“Those that criticise the Tourism Equity Fund (TEF) for being exclusive when it comes to white-owned businesses are missing the point. It is an “equity” fund, which is a different initiative entirely from a COVID-19 relief scheme,” says LLB, MBA and finance specialist, Brett Evans.
“The fund recognises that the capital-intensive nature of the industry is preventing new and existing black owned tourism enterprises from meaningfully participating in and contributing towards this sector. By providing access to finance for black-owned commercially viable tourism projects, the TEF is intended to address one of the major challenges to transformation of the tourism sector,” said the Tourism Ministry during the fund’s launch last week.
“It is undeniable that transformation is still needed in South Africa. Traditionally if you are starting a business you approach a bank with a business plan and equity funding in order to obtain a business loan. In many cases these loans are not approved without personal assets being put up as surety against the business. It is these capital requirements that are the real racial barriers to business ownership. This is because the average black family is unlikely to have as many assets at his disposal to put up for surety, as the average white family,” explains Brett.
A maximum of 120 business will benefit
That said, Brett feels that the structure of the newly launched TEF is questionable and that it is unlikely to bring meaningful industry transformation.
According to the Department of Tourism the minimum project value for TEF applications is R10m. The funding provided to a successful applicant will include a grant up to a maximum of R20m, a concessionary loan, a SEFA loan up to a maximum of R15m and the balance to be covered by a loan from a commercial bank.
To be eligible for the fund the enterprise must by 100% owned by South African citizens, have a minimum of 51% black owner-management, be a registered legal entity in South Africa and be registered and compliant with SARS. Only accommodation, hospitality, travel and tourism sub-sectors qualify for the fund.
“If the Department is only considering applications for a minimum of R10m, this means that the fund can assist a maximum of 120 business, which is unlikely to bring out industry-wide transformation,” said Brett.
“This feels like Government is handing out a few expensive parachutes to passengers on a ship in trouble, because they were unable to organise life rafts on board. Transformation is still needed. The sad thing, however, is that this type of initiative should have been done 20 years ago. Certainly not in the middle of a global tourism crisis,” said Adrienne Harris in a comment published in Tourism Update.
Questionable timing
“Some interesting stats on this initiative – R1,2bn is the valuation of the proposed equity fund. This comes from three sources: R540m from the Department of Tourism, R120m from the Small Enterprise Finance Agency and R594m from major South African commercial banks,” said industry veteran, Colin Fryer.
“So, a few observations: has the government set up guarantees with the various commercial banks to cover their investment of R594m? These are commercial banks bound by fiduciary, ethical and moral grounds to protect their shareholders’ investments. As such the “offer” of lending to an industry renown for poor ROE and rapid fall off (closure of business) would have them on the carpet at their AGMs unless the government has guaranteed this contribution. Where does the Department of Tourism have R0,5bn to invest in what is possibly only 80 businesses (loan amount divided by an average of R15m per loan application)? Surely their mandate is the promotion of South Africa as a preferred destination, not financing a small number of possible successes?” asked Colin.
“Banks are inherently profit-driven and are loath to distribute funds to high-risk entities. As seen with the government guaranteed COVID-19 relief scheme, banks classify tourism businesses as high-risk entities and, even with a government guarantee in place, were not willing to distribute loans to tourism businesses with proven track records and substantial surety. As such it seems highly unlikely that the banks will shell out R0,5bn in funding to first-time business owners in the midst of a pandemic which has crippled the global tourism industry. And if they did distribute these funds, would the emerging entrepreneurs that benefited from the funds be able to launch sustainable tourism businesses in the present environment?” added Brett.
Ceo of Asata, Otto de Vries, said that while Asata was in principal supportive of any initiative that created transformation and brought new entrants to the travel and tourism industry, the timing of this initiative’s launch was concerning at a time when there were few customers to support the travel industry and when thousands of well-established and traditionally successful businesses were struggling to keep their doors open and to retain the existing jobs in the industry.
DA shadow minister of Tourism, Manny de Freitas MP, said the DA did not believe the TEF would meet its intended targets.
“While it is important that there are continued efforts to strengthen the participation of emerging entrepreneurs, it cannot happen at the expense of the tourism industry as a whole. Especially not at a time when the industry is on its knees,” said Manny.
“Our tourism sector would grow faster and would ensure a more inclusive and growing sector if the various spheres of government improved and maintained tourism infrastructure, tourism sites and related infrastructure, such as the construction of roads to inaccessible or hard-to-reach tourism sites and access to water and electricity to tourism attractions. By doing this, more people would be able to participate in the tourism sector without reliance of government funding which, based on this government’s performance, will be pilfered, lost by corruption and mal-managed or distributed to those within the inner circle of the ANC,” he added, stating that the DA would be submitting official questions asking about the fund, its disbursement, monitoring and how tourism would benefit from it in real terms.
