Rand’s fall enhances South Africa’s tourism strengths

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After a challenging few years, South Africa’s tourism sector is bouncing back, benefitting from the country’s affordability as a destination and its position as a business centre.

The number of foreign visitors was up in 2013, according to South Africa Tourism, the official tourism marketing body. Arrivals reached 7,838,833 in the first 10 months of the year, a 4% increase over the same period in 2012. Visitor numbers from outside Africa rose 6.1% to 2,144,760, led by Asia (9.1%), Central and South America (6.3%), and Europe (6.2%). The largest non-African source market remains Europe, with 1,168,834 arrivals – something that has presented somewhat of a risk over the past few years given the eurozone slowdown, which has brought down consumer spending.

According to local press reports, Cape Town’s 22 five-star hotels are enjoying their best (southern hemisphere) summer season since the 2010 FIFA World Cup tournament, while a June 2013 report from PricewaterhouseCoopers indicated the average occupancy rate for three-to five-star hotels was expected to rise to 61% for the year, compared to 56.5% in 2012.

Return to growth

The uptick in tourism comes as a relief to businesses in the sector, which has experienced some difficult times over the past few years. The country enjoyed a fillip when it hosted the World Cup, but since that event – for which a number of hotels were constructed, expanded or upgraded – business has been slower.

“One of the challenges that still remains in the tourism sector is the excess capacity created from the World Cup,” Enver Duminy, CEO of Cape Town Tourism, told OBG. “However, we are emerging from the post-tournament dip and are starting to see demand slowly absorb the oversupply.”

The industry recovery should help buttress South Africa’s headline performance. The World Tourism and Travel Council (WTTC), a global industry body, estimates the sector’s direct contribution to GDP at 3.2% in 2012, with the overall impact – direct, indirect, and induced – standing at 9.8% of GDP.

But more importantly given the country’s unemployment problem, with an official unemployment rate of 24%, tourism is also a job-generator, accounting for almost 1.4m jobs directly and indirectly. Good news, then, that the WTTC also expects the sector’s direct GDP contribution to grow at a healthy pace between 2013 and 2023, averaging 4.5% per year.

Silver lining

The country’s hotel operators may also be benefiting from the deprecation of the rand. The rand fell 19% against the dollar last year, the largest decline of any of 16 major currencies tracked by Bloomberg.

The weakening of the rand, which is often treated as a proxy for emerging market risk, may be bad news in many ways – driving up the cost of imports, for example. But it also makes the country – already an affordable destination by developed-economy standards – cheaper for foreign tourists.

Reports suggest that the biggest impact has been on the luxury travel sector, with tourists who would previously have stayed in mid-range hotels able to upgrade due to lower prices. South Africa’s reputation as a value-for-money destination has been further boosted by the perception that high-quality hotels, resorts, restaurants and trips can be accessed for relatively little money.

Business tourism on the rise

Much of the coverage of South African tourism understandably focuses on the country’s strengths in the leisure segment – its scenery, good weather, wines, beaches and lively cities. But business tourism accounts for around a third of spending in the sector, according to the WTTC.

Its importance as a revenue generator derives from several factors: South Africa’s position as one of the world’s most prominent emerging economies; the fact that many global companies choose the country as the location of their regional headquarters; and the strength of its meetings, incentives, conferences and exhibitions (MICE) sector. In August 2013, the government launched the National Conventions Bureau (SANCB) to promote the segment.

“Business tourism, and specifically the MICE segment, will be a key driver for growth in South Africa's tourism sector,” Duminy told OBG. “The SANCB has been established to coordinate and enhance cooperation between the major cities of Johannesburg, Cape Town and Durban, which boast convention centres that attract large scale international events. The MICE segment can further be utilised to address seasonality issues in the industry as business tourists arrive for events irrespective of the time of year.”

The tourism sector still faces complications from overcapacity and slow demand in its primary overseas market, and grapples with perceptions of risk related to petty crime, but its recovery should help give a small boost to the broader economy, at a time when it is needed.

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