South Africa's 41 World

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South Africa's 41 World Travel Tourl m CounLil Travel & Tourism Economic Driver the 21st Century for TRAVEL & TOURISM Gmaii ns5„ .Jobs EFTA00578074 WTTC MEMBERSHIP Daniel AtToiler* Chohnum Kuoni Travel Holding Limited Don Carty Chairman American Airlines Peter Armstrong Pfesearna & CEO Great Canadian Railtour Co Praphant Asam-aree Ptesning N.C.C. Management & Development Co.. lid. Ted Balestreri Chninnon & CEO Cannery Row Company Roger Halloo Global Vacation Group James E. Barlett Pershing & CEO Galileo International Juergen Bartels Chairman & CEO Westin Hotels & Resorts Paul Blackney Chairman XTRA On-Line Stephen F. Bollenbach President & CEO Hilton Hotels Corporation James Brown Chief Operating Officer Rosewood Hotels & Resorts Robert H. Burns* Chairman RHB Holdings I.imited Manfred Rosette Chohnum Messe Berlin GmbH Peter Cass Ptesning Preferred Hotels & Resorts Alun Cathcart Chahnum & CEO Avis Europe Gerlach Cerfontaine President Amsterdam Airport Schiphol U. Gary Charlwood Chairman & CEO Uniglobe Travel (International) Inc. Christophe Charpentier Chabman Havas Voyages Cheong Choong Kong Deputy Chairman & CEO Singapore Airlines Limited Robert Collier Mee Chairman Saturn Overseas Holdino, parent company of Inter-Continental Hotels and Resorts John H. Dasburg President & CEO Northwest Airlines Jim Davidson President & CEO System One Company Robert H. Dickinson. CTC President Carnival Cruise I.ines Michael J. Durham President & CEO The SABRE Group Sir John Egan• Chief Executive BAA plc Elhamy Ellayra Chairman & CEO Emma Ravel Sebastian Escarrer Chief Execuave Office, Sol Melia William R Fall Chaiinuen & CEO Canadian Pacific Hotels Bernard D. Frelat President & CEO Rail Europe Group. Inc. William H. Friesell Choi/num Diners Club International Haney Golub* Chairman & CEO American Express Company Maurice H. Greenberg Chairman. President & CEO American International Group R. Craig Hecuba Chaim/an & CEO Avis. Inc. Robin W. Ingle Chaiinuen Ingle International Inc. Xabier de Irak Chairman & CEO Iberia Noel Irwin-Hentschel Chainmen & CEO AmericanTours International Clive Jacobs Chainmen & CEO Holiday AMOR International David W. Jarvis Chief Ewe-odor Hilton International Andre Jordan* Chemnudn LUSOTUR S.A. Gerhard Kastelic Pirshlent & CEO Vienna International Airport Richard R. Kelley Chairman Outrigger Enterprises. Inc. Geoffrey J.W. Kent Chaiiman Abercrombie & Kent Sol Kenner, Chairman Sun International Herald Klein• Member of the Executive Board Lufthansa German Airlines Jonathan S. Linen Vice Chairman American Express Company William W.N. Liu Remittent & CEO Abacus Distribution Systems William E. Lobeck Thrsidem Republic Industries Inc Automotive Rental Group Nashirudeen Mallam-Hasham Chairman & Mat aging Mimeo, Air Mauritius J. W. Marriott. Jr.• Chapman & CEO Marriott International. Inc Sir Colin Marshall* Chan mat British Airways PLC Isao Matsuhashi Chaeirmen of the Board Japan Travel Bureau Inc. James McCrea Managing Director Air New Zealand W James McNerney Jr President & CEO GEAircraft Engines Sandy Miller Chairman of the Ronal & CEO Budget Rent-a-Car Steve Miller Chief Executive Officer Resort Condominiums International. Inc. Marilyn Carlson Nelson President. CEO and lice Chair Carlson Companies, Inc. Roland Nilsson President & CEO Scandic Hotels AB P.R.S. ()heal* Site President and Chairman The Oberoi Group Frank A. Olson' Chairman & CEO The Hertz Corporation James J. O'Neill President ONEX Food Services. Inc. Joaquim Paiva Chaves Managing Director Sonae Thrismo Alan Parker Managing Director Whitbread Hotel Company Gary L Paxton President & CEO Dollar Rent-A-Car Systems Inc Girard Nilsson* President of the Supervisory Roan( Accor S.A. Gilles Nilsson Chairman & CEO EuroDlsney S.A. Dionisio Pestana Chairman Group Pestana Alberto del Pino Chief Executive Officer Allegro Resorts Sir Ian Prosser, Chairman Bass PLC Reed Travel Gmup Mandarin Oriental Hotel Group Sir Ralph Robins Chairman Rolls-Royce plc Michael D. Rose Chnuman Promos Hotel CorporationMarrah's Entertainment. Inc. Carl Ruderman Chairman Universal Media. Inc. Pave Zupan Ruskovic President Atlas Travel Agency Ivan Michael Schaeffer President & CEO Woodside Travel Trust Robert Selander President & CEO MasterCard International John L. Sharpe President & COO Four Seasons Hotels and Resorts Fernando Souza Pinto President & CEO Yang Ron Stringfellow Executive Chairman Southern Sun Group Ian Swain Thesedon Swain Travel Services. Inc. Ratan Tata Chairman & Managing Director The Taj Group of Hotels Jose Antonio Taxon President & CEO Amadeus Global Travel Distribution Jonathan M. Tisch President & CEO laws Hotels Mustafa Turkmen CEO & Managing Director Enternasyonal Tourism Investments. Inc. Yapi Kredl Bank of Turkey Stanley Tollman Chairman The Travel Corporation Wolf-Riidiger Uhlig Mameging Dann SRS Hotels Steigenberger Reservation Service Leo NI van Wijk Pendent KIM Royal Dutch Airlines Joseph Vittoria Chairman & CEO Travel Services International Daniel P. Weadock President & CEO ITT Sheraton Corporation Jurgen Weber Chairman Lufthansa German Airlines John Wilson Chief Executive Millennium & Copthorne Hotels plc Vincent A. Wolfington• Chain/um Carey International. Inc. Ron Woodard Thesidon Boeing Commercial Airplane Group Hani Yamani Chairman Hani A Z Yamani Investments Ltd Shuichim Yamannuchi Chairman East Japan Railway Company Ulrich 'Berke Chief Execuebe The Thomas Cook Group Honorary Members Sir Frank Moore. AO Chairman Taylor Byrne Tourism Group James D. Robinson III Chairman & CEO RRE Investors. LLC Chairman Emeritus. WTTC Tommaso Zanzotto President T'L Associates President Geoffrey H. Lipman *Executive Committee Member EFTA00578075 World Tr • v it I —6 — Ton flans Council Eweutive Committee Chairman Ramey Golub Anonican Empress Company Viee•Chairmen Robot L. Crandall Anonican Airlines Sir Cohn Marshall British Ainrays pie Otani Pelisson Ace°, S.A. Committee Members Daniel Attunes KfleMi Trawl Holding Limited Sir John Egan litAA plc Andre Jordan !mmar S.A. Sol Kenner San International ilemat Klein Lufthansa German Airlines 1. W. Manion, Alarrunt International. Inc P.R.S. ObefOt The (Theroi Group Prank A. Olson The Herr. Corporation Sir Ian Prosser Bum plc Vincent A. Mutilation Carey Intonational. Inc. Immediate Past Chairman RObefl El. Burns ROB Holdings Lamoied Chairman Emeritus lames I). Robinson Ill RRE lawman. LW President Geoffrey II. Lipman Wail,i T.rrrl@ Tourism Council %%Tie Registered Office: 20 Grosvenor Place. London SW1X 71T. U.K. Tel: (444-171) 838 9400 Fax: (444-171) 838 9050 http://www.wac.org e-mail: Creatinglobsecompusent.com A Company- Lamed by Centime. Reputation No. 2506591 September 1998 President Nelson Mandela Executive Deputy President Thabo Mbeki Republic of South Africa In support of your South Africa Jobs Summit, the Members of the World Travel & Tourism Council, the global business leaders forum, urge you to reflect the significant job creation potential of Travel & Tourism in the Jobs Summit action plan. This report, based on new concepts of Satellite Accounting being developed through inter- national public/private sector collaboration shows the direct economic impact of the South African Travel & Tourism industry. It also calculates Travel & Tourism's very strong flow through effect across the economy, stimulating employment in upstream suppliers and downstream servicers of travellers and travel companies — construction, telecommunica- tions, retail and manufacturing. It suggests that by 2010 more than 174,000 new jobs can be created directly by the Travel & Tourism industry, and 516,000 jobs can be created, directly and indirectly, across the broader South African economy. These will be good jobs ranging across the employment spectrum from white to blue col- lar. They will pay higher than average wages and be particularly accessible to women, the unskilled and new entrants into the job market. They will incorporate high levels of train- ing. The majority will be in small and medium-sized enterprises — often in city centres or rural areas where structural unemployment is most severe. We also set out general policy directions based on our Millennium Vision — which we believe could help to realise that potential. These are closely aligned to the broad policy goals of your government, reflected in the "Tourism in Gear" approach. The Members of the World Travel & Tourism Council stand ready to work with you to create hundreds of thousands of jobs into the new Millennium. Respectfully. Harvey Golub Chairman Geoffrey H. Lipman President TRAVEL &TOURISM: Cre-ati Jobs EFTA00578076 SOUTH AFRICA TRAVEL & TOURISM CREATING JOBS* 1998 2010 T&T Industry Jobs 250,000 420,000 % of Total 2.4 3.1 Jobs Created 175,000 T&T Economy Jobs 735,000 1,250,000 % of Total 7.0 9.3 Jobs Created 516,000 *Baseline Scenario • "figures rounded" EFTA00578077 South Africa's Travel & Tourism - Economic Driver for the 21st Century This Report: Assesses the impact of 'fravel & Tourism - day and stay, business and leisure, domestic and international — in the South African economy. It covers: • T&T INDUSTRY showing the size of the sector — transport, accommodation, catering, recreation and related activities. • T&T ECONOMY showing the impact of Travel & Tourism as it ripples through the wider economy. It uses the modern statistical measurement technique of 'National Satellite Accounting' to identify direct economic effects of travellers and travel companies, as well as the indirect economic effects of suppliers and support services. WTTC/WEFA are at the forefront of international public/private sector research in this area. Develops a range of forecasts about the future of Travel & Tourism: • Baseline — the most likely. • Optimistic — with most favourable circumstances. • Pessimistic — with most unfavourable circumstances. These have been devised with help of a panel of local experts. Unless otherwise specified, the baseline forecast is used throughout. Makes a series of policy recommendations which are designed to help government tap the huge potential benefits that Travel & Tourism offers South Africa. It should be read with regard to wider trends towards globalisa- lion, privatisation, regionalisation and public/private sector driven market economies. In order to become fully competitive South Africa, together with the wider Southern African region, must continue to move towards liberalised markets. TIP OF AN ECONOMIC ICEBERG T&T Industry ACCOMMODATION • CATERING //0 ENTERTAINMENT • /• RECREAT ION /TRANSPORTATION AND OTHER :ressioimemmane•- TRAVE ELATED SERVICES T&T Economy Services • Oil/Gas Supply • Wholesalers • Printing/Publishing • Utilities • Financial Services • Sanitation Services • Furnishings and Equipment Suppliers • Security Services • Rental Car Manufacturing • Transportation • Administration • Tourism Promotion • Ship Building • Aircraft Manufacturing • Resort Development • Glass Products • Iron/Steel • Computers • Utilities • Concrete • Mining • Plastics • Chemicals • Textiles • Metal Products • Wood EFTA00578078 The Reality of South Africa's Travel & Tourism Travel & Tourism is emerging as a leading global economic driver for the 21st century. In South Africa, it is already an important contributor to employment and wealth creation, with a huge flow through effect which touches all sectors of the economy. In the past three years, Travel & Tourism has created 187,170 new jobs across the South African economy alone. It has enormous potential as a catalyst for future economic and social development throughout the entire Southern African region. Travel & Tourism is different from most other industries because travellers are by definition mobile and they generate economic activity at different times and places — often indistinguishably from that generated by local residents. These activities, however, have a huge flow through effect across other economic sectors. Satellite Accounting maps that impact. Today's T&T INDUSTRY represents: 248,141 jobs: 2.4% of total employment Rand (R)16.982m GDP: 2.6% of the total Today's T&T ECONOMY represents: 737,600 jobs: 7.0% of total employment R53.2bn GOP: 8.2% of total GDP R24.2bn exports: 13.2% of total exports R12.8bn capital investment: 11.4% of total investment (11770WEPA estimates) Strengths and Weaknesses South Africa has tremendous advantages in the global tourism market and some critical challenges. The future prosperity of the sector will be assured only if these advantages are consolidated and the weaknesses minimised. ■ The characteristics of South African tourism products are in line with global market trends for adventure tourism, ecotourism, cultural tourism etc. ■ Since 1994 there has been significant increased capacity for tourism in accommodation, transport. airlinks etc. There has been increased coordination of tourism initiatives in Southern Africa for expansion and increased diversity of products. a South Africa represents exceptional value for money for visitors from key origin markets. ■ South Africa has a positive international image for its democratic political transformation. But ■ Some parts of South Africa are increasingly seen as unsafe for tourists. ■ There are gaps in infrastructure and lack of capacity in some areas. ■ Product quality and service levels do not always meet international standards. Prospects The future for Travel & Tourism in South Africa could take very different forms, depending on several key factors including government monetary policy, the rise or fall in crime and the effectiveness of the industry's product development and marketing. SOUTH AFRICA Travel & Tourism Economy GDP Pessimistic, Baseline & Optimistic 1988-2010 (Billions of Rand) 350 300 250 200 150 100 50 0 1988 1993 Optimistic Base Pessimistic 1998 2003 2010 SOUTH AFRICA Travel & Tourism Economy Employment Pessimistic, Baseline & Optimistic 1988-2010 (Thousands of Jobs) 1600 1400 1200 1000 800 600 400 200 0 Optimistic Pessimistic 1988 1993 1998 2003 2010 EFTA00578079 South Africa Travel & Tourism Forecast: Baseline Case 1998 2010 Rand % of Tot Rand Growth °/0 of Tot % Real** Consumer Expenditures 23.2 5.8% 79.3 6.4% 3.5% Business Travel 8.8 29.1 3.4% Government Expenditures 0.8 0.5*/* 4.9 1.1% 9.2% Capital Investment 12.8 11.4% 47.8 13.5*/* 5.1% Exports 24.2 13.2% 109.2 17.5% 6.8% T&T Demand 69.8 270.2 5.2% GDP* 53.2 8.2*/* 210.9 10.3% 5.5% Imports* 16.6 9.2*/* 59.3 9.5% 4.6% Taxes* 15.0 8.4*/* 55.1 10.6% 4.8% Employment* (Thous) 737.6 7.0% 1,253.7 9.3% 4.5% •T&T Economy Totals "Annualized Growth All Rand figures are in Billions. In the most likely "baseline scenario," forecast : ■ South African consumers will spend more of their disposable income on Travel & Tourism which will grow to 6.4% of total personal consumption by 2010. ■ Government Travel & Tourism expenditure will also increase by almost 10% per year. ■ The share of private capital expenditure attributed to Travel & Tourism will rise at about 5% per year, and will be focused, not only, on major hotel and resort development, but also on game parks and guesthouses. ■ Foreign visitor spending will continue to grow at double digit rates for the next two years and at more than 6% per year for the first decade of the 21st century. To make this baseline a reality, and indeed to reach towards the optimistic scenario, a climate needs to be created to encourage a relatively safe and hospitable environment for travellers; targeted marketing and clear branding; incentives for investment — particularly for improvement of infrastruc- ture: maintenance of quality; and progressive expansion of cooperative ventures in the Southern African region. In these circumstances, Travel & Tourism could add more than half a million new jobs across South Africa's economy over the next 12 years. Most of these jobs. will be for young people, first time job seekers and women. They will be strongly concentrated in small businesses and local communities throughout the country. In many cases they fit model employment patterns: ■ They can be created at low cost, and faster than most industries ■ They are service and export related ■ They stimulate regeneration and cohesion by counter- balancing the flow from disadvantaged rural areas ■ They are often created in small, family run businesses ■ They provide significant opportunities for women ■ They are ideal for young, or first time employees ■ They can provide education, training and skill development ■ Wages are at or above the economic average South Africa Travel & Tourism Forecast 2010 — Pessimistic and Optimistic Cases ---- Pessimistic ---- Optimistic Rand % of Tot Rand % of Tot Consumer Expenditures 55.3 4.9% 119.1 9.6% Business Travel 20.6 42.9 Government Expenditures 2.9 0.6% 8.7 2.0% Capital Investment 32.3 9.1% 74.3 21.0% Exports 69.2 11.1% 181.7 29.1% T&T Demand 180.3 426.7 GDP* 139.6 6.8% 336.0 16.4% Employment* (Thous) 1,043.7 7.76/0 1,570.5 11.6% •T&T Economy Totals. All Rand figures are in Billions. EFTA00578080 Realising the Potential Travel & Tourism is already a strong and growing force in South Africa — generating wealth, jobs and investment across the economy and enhancing social development. Its impact will be substantially increased if: ■ The people of South Africa reap the benefits at the community level. ■ The underlying policy framework is conducive to dynamic growth. ■ The private sector develops competitive products and leading edge international standards of service ■ Government creates a climate which attracts invest- ment, streamlines regulation and builds infrastructure. ■ Consumer interest and confidence is maintained. Modern travellers are discerning and have an increasing choice of destinations. Reputations have to be carefully and creatively built on a base of quality, but they can be lost overnight. It is vitally important that safety and security is assured. Maintaining consumer confidence should be a top priority for government, if the potential benefits of tourism to the economy are to be realised. There is a growing consensus as to the pivotal role of Travel & Tourism in sustainable economic and social development in the Southern African region. There is, for example, a strong correlation between the concepts contained in WITC's Milleniwn Vision for Africa, the World Economic Forum's recent Namibia summit Tomorrow's T&T INDUSTRY can represent: 422,182 jobs: 3.1% of total employment Rand (R) 68.1bn of GDP: 3.3% of the total Tomorrow's T&T ECONOMY can represent 1,253,700 jobs: 9.3% of total employment R210.9bn of GDP: 10.3% of the total R109.2bn of exports: 17.5% of the total R47.8bn of capital investment: 13.5% of the total (IVTTCAVEM VS esfinnues) conclusions and the government's Tourism in Gear Strategy V lir TOURISM IN GEAR WTTC AFRICA MILLENNIUM VISION WEF NAMIBIA Develop Tourism as a National priority Highlight Travel & Tourism as a strategic economic/ employment priority,based on its full economic impact Recognize the full value of Tourism across the economy and measure it through Satellite Accounts Implement a new International marketing strategy, freshen branding and particularly develop eco and cultural tourism Advance Sustainable growth, regional public & private sector marketing, majoring on Afrikatourism to promote cultural and natural heritage Establish an internationally recognizable brand, leverage natural wildlife and culture of Southern Africa into national strategies Improve quality and quantity of skilled manpower in tourism,and upgrade hospitality front line service Invest in education and training to raise operational quality,standards and competitiveness Put education and training at the forefront of national and regional tourism development. Investigate Infrastructure needs and resources, leverage government programs towards tourism and obtain special funding allocations. Attract support from international financing institutions for Travel & Tourism infrastruture Engage international/regional financial institutions in tourism growth, advance publicfprivate sector initiatives, develop infrastructure for sustainable growth. EFTA00578081 Recommendations Against this background WTTC recommends that the South 1. Make Travel & Tourism a strategic economic and employment priority ■ Recognise Travel & Tourism's flow through effect across the economy and establish a National Satellite Account to measure it. ■ Reflect Travel & Tourism in mainstream policies for employment, trade, investment and education. 2. Move Towards Open and Competitive Markets ■ Progressively liberalise trade, transport and telecommunications through the World Trade Organization and regional trading regimes. ■ Pay particular attention to opening up air transport markets to attract more long haul services and improve regional networks by expanding liberal aviation accords, bilaterally and regionally. ■ Upgrade promotion to match prevailing competitive approaches: restructure SATOUR with adequate funds along public/private sector cooperative lines and coordinate provincial, national and regional marketing. ■ Consider building on the branding concept of "Afrikatourism" highlighting South Africa's unique natural. cultural and wildlife traditions. 3. Pursue Sustainable Development ■ Establish clear procedures and guidelines for planned and sustainable tourist expansion as proposed in Tourism in GEAR: pay particular attention to eco tourism and ensure that park facilities are expanded sustainably. ■ Adopt the principles of Agenda 21 for the Travel & Tourism Industry developed by the WTTC, the World Tourism Organization and the Earth Council. Make South Africa a GREEN GLOBE destination and encourage certification. African Government: ■ Ensure that sustainable Travel & Tourism strategies take into account the need for local community development, engagement and empowerment. ■ Expand microloans to provide incentives for local community based sustainable tourism enterprises. 4. Eliminate Barriers to Growth Build safety and security provisions into national, provincial and local tourism strategies and practice putting a special emphasis on Travel & Tourism in overall policing strategies. ■ Place education and training at the forefront of tourism development, expanding it in school curricula and highlighting its career prospects and role in national economic rejuvenation: introduce measures to increase skills — particularly front-line service. ■ Expand Infrastructure, particularly for airports, air traffic control and streamline border clearance. eliminating visas where possible. ■ Engage international financial institutions including the World Bank and the African Development Bank to support sustainable tourism infrastructure in lending priorities. ■ Develop fiscal regimes which encourage tourism growth, exports, investment, infrastructure, business innovation and job creation. We believe such policies, developed with close public/private sector collaboration would ensure the creation of between half a million and 800,000 new jobs across the South African economy by 2010. EFTA00578082 Satellite Accounting Concepts Other Demand Consumption Demand (Millions of Rand) 50,623 19,135 69,758 ElTravel & Tourism Consumption - traditionally known as visitor spending, this is the primary measure of Travel & Tourism expenditures which includes personal, business and government travel provided by or for visitors. It also captures purchases of travel-related consumer durables. 1:1 Travel & Tourism Demand - in order to capture the broader impact that Travel & Tourism has on the econ- omy, this concept expands Travel & Tourism Consumption to include related capital and infrastruc- ture investment, government spending and exports of manufactured goods used abroad by Travel & Tourism. T&T Industry - is the direct South African value-added and employment associated with Travel & Tourism Consumption (A). Direct producers include airlines, hotels, car rental, tour agents/operators and retail shops, etc. D. T&T Economy - is the direct and indirect South African value-added and employment (D1 and D2) associated with Travel & Tourism Demand (B). Direct producers include C plus aircraft manufacturers, resort developers, highway construction, etc. D1 D2 Indirect producers include fuel suppliers, food suppliers, paper suppliers and wholesalers, plus steel producers, electrical equipment makers, wood products, etc. Supply (Millions of Rand) Direct GDP Indirect GDP Imports Total Supply 16,982 21,589 12,052 50,623 6,419 8,160 4,556 19,135 23,401 29,749 16,608 69,758 Direct Jobs 4 4 4 Employment (Jobs) Indirect Jobs Imports Total lobs 248,141 287,150 N/A 535,290 93,791 108,535 N/A 202,327 341,932 395,685 N/A 737,617 When to Use Which Result/Estimate A. When illustrating Travel & Tourism's consumption demand B. C. D. When illustrating Travel & Tourism's total demand in the economy When making GDP and employment com- parisons between Travel & Tourism and other industries When making GDP and employment assessments of Travel & Tourism's total economic impact 8 EFTA00578083 This report follows the concept of Satellite Accounting, developed by public/private sector experts under the auspices of the World Tourism Organization. It deals with all Travel & Tourism — day and stay, business and leisure, international and domestic according to United Nations definitions. It identifies, from South Africa's National Accounts, items such as personal consumption, intermediate inputs, govern- ment expenditures, imports/exports, and value-added related to Travel & Tourism. The report shows three forecast scenarios — baseline, opti• mistic and pessimistic. Unless specified the baseline is used. T&T Industry Direct visitor activity (transportation, accommodation, catering, recreation and travel services) South Africa's Travel & Tourism Economic aim Performance and Potential It considers two different, but related measurements of Travel & Tourism illustrated in the charts below: ■ T&T Industry: The concept of the direct Travel & Tourism Industry. This shows the size of the industry and can be used to compare Travel & Tourism to other industries in the economy. ■ T&T Economy: The concept of the direct and indirect Travel & Tourism Economy. This shows the more comprehensive "flow through effect" that Travel & Tourism has across the economy as a whole. SOUTH AFRICA Travel & Tourism Employment (Thousands of Jobs) 900 800 700 600 500 400 300 200 100 0 1995 I Economy r_j Industry I 1996 1997 1998 1999 2000 SOUTH AFRICA Travel & Tourism GDP (1998 Constant Rand Billions) no so 60 40 ao 20 10 0 ■Economy .Industry T&T Economy Direct and indirect from visitor activity, capital investment, exports and government services. 1995 1996 1997 1998 1999 2000 9 EFTA00578084 Travel & Tourism Potential - The Industry and the Economy at a Glance Travel & Tourism — encompassing transport, accommoda- tion. catering, recreation and services for travellers — is one of the world's largest industries and creators of quality jobs. Worldwide, in 1998 it is expected to generate USS 4.4 trillion of economic activity, forecast to grow to USS 10.0 trillion by 2010. In South Africa, in 1998, Travel & Tourism is expected to generate Rand 69.8 billion - US$ 13.1 billion - of econo- mic activity, growing to Rand 270.2 billion — US$ 30.0 billion — by 2010. In 1998, the T&T Industry should contribute 4.2% to world- wide Gross Domestic Product (GDP), rising to 4.4% by 2010. The T&T Economy should contribute 11.6% to 1998 GDP and 12.5% to 2010 GDP. The South African T&T Industry is expected to contribute 2.6% to GDP in 1998, rising to 33% by 2010. The T&T Economy contribution should grow from 8.2% to 10.3% in the same period. Travel & Tourism is a high growth activity, which is forecast to increase its total economic activity by 4.1% per annum worldwide in real terms over the next twelve years. In South Africa, Travel & Tourism economic activity is expected to grow by 84.3%, in real terms, between 1998 and 2010. That represents 5.5% per annum. Travel & Tourism is human•resource intensive, creating quality jobs across the full employment spectrum. In 1998, in 10.7 jobs is generated by the T&T Economy. The T&T Industry accounts for 3.2% of global employment. Today there are 79.2 million T&T Industry jobs and 231 million in the T&T Economy rising to 116.8 million T&T Industry jobs and 328 million T&T Economy jobs by 2010. In South Africa in 1998, T&T Economy employment is estimated at 737,617 jobs or 7.0% of total employment, which is 1 in every 14.2 jobs. By 2010, this should grow to 1.254 million, 9.3% of total employment or 1 in every 10.8 jobs. The 248,141 T&T Industry jobs account for 2.4% of total employment in 1998 and are forecast to rise to 422,182 or 3.1% of the total by 2010. Travel & Tourism is a major exporter, with inbound visitors injecting dollars and foreign exchange directly into the economy. In South Africa, exports make up a very important share of Travel & Tourism's contribution to Gross Domestic Product. Of total exports, services and merchandise, Travel & Tourism is expected to generate 13.2% in 1998, growing to 17.5% by 2010. Travel & Tourism is a catalyst for construction and manu- facturing. In 1998. the private and public sectors combined are expected to spend US$ 779 billion in new Travel & Tourism capital investment worldwide — 11.8% of the total — rising to US$ 1.8 trillion by 2010 — 12.0% of the total. Current capital investment in South Africa's T&T Economy is estimated at Rand 12.8 billion — US$ 2.4 billion — or 11.4% of total investment. By 2010, this should reach Rand 47.8 billion — US$ 5.3 billion - or 13.5% of the total. Travel & Tourism is both a generator and receiver of govern- ment funds. Globally in 1998, Travel & Tourism is expected to generate US$ 802 billion of taxes — 10.6% of total — while channeling US$ 253 billion of government expenditures — 6.8% of total. By 2010, taxes should increase to US$ 1.8 trillion — 11.4% of the total - and government spending to US$ 542 billion -7.4% of the total. Taxes from Travel & Tourism in South Africa in 1998 are expected to total Rand 15.0 billion — US$ 2.8 billion — or 8.4% of total taxation. In contrast, government operating expenditures are forecast at Rand 0.8 billion, or 0.6% of the total. Over the next 12 years, South Africa's Travel & Tourism taxes are expected to grow to Rand 55.1 billion or 10.6% of total taxes. During this period, government spending is forecast to grow to Rand 4.9 billion, or 1.1% of overall expenditures. 10 EFTA00578085 Potential Driving Forces The following factors are expected to drive the future growth of South African Travel & Tourism. Dependant on their evolution three forecast scenarios have been developed: • Baseline: the most likely. • Optimistic: with most favourable circumstances • Pessimistic: with most unfavourable circumstances Unless otherwise specified baseline forecasts are used throughout. Quantitative assumptions — largely reflecting macroeconomics — are provided by WEFA's internally consistent trade-linked forecast for South Africa and 80 other economies of the world. Qualitative assumptions - socio economic, policy, marketing, etc. - are from local public/private sector sources. Maximising Conditions South Africa's tourism depth and diversity of products are in line with evolving global market trends for adventure tourism, ecotourism, cultural enrichment, etc. A Tracking market trends and focusing on priority target markets that are in line with South Africa's tourism attractions. ♦ Building on the concept of Afrikatourism, in particular focusing on the sustainable utilisation of natural and cultural resources. A Strategic and innovative marketing of Southern Africa as a destination. Significant increased tourism capacity in accommodation, transport, airlinks, attractions, etc., building on the momentum gained since 1994. A Targeted marketing to ensure that there is synergy between supply and demand. ♦ Investment promotion and incentives to sustain the momentum of responsible capacity growth. Increased co-operation and co-ordination of tourism initiatives in Southern Africa and resultant expansion of product depth and diversity (e.g. Transfrontier Parks and Spatial Development Initiatives, RETOSA, etc.). A A shared vision for Southern Africa and practical initiatives to address issues of common interest and mutual benefit (e.g. immigration procedures, product quality assurance, co-ordinated marketing etc.). Exceptional value for money relative to key competitors — mainly based on favourable exchange rates. A Responsible pricing strategies. Positive global perceptions of peaceful political transformation in South Africa. A Building on and maintaining the positive political momentum. Minimising Negative Conditions Perception and reality of personal safety of tourists declining. ♦ Improved safety and security situation, with particular focus on tourism areas. Tourism related infrastructure and capacity gaps. ♦ Focusing government infrastructure priorities on tourism related services (e.g. public transportation, road infrastructure, liberalisation of airspace, etc.). Decline in product quality and service levels. ♦ Effective quality assurance programmes and appropriate human resource development. 11 EFTA00578086 .IIMI Forecast Scenarios - Alternatives In forecasting the Travel & Tourism Satellite Account for South Africa. WEFA has employed its full range of economic databases and resources to develop a baseline scenario that it believes has the highest probability of occurring at this moment in time. However, as the recent and unexpected Rand devaluation illustrates. major changes are often not predictable. WEFA has developed two additional forecasts — optimistic and pessimistic scenarios — to illustrate the range of passible results for South Africa Travel & Tourism. Unless otherwise indicated, the figures in this report represent the baseline scenario . BASELINE: THE MOST LIKELY ♦ Increasing per capita income will bring Travel & Tourism's share of personal consumption up gradually over the forecast period (from 5.7% in 1997 to 6.4% in 2010) as non-luxury items such as food and apparel decline in share. As a result of the Rand's depreciation, a near-term shift occurs within personal consumption from international expenditures to more domestic travelling. This has no net effect on PCE but does increase Travel & Tourism GDP as the import portion of PCE declines. • Government expenditures in Travel & Tourism related categories will experience strong growth, approaching 10% annually, but will remain relatively low, as major structural shifts in spending are unlikely. These increases include expected growth in marketing expenditures for basic international campaigns. ♦ Private capital investment in tourism depicts strength in terms of Travel & Tourism's share, registering 11.8% in 1997. This is expected to continue and even increase as major investment items in the hotel, resort, casino and tourism retail market are initiated and completed over the next ten years, bringing Travel & Tourism's share of private investment up to 13.5% by 2010. This growth is supported by capital investment in the smaller sectors of guesthouses and game parks. ♦ Foreign visitor spending (service exports), while not maintaining the remarkable real double-digit growth of the past decade, is expected to continue its strong real growth over the forecast period, registering 12% and 11% in 1999 and 2000, respectively. Steady growth will continue into the next decade, averaging over 6% annu- ally. In the near-term, growth will be enhanced by the increased purchasing power provided by a weaker Rand. In the longer term, visitor expenditure growth will be accommodated by the strong investment taking place in the latter part of the 1990s. South Africa Travel & Tourism Forecast: Baseline Case 1998 2010 Growth Rand % of Tot Rand % of Tot % Real* * Consumer Expenditures 23.2 5.8% 79.3 6.4% 3.5% Business Travel 8.8 29.1 3.4% Government Expenditures 0.8 0.5°/o 4.9 1.1% 9.2% Capital Investment 12.8 11.4% 47.8 13.5% 5.1% Exports 24.2 13.2°/o 109.2 17.5% 6.8% T&T Demand 69.8 270.2 5.2% GDP* 53.2 8.2% 210.9 10.3% 5.5% Imports* 16.6 9.2% 59.3 9.5% 4.6% Taxes* 15.0 8.4% 55.1 10.6% 4.8% Employment* (Thous) 737.6 7.0% 1,253.7 9.3% 4.5% •T&T Economy Totals • •Annualized Growth All Rand figures are in Billions. 12 EFTA00578087 Rand % of Tot In developing the pessimistic case scenario, the forecase assumes that the positive conditions are not met and the negative conditions prevail. The optimistic case scenario assumes that positive conditions are met and the negative conditions are minimised. PESSIMISTIC: WITH MOST UNFAVOURABLE CIRCUMSTANCES ✓ Government Travel & Tourism expenditure growth remains modest, averaging growth of less than 5% per annum. ✓ Foreign visitor spending real growth slows in 1998 (8.4%) and in 1999 (5.3%), which ripples through the outlook for private capital invest- ment. dampening growth over the next ten years. ✓ Tight monetary policy in the form of high interest rates constrains tourism spending by South African residents. This contains Travel & Tourism personal consumption to less than 1% growth annually, as well as domestic invest- ment. Total capital investment is dampened from 5% growth in the baseline down to less than 2% annually. Forecast Scenarios - Alternatives OPTIMISTIC: WITH MOST FAVOURABLE CIRCUMSTANCES ♦ Crime directed towards tourists falls dramatically. ♦ Government investment and consumption of Travel & Tourism shares are increased in the short term which provides impetus for increased Travel & Tourism expen- ditures in other sectors. Although the base of government Travel & Tourism consumption is small, real growth of close to 15% annually and an assumed multiplier of approximately 2 helps to boost Travel & Tourism personal consumption up to 7.2% growth in 1998 and 5.9% in 1999. ♦ In addition to the impact of a weaker Rand on domestic tourism, SA residents' long-term demand increases as a product of focused marketing and improved infrastructure. This trend, in conjunction with rising per capita income. brings the T&T share of personal consumption up from 5.7% in 1997 to 9.6% in 2010. ♦ Currency depreciation has strong positive impact on foreign visitor arrivals, and service exports continue strong growth over forecast period. Return on interna- tional marketing expenditures exceeds expectations. This increases real growth of Travel & Tourism exports to an average of approximately 10% over the forecast period compared to 6.5% in the baseline forecast. ♦ As foreign visitor and domestic tourism spending increases, capital investment rises to meet increased demand. Above average returns on investment spur on further investment growth in later years, bringing the average real growth to 8% per annum compared with just below 5% in the baseline forecast. South Africa Travel & Tourism Forecast 2010 - Pessimistic and Optimistic Cases ---- Pessimistic ---- -- Optimistic ---- Rand % of Tot Consumer Expenditures 55.3 4.5% 119.1 9.6% Business Travel 20.6 42.9 Government Expenditures 2.9 0.6°4 8.7 2.0°k Capital Investment 32.3 9.1°4 74.3 21.0°k Exports 69.2 11.1°4 181.7 29.1°k T&T Demand 180.3 426.7 GDP• 139.6 6.8°4 336.0 16.4°4 Employment* (Thous) 1,043.7 7.7°4 1,570.5 11.6°k •T&T Economy Totals. All Rand figures are in Billions. 13 EFTA00578088 i Total Demand Travel & Tourism in South Africa is expected to produce Rand 69.8 billion of total demand in 1998, including: ■ Rand 23.2 billion of Travel & Tourism personal con- sumption by residents — 5.8% of total consumer spend- ing; • Rand 8.9 billion of business and government travel by companies and government employees; • Rand 0.8 billion of government expenditures, to provide individual and collective services to the South African Travel & Tourism industry and its visitors — 0.6% of total government spending; ■ Rand 12.8 billion of capital investment in personal, commercial and public Travel & Tourism facilities, equipment and infrastructure by residents, Travel & Tourism companies, local and national governments — 11.5% of total capital investment; and • Rand 24.2 billion of visitor and merchandise exports generated from international markets — 13.2% of total exports. The pie chart below shows the importance that visitor exports — 26.5% of total Travel & Tourism demand — has on SOUTH AFRICA Travel & Tourism Total Demand (1998 Constant Rand Billions) 80 75 70 65 60 55 50 1995 199e 1997 II2000 WORLD Travel & Tourism Total Demand (1998 Constant USS Billions) IMO 0.500 0.250 4,000 3.750 9,500 ¶996 1997 1996 1999 1995 2000 the T&T Economy, particularly in relation to the limited government support for the sector. The bar charts below for the period 1996.2000 show that South African Travel & Tourism is consistently posting strong real growth year-upon-year at 5.5% per annum — 50% above the world average. The longer term perspective shown in the surface chart reveals the leap in total Travel & Tourism demand from 1995 with the liberalising socio political environment. South Africa Travel & Tourism base case growth is expected to total 114.9% from 1998 to 2010 compared to the world composite of 79.1% real growth. This baseline forecast esti- mates total Travel & Tourism demand at Rand 270.2 billion by 2010. Under the pessimistic scenario this figure would total Rand 180.3 billion. The optimistic scenario would total Rand 426.7 billion. SOUTH AFRICA Travel & Tourism Total Demand - 2010 (Rand Billions) Pessimistic Case Base Case Optimistic Case 180.3 270.2 426.7 SOUTH AFRICA Travel & Tourism Total Demand (1998 Est. Rand Billions) One En:4416G* Wind roffmion 0 2 el l Penatol Goof aut.". (232) 6185r YGON tozOs MG Go/10mM Kolco150036) Gov, Oped.Once..) WORLD Travel & Tourism Total Demand (1998 Est. USS Billions) Govl °Goal tedlenve)(176.1) Capeal karolvn I7n 7I 011icv &ports Oa _rose ri PorsonilOzaWMPISona-02 1”) Goa 8460ocl (MM) 1X6) BUNIOSS TtlY01098.1) Ifilter °PCS 02") SOUTH AFRICA Travel & Tourism Total Demand (Cumulative Real Growth, Percent) 120 90 60 30 0 1988 1993 1998 2008 1010 WORLD Travel & Tourism Total Demand (Cumulative Real Growth, Percent) 80 60 40 20 0 1988 1993 1998 2009 20)0 14 EFTA00578089 The T&T Industry in South Africa will directly generate an estimated 248,141 jobs in 1998. and a total 737,617 jobs, directly and indirectly, across the broader spectrum of South Africa's economic activities. These will include: • Travel company employment, providing private sector services to visitors and business travellers; ■ Government agency employment, providing public sector Travel & Tourism services to visitors, business travellers, travel companies and the community -at- large; and • Supplier company employment, providing goods and services (manufacturing, construction, wholesale, financial services, agricultural, etc) to travel companies and government agencies which serve visitors. The direct T&T Industry jobs are forecast to grow to 422,182 by 2010 increasing the industry sham of total employment from 2.4% to 3.1% of total employment. The 737,617 jobs in the T&T Economy will account for 7.0% of the total workforce, or I in every 14.2 jobs in South Africa in 1998. This is forecast to grow to 1,253,700 jobs — 9.3% of total employment by 2010 — injecting more than half a million new jobs into South Africa's economy. SOUTH AFRICA Travel & Tourism Employment (Thousands of Jobs) 900 8,93 700 400 500 400 80 200 103 640444”/ hd.,1"/ I WORLD Travel & Tourism Employment (Millions of Jobs) 250 .SW84' 7 • hthWir 200 150 100 so 0 1 I I Employment This long-term growth, averaging 4.5‘,‘ per year. although strong by world standards, is actually slower than recent history where T&T Economy employment grew by 18.9% in 1995 alone. Indeed there was a gain of more than one full percentage point for Travel & Tourism jobs within the South African economy between 1995 and 1997. During this two- year period, more than 120,000 jobs were created, increasing the percent of total jobs from 5.4% to 6.5%. The employment results for South Africa are measurably effected by the large government and domestic employment sector results. Excluding these two sectors from the equation raises the T&T Economy employment result in 1998 from 7.0% to 8.9% of total jobs. The difference between the pessimistic and optimistic case scenario for employment in 2010 is more than half a million jobs. T&T Economy Employment - 2010 (Thousands of lobs and Percent of Total) SOUTH AFRICA Pessimistic Case 1,043.7 7.7% Base Case 1,253.7 9.3% SOUTH AFRICA Travel & Tourism Employment (Percent of Total) E:crory 1995 '996 1997 1993 1999 2000 WORLD Travel & Tourism Employment (Percent of Total) 10% 8% 61 4% 21 0% E:tecry 1995 1996 1997 1993 1999 2000 Optimistic Cato 1,570.5 11.6% SOUTH AFRICA T&T Economy Employment (Cumulative Real Growth, Percent) 80 80 40 20 0 1988 1993 1998 2003 2010 WORLD T&T Economy Employment (Cumulative Real Growth, Percent) 80 60 00 20 0 1988 1993 1998 2003 2010 15 EFTA00578090 Gross Domestic Product The T&T Industry in South Africa is expected to produce Rand 17.0 billion of direct Gross Domestic Product (GDP) in 1998 - 2.6% of total GDP. This is expected to almost double in real terms to Rand 68.1 billion by 2010 — 3.2% of overall GDP. The T&T Economy is expected to produce 1998 GDP of Rand 53.2 billion — 8.2% of overall GDP. By 2010, this is forecast to gain more than 2.0% percentage points to total 10.3%, or Rand 210.9 billion. This figure illustrates the massive flow through effect of Travel & Tourism. The recent results and near-term forecasts — 1995-2000 are particularly significant. From 1992 to 1994, South Africa Travel & Tourism GDP posted real negative growth, while in 1995 it recovered with 26.5% real positive growth. Looking forward to 2010, annualised gains of 5.3% are forecast for T&T Economy GDP. Few other countries can match this growth. This growth outlook is exceptionally positive for all ele- ments of the Satellite Account, but it is clear that South Africa Travel & Tourism exports, growing at 6.3% per year, is particularly significant. Comparing internationally, South African T&T Economy GDP is well below the global norms of 11.7% of overall GDP where the Asia / Pacific crisis is having a major effect. World Travel & Tourism related GDP is expected to show little growth between 1995 and 2000, with pick-up only in the new millennium. This situation offers real opportunity for South Africa. The pessimistic case scenario for South Africa holds T&T Economy GDP to 6.8% of total GDP in 2010. The baseline forecast shows an increase to 10.3%. The optimistic sce- nario totals 16.4% of GDP. SOUTH AFRICA T&T Economy GDP - 2010 (Rand Billions and Percent of Total) Pessimistic Case Base Case Optimistic Case 139.6 210.9 336.0 6.8% 10.3% 16.6% SOUTH AFRICA Travel & Tourism GDP (1998 Constant Rand Billions) SOUTH AFRICA Travel & Tourism GDP (Percent of Total) 10, 70 60 50 40 30 20 Hifi! 10 0 0- lags 1996 11497 ECtrytr, 1996 1999 frou,1 2000 SOUTH AFRICA Travel & Tourism GDP (Cumulative Real Growth, Percent) 525 100 7s so 2$ 0 25 Ail 1988 1993 1998 2003 2010 WORLD Travel & Tourism GDP (1998 Constant USS Billions) WORLD Travel & Tourism GDP (Percent of Total) WORLD navel & Tourism GDP (Cumulative Real Growth, Percent) 4.000 •Economy • Mosby 124 80 3.600 10•- 60 3,000 2.500 40 2.000 1,500 20 1.000 500 ■ Economy ■Industry 0 0 1995 1996 1997 1996 1999 2000 1988 1993 1998 2003 2010 16 EFTA00578091 Examination of Travel & Tourism capital investment results and forecasts lends greater insight into the market forces at work in the economy and the expectations by the public and private sector to meet the challenges and opportunities in the years ahead. In 1998, Travel & Tourism capital investment in South Africa is expected to total Rand 12.8 billion, or 11.5% of total national investment. For South Africa, this expectation includes Rand 12.6 billion of investment from the private sector and Rand 0.2 billion of investment from the public sector. Worldwide, Travel & Tourism capital investment is expected to total S779 billion, or 11.8% of the total in 1998. Over the next twelve years (1998-2010), the average contri- bution of Travel & Tourism to the national capital invest- ment accounts is expected to grow from 11.5% to 13.5%. For the most part, Travel & Tourism capital investment has strong links to the business cycle, major events such a