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Economic Volatility & Tourism in SA

South Africa’s current economic volatility offers opportunities for tourism growth and job creation, but government must pave the way by removing obstacles that inhibit growth and the country’s competitiveness as a destination, writes Unathi Sonwabile Henama.

Charles Dickens in his 1859 classical work, A Tale of Two Cities, is quoted as indicating that “It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way – in short, the period was so far like the present period.”

2015 is a challenging year for South Africa as the global economy of which South Africa is integrated is experiencing challenges that stem from the last recession. A look at newspaper headlines, that are dominated by a plethora of stories of gloom, doom and an approaching full blown bear market. The USA has been implementing quantitative easing for several years now to boost their economy.

Recently, China saw its own Black Monday when the stock markets crashed leading to a global decline in currencies. What is rather profound is that the recession of 2008/2009 had a greater impact on the West, whilst the current market turmoil in China, now represents the East. China is a significant trade partner to South Africa and therefore any market turmoil in China could have significant market ramifications for South Africa. South Africa’s economic fortunes have for long been linked to the extraction industries that send raw material for global markets with little or no local beneficiation. The decrease in the prices of major commodities has led to mining houses indicating that they will have no option but to cut jobs.

Furthermore the steel industry represented by Arcelor Mittal South Africa, which has used import parity pricing for its locally produced steel, achieved great profits at the expense of local growth. In his article titled, The Steel Industry in Crisis, Dr. Rob Davies acknowledges that the AMSA achieved excessive returns and repatriated them away from South Africa.

Once again government is asked to intervene to save the market, contrary to the neo-liberal outlook of a minimalistic role of government in business. ‘’Only in the worst of times’’ the government is called upon to act to save the market, just like the US government did to save the banks after their self-destructive tendencies.

Government should be congratulated for working with its partners in business and labour to find a win-win solution that will save jobs threatened by falling commodity prices, labour instability and soaring costs. However, organised labour must also acknowledge the possible unemployment that may be created as a result if their wage demands. The mining sector which is critical to labour instability is mechanising to replace limb with machine, which means decrease in labour requirements for the mines and less union membership for the unions.

Tourism’s contribution to the South African economy

With mining’s share of GDP and employment creation decreasing, we should promote tourism domestically in order to achieve a greater geographical spread of money and attract more regional and international tourists to South Africa. Tourism employs a multiplicity of skills, which means that the loss of jobs in mining can be mitigated by the creation of thousands of labour intensive jobs in tourism.

South Africa currently imports more goods than it exports, which leads to a trade deficit in Gross Domestic Product. The latest data indicates that the current account deficit to GDP amount to 4.8%. This is as a result of exports accounting for 31.3% of GDP in 2014, whilst imports accounted for 33.7% of GDP. It is always better for a country to have a current account surplus as this would be based on strong exports, and a high savings rate.

Tourism is the only industry that has the ability and potential to resolve the trade imbalance . More measures should be put in place to attract more inbound tourists to visit South Africa. More must be done to ensure that South Africa becomes more attractive as a destination.

In 1996, South Africa adopted the Growth, Employment and Redistribution Strategy (GEAR), which was a neo-liberal macroeconomic strategy that advanced privatisation, export promotion, reduction in tariffs and less state involvement in the economy. Tourism was a perfect fit for GEAR as tourism is primarily an export product that attracts foreign exchange.

Tourism is essentially a service that is intangible and simultaneously produced and consumed at the destination area. This means that the majority of the value adding for the tourism product offering can happen at the destination, which is basically beneficiation. This therefore, leads to the retention of the tourist injection into the national and local economy.
Furthermore tourism is an export product that is consumed at the destination area, which gained support from the Bretton Wood institutions as a tool for export promotion when they approved Structural Adjustment Programmes for countries. Tourism is an attracter of foreign exchange and already in South Africa it attracts more foreign exchange than mining. Tourism is therefore the future and the present. It is therefore the only industry that can create the best of time, during the worst of times. The worst of times will not last forever; South Africa must therefore work together to end this winter of despair.

Currency and taxation

The volatility of the rand which is one of the most traded currencies in the world is a challenge to inflation management and economic growth. The rand crisis that South Africa finds itself in, is a major source of concern considering that South African’s consume more imports. This means that the situation will have inflationary pressures on the local economy. The South African Reserve Bank would be forced to raise interest rates in the next meeting of the Monetary Policy Meeting as a means of trying to protect the value of the currency and stem inflation. South Africa as Hilary Joffe noted in 2014, is no stranger to currency crashes. What has however happened is that the Rand has crashed to the lowest level since 2001, when a Commission of Inquiry into the depreciation of the Rand was established.

The structural challenges in the domestic economy such as low growth, are further compounded by challenges like high indebtedness amongst customers, low savings rate, labour unrest, high levels of inequality and loadshedding.
The depreciation of the Rand means that it is cheaper for tourists coming from countries with hard currencies such as the British Pound, the Euro and the Dollar to visit South Africa. This window of opportunity must be used to promote destination South Africa more aggressively on the global stage. Because international tourists are recorded as exports, when they land on our shores this can be the best strategy to stem the current account deficit. The David Tax Commission must be encouraged to understand that tourists can be tax even though they are non-residents and this can increase tax coffers. This means that an increase in tourist arrivals increases the tax base for a country through the taxation of non residents.

Visa regulations

The government’s inter-ministerial team on the new visa regulations should be given time and space to conclude its work and I will be eager to read the recommendations. However, in order for tourism to succeed South Africa needs to do more to improve the public transport system that can be used by both the locals and tourists.

Safety and security

Personal safety and security remain a challenge to the growth of tourism to South Africa. In tourism, perception is everything and the continued negative images portrayed to all corners of the world about the violence clashes in society, xenophobic attacks, lawlessness during labour strikes, and the trademark loss of life as a result of our beloved minibus taxi industry, do little to convince tourists that South Africa is open for business.

Air access

The high costs of air travel to South Africa, and the requirement that all domestic airlines must be 75% owned by locals, remain stumbling blocks to more tourism growth. There is a need for greater public-private sector collaborations to unlock many regional airports for their use for scheduled flight and the granting of international airport status to more airports as a means of stimulation aviation.

In an article that I published titled ‘Attracting Indian Outbound Tourists to South Africa: A BRICS perspective’, I noted that tourism often occurs between countries that need it the least. The majority of tourism occurs between the industrialised world, while Africa receives less than 10% of international tourism. This remains a ’’drop in the ocean’’ when compared to the number of tourists that visit Europe and North America.

Africa in general and South Africa specifically must ensure it becomes the most competitive in its attraction of tourism revenue.

Sport tourism

The City of Durban must be congratulated on the successful bid to host the 2022 Commonwealth Games. Sport tourism has cherished our heart in the worst of times, to remind us of the best of times that tourism creates.

Editor’s note: This year’s Sports and Events Tourism Exchange (SETE) conference, which takes place on 28 and 29 October 2015 in Tshwane, will again focus on the need for the tourism industry to support Durban in its preparations over the next seven years to stage a successful Commonwealth Games.

Unathi Sonwabile Henama  Economic Volatility & Tourism in SA Economic Volatility Tourism in SA Unathi Sonwabile Henama

Unathi Sonwabile Henama

About the Author: Unathi Sonwabile Henama teaches tourism in the Department of Tourism Management at the Tshwane University of Technology. The views expressed in this article are private. Unathi can be contacted via email at: HenamaUS@tut.ac.za or by calling: +27 (0)12 382 5507.