South Africa Launches Historic Tourism Equity Fund That May Serve as Global Model

Long-term solutions tackling the lack of diversity, equity and inclusion in the travel industry, particularly in the U.S. and Europe, have been surfacing over the past eight months since last summer’s global racial protests, albeit at a snail’s pace.

On the other side of the Atlantic, one destination is creating change where it’s least expected: at the top. In a bold move that has startled its tourism industry, which continues to reel from Covid’s impact, South Africa’s government this month opened an $82 million “Tourism Equity Fund” to provide capital — through a combination of debt finance, concessional loans and grants — to qualifying new or existing tourism and hospitality projects that are at least 51 percent Black South African-owned and controlled.

Spearheaded by South Africa’s Department of Tourism, in collaboration with the Small Enterprise Finance Agency (SEFA), this public-private fund is the first of its kind in South Africa — and possibly at a global level — in that it is expressly intended to diversify the country’s tourism industry, which is predominantly white-owned and operated, by opening the door to ownership and equity for South African entrepreneurs of color of varying socioeconomic backgrounds, including women and youth.

“No one saw this coming, it was a big surprise,” Naledi Khabo, Africa Tourism Association CEO, said. “Everyone expected a big relief package but they didn’t expect this type of package.”

Black South African tourism leaders and entrepreneurs have said the fund was a step in the right direction.

“The launch of the fund is a critical milestone in the tourism sector in responding to lack of transformation [ ] that has been an albatross around the sector’s neck since the dawn of democracy,” South Africa tourism minister Mmamoloko Kubayi-Ngubane said in a statement, noting that the resolution to establish a fund pre-dated Covid. “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.”

South Africa’s tourism equity fund is a bold, innovative effort with the potential of shaking up the future of tourism experiences in one of Africa’s most popular long-haul destinations. If successful, it could have an influential effect on other tourism destinations at a global level, the majority of which remain plagued by similar equity and inclusion issues.

But there’s already pushback on the tourism equity fund, as expected in a country that continues to battle the vestiges of a racially divided past.

Afrikaner trade union Solidarity, with 200,000 members across various sectors of the economy, and Afrikaner civil rights group AfriForum, are planning to file a lawsuit against the Ministry of Tourism over what they described as a “racist tourism fund.”

“You’ve got a lot of people drowning at the moment and government has life saving equipment in the form of 1.2 billion rand, which to be fair is also not a huge amount but could make a huge difference to a bunch of people,” Morné Malan, head of communications for Solidarity, said. “So for government to abuse this opportunity or to use this opportunity to launch new businesses, it’s just not ideal, and it seems callous at the moment.”

Good morning South Africa.

The #TourismEquityFund is open for APPLICATIONS. Visit https://t.co/ew13qSmFGu for more information #WeDoTourism 🇿🇦 pic.twitter.com/UEalHfvaRW

— Dept of Tourism (@Tourism_gov_za) February 1, 2021

In the meantime, the tourism equity fund is open to applications and it’s all the buzz among South Africa’s Black entrepreneurs who have long dreamed of a stake in tourism.

“It’s been very hard because there’s only a handful of people that really own the funding structures in South Africa and in Africa, and it’s the same white boys, it’s the same venture capitalists around the table,” Bheki Dube, CEO of Curiocity Africa, a chain of hybrid lifestyle hotels in Johannesburg and Cape Town, said. “What [the fund] will do is it will create the foundation for black businesses, not only to remain in a cottage industry level but also to scale to grow and to have a strong market.”

“The tourism sector may be one of the last sectors that hasn’t been positively impacted by BEE policies until now, that and mining,” Khabo said, referring to the Broad-Based Black Economic Empowerment (B-BBEE) legislation passed by the South African government in 2003 to redress the inequalities of apartheid. “It’s still dominated by white folks.”

A Devastated industry Awaiting Recovery

Pre-pandemic, tourism in South Africa accounted for approximately 2.9 percent of the gross domestic product and 8.6 percent in indirect contributions. According to the World Tourism & Travel Council, tourism also contributed almost 10 percent of all employment in South Africa.

As of December 2020, South Africa’s Covid-19 tourism industry survey results, run monthly since Covid across various sectors of the industry in collaboration with the World Bank’s International Finance Corporation, revealed that out of 480 respondents, 92 percent of businesses had revenue remain down more than 50 percent in October 2020 as compared to October 2019, while 58 percent were unable to service their debts. Twenty-three percent remained temporarily closed — an improvement over 61 percent closures last June, while approximately five percent have closed permanently.

Covid relief funds from the government have been minimal for tourism businesses thus far, to the tune of approximately $3,400 and also prioritized Black-owned enterprises under the Black empowerment law.

Dube said that the small state support helped pay for staff salaries, but that the majority of funds that supported his hotels came from the Curiocity Africa community, while noting that considering the success of tourism in South Africa in the past 26 years, one would have expected more relief from the government from all the industry’s tax reserves.

This week brought a ray of hope — after a near yearlong pandemic devastation that has kept tourism on its knees, including multiple lockdowns and flight bans due to a Covid variant, South Africa launched its first round of vaccinations this week, with the arrival of 80,000 doses of Johnson & Johnson shots. It’s brought a much needed boost in optimism to the sector for the first in almost a year.

The road to recovery ahead remains long, but the government sees balancing the scales of equity as part of the recovery and restructuring of a sector that has been decimated.

“What part of Covid did to us is that it re-conscientized us, it made us want to clean up our business models, rethink on new layers and new foundations on how we grow and scale these things,” Dube said. “And I think that’s what happened as well in the government, it’s come up with really strategic ways in how do we recover the economy.”

The Tourism Equity Fund Application Process

So where’s the fund money coming from? South Africa’s Department of Tourism is contributing $37.2 million, which will be matched with $8.3 million from the Small Enterprise Finance Agency and $41 million from commercial banks that have partnerships with SEFA. There’s a 1.4 million cap per approved applicant while loans are set to 10 years.

The fund will prioritize projects related to accommodations, including hotels, lodges and backpacker facilities, conference services, tour operators, and any other tourism related products and services. Within its three-year period, the $82 million tourism equity fund plans to target funding 31 companies at an average deal size of $2.7 million, with 40 percent Black women-owned projects, 30 percent Black youth-owned, and 40 percent enterprises that are in peri-urban and rural areas.

“This doesn’t mean that money is just available for someone because they’re Black,” Tshifhiwa Tshivhengwa, Tourism Business Council of South Africa CEO, said in a recent interview. “You still have to go through the process of being approved[.]”

The equity fund application requirements are lengthy and detailed. Aside from baseline criteria — South African citizenship and 51 percent Black owned and controlled, and a registered legal, paying tax entity — aspiring or current entrepreneurs have to complete a 13-page application.

“I’m excited about it because I’m hopeful that it’s distributed properly, the right support system is also in place,” Khabo said. “What type of capacity building or training comes with that money?”

The small business development ministry confirmed to parliament this week that any approved funding package will include a mentorship support option, as well as market access help through various industry partners to ensure that entrepreneurs don’t fail post-funding. There have been calls from parliament members to simply the application process, so that tourism projects in small towns, villages and township areas, where inequalities are prevalent, are not excluded from equity fund opportunities.

Tourism’s Construct is Problematic and Needs Transformation

One fact all parties can agree on: Black-owned businesses in the South African tourism space are minimal. It’s also no secret that multiple segments of the tourism industry, particularly the hotel and safari lodge sector, have been white-owner or white-investor dominated, not just in South Africa, but also more widely on the African continent.

“In Cape Town in particular, tourism is booming but Black people by large have been excluded from ownership in tourism,” Faiez Jacobz, a South Africa parliament member who sits on the committee on small business development, said at a parliament tourism committee meeting on the fund, adding that those who want to still cling to white privilege, must be exposed for what they are.

“The residents of Bo-Kaap where they stay, every day tourist buses come into the area, but our people from Bo-Kaap are like animals in the zoo. Everybody takes photos of them and [ ] the slave history and the heritage of the Muslim community, but they are not tour operators, they are not owners of tourism in our area, and we can say that across the Cape.”

Jacobz’ statement brings up an interesting fact — that under South Africa’s B-BBEE, the definition of “Black” also includes “Coloureds” or South Africans of mixed race, Indians and Chinese.

Dube said that the issue with tourism in South Africa runs even deeper in the way it is structured and presented to people of color. “It’s problematic, because even, you know like the black kids, even schooling level, they are taught to go work for businesses, they’re not taught to start their own businesses,” Dube said.

“I mean, you go to any experience in South Africa, you’ve got Black tour guides, you’ve got Black workers working in establishments,” Dube said. “So how do you position those people in the forefront, and make sure that they are proper business people and they can scale their tour, guiding businesses to become DMCs and to compete globally?”

A Brewing Legal Challenge

Solidarity said it made various submissions to South Africa’s tourism minister for alternative funding criteria, such as a needs based focus or a focus on socio economic background, or a focus on the impact which the lockdown had on the workforce specifically.

“One of the points we had made to the minister was that at the moment 64 percent of the workforce within the tourism sector is Black,” Malan said. “[I]f it is so that ownership skews towards white, which I do believe that it does, then you’re actually prejudicing thousands of people Black and white just to up the ownership point to make that look a little bit better,” adding that in South Africa, funds often end up benefiting the politically connected.

Martin Mahosi, Small Enterprise Finance Agency chairperson, reiterated during a presentation to South Africa’s parliament this week that it would not be “a free for all blank check” and that a system is in place to detect any sort of potential malfeasance or corruption.

According to Malan, had the initiative launched pre-Covid and not during the pandemic, it might have been less controversial.

“[The tourism equity fund] is being opposed by white superstructures that have benefited a lot in the past,” Dube said, noting that the same groups had also opposed the government’s Covid relief package last year, which put minority black owned business in the forefront. The court dismissed those allegations.

“At some point, we need to cross the line, at some point we need to draw the line and realize that we need to prioritize just black business,” Dube said. “I mean, in a country where a majority of the people are Black, why not put them at the forefront?”

South Africa tourism minister Mmamoloko Kubayi-Ngubane stressed the moral and historical rationale behind the fund. “As leaders of this country, we must ensure that we do not find, two years after the pandemic is over, that tourism looks like what it did pre-1994,” Kubayi-Ngubane said in a statement, adding that this transformative step is in line with the country’s 2016-2026 national tourism sector strategy and the B-BBEE policy. “Our mandate is to ensure an inclusive economy.”

A New Dawn for South African Black Entrepreneurs

“You’re already seeing the impact it’s having on young entrepreneurs.” Khabo said, noting the conversations among Black South Africans since the equity fund’s launch, as they begin planning which tourism business they’d create.

To date, Curiocity remains one of just two Black-owned hotels in all of Cape Town. “More than two decades into democracy – why is that?” Dube asked. The brand is currently expanding with a new farmhouse location outside of Johannesburg set to open in March 2021. While financing has been secured for it, Dube has been eyeing other locations to grow the Curiocity brand and has already applied for the tourism equity fund.

“We want to open up in the Kruger National Park, we are looking at assets in Durban, across the South African landscape and would use those funds to grow within South Africa, so the tourism equity fund will see us grow.”

Solidarity said the sentiment among white-owned businesses also revolved around the fact that their rights had been curtailed due to Covid, including the right to work and conduct business. “But when it comes to this one particular right, which gives the specific racial group preference for government funding, that right can never be limited,” Malan said. “All other rights are on the table but this one is something of a super-right that stands above everything else.”

As the trade group prepares to file its suit against the government, it isn’t likely to overshadow the monumental significance of South Africa’s tourism equity fund. It’s impossible not to discern the fact that this is a remarkably brave and strategic effort to begin transforming the lack of equity and inclusion that has been pervasive in the country’s tourism industry. An industry which, even at a global level, relies on people of color for its workforce, yet continues to exclude them from opportunities to lead, own, and built wealth through tourism in their own backyard.

When would be the right time to correct that course when the disparity has lasted for decades?

“It’s an excellent start because now you’re in a position to become business owners, to start to build wealth for your families,” Khabo said.

Dube also feels hopeful for the future of Black entrepreneurs. “For me, this particular tourism equity fund seems to be one of the new hopes in really dismantling, in putting blackness in the forefront.”

This story was updated to include statements received from South Africa minister of tourism Mmamoloko Kubayi-Ngubane.