The Department of Tourism’s 2010 Research Report (updated in 2013) on transformation in the tourism sector finds that there is polarity in the lower tiers, or Bands 1 and 2, of the tourism sector when it comes to ownership. In the study, Bands 1 and 2 refer to enterprises with less than R2.5million (€146 000) turnover and between R2.5 million and R35 million (€2m) turnover respectively. The polarity should be pretty obvious, even to the casual observer. This state of affairs is, to a large extent, rooted in the circumstances that have led to the establishment of most of the businesses in those bands, the small accommodation businesses in particular.

More often than not, you will find that the vast majority of small accommodation establishments in Bands 1 and 2 were actually family homes that have been converted into guest houses or B&Bs once they became ‘empty nests’, the children of the family having moved out. There are also cases where the businesses have been established as a result of the owner, a former teacher or nurse for example, having taken (or been forced to take) an early retirement package, which was then used to acquire a property for conversion into a small accommodation business. 

The ownership structure of such an establishment is either black or white family-owned, often with the equity fully vested as the bond has been paid off.

Irrespective of how the business came to be, when it comes to compliance with the black ownership component of the BEE codes, white family-owned smaller accommodation operations are often reluctant to comply, as they perceive it unfair to give away value that they have worked so hard to create for themselves and for their inheritors. They simply see no reason why they should sell 25% of their business to a black person in order to comply with a policy that they perceive as having no clear benefits to themselves.

Another factor that has contributed to Black-White polarity of ownership in the so-called Bands 1 and 2 in the study has to do with the fact that the old BEE codes provided smaller enterprises either exemptions (Band 1), or optionality in terms of which BEE elements they could choose for their scorecards (Band 2). The vast majority of white owners in Band 2 avoided the black-ownership element. So in a nutshell, and as the study has demonstrated, the black or white ownership polarity can be explained away by taking into consideration the historical context of these businesses as well as provisions in the old BEE legislation that allow the same businesses some flexibility in terms of compliance.

But the question that should be asked is to what extent will the new Tourism BEE Charter Codes of November 2015 address polarity and bring about compliance with black-ownership now that it is a priority element for all Qualifying Small Businesses (QSEs), meaning those businesses with annual turnover ranging from R5m (€292 000) to R45m (€2.6m)? For example, would black investors be interested in buying equity in a white-owned business with an annual turnover of only R5m? Would banks be prepared to fund such a transaction? And even if there were black investors who were prepared to acquire equity in these lower level QSE operations, many of which are marginal, would there be enough cash flow to meet the working capital requirements of the business and provide a fair return for the now black and white owners? Wouldn’t a prospective black investor be relatively better off investing in a franchised restaurant operation, for example, than buying into a white-owned QSE guesthouse or travel agency with no real prospect of further growth?

I am not entirely sure that the amended BEE codes, which now make the ownership element a priority element that is strongly supported by a discounting principle, will be effective in addressing polarity of ownership among QSEs, especially those in the R5m-R10m (€292 000-€583 000) annual turnover range. This is the gap range created by the misalignment of the tourism charter codes to the generic codes. And, to be frank, for me, who owns the small three-roomed B&B around the corner in my neighbourhood, is of no major consequence. That the B&B is able to provide a livelihood for the black or white owner and a couple of employees, most likely black, is good enough for me. 

I remain convinced that the route to genuine transformation and meaningful black ownership of the tourism industry is through a new class of black entrepreneurs who have industry knowledge, skills, business acumen, and creative flair; a new class of go-getters who have the ability to identify potentially lucrative opportunities in the sector as well as the energy, resilience and patience to pursue those opportunities with dogged attitude, aware that success cannot be achieved overnight. This new class of entrepreneurs may well emerge from the ranks of the black men and women who are currently employed in the industry. 

Having said the above, I would like to sound a word of caution: We must take into account the industry’s experience of the 2010 FIFA World Cup, when greed overtook common business sense and many South Africans lived to regret their ill-informed decision to start a business on the back of this single event. Yes, the tourism industry does offer prospects, yes, the tourism industry is growing if the tourism statistics are to be believed, but we must be very careful not to overstate the investment opportunity, particularly for guesthouses and B&Bs, as there are many that have either closed down or continue to remain marginal operations.