TOURISM SUPPORT PROGRAMME PRESENTATION TO THE PORTFOLIO COMMITTEE ON TOURISM THE ENTERPRISE ORGANISATION 7TH SEPTEMBER 2010

CONTENTS Introduction Qualifying Assets Tourism Support Strategy Tourism Support Programme Overview Programme Description Eligibility Criteria Evaluation Criteria Qualifying Activities Non-Qualifying Activities Qualifying Assets Non-Qualifying Assets Expansions Key Conditionalities for Payment Application Process Summary of Programme Performance

INTRODUCTION THE ENTERPRISE INVESTMENT PROGRAMME (EIP) TOURISM SUPPORT TOURISM INVESTMENTS TOURISM SUPPORT PROGRAMME (TSP) MANUFACTURING INVESTMENTS MANUFACTURING INVESTMENT PROGRAMME (MIP)

Tourism Support Programme Strategy The Tourism Act’s mandate is ... Sustainable GDP Growth Sustainable job creation Redistribution and transformation Increase in tourist volume Increase in tourist spend Increase length of stay . . . through six key objectives . . . Improve geographic spread Improve seasonality patterns Promote transformation Understand the market Choose the attractive segments Market the Destination Facilitate the removal of obstacles Monitor and learn from tourist experience Facilitate the product platform . . . by acting in a focused way to . . .

Tourism Support Programme Overview AIM To stimulate job creation outside the traditional tourism destination clusters TARGETED OUTCOME Increased BB-BEE participation Increased Investment outside of the 3 metros of eThekwini, Cape Town and Joburg. Projects locating in marginalised areas within these are eligible to apply. PROGRAMME DURATION Effective from July 2008 & available for 6 years until 2014

Programme Description OFFERING Investment grant of up to 30% of qualifying investment costs in furniture, equipment, vehicles, land & buildings Grant applicable is capped at a maximum of R30m, calculated in relation to the qualifying investment costs: Investment projects ≤ R5m grant equal to 30% of their qualifying investment costs, payable 3 year period. Investment projects > R5m ≤ R30m grant of between 15% and 30% of their qualifying investment costs, calculated on a regressive scale, payable over a period of two (2) years. Investment projects ≥ R30m 15% grant payable over a period of two (2) years

Programme Description TARGET PROJECTS Establishment of new or expansion of existing tourism facilities Investment by projects capped at R200 million Local and foreign owned projects Applicant must be a registered entity in RSA (Companies, CCs, Co-ops, Community Trusts) Projects that have not taken their investment assets into commercial operation

TSP Eligibility Criteria Minimum job requirement Investment size Minimum number of new jobs Below R5m 8 jobs (3 for black owned enterprises) ≥R5m – 10m 10 jobs ≥R10 – R20m 12 jobs ≥R20m – 30m 15 jobs ≥R30m – R50m 20 jobs ≥R50m – R75m 30 jobs ≥R75m – R100m 50 jobs ≥R100m – R150m 70 jobs ≥R150m – R200m 85 jobs

TSP Eligibility Criteria Wages in line with hospitality sector wages as determined by DoL Achieve level (4) BB-BEE contributor status scoring >65 on BB-BEE scorecard Locate outside Metros of Cape Town, eThekwini & Johannesburg (marginalised areas in metros excluded) Apply & receive approval before taking assets into commercial operation

Evaluation Criteria Factor Project of R5m and Below Projects Above R5m   Barrier Access to finance Risk of and return on investments Evaluation Criteria 1) Demonstrate commitment to project (financing structure & funds sourced) 2) Viable project - business plan 3) Substantiate need for project - show how grant improves financial viability 4) Demonstrate need or funding gap in terms of cash flow, IRR/NPV, gearing, location 1) Fatal flaw analysis & business plan evaluation 2) Financial ratio analysis 3) Funding gap analysis Below R5m – the bulk of applications simplified processes ; above R5m more rigorous project appraisal process Above R5m included simple project additionality criteria & criteria to measure the likely net economic benefit: Funding gap in cash flow Reduce level of gearing to acceptable risk levels Influence location in favour of RSA Satisfy co. internal investment evaluation criterion IRR/NPV Grant – a firm with qual costs of R5m could get grant of R1.5 & a R100m project could get a grant of R15m

Qualifying Activities Accommodation services dedicated to tourists (e.g. hotels, lodges, resort accommodation, guest houses, Bed &Breakfasts, backpacker facilities, self catering accommodation); Passenger transport services including road, rail, water dedicated to tourists and must be registered in South Africa (e.g., tourist transfer services, tourist trains, water, etc.); tour operators Cultural services dedicated to tourists (e.g. privately owned museums,); Recreation services dedicated to tourists (e.g. spa and wellness centres sport and recreation facilities that form part of other dedicated tourism products, etc.);

Non- Qualifying Activities Fast food and take away restaurants, nightclubs, bars, gaming and gambling venues will not be considered Franchised restaurants Restaurants not attached to a tourism facility Tourism investment as part of projects that include residential development, where the shareholder is one and the same as the residential developer, will not be considered – Policy to be reviewed

Non- Qualifying Activities Conference facilities not attached to accommodation facilities No investment in government-owned or partial government owned (e.g. PPP) projects will be considered. No investment in arts and craft facilities will be considered as a separate development No retail operations will be considered.

QUALIFYING ASSETS Furniture, Fittings and Equipment Owned land and buildings at cost. The investment in land and buildings must constitute newly acquired land and buildings, whether as part of a new project or expansion, and must be owned by the applying entity. The land costs must be directly associated with the purchase, renovation, or construction of a new tourism facility for the investment project under consideration, and must be located on land that has been zoned for commercial activity or multi-zoned . The cost of the land may not exceed 20% of the investment cost in buildings/ land improvements for the purpose of the grant calculation

QUALIFYING ASSETS Lease for land and buildings Commercial Vehicles Only eligible if such vehicles are for tourist transfers from an accommodation facility, and/or have been specifically modified for particular tourism activities, e.g. tour operator vehicles and game drive vehicles. Investment in vehicles by projects other than tour operators is capped at 20% of the qualifying investment.

NON-QUALIFYING ASSETS INVESTMENT COSTS Assets acquired by way of an operational lease agreement Passenger vehicles (i.e. non-commercial vehicles) and Damaged assets or assets not utilised for the qualifying production process Revaluated assets VAT and finance charges on assets Rates and taxes Sports cars; Commercial vehicles (e.g. trucks, tractors, bakkies, etc.); Imported second-hand assets; and Refurbished existing operations

Expansions Expansion investment size Minimum number of jobs to be achieved by project Minimum net new additional number of jobs to be created Below R5m 8 jobs 4 ≥R5m – R10m 10 jobs 5 ≥R10m – R20m 12 jobs 6 ≥R20m – R30m 15 jobs 7 ≥R30m – R50m 20 jobs 10 ≥R50m – R75m 30 jobs 15 ≥R75m – R100m 50 jobs 25 ≥R100m – 150m 70 jobs 35 ≥R150m – 200m 85 jobs 45 The project must increase capacity (rooms or seats etc) of current operations by 35% in year 1. The entity must show an increase (over and above total qualifying historic costs) in qualifying investment of at least 35%; The expansion must demonstrate an increase in projected revenue of 15% in the 1st year of operation and 25% increase in the 2nd year of operation above the revenue as reflected in the base year financial statements; and The Entity must achieve both the minimum number of total jobs for the project and minimum net increase in new full-time employment opportunities from the base year as stipulated in the Table B below

KEY CONDITIONALITIES FOR GRANT PAYMENT Achieve 70% of projected investment Achieve 70% of projected turnover Maintain 100% of stipulated employment levels Pay wages in line with hospitality sector rates Achieve and maintain BB-BEE level 4 contributor status

Application procedure Project application: The dti approval process: Implementation and monitoring: Applicant complete application form and send to the dti The dti pre-screens application The dti evaluates application The dti feedback on approval The dti offers a grant contract to approved project The applicant establishes the investment project The dti monitors project performance against set targets The project claims the approved grant bi-annually / annually

SUMMARY OF PROGRAMME PERFORMANCE 2009/10 TSP approved 164 projects with projected investment of R2,3 bil and 4,770 projected jobs. Grant commitments for the TSP total R417m, with a projected incentive per job ratio of R87,453. Of the approved TSP projects, 140 are new establishment projects and 24 are expansion projects and 115 of all approved projects have started operation. 93% of approved projects are BEE level 4 contributors with the rest being expected to achieve level 3 contributor status by the end of the first year of being in operation. Approved 69% of adjudicated applications

GEOGRAPHIC SPREAD 2009/10 Provincial Spread Gauteng: MIP: 27 % North West: MIP: 4 % TSP: 11 % Northern Cape: MIP: 2 % TSP: 2 % Western Cape: MIP: 28 % TSP: 16 % Eastern Cape: MIP: 13 % Kwa Zulu Natal: MIP: 16 % TSP: 9 % Mpumalanga: MIP: 3 % Limpopo: MIP: 5 % TSP: 12 % Gauteng: MIP: 27 % TSP: 22 % Free State: MIP: 1 %

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