Get Real about Tourism and the Real Economy

If South Africa is serious about achieving real economic growth and supporting job-creating businesses, we need to develop a focus on the real economy – and the tourism sector is a perfect place to focus our energy.

As somebody who has had the privilege of being a CEO for a listed business and working with many high-growth businesses in South Africa through The CFO Centre, I have become very cognizant of the difference between the financial economy and the “real” economy where the majority of South African entrepreneurs operate.

In the US, they have a saying: “Wall Street is not Main Street” – effectively this means that the financial trading of companies on the Nasdaq and the New York Stock Exchange (NYSE) is not necessarily reflective of the consumer economy where real businesses are built.

A similar argument could be made in South Africa: “Maude Street is not Long Street” – we have so many great entrepreneurial success stories as a result of entrepreneurs who grind away through incredibly challenging operating conditions.

Consider for a moment that since 1900, the JSE has been one of the world’s best performing stock exchanges in US dollar terms. If you wanted to build wealth, you put money into the JSE. Yet at the same time, South Africa is recognised as the world’s most unequal economy, has record youth unemployment, collapsing infrastructure and our economic policies are incredibly outdated.

For us to create jobs, we need to identify real economy businesses where we have a competitive advantage, help them to secure access to capital and then get out of the way so that entrepreneurs can do what they do best.

The tourism sector gets it right

Having previously worked in senior roles for 2 of the big listed tourism operators, I believe this is one of the sectors most closely attuned to the real economy and one that we should be investing in.

Depending on which stats you look at, it is estimated that for every night that a tourist spends in a high-end lodge, 14 people in the surrounding community benefits. This a powerful multiplier effect and talks to the capacitation of the real economy and its ability to create jobs.

There is a reason to be optimistic about South Africa. We are seeing some very encouraging data across the tourism spectrum. From cruise operators through to conferencing venues – it’s a sector in which South Africa can excel and rapidly create new jobs.

On top of this, it has an important characteristic: It’s largely immune to corruption.

If you are a guest house operator or you run a tourism destination, you are judged by the service you deliver. If you deliver a good service, you are benchmarked against a similar international experience and you are compensated accordingly.

The tourism sector in the Western Cape is booming for exactly the reason – the local government is creating an enabling environment and then getting out of the way to let entrepreneurs create value.

The daily discussion for these entrepreneurs is not about the “financialisation” of their business – in other words the share price – but rather how they create value to keep clients coming back for more.

The real economy is incredible

South Africa is one of the most unusual economies in the world. On one hand, you have one of the most advanced stock markets in the world. On the other, you have SMEs who struggle to access capital and this holds back our ability to capacitate entrepreneurs and create jobs.

We need jobs and we need them fast. If the tourism sector simply recovers to pre-COVID19 levels, we can add over 1 million jobs to the economy and stimulate significant local economic development. If we assume that each of these jobs in the real economy is supporting 10 to 14 people, we can change the shape of the South African economy dramatically.

The CFO Centre gives entrepreneurs access to the financial skills they need to unlock value in their businesses and access funding. We have some incredible entrepreneurs doing amazing things in the real economy. All they need is access to the right tools and an environment in which they can thrive … and with the right guidance and support, the tourism sector is one of the sectors we see wherein entrepreneurs can excel in right away.

Adrian Funkey is a Portfolio CFO at The CFO Centre.

Adrian Funkey

https://www.news.uct.ac.za/article/-2016-11-29-southern-african-tourism-the-multiplier-effect