The founder of Seeza Tourism Growth Network and Acting Chair of the TBCSA Tourism Growth & Transformation Committee, Septi Bukula, writes in response to development economist, Paul Zille’s op-ed piece on the Tourism Equity Fund published by Tourism Update on June 23.
Here is his perspective:
Paul Zille makes some really important points in his op-ed piece. I totally welcome and wholeheartedly support his call for the current, unfortunate, legal impasse around the fund to be resolved speedily.
This impasse should not have come into being in the first place. It has been gifted to us by the litigious duo of AfriForum and Solidarity, whose motivation is anything but to advance transformation and inclusion. But seeing that the impasse is now with us, what shall we make of it? Paul’s article opens up a much-needed and welcome space to reflect on the issues he and the litigation raise.
I am greatly encouraged by two of Paul’s assertions about: (a) a “widely shared” vision of “a transition to a tourism economy characterised by much broader and deeper ownership and economic inclusion” and (b) “a shared commitment by all the parties to the goal of broad-based participation by those South Africans unjustly excluded from ownership opportunities in the past – and lack the means to do so today.”
These assertions are really important and worth highlighting because this supposedly widely shared inclusion vision and commitment is not always self-evident, especially in light of the sort of legal challenges we are currently experiencing. And without honestly acknowledging, as the article thankfully does, the historical underpinnings of an instrument like the TEF, we are likely to engage in pointless and emotional, rather than rational, discourse.
I have often wondered what the tourism industry’s collective silence in the face of this determined opposition to crucial government moves to support meaningful black participation in the industry communicates.
We need to break the silence
This is not the first legal challenge by this litigious pair to the government’s tourism funding initiatives – the COVID-19 relief scheme was similarly opposed. When the industry sits on the sidelines and does not utter even a word about this sort of opposition, what message is it communicating? Paul’s article is a welcome step in breaking this worrisome pattern of silence.
I agree that the current legal impasse needs to be resolved urgently. I submit that the industry, driven by a common vision, is fully equal to this task and does not need unhelpful interventions from parties whose agenda does not serve the industry’s interests but, as the article points out, “will serve only to rub salt in the wounds of businesses that have been hammered by the pandemic and whose plans and ideas to ‘build back better’ are now on indefinite hold”.
This didn’t need to be. The question we therefore should ask, is: precisely whose interests are being served by those who are blocking this Fund? Clearly, if the article is correct on this point, they are blatantly acting against the industry’s interests.
I also agree that the vagueness of the TEF’s funding criteria is not helpful. But this needn’t be fatal, nor should it raise suspicions of any hidden intent to advance further enrichment of a small number of wealthy black-owned companies without broad-based ownership and control, as Paul fears.
Black Industrialists Scheme a good benchmark
All we need to do is point this out as a design flaw that needs to be urgently rectified. Thankfully, we don’t have to go very far to find a solution to this weakness. We only have to look at a similar scheme, namely the Department of Trade, Industry and Competition’s (the dtic) Black Industrialists’ Scheme (BIS) whose criteria are much clearer. Some of them are worth mentioning here, namely that the applicant is required to:
- have high levels of black ownership, defined as more than 50% ownership.
- exercise control over the business.
- take personal risk in the business.
- make a long-term commitment to the business and be a medium- to long-term investor.
For projects that are deemed to be strategic by the dtic, and presumably where the majority ownership (over 50%) requirement is not met, dominant black ownership and management control may be considered as a qualifying criterion for BIS.
In this case the applicant may be required to include shareholders with relevant skills and finance and broaden the opportunity. Perhaps, most crucial, is the BIS’s mandatory condition that the applicant should “be directly involved in the day-to-day running of the operation and must have requisite expertise in the sector”.
This requirement, if incorporated into the TEF, would automatically weed out passive investors who bring no real value-add to the businesses they seek to invest in. I argue, therefore, that we can overcome any concerns around the issue of criteria by simply pointing out those design flaws we perceive and advising the TEF to borrow from other government funding schemes to improve its design and criteria to avoid any moral hazard in its operations. The aim should be to enhance the Fund’s efficacy, not to diminish it.
The concern that a white-owned business wanting to finance share allocation to black employees but is not ready to cede majority ownership and control will be excluded by the Fund can be overcome by simply encouraging and assisting those target black employees to establish a majority black-owned vehicle and use it to acquire the interest being offered by their employer.
Because this majority black-owned investment vehicle does not need to acquire a controlling stake in the investee company in order to qualify for TEF funding, the empowering owner need not be worried about having to cede control as a result of the transaction. So, this well-intentioned owner who, in good faith, seeks to undertake a legitimate employee empowerment transaction need not feel unable to proceed because the company is unable to apply in its own name. The same outcome can be achieved via a different but equally legitimate route.
Potential ‘fronting’ problem
Paul’s article does not address the critical question of how the potential problem of fronting would be dealt with in such employee empowerment transactions. We all know only too well that this problem is very real in South Africa, and we should therefore address upfront the risks it would pose to the success of the TEF.
Accordingly, we should propose that, in revisiting its funding criteria, the Fund should also address the question of how it would deal with fronting were it to occur. Failure to address this potential problem upfront would expose the Fund to yet another unintended but predictable problem.
I do not know what to make of Paul’s call for TEF grant applicants to “prove that they are unable to raise funding from any other sources” and for the Fund to undertake ‘means-testing’.
I find this rather puzzling. Of all the funding programmes and mechanisms with a grant component out there, whether in the private or public sector, which one does Paul know of that has this requirement? And exactly how should this inability to raise funding from other sources be proved and means-testing undertaken? My principal concern, apart from this being an overkill, is that such a requirement would be highly likely to introduce unnecessary red tape to the TEF, something that should be avoided at all costs. Having spent many years of my career advising policymakers on measures to eliminate all forms of red tape, I would certainly discourage the Fund from venturing in this direction.
