In a move to bolster transformation within South Africa’s embattled tourism and hospitality industry, the departments of tourism and small business development have joined forces and on Tuesday launched the R1.2 billion Tourism Equity Fund (TEF) to assist new black entrants into the sector.
While the economic fallout from the Covid-19 pandemic and lockdowns continues to have an especially devastating impact on the tourism industry at large, a lack of transformation in the sector has been a bugbear for government and organised black business bodies for years.
At the virtual launch of the TEF, President Cyril Ramaphosa and Black Business Council head Sandile Zungu backed the initiative.
Initial seed money for the new fund, totalling R540 million, will come out of the Department of Tourism’s budget over the next three years, topped up with financial backing from the Small Enterprise Finance Agency (Sefa) and commercial banks.
“The TEF is a dedicated fund that will provide a combination of debt finance and grant funding to facilitate equity acquisition as well as new project development in the tourism sector by black entrepreneurs,” Tourism Minister Mmamoloko Kubayi-Ngubane said during the launch.
She noted that the fund would be managed by Sefa on behalf of her department over the initial three-year period, after which its success will be evaluated to improve the fund.
“During this three-year period, the Department of Tourism will capitalise the fund with an amount of R540 million,” Kubayi-Ngubane said, adding that Sefa would make an additional contribution of R120 million.
“Around R594 million will come from commercial banks that will be participating in this programme.… This will put the value of the Tourism Equity Fund at just over R1.2 billion.”
She said that in the wake of the devastation to the sector caused by the Covid-19 pandemic, government is committed to contributing towards the rejuvenation of the supply side of the tourism market.
“We believe that to deepen the diversification of the tourist attractions, we also have to pay attention to the diversification and transformation of the sector in terms of ownership and management control.
“Broadening participation in the tourism sector to South Africans of all races, ages and genders can only enrich the tourism sector to be more competitive and sustainable in the long run.”
Kubayi-Ngubane said the launch of the TEF is timely and necessary.
“Though the conceptualisation of the fund preceded the pandemic, as it was announced by the president in the 2020 State of the Nation Address, the fund is timely in that it will be instrumental in helping in the recovery and the reconstruction of the sector after the devastating impact of the pandemic,” she noted.
“It is necessary because not only will this fund help us to crowd-in private sector investment in the rejuvenation of the supply side of the tourism market, but it will also help to transform the sector.”
Ground-breaking, says Ramaphosa
Speaking during the virtual launch, Ramaphosa described the fund as a ground-breaking venture that would help “speed up transformation in one of the most crucial sectors” in the South African economy.
“This launch is taking place when the SA tourism industry is admittedly facing severe challenges due to Covid-19,” he conceded.
However, he also noted that the global travel industry was being impacted.
“It is important to remember that in all of this we are not alone,” said Ramaphosa.
“The pandemic has had a profound impact on the tourism sector globally. Nearly every country in the world has been affected.
“The World Travel and Tourism Council 2020 recovery scenarios project that global travel and tourism will have experienced losses of over $2 billion [R30.1 billion] in the best-case scenario, and as much as $5.5 billion [R82.9 billion] in a worst-case scenario.
“Many jobs in the tourism and associated sectors in the value chain have been lost,” he added.
Sector ‘can rebound’
Ramaphosa stressed that the tourism sector, which directly accounts for around 2.9% of South Africa’s GDP and 8.6% indirectly, is resilient and “can rebound from periods of crisis”.
“Growing, developing and transforming tourism is one of the priorities of the Economic Reconstruction and Recovery Plan that I announced late last year,” he noted.
“One of the immediate measures identified in the plan to protect the supply side capacity of the tourism sector is transformation via a Tourism Equity Fund,” he noted.
Ramaphosa said the establishment of the fund was “informed by the recognition that the capital-intensive nature of the tourism industry prevents many black-owned tourism enterprises from growing and developing”.
He added: “By providing access to finance for black-owned commercially viable tourism projects, the TEF intends to address this challenge. A vital element of the operation of the fund is the involvement of commercial banks, which will ensure that participants are able to access further loan financing.”
He said this would significantly increase the impact and reach of the initiative, which would increase the level of private investment in the industry.