ZIZILE LEPHALALA: It’s game on for the tourism sector

With the majority of tourism industry operators closing completely for extended periods during Covid-19 lockdowns and SA being placed on the UK’s “red list” in 2021, it’s safe to say companies operating in the SA hospitality and tourism industry have endured a challenging few years.

Since the Covid-19 restrictions were completely lifted early in 2022 trading the sector had gradually returned to normality. The sector is no longer in survival mode but in strong recovery. Key players in the sector have been reporting positive financial performances, with losses turning into profits and being able to service their long-term debt obligations comfortably. Stats SA reports that SA’s GDP is returning to pre-Covid-19 levels, and with all systems go after a bumper Christmas season, this could be the sector to watch in 2023/2024. 

SA is a beautiful country with world-class attractions, but we often forget just how strategically important the hospitality sector is to the economy. Pre-Covid-19 lockdowns 10.3-million tourists visited SA annually, with the sector contributing 7% to GDP and being responsible for 2.8-million jobs.

For context, the agriculture sector contributes 2.4% to GDP and employs about 800,000 people, while construction accounts for only 2.7% of GDP and about 1.1-million jobs. In 2021 the hospitality and tourism sector only contributed 3.7% to GDP and employed roughly 1-million people, a significant drop for such a key contributor to GDP. It is estimated that close to 500,000 jobs were shed in 2020, the first year of the pandemic.

A look at the results of the JSE-listed hospitality groups suggests a return to profitability, led by Sun International. In addition to investing in a significant upgrade of its Sun City precinct, the group has declared its first dividend in six years. Industry peer Tsogo Sun Gaming reported a stronger than expected recovery to profitability for the six months to end-September, with earnings before interest, taxes, depreciation and amortisation at 99% of pre-Covid levels. On average the hotel operators on the JSE are now trading at about 70% of pre-Covid levels, with full recovery expected this year and next.

Of course, it’s still early days, and we’re cognisant that the global consumer is still under pressure due to high inflation and rising interest rates, which may affect the recovery in the sector. But the numbers we’re seeing are promising. When SA tourism gets back to pre-2019 levels it will be a game changer for the economy and employment in the country.

Catering for digital nomads

The flexibility that has arisen due to the pandemic also bodes well for the industry. As a result of Covid-19 and lockdowns we’re seeing an increase in the number of employers embracing flexible or hybrid work models that allow staff to work from anywhere.

Technology group Cisco’s Global Hybrid Work Study 2022 highlighted that 76% of those surveyed had seen financial benefits from not having to incur travel costs to work, while 79% reported an improvement in work-life balance.

Catering for “digital nomads” by offering dedicated workspaces at hotel properties is expected to attract those leveraging this flexibility to enjoy more leisure time and spend more money in the hospitality sector.

So, whether you plan to visit the beach or go on a game drive, bring your laptop along in 2023 as you might find you don’t want to return home quite as quickly as you used to, thanks to the hybrid work environment that has also supported domestic tourism.

There is now a recognition from the government that we need to make the industry more attractive for tourists to visit the country. The loosening of visa restrictions — particularly for those travelling with young children — and the addition of new processing centres in India and China should boost inbound arrivals from these regions in the medium term.

Intra-African travel

The next trend we are watching closely as a pan-African focused bank is growing economic prosperity and a potential boost from the African Continental Free Trade Area (AfCFTA). It is often forgotten that intra-African travel makes up the largest component of inbound tourism, followed by the US and Europe.

While tourists from Lesotho, Mozambique and Zimbabwe are not the equivalent of the US or European tourists visiting SA wine farms and game resorts, they are a key contributor to inbound tourism. The World Bank estimates that the AfCFTA could be a major driver of foreign direct investment, which is expected to increase by 111%-159% by 2035. This would drive an increase in household incomes as well as broader economic activity.

In addition to the expected increase in African tourists the rest of the world is also expected to return to SA. Total international arrivals are expected to steadily increase this year and revert to pre-Covid numbers by 2024.

• Lephalala is sector head: health care, construction & hospitality at Absa Corporate & Investment Banking.