Guide to the Tourism Equity Fund

May 24, 2024

Overview Of The Tourism Equity Fund

The Tourism Equity Fund (TEF) is a fund created by South Africa’s Department of Tourism (DT). The fund was established in collaboration with the banking institutions in the private sector. SEFA will be responsible for implementing the fund.

The TEF is in line with existing B-BBEE legislation and aims to promote growth and transformation in the tourism sector. Furthermore, its purpose is to address funding challenges that entrepreneurs in the tourism sector face, all while encouraging job creation.

This guide addresses important information about the TEF, covering important questions such as the application process, the focus of the fund, how it aims to encourage job creation and how it creates value in the tourism sector.

Growth And Transformation In Tourism

The Tourism Equity Fund aims to promote the participation of black enterprises within this sector, ultimately transforming the tourism industry. Through this fund, inclusivity is encouraged and historical imbalances are addressed. According to the government, progress has been slow, therefore the TEF answers the need for a funding mechanism that supports majority black ownership and control at 51% for small businesses within tourism.

Economic Impact of Tourism

Since the tourism industry in South Africa is 8,6% of the country’s economy, and is responsible for 9,2% of total employment, the country at large can benefit from developing this sector.

Furthermore, targeted groups such as youth and women will be uplifted through this fund. This is vital because the country struggles to create formal employment opportunities for youth.

Transformation Initiatives with the Tourism Equity Fund

The Tourism Equity Fund will attempt to transform the sector by scrutinising applicants on the number of jobs their business can create or sustain, where the business in located, and if owners fall into the targeted groups.

The fund will distribute 80% of the total fund to businesses that are already in operation. It will distribute the rest of the fund to new start-up tourism businesses.

Opportunities And Challenges In Transforming South African Tourism

The impact of the COVID-19 pandemic on the tourism industry is undeniable. Yet, since this sector is an important contributor to the South African economy, it is important to develop this sector.

Opportunities

Tourism in the Western Cape such as Cape Town has a 20% year-on-year growth. It sees both domestic and international travellers visit this area’s natural beauty and many attractions. In other parts of the country, however, the same is not seen. This is an opportunity that small business owners can capitalise on.

After legal disputes about the requirement of 51% black ownership for applicants, the requirements were changed in late 2023. The Tourism Equity Fund court case resulted in lowering the criteria to 31% ownership to include businesses who intend to grow black ownership in their business with the grant.

Challenges

The Tourism Equity Fund was developed as an answer to the lack of development that the government was seeing in the tourism sector. With the fund, the aim is to encourage growth and participation form target groups by funding existing businesses and start-ups.

However, the Department of Tourism has indicated that there are various reasons for this industry being slow to adopt development goals previously set out. One of these is the lack of funding, but another is also the reluctant of family businesses to change the way they have been working for years.

The funding provided through the TEF hopes to rectify this and encourage businesses to empower black women and the youth throughout the tourism industry.

Funding And Financial Support

The Tourism Equity Fund has R 1,2 billion available to share with successful applicants. Funding will be provided through a combination of grant funding and debt financing. However, grants will be capped at a maximum of R 20 million.

Only minimum transactions of R 10 million will be considered.

Funding for the R 1,2 billion is shared by the Department of Tourism who will contribute R 540 million, the Small Enterprise Finance Agency with a contribution of R 120 million, and participating commercial banks providing up to R 594 million from commercial banks that will participate in the programme.

Support is provided to businesses across the tourism value chain. These areas are:

Accommodation

Any businesses that provide lodging space for clients such as hotels, resorts, bed and breakfast (B&B), guesthouses, game lodges and backpackers.

Hospitality and Related Services

Hospitality encompasses facilities that cover a range of activities and leisure services. This includes conference and convention venues that are significantly tied to accommodation facilities, restaurants, or  privately owned attractions.

Travel and Operator Services

Within this group, businesses that provide a range of services that make travel possible are listed. These include tour wholesalers and operators, travel agents, tourist guides, car rental companies, transport services and coach operators.

Other Tourism-related Initiatives

Any other business that falls into the travel and tourism industry but doesn’t fit the above-mentioned categories, can still apply for the grant as long as they form a part of the value chain as prescribed in the Tourism B-BBEE Sector Code.

Application For The Tourism Equity Fund

The applications for the Tourism Equity Fund opened on 6 November 2023. The entire process is divided into three stages.

SEFA will be responsible fot the implementation, execution, and management of the Fund through a Fund Management Agreement. The Department of Tourism will support and monitor the implementation of the TEF monthly.

Criteria for Tourism Equity Fund Application

To qualify for the Tourism Equity Fund, businesses must meet the criteria:

  • The business must have 100% South African ownership.
  • There needs to be a minimum of 30% black ownership.
  • The business must be registered as a legal entity in South Africa in accordance with the relevant legislation, including the Companies Act of 1973 (as amended), the Close Corporations Act of 1984 (as amended), or the Cooperatives Act of 2005 (as amended).
  • It needs to be fully compliant with applicable laws of the country.
  • Depending on the debt or loan requirements, be compliant with the requirement set out by various financiers.
  • It needs to operate withing the specified categories of the tourism sector and align its activities with the fund’s objectives and its priorities.

Stage 1: Application

Applications must be completed and submitted online through the sefa website (www.sefa.o​rg.za). This is for the grant and/or loan component, but also for loans from other financiers.

Every applicant needs to ensure that they meet the criteria before applying.

The application form is extensive and requires many supporting documents such as bank statements, FICA-documentation and BBBEE certifications to name a few.

Stage 2: Pre-Screening

All applications are screened to ensure they meet the qualifying criteria and are eligible. Applicants who meet the criteria will go on to the next stage.

Stage 3: Due Diligence

At this stage, applications are assessed for financial viability, growth, and sustainability. It looks at processes, systems, and capabilities with the supporting documents. If applicants are then deemed fit, their application is approved subject to the availability of funds.

Impact Of The Tourism Equity Fund

SEFA has reported that more than 985 applications have already been submitted with over 131 completed applications meeting the necessary requirements. These represent a combined investment value of just over R 2 billion.

A preliminary report has indicated that 45 of the registered applications originated from Gauteng, with 21 from KwaZulu-Natal. Further, Limpopo, North West, Eastern Cape and the Western Cape had between ten to fourteen entries. The Free State only had one.

SEFA aimed to have the three stages of the 131 applications completed by the end of 2023.

Furthermore, since the beginning of April 2024, a total of 2 355 applications were received. 327 of these applications were fully compliant and represented an investment value of over R 4,5 billion in loan requests.

Status of Application Processes

SEFA reports that of 327 compliant applications to the TEF so far:

  • 69 are at the pre-screening stage
  • 258 have been successfully pre-screened
  • Of the 258 pre-screened applications, 138 feedback letters have been sent to applicants
  • 120 letters were sent to request further information from applicants

The provincial spread of applications is:

  • 117 applications from Gauteng businesses
  • 46 applications from KwaZulu Natal businesses
  • 40 applications from Eastern Cape businesses
  • 32 applications from Western Cape businesses
  • 30 from Limpopo businesses
  • 20 from Mpumalanga businesses
  • 19 from North West businesses
  • 16 from Northern Cape businesses
  • 7 from Free State businesses

In spite of the current high volumes of applications, qualifying small businesses in the tourism sector should consider applying for this fund. With the minimum amount of R 10 million, businesses can grow both the enterprise as well as the tourism industry as a whole. Successful applicants can also contribute to empowering targeted groups through tourism.