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TOURISM SUPPORT PROGRAMME

PRESENTATION TO THE PORTFOLIO COMMITTEE ON TOURISM

THE ENTERPRISE ORGANISATION

7TH SEPTEMBER 2010

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MEMBERS OF THE DELEGATION

Ms Tumelo Nkoane

Acting Deputy Director General

The Enterprise Organisation

Ms Mandisa Silo

Acting Director Tourism

Industrial Development Division

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CONTENTS

Introduction

Tourism Support Strategy

Tourism Support Programme

Overview

Programme Description

Eligibility Criteria

Evaluation Criteria

Qualifying Activities

Non-Qualifying Activities

Qualifying Assets

• Non-Qualifying Assets

• Expansions

• Key Conditionalities for

Payment

• Application Process

• Summary of Programme

Performance

• Geographic Spread

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INTRODUCTION

THE ENTERPRISEINVESTMENTPROGRAMME

(EIP)MANUFACTURING INVESTMENTS

TOURISM INVESTMENTS

TOURISM

SUPPORT

PROGRAMME

(TSP)

MANUFACTURING

INVESTMENT

PROGRAMME

(MIP)

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Sustainable GDP Growth

Sustainable GDP Growth

Sustainable job creation

Sustainable job creation

Redistribution and transformation

Redistribution and transformation

The Tourism Act’s mandate

is ...

. . . through six key

objectives . . .

. . . by acting in a focused way to . . .

Understand the market

Understand the market

Choose the attractive segments

Choose the attractive segments

Market the DestinationMarket the Destination

Facilitate the removal of obstacles

Facilitate the removal of obstacles

Monitor and learn from tourist experience

Monitor and learn from tourist experience

Facilitate the product platform

Facilitate the product platform

Increase in tourist volume

Increase in tourist volume

Increase in tourist spend

Increase in tourist spend

Increase length of stay

Increase length of stay

Improve geographic

spread

Improve geographic

spread

Improve seasonality patterns

Improve seasonality patterns

Promote transformation

Promote transformation

Tourism Support Programme Strategy

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Tourism Support Programme Overview

AIM

To stimulate job creation outside the traditional tourism destination clusters

TARGETED OUTCOME

Increased BB-BEE participation

Increased Investment outside of the 3 metros of eThekwini, Cape Town

and Joburg. Projects locating in marginalised areas within these are eligible

to apply.

PROGRAMME DURATION

• Effective from July 2008 & available for 6 years until 2014

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Programme Description

OFFERING

• Investment grant of up to 30% of qualifying investment costs in

furniture, equipment, vehicles, land & buildings

• Grant applicable is capped at a maximum of R30m, calculated in relation

to the qualifying investment costs:

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Programme Description

– Investment projects ≤ R5m

• grant equal to 30% of their qualifying investment costs, payable 3

year period.

– Investment projects > R5m ≤ R30m

• grant of between 15% and 30% of their qualifying investment

costs, calculated on a regressive scale, payable over a period of

two (2) years.

– Investment projects ≥ R30m

• 15% grant payable over a period of two (2) years

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Programme Description

TARGET PROJECTS

• Establishment of new or expansion of existing tourism facilities

• Investment by projects capped at R200 million

• Local and foreign owned projects

• Applicant must be a registered entity in RSA (Companies, CCs, Co-

ops, Community Trusts)

• Projects that have not taken their investment assets into commercial

operation

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TSP Eligibility Criteria

Investment size Minimum number of new jobs

Below R5m 8 jobs (3 for black owned enterprises)

≥R5m – 10m 10 jobs

≥R10 – R20m 12 jobs

≥R20m – 30m 15 jobs

≥R30m – R50m 20 jobs

≥R50m – R75m 30 jobs

≥R75m – R100m 50 jobs

≥R100m – R150m 70 jobs

≥R150m – R200m 85 jobs

Minimum job requirement

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TSP Eligibility Criteria

Wages in line with hospitality sector wages as determined by

Department of Labour

Achieve level (4) BB-BEE contributor status

Locate outside Metros of Cape Town, eThekwini &

Johannesburg (marginalised areas in metros excluded)

Apply & receive approval before taking assets into commercial

operation

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Evaluation Criteria

Factor Project Below R5m Projects Above R5m

     

Barrier Access to finance Risk of and return on investments

     

Evaluation Criteria

1) Demonstrate commitment to project 1) Demonstrate commitment to project

2) Viable project - business plan 2) Viable project - business plan

3) Substantiate need for project - show how grant improves financial viability

3) Substantiate need for project - show how grant improves financial viability

  4) Demonstrate need or funding gap

 

Evaluation1) Fatal flaw analysis &

business plan evaluation1) Fatal flaw analysis & business plan

evaluation

2) Financial ratio analysis 2) Financial ratio analysis

  3) Funding gap analysis

 

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Qualifying Activities

ACCOMODATION services dedicated to tourists (e.g. hotels, lodges, resort accommodation, guest houses, Bed &Breakfasts, backpacker facilities, self catering accommodation);

Passenger TRANSPORT services including road, rail, water dedicated to tourists and must be registered in South Africa (e.g., tourist transfer services, tourist trains, water, etc.);

TOUR OPERATORS

CULTURAL SERVICES dedicated to tourists (e.g. privately owned museums,);

RECREATION SERVICES dedicated to tourists (e.g. spa and wellness centres sport and recreation facilities that form part of other dedicated tourism products, etc.);

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Non- Qualifying Activities

– Fast food and take away restaurants, nightclubs, bars, gaming and gambling venues will not be considered

– Franchised restaurants

– Restaurants not attached to a tourism facility

– Tourism investment as part of projects that include residential development, where the shareholder is one and the same as the residential developer, will not be considered – Policy to be reviewed

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Non- Qualifying Activities

– Conference facilities not attached to accommodation facilities

– No investment in government-owned or partial government owned (e.g. PPP) projects will be considered.

– No investment in arts and craft facilities will be considered as a separate development

– No retail operations will be considered.

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QUALIFYING ASSETS

• Furniture, Fittings and Equipment

• Owned land and buildings at cost. – The investment in land and buildings must constitute newly

acquired land and buildings, whether as part of a new project or expansion, and must be owned by the applying entity.

– The land costs must be directly associated with the purchase, renovation, or construction of a new tourism facility for the investment project under consideration, and must be located on land that has been zoned for commercial activity or multi-zoned .

– The cost of the land may not exceed 20% of the investment cost in buildings/ land improvements for the purpose of the grant calculation

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QUALIFYING ASSETS

• Lease for land and buildings

• Commercial Vehicles Only eligible if such vehicles are for tourist transfers from an accommodation facility, and/or have been specifically modified for particular tourism activities, e.g. tour operator vehicles and game drive vehicles.

– Investment in vehicles by projects other than tour operators is capped at 20% of the qualifying investment.

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NON-QUALIFYING ASSETS INVESTMENT COSTS

• Assets acquired by way of an operational lease agreement

• Passenger vehicles (i.e. non-commercial vehicles) and

• Damaged assets or assets not utilised for the qualifying production process

• Revaluated assets

• VAT and finance charges on assets

• Rates and taxes

• Sports cars;

• Commercial vehicles (e.g. trucks, tractors, bakkies, etc.);

• Imported second-hand assets; and

• Refurbished existing operations

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Expansions

– The project must increase capacity (rooms or seats etc) of current operations by 35% in year 1.

– The entity must show an increase (over and above total qualifying historic costs) in qualifying investment of at least 35%;

– The expansion must demonstrate an increase in projected revenue of 15% in the 1st year of operation and 25% increase in the 2nd year of operation above the revenue as reflected in the base year financial statements; and

– The Entity must achieve both the minimum number of total jobs for the project and minimum net increase in new full-time employment opportunities from the base year as stipulated in the Table B below

Expansion investment size

Minimum number of jobs to be achieved by project

Minimum net new additional number of jobs to be created

Below R5m 8 jobs 4

≥R5m – R10m 10 jobs 5

≥R10m – R20m 12 jobs 6

≥R20m – R30m 15 jobs 7

≥R30m – R50m 20 jobs 10

≥R50m – R75m 30 jobs 15

≥R75m – R100m 50 jobs 25

≥R100m – 150m 70 jobs 35

≥R150m – 200m 85 jobs 45

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KEY CONDITIONALITIES FOR GRANT PAYMENT

• Achieve 70% of projected investment

• Achieve 70% of projected turnover

• Maintain 100% of stipulated employment levels

• Pay wages in line with hospitality sector rates

• Achieve and maintain BB-BEE level 4 contributor status

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Application procedure

Project application: The dti approval

process:

Implementation and

monitoring:

• Applicant

complete

application form

and send to the

dti

• The dti pre-

screens

application

• The dti

evaluates

application

• The dti

feedback on

approval

• The dti offers a

grant contract

to approved

project

• The applicant

establishes the

investment project

• The dti monitors project

performance against set

targets

• The project claims the

approved grant bi-

annually / annually

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SUMMARY OF PROGRAMME PERFORMANCE (Inception – July 2010)

• TSP approved 220 projects with projected investment of R3,8 bil and 5,421 projected jobs.

• Grant commitments for the TSP total R490m, with a projected incentive

per job ratio of R90,389.

• Of the approved TSP projects, 85%are new establishment projects and 15% are expansion projects and

• 115 of all approved projects have started operation (end March 2010).

• 93% of approved projects are BEE level 4 contributors with the rest being expected to achieve level 3 contributor status by the end of the first year of being in operation.

• Approved 69% of adjudicated applications

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SUMMARY OF PROGRAMME PERFORMANCE(Inception – July 2010)

56%

44%≤R5m>R5m

• Ave. Projected Investment – R35m

• Ave. No. Projected Jobs - 46

• Ave. Projected Investment R3.4m

• Ave. No. Projected Jobs – 8

• Ave. Grant – R2.7m

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GEOGRAPHIC SPREAD

Provincial Spread

North West:

MIP: 4 %

TSP: 11 %

Northern Cape:

MIP: 2 %

TSP: 2 %

Western Cape:

MIP: 28 %

TSP: 16 %

Eastern Cape:

MIP: 13 %

TSP: 11 %

Kwa Zulu Natal:

MIP: 16 %

TSP: 9 %

Mpumalanga:

MIP: 3 %

TSP: 9 %

Limpopo:

MIP: 5 %

TSP: 12 %

Gauteng:

MIP: 27 %

TSP: 22 %

Free State:

MIP: 1 %

TSP: 9 %

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Thank you