Policy Context and Overview of Transformation of the Tourism Industry

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

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

3. General BBBEEBackground • 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

4. Total arrivals to South Africa broke the 8m barrier in 2006 Foreign Tourist Arrivals to South Africa (1998 - 2006) Source: SAT Arrival Statistics, 2004

5. Transformation is not seen as a priority by the industry – therefore requires government intervention 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 Percentage of respondents

6. 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

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

8. Ambit of the Study 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

9. Confidence Factors

10. 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: 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.

11. Data profile of companies with Turnover more than R10m Notes: Number of entities = 156 Aggregate Turnover = R 28.8 billion

12. Data profile for companies with Turnover R5 m to R10 m

13. Interpretation of Results

14. Respondent Opinion - Indicators

15. State of transformation by turnover class 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].

16. State of Transformation by Sub-sector KEY:

18. Conclusion 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

19. 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

20. Challenges – Large and listed enterprises

21. Challenges – Small and Micro enterprises

22. Solutions

23. 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

24. 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

25. 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

26. 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

27. 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

28. 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