It’s game on for
the tourism sector


Zizile Lephalala

Sector Head: Hospitality, Construction,
and Healthcare, Absa Corporate
and Investment Banking


With lockdown restrictions gone, the sector is no longer in survival mode but in strong recovery

With majority of the industry operators closing completely for extended periods during Covid-19 lockdowns and South Africa being placed on the red list by the United Kingdom (UK) in 2021, it’s safe to say companies operating in the South African hospitality and tourism industry have endured a challenging few years.

Since the Covid-19 restrictions were completely lifted off early in 2022, trading within the sector is returning to normality; the sector is no longer in survival mode but in strong recovery. Key players in the sector have been reporting positive financial performance in terms of losses turning into profits and the ability to service their long term debt obligations comfortably. Stats SA reports that South African gross domestic product (GDP) is returning to pre-Covid-19 levels and with all systems go, this could be the sector to watch in 2023/4.

South Africa is a beautiful country with world-class attractions, but we often forget just how strategically important the hospitality sector is to the economy. Pre-Covid-19 lockdowns, 10,3 million tourists visited South Africa annually while the sector contributed 7% to South Africa’s GDP and created 2.8m jobs.

For context, the agriculture sector contributes 2.4% to GDP and creates about 800 000 jobs while construction accounts for only 2.7% and creates about 1.1 million jobs. In 2021 hospitality and tourism sectors only contributed 3.7% to GDP and employed roughly 1 million people – a significant drop for such a key contributor. It is estimated that close to 500 000 jobs were shed in 2020 during the first year of the pandemic.

A look at the results out of the JSE-listed hospitality groups suggest a return to profitability and this has been led by Sun International, which not only have invested in a significant upgrade of its Sun City precinct but has declared its first dividend in 6 years. Industry peer, Tsogo Sun Gaming, reported a stronger than anticipated recovery to profitability for the 6 months to 30 September 2022, with earnings before interest, taxes, depreciation, and amortization trading at 99% of pre-Covid levels. Whilst the hotel operators on the JSE are currently trading at c.70% of pre-Covid levels with full recovery expected in 2023/4.

Of course, it’s still early days – and we’re cognisant that the global consumer is still under pressure due to high inflation and rising interest rates, which may impact the recovery in the sector. But the numbers we’re seeing are promising. If South African tourism gets back to pre-2019 levels, it will be a game changer for the economy and employment in the country.

Catering for digital nomads

The flexibility brought up by the pandemic also bodes well for the industry. As a result of Covid-19 and lockdowns, we’re seeing an increase in the number of employers embracing flexible or hybrid work models, which allow staff to work from game farms or casinos if they’d like to.

Technology group Cisco announced its Global Hybrid Work Study 2022 report  and it highlighted that 76% of those surveyed had seen financial benefits from not having to incur travel costs to work while 79% reported an improvement in work-life balance. Catering for digital nomads by offering dedicated workspaces at hotel properties is expected to attract those leveraging this flexibility to enjoy more leisure time and spend more money in the hospitality sector.

So, whether you plan to visit the beach, or go on a game drive, bring your laptop along in 2023 as you might find you don’t want to return home quite as quickly as you used to, thanks to the hybrid work environment which has also supported the domestic tourism.

There is also a recognition from government that we need to make the industry attractive for tourists to visit the country. The loosening of visa restrictions – particularly for those traveling with young children – and the addition of new processing centres in India and China should boost inbound arrivals from these regions in the medium term.

AfCFTA to boost inbound tourism

The next trend we are watching particularly closely as a Pan-African focused bank is growing economic prosperity and a potential boost from the African Continental Free Trade Area (AfCFTA). It is often forgotten that intra-African travel makes up the largest component of inbound tourism followed by the United States (US) and Europe.

While tourists from Lesotho, Mozambique and Zimbabwe are not the equivalent of the US or UK tourists visiting our wine farms and game resorts, they are a key contributor to inbound tourism. The World Bank estimates that the AfCFTA could be a major driver of Foreign Direct Investment, which could increase by between 111% and 159% by 2035. This would drive an increase in household incomes as well as broader economic activity.

On top of the more African tourists we’re expecting, the rest of the world to also expected to return to South Africa. Total international arrivals are expected to steadily increase this year and revert to pre-Covid numbers by 2024.

Absa is a major funder of transactions in the tourism and hospitality sectors, and we look forward to seeing operators in the sector continue to deliver experiences that make South Africa a destination of choice for local as well as international travellers.

Zizile Lephalala

Sector Head: Hospitality, Construction, and Healthcare, Absa Corporate and Investment Banking

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