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Tourism Investment

• Global opportunities and challenges - trends
• Relative competitive strength of domestic sector

The most widely accepted definition of a tourist (utilised by the World Tourism Organisation and all its members) is someone who travels away from his or her home for more than one day and less than one year. For foreign tourists this involves visitors who stay at least one night and less than one year in collective or private accommodation in the country. This includes students but excludes workers and contract workers. In the domestic market, a tourist is a resident of South Africa who spends the night away from their usual environment and also less than one year. This excludes day visitors and people who get paid in the place they visit.

International and domestic tourists travel for many different reasons. Broad classification categories for motivators of travel are Holiday, Business and Visiting Friends and Relatives (VFR).

Tourism is the world's largest sector, with annual revenues of almost $500 billion. Globally, tourism accounts for roughly 35 per cent of exports of services and over 8 per cent of exports of goods. In the region of 340 million people are directly and indirectly employed in tourism around the world.

In 1950, international foreign tourist arrivals, a key indicator of tourism growth, were an estimated 25 million. By 2004, they had reached 760 million and are predicted to grow to 1,56 billion in 2020.

The strong growth of the tourism sector over the past 50 years is in part a result of economic globalisation, including innovations in transport and information and communication technologies, which have made travel cheaper and more accessible. Other factors leading to tourism's exponential growth include increasing leisure time and disposable income in the leading tourist-generating markets of Northern America, Western Europe and Japan.

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Global opportunities and challenges - trends

Tourism is a major economic opportunity for many countries, particularly those in the developing world. For 83 per cent of countries in the world, tourism is one of the top five sources of foreign exchange. Many island states including certain Caribbean countries derive half their GDP from tourism.

Tourism is labour intensive and presents comparatively low barriers to entry for entrepreneurs with regards to skills. It also has a relatively low ratio of investment to job creation and can create many jobs in a comparatively short time. Tourism generates employment and income in supporting industries, such as financial services, construction, cleaning, security, laundry, arts and crafts, beach vendors, food and beverages, etc.

The Tourism sector stimulates enormous investment in infrastructure and provides substantial tax revenues while generating significant export earnings.

Tourism also offers the opportunity of bringing development to rural areas, and can allow for the sustainable utilization of the natural environment. Tourism can build cross-cultural relations, form a force for nation-building and national identity and branding.

International travel patterns are changing. In 1950, 97 per cent of international tourists went to Europe or North America. By 1999 this had fallen to around 75 per cent. In recent years, domestic and intra-regional tourism in the developing world has grown rapidly, especially in emerging economies such as South Africa, Thailand, India, China and Mexico.

Over 80 per cent of all international tourists come from just 20 countries in the North - 17 in Europe plus the USA, Canada and Japan. Five nations (the US, Japan, Germany, France and the UK) account for almost half of all tourist spending.

International tourism is particularly vulnerable to perceptions and global events. Between 2001 and 2003 the global tourism economy suffered a number of setbacks. The terrorist attacks of September 11 2001 brought about a sudden decrease in travel, affecting all parts of the tourism value chain and changing travel patterns forever. Other global events affecting tourist demand in recent years have included a global economic recession (particularly in the major tourist generating markets of the US, Japan and Germany), SARS, war in the Middle East, as well as the ongoing terrorist attacks and threat of terrorist attacks in many regions of the world (eg: Bali, Kenya, Tanzania, Malaysia, etc.). Recently the devastating Tsunami impacted on the mass tourism destinations of South East Asia.

In 2004, after three years of little growth, international tourism experienced a strong rebound achieving a record of 760 million foreign arrivals - an increase of 10% over 2003. Growth was common to all regions, but was predominantly strong in Asia and the Pacific (+29%) and in the Middle East (+20%). Double-digit growth was also registered in the Americas (+10%), while Africa (+7%) and Europe (+4%) performed below the world average, but still substantially improved their results of previous years.

2004 was a particular buoyant year for destinations in North Africa, which experienced a 17% growth rate, while the performance of sub-Saharan destinations was rather flat, registering only 1% increase. South Africa performed best in this region, with a 2,7% growth in foreign tourist arrivals between 2003 and 2004.

It is estimated that there will be 77.3 million international arrivals to Africa in 2020, this represents an annual growth rate of 5,5% over the period 1995 to 2020. Africa's overall share will increase to 5% of total by 2020. In Africa, long haul travel is expected to grow more slowly than intraregional travel. In other words, there will be stronger growth in arrivals between African countries than from visits to Africa emanating from outside of the continent. For this reason regional tourism is critical. As economic development in Africa increases, South Africa can expect to benefit from an associated increase in tourist arrivals (be it for business, leisure, education or medial reasons).

Although much emphasis is placed on foreign or international tourism, domestic tourism (travel within one's own country of residence) remains the engine room of many tourism economies, and is more resilient than international tourism. Post 9/11, in an era when foreign tourist demand is affected by international events, a robust domestic tourism economy is critical, both as the backbone of the sector and as a driver of competitiveness and innovation. Globally, domestic tourism is estimated to account for about 4 to 5 times more visits than international arrivals.

Recent trends in global travel include:

• Increasing domestic and short-haul travel and less long-haul travel due to global safety and security concerns and cost
• Increasing independent travel, decreasing organized tours
• Later bookings and more self-planning for trips
• Growth of the low-cost airline industry, particularly in Europe
• The growing maturity of tourists who are increasingly seeking a differentiated tourism experience (such as cultural tourism, ecotourism tourism, adventure tourism, etc.)

The maturation of the global tourism industry, and the phenomenon of widely travelled and seasoned tourists, has required destinations to differentiate themselves. For this reason, as well as scarce financial resources, most destinations have made strategic decisions to focus on particular market segments.

In terms of the global structure of the tourism sector, intermediaries, also known colloquially as "the channel" or "the trade", play a critical role in connecting the consumer with destination products. In the case of less established or well-known tourism destinations, such as South Africa, little international travel planning and booking takes place outside of this traditional tourism intermediary value chain. Tour operators and travel agents are key intermediaries.

Within the tour operating subsector, in recent years investment has been typified by consolidation in the form of mergers and acquisitions. Within Europe, a few major outbound operators including TUI, Thomas Cook, and Kuoni monopolise the packaging, marketing and distribution of tourists from this major tourist-generating region.

The airline subsector was particularly hard hit by the downturn in international travel post 11 September 2001. The industry recession precipitated the bankruptcy of a number of major airlines including Swiss Air in Switzerland and numerous North American airlines. Most major international airlines are now linked into four global 'alliances': Oneworld, Star, Sky Team and Qualiflyer.

Leading global hotel brands include Best Western, Holiday Inn, Days Inn, Marriott, Comfort Inns, Hilton and Sheraton. There has recently also been a growth in smaller, distinctively designed hotels, offering a personalised service for sophisticated travelers, often referred to as boutique hotels. Other accommodation alternatives to large, branded hotels have also mushroomed in recent years, such as bed & breakfast and guesthouse accommodation, as well as backpacking lodges.

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Relative competitive strength of domestic sector

The total number of foreign tourist arrivals in South Africa per annum grew from 3,7 million in 1994 to 6,7 million in 2004, more than doubling. South Africa is a leading tourist destination on the African continent and also a key tourist-generating country for the continent, particularly the SADC region.

Figure 1: Foreign Tourist Arrivals in South Africa: 1965 to 2004

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Between 2003 and 2004, total foreign arrivals to South Africa grew by 172 000, or 2,7%. Compared with key competitor destinations (USA, Mexico, Thailand, Brazil, Australia, Kenya), South Africa recorded the lowest growth in percentage terms.

The great majority of international arrivals to South Africa originate from other African countries, particularly SADC countries. These arrivals are less vulnerable to the global events and perceptions and are largely motivated by cross border trade. Total arrivals from Africa and the Middle East to South Africa increased by 4,2% in 2004, to 4 673 724.

In terms of overseas markets, the United Kingdom, Germany, United States, France and Netherlands are the most important tourist source markets for South Africa. Between 2003 and 2004, growth in foreign tourists arrivals was experienced from all regional portfolios other than Europe, where arrivals from France and Germany dropped and UK and Netherlands stagnated. Tables 1 and 2 which follow show the major growth and deline markets for South Africa between 2003 and 2004.

Table 1: Top 10 Markets driving growth of foreign tourists arrivals in 2004 in South Africa

	2004	2003	Growth	%Change
Lesotho	1,470,953	1,284,953	186,000	14.5%
Swaziland	849,176	800,686	48,490	6,1%
USA	208,159	187,447	20,712	11%
Bostwana	802,715	791,785	10,930	1.4%
Namibia	225,882	216,313	9,569	4.4%
China (Incl Hong Kong)	51,080	42,822	8,258	19,3%
Zambia	121,384	114,706	6,678	5,8%
Dem Rep of Congo	10,947	5,893	5,5054	85.8%
Australia	75,675	71,687	3,988	5.6%
Brazil	21,137	17,452	3,685	21.1%

Table 2: Major Decline markets in 2004 in South Africa

	2004	2003	Growth	%Change
Mozambique	355,804	421,201	-65,361	-15,5%
France	109,276	127,760	-18,484	-14.5%
Zimbabwe	551,13	563,877	-12,764	-2,3%
Germany	245,452	257,018	-11,566	-4,5%
Belgium	37,277	42,735	-5,458	-12,8%
India	36,172	41,018	-4,846	-11,8%
Spain	22,894	25,597	-2,703	-10,6%
Malaysia	10,535	12,049	-1,514	-12.6%
Mauritius	13,806	15,235	-1,429	-9,4%
Seychelles	2,595	3,913	-1,318	-33,7%

South African Tourism aims to increase the total number of tourists to South Africa, and within that attract a larger portion of 'leisure' travelers. Currently, compared against key competitors, South Africa attracts the least leisure travellers as a percentage of total travellers. South African Tourism's marketing strategy identifies a core portfolio of countries for targeting based on their relative attractiveness as source markets, and relative importance to South Africa.

Figure 2: Core, Tactical and Watch list source markets

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With regard to domestic tourism, in South Africa receipts comprised 47% of total tourism receipts in 2003. It is estimated that in the region of 49,3 million domestic tourist trips were made around the country in 2002/3, accounting for R47 billion in value. Due to the volatility of international tourism, increasing focus is being placed on growing and strengthening domestic tourism. It has been realized that a robust domestic market can assist with the insulation of the tourism economy from international events and shocks. If adequately developed, it can also drive competitiveness and innovation.

South African Tourism has undertaken a number of marketing initiatives to capitalize on the opportunities presented by the domestic market. In servicing a growing domestic tourism market, a product gap has been identified. Many of the tourism establishments in existence are positioned and priced for foreign tourists, and not appropriate to the needs of domestic market segments. This is one of the areas where the product development and investment strategy must focus.

The South African tourism sector has been in a period of high growth over the past ten years. The industry currently finds itself in a growth phase characterized by:

• A large number of new entrants entering into the market as operators in a variety of sub-sectors
• Overcapitalization and excess capacity is being created by the new entrants in some parts of the industry (e.g. Luxury game lodges)
• Consolidation at the top-end of the market as the large players drive for scale economies, and attempt to gain control over pricing and capacity, and attempt to dominate key relationships via size
• On average, high levels of fragmentation with weak linkages / poor relationships within the sector

Tourism is characterized by the high number of small, medium and micro players. As barriers are low, it is relatively easy for an entrepreneur to open a bed&breakfast, or start a tour operating company. These small enterprises are extremely valuable to the South Africa tourism economy as they are able deliver a set of highly diverse and customized experiences that larger enterprises find difficult to offer. A key challenge to their sustainability lies in access to the market through the channel, which is used by the majority of travellers to South Africa, and access to skills and training to be able to deliver a quality experience.

In 2005, the SA tourism sector is dominated by a few large players. Avis, Imperial, Budget Rent a Car and Hertz are the leading car hire companies. In airlift, SAA is the most dominant carrier on international routes. Other than SAA, domestic airlines are Nationwide, Comair, 1Time and Kulula.com. Southern Sun, Sun International, Protea hotels, City Lodge group and SAN Parks own and manage the largest supply of accommodation plant, while the channel is dominated by Tourvest/ Imperial Holdings (including Spingbok Atlas), Bidvest and Cullinan Holdings. The control of the industry by a few players demonstrates the consolidation that has been happening globally and locally in tourism over the past decade.

Figure 3: The Tourism Cluster

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Direct tourism employment numbers have grown consistently from 1998. Despite its significant current contribution, tourism could contribute more to employment in South Africa. The South African tourism sector currently extracts less jobs per tourist than key competitor destinations (Australia, Thailand and Brazil). The low rate of direct employees to international visitors suggests that we may be under investing in human capital.

Considerable investment in tourism has been experienced from both the private and public sector. Public sector investment that enables tourism growth includes the continuous upgrading of international and other airports, roads, convention centers, signage, etc. More work is necessary to upgrade and develop further public transport, public amenities, information centres and services, safety and security infrastructure, and sports facilities in preparation for increasing pressure from tourists and major events, such as the 2010 Soccer World Cup.

The tourism sector charter for Black Economic Empowerment was launched in May 2005. This will assist to drive transformation of the sector, which is currently white dominated. Transformation is a competitiveness imperative as new players, who are able to develop product and penetrate new market segments (such as domestic tourists), will drive innovation. In addition, many sophisticated international tourists wish to experience South Africa as an authentic, representative and integrated destination.