Hospitality association, FEDHASA, has called on national local government (municipalities) to intervene urgently in the continued shedding of jobs in the hospitality sector, by reducing the municipal rates. 

Many accommodation businesses are still seeing a turnover less than 50% of what it was pre-COVID-19, which makes the current ratio of turnover to their municipal rates account simply unaffordable and unsustainable.

Pre-COVID-19, the rates for an average large hotel would be 3% of their total revenue. During COVID-19, this figure increased to 86%, with only a few municipalities allowing businesses to defer payments.

“With hospitality turnovers currently still languishing, rates can be as high as 10% of a large hotel’s total revenue. This is simply unsustainable and needs urgent addressing to prevent further job losses,” emphasised Rosemary Anderson, National Chair of FEDHASA.

She said Government needed to compensate for the damage that had been caused to the hospitality sector by the harsh regulations imposed on the industry, pointing out that this could be done by ensuring that the rates were fair and commensurate with the industry’s reduced turnover.

“Municipal rates are now an unaffordable expense for hospitality businesses, which are still battling the fall-out of COVID-19 regulations and travel bans. If Government is serious about trying to stop job losses, one way that further job-shedding could be prevented and the hospitality sector helped to get back on our feet, would be the reduction of rates in the short- to medium-term,” said Anderson. 

The hospitality sector was among the hardest hit by COVID-19 regulations, some of which continue to limit normal operations, such as the restriction of 50% venue capacity which is still in place. 

Hospitality sector ‘fundamentally damaged and extremely vulnerable’

“The ever-changing regulations over the past two years left our hospitality sector fundamentally damaged and extremely vulnerable. Many businesses were forced to close, and jobs were shed. Those that remained open continue to grapple with restriction legacy regulations that remain in place, even though they were proven months ago to have no effect on limiting COVID-19 infections,” added Anderson. 

“When one considers the catalytic potential of the tourism and hospitality sector to create jobs in areas where this is most needed, we should be doing everything we can to help it get back on its feet swiftly so that it can get back to creating employment.”

A total of 1.5 million (direct and indirect) jobs were said to have been supported by tourism when the pandemic hit and the sector is a significant employer of women (70%) and youth (60%). By nature of its geographic distribution and low barriers to entry, tourism also generates economic activity, SME opportunities and employment for low- and semi-skilled workers in rural and remote areas with the greatest need. 

“If mass unemployment is the biggest problem facing South Africa and the Government’s stated objective is to create jobs, a quick win would be for municipalities to cut their rates, effective immediately, for hospitality businesses. It is completely within their power to do so and it’s time to walk the talk,” Anderson said. 

New rates category proposed

MD of The Capital Hotels and Apartments, Marc Wachsberger, agreed, noting that South Africa’s hotel sector was never going to recover and create the jobs the country so desperately needed if municipalities continued to lump them in the same category as commercial property and heavy industry, subjecting hotels to rates and utilities costs that were triple those paid by residential properties. 

He said that was why municipalities needed to add a new category for hotels to their property classifications, charging rates and utilities fees that still covered their costs but that didn’t exploit hotels at the expense of job creation. 

“Charging hotels similar utilities costs to those levied on residential properties may well see those hotels paying the highest rate on the sliding scale for water and electricity costs – but this would still mean that hotels would pay less than half of what they do under their current classification as commercial properties. 

“This change would be an immensely welcome boost to the sustainability of the hotel industry, which was (likely) the worst affected by the pandemic. While industry continued to manufacture, and retail continued to trade, the country’s hotels were forced to close. Even when they reopened, it was only to 25% or lower occupancy rates – and without the income boost from international tourists” said Wachsberger.