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Gordhan’s savings will spoil tourism party

Tourism index shows better-than-expected performance in Q3.

PRETORIA – While most applaud plans to curb government spending,  some businesses in the tourism industry rely heavily on government business and are bound to be very worried.

According to the World Travel & Tourism Council (WTTC) report on the economic impact of tourism in South Africa, government was expected to spend R3.6 billion this year in the industry. This is up from R3.5 billion last year and R2.6 billion in 2007 (real 2012 prices).

Finance Minister Pravin Gordhan announced strict new measures to curb access government spending in his Medium Term Budget Policy Statement on Tuesday, including travel, car hire, catering and event cost. All of these are within the tourism industry.

Matšatši Ramawela, CEO of the Tourism Business Business Council of South Africa (TBCSA), said while fruitless expenditure cannot be encouraged, government expenditure is a major component of the industry and cost cutting can have an impact in the short term. “It’s just like in 2011, when they cut back sharply on travel, but after a while it came back,” she said.

Ramawela responded to questions at the release of the Q3 TBCSA FNB Tourism Business Index (TBI) in Sandton on Thursday. The TBI tracks actual performance in the industry as well as confidence levels through surveys to tourism business owners.

Ramawela says most hotels are situated in urban areas and rely on business travel, which is closely linked to government activity. “The hotel guys are very worried, especially about a decline in conferences” she said.

Gillian Saunders, tourism principal at Grant Thornton says many tourism properties host a lot of government conferences. It is clear that government targets access spending and spending will be scaled down from very luxurious hotels to more modest ones. Saunders said it would be great if government could put some of its savings into the budget for tourism, since budget allocations for the industry do not compare favourably with those in other countries.

Tourism in SA
According to the TBI, the industry performed better than expected in the third quarter of this year reaching an index point of 116.1, the highest since late in 2010.

The good performance is situated especially in the industry excluding accommodation providers. These “other” businesses include car hire, airlines, conference centres and activities and attractions. The index performance of the section of the industry was 120.1 and they are confident of further good trading conditions in the current quarter, with an expected index point of 111.4.

Accommodation providers achieved an index point of 110.8 in Q3 and expect a similar performance in the current quarter.
See the graph below:

Source: TBI, Grant Thornton

Accommodation providers put the good performance down to strong domestic business demand while “other” businesses put it down to the weak rand exchange rate.

The index, when compared with other business confidence indices, shows that tourism businesses are bucking generally negative business confidence. Both the Sacci Business

Confidence Index and the RMB/BER Business Confidence Index, showed a decline in their last reporting periods, Saunders said.

“Even though the methodologies are different, it would appear that there is a general downward tendency in business performance which is not indicated by the TBI,” she explained. The index is compiled by Grant Thornton.

Tourism businesses are more positive regarding employment and are at least expected to maintain current levels of employment, the index shows.

Cost of inputs is one of the most negative contributing factors for all tourism businesses.

Accommodation providers are still on balance negative about prospects for next year, while “other” businesses are at positive with sentiment at the highest level since the TBI Index commenced in 2010.


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