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 Brett Evans, LLB, MBA and finance specialist.
“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 Evans.
A maximum of 120 business will benefit
That said, he 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,” says Evans.
“Banks are inherently profit-driven and are loath to distribute funds to high-risk entities,” says Evans. “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 R2bn 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?”
DA Shadow Minister of Tourism, Manny de Freitas, says the DA does not believe the TEF will 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,” says de Freitas.
“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 for tourism attractions. By doing this, more people would be able to participate in the tourism sector without reliance on 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 adds that the DA will be submitting official questions asking about the fund, its disbursement, monitoring and how tourism will benefit from it in real terms.