Turbocharging employment creation is within easy reach, and tourism is a great examplePOSTED ON: September 15, 2019 IN In the News
Unemployment rates have hit historical highs. With 40% of youth unemployed (and rising), can we afford to have a bias against labour absorbing industries? Before despondency sets in, rather focus on pursuing employment creation opportunities that are within easy reach. Tourism is a perfect example.
Employment creation is clearly possible in SA. Unemployment can be solved. The evidence? Between 2001 and 2008, there was economic growth, 2.4 million jobs were created, unemployment rates fell from 30% to 23% and about 20% of the population were pulled out of poverty.
Then there was a dramatic reversal taking unemployment rates close to what they were when the new democratic government came to power in 1994, some 25 years ago.
Between 2008-17, the economy created almost 1.5 million jobs. This may sound like a lot. But there are at least four trends indicating SA is off-course:
- The NDP employment targets would have required the creation of about 450,000 jobs annually, as compared to 141,000
- Small growing firms were meant to be an important source of new jobs. Instead, employment in small firms stagnated, and the proportion of employees fell from 64% to 51%
- The NDP envisaged manufacturing employment growth, even if it became a smaller proportion of the total. Instead, 308,000 manufacturing jobs were lost.
- About 300,000 fewer youth were working. Although there was job creation, they almost all went to those over the age of 35. By April 2019, 40% of 15 – 34 year olds were not in employment, education or training.
High unemployment intractable is only so if we let it be so.
There are two perverse temptations that must be resisted. The first is blaming it all on global dynamics. SA is deeply affected by global movements. The end of the commodity boom and other growth dampeners do not help. But SA underperforms relative to peer countries since 2008.
The second is attributing all problems to the past decade of state capture and associated deteriorating institutional capacity. Some can be explained by this, but not all.
Despondency should only set in once opportunities that are within our control have been exhausted. South African tourism offers an excellent example.
Tourism speaks to almost all the objectives of the NDP. About 60% of jobs go to youth and up to 70% to women. It is geographically dispersed, stimulates small firms, increases global commercial presence, injects foreign demand and earns foreign exchange, creates awareness for investors and fosters cultural understanding. SA has already has competitive advantage as recognised by the World Travel and Tourism Council (WTTC).
The actions needed to stimulate the industry are very well-understood and relatively uncomplicated. High impact actions include visa easing, tourism safety, vehicle licensing, or destination marketing. Small interventions have a high impact effect on job creation, that are felt faster than any other industry.
As an example, Chinese tourists to Morocco and Tunisia jumped by 378% and 240% within 6 months of easing the visas. And e-visas are now very common, found in 42 developing economies, even ones that are significantly less developed than SA.
The multipliers are significant stimulating food and agriculture, vehicles, fuel, household articles and appliances, finance and retail, amongst others. For every R100 spent directly on tourism, an almost equal additional amount of spending is generated through linkages and induced spending.
So, tourism is an industry seems like a perfect antidote for so many of our problems.
Then why was tourism let to stagnate over the past decade?
There was considerable success initially, remembering that SA was a fairly closed economy under apartheid. International arrivals grew from around 1m in 1990, to almost 5m by 1997 reaching about 9.5 million in 2008, and has hardly grown since then.
The WTTC ranks SA highly at 35thout of 185 country destinations but only 96thin its growth forecast for 2017-2027. This low growth is not a given, it is simply a reflection of the status quo. It speaks to underperformance relative to potential.
Source: World Bank Development Indicators
SA doubled its international arrivals over the past 20 years. Compare that to countries like Chile, Turkey, Colombia, Kazakhstan that saw their international arrivals increase by 4, 5, 7 and 38 times respectively. And we may believe that Thailand, Malaysia and Vietnam are unsurprising tourism performers, but their international arrival numbers were quite similar to SA’s in 1995.
About 726,000 people are directly employed in tourism. Compare that to countries like Mexico with 4 million tourism workers and Brazil, Thailand and the Philippines each with tourism employment sitting well over 2 million.
This is a sector with great potential but wallowing in the doldrums. Thankfully, there are now some signs of change.
Late in 2018, the Tourism Business Council of SA TBCSA) developed a sector strategy aimed at more than doubling the number of international tourists by 2030. This will create about 2 million jobs directly and indirectly. The growth strategy was inspired by the Public Private Growth Initiative (PPGI) driven by Roelf Meyer and Johan van Zyl. Soon thereafter, President Ramaphosa was also inspired! These targets became the nation’s and government’s targets, as announced in the Februaryand June 2019SONA.
Tourism was retained as a Ministry, and not merged in his cabinet restructuring. The National Treasury’s economic policy discussion paperforegrounds labour absorbing sectors especially tourism and agriculture.
Success in achieving sustained growth in tourism and supplier industries requires a think about why SA has underperformed, in this significant job creating sector that is relatively easy to stimulate, even though youth unemployment was high and rising.
My July 24th and June 25tharticles propose at least four reasons why some countries gain traction in their development path. These are shared purpose, effective sequencing of policy around an achievable complement of programmes, accountable and enabled leadership, and enabling the population to participate in the opportunities that arise.
The tourism industry experience shows how the absence of these elements has slowed down progress over the past decade.
The reception to the much-expanded TBCSA tourism strategy amongst stakeholders has been very positive. Many smart well-informed stakeholders said they were excited to have a more significant tourism plan as it would contribute to job creation. In the next breath, quite a few say “but SA needs real sectors like smelting”. They may be thinking about manufacturing more generally, but I have heard this specific response numerous times.
Why does heavy industry seem “real”, while tourism does not?
Let’s be honest. Mega projects have a machismo-prestige wow-factor ribbon-cutting effect, as compared to smaller dispersed labour intensive investments in tourism. It’s as if they are saying: “We men will retire to the parlour, smoke cigars and discuss important matters, while you ladies go off to the kitchen and do your silly things.”
Alas there are also some technical explanations.
- All students of economics have been taught that manufacturing drives development, diversification, learning, productivity and technology. Services are seen to exist only because there is manufacturing. This is old fashioned thinking. Services industries have become increasingly important in international trade and building of capabilities. Services such as retail, construction or tourism increasingly help drive market penetration and create a channel and demand for goods produced.
- There is a belief that slight beneficiation can lift revenues earned from the minerals resource and contribute to comparative advantage in downstream metals fabrication such as machinery. Yet smelting has a high import content, it has few domestic linkages, SA producers have been paying import parity prices, and there is no link between capability in smelting and that in machinery.
- Tourism may evoke thoughts of a small picturesque island that has little else going on, such as Jamaica or the Maldives. The linkage effects in a diversified industrialised economy is very different to that in traditional tourism destinations. The multipliers from tourism in SA are considerable and stimulate demand for agricultural and manufactured products.
Before the TBCSA strategy, there were no specific objectives shared by the industry and government and no significant hard targets set across government programmes to ensure progress. Targets don’t guarantee success, but they are definitely the first necessary step along the path.
There are quite a few high impact actions that fall into the category of the well-understood, we-have-a road-map kind. Top of mind are visa easing, timeous tourism vehicle licencing and tourist safety measures. They are not being resolved at a pace that would get SA back on its employment creating path.
The 2018 Jobs Summit Framework Agreement said very little about tourism, which is strange given that it is one of the only traded sectors that can create significant jobs especially for youth. The small statement on tourism must have been penned by an economist. On the binding constraints it essentially says: “let’s assume departments responsible for visas and vehicle licencing will resolve the issues raised by stakeholders”.
Is it possible that the approach to stakeholder negotiation over the past 25 years entrenches economic structure and vested interests? And drowns out new, important voices of potential sources of employment? Employment in all middle and upper middle income economies mostly comes from newer non-traditional sectors, especially in services. But voice in these newer sectors is relatively weak. It is important to hear and engage existing interests. A strategic approach to making space for new interests is also needed.
Shared purpose is not present where stakeholders offer sort-of-and-to-some-extent support.
Going forward, the new energy to build the tourism industry would benefit from a shared belief in its benefits (delivering 20% of the NDP’s employment targets plus more), a commitment to common targets and objectives (doubling international arrivals and creating two million jobs), regular monitoring by the President of implementation (most immediately, e-Visas for major markets), concrete results (air arrivals growing or jobs created), and the avoidance of ‘war rooms’ in favour of institutional accountability.
Given limited resources but the extensive cross-industry benefits of expanded tourism, it makes sense for captains of industry to coalesce around an all-in effort to deliver on what might be the most significant contributor to NDP economic objectives.
op-ed Business Maverick Sept 2 2019