Drivers of risk and resilience in South Africa’s tourism sector: A snapshot

South Africa is a tourism destination like no other – from city life to adventure, wildlife to culture, iconic mountain ranges to sun-soaked coasts, South Africa has it all! Off South Africa’s beaten tourist trails lies however a more complex, obfuscating reality that is not immediately visible to every visitor.
In 2020, when Covid-19 first grabbed hold of the world, global tourism came to an abrupt standstill. South Africa was no exception and witnessed an unprecedented 75% drop of international tourist arrivals compared to 2019. The road to recovery has been slippery – in July 2021 a wave of civil unrest and looting spread across KwaZulu-Natal and Gauteng provinces, almost simultaneously a drought was declared in the Eastern, Western, and Northern Cape and in April 2022 devasting floods killed more than 300 people in Durban. Now add to this the daily Eskom power outages, an ever changing regulatory environment, accelerating crime rates and rampant corruption and you might just begin to understand the complexities of running a tourism business in South Africa.

In mid-2022, the International Labour Organization (ILO) commissioned a market systems assessment of South Africa’s tourism sector to identify entry points to help small and medium enterprises (SMEs) build resilience amidst the many risks they are facing. Here are our key take-aways:

• Diversification – many SMEs in the tourism sector are highly dependent on the international tourism market. Ironically, the sector’s rebound in 2022 – the so-called revenge tourism – has actually increased this dependence. But the pandemic has demonstrated that the international tourism market is volatile and hence tourism SMEs in South Africa need to innovate and diversify. There is untapped potential in the regional and domestic tourism markets. Don’t place all your eggs in one bag!
• Market information – SMEs in South Africa’s tourism sector need market intelligence to diversify. But that information is not-readily available and thus alternative product development, costing, and pricing becomes difficult. Before the pandemic, the Tourism Business Council (TBCSA) conducted the annual Tourism Barometer Survey – reviving the survey would be a low-hanging fruit. Even more important: South Africa needs better national tourism data. Currently, many economic migrants are entering the country as tourists and the national statistics are skewed. Without proper data, South Africa won’t be able to forecast tourism demand and to create better policies for the sector.
• Digitization – many tourism SMEs don’t have an adequate digital presence: Business websites, if they exist, don’t maximize SEO and thus cannot be easily found by customers. Online bookings options are insecure, and the potential of social media is not yet fully utilized for marketing. The lack of digitalization within the sector also means that essential business processes are still analogue which is not only unproductive, it also opens the door to data theft. Accelerating the digital transformation of South Africa’s tourism sector is a key entry point to build more resilient and agile tourism businesses. The Tourism SME Digital Transformation Programme of the SEEA network is an existing opportunity to start with!
• Access to finance – readily available access to finance brings SMEs through crises. But in South Africa, many banks have collateral requirements for working and investment capital loans that are beyond the means of SMEs. This is a major impediment for resilience building in the sector. Creative solutions need to be found such as de-risking access to credit through additional lending schemes or working with financial institutions to develop products that are a better match for tourism SMEs.
• Regulatory framework – doing business in South Africa is a complex and time-consuming administrative endeavour. The high costs of compliance undermine the competitiveness of tourism SMEs and reduce the growth potential of the sector. For all its good intents and purposes the B-BBEE regulatory system is far too bureaucratic to be implemented by many tourism SMEs and prevents them from accessing government tenders and support services. There is space for business environment reform that reduces red tape, while maintaining the necessary provisions to ensure that black communities are empowered, workers’ rights respected, and the environment are protected!

Leveraging these entry point will require time and effort from tourism SMEs themselves, from national authorities and from the tourism business associations. Public-private dialogues are a powerful tool to bring these different actors together and to provide a springboard for reform and action. On 30 November 2022, the ILO organized a business dialogue event with tourism business associations, public officials and entrepreneurs. Watch the recording of the event and find out what it takes to bring South Africa back on the trail to become a tourism destination like no other!

The author of this blog post is Julian Schweitzer.