The Medium Term Budget Policy (MTBP) statement in Parliament by the Minister of Finance, Nhlanhla Nene is a sober reminder of the challenging economic climate in which travel and tourism businesses are operating, says the Tourism Business Council of South Africa (TBCSA).
The Council expressed caution on the impact this is likely to have on consumer travel patterns in the short to medium-term – particularly domestic business and leisure travel.
ECONOMIC OUTLOOK
The 2014 MTBP statement strongly emphasised the urgent need for Government to curb expenditure and increase revenue in a bid to manage the country’s escalating budget deficit.
This is amidst sluggish economic growth which has resulted in the Minister revising growth projections from 2.7% (as envisioned in February 2014) to 1.4%. The revisions are in line with revised growth forecasts by the International Monetary Fund (1.4%) and the SA Reserve Bank (1.5%).
“Looking at the global economic picture, where there is a slowdown in Europe, Asia (specifically China) and other emerging economies, we certainly understand the tight rope the Finance Minister has to walk in delivering this ‘mini budget’ since we regard a number of countries in these regions as key source markets for South Africa”, says TBCSA CEO, Mmatšatši Ramawela. She said the economic environment posed a serious challenge for the local travel and tourism trade, as it had a direct impact on consumers and their ability to travel.
The Minister’s address comes hot on heels of the 3rd quarter results of the TBCSA FNB Tourism Business Index (TBI), released last week, which showed improved business performance overall compared to Q2.
Respondents to the index listed amongst others, insufficient domestic leisure and business demand in the top five of the factors negatively affecting business in the industry.
Other key factors cited in the index include:
• Cost of inputs
• Cost of labour
• Insufficient overseas leisure demand
• Political uncertainty
• Aftermath of strikes
• Economic ‘doldrums’
• Reduced spending by government
• Security
Although the TBI forecasts remain positive for the last quarter of the year, current speculation about possible tax reforms, which may include increases in personal and company tax, is a concern. “Understanding how the tourism chain works, forward bookings for the festive season will certainly have a positive impact on business for the December/January period. However we are concerned about speculation on the possibility on tax increases.
Our view is that Government needs to give the public the confidence that inefficiencies and issues of wasteful expenditure are adequately dealt with first before the issue of increased taxes can be considered”. Ramawela said.
PRIORITIES MUST INCLUDE TOURISM
Looking at other aspects of the MTBP, the TBCSA has urged Government to give consideration to the structural interventions required in travel and tourism (similar to other sectors) to ensure that it remained globally competitive and attractive to both local and international investors.
Sensitivity to the impact of various Government policies on the industry; alignment of the National Tourism Sector Strategy with the National Development Plan, capacity building in terms of tourism development at local and provincial level, enhancing tourist security are some of the interventions required to unlock the industry’s potential and stimulate trade.
Nonetheless, the Council welcomed Treasury’s plans to improve governance within state owned enterprises. “State assets such as SAA and SA Express in the case of our industry are of great strategic value for the country, therefore we welcome interventions in so far as improving governance and managing financial risk”. She added that globally, airlines were operating in a very tough environment, yielding thin margins and stressed the importance of supporting the two airlines to maintain financial stability and profitability.
TBCSA urged the industry to take heed of the MTBP, but encouraged businesses to remain resilient and adopt a creative approach to ensure that consumers continue to find value in travel services.
