The the broad-based black economic empowerment (B-BBEEE) codes for the tourism sector, which are more stringent than the generic codes, will result in additional cost burden on all forms of tourism businesses, members of the industry have warned.

The increased cost of compliance and the revised thresholds will possibly limit industry growth, said Clifford Ross, Chief Executive of the City Lodge Hotel Group.

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The Department of Trade and Industry maintains that the amendments from the generic codes are to address the unique features of the tourism sector and that the sector codes, gazetted in November last year, will result in greater transformation.

Jo Forbes, of Forbes BEE, said the tourism industry’s concern was understandable as the new codes were far more onerous and companies were struggling to maintain the same B-BBEEE levels that they had on the previous codes. “Companies that were usually levels 2 or 3 are finding it difficult to achieve a level 1 on the new codes. They are extremely onerous and to reach the levels have to be implemented comprehensively,” she said.

The lowering of the qualifying revenue threshold for exempted micro-enterprises (EMEs), qualifying small enterprises (QSEs) and large enterprises compared with the generic codes has caused particular concern.

“Under the new codes, EMEs need to have total revenue less than R5m per annum compared with R10m under the generic codes,” explained Forbes. QSEs’ revenues must be between R5m and R45m compared with R10m and R50m and large tourism enterprises’ revenues were over R45m compared with R50, she said.

Ross said the lowered thresholds had not been adjusted realistically for inflation.

“The resultant effect is that more SMMEs have been pushed into the level of QSE, which in most cases will result in a significant increase in the cost of compliance and administration to these entities,” he said. Effectively, many of South Africa’s small B&Bs and tour operators would now have to comply.

Other significant changes include the ownership percentage of 30% as opposed to 25% in the generic codes. The target of black women ownership is also 5% higher and the target for new entrants is 10% compared with 2% in the generic codes. Enterprise and supplier development (ESD) targets as a percentage of nett profit after tax are 0,5% (cumulatively 3,5%) higher than in the generic codes and three bonus points have been allocated for scoring for entities that contribute towards the Tourism Marketing South Africa (TOMSA) levy.

“The higher targets for ownership will place increased pressure on all business to attempt to grow their black shareholder base,” said Ross. However, he argued that listed entities, which in some instances were ahead of the market in structuring BEE deals, may not be able to achieve these targets due to regulatory issues around changes in ownership.

An increase in black ownership would possibly require further new BEE deals compelling existing shareholder to sell the required 5% to accommodate this increase, said Ross.

“Funding for such a transaction may be difficult in the current economic climate,” he said. “The exclusion of foreign fund investments from qualifying as mandated investments further compounds the problem for publically held companies due to the increased base on which black shareholding is measured,” he explained.

Geordin Hill-Lewis, DA Shadow Minister of Trade and Industry, said that while it was still early days there were concerns – and rightly so.

“The tourism codes are more strenuous, or strict, than the generic codes of good practice. This makes it harder for the industry to comply with them, and there is no doubt there are negative consequences, especially for small tourism businesses,” Hill-Lewis said. “It also makes it confusing for businesses when sector codes are different from the generic codes. It would be better if all codes were the same, so that business knew where they stood.”

The revised codes will affect BBBEE scorecards in the new financial year.