August 5, 2019


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Ndivhuho Netshitenzhe, STANLIB economist

 

If SA could effectively market its particular advantages to global travellers, it could become one of the best-performing tourist destinations in the world.

SA’s landscape is characterised by an abundance of mountains, forests, deserts, coastlines, grassy savannahs and sanctuaries filled with wildlife. It is known to have friendly and welcoming citizens. In addition to this, amenities are affordable, allowing tourists to enjoy world-class accommodation, food and experiences at relatively reasonable prices.

A flourishing tourism industry presents a great opportunity for SA to achieve sustainable economic growth and employment. The sector has underperformed global tourism for years and there is great potential to catch up without requiring too many resources. As a labour-intensive service sector, tourism has the ability to employ unskilled and semi-skilled labour. Tourism is also a way for the country to earn foreign currency and improve its balance of payments.

 

Underperformance of the sector

Stats SA data shows that the number of foreign tourist arrivals has lost some momentum in the last two years, with year-on-year growth averaging -11.1% and 1.8% in 2017 and 2018 respectively. The total number of foreign visitors totalled 15 million in 2018, with the majority coming from other SADC countries (70%) and Europe (15%). Among travellers arriving by air, European visitors top the list at 47%.

The ongoing effects of strict visa and travel requirements for minors introduced in 2015, the ongoing international reports of high levels of violent crime, and the drought in the Western Cape during 2018 have all negatively affected the number of foreign visitors to SA.

The decrease in the number of visitors has translated into lower tourist spending. According to the World Travel and Tourism Council (WTTC), spending by domestic and foreign tourists in SA has been falling since 2015, with real growth averaging -1.5% between 2015 and 2018. Business tourism spending grew by 1.8% in 2018, faster than leisure tourism which grew by -3.6%.

The lacklustre growth in tourism expenditure is echoed by the downbeat performance in investment in the industry, which has shown virtually no growth in the last four years. Apart from the boost from an influx of tourists during the 2010 FIFA World Cup and increased investment in preparation for the event, growth in tourism spending and investment has failed to reach levels last seen in 2012.

Tourism, while relatively small and somewhat neglected, is an important industry for the economy. In terms of contribution to GDP, tourism’s direct (defined as the output of industries that deal directly with tourism, like hotels) and indirect (the spending by industries related to tourism activities, like the purchase of food and cleaning services by hotels) contribution to GDP has been decreasing for the last five years, and was measured at 8.6% in 2018. Despite this, the contribution was larger than that from the agriculture, mining, construction and utilities sectors. When looking at only the direct tourism contribution, the number drops to 2.8%, which is still larger than the contributions from agriculture and utilities.

Tourism’s total percentage contribution to employment has also been on a downward trend since 2015. This decrease is driven mainly by a fall in the number of people directly employed in tourism. Tourism and tourism-linked industries, however, continue to play a vital role in employment, employing almost 1.5 million people.

 

Comparative performance lags

When compared to competitor countries that offer similar tourism products and compete for tourists from the same set of markets, and global tourism trends, SA’s tourism performance is lagging. In terms of the size of the tourism industry and the growth of the industry (based on tourism’s total contribution to GDP), SA ranks 107th and 129th (out of a total of 185 countries) respectively, both below world averages and most competitors.

Furthermore, (total) employment in the industry accounts for 9.1% of total employment, with the direct contribution only 4.2%. These figures are below the world’s average of 9.9%, with SA ranking below countries like Tanzania, Lesotho and Namibia. This illustrates the lack of effective and efficient allocation of resources when it comes to tourism, preventing the country from achieving its potential.

 

Potential impact

The majority of the economic impact made by tourism is through indirect and induced activities. In the last 10 years, over 65% of tourism’s total contribution to GDP has been made by tourism-related activities. Similarly, over 50% of the total employment in tourism comes from tourism-linked industries. This shows that tourism has a link to almost all the sectors of the economy and increased investment in tourism could increase output for a number of industries including construction, manufacturing, retail, finance, transport and trade.

Take tourism’s contribution to the balance of payments, for example. While SA’s travel receipts have been increasing in rand terms since the beginning of 2011, the rate of increase slowed in 2018, making up 9.3% of total service receipts in the 4th quarter of 2018. This is only the second time that travel receipts have made up less than 10% of total service receipts since 2014. Increasing foreign tourism is vital as higher foreign tourism revenues have a positive effect in closing the gap in foreign trade and the balance of payments.

 

Important government initiatives

SA has already made some important changes to visa requirements, including relaxing the restrictive travel requirements for minors. This, along with the diminishing drought in the Western Cape should help lift tourism in the next 12 to 24 months. Long-term solutions, however, are needed to ensure sustainable growth.

While government has highlighted the importance of tourism for economic growth and employment, given the constrained fiscal outlook, it seems there is limited scope to release additional funding to the industry. There are, however, some major infrastructure projects that have been planned for the 2019/20 fiscal year to boost tourism earnings. According to the 2019 National Budget, the government will invest over R290 million to upgrade accommodation facilities, roads and general infrastructure in national parks.

Government also plans to increase the number of international tourist arrivals to 21 million by 2030 through a number of initiatives. These include improving Brand South Africa, changing the visa regime and simplifying visa requirements for SA’s important markets, specifically, China, India and the rest of the continent.

With the majority of tourist visitors coming from other SADC countries and Europe, and with Asia having the potential for rapid growth, there is a need for targeted marketing of SA as a tourist destination in these regions. This, together with support from South African airlines, should help the tourism industry catch up to its competitors and achieve long term growth.

Increasing foreign tourist spending is important as it would also have a net positive impact the current account balance. Decreased dependence on domestic travel would make the tourism sector more resilient to domestic weakness.

It is also important to learn from other countries that are successfully developing world-class tourism industries. For example, the Rwandan government’s investment in tourism has played an important role in making the country one of the fastest growing economies in Africa.

 

Small changes and consistency is key

While there are no quick fixes for either the economy or tourism, achieving success in both is about making small inroads in addressing the issues that can have long lasting effects and lead to more sustainable, long term growth. In terms of tourism, small changes include simplifying regulation, developing key infrastructure and making steady gains that systematically improve the reputation of the country as a great tourist destination.

Given that the National Development Plan identified tourism as a developmental area, it is encouraging that President Cyril Ramaphosa has committed to restoring “the NDP to its place at the centre of our national effort”.

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