Contents

EXECUTIVE SUMMARY

Tourism Sector

Overview of the Tourism Sector

Defining Tourism

Tourism Trends

4.3. International Trends

Main Growth Areas

Key Problem Areas

Foreign Tourism Sector in South Africa

Source of Markets

International arrivals

Domestic Tourism

Domestic Tourism Trends

4.10.1. KwaZulu-Natal

4.10.2. Gauteng

4.10.3. Eastern Cape

4.10.4. Western Cape

4.10.5. Limpopo

4.10.6. North West

4.10.7. Mpumalanga

4.10.8. Free State

4.10.9. Northern Cape

The Policy and Strategy Framework for Developing Small and Medium Enterprises in the Tourism Sector

National Support Programmes, Policies and Strategies to support SMEs in the Tourism Sector

4.11.1. The Marketing Tourism Growth Strategy for South Africa 2011 – 2013

4.11.2. The Tourism Act

4.11.3. Accelerated and Shared Growth Initiative for South Africa (AsgiSA)

4.11.4. Industrial Policy Action Plan 2010/11-2012/13 (IPAP)

4.11.5. National tourism Department Medium Term Strategic Plan 2010/11-2014/15

4.12. National Support/Development Programmes

4.12.1. Tourism Support Programme (TSP)

4.12.2. Tourism Learnership Project (TLP)

4.12.3. Poverty Relief Programme

4.12.4. Development Bank of South Africa

4.12.5. Industrial Development Corporation Tourism Business Unit

4.13. Provincial Policy Overview

4.13.1. Western Cape

4.13.2. KwaZulu-Natal

4.13.3. Gauteng

4.13.4. Eastern Cape

4.13.5. Free State

4.13.6. Limpopo

4.13.7. Mpumalanga

4.13.8. North West Province

4.13.9. Northern Cape

4.14. Identification of high potential subsectors

4.15. Job creation potential

4.17. Value Chains or opportunities

4.18. Challenges/Barriers

ICT Sector

OVERVIEW OF THE ICT SECTOR

Defining ICT

ICT Trends

International Trends

Main Growth Areas

Key Problem Areas

National Trends

The Policy and Strategy Framework for Developing Small and Medium Enterprises in the ICT Sector

National Support Programmes, Policies and Strategies to support SMEs in the ICT Sector

5.9. Development and Support Programmes on a National Level

5.10. Provincial Governments

5.10.1. Western Cape

Eastern Cape

5.10.3. Limpopo

Northern Cape

KwaZulu-Natal

5.10.6. Free State

Gauteng

5.10.8. Mpumalanga

North West

Identification of high potential subsectors

Job creation potential

Role players or key stakeholders

5.13.1. South African Government

5.13.2. International Software Companies

Established Corporate

SMMEs

Public/Private Sector Partnerships

Provincial Role players and Stakeholders

Blue IQ

The Innovation Hub

SAVANT

Cape IT Initiative

Internet Service Providers Association (ISPA)

Information Technology Association (ITA)

Information Industry South Africa (IISA)

Bandwidth Barn

Innovation Fund

5.14.10. ISETT

5.15. Value Chains

Challenges/Barriers

TOurism Sector

Demographic Profile of Businesses

Challenges, Obstacles and Opportunities

6.3. SEDA Support

ICT Sector

Demographic Profile of Businesses

7.2. Challenges, Obstacles and Opportunities

Seda Support

Recommendations

CONCLUDING REMARKS

LIST OF REFERENCES

Internet Sources

Internet Sources

Annexure A

List of Figures

Figure 1: Annual Turnover

Figure 2: The Schematic Cross Sectional nature of Tourism

Figure 3: Top 20 Source Markets

Figure 4: Tourist Arrivals to South Africa by Region in 2009 and 2010

Figure 5: Provincial distribution of bed nights 2009-2010

Figure 6: General Tourism Value Chain in South Africa

Figure 7: Percentage of Jobs created in the ICT sector (2003 – 2010)

Figure 8: ICT Value Chain

Figure 9: Business Location

Figure 10: Age of Business

Figure 11: Employees

Figure 12: Annual Turnover

Figure 13: Major Source Markets

Figure 14: Services

Figure 15: Effects of Challenges to Business

Figure 16: Access to Opportunities

Figure 17: Improvement of Seda Programmes

Figure 18: Programmes to be offered by Seda

Figure 19: Business Location

Figure 20: Representatives

Figure 21: Age of Business

Figure 22: Employees

Figure 23: Annual Turnover

Figure 24: Role in ICT sector

Figure 25: Effect of challenges on business

Figure 26: Efficiency of Seda Programmes

Figure 27: Assistance from Seda

Figure 28: Seda Programmes

Figure 29: Improvement of Services

List of Tables

Table 1: Type of Company and Services Offered

Table 2: Turnover Bands and Number of Employees

Table 3: Employment type per business category

Table 4: Challenges faced by business

Table 5: Interventions

Table 6: Opportunities

Table 7: Type of Company

Table 8: Annual turnover and employment

Table 9: Number of Employees

Table 10: Challenges faced by business

Table 11: Interventions

Table 12: Opportunities

Table 13: Outbound Tourism Expenditure

Table 14: Top Ten Countries for International Arrivals in 2010

Table 15: International tourist arrivals and departures

Table 16: Number of employers and employees per sub-sector

Table 17: Tourism Opportunities per Province

Table 18: Breakdown of jobs

Table 19: ICT Opportunities per Province

Table 20: Position of representatives

Table 21: Type of Company and Services Offered

Table 22: Employment type per business category

Table 23: Turnover Bands and Number of Employees

Table 24: Opportunities per Province

Table 25: Efficiency of Seda Programmes

Table 26: Number of Employees

Report Outline

This report is structured in three phases namely:

(i)Executive Summary: which provides an overview of the report’s essential information covering the scope of the study, methodology used, key findings and other key issues raised during the study. It also provides the conclusions and recommendations.

(ii)Desktop research Findings: This part of the report provides findings on the extensive desktop review research conducted in this sector and analysis thereof.

(iii)Fieldwork Findings: This section mainly presents the clients feedbackwhich comprised of SMEs and other stakeholders interviewed during the surveys.

The information in these sections formed the basis for findings analysis and data interpretation, from which key findings were derived and conclusions made. Specific recommendations and concluding remarks are included at the end of the report.

EXECUTIVE SUMMARY

This research is undertaken in line with Seda strategic objectives to contribute to the national government’s goal to sustainable and equitable social and economic development, employment and wealth creation. It is a study commissioned to focus on the performance of the Services Sector (Tourism & ICT), and establish its current performance and to identify the possible job creation opportunities. Furthermore, to recommend the effective role that Seda should play to stimulate job creation opportunities among small enterprises in the Services Sector.

In this regard, the Small Enterprise Development Agency (Seda) commissioned FEM Research to conduct Research on the Performance of the Service Sector, focusing on Tourism and the ICT sectors. Seda as an implementing agency of the dti seeks to up scale the support to small businesses operating in the Services sector through its various offerings and contribute to the major goal of job creation as emphasized in the New Growth Path. The Services sector has been identified as one of the key sectors through which significant employment creation could be realised. Within this context, this research study aims to establish how the Services Sector is currently performing; it’s short to long term prospects.

Outcomes of the Study

The findings of this research will serve as the basis for guidance in identifying possible value chains, potential projects, how and what effective role Seda could play in stimulating job creation among small enterprises in the Services Sector. Specifically, the results of this study will facilitate in the development of relevant programmes, products and services for Seda’s targeted clients with potential to contribute meaningfully in job creation within this sector, and contribute to economic growth in the country.

Objectives of the Study

The main objective of the study is to identify opportunities for products and services of Seda in the Services sector, and to provide the basis for the development of a strategy through which such opportunities could be exploited in order to create an enabling environment or support for new and existing enterprises with a potential to create jobs. More specifically, the objectives of the study are as follows:

  • Identification of key sector segments and value chains and analysis of key developments within such segments.
  • Identification of specific opportunities for provision of products and services by local SMMEs.
  • Identification of barriers and challenges faced by SMMEs and critical factors to operate successfully in this sector.
  • Identification of the required support from Seda within this sector.
  • Identification opportunities to leverage existing dti initiatives.

Methodology

The following approach was used in undertaking the study:

  • A comprehensive desktop research was carried out. This included literature review of various reports on prior studies undertaken on this sector. The main focus was mainly on the review of the tourism and ICT sectors development trends and major growth areas at the international, national and provincial.
  • Fieldwork Surveys conducted through disseminating questionnaires to Seda clients. The sample size was relatively small, as set out on the TORs where initially, 50 ICT businesses and 50 tourism businesses in this sector were to be profiled across the country. A list of businesses was compiled by FEM Research to survey, and Seda operations managers provided some databases with Seda clients in South Africa. However, a total of 500 businesses were contacted telephonicallywithin each sector.

Limitations of the study

Several challenges and limitations have been encountered while undertaking the study. These limitations are highlighted as follows:

  • Sample size: The sample size of 50 clients per sector is inadequate with respect to ensuring data validity.
  • Buy in from provincial offices: Many provincial offices refused to provide a database of clients citing concerns around confidentiality.
  • Assess links with current programmes
  • In assessing the current Seda support little information was provided as to the current status of the existing interventions.
  • Results of current M&E: No indication or results of any M&E exercises on current programmes was provided.
  • Size of the sectors being assessed: The sample size proposed for this study inhibited in-depth analysis of research findings.

Key Findings

This part of the report outlines the key findings on international and national trends within the sectors. The subsequent paragraphs will highlight the key results generated through the fieldwork and data analysis process.

Tourism Key Findings

International Tourism Trends

  • During 2010, the number of international tourist arrivals worldwide amounted to 940 million
  • International tourism receipts in 2010 were estimated to be US$ 919 billion
  • The top three visited countries were, France, the United States and China
  • International tourism arrivals across the globe grew by 4.5%, the total number of arrivals reaching 671millionin the first eight months of 2011
  • Eco-tourism represents an opportunity with development potential as more people around the world become environmentally friendly
  • The promotion of student travel and cultural tourism experiences and packages represent another international growth opportunity
  • The key challenges were;
  • Economic recessions
  • Increased competition
  • Rising fuel costs
  • Increasing tourism volume and expenditure

National TourismTrends

  • In mid-2010, tourist arrivals reached a record high of 8, 1 million
  • The South African sector experienceda15.1% growth in tourist arrivals and it outperformed global tourism which only grew by 6.7% in 2010
  • The total spend/yield from international tourists in 2010 amounted to R 72.6 billion
  • Total domestic tourist direct spend for the same period was R 21.1 billion[1].
  • Africa remains the largest market for the South African foreign tourism
  • the UK, USA, Germany, Netherlands and France remain the major top five overseas source markets
  • Tourism’s contribution to GDP in 2009-2010 was 7.9%
  • The Gauteng and the Western Cape have over the years been considered the most visited provinces in the country and account for the bulk of the bed nights spent in South Africa

Challenges faced by Tourism Businesses

Specific challenges faced by tourism businesses stem from the general challenges which are finance, building client bases and marketing.

Finance related challenges include the following:

  • Access to working capital
  • Maintaining cash flow
  • Managing overheads
  • Increase in transport costs which in turn increases general costs and reduces the available cash flow and annual profits as companies cannot increase their prices to meet the petrol price increases

Specific challenges faced by businesses in terms of building client bases include;

  • Little knowledge of marketing which leads to low numbers in client bases
  • Increased competition from other companies
  • Little knowledge of the tender processes in order to gain government clients and increase current client bases

Marketing specific challenges that businesses faced included;

  • Lack of resources to market the business efficiently which in turn leads to low exposure and poor numbers of clients
  • Lack of marketing knowledge and understanding
  • Increased competition from other businesses particularly established businesses with better marketing tools and market access

Opportunities for SMEs in the Tourism Sector

Accommodation opportunities exist for small businesses operating within the tourism sector, in particular these opportunities are for cheaper accommodation packages and facilities. SMMEs can access opportunities in the accommodation industry by offering accommodation related services. Within the market, there is an increased need for Bed and Breakfast type of accommodation and backpacker facilities as well as more affordable family friendly accommodation.

More pronounced opportunities for emerging and existing small enterprises include the following:

  • cleaning services
  • catering services
  • laundry services
  • gardening services
  • delivery services

Furthermore, opportunities are also highlighted in beach tourism, cultural tourism and eco-tourism activities are more suited to small scale operators offering personalised services and activities. These activities include:

  • shuttle services
  • personalised guided tours
  • hiring of bicycles or equipment such as surfboards and kites etc.

SMEs could also exploit opportunities available in terms of providing business support to bigger businesses running tourism and conference facilities. These are the areas with high employment creation potential. These include:

  • cleaning
  • catering
  • transport
  • delivery services

Key Findings from Fieldwork Surveys

The majority of the businesses that were surveyed in the tourism sector fall within the accommodation sector and are registered as closed corporations. It transpired through the findings that most of businesses in these sector fall within the micro and small businesses bracket that has a turnover less than R 400, 000 per annum and employ less than ten people. The major source markets for these businesses are local government and domestic tourists within South Africa.

Clients Feedback

The businesses were assessed and categorised according to income and number of employees. These indicators were used to determine the size of the businesses. The majority (45%) of the businesses interviewed were small enterprise with an annual turnover of R150,000 or less, 27% have an annual turnover of R150,000-R400,000 and 14% have an annual turnover of R400,000-R1000,000. Only 2% of the businesses interviewed had annual turnovers of more than R1000,000, while 10% were unaware of their annual turnover as the businesses were less than a year old.

Figure 1: Annual Turnover

The businesses with the smaller turnovers; 0-R150, 000 and R150, 000-R400, 000 generally employ 1-5 employees. The majority (59%) of businesses in the 0-R150, 000 range employ 1-5 employees, followed by 41% employing 5-50 employees while no businesses that were interviewed employed more than 50 employees. The majority of businesses with an annual turnover of more than R400, 000 employ between 5-10 employees, and none of them employ more than ten. This is interesting to note because despite experiencing growth and expansion from small business it appears as though larger tourism businesses employ a maximum of ten people at a given time.

Table 1: Turnover Bands and Number of Employees

Turnover Category / Number of Employees
0–5 / 6 - 20 / 21-50 Employees / Grand Total
0-R150,000 / 59% / 41% / 0% / 100%
R150,000-R400,000 / 62% / 38% / 0% / 100%
R400,000- R1 000,000 / 29% / 71% / 0% / 100%
R1 000,000 and above / 0% / 100% / 0% / 100%
Just started / 60% / 40% / 0% / 100%

The highest number (76%) of permanently employed workers are found in businesses that employ between 5 and 10 employees,while the lowest number (38%) of permanently employed workers are found in businesses that employ more than 10 employees. Businesses that employ more than ten employees but less than 50 accounted for 40% of the temporary staff employed, and 38% of the permanent staff. The micro businesses that employed between 1 and 5 employees had the highest number (49%) of highlyskilled staff. Tourism is affected by seasonality, and it is interesting to note that 28% of micro businesses (1-5employees) employ seasonal workers, and larger businesses employ even less.

Table 2: Employment Type per Business Category

Number of Employees / Temporary / Contract / Permanent / Seasonal workers / Skilled employees
Micro (1 – 5) / 22% / 5% / 46% / 28% / 49%
Very Small (6-20) / 60% / 11% / 76% / 16% / 42%
Small (21-50) / 0% / 0% / 0% / 0% / 0%

Barriers & Challenges

Through the assessment process firms were asked to outline the current challenges that they face in the day to day operation of their business. From this analysis there are three key problem areas that small business in this sector have identified, these are:

  • Finance (43%)- the biggest challenge for tourism businesses was access to finance, the need for start-up capital, expansion capital and cash flow during low season affected almost half of the business interviewed
  • Building client base (17%)- the high number of tourism businesses and the low number of tourists visiting some areas made it difficult for some businesses to attract and maintain a client base
  • Marketing (14%)- is a challenge for businesses as they need to have strong marketing techniques to differentiate their businesses and attract clients

Table 3: Challenges faced by businesses

Challenges / Count of Challenges
Building client base / 17%
Finance / 43%
Marketing / 14%
Lack of skilled staff / 4%
Increase in petrol prices / 2%
Training and marketing / 4%
None / 6%
Struggle to expand / 6%
Lack of resources / 4%
Grand Total / 100%

The following are some challenges documented in detail in subsequent chapters of the report:

  • Transformation and Access to Tourism Opportunities
  • Increasing Distribution and Geographical Spread of Tourism Products and Services
  • Addressing Seasonality of Tourism Demand
  • External Factors that Influence Tourism Supply and Demand: Political, economic and social factors such as economic fluctuations, political instability and social unrest can affect the tourism flows

Existing Support