also show that no fewer than half of Business Partners’ tourism-business clients are female, and a third of these clients fall within the BBBEE category.
Roelofse believes that the South African tourism sector is ready for a tourism boom. “There is a large amount of under-utilised tourism infrastructure, such as accommodation capacity, as a result of the last boom and the World Cup hype. The recession has shaken out marginal operators and those that remain have emerged stronger, wiser and ready for growth,” he concludes.