Research on the Performance of the Services Sector (ICT and Tourism)

March, 2012

Small Enterprise Development Agency

Research on the

Performance of the

Services Sector

Contents

EXECUTIVE SUMMARY........................................................................................................................................................................10

TOURISM SECTOR....................................................................................................................................................................................38

OVERVIEW OF THE TOURISM SECTOR............................................................................................................................................38

Defining Tourism............................................................................................................................................................................. 38

TOURISM TRENDS....................................................................................................................................................................................41

4.3. INTERNATIONAL TRENDS...........................................................................................................................................................41

MAIN GROWTH AREAS..........................................................................................................................................................................43

KEY PROBLEM AREAS............................................................................................................................................................................ 43

FOREIGN TOURISM SECTOR IN SOUTH AFRICA..........................................................................................................................44

SOURCE OF MARKETS........................................................................................................................................................................... 44

INTERNATIONAL ARRIVALS....................................................................................................................................................................48

DOMESTIC TOURISM...............................................................................................................................................................................50

DOMESTIC TOURISM TRENDS.............................................................................................................................................................50

4.10.1. KwaZulu-Natal................................................................................................................................................................ 51

4.10.2. Gauteng............................................................................................................................................................................... 51

4.10.3. Eastern Cape................................................................................................................................................................... 51

4.10.4. Western Cape.................................................................................................................................................................. 52

4.10.5. Limpopo............................................................................................................................................................................... 52

4.10.6. North West......................................................................................................................................................................... 52

4.10.7. Mpumalanga.................................................................................................................................................................... 52

4.10.8. Free State........................................................................................................................................................................... 53

4.10.9. Northern Cape................................................................................................................................................................ 53

THE POLICY AND STRATEGY FRAMEWORK FOR DEVELOPING SMALL AND MEDIUM ENTERPRISES IN THE TOURISM SECTOR....................................................................................................................................................................................54

NATIONAL SUPPORT PROGRAMMES, POLICIES AND STRATEGIES TO SUPPORT SMES IN THE TOURISM SECTOR........................................................................................................................................................................................................ 54

4.11.1. The Marketing Tourism Growth Strategy for South Africa 2011 – 2013.......................54

4.11.2. The Tourism Act............................................................................................................................................................ 55

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4.11.3. Accelerated and Shared Growth Initiative for South Africa (AsgiSA)..............................55

4.11.4. Industrial Policy Action Plan 2010/11-2012/13 (IPAP)..................................................................56

4.11.5. National tourism Department Medium Term Strategic Plan 2010/11-2014/15......57

4.12. NATIONAL SUPPORT/DEVELOPMENT PROGRAMMES...................................................................................................59

4.12.1. Tourism Support Programme (TSP).............................................................................................................. 59

4.12.2. Tourism Learnership Project (TLP)................................................................................................................ 59

4.12.3. Poverty Relief Programme................................................................................................................................... 59

4.12.4. Development Bank of South Africa............................................................................................................... 60

4.12.5. Industrial Development Corporation Tourism Business Unit..................................................60

4.13. PROVINCIAL POLICY OVERVIEW...........................................................................................................................................60

4.13.1. Western Cape.................................................................................................................................................................. 61

4.13.2. KwaZulu-Natal................................................................................................................................................................ 63

4.13.3. Gauteng............................................................................................................................................................................... 65

4.13.4. Eastern Cape................................................................................................................................................................... 65

4.13.5. Free State........................................................................................................................................................................... 67

4.13.6. Limpopo............................................................................................................................................................................... 69

4.13.7. Mpumalanga.................................................................................................................................................................... 69

4.13.8. North West Province.................................................................................................................................................. 70

4.13.9. Northern Cape................................................................................................................................................................ 71

4.14. IDENTIFICATION OF HIGH POTENTIAL SUBSECTORS.....................................................................................................72

4.15. JOB CREATION POTENTIAL......................................................................................................................................................72

4.17. VALUE CHAINS OR OPPORTUNITIES...................................................................................................................................77

4.18. CHALLENGES/BARRIERS..........................................................................................................................................................82

ICT SECTOR.............................................................................................................................................................................................. 83

OVERVIEW OF THE ICT SECTOR............................................................................................................................................83

Defining ICT......................................................................................................................................................................................... 83

ICT TRENDS.............................................................................................................................................................................................. 83

INTERNATIONAL TRENDS...................................................................................................................................................................... 84

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MAIN GROWTH AREAS..........................................................................................................................................................................85

KEY PROBLEM AREAS............................................................................................................................................................................ 85

NATIONAL TRENDS................................................................................................................................................................................. 85

THE POLICY AND STRATEGY FRAMEWORK FOR DEVELOPING SMALL AND MEDIUM ENTERPRISES IN THE ICT SECTOR........................................................................................................................................................................................................ 88

NATIONAL SUPPORT PROGRAMMES, POLICIES AND STRATEGIES TO SUPPORT SMES IN THE ICT SECTOR. . .88

5.9. DEVELOPMENT AND SUPPORT PROGRAMMES ON A NATIONAL LEVEL..................................................................90

5.10. PROVINCIAL GOVERNMENTS.................................................................................................................................................91

5.10.1. Western Cape.................................................................................................................................................................. 91

Eastern Cape....................................................................................................................................................................................... 92

5.10.3. Limpopo............................................................................................................................................................................... 94

Northern Cape................................................................................................................................................................................... 95

KwaZulu-Natal................................................................................................................................................................................... 96

5.10.6. Free State........................................................................................................................................................................... 97

Gauteng.................................................................................................................................................................................................. 97

5.10.8. Mpumalanga.................................................................................................................................................................... 98

North West............................................................................................................................................................................................ 99

IDENTIFICATION OF HIGH POTENTIAL SUBSECTORS................................................................................................................100

JOB CREATION POTENTIAL..................................................................................................................................................................102

ROLE PLAYERS OR KEY STAKEHOLDERS......................................................................................................................................104

5.13.1. South African Government................................................................................................................................ 104

5.13.2. International Software Companies............................................................................................................. 105

Established Corporate.............................................................................................................................................................. 105

SMMEs.................................................................................................................................................................................................... 106

Public/Private Sector Partnerships................................................................................................................................. 106

PROVINCIAL ROLE PLAYERS AND STAKEHOLDERS..................................................................................................................106

Blue IQ................................................................................................................................................................................................... 107

The Innovation Hub.................................................................................................................................................................... 107

SAVANT................................................................................................................................................................................................. 107

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Cape IT Initiative........................................................................................................................................................................... 107

Internet Service Providers Association (ISPA)...................................................................................................... 107

Information Technology Association (ITA).............................................................................................................. 108

Information Industry South Africa (IISA)................................................................................................................... 108

Bandwidth Barn............................................................................................................................................................................. 108

Innovation Fund............................................................................................................................................................................. 108

5.14.10. ISETT................................................................................................................................................................................. 108

5.15. VALUE CHAINS.........................................................................................................................................................................109

CHALLENGES/BARRIERS.....................................................................................................................................................................112

TOURISM SECTOR................................................................................................................................................................................115

DEMOGRAPHIC PROFILE OF BUSINESSES...................................................................................................................................115

CHALLENGES, OBSTACLES AND OPPORTUNITIES....................................................................................................................121

6.3. SEDA SUPPORT......................................................................................................................................................................... 127

ICT SECTOR.............................................................................................................................................................................................. 130

DEMOGRAPHIC PROFILE OF BUSINESSES...................................................................................................................................130

7.2. CHALLENGES, OBSTACLES AND OPPORTUNITIES...........................................................................................136

SEDA SUPPORT...................................................................................................................................................................................... 142

RECOMMENDATIONS........................................................................................................................................................................ 145

CONCLUDING REMARKS.................................................................................................................................................................155

LIST OF REFERENCES....................................................................................................................................................................... 156

INTERNET SOURCES.......................................................................................................................................................................... 156

INTERNET SOURCES.......................................................................................................................................................................... 158

ANNEXURE A........................................................................................................................................................................................... 159

List of Figures

Figure 1: Annual Turnover...................................................................................................16

Figure 2: The Schematic Cross Sectional nature of Tourism..................................................40

Figure 3: Top 20 Source Markets...........................................................................................45

Figure 4: Tourist Arrivals to South Africa by Region in 2009 and 2010..................................46

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Figure 5: Provincial distribution of bed nights 2009-2010.....................................................47

Figure 6: General Tourism Value Chain in South Africa.......................................................77

Figure 7: Percentage of Jobs created in the ICT sector (2003 – 2010)...............................102

Figure 8: ICT Value Chain....................................................................................................109

Figure 9: Business Location...............................................................................................115

Figure 10: Age of Business................................................................................................116

Figure 11: Employees.......................................................................................................118

Figure 12: Annual Turnover...............................................................................................119

Figure 13: Major Source Markets.......................................................................................120

Figure 14: Services...........................................................................................................121

Figure 15: Effects of Challenges to Business.....................................................................123

Figure 16: Access to Opportunities...................................................................................126

Figure 17: Improvement of Seda Programmes..................................................................127

Figure 18: Programmes to be offered by Seda..................................................................128

Figure 19: Business Location............................................................................................130

Figure 20: Representatives............................................................................................131

Figure 21: Age of Business................................................................................................132

Figure 22: Employees.......................................................................................................133

Figure 23: Annual Turnover...............................................................................................134

Figure 24: Role in ICT sector.............................................................................................135

Figure 25: Effect of challenges on business......................................................................138

Figure 26: Efficiency of Seda Programmes........................................................................142

Figure 27: Assistance from Seda.......................................................................................142

Figure 28: Seda Programmes............................................................................................143

Figure 29: Improvement of Services.................................................................................144

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List of Tables

Table 1: Type of Company and Services Offered

Table 2: Turnover Bands and Number of Employees

Table 3: Employment type per business category

Table 4: Challenges faced by business

Table 5: Interventions

Table 6: Opportunities

Table 7: Type of Company

Table 8: Annual turnover and employment

Table 9: Number of Employees



Table 12: Opportunities

Table 13: Outbound Tourism Expenditure

Table 14: Top Ten Countries for International Arrivals in 2010

Table 15: International tourist arrivals and departures

Table 16: Number of employers and employees per sub-sector

Table 17: Tourism Opportunities per Province

Table 18: Breakdown of jobs

Table 19: ICT Opportunities per Province

Table 20: Position of representatives

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Table 22: Employment type per business category


Table 24: Opportunities per Province

Table 25: Efficiency of Seda Programmes


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Report Outline This report is structured in three phases namely:

(i) Executive Summary: which provides an overview of the report’s essential information covering the scope of the study, methodology used, key findings and other key issues raised during the study. It also provides the conclusions and recommendations.

(ii) Desktop research Findings: This part of the report provides findings on the extensive desktop review research conducted in this sector and analysis thereof.

(iii) Fieldwork Findings: This section mainly presents the clients feedback which comprised of SMEs and other stakeholders interviewed during the surveys.

The information in these sections formed the basis for findings analysis and data interpretation, from which key findings were derived and conclusions made. Specific recommendations and concluding remarks are included at the end of the report.

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EXECUTIVE SUMMARY

This research is undertaken in line with Seda strategic objectives to contribute to the national government’s goal to sustainable and equitable social and economic development, employment and wealth creation. It is a study commissioned to focus on the performance of the Services Sector (Tourism & ICT), and establish its current performance and to identify the possible job creation opportunities. Furthermore, to recommend the effective role that Seda should play to stimulate job creation opportunities among small enterprises in the Services Sector.

In this regard, the Small Enterprise Development Agency (Seda) commissioned FEM Research to conduct Research on the Performance of the Service Sector, focusing on Tourism and the ICT sectors. Seda as an implementing agency of the dti seeks to up scale the support to small businesses operating in the Services sector through its various offerings and contribute to the major goal of job creation as emphasized in the New Growth Path. The Services sector has been identified as one of the key sectors through which significant employment creation could be realised. Within this context, this research study aims to establish how the Services Sector is currently performing; it’s short to long term prospects.

Outcomes of the Study

The findings of this research will serve as the basis for guidance in identifying possible value chains, potential projects, how and what effective role Seda could play in stimulating job creation among small enterprises in the Services Sector. Specifically, the results of this study will facilitate in the development of relevant programmes, products and services for Seda’s targeted clients with potential to contribute meaningfully in job creation within this sector, and contribute to economic growth in the country.

Objectives of the StudyThe main objective of the study is to identify opportunities for products and services of Seda in the Services sector, and to provide the basis for the development of a strategy through which such opportunities could be exploited in order to create an enabling environment or support for new and existing enterprises with a potential to create jobs. More specifically, the objectives of the study are as follows:

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Identification of key sector segments and value chains and analysis of key developments within such segments.

Identification of specific opportunities for provision of products and services by local SMMEs.

Identification of barriers and challenges faced by SMMEs and critical factors to operate successfully in this sector.

Identification of the required support from Seda within this sector. Identification opportunities to leverage existing dti initiatives.

Methodology

The following approach was used in undertaking the study:

A comprehensive desktop research was carried out. This included literature review of various reports on prior studies undertaken on this sector. The main focus was mainly on the review of the tourism and ICT sectors development trends and major growth areas at the international, national and provincial.

Fieldwork Surveys conducted through disseminating questionnaires to Seda clients. The sample size was relatively small, as set out on the TORs where initially, 50 ICT businesses and 50 tourism businesses in this sector were to be profiled across the country. A list of businesses was compiled by FEM Research to survey, and Seda operations managers provided some databases with Seda clients in South Africa. However, a total of 500 businesses were contacted telephonically within each sector.

Limitations of the study

Several challenges and limitations have been encountered while undertaking the study. These limitations are highlighted as follows:

Sample size: The sample size of 50 clients per sector is inadequate with respect to ensuring data validity.

Buy in from provincial offices: Many provincial offices refused to provide a database of clients citing concerns around confidentiality.

Assess links with current programmes

o In assessing the current Seda support little information was provided as to the current status of the existing interventions.

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o Results of current M&E: No indication or results of any M&E exercises on current programmes was provided.

Size of the sectors being assessed: The sample size proposed for this study inhibited in-depth analysis of research findings.

Key FindingsThis part of the report outlines the key findings on international and national trends within the sectors. The subsequent paragraphs will highlight the key results generated through the fieldwork and data analysis process.

Tourism Key Findings International Tourism Trends

During 2010, the number of international tourist arrivals worldwide amounted to 940 million

International tourism receipts in 2010 were estimated to be US$ 919 billion

The top three visited countries were, France, the United States and China

International tourism arrivals across the globe grew by 4.5%, the total number of arrivals reaching 671 million in the first eight months of 2011

Eco-tourism represents an opportunity with development potential as more people around the world become environmentally friendly

The promotion of student travel and cultural tourism experiences and packages represent another international growth opportunity

The key challenges were;

o Economic recessions

o Increased competition

o Rising fuel costs

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o Increasing tourism volume and expenditure

National Tourism Trends

In mid-2010, tourist arrivals reached a record high of 8, 1 million

The South African sector experienceda15.1% growth in tourist arrivals and it outperformed global tourism which only grew by 6.7% in 2010

The total spend/yield from international tourists in 2010 amounted to R 72.6 billion

Total domestic tourist direct spend for the same period was R 21.1 billion1.

Africa remains the largest market for the South African foreign tourism

the UK, USA, Germany, Netherlands and France remain the major top five overseas source markets

Tourism’s contribution to GDP in 2009-2010 was 7.9%

The Gauteng and the Western Cape have over the years been considered the most visited provinces in the country and account for the bulk of the bed nights spent in South Africa

Challenges faced by Tourism Businesses

Specific challenges faced by tourism businesses stem from the general challenges which are finance, building client bases and marketing.

Finance related challenges include the following:

Access to working capital

Maintaining cash flow

Managing overheads

Increase in transport costs which in turn increases general costs and reduces the available cash flow and annual profits as companies cannot increase their prices to meet the petrol price increases

Specific challenges faced by businesses in terms of building client bases include;

12010 Cape Town & Western Cape Destination Performance, CTRU 201212

Little knowledge of marketing which leads to low numbers in client bases

Increased competition from other companies

Little knowledge of the tender processes in order to gain government clients and increase current client bases

Marketing specific challenges that businesses faced included;

Lack of resources to market the business efficiently which in turn leads to low exposure and poor numbers of clients

Lack of marketing knowledge and understanding

Increased competition from other businesses particularly established businesses with better marketing tools and market access

Opportunities for SMEs in the Tourism Sector

Accommodation opportunities exist for small businesses operating within the tourism sector, in particular these opportunities are for cheaper accommodation packages and facilities. SMMEs can access opportunities in the accommodation industry by offering accommodation related services. Within the market, there is an increased need for Bed and Breakfast type of accommodation and backpacker facilities as well as more affordable family friendly accommodation.

More pronounced opportunities for emerging and existing small enterprises include the following:

cleaning services

catering services

laundry services

gardening services

delivery services

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Furthermore, opportunities are also highlighted in beach tourism, cultural tourism and eco-tourism activities are more suited to small scale operators offering personalised services and activities. These activities include:

shuttle services

personalised guided tours

hiring of bicycles or equipment such as surfboards and kites etc.

SMEs could also exploit opportunities available in terms of providing business support to bigger businesses running tourism and conference facilities. These are the areas with high employment creation potential. These include:

cleaning

catering

transport

delivery services

Key Findings from Fieldwork Surveys

The majority of the businesses that were surveyed in the tourism sector fall within the accommodation sector and are registered as closed corporations. It transpired through the findings that most of businesses in these sector fall within the micro and small businesses bracket that has a turnover less than R 400, 000 per annum and employ less than ten people. The major source markets for these businesses are local government and domestic tourists within South Africa.

Clients Feedback

The businesses were assessed and categorised according to income and number of employees. These indicators were used to determine the size of the businesses. The majority (45%) of the businesses interviewed were small enterprise with an annual turnover of R150,000 or less, 27% have an annual turnover of R150,000 - R400,000 and 14% have an annual turnover of R400,000 - R1 000,000. Only 2% of the businesses interviewed had annual turnovers of more than R1 000,000, while 10% were unaware of their annual turnover as the businesses were less than a year old.

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Figure 1: Annual Turnover

0-150000 150000-400000 400000-1000000 1000000-2000000

just started0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

Income

Perc

enta

ge

The businesses with the smaller turnovers; 0 - R150, 000 and R150, 000 - R400, 000 generally employ 1-5 employees. The majority (59%) of businesses in the 0 - R150, 000 range employ 1-5 employees, followed by 41% employing 5-50 employees while no businesses that were interviewed employed more than 50 employees. The majority of businesses with an annual turnover of more than R400, 000 employ between 5-10 employees, and none of them employ more than ten. This is interesting to note because despite experiencing growth and expansion from small business it appears as though larger tourism businesses employ a maximum of ten people at a given time.

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Turnover Category Number of Employees

0 – 5 6 - 20 21-50 Employees

Grand Total

0 - R150,000 59% 41% 0% 100%

R150,000 - R400,000 62% 38% 0% 100%

R400,000 - R1 000,000 29% 71% 0% 100%

R1 000,000 and above 0% 100% 0% 100%

Just started 60% 40% 0% 100%

The highest number (76%) of permanently employed workers are found in businesses that employ between 5 and 10 employees, while the lowest number (38%) of permanently employed workers are found in businesses that employ more than 10 employees. Businesses that employ more than ten employees but less than 50 accounted for 40% of the temporary staff employed, and 38% of the permanent staff. The micro businesses that employed between 1 and 5 employees had the highest number (49%) of highly skilled staff.

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Tourism is affected by seasonality, and it is interesting to note that 28% of micro businesses (1-5 employees) employ seasonal workers, and larger businesses employ even less.

Table 2: Employment Type per Business Category

Number of Employees

Temporary Contract Permanent

Seasonal workers

Skilled employees

Micro (1 – 5) 22% 5% 46% 28% 49%

Very Small (6-20) 60% 11% 76% 16% 42%

Small (21-50) 0% 0% 0% 0% 0%

Barriers & Challenges

Through the assessment process firms were asked to outline the current challenges that they face in the day to day operation of their business. From this analysis there are three key problem areas that small business in this sector have identified, these are:

Finance (43%)- the biggest challenge for tourism businesses was access to finance, the need for start-up capital, expansion capital and cash flow during low season affected almost half of the business interviewed

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Building client base (17%)- the high number of tourism businesses and the low number of tourists visiting some areas made it difficult for some businesses to attract and maintain a client base

Marketing (14%)- is a challenge for businesses as they need to have strong marketing techniques to differentiate their businesses and attract clients

Table 3: Challenges faced by businesses

Challenges Count of Challenges

Building client base 17%

Finance 43%

Marketing 14%

Lack of skilled staff 4%

Increase in petrol prices 2%

Training and marketing 4%

None 6%

Struggle to expand 6%

Lack of resources 4%

Grand Total 100%

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The following are some challenges documented in detail in subsequent chapters of the report:

Transformation and Access to Tourism Opportunities

Increasing Distribution and Geographical Spread of Tourism Products and Services

Addressing Seasonality of Tourism Demand

External Factors that Influence Tourism Supply and Demand: Political, economic and social factors such as economic fluctuations, political instability and social unrest can affect the tourism flows

Existing Support

Looking at the national and provincial policy interventions it is evident that the growth, development and public sector support of the tourism sector is being driven by the National Department of tourism who are implementing the following strategic interventions within the sector:

1. People Empowerment and Job Creation

2. Tourism Sector Transformation

3. Sustainable Tourism Growth and Development

4. Responsible Tourism Promotion

5. Tourism Service Excellence

6. Tourism Sector Knowledge and Policy Leadership

7. Integrated Tourism Governance

8. Public Education, Awareness and Outreach

9. A better Africa and a better world

10. Human Capital Management

11. Good Governance

At a provincial level all the provinces have identified tourism as a strategic sector that can contribute positively toward job creation and economic development. Hence all provinces

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have a specific tourism strategy in place that aims to grow and develop the provincial tourism sector. Some of these policies look at localised aspects such as:

Development of tourism niche markets areas such as cruise liner tourism, health tourism, sport and mega event tourism, and culture and heritage tourism

Development of new and existing tourism routes

Locals provided with tourism destination exposure i.e. provides access to communities who do not usually take part in tourism experiences

Monitor the rollout of the Tourism BEE Scorecard

Establish tourism routes, nodes and clusters

Relevance of SEDA support in the sector

The tourism industry and the businesses that operate within the industry require assistance in four areas; marketing, training, certification, and financial assistance. Seda can provide assistance with marketing and basic business training; as they do not currently offer specialised training specific to the needs of the tourism sector. Furthermore Seda does not offer financial assistance and accreditation or certification that many businesses require assistance with. If Seda were to offer assistance in these instances the programmes they have would be more relevant for tourism businesses.

Required support for SMME’s

A significant number (23%) of businesses interviewed did not require assistance from public or private organisations; however the majority (77%) required various interventions to ensure the sustainability of their businesses. The most requested interventions were;

Grants and finance (20%), businesses were need of financial assistance to help expand and grow the entity and in some cases it was required to maintain the business

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Training (18%) was required by businesses for both owners, and staff. The relatively high number of skilled workers in the industry and the need for further skills show the growth potential for job creation in the sector

Access to resources (16%) such as business support or networks was required by business to ensure sustainability and longevity of entities


Interventions Sum of Count of Interventions

Access to resources 16%

Grants and finance 20%

Improved infrastructure 9%

Marketing 14%

None 23%

Training 18%

Grand Total 100%

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Market Opportunities

Accommodation opportunities exist within the tourism sector, in particular these opportunities are for cheaper accommodation packages and facilities. There is a need for Bed and Breakfast type accommodation and backpacker facilities as well as more affordable family friendly accommodation. Furthermore SMMEs can access opportunities in the accommodation industry by offering accommodation related services. These services include cleaning services, catering services, laundry services, gardening services and delivery services. Furthermore these services have very little entry challenges or barriers and are accessible for SMMEs.

Beach tourism, cultural tourism and eco-tourism activities are more suited to small scale operators offering personalised services and activities. These activities include shuttle services, personalised guided tours, and hiring of bicycles or equipment such as surfboards and kites etc.

Tourism and Conference facilities would be opportunities more suited to big businesses as the start-up costs would be quite large but the opportunities for SMMEs would be in provided services to these facilities. Again these services would include, cleaning, catering, transport and delivery services, which are all quite easily accessed. Furthermore these opportunities would create employment in the areas where they are developed.

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Table 5: Opportunities in the tourism value chain

Opportunities

Province

WC EC NC KZN GP Limp MP FS NW

Accommodation

x x x x x x x x x

Beach Tourism Activities

x x

Catering/Food outlets

x x

Conference Facilities

x x x x

Cultural Tourism

x x x

Eco Tourism Activities

x x x x x

Shuttle Services/Transport

x x x x x

Tourism Facilities

x x x x x x

Training facilitators

x x

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Conclusion & Recommendations

Information from various aspects have been analysed in order to develop the recommendations outlined below. While Seda may not be able to affect all the outlined recommendations it is suggested that partnerships be created so that the assistance measures outlined below can be put in place.

Funding: With respect to funding just fewer than 50% of firms have identified a need for both short and long term funding assistance. This could probably be linked with the cyclical nature of the sector. As in the case of ICT it recommended that going forward Seda should look at partnering with organizations such as the IDC as well as the DBSA to provide clients with information regarding funding opportunities while also assisting clients in applying for funding.

Marketing & Building a client base: 31% of firms have outlined this as a major problem that they are facing. In this respect there are two recommendations that have been put forward. The first links directly with the next recommendation around training and hence will be discussed there, the second is looking at developing marketing platforms that clients can use at no cost or at a small fee; an example of this is dti’s free website - small businesses can log onto dti’s website and develop their own websites for free, the objective of this is to promote the business online and to support small business development

Training: 18% of firms have outlined the need for some type of formal training programme. In this respect basic as well as advanced training modules need to be developed. It is recommended that Seda develop specific industry based training modules aimed at assisting entrepreneurs who are setting up a business as well as those who are running business. Here also Seda can look at partnering with training institutions as well as institutions of higher education.

Access to resources: A significant number of firms (16%) have outlined the need for basic resources (transport, equipment etc). Once again while Seda is not a funding agency a possible recommendation that can be implemented is the development of geographical industry clusters where participating firms can network

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as well as agree upon sharing current resources. Thus aiming to fulfill the overall need.

Improving access to support programmes and services: 72% of the businesses that made use of Seda’s programmes thought that the services were effective; however they felt that the services should be improved to include, more marketing and training assistance, assistance in getting funding and that Seda should provide a better follow up service with clients.

Seda Clients Feedback

The businesses in the tourism sector that made use of the Seda programmes found them to be effective in assisting the business. However, a large number of the businesses were unaware of the types of programmes that Seda offers. The businesses that had made use of Seda services expressed the need for Seda to provide assistance with funding, increase marketing products and provide a better follow up and communication process with clients. The majority of respondents felt that they would require some form of assistance from Seda, despite being unaware of the product offerings

ICT Key Findings International ICT Trends

The total telecommunications market in the five international regions had an estimated USD 3.1 trillion value and this is expected to rise to USD 4.1 trillion by 20142.

In 2010 the five international regions for telecommunications were Canada, Europe, Middle East/Africa, Latin America and Asia Pacific. These countries experienced an increase of 5.5% in telecommunications in 2010

The Philippines is the top exporter, with 66% of its exports being technology. This is followed by Singapore with 51%, Malaysia with 40% and Costa Rica with 39%

The main areas for expected growth are Internet usage, Broadband speed and quality and ICT technologies.

22011 ICT market Review and Forecast Chapter 5, www.tiaonline.org25

http://www.tiaonline.org/

3.3.1.2 National ICT Trends

The ICT sector in South Africa contributes an estimated 7% to the country’s GDP3.

The local IT industry is based in both the services sector and manufacturing sector however that manufacturing within the ICT sector is still within its infancy

South Africa has comparatively higher prices in terms of ICT products, than other African countries, as well as OECD countries

South Africa’s ICT Sector can be described as being relatively concentrated, in terms of market structure

The three main hubs are Gauteng with 57% of ICT firms, Western Cape with 17% and KwaZulu-Natal with 8%.

South African companies specialize in pre-payment, revenue management and fraud prevention systems

Some manufacturing (e.g. Set-top boxes) does take place locally and these products are exported successfully to the rest of the world however this is still in its infancy

Specific Challenges

Specific challenges that are faced by businesses in the ICT industry include:

Access to finance is a serious challenge for ICT businesses as it hampers every aspect of the business from operations and management of cash flows to purchasing of equipment and paying for running costs

Working capital is another big issue that businesses faces particularly in the startup of an ICT business, accessing working capital can be difficult for SMMEs

Skills shortages across the industry affect the operations of the businesses as the labour costs can be higher due to the completion for skilled staff, also businesses that lack the relevant skills experience a decline in their client bases

Lack of resources such as finance, skills, marketing knowledge and training also affect the operations of ICT businesses and hamper growth

3 SA Market Summaries: ICT, SAM #009 26

Lack of infrastructure is a serious concern as the ICT industry is based on infrastructure and having the necessary infrastructure in place as well as having access to infrastructure is critical to developing a sustainable business

High cost of imports and products for resale affect the cash flow and profit margins as price fluctuations cannot be mitigated yet the price of services and products need to remain relatively unchanged to maintain existing client bases

ICT Opportunities

Software and systems development: While the direct opportunities for development and expansion are limited to the business that is undertaking the opportunity (due to specialised nature of the opportunities) some associated opportunities exist

Training: Opportunities exist within the training field of the ICT sector, these opportunities include providing IT training and computer training and systems support for businesses as well as provide training seminars and conferences for government and IT staff in the industry

Infrastructure provision: the provision of infrastructure such as systems networks and business network solutions is an opportunity for small businesses. Furthermore the opportunity exists to supply service to companies that provide infrastructure development and support services. These services can include maintenance, provision of labour and parts, and providing systems support and network administration services.

Businesses in the ICT sector play a role in creating jobs as well as developing skills and assisting in community development. The major challenges faced by these businesses are accessing funding, market intelligence and infrastructure. These challenge and obstacles have negative effects on the businesses and generally cause a decline in sales, slow business growth and higher operational costs. To assist in combating these challenges the businesses in the ICT sector require assistance in developing market intelligence and securing funding. However despite the challenges and obstacles that exist in the industry, these businesses remain optimistic about opportunities that exist in the sector and feel that

27

with funding, training and access to necessary infrastructure the sector will continue to grow and create jobs and develop skills.

Key findings from Fieldwork Surveys

The majority of the ICT businesses that participated in the survey are established and have been in operation for more than three years. The bulk of the businesses are registered as closed corporations and have an annual turnover of less than R 1 000,000 and employ less than 10 people. The major source of clients for these businesses is South Africa, only a small percentage (6%) of the businesses interviewed for this study had non South African clients. The results from the data analysis show that the majority of the entities that were surveyed had been registered as Closed Corporations (88%) followed by Pty Ltd’s (6%). Regarding the type of business operations that the firms are involved in it is evident that Sales and Distribution is the largest contingent counting 53% of all firm surveyed. Another important area that firms operate in is in the software design and web design ambit (33%).

Seda Clients Feedback

When asked about the programmes that Seda should offer, most respondents wanted to see more marketing and networking tools as well as business funding options through Seda. Furthermore, only 22% of the respondents felt that Seda offered a unique service compared to other development organisations while 46% of the respondents stated that they were unaware of the exact offerings and could not compare Seda to other organisations.

Seda offers a number of programmes that are relevant to the start-up needs of ICT businesses and offer assistance and training to run and mange a businesses, but the industry requires specialised training and mentorship which is not currently available from Seda. However Seda does offer ICT specific programmes such as the ICT incubation programme and Seda Technology Programme. One major problem that businesses faced when dealing with Seda is that they felt the training provided was not sector specific.

While the majority of the businesses had not made use of Seda’s services and were unaware of the exact product and service offerings of the organisation, 64% still requested assistance or support from Seda for their business. OF the respondents that had made use of Seda’s products and services, the majority would like to see more marketing, training and funding services in the future, while 41% felt that Seda could improve their current customer service delivery and speed up the processes when assisting clients.

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Table 6: Type of Company

Type of Company Type of Service

Closed corporation 88% Sales 53%

Pty ltd 6% Software design 33%

Section 21 4% Film & media 11%

Trust 2% Other 3%

The tables below have been compiled to further assess the link between employment and annual turnover described above. From the table below it is evident that the bulk of the firms who have a turnover of less than R1 million also only employ up to a maximum of 10 individuals.

Table 7: Annual turnover and employment

Annual Turnover Number of Employees

Micro (1 – 5) Very Small (6 – 20) Small (21– 50)

0 - R150,000 67% 23% 0%

R150,000 - R400,000

100% 0% 0%

R400,000 - R1 000,000

78% 22% 0%

R1 000,000 - R2 000,000

33% 67% 0%

R2 000,000 - R4 25% 50% 25%

29

000,000

Greater than

R4 000,000

0% 33% 67%

Grand Total 62% 30% 8%

In the case of firms with a turnover of R0 – R150 000, 94% have 10 or less employees (67% have 1- 5 employees, 27% have between 5 – 10 employees). As the turnover rises it can be seen that this changes with 50% of firms having a turnover of R2million to R4million employing between 10 and 50 employees while all firms having a turnover of greater than R4 million employ in this range.

In order to get a better understanding of the sector and the businesses that function in it, a cross tabulation was conducted between the number of employees and the type of employment. From the analysis it is interesting to note that across all business sizes the number of permanent contracts comprise between 60 – 70% of the total employees. A positive note is that the industry does not experience much seasonality however temporary employment seems to be well entrenched (firms with 10 – 20 employees have 27% of their staff on temporary contracts).

Another interesting observation is regarding highly skilled workers, from the analysis it is evident that the % of skilled workers within the firms decline as the number of employees increase. This has important implications for job creation in that if the small firms grow the jobs that they will create will allow for semi-skilled individuals to enter the job market.


Categorisation Temporary

Contract Permanent

Seasonal Highly skilled

Micro (1 - 5 Employees)

30% 8% 80% 16% 77%

Very Small (6 - 20 Employees)

6% 6% 12% 2% 63%

Small (21 - 50 0% 0% 8% 0% 47%30

Employees)

3.3.1.4 Barriers & Challenges


Funding: 37% of business identified access to short term funding (working capital) as being a problem. Many businesses have noted the unwillingness of financial institutions to assist them.

Market Intelligence: 29% of business have identified that a key problem that they face is the lack of knowledge of what are the current growth and development trends in their sector. They argue that due to their size they cannot spend resources on market research and have asked for assistance in this regard. Firms have noted the importance of this given that the ICT sector is ever changing and developing.

Infrastructure: Unlike the firms that required working capital that point highlights the fact that many firms (13%) have indicated the need for funding assistance so that they can purchase the necessary infrastructure to compete efficiently.

Other points that have been raised by firms are around skills development (8%) as well as payment delays (5%) and transport costs (3%).


Challenges Percentage

Funding 37%

Import Costs 6%

Infrastructure 13%

Market Intelligence 29%

Payment Delays 5%

Skills 8%

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Transport 3%

Grand Total 100%

The desktop analysis has also revealed the following challenges within the sector:

Skills shortages in development, building and maintenance of IT systems & Skills shortages of IT specialists in the manufacturing industry

Skills shortages in IT and Communication sections of businesses in South Africa

High cost of telecommunications and internet access

Low numbers of South Africans with access to personal computers (4% of South Africans) and internet subscriptions (1% of South Africans)

Lack of financing for businesses and access to finance for capital and expansion

Foreign Exchange Rates and Economic Influences

Existing Support (National & Provincial Government)

Assessing National and Provincial policies and support programmes it is evident that almost all provinces have a strategy specifically designed for the development of the ICT sector. At a national level the Department of Communications has established various critical programmes aimed at rapidly developing the sector4:

Programme 1: Governance and Administration- provide strategic support to the ministry and overall management of the DepartmentProgramme 2: International Affairs and trade- to ensure alignment between South Africa’s international activities and agreements in the field of ICTs with South Africa’s foreign policy.

4Department of Communication South Africa www.doc.gov.za

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http://www.doc.gov.za/

Programme 3: ICT Policy Development- Develop ICT policies, legislation and strategies that support the development of an ICT sector and develop strategies that increase the uptake and usage of ICTs by the majority of the South African population.Programme 4: Finance and ICT Enterprise Development- to oversee and manage government’s shareholding interest in public entities and to facilitate growth and development of Small, Micro and Medium Enterprises (SMMEs) in the ICT sector.Programme 5: ICT Infrastructure Development- to promote investment in robust, reliable, secure and affordable ICT infrastructure that supports the provision of a multiplicity of applications and services.Programme 6: Presidential National Commission- to facilitate the development of an all-inclusive information society by promoting the uptake and usage of ICTs for improved socio economic development and research.At a provincial level there are also a number of projects that are aimed at assisting with the development of the ICT sector i.e.:

The Khanya Technology in Education project, which aims to improve teaching and learning through the use of ICT technologies in schools (Western Cape)The Telecommunications project, which has already linked almost all schools in the Western Cape to the internet- except for a few which still struggle with electricity connectionsEastern Cape Information Technology Initiative (ECITI) has been launched by ECDC. This programme provides support to local ICT SMMEs. It provides a local ICT business incubation hub, provides software research and development opportunities and education.Limpopo’s ICT Institute Programme aims to produce ICT skills which are lacking in the provincial industry, for societal and economic development. Its objectives include further skills training so that skilled individuals are market-ready and job-readyKwaZulu-Natal has launched an initiative which aims to bridge the digital divide through the establishment of twelve digital community hubs. These hubs have been set up in rural areas such as Hammarsdale, Umzumbe, Vryheid, Mandeni and Edendale5. The Free State has launched an initiative called the “SMME Incubation Hub”- this project has an investment value of R100 million. This initiative aims to provide physical space to new ICT businesses and to provide service to help these businesses in their early stages of development. Services include: business support, help with access to finance, management coaching and business administrative services to help small developing businesses.

Relevance of SEDA support in the sector

5http://www.kwazulunatalbusiness.co.za/pls/cms/ti_secout.secout_prov?p_sid=14&p_site_id=130 33

http://www.kwazulunatalbusiness.co.za/pls/cms/ti_secout.secout_prov?p_sid=14&p_site_id=130

Seda offers a number of programmes that are relevant to the start-up needs of ICT businesses and offer assistance and training to run and mange a businesses, but the industry requires specialised training and mentorship which is not currently available from Seda. However Seda does offer ICT specific programmes such as the ICT incubation programme and Seda Technology Programme. One major problem that businesses faced when dealing with Seda is that they felt the training provided was not sector specific.

Required support for SMME’s

During the field work phase of the project firms were asked specifically what type of interventions they required. Interestingly while skills development had been ranked lower than other challenges it is in greatest demand (35%) by firms in this sector. Linked with the above findings interventions in the areas of:

Providing market intelligence is in high demand by firms (30%)

Assisting firms with procuring short term funding (26%)

An important note that has been made by firms linked to the idea of infrastructure is the provision of Incubation programmes (4%). These interventions have proved very successful in provinces such as the Western Cape and should be seriously considered going forward.


Interventions Percentage

BEE Certification 4%

Funding 26%

Incubation Programmes 4%

Market Intelligence 30%

Skills Development 35%

Grand Total 100%

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Market Opportunities

The analyses of the various provincial strategies as well as other desktop sources (value chain) and the field work have pointed to the existence of the following opportunities at a provincial level:

Table 11: Opportunities in ICT Value Chain

Opportunity Province

WC EC NC KZN NW

Limp

MP GP FS

Business application software x x x

Cctv systems x

Creative industries x x x x x

Document management systems x x

e-learning, e-banking software development

x x x x x

e-waste management x x

Internet and wifi provider x x x x x

IT training and software development

x x x x

Multimedia platforms x x x

Network development x x

Online marketing x x x x

Social media platforms and software

x x x

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Telecommunications and technology development

x x x x

Voice over IT x

Website development x x x x

Conclusion & Recommendations

Through the analyses that have been conducted it is clear from the attributes outlined in the value chain, the data analysis and the desktop material that the sector is critical for the long term growth and development of the economy. This being said it is also clear that the sector is currently mainly service driven with very little manufacturing taking place. In order to grow and develop the sector further the following interventions have been proposed. Please note that while Seda may not be able to affect all these interventions directly they can partner with other organizations to do so:

Skills development: 35% of firms interview in this sector have identified this as a gap, this has further been reiterated in the findings from the desktop study. For this reason it is recommended that Seda develop a suite of training initiatives aimed at assisting businesses in the sector.

Providing market intelligence: 30% of firms have identified this as a key problem area. Given this finding it is recommended that Seda look at partnering with the department of communications to conduct and regularly publish information on the sector

Assisting firms with procuring short term funding: 26% within this sector have outlined the need for assistance in this regard. While it is noted that Seda is not primarily a funding agency, it is recommended that going forward Seda should look at partnering with organizations such as the IDC as well as the DBSA. Seda should also look at providing a yearly list of potential funders to their clients.

Market Intelligence: 29% of firms have identified the need for assistance in understanding the changing business environment in which they work. Many firms have outlined the fact that it is difficult to grow their business as they do not have access to market information. In this respect it is recommended that Seda provided annual sector analyses that outline the

36

current and future growth trends. Note this information should not be publically available and should be given only to participating Seda clients.

Infrastructure: Over 10% of firms have outlined the need for long funding to ensure the sustained growth and development of their business. This is closely linked to the earlier funding point and the recommendation outlined above should also be followed in this respect. Seda could also look at establishing incubator programmes (please see information regarding the Western Cape).

Improved access to support programmes: 43% of the ICT businesses made use of Seda’s services and participated in the programmes. 41% of these businesses felt that there was room for improvement in the organization with the following in particular;

Better communication channels and follow up processes with clientsImproved processes as well as faster service delivery of products and programmes and general assistance

PART 1Contextual overview

37

This part of the report comprises of two sections providing a desktop report on the two focus sectors of the Services Sector namely the Tourism and ICT Sectors respectively. It provides deeper insights into understanding these identified sectors. These are mainly the findings derived from reviewing existing literature on prior research that has been undertaken in this sector. The main focus is on the growth development trends and existing support structures in terms of policy and legislation.

\

TOURISM SECTOR

OVERVIEW OF THE TOURISM SECTOR

The South African tourism industry remains one of the fasted growing sectors of the economy. This sector has a great potential to significantly contribute to direct and indirect

38

to employment in the country. It is ideally placed to create jobs and add value to the country’s rich natural and cultural resources. The tourism sector is characterised by low barriers to entry and include a range of enterprises that provide opportunities for economic linkages. Best practices indicate that the tourism sector is most successful when driven by the Private sector; however, the public sector also has a main role to play in terms of influencing investments to achieve certain policy objectives. Tourism continues to be an economic driver in many regions throughout the world.

DEFINING TOURISM

Tourism is defined by SA Tourism as the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes not related to the exercise of an activity remunerated from within the place visited6. The tourism sector is a multifaceted industry and contributes to a number of economic sectors in South Africa. Tourism has been identified as an economic driver in South Africa as it is labour intensive and has the capacity to create job opportunities.

The UNWTO defines tourism as the activities of persons travelling to and staying in places outside their usual environment for not more than one consecutive year for leisure, business and other purposes. In essence, the definition of tourism encompasses the following aspects (Phillips & Govender, 2001):

The movement of people , other than moving from home to work, and what people do during this movement

It is the temporary movement of people It is a voluntary activity The purpose of the movement differ (e.g. leisure, business, etc.)

The tourism sector is very broad and comprises of various components which mainly encompass the following:

Hotel and accommodation These incorporates lodges, resorts, tourist houses, eating establishments, boutique hotels, guesthouses, self-catering units, bed and breakfast units, back packer hostels etc.

6 SA Tourism, Tourism Definition PDF 2008, Dept. of Environmental Affairs and Tourism39

Transportation ServicesIncludes air, water, road, rail and footEntertainment servicesConsists of casinos, social halls or clubs, festivals, events, churches and mosques Information servicesEntails travel agencies, tour operators, field guides etc.Attraction Services (Natural and built or Man Made)Involves national parks and reserves (wildlife), waterfalls and lakes, dams and other water catchment areas, beaches, caves, rock formations, scenic, vistas and other areas of impressive beauty, heritage, sport, adventure, culture, Government tourism agencies These are the various agencies set by the government to promote tourism in the country so that it contributes to economic growth and job creation.Education and Research These are the various organizations and institutions which promote the development of tourism and hospitality education and research to support sustainable tourismStakeholdersIncludes tourism shareholders, local community and the government

The following figure shows the cross-sectional nature of the tourism industry.

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FIGURE 2: THE SCHEMATIC CROSS SECTIONAL NATURE OF TOURISM

Source: WTO, 2009

NB:Tourism Industry: refers to all establishments whose principal productive activity is a tourism characteristic activity, i.e. the sum of all tourism characteristic activities, e.g. accommodation establishments, tour operators, travel agencies, etc., while the tourism Sector consists of a set of institutional units whose principal economic activity is a tourism characteristic activity e.g. transport, retail, laundry, security etc. Both the tourism sector and tourism industry constitutes the tourism economy

There are four different types of tourism outlined by the UN namely7:

Domestic Tourism: the tourism of resident visitors within the economic territory of the country of residence. Inbound Tourism: A tourism of non – resident visitors within the economic territory of the country of referenceInternal Tourism: Tourism of a resident visitor who visits within the economic territory of the country of residence.Outbound Tourism: The tourism of travel visitors outside the economic territory of the country of reference.

TOURISM TRENDS

7Recommendations on Tourism, United Nations (83): 5. 199441

The following discussions provide a snapshot of the trends of the tourism sector both at international and national levels. It provides insights into present trends and future developments of the tourism sector. Existing empirical data on tourism sector trends and latest consumer trends are presented.

4.3. INTERNATIONAL TRENDS

The international tourism sector is extremely large and diverse and the current challenges in terms of determining the exact size of the industry. the number of people travelling across the world are not always documented and in many cases the number of people travelling domestically are not recorded regularly and the amount of money spent in the informal markets is not recorded, this makes it difficult to determine the size of the global tourism industry. During 2010, the number of international tourist arrivals worldwide amounted to 940 million. The number of international tourist arrivals grew by 6.6% from 20098. International tourism receipts in 2010 were estimated to be US$ 919 billion. The table below indicates the expenditure of outbound tourists. This provides an overview of the amount of money being spent by tourists outside of their home countries. The table shows that the highest expenditure is from the US tourists while South African tourists spend very little in comparison. Although this table only provides a small indication of the tourists, it includes two source countries for tourists into South Africa as well, namely the US and UK.

Table 12: Outbound Tourism Expenditure

Country Year 2008 Year 2009 Year 2010

($)6, 905, 000, 000 ($)6, 420, 000, 000 ($)8, 139, 000, 000

United Kingdom ($)83, 584, 000, 000 ($)61, 133, 000, 000 ($)60, 469, 000, 000

USA ($)118, 643, 000, 000

($)106, 081, 000, 000

($)110, 134, 000,000

Thailand ($)6, 700, 000, 000 ($)5, 659, 000, 000 ($)6, 573, 000, 000

China ($)40,987, 000,000 ($)47,108,000,000 ($)59,840,000,000

Source: World Bank Indicators http://data.worldbank.org/indicator/ST.INT.RCPT.CD 2011.

8 UNWTO World Tourism Barometer 201042

During 2010 the number of international tourist arrivals reached 940 million9, the top three visited countries were, France, the United States and China. The countries that receive the most tourists are in Europe, followed by a growing number of Asian countries, however the United States received the second highest number of tourists.

Table 12: Top Ten Countries for International Arrivals in 2010

Rank Country International Tourist Arrivals

(2010)

International Tourist Arrivals

(2009)

% Change

2009 - 2010

1 France 76.8 million 76.8 million 0.0%

2 United States 59.7 million 55.0 million +8.7%

3 China 55.7 million 50.9 million +9.4%

4 Spain 52.7 million 52.2 million +1.0%

5 Italy 43.6 million 43.2 million +.9%

6 United Kingdom 28.1 million 28.2 million -0.2%

7 Turkey 27.0 million 25.5 million +5.9%

8 Germany 26.9 million 24.2 million +10.9%

9 Malaysia 24.6 million 23.6 million +3.9%

10 Mexico 22.4 million 21.5 million +4.4%

Source: UNWTO World Tourism Barometer 2010

China experienced an increase of 9.4% in international arrivals from 2009, and replaced Spain as the third most visited country in 2010. The country in the top ten with the highest increase in international tourist arrivals from 2009 to 2010 was Germany with an increase of 10.9%. International tourism arrivals across the globe grew by 4.5%, the total number of arrivals reaching 671millionin the first eight months of 2011. Despite the economic volatility in Europe, the tourism industry is proving to be an essential economic driver by providing foreign exchange to the economies. Asia also experienced growth rates of 6% while the

9UNWTO World Tourism Barometer 201043

Americas reached 5%. In Africa arrivals were down by 4%10. Europe remains the largest source market for international travel and generates more than half of international arrivals worldwide; following this is Asia and the Pacific with 21% of international arrivals, the Americas with 16%, the Middle East with 4% and Africa with 3%11.

MAIN GROWTH AREAS

Marketing and promotion of tourism products to domestic residents of countries as well as to foreign markets will increase the number of tourists globally. Eco-tourism represents an opportunity with development potential as more people around the world become environmentally friendly and aware of the need for sustainable and environmentally friendly tourism products. This form of tourism can also be linked to Educational tourism which presents another product in tourism which can be developed internationally. The promotion of student travel and cultural tourism experiences and packages represent an international growth opportunity and educational tourism can include the following12:

School trips Alternative Spring Break Travel Experiences Study Abroad Experiences Seminar Vacations and Senior Seminars Skill Enhancement Vacations Educational Cruises

Focusing on marketing of Sports tourism is another opportunity for growth as international sporting events attract both players and spectators to events and this in turn leads to an increased demand for tourism activities, products and services.

KEY PROBLEM AREAS

The key challenges that international tourism faces includes:

Economic recessions- fluctuations in the economy affect buying power and disposable income, and so the less money people have the less likely that they will travel.

10 European tourism grows above expectations 2011, http://media.unwto.org

11UNWTO Tourism Barometer 2010

12 Opportunities and tips for Educational Tourism Providers- www.tourism-review.com44

http://www.tourism-review.com/

http://media.unwto.org/

Increased competition- the supply of tourism offerings is vast and often surpasses the demand, the competition to attract tourists is fierce.Rising fuel costs will affect tourism across the globe, as the foundation for all tourism is transport. Once transportation costs rise, all other costs increase. Increasing tourism volume and expenditure- by increasing the number of tourists visiting a destination, the expenditure increases and improves the local economy; however with so much competition in the industry it is difficult to increase tourism volume into an area.Natural disasters affect tourism drastically; this was the case in 2010 and 2011 when Europe experienced volcanic eruptions and Asia experienced floods and earthquakes. Economies were affected and transportation modes were disrupted.

In order to have a comprehensive understanding of the performance of this sector it is critical to look at the recent development trends both at foreign and domestic tourism performance closer at the national level.

FOREIGN TOURISM SECTOR IN SOUTH AFRICA

Foreign tourism has contributed positively to the growth of the South African tourism sector particularly in terms of the total contribution to tourism revenue. According to tourism SA (2011), inmid-2010, tourist arrivals reached a record high of 8, 1 million representing a 1,061,687 increase from arrivals to the country in 2009. The South African sector experienced a15.1% growth in tourist arrivals and it outperformed global tourism which only grew by 6.7% in 2010. This growth was largely attributed to the county’s hosting of the 2010 FIFA World cup in June and July 2010. Foreign tourism spends in South Africa accounts for the majority of the tourism revenue for the country. The total spend/yield from international tourists in 2010 amounted to R 72.6 billion, while the total domestic tourist direct spend for the same period was R 21.1 billion13.

SOURCE OF MARKETS

Africa remains the largest market for the South African foreign tourism, international tourist arrivals stood at 651,753 in 2010 showing a growth of 12.9% over 2009. Both air markets and land markets grew on the same period, with the former recording a 14% growth while the latter grew by 12.8%. The neighbouring SADC countries forms the top five major market sources as shown on figure 2 below:


FIGURE 3: TOP 20 SOURCE MARKETS

Source: Stats SA, Tourism and Migration Release, SAT Analysis

According to Tourism SA, the UK, USA, Germany, Netherlands and France remain the major top five overseas source markets. In 2010, the America’s region grew by 37. 8%, Europe recorded 8.1% growth, while Asia and Australasia grew by 34.6% in the same year (Tourism SA, 2011). It is important to note that growth took place from all regions (source of markets) which indicate a greater development potential for this sector.

46

The figure below shows tourist arrival to South Africa by Region:

FIGURE 4: TOURIST ARRIVALS TO SOUTH AFRICA BY REGION IN 2009 AND 2010

Source: Tourism SA, Highlights of 2010 V5, 2011

Americas and Asia & Australasia recorded the highest growth in 2010 by 37 .4% and 34.6% respectively. This growth implies potential foreign market growth areas for tourism in the future. The Gauteng and the Western Cape have over the years been considered the most visited provinces in the country and account for the bulk of the bed nights spent in South Africa. In 2010, Gauteng and the Western Cape accounted for 67% of the total bed nights spent in the country. While this provides strong evidence implying that the bulk of tourist based products and services are concentrated in these regions there is currently no hard data to back this up.

47

FIGURE 5: PROVINCIAL DISTRIBUTION OF BED NIGHTS 2009-2010

Gaute

ng

W.C

ape

E.Cap

eKZN

Mpum

alan

ga

Limpopo

N.Wes

t

N.Cap

e

Free

Sta

te0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

nu

mb

er

of

be

d n

igh

ts

Source: 2010 Cape Town & Western Cape Destination Performance, CTRU 2012

Gauteng had the highest number of bed nights for 2009 and 2010, and accounted for approximately 37% of bed nights in the country. Western Cape had the second highest total and accounted for 30% of the bed nights spent in South Africa for 2009 and 2010. KwaZulu-Natal had the third highest total of bed nights with 9% of the bed nights in South Africa spent in the province for 2009 and 2010. The province with the lowest number of bed nights was the Northern Cape with only 1% of the total bed nights spent in South Africa for 2009 and 2010. The province with the highest growth in bed nights between 2009 and 2010 was the Western Cape with a 27.4% increase in bed nights, followed by the Eastern Cape with a 25.6% increase in bed nights for the same period. The province with the smallest growth rates in bed nights was the Northern Cape with a 0.1% increase. The above results imply that even though tourism concentrated areas such as the Western Cape, Gauteng etc, there is still potential to further grow and develop the sector in other parts of the country, and therefore necessitates the strengthening of existing support and strategies to tap into the latent potential in tourism development and investment opportunities in these areas.

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INTERNATIONAL ARRIVALS

In 2010, the number of international tourists arriving in South Africa was estimated to be 11 574 54014. Since 2007 the number of international tourist arriving in South Africa has increased by 8.5% annually. The increasing number of international arrivals in South Africa, and the increase in income from the tourism spends has further established the sector as an economic driver. Furthermore the constant increase in the number of arrivals per annum means that the industry creates more jobs in the economy each year and is showing sustainability for future development and growth.

Table 14: International tourist arrivals

2007 2008 2009 20100

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

14,000,000

International Arrivals 2007-2010

Source: Stats SA 2011: South African Tourism 2010

During 2010, the total spends from international tourists visiting South Africa amounted to ZAR 72.6bn. This amount did not include the amount spent on bed nights in South Africa which amounted to ZAR 66.9bn15. The table provides an overview of the tourist spends of inbound tourists into the destination countries. As can be seen from the table below, South Africa has the lowest revenue generated from tourism, while the USA has the highest revenue. South African tourism generates less tourism than other countries because the number of inbound arrivals in South Africa is much smaller than inbound arrivals in other countries. The reason for the difference in inbound arrivals can be attributed to the distance between South Africa and other countries as well as the limited air access into the country.

14STATs SA 2011

15STATs SA 2011

49

The difference in the number of inbound arrivals also means that South Africa has the potential to increase the number of inbound arrivals as many people are traveling it is just a matter of attracting them. If South Africa was to increase market access, and number of inbound arrivals, the potential job creation and economic spin off would be significant to the economy as well as the general population.

Table 15: Inbound Tourism Expenditure

Country Name Year 2008 Year 2009 Year 2010

South Africa

US Dollars ($) US Dollars ($) US Dollars ($)

($)9,178,000,000 ($)8,684,000,000 ($)10,308,000,000

United Kingdom ($)83,584,000,000 ($)61,133,000,000 ($)60,469,000,000

USA ($)166,375,000,000 ($)147,554,000,000 ($)163,887,000,000

Thailand ($)22,497,000,000 ($)19,421,000,000 ($)23,383,000,000

China ($)44,130,000,000 ($)42,632,000,000 ($)50,154,000,000

Source: World Bank Indicators http://data.worldbank.org/indicator/ST.INT.RCPT.CD 2011

The tourism industry in South Africa has grown at three times the world average. Between 1994 and 2009 the tourism sector has created an estimated one million16 jobs in South Africa. Tourism’s contribution to GDP in 2009-2010 was 7.9%. The government is geared towards increasing this to 12% through Asgi-SA initiative and create a further 400 000 jobs. It has been argued that for every twelve tourists that arrive in the country, one new job is created.

The tourism industry in South Africa is extensive and includes a range of services. The Tourism services in South Africa are mostly concentrated within three categories17:

Direct suppliers

Support services

Development organizations

16www.southafrica.co.za

17 South African Tourism Sector, www.tourismrsa.com50

http://www.tourismrsa.com/

http://www.southafrica.co.za/

Direct suppliers are the subsectors that affect the tourist directly, they encompass of; tour operators, transport activities, hospitality and accommodation, and entertainment and experience. The following box provides a detailed definition of these products and services:

Tour operators: are businesses that offer a tour package either through a travel agency or directly to the tourists. These packages may include transports, accommodation, sightseeing or entertainment. Transport activities: include bus companies, shuttles and taxi services as well as car hire, sea travel, rail transport and air transport. The accommodation sector: in South Africa is diverse and includes hotels, Lodges, Game Reserves, Backpackers, Guesthouses and Bed& Breakfast as well as self-catering accommodation and resorts. Entertainment and experience: include a variety of offerings such as cultural and historical heritage, nature resorts and parks, entertainment zones, and casinos.

Support services are services that support direct suppliers such as tourism offices, food services, launderettes and tourism research organizations, and tourism and trade publications.

Development organizations facilitate and promote tourism development and include financial institutions, education facilities and government departments.

DOMESTIC TOURISM

The main tourism attractions and hubs for tourism businesses in South Africa are located in Gauteng, KwaZulu-Natal and the Western Cape. Within South Africa, the domestic tourism sector generates more trips annually than international arrivals, and in 2009 domestic travel generated 30 million trips compared to 9.9 million generated by international arrivals. Forty nine percent (49%) of all South Africans travel within the country each year, and on average, South African domestic travellers take 2.1 trips per year18. However despite the higher number of domestic travellers, international travellers spend more money. In 2009, International travellers spent R 79.4 billion while domestic travellers only spent R 22.4 billion.

DOMESTIC TOURISM TRENDS

18South African Marketing Growth Strategy51

In 2010, the number of domestic trips across South Africa amounted to 29.7 million with a total spend of R21.1 billion from these trips. The Provincial trends for domestic tourists and tourism have been outlined in the following sections19. KZN was the province that attracted the highest number of domestic arrivals while the Northern Cape was the province that attracted the lowest number of domestic arrivals in 2010.

4.10.1. KWAZULU-NATAL

The number of domestic arrivals to KZN has been decreasing since 2007 from 10.6 million to 8.3 million in 2010. In 2008 the total annual spend increased from R4.87 billion in 2007 to R7.77 billion in 2008, however the total annual spend has declined annually since then and in 2010 amounted to R5.64 billion. Despite these decreases in numbers the province still has the highest proportion of domestic tourists with 28.1% share of the country’s total arrivals, 26.7% share of total revenue and 29.3% share of total nights. However the major source of domestic tourists is from the province itself with 74.8% of the domestic tourists coming from KZN. The second largest source province is Gauteng with 15.5%.

4.10.2. GAUTENG

The majority (72%) of domestic arrivals to Gauteng was for VFR (visiting friends or relatives), and the number of arrivals increased from 5 million in 2009 to 6.4 million in 2010. The reasons for the increase in tourist to the province may be attributed to the 2010 World Cup Soccer matches, this in turn would have affected the total annual spend for the period between 2009 and 2010. The total annual spend also increased from R3.4billion in 2009 to R4billion in 2010. Gauteng had the second largest share of the total domestic arrivals, bed nights and revenue in South Africa. The share of total arrivals was 21.5%, the share of total revenue was 18.7% and the share of total nights was 17%. The majority (53.6%) of domestic arrivals were from Gauteng followed by Limpopo with 14.3% and North West with 8.8%.

4.10.3. EASTERN CAPE

The majority of domestic trips to the Eastern Cape were for VFR (visiting friends or relatives), and in 2010 the Eastern Cape was ranked third in the country for domestic arrivals (13.4%), total bed nights (17%) and total revenue(11.7%) from domestic travel. However, in 2010 the number of domestic trips declined from 5.7milion in 2009 to 4 million in 2010. The annual total spends also decreased between 2009 and 2010, from R4.28 billion

19SAT Domestic Tourism Report Provincial Scorecard 2007-201052

to R2.47 billion. This decrease in tourism revenue would have an effect on the rest of the economy in the Eastern Cape as tourism is a major economic driver in the province. This decline would have affected the employment levels negatively as well as the spending power of the local consumers which in turn would have impacted negatively on the local economy. The two major source provinces for tourists were the Western Cape with 23.8% and Gauteng with 9.8%. The majority (57.9%) of domestic tourists however come from within the Eastern Cape.

4.10.4. WESTERN CAPE

In 2010 the Western Cape was the fourth largest domestic travel destination however the number of domestic arrivals has been declining since 2007 from 4.5 million to 2.7 million in 2010. Despite the decline in arrivals in 2010 the total annual spend increased by 26% from 2009. This implies that although less people are travelling, they are either spending more money due to having more expendable income or things cost more and this is more likely to be the case as can be seen by the decrease in arrivals. People have less money to travel and so the number of arrivals in the province has decreased. The province received 9.1% of the share of total arrivals in the country, 15.6% of the share of total revenue and 10.7% of the share of total nights. The major source of domestic tourists was the province itself with 70% arrivals originating in the Western Cape; this was followed by Gauteng with 10.8% and the Eastern Cape with 7%.

4.10.5. LIMPOPO

Limpopo received a small share of the country’s total domestic arrivals and revenue; however the province experienced an increase in arrivals between 2009 and 2010. The number of arrivals increased from 1.9 million in 2009 to 2.9 million in 2010, this is an increase of 52%. The total annual spend also increased in the same period from R1.23billion to R1.72billion. The major source for domestic tourists was Limpopo with 50.2% followed by Gauteng with 46.7%. The share of total arrivals in the country amounted to 9.9%, while share of total revenue was 8.2% and share of total nights was 8.7%.

4.10.6. NORTH WEST

The North West province received 2.5 million domestic tourists in 2010, which was an increase from the previous year’s total of 1.4million. The total annual spend in 2010 amounted to R2 billion which was an 84% increase from the previous year’s total of

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R1.13billion. The increase in annual revenue increased the share of total revenue from the domestic arrivals to 9.9%, while the share of total arrivals reached 8.4% and share of total nights was 7.2%. The major sources of domestic arrivals are the province itself with 35.8% and Gauteng with 46.4%. The province did not receive domestic arrivals from the Western Cape or the Eastern Cape in 2010.

4.10.7. MPUMALANGA

The number of domestic arrivals to Mpumalanga did not change between 2009 and 2010, and amounted to 1.7 million for each year. The total annual spends for 2010 was R1.07 billion compared to R1.49 billion in 2009 and as such the province had a very small share of total arrivals and revenue for 2010. The share of total arrivals was 5.9%, the share of total revenue was 5.1% and the share of total nights was 6.3%. The major source of domestic tourist in 2010 was Gauteng with 69.1% followed by 24.4% domestic tourists from the province of Mpumalanga.

4.10.8. FREE STATE

The Free State had a very small share of the total domestic arrivals and revenue in 2010. The share of total domestic arrivals amounted to 3.6%, the share of total revenue was 3.2% and the share of total nights was 3.3%. The majority (42.3%) of domestic tourists to the province was from Free State and 39.3% were from Gauteng, followed by Eastern Cape with 12.7%. The number of arrival to the Free Sate declined between 2009 and 2010, with arrivals decreasing from 1.7 million to 1.1 million. The annual spend also showed a significant decline from R 1.4 billion in 2009 to R 677 million in 2010.

4.10.9. NORTHERN CAPE

The Northern Cape received the lowest share of total domestic arrivals and revenue from domestic travel in the country. The share of total arrivals and the share of total nights was .07% each while the share of total revenue was slightly higher at 1.1%. The number of domestic arrivals declined by 66% from 600 000 domestic arrivals in 2009 to 200 000 domestic arrivals in 2010. The total annual spend also decreased from R465 million in 2009 to R223 million in 2010. The major sources of domestic tourists for the Northern Cape are the Northern Cape with 31.7% followed by Gauteng with 26.8% and the Western Cape with

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26%. The Northern Cape receives domestic tourists from the provinces across the country with the exception of Limpopo.

THE POLICY AND STRATEGY FRAMEWORK FOR DEVELOPING SMALL AND MEDIUM ENTERPRISES IN THE TOURISM SECTOR

The following sections of the report provide an overview of the policies and legislations in place to assist with the development of small and medium businesses in the tourism industry. These sections discuss the national strategies such as the Marketing Tourism Growth Strategy 2011-2013, the Tourism Act, and the Accelerated and Shared Growth Initiative for South Africa. Furthermore the provincial frameworks, policies and strategies are also discussed for each province in South Africa. An overview of the various support and development programmes within the National government as well as in the provincial departments is also provided in these sections.

NATIONAL SUPPORT PROGRAMMES, POLICIES AND STRATEGIES TO SUPPORT SMES IN THE TOURISM SECTOR

On a national level South African tourism is managed by The National Department of Tourism. The role of the national government is to agree on policy matters and the implementation of strategies including the monitoring and evaluation of programmes, and to invest in tourism marketing programs. In order to keep up with international tourism markets and the South African tourism market it is the government’s role to conduct

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necessary research to identify marketing and development opportunities as well as to identify new tourism products. The role of the government is to ensure the coordination of tourism organisations across international, national, provincial and local levels. The National Department of Tourism and the Department of Trade and Industry work in conjunction with funding programs and initiatives to provide funding and assistance towards rural development and investments in small and medium enterprises. There are a number of key policies and strategies that are in place aimed at supporting growth of the tourism sector and these include:

4.11.1. THE MARKETING TOURISM GROWTH STRATEGY FOR SOUTH AFRICA 2011 – 2013

The focus of the Marketing Tourism Growth Strategy is to maximize and identify opportunities and overcome challenges in the tourism industry. This strategy aims to encourage stakeholders to engage in tourism based operations and guide investments behind the tourism brand and growing demand for South Africa. This Marketing and Growth Strategy has an integrated approach involving coordination of different departments to reach tourism goals.

This strategy outlines coordination of a number of players in the tourism industry namely The National Department of Tourism (NDT), South African Tourism (SAT), The Department of Trade and Industry (DTI), the Tourism, Hospitality and Sport Education and Training Authority (THETA). These organizations are involved in achieving the goals set out in the strategy and in accordance with the Tourism Act.

4.11.2. THE TOURISM ACT

The Tourism Act’s mandate is to promote sustainable growth, sustainable job creation, and redistribution and transformation of the tourism industry. This can be achieved by increasing tourist volumes, increasing the amount of time tourists spend in the country which would in turn increase the amount of money they spend, and reducing seasonality.

4.11.3. ACCELERATED AND SHARED GROWTH INITIATIVE FOR SOUTH AFRICA (ASGISA)

The two major goals of the Accelerated and Shared Growth Initiative for South Africa (AsgiSA) are to halve unemployment and poverty by 2014. The achievement of these goals can only take place by increasing economic growth by 6% of GDP. 20 This national initiative is supported by all spheres of government to achieve accelerated economic growth by; 20 Accelerated and Shared Growth Initiative for South Africa (AsgiSA) (2006)

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investing in infrastructure such as power distribution and rail transport, sector investment of which tourism has been identified, skills and educational initiatives, eliminating the second economy through initiatives to address inequalities and, overcoming macro-economic issues such as improving government budgeting. 21

In an effort to promote private sector investment, AsgiSA has developed sector strategies. AsgiSA identified tourism as a priority sector along with business process outsourcing (BPO). These sectors are crucial to economic growth as they can be seen as labour-intensive, increasing globally and they have opportunities for BBBEE and the development of small businesses. 22

AsgiSA outlines the key focus issues in the tourism industry as:

Marketing

Air Access

Safety

Skills Development.

AsgiSA outlines that through the framework, the tourism sector has already grown to where it can contribute to 8-12% of GDP. AsgiSA states that furthermore the tourism industry is co-dependent i.e. the industry’s major partnerships are government and the private-sector. 23The collaboration of the private and public-sector will address challenges faced in the industry and furthermore share the weight of overcoming challenges; this can be achieved by ensuring that there is adequate communication and networking between private and public-sector tourism organizations.

To achieve the objectives of AsgiSA, skills and educational initiatives are in place such as the Joint Initiative for Priority Skills Acquisition (JIPSA). This initiative is to identify urgent skills needs and effective solutions for attaining these skills which can be achieved through special training programmes, bringing back retirees, recruiting skills of expats or sourcing skills from abroad.24

21 Accelerated and Shared Growth Initiative for South Africa (AsgiSA)(2006)

22Accelerated and Shared Growth Initiative for South Africa (AsgiSA)(2006)

23Accelerated and Shared Growth Initiative for South Africa (AsgiSA)(2006)

24Accelerated and Shared Growth Initiative for South Africa (AsgiSA)(2006)57

4.11.4. INDUSTRIAL POLICY ACTION PLAN 2010/11-2012/13 (IPAP)

The Industrial Policy Action Plan aims to create 43 000 direct jobs and 86 000 indirect jobs in South Africa by 2013. The IPAP is a critical component to growth in South Africa, and deals particularly with value added activities in manufacturing and other high quality services in the country. IPAP has identified key action programmes, outcomes and key milestones for various industries and sectors in South Africa including tourism. The Key Action Plans (KAPs) for tourism are;

KAP1. Niche Tourism Development

This intervention involves the formulation of a Niche Tourism Development Framework. The intention of this framework is to guide niche tourism development in South Africa and identify the high growth and yield niche tourism services and products to be developed. Niche tourism provides the tourism sector with an opportunity to develop new markets and diversify the economy. Furthermore niche tourism has the potential to create skilled jobs as the products and services are more specialised than general tourism products. Generally niche tourism products are located outside of mainstream tourism areas and so the development of niche tourism products could encourage geographical distribution of tourism benefits.

The key outcomes of this KAP are:

The development of the niche tourism frameworkAnnual market research reports and analyses to identify supply gaps and development opportunitiesSupport for industry development through funding opportunities and organisations

KAP2. Tourism Export Development and Promotion

This intervention is the establishment of a private sector driven Tourism Export Council along with guidelines for tourism enterprises to access individual Exhibitor Assistance under the Sector Specific Assistance Scheme. The aim of this KAP is to increase market share and promote South African Tourism products and services globally.


The establishment of the Tourism Export CouncilParticipation guidelines for the Individual Exhibitor Assistance programmeIncreased tourism arrivals and revenue into South Africa as well as increased market access

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KAP3. Airline Pricing Structure Investigation

This intervention is to research and investigate the pricing of airlines and to develop a position paper and to draft regulations for the Consumer Protection Act. The objective is to create transparency for pricing of tickets for consumers and to promote competitiveness.


Effective regulations of the Consumer Protection Act to address unfair pricing structures

4.11.5. NATIONAL TOURISM DEPARTMENT MEDIUM TERM STRATEGIC PLAN 2010/11-2014/15

The National Tourism department’s efforts will be geared towards creating a conducive environment for the tourism sector to increase its direct contribution to GDP from R52.38 billion in 2009 to R65.72 billion in 2015, and increase the number of jobs supported directly by the sector from 527 630 in 2005 (as per the 2008 Tourism Satellite Account) to 640 000 in 2015. These will be achieved by, amongst others, increasing the number of foreign arrivals from 9 591 828 in 2008 to 12 068 030 by 2015 and increasing the number of domestic tourists from 13 483 000 in 2008 to 16 000 000 by 2015. The international marketing efforts will concentrate on high yield markets. The GDP growth will further be assisted by increasing total tourism direct spend from R100billion in the 2008 calendar year to R169 billion in the 2015 calendar year.

The department has set out 11 strategic themes, together with the associated objectives, to meet these goals (Medium-Term Strategic Plan, 2010/2011-2014/2015):

People empowerment and job creation: target the unemployed, youth, women, the disabled and SMME’s to promote job creation in these under employed sectors. The Expanded Public Works workers employed by Social Responsibility projects are also economically empowered through projects aimed at improving their skills and capacity levels.Tourism Sector Transformation: Ensuring that all demographics are represented fairly within the tourism sector.Sustainable Tourism Growth and Development: Through addressing geographic and seasonal imbalances of tourism; involving rural communities in mainstream tourism; promoting travel amongst South Africans; ensuring that travel and tourism sectors contribute to economic growth; promoting work in the tourism sector; and targeting young people and promoting people development to ensure this sustainability

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Responsible Tourism Promotion: Ensure responsible, best practices are upheld in TourismTourism Service excellence: promoting the competitiveness and the good work of the Tourism sector.Tourism Sector Knowledge and Policy Leadership: The following measures are taken to ensure the Tourism Sector is well managed: Tourism planning and decision making will be informed timeously with relevant tourism information; the tourism sector’s Monitoring and Evaluation system will be uniform and functional; promote policy and legislation enabling tourism growth and development; support growth and development of Local Government Tourism initiatives; manage and conduct tourism growth and development research.Integrated Tourism Governance: The following measures are taken to ensure that Tourism Governance is effectively and positively promoting the tourism sector: Promote tourism priorities in Local and Provincial government plans; provide information which encourages domestic tourism; and facilitate contributions to the growth of tourism interdepartmentally.Public Education, Awareness and outreach: promoting a positive image of the Department; encourage a culture of tourism in the country; empower South Africans through access to information about tourism; encourage stakeholders to participate in ownership of the sector; and be an accessible, caring department.A better Africa and a better World: Encourage a global environment supporting the growth, development and sustainability of South African Tourism; contribute to Good Global Tourism Governance; strengthen Regional, South-South and South-North Integration and cooperation.Human Capital Management: ensure skilled, capable and competitive human capital is available, while promoting representation of a diverse and happy workforce.Good Governance: The department aims to efficiently maximise their use of allocated resources towards achieving government mandates, through reducing risk exposure, promoting transformation, ensuring cooperation with Public Entities and ensuring public transparency and accountability.

4.12. NATIONAL SUPPORT/DEVELOPMENT PROGRAMMES

There are a number of national support programmes that provide both financial and non-financial support to SMMEs in South Africa. The following section outlines the most relevant programmes for tourism businesses.

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4.12.1. TOURISM SUPPORT PROGRAMME (TSP)

The Department of Trade and Industry (the dti) has a sub programme of the Enterprise Investment Programme, called the Tourism Support Programme (TSP). The TSP is a cash grant incentive that supports the development of tourism enterprises. Local and foreign owned tourism entities can apply for cash grants of up to 30% on qualifying investment costs in furniture, commercial vehicles, buildings and land, and equipment for establishing a new tourism facility or expanding an existing tourism facility. These cash grants are payable over a three year period.

4.12.2. TOURISM LEARNERSHIP PROJECT (TLP)

The Tourism Leanership Programme (TLP) is a training programme which is co funded by the Department of Labour and the Tourism, Hospitality, Education and Sport Training Authority (THETA). The objective of this programme is to improve training and skills in the tourism and hospitality sector.

4.12.3. POVERTY RELIEF PROGRAMME

The Poverty Relief Programme was established by the government to reduce and ultimately eradicate poverty in South Africa. The tourism section of the Department of Environmental Affairs and Tourism is allocated with funding to support tourism projects. The objective of the programme is to use funding to develop projects that will create jobs, develop new tourism products, and provide training and ensure sustainability of the project.

4.12.4. DEVELOPMENT BANK OF SOUTH AFRICA

The Development Bank of South Africa (DBSA) supports South African tourism by investing in infrastructure and financing development in partnership with public and private sectors. The DBSA provides support in the form of equity, loans and grants to both private and public sector clients. The following types of projects are supported by the DBSA:

Attractions Facilities and Services Transport

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Support services Infrastructure development

4.12.5. INDUSTRIAL DEVELOPMENT CORPORATION TOURISM BUSINESS UNIT

The IDC Tourism Business Unit offers financial assistance to accommodation business and capital intensive tourism projects that will assist in the growth of the tourism industry. Assistance is provided in the form of loans and the business must provide an equity contribution of 40%. Furthermore projects must be economically viable to receive assistance from the IDC Tourism Business Unit.

4.13. PROVINCIAL POLICY OVERVIEW

Within the broad tourism sector of South Africa, each of the nine provinces are responsible for the promotion and marketing of their own region as a domestic and foreign tourist destination. This marketing and promotion is done in participation with the local government, private sector and stakeholders of each region to ensure that growth in the tourism sector trickles down to the local individuals in the form of skills training and job creation, especially amongst previously disadvantaged communities. Additionally, in order for tourism to be sustainable, each province has ensured that their tourism growth strategies integrate a strong eco-tourism and environmental impact awareness25. In the following sections, the growth strategies of the provinces are discussed.


The main goals of the Western Cape Tourism strategies aim to review tourism routes, improve road signage, develop tourism gateways and conclude and implement mega projects to facilitate the growth of both international and domestic tourism markets to increase leisure and business tourism and events in the province.

The tourism sector in the Western Cape (WC) has become the fastest growing and largest job creating sector of the economic sectors in the province. In effect the WC has been 25Eastern Cape Tourism Master Plan, 2011

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identified as the province that has the most developed tourism industry in the country. It provides 1 in every 10 employees with a tourism related job and contributes R 25 billion to the WC economy annually. Due to its economic contribution to the province as well as the country, the WC Government has initiated ongoing research projects through the Department of Economic Development and Tourism (WCDEDAT) in order to address any potential tourism needs and future growth opportunities26.

Although the WC tourism sector has been identified as the fastest growing and most developed tourism sector in the country, a number of barriers have been identified that inhibit growth in this sector, namely:

Non-existent integrated tourism marketing model, strategy and structure for the province.Insignificant positioning of the destination as a dynamic business tourism destination.Insignificant positioning of the destination as a vibrant leisure tourism destination.Lack of dedicated centralised funding and resources to develop and market events.Limited and unrealised new tourism infrastructure, niche markets, routes and tourism products.New businesses and tourism products are not spread as widely as possible, both geographically and seasonally.Inadequate innovative tourism products and marketing processes.Quality of skills and customer service need to match global standards and be maintained.Weak linkages between tourism and the commercial arts and entertainment sectors (craft, film, music, visual arts and performing arts)27.

Western Cape Annual Performance Plan 2011/2012

To address these barriers, three strategies were introduced in the WCDEDAT’s Annual Performance Plan for 2011/2012. The main focus of Strategy 1 is tourism development. The following interventions have been identified for Strategy 1:

Development of tourism niche markets areas such as cruise liner tourism, health tourism, sport and mega event tourism, and culture and heritage tourism; b) development of

26WCDEDAT, 2009

27 Department of Economic Development and Tourism, Annual Performance Plan, 201163

new and existing tourism routes; and Development of tourism infrastructure, sites, attractions and facilities.

The main focus of Strategy 2 is tourism destination global competitiveness. This strategy is a new area and consists of two interventions, namely innovation, mainly methods to attract new tourists and product development technology

Lastly, the focus of Strategy 3 is tourism support services in the form of: tourism safety and support, in order to counter any negative perceptions of safety in the WC; tourism quality assurance, by means of assessment and re-assessment of service accommodation, self-catering services, and tour operators;

Tourism greening, that will be incorporated in quality assessments; universal accessibility, for the inclusion of the disabled tourist; tourism road signage; Locals provided with tourism destination exposure i.e. provides access to communities who do not usually take part in tourism experiences28.

Additionally, WCDEDAT has developed two more condensed and long-term strategies, aimed at tourism development in the WC, namely Micro-Economic Development Strategy (MEDS) and DEDAT 5 Year WC Strategic Plan 2010/15.

These strategies aim to stimulate the growth of both international and domestic markets and increase both business and leisure tourism and events. Business tourism is particularly important to the WC as the province has been named the number one African convention destination and was ranked 37th on the global list by the International Congress and Convention Association’s Global Ranking Report. In 2011 alone, the convention industry was expected to generate R 324, 8 million in revenue. Leisure tourism also plays an important role in the WC tourism sector, as the province hosts a number of cultural and sporting events, such as The Cape Town International Jazz Festival which generated R 430 million for the province. Both strategies highlight the importance of skills development in the tourism sector, a key element for sustainability.

Western Cape Support/Development ProgrammesThe Western Cape Government offers tourism grants to SMMEs in the tourism industry to develop business networks, and to support community development projects. Training is also provided for tour operators and accommodation facility owners. Tour guides are also provided with assistance in developing business plans and receive after care and monitoring 28Department of Economic Development and Tourism, Annual Performance Plan, 2011

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for their businesses. A tourism help desk has been established to assist emerging entrepreneurs with business development and planning in the province.

4.13.2. KWAZULU-NATAL

The main goals of the tourism department are to promote and increase the marketing of tourism products and service to tourists. Tourism in Kwazulu-Natal (KZN) has always played an important role in the economy as it contributes 10% to KZN’s GDP. However, since the 2010 FIFA World Cup, the promotion and marketing of KZN as a sports destination has become the focus of the tourism marketing strategies. The province’s 2010 website, which was also the first of its kind informed visitors on provincial specific facts regarding the soccer event. The website has become a platform through which retail and other tourism companies obtain business, and the province hopes it will continue to attract tourists to the province over years to come29. KZN Department of Sports and Recreation

Another goal of the Department of Sports and Recreation is to attract new sporting events since KZN already has the sporting infrastructure in place (with the Moses Mabhida Stadium as center-piece) and has proven its ability to host big events in recent years. Sporting events that have showcased the province’s ability to manage and host big events are: the FIFA Beach Soccer World Cup and the Confederations Cup Soccer in 2009; FIFA World Cup South Africa in 2010; and FINA World Swimming Championships in 2011. Furthermore the Durban FIFA Fan Fest was attended by 766 412 people during the 2010 FIFA World Cup. Other annual events that have been successfully hosted by the province include the Comrades Marathon, the Durban July and the Dusi Canoe Marathon.

Apart from sport, KZN also has well-developed, diverse, and popular tourism assets, around which their tourist strategies are developed. One of KZN’s goals is to market province as niche market destination for cruise tours, educational tours, cultural tourism, charters and plane trips, golf, health and hunting all year round.

KZN Beach Tourism Policy

Another tourism strategy that has been planned for 2012 is the Beach Tourism Policy; the objective of this strategy is to get municipalities along the coast of KZN to participate in a

29KZNDEDAT, 200965

joint marketing mechanism that will ultimately promote the province as a whole to international tourists30.

KZN Department of Economic Development and Tourism: Strategic Tourism Plan

The key objectives of KZNDEDAT strategic plan for tourism are to transform and develop the sector with the following interventions:

Ensuring tourism product development promotes the packaging of tourism activities and experiences so that the province is the destination of choice for South Africa and in this way increase investment in the sector which will result in the creation of sustainable job opportunities.Work with all stakeholders in the sector to develop a Provincial Tourism Master Plan, which will drive tourism development, growth and skills development.Develop and implement the KZN Provincial Tourism White Paper and ensure capacity building takes place where necessary to facilitate implementation.Strengthen the tourism development service offering for SMMEs, co-operatives and emerging previously disadvantaged tourism entrepreneurs and expand service delivery to SMME across the province to drive tourism growth and development.Finalize and implement the Provincial Tourism Transformation Plan.Monitor the rollout of the Tourism BEE ScorecardReview the KwaZulu-Natal Tourism Act and all other relevant legislation and regulations for alignment with the National Governments Medium Term Economic Framework and to eliminate any hurdles blocking tourism growth and development and the subsequent job creation31.KwaZulu-Natal Support/Development ProgrammesTourism KwaZulu-Natal supports tourism business development in the province by facilitating tourism entrepreneur development and training. Training is provided to tour operators and tour guides in skills training, feasibility studies and various business planning skills and strategies. Furthermore assistance is provided in business marketing and developing business linkages for SMMEs.

4.13.3. GAUTENG

30www.kwazulunatalbusiness.co.za

31 Theta, 201166

The Gauteng tourism strategies aim to stimulate job creation, strengthen safety and security in the province and promote Gauteng as a smart and creative province, through the use of investment, marketing, and the required skilled workforce3233.

Gauteng Tourism Strategy

Tourism, as an economic sector, plays an important role in facilitating growth and transformation of the economy of Gauteng. A key strategy that promotes growth in the tourism sector is the identification of required tourism-related skills that are required and that can be developed in workshop interventions. The objective of this strategy is to alleviate poverty in the province and promote economic growth. During the Gauteng tourism summit in 2011, a Gauteng specific tourism strategy was created as an adaption of the national tourism sector strategy. This strategy aims to create 225 000 sustainable tourism-related jobs by 2015.

Gauteng Support/Development Programmes

Gauteng Tourism Authority

The Gauteng Tourism Authority (GTA) offers assistance to small businesses in the tourism industry through facilitating skills training and providing funding. The objectives of the GTA assistance are to:

Provide critical infrastructure to promote growth and investment Support tourism development Improve community members’ quality of life and promote community involvement

ion projects Support training and skills development Establish tourism routes, nodes and clusters Improve tourism visitor experiences in the province

4.13.4. EASTERN CAPE

The main goal set out for tourism in the EC, is to realize its tourism potential and drive tourism growth and development in this province. This will be achieved through:

tourism product development

32www.joburg.org.za

33 Theta, 201167

Tourism marketing

Human resource development

Development of tourism relevant infrastructure

Transformation of the tourism sector

Increase in tourism research and information

Improved tourism safety and security

Improved management of the tourism sector34.

Eastern Cape Provincial Marketing Strategy

A provincial marketing strategy has been developed to promote strategic partnerships with key marketing partners, promote the province at relevant trade shows and exhibitions and engage in targeted marketing with important target markets. Tourism product development aims to improve the product offering of the province and also to increase investment potential. The products are diverse and are intended to assist in the upliftment of rural communities in the province.

The following high priority potential tourism products have been identified for development:

Gariep Lake Development, Maluti-Drakensberg Transfrontier Park in Alfred NZ area Mandela Development Corridor linking eco-tourism of the Wild Coast to adventure

tourism Hotspots of the Southern Drakensberg The Amatole Park and Living Museum linking all the conservation areas of this

district to showcase the area’s natural beauty.

Human resource development has been identified as a key driver to improving the provinces tourism sector competitiveness, as a skilled workforce is a competitive workforce. The master plan identifies that training happens in a haphazard manner and a tourism skills audit is needed so that the province may have a coordinated approach to human resource development. This links directly to the skills planning activities of THETA and due to this synergy the province and THETA have agreed in principle to work together on the tourism

34Eastern Cape Tourism Master Plan, 2009-2014; Eastern Cape Socio Economic review and outlook, 201168

skills audit. The province would also like to develop and promote skills development in the province especially within workplaces and aims to develop, adopt and implement a comprehensive skills development strategy and structure for the province.Development of tourism relevant infrastructure has been prioritized and transformation of the tourism sector has been identified as being imperative to contribute to the economic transformation of both the province and tourism sector, and it allows for communities to perceive tourism as being beneficial and valuable. Tourism research and information has been identified by the province as being critical, as research in the tourism sector is limited and the lack of research regarding the tourism sector and more specifically Tourism HRD has hampered accurate skills planning and effective skills development. Tourism safety and security will be improved as 54.1% of tourists to the province who reported having a bad experience while in the province identified crime as the biggest issue. Management of the tourism sector has been identified as a critical area and identifies that those responsible for the management of the tourism sector do not have the necessary skills for the sector to be able to grow to reach its full potential, including both public and private managers. The strategy entails tourism capacity building initiatives for all managers as well as management related training for those managers requiring it3536.

Eastern Cape Support/Development Programmes

The Eastern Cape Tourism Board offers training, marketing, and assistance with exhibitions and business linkages to SMMEs in the tourism industry. The assistance is provided in the form of non-financial support to SMMEs.

4.13.5. FREE STATE

The province’s focus is developing a nature-based tourism sector in the rural areas of the province and capitalizes on the abundance of scenic beauty in the province. The rural areas surrounding the established Golden Gate tourist attraction can be further developed and enhance the offering. The development initiatives are listed as follows;Develop tourism products as part of focused tourism routes in rural areas such as the Maloti Route. The development of routes within routes has been identified as means of exploiting the existing fractured tourism attractions within the province to generate exciting and new

35 Theta, 2011

36ECDEDEA, 200869

tourism products. A super route linking all the tourism attractions of the Eastern Free State, by means of combining hiking, quad biking, horseback riding and river rafting trails is an example such a route.Tourism routes must have a core and ancillary focus, therefore a route such as the Maloti Route would have a nature-based tourism focus but subsidiary routes feeding off this main route with cultural and historical focus will be developed.Tourism development options in the province include previously disadvantaged individuals and their communities and will be used as means of uplifting the rural poor. This is not limited to BBBEE opportunities only but also includes creating employment opportunities for these individuals and their communities.Development of the existing adventure-based weekend and day-trip market of the Vaal River and Parys area.The conferencing and event sub-sector in the province and particularly Bloemfontein will be developed as the central location within the country is ideal for this market and it is further envisaged that while Cape Town, Durban and Johannesburg are all competing for international conferences, Bloemfontein should exploit its central position and focus on staging national conferences. The development of the conference industry in Bloemfontein could also have a knock-on effect for tourism in the province as more business travelers will be exposed to the province and might return with their families for leisure travel. The province also hosts the Macufe Festival and the Volksblad Kunstefees; however these are primarily aimed at the domestic market in the province and need to be developed to the same level as the National Arts Festival or North Sea Jazz Festival to attract visitors from across the country to the province.The sport, recreation and fitness sub-sector has also been identified as an area with huge tourism development potential. The province and Bloemfontein in particular have a multitude of excellent sporting venues, including world class drug testing facility at the University of the Free State that has been approved and accredited by the International Olympic Committee since 1995 and has been conducting thousands of doping test ever since. Therefore there is huge sports tourism potential within the province that is made even more attractive due to its central location37.

Free State Support/Development Programmes

The Department of Economic Affairs and Tourism in the Free State provide non-financial support to SMMEs in the tourism sector through:

37 Theta, 201170

Advice on starting a business Marketing assistance and providing marketing material Facilitating linkages with other support programmes such as TEP Facilitating training for tour guides, catering businesses and accommodation facilities Assisting with exhibitions for tourism businesses

4.13.6. LIMPOPO

The focus of the province is on improving education and skills, providing essential infrastructure and Building capacity in technology. Furthermore the goals of the province are to open access to capital markets and to improve institutional efficiency in specific destinations with high tourism potential with regards to the following tourism sub-clusters:

Special interest activities such as Mapungubwe and Nyslvlei birding Game and hunting industry value chain Golf tours Biospheres such as Waterberg, Soutpansberg and Lowveld Family entertainment including resorts, sports and picnics Polokwane business tourism focusing on conferencing and events including the

staging of sports events Mountain adventures tourism on the escarpments

Trans - frontier Parks38

Limpopo Support/Development Programmes

The Department of Economic Development and Tourism in Limpopo has established a section 21 company, a non-financial support information hub and a SMME Development Agency to provide support to tourism businesses in the province. Furthermore, the Limpopo Tourism Authority was established to assist SMMEs in the tourism industry with marketing, exhibitions, training and partnering with the TEP.

4.13.7. MPUMALANGA

The focus of the province’s tourism development is to provide efficient and effective administration and strategic support service to the sector and to facilitate support and development of business enterprises in the sector. Furthermore the province has set out the following objectives and goals for tourism development:

To ensure the participation of HDIs in both and sector and economy as a whole

38 Theta, 201171

Ensure the development of a competitive sector Create a platform to enhance sustainable tourism growth To implement consumer protection and awareness strategies that creates an

environment conducive to fair trade Ensure the co-ordination of relevant economic research in the sector To contribute to the management of information and knowledge of the sector To provide economic policies and strategies for the sector

Determine the effectiveness and impact of policies, strategies and programme objectives have had on the sector39

Mpumalanga Support/Development Programmes

The Department of Economic Affairs and Tourism in Mpumalanga provides non-financial support to SMMEs in the tourism industry. The support is provided in the following ways:

Assistance with writing a business plan Marketing support Establishing or setting up an office Tour guide registration Providing exposure at exhibitions and conferences

4.13.8. NORTH WEST PROVINCE

The NW province aims to stimulate growth in its tourism sector and allow it to reach its full potential through tourism policy and strategy; tourism marketing; tourism development; tourism information management; and institution arrangements. By addressing these key strategic objectives it aims to diversify its tourism sector through the promotion of cultural tourism, entertainment and hospitality to international tourists40.

The North West 2014 Business Road Map

The North West Parks and Tourism Board adopted a new strategy in 2004 which is called the "2014 Business Road Map". The key objectives include the following:

To create a strategic culture within the organization To ensure financial efficiency and sustainability

39 Theta, 2011

40NWPG, 2004; Theta, 2011/2012-2015/201672

To contribute to the transformation of the economy To ensure the alignment of the operations of the organisation To ensure the alignment of the financial and strategic dimensions of the organisation

To create a humanized workplace environment41.

North West Province Support/Development Programmes

The Product Development unit of the North West Parks and Tourism Board focuses on tourism development in the area and engages with the local communities to:

Promote investment in tourism and community development Promote capacity building Promote SMME development

To promote SMMEs development the Product Development unit assists with marketing at trade shows and Indabas and provides skills training to businesses as required.

4.13.9. NORTHERN CAPE

The tourism marketing focus for the province is to market the area and build a strong market intelligence base and develop a distinct and recognizable provincial brand. Specifically, the Northern Cape Tourism Authority’s strategy is to promote the Northern Cape as a destination for Extreme Escapism, to enjoy the open spaces and extreme topography and features of the province. This strategy has a strong focus on attracting extreme events such as the Maloof Skateboard Cup, land speed record attempts, paragliding, rafting, etc.Tourism product development to package the existing tourism products in the province and to allow for the development of new attractions to the province.Tourism spatial development so that the tourism sector in the province be developed around strong tourism clusters with existing tourism products which will allow consumers to access high tourism potential areas.

41www.tourismnorthwest.co.za73

Transformation in tourism. The province is actively seeking to promote compliance with the Tourism Sector Codes of Good Practice and in this way drive the transformation of its tourism sector4243.

Northern Cape Support/Development Programmes

The Department of Economic Affairs and Tourism in the Northern Cape provides non-financial support to SMMEs in the tourism industry. The support to SMMEs includes the following:

Marketing assistance Assistance with business plans and proposals Provision of mentors and mentorship to SMMEs Provision of business counseling and feasibility assessments Facilitation of exposure at national and international tourism exhibitions

4.14. IDENTIFICATION OF HIGH POTENTIAL SUBSECTORS

The main subsectors within the industry are accommodation, transport, tour operators, and entertainment and tourism experience. Within South Africa there are an estimated 5000 travel agencies and more than 800 tour operators. The number of registered tour guides in South Africa in 2006 was 10 115. In terms of vehicle hire, there are an estimated fifty small car hire operators in existence. Accommodation businesses44 are spread across South Africa, and there are an estimated 230 timeshare resorts in operation, approximately 8000-9000 guest houses and B&Bs, and 1000 private game reserves and lodges. These accommodation figures do not include hotel accommodation and backpackers.

Given the information available publicly regarding opportunities within the tourism industry the subsectors that have been identified as high potential growth subsectors are accommodation, transport, and entertainment and experience. These opportunities are discussed in more detail in the data analysis section.

4.15. JOB CREATION POTENTIAL42Tourism Consulting and Marketing, 2011

43 Theta, 2011

44South African Tourism Sector, www.tourismrsa.com74


National goals for job creation in the tourism industry in South Africa have been set out by the Department of Tourism in a Medium-Term strategic plan for 2010/11-2014/15. The first strategic theme in the report focuses on ‘People Empowerment and Job Creation’, as tourism is described as, among many definitions, a labour intensive industry with the capacity to create jobs in a variety of economic industries, such as arts and culture, sport, agriculture, transport, and construction45. The goal of the estimated 640 000 tourism related jobs by 2015, compared to the 527 630 jobs in 2005, is planned to be achieved through the means of two objectives46:

To contribute to job creation through the use of labour-intensive methods targeting the unemployed, youth, women, the disabled and SMMEs

To build and improve the skills and capacity levels of the Expanded Public Works workers employed in the Social Responsibility projects

This goal further supports the plan of the African National Congress (ANC) to create 225 000 new jobs in the tourism sector by 2020. The Tourism Enterprise Partnership (TEP) is also greatly committed to achieving the government’s 2020 goal and have already set clear targets for the organisation to achieve, among many, 10 000 new jobs in the current financial year47.

At present there is no database in South Africa that captures all the entities operating in the tourism sector. This makes the quantification of the exact size of this sector very difficult, which consequently makes accurate skill planning very problematic. This is due to the large amount of Small, Medium and Micro Enterprises (SMME) that dominate both the tourism sector and its subsectors, which are too small both in size and income to be registered on any official national databases. However, when taking into account those entities that are registered on one or more official databases, the total number of entities in the tourism sector come to 41 740 entities, who employ around 378 000 staff members.

45MTSP, 2010; NTSS, 2011

46MTSP, 2010, p.6

47Global Media Face Off INDABA, 201175

The breakdown of the estimated total amount of entities into its sub-sector, are illustrated in the table below:

TABLE 16: NUMBER OF EMPLOYERS AND EMPLOYEES PER SUB-SECTOR

Sub-sector Number of employers

Percentage Number of employees

Percentage

Hospitality 28 000 67% 290 000 77%

Travel and Tourism 6 200 15% 28 000 7%

Gaming and Lotteries 740 2% 10 000 3%

Sport Recreation and Fitness

3 300 8% 20 000 5%

Conservation and Tourist Guiding

3 500 8% 30 000 8%

Total 41 740 100% 378 000 100%

Source: Prodigy – Grant Thornton, 2007, quoted in Theta, 2010

It has been estimated that those SMMEs that employ between 0 and 49 individuals account for 96.05% (20 565) of the complete tourism sector. As previously stated, SMMEs also dominate each sub-sector of the tourism sector with 96.36% of the Hospitality sub-sector, 95.99% of Travel & Tourism sub-sector, 95.92% of the Sport Recreation & Fitness sub-sector and 95.26% of the Conservation & Tourist Guiding sub-sector being SMMEs.

The statistics above imply that the tourism industry in South Africa is comprised of a large number of SMEs and as such the potential for growth of the SMEs exists as well as the potential for further SME development. Furthermore it is imperative that SMEs receive

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support and promotion from government and other organization to ensure that the tourism industry continues to grow and create jobs in the economy.

Some of the main reasons provided for the large amount of SMMEs in the tourism sector, are the perceptions held by upcoming entrepreneurs that tourism provides a platform for making quick money without investing too much capital; and the fact that minimal barriers exist when starting a new SMME, as there are no formal registration requirements and only basic industry specific skills are required to do so48.

Tourism and the Film Industry’s job creation potential

Apart from the well-utilized economic industries in which tourism jobs make out a large part, the National Tourism Sector Strategy (NTSS, 2011) has highlighted that South Africa is not yet fully utilizing the potential of the filming industries in terms of job creation in the tourism industry. Due to the facts that these industries have generated revenue of over USD1 trillion in 2003; and are still growing on a rate of over 9% in the film industry and over 6% in the television industry , these industries are believed to have greater capacity, than other advertising campaigns, to reach a bigger tourism market audience. These industries are important because they have the ability to bring about education, socialization, and preservation of cultural heritage – all of which helps to establish growth and sustainability of tourism in South Africa49.

Niche Tourism: City tourism products and services

Additionally, it is said that the 2010 FIFA World Cup attracted a new type of tourist to South Africa, who rather wanted to explore and enjoy the city life, shops, restaurants and museums, than the nature sites. South Africa has, in the past, mainly focused on advertising itself as a wildlife safari experience and nature destination, it is now challenged to focus more on what the cities have to offer to tourists50. This may then become a new opportunity for job creation in industries such as restaurants, night clubs, wine farms, city tour operators, and other attractions located in and around the major South African cities.

Role Players or Key Stakeholders

In South Africa, the key role players and stakeholders in the tourism sector include public and private sector stakeholders. On a national level the key stakeholders include, The 48Theta, 2010

49NTSS, 2011

50Global Media Face Off INDABA, 201177

National Department of Tourism, South African Tourism, The Department of Trade and Industry, Tourism Business Council of South Africa, and the Tourism, Hospitality and Sport Education and Training Authority.

The roles and responsibilities of these organisations are outlined in the table below:

Roles and Responsibilities of organisations in the Tourism sector of South AfricaThe National Department of Tourism (NDT)

The role of the NDT to ensure the sustainability of tourism as a contributor to the South African economy. The Department manages the core tourism data set, and distributes this and other research information to the public and private sectors.

South African Tourism (SAT) SAT is responsible for marketing the South Africa brand as an international visitor destination. It owns the South African tourism-marketing brand, under which the global tourism campaign is managed. SAT strengthens its key marketing messages by providing quality information to visitors through its website

The Department of Trade and Industry An objective of the DTI is to create an environment that enables investment, trade and enterprise development. These objectives have direct links to the tourism sector as it is a tool to attracting foreign direct investment to South Africa through the many attractions and products demonstrating South Africa’s tourism potential. One focus of the DTI is to transform the informal economy through the development and growth of SMME’s and there are many national funding programs to

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indicate the department’s dedication to this.

Tourism Business Council of South Africa

The TBCSA is a private-sector membership organisation, which provides support to the tourism industry. The TBCSA represents a partnership between government and the private sector to ensure joint responsibility tourism policy, direction and its implementation.

Tourism, Hospitality and Sport Education and Training Authority

Tourism, Hospitality and Sport Education and Training Authority, is the Sector Education and Training Authority (SETA) established to equip people with skills and training in these sectors; those who are employed or those wanting to be employed.

4.17. VALUE CHAINS OR OPPORTUNITIES

The South African tourism value chain begins with the tourists, who can access the sector privately or through a travel agency. The flow between tourist, transport, operator, accommodation and entertainment can occur at any point. Each of the tourism categories is supported by secondary services.

Figure 6: General Tourism Value Chain in South Africa

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Source: FEM Research 2011

The main players are in the tourism value chain are tourists, tour operators and tourism products, accommodation, catering, and visitor experiences and services. These players interact with each other in various stages and they require support from secondary services such as suppliers of products or related services. Each player in the tourism value chain has a specific function and requires secondary services and support. For example when a tourist decides to come to South Africa it may be for business or pleasure, they will require transport, accommodation, food and possibly entertainment. The tourist interacts either with a tour operator to arrange the necessary requirements or the tourist might interact with each of the required products directly.

A tour operator can be a transportation service provider or a travel agent; and importantly they may require services from industries that are not related to tourism. These products and services would include fuel, maintenance, internet and business support and labour to operate the business efficiently. The tour operator may deal directly with tourists or other tour operators on behalf of tourists, furthermore tour operators will liaise with accommodation establishments and visitor experiences as well as catering establishments.

These types of relationships exist throughout the tourism value chain. Accommodation establishments need the support services such as laundry, cleaning and maintenance to

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offer services to tourists, who either book accommodation services directly or through a tour operator. Accommodation establishment can offering catering or outsource catering services or refer tourists to specific catering establishments. Visitor experiences and services are recommended similarly by tour operators and accommodation establishments. Opportunities that exist for SMMEs in the tourism value chain are both within the direct supplies and the support services. Within the direct supplies there are opportunities for small tourist operators in township tours, cultural tours and educational tours. There is also a need for quality affordable accommodation as well as transport and shuttle services. Opportunities within the support services are more diverse and include offering services such as laundry services, catering services, maintenance and construction services, cleaning services, landscaping and gardening services, and general supplies. The table below provides an indication of the type of opportunities that exist in the tourism value chain per province.

TABLE 17: TOURISM OPPORTUNITIES PER PROVINCE

Opportunities Province

WC EC NC KZN GAU Limp MPA FS NW

Accommodation X x x x x x x x x


x X

Catering/Food outlets

x x

Conference x x x x

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Facilities

Cultural Tourism x x x


X x x x x


X x x x x

Tourism Facilities X x x x x x

Training facilitators

X x

Accommodation opportunities exist within the tourism sector, in particular these opportunities are for cheaper accommodation packages and facilities. There is a need for Bed and Breakfast type accommodation and backpacker facilities as well as more affordable family friendly accommodation. Furthermore SMMEs can access opportunities in the accommodation industry by offering accommodation related services. These services include cleaning services, catering services, laundry services, gardening services and delivery services. Furthermore these services have very little entry challenges or barriers and are accessible for SMMEs.

Beach tourism, cultural tourism and eco-tourism activities are more suited to small scale operators offering personalised services and activities. These activities include shuttle services, personalised guided tours, and hiring of bicycles or equipment such as surfboards and kites etc.

Tourism and Conference facilities would be opportunities more suited to big businesses as the start-up costs would be quite large but the opportunities for SMMEs would be in provided services to these facilities. Again these services would include, cleaning, catering, transport and delivery services, which are all quite easily accessed. Furthermore these opportunities would create employment in the areas where they are developed.

Key growth opportunities for tourism in South Africa include:

Business tourism marketing and packaging

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At the moment business tourism accounts for a small percentage of tourism in the country however the sector continues to grow annually and presents a major growth opportunity especially for packaged products and services. Business tourism is a growing industry and business tourists generally spend more money on average than leisure tourists. Packaging and promoting business tourism products and services represents an opportunity for economic growth and distribution of tourism offerings. There is also a need for conference facilities with good service level other than ICCs.

Eco tourism packages and offerings

Climate and environmental awareness has created an opportunity for sustainable and environmentally sensitive tourism products. These types of activities include hiking, biking, visiting farms and being involved in community tourism projects.

Medical tourism packages

South Africa offers an affordable option for medical procedures given the foreign exchange rates and the excellent health services as well as the diverse tourism offerings available, the packaging of medical services and tourism offerings is development opportunity for South African tourism. These opportunities can be as diverse as offering a medical service to offering a transport service or accommodation. Medical tourism would be geared towards people having minor procedures so that the risk factors would be minimal and these people would still be able to partake in tourism activities.

Development of tourism facilities such as coastal resorts and activities

Tourism facilities and resorts exist in South Africa, however these can be upgraded and expanded to increase the product and service offerings and attract more visitors. Furthermore theme parks present a development opportunity for South African tourism as currently there are not many established theme parks in the country.

Charter flights and incentive tourism packages

Increasing air access and availability of flights to South Africa will increase market access. Increased market access will increase tourist arrivals and in turn increase economy growth and development. The increase in tourists to the area will create jobs as well as opportunities for SMMEs to enter the tourism industry as secondary service providers. Opportunities could include transport and shuttle services, tour guides and accommodation.

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Development of SMMEs in the support services industry

Tourism businesses rely on support services to function efficiently, these services include maintenance of buildings, equipment and vehicles, catering services, cleaning and laundry services as well as administrative support such as IT and business services. Opportunities exist for SMMEs to provide these services to tourism businesses.

Furthermore, gaps in tourism products were identified in the Spatial Gap Analysis for the Western Cape51 and these gaps are applicable to the rest of South Africa as well;

Lack of quality affordable accommodation

At present the accommodation facilities in South Africa are catering for middle to high income tourists and there is a need for more affordable accommodation for families and young tourists. This accommodation should be more competitively priced, and offer similar services of backpacker establishments.

South African cuisine, township experiences

Promoting and packaging township and rural tourism with South African cuisine offerings represent an opportunity for small businesses and entrepreneurs as well as communities.

Adventure tourism

South Africa has an opportunity to attract more adventure tourists by diversifying the adventure tourism offerings to attract repeat visitors.

4.18. CHALLENGES/BARRIERS

Key Challenges to the South African Tourism Industry are:

Transformation and Access to Tourism Opportunities

Transformation of the tourism industry in South Africa is a key problem as the access to the opportunities has been limited for SMMEs and black owned enterprises. In order to create

51 JH van der Merwe, SLA Ferreira and A van Niekerk, Spatial Gap Analysis of Tourism Development Opportunity in the Western Cape Province 2008

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jobs and develop SMMEs and improve the economic conditions within the country, transformation within the tourism industry needs to be addressed.

Increasing Distribution and Geographical Spread of Tourism Products and Services

At the moment the tourism offerings and products are concentrated in the main tourism hubs of KZN, Gauteng and the Western Cape. To increase the economic impact of tourism and tourism expenditure to the rest of the country it is important to improve the distribution of tourism products and improve access to tourists to areas outside of the main tourist hubs.

Addressing Seasonality of Tourism Demand

Tourism in South Africa is seasonal and this seasonality of the tourism products and offerings needs to be addressed to increase the volume of tourists and the expenditure to benefit the country’s economy further and create more jobs.

Tourism offerings and products are subject to seasonality and demand and to ensure the economic viability of the tourism industry in South Africa, it is necessary to develop products and services that are sustainable and have a low impact on the environment while still having a maximum impact on the economy, this however is difficult as the tourism industry is highly competitive and South Africa has to compete with established eco-tourism destinations and tourism abroad.

External Factors that Influence Tourism Supply and Demand

Political, economic and social factors such as economic fluctuations, political instability and social unrest can affect the tourism flows into the country; however these factors are usually unforeseen and are addressed as necessary.

ICT SECTOR

OVERVIEW OF THE ICT SECTOR

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The subsequent discussion presents the overview of the ICT sector as a component of the services sector. It presents development trends of the sector both at international to local level. The policy and legislative background to support this industry growth is also analysed.

DEFINING ICT

The OECD defines the ICT as a combination of manufacturing and services industries that capture transmit and display data and information electronically. It is a broad sector that includes ICT equipment, ICT devices, electronic components, and ICT services such as telecom, eHealth, business and education services. Traditionally, it includes all hardware and software that store, receive, transmits or retrieve information. The sector encompasses all information processing technologies such as computers, Internet and telecommunications.

The information element of ICT is divided into two types of products; traditional computer based technologies, and digital communication technologies. Traditional computer based technologies include hard drives, processes and office applications while digital communication technologies include computerized and digital networked information and technologies.

The communication element of the ICT relates to and includes information and data that is transferred over networks using technology to send and receive the information. There are two types of networks, internal and external. Internal networks are local area networks (LAN) and external are Wide Area Networks (WAN) that allow individuals to communicate beyond internal networks. The ICT sector is divided into two subsets; Manufacturing and Services. Manufacturing includes the manufacture of computer hardware and telecommunication equipment. Services include IT services such as customer software applications, Computer software packages, and Telecommunication services.

ICT TRENDS

During 2010, the ICT sector experienced some growth after the 2009 recession. There was a renewed emphasis on upgrading broadband infrastructures and expanding the reach in rural areas through mobile and fixed technologies. Public network equipment spending increased by 14.5% in 2010 due to the launch of new projects internationally. The total telecommunications market in the five international regions had an estimated USD 3.1 trillion value and this is expected to rise to USD 4.1 trillion by 201452. The demand for 522011 ICT market Review and Forecast Chapter 5, www.tiaonline.org

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telecommunications and internet subscriptions will continue to grow as the number of users increase and the demand for these services in business activities increase.

INTERNATIONAL TRENDS

In 2010 the five international regions for telecommunications were Canada, Europe, Middle East/Africa, Latin America and Asia Pacific. These countries experienced an increase of 5.5% in telecommunications in 2010, after a decline of 1.6% in 2009. Fixed broadband increased by 9.9% while wireless services experienced a growth of 9.4% and public network equipment increased by 8.4%53. The only sector that did not experience growth during 2010 was dial up internet. The most likely reason for this is that more people are making use of mobile technology and wireless connections and the need for residential dial up connections may be decreasing.

The top four countries that export ICT technology and equipment are Philippines, Singapore, Malaysia and Costa Rica. The Philippines is the top exporter, with 66% of its exports being technology. This is followed by Singapore with 51%, Malaysia with 40% and Costa Rica with 39%.

The international broadband market is huge, with Europe being the largest in the world, with an estimated 128.3 million lines. Between 2009 and 2010, 9 million new lines were installed in Europe. The fixed broadband penetration rate in Europe has continued to grow and by July 2010, the number was 25.6%.

Fibre optic cables and network usage have increased internationally and at the moment Italy is the largest FTTH market in Europe with over 2.5 million homes connected.

The ICT hardware manufacturing sector is one of the largest growing and fastest growing manufacturing industries in the world. The ICT manufacturing industry in Taiwan focuses on the assembly and manufacture of products such as PCs and mobile phones, and in 2010 the sector generated revenue of US$220 billion. The second largest industry is the optoelectronics industry, which focuses on manufacturing products for display panels generated US$53.2 billion in 201054.

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MAIN GROWTH AREAS

The ICT sector has grown over the years and is expected to continue to grow as new technologies emerge and the industry becomes more innovative and competitive. The main areas for expected growth are Internet usage, Broadband speed and quality and ICT technologies.

Increased Internet access and usage by emerging and developing countries

Improved technology and speed and quality of broadband

Widespread use of broadband networks create an opportunity for growth and development in innovation and competitive advantage

KEY PROBLEM AREAS

Key challenges to the growth of the international market are:

Human capital and innovation- there is a shortage of skilled workers in the industry and there is a need to develop the industry through education

Attracting Foreign trade and FDI is a key problem area as the market is extremely competitive and innovative

Infrastructure (telecommunications, electricity, transportation) is an important part of any development especially for ICT where the sector depends on infrastructures such as electricity and road access

Regulatory reform and red tape reduction for policies to improve development of ICT industries and create friendlier business environments to attract FDI

NATIONAL TRENDS

In South Africa, the ICT sector has been identified as a key sector for economic growth and long term sustainability. The ICT sector in the country contributes an estimated 7% to the country’s GDP55. Over the years the South African economy has shifted from an economy rooted in the primary sectors to an economy that is driven by the tertiary sectors. The economy is now moving towards a knowledge based economy with a focus on technology, e-commerce and financial services. The local IT industry is based in both the services sector 55 SA Market Summaries: ICT, SAM #009

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and manufacturing sector, and South African companies specialize in pre-payment, revenue management and fraud prevention systems. Some manufacturing (e.g. Set-top boxes) does take place locally and these products are exported successfully to the rest of the world. It should be noted however that manufacturing within the ICT sector is still within its infancy.

South Africa has comparatively higher prices in terms of ICT products, than other African countries, as well as OECD countries. Furthermore, whilst South Africa can be characterized as having the most developed telecom networks, this area of the ICT Sector continues to lag behind. In terms of broadband penetration, South Africa has fallen behind many global competitors with similar GDP’S. This includes ICT sectors of countries like Argentina, Poland and Brazil. 56According to the Network Readiness Index (2010-2011), South Africa is ranked number 61, well below their African counterpart Mauritius (rank 47). The rest of the other African countries lie within the lower half of the NRI rankings.

Although South Africa has managed to surpass other sub-Saharan countries in terms of development of the ICT Sector, it has recently begun to fall behind. Between 2007 and 2009, South Africa fell five positions from 52nd to 47th on the World Economic Forum Readiness Index. 57 The drop in the ranking can be attributed to relatively low market penetration especially in broadband in South Africa. The low market penetration is largely due to the high costs of telecommunication and broadband in South Africa, however as more competitors enter the market this should drop prices and hence increase access.

Prospects for future growth and development of South Africa’s ICT sector remain promising. In 2009 South Africa was amongst some of the African countries that represented the top five countries in the African region, as indicated by the ICT Development Index (IDI). Other countries included Seychelles, Mauritius, Gabon and Cape Verde. The ICT sector contribution to GDP has increased considerably over the past five years, as the country has developed its network capacity and improved infrastructure, and globalization. However, this contribution has been outperformed by other performing African economies, and in particular, some of the Asian countries as well.

South Africa’s ICT Sector can be described as being relatively concentrated, in terms of market structure. The market concentration of the sector is comparable to other concentrated markets like New Zealand (50%), Mexico (monopoly) Switzerland (>50%) and Norway (>59%). In 2008, South Africa had the fifth highest market concentration (measured in HHI), which may contribute to the relatively higher pricing of ICT products. The ICT sector 56 South Africa ICT Sector Performance Review 2009-2010

57 South Africa ICT Sector Performance Review 2009-2010 pp. 489

in South Africa consists of IT services and some manufacturing of devices and components. Furthermore, the ICT sector in South Africa can be categorized into three sub sectors; Communications, Electronic components, and Software and IT services.

Within South Africa the ICT sector has grown across the nine provinces, however there are still areas such as the Eastern Cape that are underdeveloped. The three main hubs are Gauteng with 57% of ICT firms, Western Cape with 17% and KwaZulu-Natal with 8%.

The Gauteng ICT sector contributes around 6%58 to regional GDP and the sector offers a diverse range of products from manufacturing to software design and software management. International companies such as Microsoft, Hewlett-Packard, IBM, ICL, Cisco and Unisys are all based in Gauteng.

It is estimated that the ICT sector in the Western Cape generates an annual turnover of R9 billion and the sector is expected to grow between 15-20% per annum59 between 2008 and 2013. KwaZulu-Natal is becoming an attractive place for ICT investment as the province has a number of advantages for business growth. The infrastructure and access to transport as well as the existing manufacturing base provide the sector with opportunity for further growth. Twelve digital community hubs have been established in the rural areas as a way to increase access to digital information to communities.

58ICT Information and Communication Technology, www.gautengcompanies.co.za

592008, Cape IT Initiative, Investment Promotion, Export and Outsourcing Strategy: Document Version 190

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THE POLICY AND STRATEGY FRAMEWORK FOR DEVELOPING SMALL AND MEDIUM ENTERPRISES IN THE ICT SECTOR

This section provides an overview of the policy and strategy framework for developing small and medium enterprises in the ICT sector. This overview includes a discussion on the National and Provincial policies and strategies that are relevant to the ICT sector. The relevant support and development programmes have also been included in this section.

NATIONAL SUPPORT PROGRAMMES, POLICIES AND STRATEGIES TO SUPPORT SMES IN THE ICT SECTOR

The National Communications Act 2005

The Electronic Communications ACT 2005 is aimed at deregulating the telecommunications sector and although it is primarily a licensing framework, it also promotes the entry of SMMEs into the sector60. The Electronic Communications Act of 2005 was developed for the following:

to promote convergence in the broadcasting, broadcasting signal distribution and telecommunications network services and

broadcasting services; to provide for the granting of new licenses and new social obligations; to provide for the control of the radio frequency spectrum, to provide for the continued existence of the universal service agency and the

Universal Service Fund, and to provide for matters incidental thereto61.

ICT Policy

The Department of Communications in South Africa is responsible for ICT policy and strategies and is in the process of formulating further policy framework to guide the sector’s development.

There are three principles for ICT policy62 and these are:

60SA Market Summaries: ICT, SAM #009

61 www.acts.co.za/electr_comm/index.htm91

Develop ICT policies and legislation that support the development of an ICT sector that creates conditions for accelerated and shared growth of the South African economy, which positively impacts on the wellbeing of all our people and is sustainable.

Develop strategies that increases the uptake and usage of ICTs by the public, thus maximizing the impact of the ICTs in service delivery, nation building and social cohesion as well as creating conditions for better life for all.

Provide a base for informed, timely, forward-looking and proactive ICT policy decision making in the Department and sector as a whole to evaluate the impact of those policies, laws and strategies on improving lives of South Africans.

The Department of Communications has also established a number of strategic projects which aim to achieve some advances in the ICT Sector. These programmes form part of the medium term strategic plan for the department, and include the following63:

Programme 1: Governance and Administration- provide strategic support to the ministry and overall management of the DepartmentProgramme 2: International Affairs and trade- to ensure alignment between South Africa’s international activities and agreements in the field of ICTs with South Africa’s foreign policy.Programme 3: ICT Policy Development- Develop ICT policies, legislation and strategies that support the development of an ICT sector and develop strategies that increase the uptake and usage of ICTs by the majority of the South African population.Programme 4: Finance and ICT Enterprise Development- to oversee and manage government’s shareholding interest in public entities and to facilitate growth and development of Small, Micro and Medium Enterprises (SMMEs) in the ICT sector.Programme 5: ICT Infrastructure Development- to promote investment in robust, reliable, secure and affordable ICT infrastructure that supports the provision of a multiplicity of applications and services.Programme 6: Presidential National Commission- to facilitate the development of an all-inclusive information society by promoting the uptake and usage of ICTs for improved socio economic development and research.

62 Department of Communications South Africa www.doc.gov.za

63Department of Communication South Africa www.doc.gov.za92


5.9. DEVELOPMENT AND SUPPORT PROGRAMMES ON A NATIONAL LEVEL

National government offers various programmes and development support initiatives to small businesses within ICT and across various sectors in South Africa.

The Department of Trade and Industry (dti) has a number of initiatives and SME support and development programmes in place. The dti’s SMME development programme which aims to support Small, Medium and Micro Enterprises- prioritizing entrepreneurship and growth and development in the industry. This applies to all industries, including ICT. Furthermore, the Enterprise Organisation is a project of the dti which offers funding to promote the growth of small businesses. There are many initiatives and programmes which are project- specific- each offer specific services to specific types of business. For example, the “Black business supplier development programme” offers funding to majority black owned businesses, “business process outsourcing & off shoring” offers investment and training to businesses with offshore clients, “critical infrastructure programme” offering cash grants upon completion of an infrastructure- developing project , “co-operative incentive scheme” offers grants to emerging co-operatives, preferably benefitting underprivileged communities, “enterprise investment programme” offers investments to manufacturing companies , “film production incentive” offers a package of incentives to encourage the film production industry in South Africa, and “Sector specific incentive scheme” offers generic funding grants to develop industries overall (ICT services industry falls under this). Many of these projects can be utilized to benefit ICT industries in different ways.

Seda along with other national departments offer programmes and support to ICT businesses. The Seda Technology Programme (STP), is a merger of many small enterprise support agencies for the ICT industry; including the GODISA trust, the National Technology Transfer Center, dti business incubators, Technology Advisory Center, Technology for women in business and the South African Quality institute’s support programmes. The STP is a dti programme, offering financial and non-financial support to ICT businesses; business incubation, facilitating technological innovation and increasing access to technology and quality technical support services.

The International Development Corporation (IDC) also offers support to developing SMEs in South Africa. The IDC has an ICT Business Unit which focuses on the development of businesses which rely on ICT technologies. They provide funding and support to projects in the ICT Sector; IT, Telecommunication, E-waste, electrical and electronic manufacturing etc.

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Focus is put on sustainable businesses which create jobs and develop rural communities and society.

Collectively, these programmes aim to achieve sector growth and advancement, by establishing a platform that can allow companies in the sector to compete at an international level.

5.10. PROVINCIAL GOVERNMENTS

On a provincial level, each province is responsible for developing and implementing strategies and policies to promote and grow the ICT sector. These strategies and policies are aligned with the National objectives set out by the Department of Communications. The provincial strategies, policies, initiatives and interventions are outlined in the following paragraphs.


The main goals of the Western Cape are to improve government service delivery and citizen participation through the use of ICT technologies and information management.

e-Learning Initiative

The Western Cape has implemented the e-Learning initiative. This initiative’s projects include64:

The Khanya Technology in Education project, which aims to improve teaching and learning through the use of ICT technologies in schools,

The Dassie project, which aims to improve teaching and learning in Further Education and Training Colleges through implementation of ICT technologies,

The Telecommunications project, which has already linked almost all schools in the Western Cape to the internet- except for a few which still struggle with electricity connections,

The WCED Online project, which aims to provide web-based information and services regarding the education department to learners, teachers, parents, school administrators and partners in education,

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The E-curriculum project, which aims to develop unique ways of using ICT technologies and services for the development, delivery and support of school curricula

ICT to Rural Libraries Project

The Western Cape introduced the “ICT to Rural Libraries” project in 2008. This project seeks to provide internet access to rural communities as well as a computerized library and information system (called CPALS) in these communities. These rural communities will have subsequent access to electronic information resources. These resources also provide a platform through which to acquire and practice ICT skills. Grants have been received from the National Department of Arts and Culture and over 50 communities were expected to be connected by 201065.

Cape Gateway

The Western Cape Government launched an initiative called the “Cape Gateway”. This project aims to provide information about government departments and services online- government projects and services can be searched by the public through Cape Gateway. This is an example of e-Government as practiced by the Western Cape66.

Western Cape Support/Development Programmes

The Cape information Technology Initiative (CITI)

The Cape information Technology Initiative (CITI) is an initiative funded by the Western Cape Government and private entities, which aims to develop the local ICT industry through services such as business development, skills training, networking and research. Furthermore the CITI identifies potential projects, sources funding and monitors the successes and progress of these projects. The mission of the initiative is to support the growth, promotion and transformation of the ICT sector in the Western Cape.

EASTERN CAPE

The main goals of the Eastern Cape are to create an empowered, connected and informed province using ICT technologies to stimulate the economy through skills development.

Impala Eastern Cape Provincial Co-operative Development Fund65(http://www.westerncape.gov.za/eng/directories/projects/14942/186276/)

66(http://unpan1.un.org/intradoc/groups/public/documents/other/unpan022130.pdf)95

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In 2010 the Eastern Cape’s ICT industry was identified (amongst others such as tourism, chemicals, textiles and more) by the Eastern Cape Economic Development and Environmental Affairs Department as one of the candidates for a share of R50 million in support funds from the Impala Eastern Cape Provincial Co-operative Development Fund. It aims to promote the viability and competitiveness of co-operatives and supports manufacturing and services sectors of the industry67.

e-Government Initiatives

The Eastern Cape’s provincial government is supporting e-government initiatives. E-government projects have been launched and are expected to increase service delivery throughout all sectors within both provincial and municipal government. This project strives to add to ideas of the Eastern Cape providing a good quality of life for all, a compelling place to live, work and investment opportunities and balanced and integrated development as steps are being taken to move forward through providing ICT services for the people and their government. Two particular municipalities are to be assisted through e-government: King Sabata Dalindyebo and Mbizana, enabling broader access to information, better service delivery, transparent governance and citizen participation in these particular communities. The e-governance projects in the Eastern Cape provide further support to already-existing initiatives which are supporting the areas of Finance, Human Resources, Local Economic Development, Technical Services and Information & Communication Technology systems68.

The e-Education Initiative

An e-Education initiative was launched in the Eastern Cape. The project was launched in 2006. Through ICT Schools, E-Schools and E-Administration, the Eastern Cape provided a comprehensive platform for e-Education in the province. In line with the e-Education White Paper, the province provided a new information and communications technology environment in education. Through this project, government ensured that schools that are connected via networks, are connected to the internet, and can communicate electronically and that ICT facilities and support are provided to the community through public schools. This initiative has benefitted rural and local communities and has promoted economic development through education and skills development. The initiative has provided

67(http://www.dedea.gov.za/News/Pages/R50mdevelopmentfundtohelpsupportco-opsunveiled.aspx)

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technology like computers, printers, scanners, satellite dishes and more through government and private-sector partnership69.

Eastern Cape Support/Development Programmes

Eastern Cape Development Corporation

The Eastern Cape Development Corporation (ECDC) is the Eastern Cape’s provincial economic development agency, implementing economic development policies of the Eastern Cape Government and owned by the Eastern Cape Government. The ECDC promotes growth of the local economy and local businesses. It offers finance to SMME’s which can benefit the local economy, it promotes investment in local business, promotes global economy and export and it offers services such as business planning, IT support, market development and networking. It aids the creation and acquisition of business projects, helps development of local and rural investment and development and offers aid in finding suitable business premises.

Eastern Cape Information Technology Initiative (ECITI)

Specifically for the ICT industry, the Eastern Cape Information Technology Initiative (ECITI) has been launched by ECDC. This programme provides support to local ICT SMMEs. It provides a local ICT business incubation hub, provides software research and development opportunities and education, a Technology park which offers support to entrepreneurs and SMMEs, and the supply and maintenance of telecommunications services in the province and their potential for growth and outsourcing/ off shoring.

5.10.3. LIMPOPO

The main goals of Limpopo are to promote sustainable development, education, and knowledge so that individuals can utilize ICTs to full advantage and improve their quality of life.

Business Incubation Programme

Limpopo has launched The Business Incubation Programme- the long term goals of which include encouraging IT business entrepreneurs in Limpopo to progress and turn community-based ideas into business ventures. This is expected to raise Limpopo’s Technology Entrepreneurial Activities (TEA) index rating from 3 to 6 between 2009 and 2014. The initiative focuses on keeping an educated workforce, attracting investments, developing 69(http://unpan1.un.org/intradoc/groups/public/documents/CPSI/UNPAN022750.pdf)

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http://unpan1.un.org/intradoc/groups/public/documents/CPSI/UNPAN022750.pdf

economy through knowledge creation and job creation through entrepreneurship in the province.

Open Access Broadband Wide Area Network Programme

Limpopo’s Provincial Open Access Broadband Wide Area Network Programme strives to provide cheap broadband connectivity to provincial government departments, local municipalities, health institutions, businesses and eventually all Limpopo residents- particularly in rural areas. It seeks to attract multinational corporations, ICT entrepreneurship, and a skilled, educated workforce to work and stay in the province. This, in turn, supports economic development, investment and talent attraction.

Limpopo’s ICT Institute Programme

Limpopo’s ICT Institute Programme aims to produce ICT skills which are lacking in the provincial industry, for societal and economic development. Its objectives include further skills training so that skilled individuals are market-ready and job-ready. Improving ICT skill levels of the community at large is also a goal and this serves to bridge the digital divide- equipping citizens for participation in global economy and enhancing their educational and economic opportunities. This results in job creation and reduced poverty and increased ICT services and skills for the public and private sectors70. The Limpopo government aims to reduce unemployment amongst the youth, women and the marginalized- this is to be achieved partially through business process outsourcing and off shoring71.

Limpopo Support/Development Programmes

Limpopo Economic Development Enterprise (LIMDEV)

Limdev is the Limpopo Economic Development Enterprise- the provincial government body responsible for the growth and development of SMMEs and industry. This body offers assistance and financing to SMMEs in the province through their Enterprise Development

70(http://economic.ncape.gov.za/inspire/limpopopgmict.asp)

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Finance Division. It has also launched a project specifically for the local ICT industry aimed at skills training and development.

NORTHERN CAPE

The main goals of the Northern Cape are to promote sustainable development, education, and knowledge so that individuals can utilize ICTs to full advantage and improve their quality of life.

The Northern Cape does not have a specific strategy for ICT development and growth however there are initiatives in place to promote the industry.

In 2011, the Northern Cape local municipality required ICT services addressing issues of standardization, a need for improved control and security, and ageing LAN and WAN infrastructure. A partnership with Integr8 aimed to address this situation and fulfill requirements covering server, virtualization, directory, and messaging platforms. The initiative aims to improve the municipality’s IT infrastructure’s overall security, stability, manageability and availability. Through seeking these products and services from local business (Integr8), The Northern Cape government is stimulating and encouraging growth in the local ICT industry.

Thintana i-Learn

The Northern Cape in partnership with Telkom and strategic partners has also funded a R21 million project named Thintana i-Learn. This project is supported by schoolNet SA and the National Department of Education’s Centre for Educational Technology and Distance Education. This project provided 18 Northern Cape schools with between 10 and 20 networked computers and training.

KWAZULU-NATAL

The main goal of KwaZulu-Natal is to promote e-skills knowledge production.

KwaZulu Natal e-Skills Initiative

KwaZulu-Natal implemented an e-Skills initiative in 2010. An objective of this initiative is to establish an e-Skills Knowledge production and Coordination Hub in the province, to be launched by Deputy Minister of Communications, Obed Bapela. The province seeks to develop citizens’ e-skills and their ability to use and develop ICTs in the context of an

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information society and knowledge economy. Raising citizens’ ICT competencies will enable them to participate in advancement of business, government and society in general72.

Metro Connect

KwaZulu-Natal launched the Metro Connect programme in 2008. This initiative involved the sale of spare capacity on the municipal fibre network at a discounted rate. An expected result of this is the attraction of new ICT businesses into the province.

Digital Communication Hubs

KwaZulu-Natal has launched an initiative which aims to bridge the digital divide through the establishment of twelve digital community hubs. These hubs have been set up in rural areas such as Hammarsdale, Umzumbe, Vryheid, Mandeni and Edendale73.

5.10.6. FREE STATE

The main goals of the Free State are to develop SMMEs and to stimulate growth in the economy through ICT development.

Regional Innovation Strategy

The Free State Has Launched an initiative aiming to develop provincial Regional Innovation Strategy- it intends to provide a friendly business climate and environment to enhance innovation capabilities of firms located in Free State’s proposed innovation Hub.

SMME Incubation Hub

The Free State has launched an initiative called the “SMME Incubation Hub”- this project has an investment value of R100 million. This initiative aims to provide physical space to new ICT businesses and to provide service to help these businesses in their early stages of development. Services include: business support, help with access to finance, management coaching and business administrative services to help small developing businesses.

Free State Support/Development Programmes

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The Free State Development Corporation (FDC) offers non-financial support to SMMEs in the ICT sector. The support includes assistance in identifying investment opportunities, assistance with securing business premises and funds and providing assistance with development of local and international markets.

GAUTENG

The main goals of Gauteng are to enhance ICT infrastructure and improve service delivery and create jobs in the CT industry.

Blue IQ

Blue IQ, as an agency of Gauteng’s Provincial Government, has provided initiatives for economic growth and development in the province. Blue IQ initiatives seek to develop growth in Business tourism, sports tourism, high value added manufacturing, logistics, property asset management, energy and ICT sectors. Blue IQ delivers strategic economic infrastructure to the ICT sector and aims for sustainable economic growth in the sector, indirectly contributing to job creation and profit. Blue IQ invests in projects with growth potential.

Gauteng Shared Services Centre

The Gauteng Shared Services Centre (GSCC) is involved with the government on several initiatives- it has been incorporated into the Gauteng department of finance. This body centralizes the province’s technology projects. One such project is Gauteng’s e-Governance initiative- the Gauteng Online project. This project has information and details on Gauteng government and its projects online for citizens to browse and search.

In 2009, R100 million was assigned to provincial ICT infrastructure programmes. One such ICT infrastructure project- the largest of them all- was the Gauteng Link: a multi-billion rand broadband project which promises to deliver broadband internet to the people of Gauteng74. The project was expected to be completed by 2010 but, due to a lack of funding, had not even been started by late 201075.

74http://www.itweb.co.za/index.php?option=com_content&view=article&id=30907:gauteng-snubs-key- ict-projects&Itemid=184&tmpl=component&print=1

75http://saitnews.co.za/broadband/is-gauteng-link-justified/

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http://www.itweb.co.za/index.php?option=com_content&view=article&id=30907:gauteng-snubs-key-ict-projects&Itemid=184&tmpl=component&print=1

Gauteng Support/Development Programmes

Blue Catalyst

Blue Catalyst is a development intervention initiative for entrepreneurs and small businesses, funded by the Gauteng provincial government. Blue Catalyst started the Blue IQ project which focuses on building skills and providing funding and credibility to the ICT industry’s technology and knowledge-based business opportunities. It provides a network of finance providers, mentors and business advisers to entrepreneurs in the industry, helping to build a support network to aid the development of SMMEs. Business plans, funding of up to R1 million, skills advice, and powerful online networking are provided through this online-platform initiative.

Gauteng Enterprise Propeller

The Gauteng Enterprise Propeller (GEP) offers financial and non-financial support to SMMEs in Gauteng. Services provided include access to finance, competitive lending rates, access to support skills and information, and advice and guidance on business skills.

5.10.8. MPUMALANGA

The main goals of Mpumalanga are to promote infrastructure development, skills development, SMMEs and industry development in ICT, and improve public service efficiency through the use of ICT interventions.

Emalahleni Career Guidance and Information Communication Technology Resource Center

In 2010 Mpumalanga launched the Emalahleni Career Guidance and Information Communication Technology Resource Center. This initiative was started by the Mpumalanga Department of Education and the National Department of Mineral Resources with members of the private sector like MTN, Anglo American, Vodacom and Eskom. The center will provide for school communities and out-of-school youths in the Emalahleni region in Mpumalanga76.

Mpumalanga Support/Development Programmes

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The Mpumalanga Economic Growth Agency (MEGA) offers financial and non-financial support to ICT businesses as well as businesses in other sectors. The financial support includes bridging finance and loans. Non-financial support includes training, marketing and branding, business counseling and assistance with legislative compliance.

NORTH WEST

The main goals of the North West are to empower rural communities as well as develop ICT knowledge and skills in the province.

In 2009, the North West Province identified the city of Potchefstroom was aiming to be Africa’s first cyber city. This welcomed partnerships with the local university, which offers great potential research and development in the ICT sector as well as the potential for offering ICT services throughout the country and even the continent77.

In November 2010, the Northwest launched an initiative to improve government efficiency through access and use of ICT technologies such as VoIP, Fax Gateway, Video Conferencing, internet and Email.The North West has provided learning centres, Public internet access in libraries and tribal community centres in an effort to stimulate provincial and local social and economic development.

An initiative by the North West to leverage investment in ICT infrastructure in 2010 saw the implementation of nodal points for broadband connectivity and distribution in the province- to be used by Government offices and fan parks. The North West has prioritised the fostering of a knowledge economy through ICTs and as such has facilitated the rollout of e-Learning centres in schools, public internet access in libraries and coordination with the African Drive project and the Dinaledi Schools initiative.

The Northwest Province is utilising and developing the use of ICT services, at a local and rural level, through the deployment of various ICT technologies for improving healthcare information and interventions. Such ICT technologies to be used include individual and specialised Health Portals, Health information and Health Monitoring systems. The North West Province launched an initiative in collaboration with Thusong service Centres to provide ICT services for innovation and knowledge management in order to speed up the contribution of the ICT sector to economic development and innovation78.77http://www.tradeinvestsa.co.za/investment_opportunities/180760.htm

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http://www.tradeinvestsa.co.za/investment_opportunities/180760.htm

IDENTIFICATION OF HIGH POTENTIAL SUBSECTORS

The South African Department of Trade and Industry (DTI) identified potential investment opportunities within the ICT sector based on the development of:

Access control and security systems and equipment;

Automotive electronic subsystems;

Systems and software development in the banking and financial services sector;

Silicon processing for fiber optics; and

Integrated circuits and solar cells. 9

The duality of South Africa’s economy makes it an ideal market for the testing of new innovations. South Africa is recognized as one of the top 30 software development outsourcing destinations. In 2007, South Africa was globally ranked on a par with Australia and India.79 South Africa is also an established global provider of quality, low cost call centres. The country provides call centres for AOL, ASDA, Virgin Mobile UK, Samsung’s European digital camera division and others.12 The majority of ICT multinationals operating within the sector maintain representative distribution outlets for the supply of goods and services and partake in little to no local manufacturing, R&D or solutions creation. South Africa’s IT spending in 2009 is expected to reach R97 billion with expected growth at 5% per annum over the next 5 years.80

South Africa’s key areas of expertise include:

Managed (outsourced) services

e-Security

Biometrics and software development

High-end ICT product and services consultancy.9

Further opportunities for growth for ICT sectors and particularly SMMEs in South Africa are:

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79 www.SouthAfrica.info80 IDC. Aid to Recovery: The Economic Impact of IT, Software and the Microsoft Ecosystem on the Economy 2009

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Educational and Skills development platforms and programmes such as E-learning- by increasing the use of ICT products and technologies in schools, the number of learners in South Africa with access to computers and internet will increase and improve the skills and knowledge of learners. These skills and knowledge are transferrable and can be developed into businesses and SMEs.

Increasing access to internet and broadband subscriptions- by lowering the cost of internet and broadband, the demand for these products will increase which will in turn create jobs and promote the industry and the economy.

JOB CREATION POTENTIAL

The industry has grown to such an extent that in 2010, 12.78% of jobs created in that year were in ICT. This amounted to 344 38481 jobs being created in 2010.

Figure 7: Percentage of Jobs created in the ICT sector (2003 – 2010)

81 FDI Intelligence 2011, analysed by FEM Research105

2003 2004 2005 2006 2007 2008 2009 20100.00

2.00

4.00

6.00

8.00

10.00

12.00

14.00

16.00

Percentage of jobs created in ICT sector

Source: FDI Intelligence 2011, analysed by FEM Research

The graph above provides a graphical representation of the increase in employment levels in the national ICT sector. Despite declining global expenditure during the period 2008-2010, the national ICT Sector has managed to achieve a 3.96% increase over the same period.

Within the industry the sector that created the most jobs in 2010 was the Electronic Components sector with 153 308 jobs created, followed by Communications with 103 777 jobs created and Software and IT with 87 299 jobs. The number of jobs created in the sectors has increased since 2009. However, the Software and IT services has seen a decrease in the number of jobs created since 2008, while the economic recession can account for the decrease in 2009 it was expected to increase in 2010 along with the other sectors. The continued decline may be attributed to the scarcity of skilled employees in the sector.

Table 18: Breakdown of jobs created in ICT sectors

Sector 2005 2006 2007 2008 2009 2010

Electronic Components 119,324 115,827 160,855 147,185 110,351 153,308

Software & IT services 103,383 123,737 120,128 129,832 105,831 87,299

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Communications 90,436 108,245 82,567 76,743 95,399 103,777

Total Jobs created 313,143 347,809 363,550 353,760 311,581 344,384

Source: FDI Intelligence 2011, analysed by FEM Research

Skills shortages in the ITC sector are a major problem for the growth of the industry and therefore the job creation potential of the sector is huge for South Africa. The IT and Communication Technology sector falls within the Technical sector and the estimated shortfall of IT skills for 2009 was 24%82. This shortfall relates to the skills required to develop, build and manage the IT systems required to support economic growth in the country. The number of people required to address this shortfall is approximately 100 000 skilled workers. In 2010 the estimated shortage of skilled IT specialists in the manufacturing sector alone numbered 14 000. The biggest problem experienced by businesses in the IT and Communications sector is the availability of South African skills, businesses have begun importing the skills they require. This proves that the sector has great potential in creating jobs if sufficient training and development of job-seekers takes place.

The Department of Communications hopes to create job opportunities through direct funding and have outlined the following objectives83:

160 000 jobs should be created in the set top box industry.

25 000 jobs should be created in the broadband access arena.

8 500 jobs were earmarked for content creation.

The widespread provision of broadband access through the laying of new submarine cables presents many new job opportunities for the sector. The laying of cables and the subsequent usage thereof will create both direct and indirect employment opportunities. Furthermore the increased broadband connectivity presents job opportunities to the sector too: people will need the technology to access broadband and they will need network and IT support to connect efficiently, increased broadband access means that more service providers can emerge in the market too, creating more jobs and businesses.

ROLE PLAYERS OR KEY STAKEHOLDERS

82Solidarity Research Institute, Skills Shortage in SA: Summary of facts per Sector regarding this issue, January 2008

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There are many role players and key stakeholders within the ICT industry, each one contributing in its own way to the industry. Main Role players and stakeholders include the government and governing bodies, large corporate, international software companies, small businesses and several ICT initiatives (government and private owned), all of which comprise the ICT industry and the various goods, services and processes which define it.

5.13.1. SOUTH AFRICAN GOVERNMENT

One of the most prominent and influential role players and stakeholders for the ICT industry is the government. The government (on various levels: national, local, municipal) has authority over many activities within the industry through legislation e.g. broadcast legislation from the governing body ICASA which allocates broadcast spectrum and dictates broadcast law84.

The government is a key stakeholder because it can benefit from the use of ICT products and services and, at the same time, supporting the ICT industry can benefit the economy and subsequently benefit the government. Developing the industry is highly beneficial to the economy, the government and the country as a whole; as such, it is important for the government to play a role in stimulating the industry. The Department of Communication, therefore, stresses the importance of government and the private sector working together to optimize growth and development within the industry and the economy as a whole85. Several projects have been launched to ensure that this partnership between government and the ICT industry is effectively beneficial and ongoing. For example, E-Government initiatives being launched: millions of Rands have been allocated to the ICT sector by government to implement new information technology systems for government administrative processes.

These E-Government initiatives are mutually beneficial to both the government and the ICT sector: the ICT Sector gets paid by the government and jobs are created and business is acquired through these projects, so the ICT sector is benefiting; and the government benefits through improved service delivery, more efficient systems and a more stimulated economy86. Another instance of the mutual development and support between government and the ICT industry is government subsidy of Set-top boxes (STB) for the analogue-digital

84http://www.africanbrains.net/2011/09/16/sa%E2%80%99s-ict-market-could-be-worth-r250bn-by-2020/

85http://www.africanbrains.net/2011/09/16/sa%E2%80%99s-ict-market-could-be-worth-r250bn-by-2020/

86http://gep.cobwebinfo.co.za/servlet/file/SAMS%2011%20ICT%20GEP%20-%20print.pdf? ITEM_ENT_ID=14237&ITEM_COLL_SCHEMA_ID=407&ITEM_VERSION=1

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http://gep.cobwebinfo.co.za/servlet/file/SAMS%2011%20ICT%20GEP%20-%20print.pdf?ITEM_ENT_ID=14237&ITEM_COLL_SCHEMA_ID=407&ITEM_VERSION=1


http://www.africanbrains.net/2011/09/16/sa%E2%80%99s-ict-market-could-be-worth-r250bn-by-2020/

http://www.africanbrains.net/2011/09/16/sa%E2%80%99s-ict-market-could-be-worth-r250bn-by-2020/

broadcast migration: this partnership in production benefits both the ICT industry and the government through stimulating the industry and the economy and delivering services to society simultaneously.

5.13.2. INTERNATIONAL SOFTWARE COMPANIES

In an increasingly technologically aware and dependent economy, information and communication technology and software is becoming increasingly valuable and important. The local ICT industry recognizes the value of software development and retail as it has grown extensively in recent years87. The value of international software companies to local ICT industry is visible in that Microsoft, the biggest international software company, announced in 2010 that it would be investing R425 million in local software companies to develop them into globally competitive players as part of their empowerment strategy88 this shows the influence of international software companies to the local ICT industry and its development.

ESTABLISHED CORPORATE

Large corporate have a huge need for ICT services. Many large companies outsource non-core ICT work processes to ICT companies; this creates a market for the ICT services sector and can provide job creation potential. Many corporations are reliant on IT, networking and technologies and therefore require ICT support, network support and other services from ICT service providers; as such this outsourcing constitutes more than a third of the ICT services market89.

SMMES

Small businesses are playing an increasingly large role in the development of South Africa’s ICT industry in that they too require many ICT goods and services for the running and maintenance of day-to-day business in today’s information society. For example, new registrations of close corporations between 2007 and 2008 increased from 250 000 to 280 000. Many new businesses that launch require ICT manufactured goods such as computers, phones, and fax machines and require continuous ICT services too, such as 87(http://gep.cobwebinfo.co.za/servlet/file/SAMS%2011%20ICT%20GEP%20-%20print.pdf?ITEM_ENT_ID=14237&ITEM_COLL_SCHEMA_ID=407&ITEM_VERSION=1)

88(http://www.servicepublication.co.za/index.php/magazine/ict/236-state-of-the-ict-industry)


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http://www.servicepublication.co.za/index.php/magazine/ict/236-state-of-the-ict-industry



network and IT support. This growing market represents a huge opportunity for a growing ICT goods and services market- apparent in the sales of PCs and laptops increasing by 15% a year and the number of computer users increasing exponentially over time90.

PUBLIC/PRIVATE SECTOR PARTNERSHIPS

Both private and public sector organisations play a powerful role in the ICT industry in South Africa through helping ICT companies in various capacities.

An example of a government-owned initiative aimed at assisting various industries and promoting development on a national scale, is the National Empowerment Fund (NEF), which has a preferential procurement fund that offers financing and loans to black-owned businesses that have been identified for service contracts or tenders and who need this capital to ensure effective delivery.

PROVINCIAL ROLE PLAYERS AND STAKEHOLDERS

On a provincial scale, many provinces offer services to the ICT industry- these play a powerful role in assisting and developing the industry. For example, the Free State, Eastern Cape and Gauteng each have ICT assistance and development bodies: The Free State Development Corporation (FDC), The Eastern Cape Development Corporation (ECDC) and The Gauteng Enterprise Propeller (GEP). These government bodies provide small enterprises with business support and finance, helping the development of small ICT businesses and the industry overall.

BLUE IQ

Government and private sector have also formed partnership bodies which assist the ICT industry. For example; in Gauteng, Blue IQ is a government-private partnership which falls under the Gauteng government. Blue Catalyst is a branch of Blue IQ and it provides entrepreneurs in the ICT industry who are starting technological businesses with “smart ideas” with a network of funders and mentors for their assistance.

THE INNOVATION HUB


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The Innovation Hub, based in Pretoria, is another such partnership between government and the private sector which assists the ICT industry. This initiative is also funded by Blue IQ, falling under the Gauteng government. The Innovation Hub is a “Science Park” with international accreditations- it provides entrepreneurs in the hi-tech ICT industry with networking and face-to-face as well as virtual support of their business support and business incubator services.

SAVANT

The South African Technology Vanguard (Savant) is another public-private partnership which assists the local ICT industry through local and international marketing. The aim of this initiative is to develop and strengthen the South African ICT sector and empower it as a globally recognized competitor.

Private sector organizations and bodies also seek to help the ICT industry in various capacities and stimulate growth and development in the industry throughout the country. Examples of these include;

CAPE IT INITIATIVE

The Western Cape’s “Cape IT Initiative” is a section 21 company which aims to assist companies in the ICT sector through networking and mentorship.

INTERNET SERVICE PROVIDERS ASSOCIATION (ISPA)

The Internet Service Providers’ Association (ISPA) is a non-profit South African Internet industry organization. The organization’s members include educational networks, commercial service providers and non-profit providers. This body represents an important network of Internet service providers within South Africa’s ICT industry.

INFORMATION TECHNOLOGY ASSOCIATION (ITA)

Information Technology Association (ITA) is a body which represents ICT companies who supply IT equipment, systems, software and services within the industry. This body lobbies government and provides a mentorship and support programme called Phakisa- this initiative is aimed at small companies within the ICT sector.

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INFORMATION INDUSTRY SOUTH AFRICA (IISA)

The Information Industry South Africa (IISA) is a body which compiles a comprehensive list of the associations within the ICT sector. It facilitates networking between these associations and promotes the expansion of ICT networks and partnerships.

BANDWIDTH BARN

The Western Cape’s “Bandwidth Barn” is a Cape Town based initiative which provides business support as well as rental space to small ICT companies, stimulating growth and development for these small companies and the industry as a whole.

INNOVATION FUND

The Innovation Fund is an initiative which finances the patenting of new technologies which have been developed by entrepreneurs and companies.

5.14.10. ISETT

Isett is the local ICT’s Sector Education Training Authority. Through this organization, local ICT business owners can organize training and learnership programmes for their businesses. This body oversees training initiatives in the ICT sector and provides a valuable service in terms of skills development in the industry91.


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5.15. VALUE CHAINS

FIGURE 8: ICT VALUE CHAIN

Source: 2007, McCormick & Onjala, Methodology for Value Chain Analysis in ICT industry: Frameworks for the Study of Africa

The various stages of the ICT value chain are interconnected and rely on efficient relationships between each stage for the value chain to function effectively. The ICT value chain consists of manufacturing as well as services. The manufacturing of components and technologies rely on support services such as raw materials, fuel, infrastructure and workforce. These components are manufactured and used in the ICT services sector, where products and services are offered to the final consumers.

The value chain in the illustration above is an international standardised one that includes all aspects of the industry from services to manufacturing. However within South Africa,

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manufacturing is not a large part of the sector and as such the main areas within the South African value chain are, design and products development, distribution and trading to final consumers.

Assessing the diagram above it is evident that the first stage of the ICT value chain is the conceptual design and development of a product. A recent example of this is the i-pad. During this stage designers and developers conceptualise the product and design both the hard and soft ware aspects in the form of prototypes.

Once the prototypes have proven successful the product is the moved into the manufacturing stage, (it is important to note that often a triangular manufacturing system is employed i.e. Initial development an prototyping are performed in one country i.e. South Africa, manufacturing is then done in another country i.e. China and finally sales and distribution take place in a third country i.e. USA.) During this phase the actual assemble of the product takes place, hence the need or infrastructure to house and supply the manufacturing plant, machinery to conduct the manufacturing and assembly as well as packaging and labeling of the final product. It is important to bear in mind that during this phase there may be many other services provides involved especially where the manufacturing plant is large and machinery need to be maintained.

The final sections of the ICT value chain represent the bulk of the ICT sector in S.A. This refers to the logistics and distribution of the packaged product. At this stage the product is sent through various channels to stores i.e. Incredible Connection, Makro, and Game etc where it is purchased by consumers and then used.

The opportunities that have been identified within the industry exist in the services value chain. These services include installation of CCTV equipment and systems, companies that offer a diverse product offering to consumers such as marketing, hosting and system maintenance, and bulk short message services (sms) - this can include resale of bulk sms or the use of sms for advertising and marketing.

Further opportunities exist in the manufacturing and installation of set top boxes and residential satellite television installations. Specific opportunities that exist in the provinces in the ICT value chain are illustrated in the table below.

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TABLE19: ICT OPPORTUNITIES PER PROVINCE


WC EC NC KZN NW Limp

MPA

GAU FS

Business application software

x x x

Cctv systems x

Creative industries x x x x x

Document management systems

x x


x x x x x

e-waste management x x

Internet and wifi provider x x x x x


x x x x

Multimedia platforms x x x

Network development x x



x x x


x x x x

Voice over IT x

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Website development x x x x

CHALLENGES/BARRIERS

The key challenges and barriers faced by the South African ITC sector are;

Skills shortages across the ICT Sector

Skills shortages in development, building and maintenance of IT systemsThe lack of skilled personnel and individuals in the building and maintenance of IT systems affects the efficiency and functioning of ICT systems. Skilled personnel are required to ensure that systems are maintained and functioning at optimum capacity in all businesses that area related to ICT or make use of ICT systems. Skills shortages of IT specialists in the manufacturing industryThe skills shortages in manufacturing of ICT products is a serious problem, as skilled personnel are required to keep South Africa competitive in the manufacturing industry as well as to keep the technologies up to date with global standards. Skills shortages in IT and Communication sections of businesses in South AfricaThe lack of skilled personnel affects the efficiency of businesses which in turn affects the profitability of businesses in South Africa as they do not function as efficiently as they could. This will have a negative effect on the economy in the future.

High cost of telecommunications and internet access

High costs of telecommunications, internet and broadband affect the operations of businesses as they increase the operations costs and this in turn decreases the profits of businesses. With lower costs of internet and broadband, more households and small businesses could access the internet and increase their market access.

Low numbers of South Africans with access to personal computers (4% of South Africans) and internet subscriptions (1% of South Africans)

Personal computers and high costs of internet subscriptions in South Africa mean that fewer people in the country have access to internet connections and computers. Lower costs would increase the number of subscribers and in turn generate more demand and create jobs in the industry.

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Lack of financing for businesses and access to finance for capital and expansion

The lack of funding and access to finance affects mostly SMEs in South Africa, without finance many entrepreneurs are unable to start businesses or expand existing businesses.

Foreign Exchange Rates and Economic Influences

ITC businesses are affected by economic fluctuations and foreign exchange rates as the businesses rely on imports and exports to a large extent. The adverse effects of fluctuating exchange rates and the import tariffs can have a very negative effect on the growth of SMMEs.

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PART II:Fieldwork Findings

This section of the report provides the analyses of the surveys conducted on the businesses for the research on the performance of the services sector report. The questionnaire that was used to conduct the surveys was designed by FEM Research and interviews were conducted telephonically using a database of Seda clients from across the country and a list of businesses in the industry generated by FEM Research. This section is structured in the same way as the questionnaire and provides a brief analysis of the responses gathered during the surveys. There is some overlap between these sections and the key findings and recommendations section.

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TOURISM SECTOR

DEMOGRAPHIC PROFILE OF BUSINESSES

The highest proportion of businesses that were interviewed in the fieldwork phase of the project were situated in the North West Province (23%), followed by Free State (21%) and Gauteng (19%). The smallest proportion of respondents were from Limpopo (2%) followed by KZN (4%) and Eastern Cape (4%).

Figure 9: Business Location

6%4%

4%

23%

13%21%

8%

19%

2%

Western Cape KZN Eastern Cape North West MpumalangaFree State Northern Cape Gauteng Limpopo

The main respondents to the surveys were the owners, with 58% of all tourism surveys being completed by the owners, followed by managers (16%) and directors (10%).

Table 20: Position of Respondents

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Position of respondent % of respondents

Chairperson 2%

Coordinator 2%

Director 10%

Manager 16%

Owner 58%

Secretary 2%

Shareholder 2%

Supervisor 4%

Treasurer 2%

Trustee 2%

The majority (42%) of the tourism businesses that were interviewed are established businesses that have been in operation for five years or more. A small number (8%) of businesses were less than a year old while the remainder (50%) of the respondents was businesses that have been in operation between 2 years and five years.

Figure 10: Age of Business

< 1 Year 1 Year 2 Years 3 Years 4 Years 5 Years Greater than 5 years

0%

5%

10%

15%

20%

25%

30%

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The majority (72%) of the businesses interviewed are registered as Closed Corporations followed by Sole Proprietors (10%). Furthermore 55% of businesses were located in the Accommodation sector, followed by Tour operators and Tour guides (14%). Catering businesses accounted for the smallest percentage (2%) of the respondents.


Type of Company % Type of Service %

Closed corporation

72% Accommodation 55%

Co operative 2% Catering 2%

Private company 8% Curios 8%

Pty Ltd 4% Entertainment 8%

Sole proprietor 10% Tour operators and tour guide 14%

Trust 4% Transportation 12%

None of the businesses that were interviewed were owned by people or companies outside of South Africa. Businesses in South Africa are classified into the following categories:

Micro- owner run and employs up to 5 people

Very Small- Employs between 6 to 20 People

Small - Employs between 21 to 50 people

Medium- Employs up to 200 people

The number of employees within the tourism businesses varied between 1 and 20; however the average number of employees was five for each business. The majority (59%) of the

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businesses employed between 1 and 5 employees, while 31% employed between 5 and 10 employees and only 10% of the businesses employed more than ten employees.

Figure 11: Employees

1-5 Employees 6-20 Employees0%

10%

20%

30%

40%

50%

60%

70%

%

The highest number (76%) of permanently employed workers are found in businesses that employ between 5 and 10 employees, while the lowest number (38%) of permanently employed workers are found in businesses that employ more than 10 employees. Businesses that employ more than ten employees accounted for 40% of the temporary staff employed, and 38% of the permanent staff. The smaller businesses that employed between 1 and 5 employees had the highest number (49%) of highly skilled staff, while bigger businesses employed less skilled staff.

Table 22: Employment Type per Business Category

Number of Employees

Temporary

Contract Permanent

Seasonal workers

Skilled employee

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s

Micro (1 – 5) 22% 5% 46% 28% 49%

Very Small (6-20) 60% 11% 76% 16% 42%

Small (21-50) 0% 0% 0% 0% 0%

The majority (45%) of the businesses interviewed were small enterprises with an annual turnover of R150,000 or less, 27% have an annual turnover of R150,000 - R400,000 and 14% have an annual turnover of R400,000 - R1 000,000. Only 2% of the businesses interviewed had annual turnovers of more than R1 000,000, while 10% were unaware of their annual turnover as the businesses were less than a year old.


0-R150,000 R150,000-R400,000

R400,000-R1 000,000

R1 000,000-R2 000,000

just started0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

The businesses with the smaller turnovers; 0 - R150, 000 and R150, 000 - R400, 000 generally employ 1-5 employees. The majority (59%) of businesses in the 0 - R150, 000 ranges employ 1-5 employees, followed by 36% employing 5 - 10 employees and only 2% employing more than ten employees. The majority of businesses with an annual turnover of

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more than R400, 000 employ between 5-10 employees, and none of them employ more than ten. This is interesting to note because despite experiencing growth and expansion from small business it appears as though larger tourism businesses employ a maximum of ten people at a given time.


Turnover Category Number of Employees

0 – 5 6 - 20 21-50 Employees

Grand Total

0 - R150,000 59% 41% 0% 100%

R150,000 - R400,000 62% 38% 0% 100%

R400,000 - R1 000,000 29% 71% 0% 100%

R1 000,000 and above 0% 100% 0% 100%

Just started 60% 40% 0% 100%

The majority (69%) of the clients that make use of the businesses’ services are South African.

Figure 13: Major Source Markets

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69%

31%

Domestic International

More than half (55%), of the businesses surveyed were accommodation businesses, 15% were tour operators and tour guides and 12% provided transport services.

Figure 14: Services

8%

55%8%

2%

12%

14%

Curios Accommodation EntertainmentCatering Transportation Tour operators and tour guide

Conclusion

The majority of the businesses that were surveyed in the tourism sector fall within the accommodation sector and are registered as closed corporations. The majority of the

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tourism businesses are micro and small businesses that earn less than R 400, 000 per annum and employ less than ten people. The major source markets for these businesses are local government and domestic tourists within South Africa

CHALLENGES, OBSTACLES AND OPPORTUNITIES

General Challenges

During the survey process the businesses were asked to outline the current challenges that they face in the day to day operation of their business. From this analysis there are three key problem areas that small business in this sector have identified, these are:

Finance (43%)- the biggest challenge for tourism businesses was access to finance, the need for start-up capital, expansion capital and cash flow during low season affected almost half of the business interviewed.

Building client base (17%)- the high number of tourism businesses and the low number of tourists visiting some areas made it difficult for some businesses to attract and maintain a client base

Marketing (14%)- is a challenge for businesses as they need to have strong marketing techniques to differentiate their businesses and attract clients.

Specific Challenges

Specific challenges faced by tourism businesses stem from the general challenges which are finance, building client bases and marketing. Finance related challenges include the following:

Access to working capital Maintaining cash flow Managing overheads Increase in transport costs which in turn increases general costs and reduces the

available cash flow and annual profits as companies cannot increase their prices to meet the petrol price increases

Specific challenges faced by businesses in terms of building client bases include:

Limited knowledge of marketing which leads to low numbers in client bases Increased competition from other companies

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Limited knowledge of the tender processes in order to gain government clients and increase current client bases

Marketing specific challenges that businesses faced included;

Lack of resources to market the business efficiently which in turn leads to low exposure and poor numbers of clients

Lack of marketing knowledge and understanding Increased competition from other businesses particularly established businesses with

better marketing tools and market access

Outcomes, Needs and Requirements

The biggest effect of obstacles and challenges on businesses was a decline in sales (33%), and businesses stagnating (33%).

Figure 15: Effects of Challenges to Business

33%

25%

33%

8%

Decline in sales Operations have been affectedBusiness has stagnated No affects

Eight percent of the businesses reported that the challenges and obstacles faced by the entity have not affected the operation of the business yet.

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A significant number (23%) of businesses interviewed did not require assistance from public or private organisations; however the majority (77%) required various interventions to ensure the sustainability of their businesses. The most requested interventions were:

Grants and finance (20%), businesses were need of financial assistance to help expand and grow the entity and in some cases it was required to maintain the business.

Training (18%) was required by businesses for both owners, and staff. The relatively high number of skilled workers in the industry and the need for further skills show the growth potential for job creation in the sector.

Access to resources (16%) such as business support or networks was required by business to ensure sustainability and longevity of entities.

General Opportunities

Opportunities that exist in the tourism sector range from accommodation to tourism facilities and eco-tourism activities. Furthermore these opportunities can be developed across South Africa.

The province specific opportunities are outlined in the table below.

TABLE 24: OPPORTUNITIES IN TOURISM

Opportunities Province

WC EC NC KZN GAU Limp MPA FS NW

Accommodation x x x x x x x x x


x x

Catering/Food outlets x x

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Conference Facilities x x x x

Cultural Tourism x x x


x x x x x


x x x x x

Tourism Facilities x x x x x x

Training facilitators x x

Specific Opportunities

Accommodation opportunities exist within the tourism sector, in particular these opportunities are for cheaper accommodation packages and facilities. There is a need for Bed and Breakfast type accommodation and backpacker facilities as well as more affordable family friendly accommodation. Furthermore SMMEs can access opportunities in the accommodation industry by offering accommodation related services. These services include:

cleaning services

catering services

laundry services

gardening services

delivery services

Furthermore these services have very little entry challenges or barriers and are accessible for SMMEs.

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Beach tourism, cultural tourism and eco-tourism activities are more suited to small scale operators offering personalised services and activities. These activities include:

shuttle services

Personalised guided tours

Hiring of bicycles or equipment such as surfboards and kites etc.

Tourism and Conference facilities would be opportunities more suited to big businesses as the start-up costs would be quite large but the opportunities for SMMEs would be in provided services to these facilities. Again these services would include:

Cleaning

Catering

Transport

Delivery services

All of which are all quite easily accessed. Furthermore these opportunities would create employment in the areas where they are developed.


In order to access the abovementioned opportunities entrepreneurs would require finance, marketing and training, 29% of the businesses surveyed felt that finance and training were needed to access opportunities. Government support and marketing and training were also regarded as key to accessing opportunities in the tourism sector.

Figure 16: Access to Opportunities

130

3%

29%

26%10%

19%

3%3%

6%

Promotion Finance and training Government supportAccess to resources Finance and marketing FinanceMarketing Training

The expected outcomes of these opportunities and accessing them are job creation and skills development in the tourism sector.

Conclusion

The tourism businesses that were surveyed in the research process play key roles in providing accommodation, information to tourists and transportation services. The businesses face challenges such as lack of finances and inefficient marketing which in turn affects the access to clients. The effect of these challenges on the businesses is declining sales and poor growth. To combat these challenges and effects, the businesses require assistance in accessing training and funding. Despite these challenges there are opportunities that exist in the tourism sector across the provinces. These include developing cheaper accommodation facilities and offering shuttle services to tourists. These opportunities are accessible with finance, marketing and training.

6.3. SEDA SUPPORT

Feelings toward Seda Programmes/Services

The majority (63%) of the businesses did not feel that the services at Seda needed to be improved, however 21% felt that service delivery should be faster and 12% felt that more specific business training should be offered to businesses. Furthermore the businesses were not able to comment on whether or not Seda offered a unique product when compared to

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other development organisations as they were unaware of the product offerings. The majority (85%) of the respondents required assistance from Seda for their businesses.

Figure 17: Improvement of Seda Programmes

20%

4%

12%63%

faster service better follow upoffer more specific business training no

Awareness of Seda Programmes/Services

Fifty percent (50%) of the businesses had made use of Seda programmes. Of this total, 72% felt that the programmes had been effective in assisting their businesses.

TABLE 25: EFFICIENCY OF SEDA PROGRAMMES

Previous use of Seda % Efficiency of Seda programme

%

Made use of programmes 50% Effective 72%

Did not make use of Seda 50% Not effective 28%

Relevance and Effectiveness of Seda Programmes to SMME Development132

When asked to comment on what programmes Seda should offer, the businesses that responded had three comments;

More marketing and training

Seda should provide financial assistance

Seda should provide better follow up services and programmes

Figure 18: Programmes to be offered by Seda

50%

21%

29%

Marketing training Financial assistance Follow ups

The tourism industry and the businesses that operate within the industry require assistance in four areas; marketing, training, certification, and financial assistance. Seda can provide assistance with marketing and basic business training; as they do not currently offer specialised training specific to the needs of the tourism sector.

Furthermore Seda does not offer financial assistance and accreditation or certification that many businesses require assistance with. If Seda were to offer assistance in these instances the programmes they have would be more relevant for tourism businesses.

Conclusion

The businesses in the tourism sector that made use of the Seda programmes found them to be effective in assisting the business however a large number of the businesses were unaware of the types of programmes that Seda offers and as such could not comment on Seda. The businesses that had made use of Seda felt that the organisation should provide assistance with funding, increase marketing products and provide a better follow up and

133

communication process with clients. The majority of respondents felt that they would require some form of assistance from Seda, despite being unaware of the product offerings.

ICT SECTOR

DEMOGRAPHIC PROFILE OF BUSINESSES

This section of the report provides the analyses of the surveys conducted on the ICT businesses for the research on the performance of the services sector report. The questionnaire was designed by FEM Research and interviews were conducted telephonically using a database of Seda clients from across the country and a list of businesses in the industry generated by FEM Research. This section is structured in the same way as the

134

questionnaire and provides a brief analysis of the responses gathered during the surveys. There is some overlap between these sections and the key findings and recommendations section.

ICT businesses were contacted across the provinces and the most data was gathered from Gauteng (22%), Eastern Cape (22%), Western Cape (16%) and Free State (16%) regions. The Northern Cape and North West had the lowest number of responses.

Figure 19: Business Location

Area

east

ern ca

pe

free

stat

e

gaute

ng

Nother

n Cap

e

kzn

limpopo

mpum

alan

ga

wes

tern

cape

North W

est0

0.05

0.1

0.15

0.2

0.25

The surveys were completed by the owners (44%), directors (23%) and managers (33%) of ICT companies across the provinces of South Africa.

Figure 20: Representatives

135

23%

33%

44%

Director Manager Owner

The main business activity and core work conducted by businesses that were surveyed in the ICT sector was services related. Sales and software design businesses accounted for the bulk of the surveys.

Looking more closely at the business’s being assessed it is evident that the bulk of the entities (62%) are well established with 26% being between 3 – 5 years old and 36% being older than 5 years, only 12 percent of the businesses surveyed were in existence for less than 1 year.

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Figure 21: Age of Business

1 Year 2 Years 3 Years 5 Years Greater than 5 Years

0%

5%

10%

15%

20%

25%

30%

35%

40%

The majority (88%) of the businesses surveyed were registered as Closed Corporations. The remainders of the businesses were registered as PTY Ltd, Section 21 and Trusts. Regarding the type of business operations that the firms are involved in it is evident that Sales and Distribution is the largest contingent counting 53% of all firm surveyed. Software design was also a significant sector with 33% of businesses surveyed conducting work within this sector. None of the businesses surveyed were owned by people or companies outside of South Africa.

From the graph it is clear that the bulk of the businesses that have been assessed are micro and micro as defined earlier with 62% having only 1 – 5 employees. In total 80% of all businesses assessed have less than 10 employees.

Businesses in South Africa are classified into the following categories:

Micro- owner run and employs up to 5 people

Very Small- Employs between 6 to 20 People

Small enterprises - Employs between 21 and 50 people

Medium- Employs between 51 to 200 people

For the purpose of this report we have further broken down the small category into businesses that employ between 5 and 10 employees and businesses that employ 10-20 employees as well as businesses that employ between 20-50 employees. This has been done to provide a more in depth understanding of small businesses that were interviewed for this study.

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Figure 22: Employees

1-5 Employees 6-20 Employees 21-50 Employees0%

10%

20%

30%

40%

50%

60%

70%

%

The graphs on the following page illustrate the size of the firms that have been assessed. This is done by assessing to key facets i.e. turnover and the number of employees. From these graphs it is evident that the majority of firms assessed fall below R1 million turnovers per annum. The majority 38% have a turnover of R0 – R150 000, followed by 23% that have a turnover between R400 000 – R1 000 000. In total 76% of the firms assessed fell below the R1 million marks.

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Annual turnover

0-R150,000 R150,000-R400,000

R400,000-R1 000,000

R1 000,000-R2 000,000

R2 000,000-R4 000,000

greater than R4 000,000

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

In the case of firms with a turnover of R0 – R150 000, 94% have 10 or less employees (67% have 1- 5 employees, 27% have between 5 – 10 employees). As the turnover rises it can be seen that this changes with 50% of firms having a turnover of R2million to R4million employing between 10 and 50 employees while all firms having a turnover of greater than R4 million employ in this range.

In order to get a better understanding of the sector and the businesses that function in it, a cross tabulation was conducted between the number of employees and the type of employment. From the analysis it is interesting to note that across all business sizes the number of permanent contracts comprise between 60 – 70% of the total employees. A positive note is that the industry does not experience much seasonality however temporary employment seems to be well entrenched (firms with 10 – 20 employees have 27% of their staff on temporary contracts).

Another interesting observation is regarding highly skilled workers, from the analysis it is evident that the % of skilled workers within the firms decline as the number of employees increase. This has important implications for job creation in that if the small firms grow the jobs that they will create will allow for semi-skilled individuals to enter the job market.

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Categorisation Temporary

Contract Permanent

Seasonal Highly skilled

Micro (1 - 5 Employees)

30% 8% 80% 16% 77%

Very Small (6 - 20 Employees)

6% 6% 12% 2% 63%

Small (21 - 50 Employees)

0% 0% 8% 0% 47%

The client base for the ICT businesses was South Africa, less than 10% of the business had international clients or clients from another African country.

Of the businesses surveyed, 24% felt that their business played a role in skills development in the industry, 16% felt they assisted in creating jobs in the economy and 8% felt that they were involved in community development.

Figure 24: Role in ICT sector

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24%

16%

16%

8%

10%

10%

4%

12%

Skills Development Job CreationSales Community DevelopmentNetworking and internet services/ support Computer Equipment (support, repair, supply)Design (Graphic/ Web) IT Services

Conclusion

The majority of the ICT businesses that participated in the survey are established and have been in operation for more than three years. The bulk of the businesses are registered as closed corporations and have an annual turnover of less than R 1 000,000 and employ less than 10 people. The major source of clients for these businesses is South Africa.

7.2. CHALLENGES, OBSTACLES AND OPPORTUNITIES

General Challenges and obstacles


Funding: 37% of business identified access to short term funding (working capital) as being a problem. Many businesses have noted the unwillingness of financial institutions to assist them.

Market Intelligence: 29% of business have identified that a key problem that they face is the lack of knowledge of what are the current growth and development trends in their sector.

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Infrastructure: Unlike the firms that required working capital that point highlights the fact that many firms (13%) have indicated the need for funding assistance so that they can purchase the necessary infrastructure to compete efficiently.

Other points that have been raised by firms are around skills development (8%) as well as payment delays (5%) and transport costs (3%).

Specific Challenges

Specific challenges that are faced by businesses in the ICT industry include:

Access to finance is a serious challenge for ICT businesses as it hampers every aspect of the business from operations and management of cash flows to purchasing of equipment and paying for running costs.Working capital is another big issue that businesses face particularly in the startup of an ICT business, accessing working capital can be difficult for SMMEs.Skills shortages across the industry affect the operations of the businesses as the labour costs can be higher due to the completion for skilled staff, also businesses that lack the relevant skills experience a decline in their client bases.Lack of resources such as finance, skills, marketing knowledge and training also affect the operations of ICT businesses and hamper growth.Lack of infrastructure is a serious concern as the ICT industry is based on infrastructure and having the necessary infrastructure in place as well as having access to infrastructure is critical to developing a sustainable business.High cost of imports and products for resale affect the cash flow and profit margins as price fluctuations cannot be mitigated yet the price of services and products need to remain relatively unchanged to maintain existing client bases.

The biggest effects of the obstacles and challenges on businesses in the ICT sector are:

Decline in business (25%)

Slows the growth of the business (20%)

Increases operational costs (19%)

It should be noted that 19% of the businesses that were surveyed felt that the challenges faced by their businesses did not have an impact on the overall operation and outputs of the business.

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Figure 25: Effect of challenges on business

25%

19%

11%

19%

6%

19%

Slows down businessSlows growth of the companyAffects performance in the market/ market penetrationFinancial CostsLoss of Workforce/ EmployeesNo Big Impact


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Following on from the above challenges, firms were then asked specifically what type of interventions they required. Interestingly while skills development had been ranked lower than other challenges it is in greatest demand (35%) by firms in this sector. Linked with the above findings interventions in the areas of:

Providing market intelligence is in high demand by firms (30%)

Assisting firms with procuring short term funding (26%)

An important note that has been made by firms linked to the idea of infrastructure is the provision of Incubation programmes (4%). These interventions have proved very successful in provinces such as the Western Cape and should be seriously considered going forward.

General Opportunities

A number of opportunities in the ICT sector were identified during the surveys. These opportunities are applicable to the different provinces and have been illustrated in the table below.


WC EC NC KZN NW Limp MPA GAU FS

Business application software

x x x

Cctv systems x

Creative industries

x x x x x

Document management systems

x x

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x x x x x

e-waste management

x x

Internet and wifi provider

x x x x x


x x x x

Multimedia platforms

x x x

Network development

x x



x x x


x x x x

Voice over IT x

Website development

x x x x

Specific Opportunities

Assessing the opportunities outlined above there are three general categories in which these opportunities fall. While the above opportunities can be accessed by SMMEs, it is also

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important to assess the associated opportunities which occur when the above are developed.

Software and systems development: While the direct opportunities for development and expansion are limited to the business that is undertaking the opportunity (due to specialised nature of the opportunities) some associated opportunities exist

Smme’s can provide physical infrastructure to these software development firms and well as ongoing maintenance of these systems

Smme’s can also consider partnering with these firms to look at distribution their products. This case the smme would act as an agent and earn a commission on each sale.

Training

Smme’s would be required to provide the infrastructure for the training to take place i.e. venue, catering, equipment etc.

As in the opportunity above Smme’s can also look at partnering with these firms to look at distribution of their products.

Infrastructure provision

Smme’s can provide a host of services to these companies i.e.

Logistic support

Sourcing of infrastructure components

Provision of labour

Maintenance


When asked to describe what is needed to access opportunities in the ICT sector, all of the businesses that responded felt that there were three things needed to access opportunities:

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Finance

Infrastructure and resources

Training

The expected outcomes of these opportunities are the promotion of job creation in the ICT sector as well community and skills development. Furthermore it is expected that the advancement in skills could lead to new developments in technology and the manufacturing sector of the ICT industry.

Conclusion

Businesses in the ICT sector play a role in creating jobs as well as developing skills and assisting in community development. The major challenges faced by these businesses are accessing funding, market intelligence and infrastructure. These challenge and obstacles have negative effects on the businesses and generally cause a decline in sales, slow business growth and higher operational costs. To assist in combating these challenges the businesses in the ICT sector require assistance in developing market intelligence and securing funding. However despite the challenges and obstacles that exist in the industry, these businesses remain optimistic about opportunities that exist in the sector and feel that with funding, training and access to necessary infrastructure the sector will continue to grow and create jobs and develop skills.

SEDA SUPPORT

Feelings/Attitudes towards Seda Programmes/Services

Of the businesses that had made use of Seda Services and programmes, only 15% felt that the programmes were not effective and had not helped their businesses at all. The majority (85%) of the businesses felt that the services received had been very effective in assisting their businesses.

Figure 26: Efficiency of Seda Programmes

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85%

15%

Effective service Not Effective

Sixty four percent of the businesses require assistance or support from Seda.

Figure 27: Assistance from Seda

64%

36%

Yes No

Awareness of Seda Programmes/Services

Only 46% of the businesses surveyed had made use of Seda services and programmes.

Figure 28: Seda Programmes

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46%

54%

Yes No

Relevance and effectiveness of Seda Programmes to SMME Development

Forty one percent of the businesses that had made use of Seda programmes and services felt that there was room for improvement. The main areas that required improvement were:

Better communication and follow up with clients about queries and services

Improve the processes and speed up service delivery

Provide more focused and specialised training for ICT businesses

Figure 29: Improvement of Services

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Better communication and follow up

Improve processes and speed up service delivery

Provided specialised training0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

When asked about the programmes that Seda should offer, most respondents wanted to see more marketing and networking tools as well as business funding options through Seda. Furthermore, only 22% of the respondents felt that Seda offered a unique service compared to other development organisations while 46% of the respondents stated that they were unaware of the exact offerings and could not compare Seda to other organisations.

Seda offers a number of programmes that are relevant to the start-up needs of ICT businesses and offer assistance and training to run and manage businesses, but the industry requires specialised training and mentorship which is not currently available from Seda. However Seda does offer ICT specific programmes such as the ICT incubation programme and Seda Technology Programme. One major problem that businesses faced when dealing with Seda is that they felt the training provided was not sector specific.

Conclusion

While the majority of the businesses had not made use of Seda’s services and were unaware of the exact product and service offerings of the organisation, 64% still requested assistance or support from Seda for their business. Of the respondents that had made use of Seda’s products and services, the majority would like to see more marketing, training and funding services in the future, while 41% felt that Seda could improve their current customer service delivery and speed up the processes when assisting clients.

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RECOMMENDATIONS

In order to make recommendations on improving programmes offered by Seda or developing new programmes and services it is necessary first to identify existing programmes and services that are offered and determine the relevance to the needs of the ICT and tourism businesses.

Seda (Small Enterprise Development Agency) is promoted as an agency that offers a starting point for potential entrepreneurs and a growth opportunity for existing entrepreneurs. This is achieved through business consulting, training and (when unable to help) referrals to suitable specialists.

Seda’s services are orientated towards upholding their three objectives: 1) to increase the capabilities and competitiveness of small business enterprises; 2) to ensure that all small business enterprises have equal access to support services; and 3) to strengthen the organization for service delivery.

Seda provides four service categories that will enable it to deliver on its mandate. The first two discussed focuses on potential entrepreneurs while the final two focus on existing entrepreneurs:

Seda Business Talk

Business Talk is a package for potential entrepreneurs or business owners who are enthusiastic about starting their own business in the near future. Overall, this package includes business information and advice, small enterprise training, and assistance with business registration.

Interested persons, who are thinking of starting a business, are encouraged to visit any of the Seda branches located countrywide to obtain information on Seda Talk seminars (which offers a basic overview of Co-operatives, Entrepreneurs, and Franchises), Seda Start-up1 training and other Business Talk programmes offered.

During this initial stage, business advisors will focus on motives for wanting to start a business, characteristics and other necessities for starting a business, testing the business idea’s viability, exploring other support services, and information on business development.

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After having formalized a clear idea of the business one wants to start (the strategic focus stage), Seda advisors will help clients to draw up a business plan, consisting of the following areas:

Your strategic focus

The marketing plan

The operations plan – that will differ depending if the client will be a manufacturer or retailer

The staffing plan

The financial plan

During each of these above mentioned areas a three-step cyclical planning process should be used, consisting of:

Think and Strategize,

Test your ideas through research, and

Analyze and draw conclusions

Clients are warned to not become stuck in the planning mode. A business plan should normally consist of 20 pages (including financial statements) and planning should only take one to six months.

Lastly, Seda advisors will help clients decide what type of business they will enter into/begin and will therefore weigh the advantages and disadvantages of each of the following: sole proprietorships, partnerships, close corporations, private companies or trusts. Seda also offers the Cooperatives and Community Public Private Partnership (Coops & CPPP) Programme to specifically satisfy the needs of rural clients. This programme supports non-traditional organizational forms and specifically directs its focus to rural areas and the use of local resources. Key sectors for this programme is agribusiness, cultural tourism, mining and mineral beneficiation, and trading and auxiliary services.

Seda Business Start

Business Start is a package that provides assistance in the form of tools and techniques to those clients who are ready to start a business. Overall, this package focuses on business planning, business counseling, access to finance, and business support.

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Seda business start has four key areas of focus:

Financing your business

Most small businesses will need money in order to lift itself from the ground. Before the business becomes profitable, money will be needed to acquire stock and materials, equipment, money to pay employees’ salaries, telephone bill, rent, etc. However, before applying for a loan, clients are urged to find out the exactly information the person/institute requires in order to make the application process as fast and effective as possible.

Seda guides all clients in creating a successful presentation for the bank that will make the loan application a success. This is achieved by focusing on three key areas, namely: Bank requirements for SMEs; reasons why banks refuse loans; and checklist for a presentation to bankers

Managing your business

Seda advises clients to put systems in place in order to manage the business effectively. This should be done so that every demand the business faces can be 'channeled' in a certain direction and dealt with in a planned way which will enhance control over all business processes.

Key factors that Seda advise their clients to acquire include: a proper Business Financing Plan; a comprehensive plan for potential bankers that will finance the client’s business; a good understanding of fraud and the prevention of it; well informed of the services of the Independent Regulatory Board for Auditors; good understanding of bank services; and a good understanding of business financial management. Appropriate links are provided on Seda’s website for more information of each topic.

Marketing for small businesses

Seda focuses on the four P’s of marketing to help their clients make their products more appealing to customers than that of their competition. The four P’s include Product, Price, Promote, and Provide. According to these four factors Seda provides guidance in advertising, promotional activities, customer relations, selling techniques, pricing, packaging, and the location and name of the business.

Seda Business Build

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SEDA offers “business build” services to small business owners. These services are aimed at helping small businesses to grow and improve through various programmes. These programmes include; Advice for tender processes, business networking, technical business support and ISO accreditation, help with an export readiness assessment, toolkits for participating in exhibitions and trade shows, and productivity improvement.

Seda Business Grow

SEDA offers “Business Grow” services to small businesses. These services aim to achieve sustainable growth in small businesses. “Business Grow” uses the same services as “Business Build”, but have a different focus. This programme offers:

- Business assessment and diagnostic tools: assessing the business’ needs for sustainable growth and providing a solution through SEDA’s services and networks

-Business Management: improving business management skills, including financial admin and management; coaching and mentoring; Strategic planning; business optimisation and turnaround strategies; listing on JSE and AltEx.

-Management systems/ technology: SEDA offers technical support like ISO Accreditation Product Improvement, Market Penetration and Tender Support. This support comes from SEDA branches offering the services.

- SEDA offers trade point programmes: Trade Point programmes are initiated by an international, non-governmental organisation called The World Trade Point Federation. It aims to increase SME’s participation in global trade. Global trade and networking is promoted through their Global Trade Directory System, which provides a database of companies registered from 70 countries in the network. This system provides companies with networking, marketing and exposure in the Global Trade market and offers trade related information, market intelligence and other services.

- SEDA also offers an Export Development Programme to small businesses. This service helps businesses to grow through assisting them in developing export systems.

ICT Specific Programmes offered by Seda:

SEDA offers the STP- the Seda Technology Programme. The STP aims to increase the accessibility, knowledge and use of technologies in small businesses, especially those from an underprivileged background, to help them develop and grow. This should increase their

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overall productivity and competitiveness in an increasingly technological market and general society.

SEDA has launched the Nelson Mandela Bay ICT Incubator in the Eastern Cape. It aims to grow and promote economic growth in the Eastern Cape’s ICT sector. It focuses on ICT Cluster Development, business Development, Skills development and Job creation in the ICT sector.

The services that the incubator provides include Mentorship, networking with industry players and investors, and physical ICT infrastructure. Entrepreneurs also get support from the Entrepreneur Support Program provided by the incubator, helping them with business plans, mentorship, information, finance assistance and business ideas.

Tourism Opportunities and the Seda Programmes

Tourism Opportunity

Assistance Offered by Seda

Programme Programme Applicable to SMMEs

Accommodation Y All programmes can be utilised for this opportunity

Specific support such as running a guesthouse and meeting the requirements to get a better tourism rating would be helpful to entrepreneurs

Catering/Food outlets Y All programmes can be utilised for this opportunity

The current available programmes are well suited for this opportunity

Tourism Activities (Beach, Eco and Cultutral)

Y All programmes can be utilised for this opportunity

Specialised marketing and training is required to access these opportunities and at present Seda does not provide specialist

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training or marketing for the sector

Business Tourism Facilities and Activities


The current available programmes are well suited for this opportunity

Shuttle and Transport Services


Entrepreneurs wanting to access these opportunities may need assiatcne with permits and certification, currently this type of guidance and assistance is not available from Seda

Table of ICT opportunities and Relevant Seda Programmes

ICT Opportunity Assistance Offered by Seda

Programme Programme Applicable to SMMEs

Software and systems development


Current programmes can be utilised but entrepreneurs in this field require specialist knowledge and mentorship that relates to ICT systems and software, rather than just general assistance from Seda

Training Y All programmes can be utilised for this opportunity

The current programmes can be utilised to start a training business however if a business requires training or accreditation that is specific to the ICT industry, there are no current programmes in Seda to accommodate this

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Infrastructure provision


Seda does offer assistance in infrastructure development and support as can be seen in the Nelson Mandela Bay ICT Incubator

Recommendations on developing services and programmes to accommodate development opportunities:

The following opportunities have been identified for Seda to assist in the development of the services sector and these interventions have been identified through the desktop review as well as through the data analysis.

Tourism Opportunities:

Opportunity 1:

Funding for businesses: Businesses require funding for various reasons and it is not always possible to apply for finance from private institutions, furthermore businesses are unaware of the public sector funding that is available and as such require assistance in accessing these funding avenues.

Intervention:

Providing assistance with securing funding: Seda can offer assistance in securing funding for tourism businesses or at least offer assistance in funding applications for businesses. Seda can recommend institutions that tourism businesses can apply to for funding as well as offer assistance in facilitating contact with funding organizations.

Recommendation:

It is recommended that partnerships be established between funding facilitation organizations such as the IDC as well as the DBSA with Seda to provide clients with information regarding funding opportunities while also assisting clients in applying for funding.

Opportunity 2:

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Expanding existing businesses by Marketing & Building a client base: a major issue that businesses face is maintain and expanding their client base. Businesses have difficulty in expanding clientele and accessing new markets and so they require assistance in developing more aggressive marketing skills as well as developing advertising platforms to increase their client base.

Intervention:

Assist with building client base and improving marketing: Seda can provide assistance to these businesses by providing in depth marketing training and tourism specific training; furthermore Seda can also provide guidance with regards to applying for government tenders.

Recommendation:

Develop training and marketing platforms to increase exposure of businesses as well as promote online marketing

Opportunity 3:

Development of /facilitation of Training: Seda can develop training and facilitation programmes to increase their current product offering as well as to assist small businesses access much needed industry specific training.

Intervention:

Provide accredited training specific to the industry: Industry specific training for tourism businesses is essential and would include training in marketing of tourism products, development of tourism products and providing quality assurance.

Recommendation:

It is recommended that Seda develop specific industry training as well as accredited training for entrepreneurs in the industry. Partnerships and collaborations may be formed with training facilities or organisations

Opportunity 4:

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Access to resources: businesses in the tourism industry, particular small businesses are not able to access all the required resources; these include basic services such as municipal and infrastructure as well as finance and assets.

Intervention:

Facilitate access to necessary resources to promote industry growth

Recommendation:

It is recommended that Seda partner with other organisations or develop network clusters whereby businesses can share resources.

ICT Opportunities:

Opportunity 1:

Skills development: ICT businesses experience skills shortages which hamper their ability to grow and expand. Skills development would combat the skills shortages, as well as improve job creation opportunities. Training is required to facilitate skills development in the ICT industry.

Intervention:

Provide industry specific training: Training is required by ICT business, the training is not general business or marketing training but specific skills, such as software design and developing, network support and maintenance. The training providers would need to be industry specialists.

Recommendation:

Seda can develop specialized training aimed ICT businesses and provide them with after training mentorship

Opportunity 2:

Accessing market intelligence: provides an opportunity for Seda to assist small businesses in accessing market intelligence and in doing so help these businesses to become competitive and to grow.

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Intervention:

Provide market information to businesses in the industry: Seda can partner with other organisations to develop a platform that provides market information to small businesses.

Recommendation:

Seda can develop partnerships with the department of Communication to research and publish regular documents on market information as well as develop annual sectoral reports

Opportunity 3:

Assisting firms with procuring short term funding: Short term funding is required by firms on occasion to supplement cash flow or as bridging finance. These firms can be assisted by Seda through the development of a short term funding facilitation programme. This will assist small businesses and help with their development in the industry.

Intervention:

Facilitate funding for ICT businesses: Seda can provide advice or assistance to ICT businesses that require short term funding, their needs can be assessed and the relevant funding agencies can be contacted and applications can be made through assistance from Seda.

Recommendation:

Develop partnerships with funding organizations and develop a list of potential funders relevant to each industry

Recommendations for Further Research

The recommendations for further research flow primarily from the scope and limitations of this study. As outlined in the limitations section, this study faced various challenges:

Sample size Buy in from provincial offices Assess links with current programmes Status of current assistance provided Results of current M&E Size of the sectors being assessed

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Given the above challenges it is recommended that further research be conducted as follows:

Partner with specific regional offices and; using their databases, conduct sector specific mapping. This exercise will build on the information already provided in this report i.e. key opportunities & challenges; however it will allow for targeted interventions to take place within specific geographical nodes Further analyses of each sector should be conducted at a National level. However the associated sample size should be increased to include at least 500 – 1000 participants as well as participants that would be affected by upstream and downstream opportunities. A separate analysis should be undertaken to benchmark Seda clients to those clients who have opted to use Seda services. This can be linked to ongoing M&E so that the impact of Seda programmes can be tracked effectively

CONCLUDING REMARKS

The results from the research process have identified that both the ICT and the Tourism sectors have significant potential for job creation and economic development. Neither of the sectors has achieved their full potential which indicates that there is further room for entrepreneurs to develop and grow.

Through the research process it is clear that both sectors are growing significantly and have already made significant contributions to the national and provincial economies. However, as outlined in both the literature as well as the data analysis both sectors are faced with various challenges that are inhibiting growth and job creation.

In this respect it is crucial that Seda looks at the various proposed interventions and begins to implement sector specific interventions. As outlined by the Minister of Finance in the latest budget speech, small business is and will become more and more significant in shaping the development of our economy, hence, measures to assist them with respect to growth, development and long term sustainability need to be put in place.

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LIST OF REFERENCES

Tourism Sector Bibliography

Accelerated and Shared Growth Initiative for South Africa (AsgiSA) (2006)


Department of Economic Development and Tourism, Annual Performance Plan, 2011

Eastern Cape Department of Economic Development and Environmental Affairs

Eastern Cape Tourism Master Plan, 2011

Global Media Face Off INDABA, 2011

JH van der Merwe, SLA Ferreira and A van Niekerk, Spatial Gap Analysis of Tourism Development Opportunity in the Western Cape Province 2008

KZN DEDAT

National Tourism Strategy 2011

Recommendations on Tourism, United Nations (83): 5. 1994

SAT Domestic Tourism Report Provincial Scorecard 2007-2010

SA Tourism, Tourism Definition PDF 2008, Dept. of Environmental Affairs and Tourism

South African Marketing Growth Strategy

STATs SA: South African Tourism 2010

Theta

UNWTO World Tourism Barometer 2011

WC DEDAT

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INTERNET SOURCES

European tourism grows above expectations 2011, http://media.unwto.org

Opportunities and tips for Educational Tourism Providers- www.tourism-review.com

South African Tourism Sector, www.tourismrsa.com

World Bank Indicators http://data.worldbank.org/indicator/ST.INT.RCPT.CD 2011

www.capetownroutesunlimited.com

www.joburg.org.za

www.tourismnorthwest.co.za

ICT SectorBibliography

Department of Communications South Africa

FDI Intelligence 2011, analysed by FEM Research

ICT market Review and Forecast Chapter 5, 2011

IDC. Aid to Recovery: The Economic Impact of IT, Software and the Microsoft Ecosystem on the Economy 2009

McCormick &Onjala, Methodology for Value Chain Analysis in ICT industry: Frameworks for the Study of Africa 2007

SA Market Summaries: ICT, SAM #009

Solidarity Research Institute, Skills Shortage in SA: Summary of facts per Sector regarding this issue, January 2008

SoumitraDutta& Irene Mia, The Global Information Technology Report 2010-2011: Transformation 2.0

South Africa ICT Sector Performance Review 2009-2010

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http://www.tourismnorthwest.co.za/

http://www.joburg.org.za/

http://www.capetownroutesunlimited.com/

http://data.worldbank.org/indicator/ST.INT.RCPT.CD%202011


http://www.tourism-review.com/

http://media.unwto.org/

www.digitimes.com

www.doc.gov.za

www.itu.int

www.northenrcapebusiness.co.za

www.reconnectafrica.com

www.SouthAfrica.info

www.tiaonline.org

http://gep.cobwebinfo.co.za/

http://www.africanbrains.net







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http://www.africanbrains.net/

http://gep.cobwebinfo.co.za/%20


http://www.SouthAfrica.info/

http://www.reconnectafrica.com/

http://www.northenrcapebusiness.co.za/

http://www.itu.int/


http://www.digitimes.com/

ANNEXURE A

List of Businesses contacted during fieldwork phase (please refer to separate attached document)

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Research on the Performance of the Services Sector (ICT and Tourism)

Documents

Transcript of Research on the Performance of the Services Sector (ICT and Tourism)