Tourism Equity Fund receives whopping R5.6bn legit applications, but court action delaying payouts

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Minister Mmamoloko Kubayi-Ngubane said many entrepreneurs point to a funding gap and demand for collateral. (Supplied)
Minister Mmamoloko Kubayi-Ngubane said many entrepreneurs point to a funding gap and demand for collateral. (Supplied)
  • The R1.2 billion Tourism Equity Fund was launched in January this year with the aim of addressing transformation in the industry.
  • Qualifying applications to the total value of about R5.6 billion have already been received.
  • The process is, however, delayed due to a court challenge, which the Department of Tourism intends to oppose.

An overwhelming number of qualifying applications have been received from businesses hoping to get funding from government's R1.2 billion Tourism Equity Fund (TEF) - a whopping R5.6 billion, to be exact. 

This according to Tourism Minister Mmamoloko Kubayi-Ngubane, who made the announcement at a briefing on Monday.

However, the payment allocation process is in limbo following a court interdict by the North Gauteng High Court in Pretoria on 27 April, following a challenge by trade union Solidarity and lobby group AfriForum.

The Small Enterprise Finance Agency (SEFA) investment professionals must review applications and conduct vetting, due diligence and financial viability assessment for presentation to the approval committee. The approval committee will be the SEFA EXCO and two co-opted members from the Department of Tourism. Once SEFA processed the due diligence and established viability, the proposal would be submitted to the participating bank for co-funding processing. 

The minister has in the past pointed out that while she realises R1.2 billion is not nearly enough, it will at least help somewhat to contribute to transformation in the industry.

The R1.2 billion TEF was announced in January this year. It involves R606 million to be contributed by SEFA and R594 million by an unnamed "strategic bank co-funders", and aims to enhance transformation in the tourism industry.

Kubayi-Ngubane said it forms part of commitments made during President Cyril Ramaphosa's State of the Nation Address in 2020 as well as the department of tourism's efforts to transform the sector.

"The number of applications show the need is there and our efforts to transform the tourism industry remain steadfast," she said.

However, AfriForum and Solidarity are challenging the validity of the fund criteria. They claim all tourism enterprises should be allowed to apply for the funding because the industry as a whole was impacted by the Covid-19 pandemic. The ongoing court challenge has put on hold the assessment and adjudication of fund applications and, therefore, is delaying when payments can be made.

AfriForum and Solidarity are contesting the legality and rationality of the 51% black-owned or managed qualification criteria for the fund. They suggest it deviates materially from the Broad-based Black Economic Empowerment (B-BBEE) Act, read with the Tourism Code. The code prescribes a formula for allocating points for B-BBEE compliance. The department's legal team has been instructed to oppose this challenge.

"The TEF intendeds to fund majority black-owned and black management-controlled tourism enterprises (minimum 51%) in accommodation; hospitality and related services; and travel and related services, products and initiatives. Through a combination of grant funding, concessionary loans and debt finance to support equity acquisitions and new and expansion developments in the tourism sector," explained Kubayi-Ngubane.

Court challenge 'frustrated our efforts'

"The court challenge frustrated our efforts to transform the industry. The delays will negatively affect black businesses which already negotiated deals and applied for the funding. These perpetual obstructions come at a high price for those marginalised by our country's sad history. As the court matter approached its resolution, we appeal for calm, but continue the fight as we believe it is a just fight. For us it is very important that people understand there is this major gap in the tourism industry. The capital-intensive nature prevents black enterprises from entering with viable tourism ideas."

The minister added that the TEF is not blind to the impact of Covid-19, but it simply has a specific aim of supporting transformative and inclusive reconstruction the tourism industry.

The minister said her department's latest surveys indicated that the majority of tourism enterprises have not met the 30% ownership target as per the Tourism B-BBEE Codes. There is also still a limited number of medium-sized businesses owned and controlled by black people in the tourism sector and even fewer large ones.

Most black entrepreneurs indicated that access to funding had been the main challenge for them to either acquire equity in existing businesses or start new businesses in the sector.

"The existence of mainly family-owned businesses that may not always seek to do business with the government drags transformation efforts as there is no incentive to transform in such instances," said the minister.

"Also, many entrepreneurs point to a funding gap and demand for collateral whether they are dealing with commercial banks or Development Finance Institutions (DFIs)."

At the close of the briefing, the minister urged tourism businesses to comply with Covid-19 protocols as it builds confidence in the industry, both domestically and internationally. She encouraged any noncompliance to be reported and said she herself would not hesitate to open cases if she becomes aware of establishments not complying.

Solidarity and AfriForum said in a statement on Monday that they are ready to challenge Kubayi-Ngubane and will continue with the court application to have the Tourism Equity Fund declared illegal.

"We look forward to facing the minister in court," the statement said.

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