Tourism Equity Fund faces court challenge; tourism minister is defiant
One of the grounds for the challenge is that the fund violates the government’s BBBEE policy
Tourism minister Mmamoloko Kubayi-ngubane faces legal action against the R1.2bn Tourism Equity Fund (TEF), launched in January to assist the development of black-owned businesses in the sector.
But the minister has defended the equity acquisition fund, saying that transformation in the tourism sector — which contributed about 8.6% of GDP before Covid-19 — had regressed over the last few years and worsened during the pandemic. She said she would defend any court action against the fund.
Trade union Solidarity and Afriforum embarked on legal action after what Solidarity spokesperson Morne Mulder said was an “unsatisfactory” meeting with the minister on Monday.
Among the grounds for the court challenge are that there were procedural shortcomings in its establishment and that in focusing solely on 51% black ownership as a criteria to qualify for the finance, the fund violates the government’s own BBBEE policy and sector codes.
These include five other criteria besides equity ownership namely employment equity, preferential procurement, skills development, enterprise development and socioeconomic development.
The two organisations are also critical of the fact that help is only being given to black entrepreneurs when all businesses have suffered during the pandemic. Hundreds of companies have closed.
The fund was established by the department of tourism in partnership with the Small Enterprise Finance Agency (Sefa) to provide a combination of debt finance and grant funding to facilitate equity acquisition as well as new project development, in the tourism sector by black entrepreneurs.
Sefa, which falls under the department of small business development, will manage the fund over the initial three-year pilot period.
The department of tourism will capitalise the fund with an amount of R540m with Sefa contributing R120m and commercial banks R594m.
Financial support will be provided to acquire controlling equity in entities in the tourism sector; funding of the assets of existing entities for the sole purpose of setting up a new entity; asset finance and working capital that would be required in relation to the acquisition of the tourism entity for expansion or operational purposes; and new developments and expansion projects.
The maximum of the grant portion would be R20m and the loan portion R15m.
The minister, who appeared before parliament’s tourism committee on Tuesday, stressed that the fund was not just a relief fund but an equity reserve meant to broaden participation by all South Africans and not just a few dominant players in the sector.
“The fund was set up as public-private partnership, in particular with commercial banks, in an effort to crowd-in investments in the tourism sector so as to increase diversification and the broadening of ownership of tourism attractions in SA,” she said in a statement.
Addressing MPS, Kubayingubane said it would not be sustainable if the tourism sector in two years time looked like it was pre-1994 with the previously disadvantaged excluded. “We have got to address the injustices of the past,” the minister stressed.
“We have to make sure that the majority play a meaningful role not just as workers but also as owners.”
Tourism director-general Victor Tharage noted in his presentation that growth in the tourism sector had largely benefited existing players and was far from being representative. The majority of tourism enterprises have not met the 30% ownership target as per the tourism BBBEE codes, Tharage said.
One of the biggest challenges facing transformation was access to finance, often because of the lack of collateral.
Sefa chair Andrew Martinrobert Mahosi said the TEF would make sure that funds were spread geographically.
He anticipated that the average size of the grant/loan would be about R40m, that 31 enterprises would be funded and 5,016 jobs created. Enterprises in peri-urban and rural areas would make up 40% of the funding, black women 40% and black youth 30%.
The grant capital injection would be up a maximum of R20m while the maximum of the Sefa loan would be R15m per enterprise.
The term of the funding will be determined by the business cash flows up to a maximum of 120 months per enterprise with a maximum moratorium of 12 months.
Nonfinancial support would also be provided in the form of mentorship and assistance with market access.
[It was an] effort to crowd-in investments in the tourism sector