Tourism Market In South Africa example essay topic

Any business venture should be calculated before it is actually put into play. The series of tests that preclude this are called "screens" These screens help businesses discover whether or not their service or product will succeed in a particular country or region. For our tourism business, we have researched the areas of basic need potential, economic indicators, political and legal forces, sociocultural forces, competitive forces, and modes of entry. Using our findings as screens, they will help us decide if our company would have a chance in the region around South Africa. INITIAL SCREENING Basic Need Potential South Africa is the economic powerhouse of Africa according to MBendi website.

It consists of a well-developed infrastructure and handles the majority of trade for the entire Southern African region. Additionally according to MBendi, recent changes in South Africa are creating a ripple affect of peace and democracy across the region (MBendi Information for Africa, Introduction). Various sources have been developed to assist investors in developing business within South Africa. Two such associations are MBendi and Trade and Investment South Africa (TISA) promotion agency.

Unemployment is high in South Africa. New jobs would be appreciated and help improve the economy of the region. There is a National Labour and Economic Development agency that monitors wages, disputes and works towards fairness and industrial relations. In addition, trade unions are on the rise to further work toward fair wages and treatment, is a positive for moving in by not getting involved in sweatshop type employment practices (South Africa Info, Trade, p. 1). This can be a positive for moving in by not getting involved in sweatshop type employment practices. {sentence repeated} "The government's macroeconomic strategy for Growth, Employment and Redistribution (GEAR) is based on promoting the free market and financial and fiscal discipline and aims at economic growth, job creation and the development and distribution of basic services to all South Africans" (SouthAfrica. Info, Gearing, p. 1).

Overall, the government is stressing the importance of investment and is striving to support and enhance trade and development (SouthAfrica. Info, Gearing, p. 1). Presently there is a need for employment and continued economic growth within South Africa. The government is gearing itself towards accepting outside investment. Potential Foreign Trade and Investment "The South African tourism industry is valued at $10 billion a year and is expected to rise sharply as government and the private sector invest in a marketing and promotion drive. The country's tourism and infrastructure is sophisticated and developed, but key opportunities exist in this arena given the rise in demand.

Eco-tourism promises excellent investment and development potential" (SouthAfrica. Info, Key, p. 7). TISA offers the following services to aid investors: o Information on sectors and industries o Consultation on regulatory environment o Facilitation on investment missions o Links to joint venture partners o Information on incentive packages o Assistance with work permits o Logistical support for relocation (SouthAfrica. Info, Key, p. 1) Economic Development South Africa is classified as a middle-income, emerging market. It boasts "a well-developed financial, legal, communications, energy, and transport sectors; a stock exchange rate that ranks among the 10 largest in the world; and a modern infrastructure supporting an efficient distribution of goods to major urban centers throughout the region" (CIA Online, p. 8). However, South Africa's unemployment rate is still high at 37%.

Their current inflation rate is 9%. "South African economic policy is fiscally conservative, but pragmatic, focusing on targeting inflation and liberalizing trade as means to increase job growth and household income" (CIA Online, p. 8). Growth Rate The following facts regarding South Africa's growth rate and labor base were obtained from the CIA online World Fact Book: GDP: Purchasing Power Parity - $432 billion GDP - real growth rate 3% GDP - per capita purchasing power parity - $10,000 Labor Force 17 million economically active Unemployment rate 37% (CIA Online, p. 8) Market TISA has identified tourism as a key investment area (SouthAfrica. Info, Investment, p. 1). Foreign investment is currently welcomed by South Africa, and "all business sectors are open to investors, no government approval is required, and there are almost no restrictions on the form or extent of foreign investment... agro-tourism strategic development initiatives have been planned" (SouthAfrica. Info, Incentives, p. 1).

Additionally, the Industrial Development Council offers funding of projects that will have a developmental impact (SouthAfrica. Info, Incentives, p. 2). Political South Africa's legal system is "based on Roman-Dutch law and English common law" (CIA Online, p. 6). The active political parties in South Africa now include: African National Congress (ANC), African Christian Democratic Party (A CDP), Democratic Alliance (DA), United Democratic Movement (UM), In katha Freedom Party (IFP 0, Pan-African Congress (PAC), New National Party (NNP), Conservative Party (CP), and Freedom Front (FF) (MBendi Information for Africa, Politics). International disputes include a "managed dispute with Namibia over the location of the boundary in the Orange River" (CIA Online, p. 12). South Africa is also a "transshipment center for illicit drugs, increasing level of organized criminal and narcotics activity in the region" (CIA Online, p. 12).

Technical The South African telephone system "is the best developed and most modern in Africa" (CIA Online, p. 10). This consists of more than 5 million phone lines, 7.06 million mobile phones. They have AM / FM radio broadcast, (CIA Online, p. 10) and 556 television broadcast stations, as well as, Internet service with 3.068 million users (CIA Online, p. 11). Socio-Economic South African's presently have issues with high infant mortality, AIDS and varied population and growth rates.

These issues will be discussed in greater detail in the screening section four. Additionally, South Africa has modern highways, and three major international airports to facilitate tourism (SouthAfrica. Info, Transport, p. 1). SECOND SCREENING Economic Indicators Consumer Price Index - Recently fell after reaching a five-year high near the end of 2002. See Appendix A. (ESSA 2003) Interest Rates- While interest rates have remained relatively stable over the past three years, they are still quite high. The most recent figures from January, 2003 put the prime rate at almost 16%.

See Appendix B. (ESSA 2003) Employment -Unemployment is one of the greatest economic issues faced by South Africa today. The latest figures from the CIA world fact book estimate that in 2001, unemployment was at 37% for a labor force numbering 17 million (CIA / WB 2002). Trade -Foreign trade has remained strong over the past few years. RSA's exports currently exceed their imports by almost 2.5 billion Rand, and are currently at 25 billion Rand annually.

See Appendix C. (ESSA 2003) Balance of Payments According to the Organisation of Economic Co-Operation and development website, the following definition describes a balance of payments: Balance of payments statistics provide a systematic summary of economic transactions between an economy and the rest of the world, for a specific time period. The transactions included comprise: goods, services, income, transfers and financial claims. The most current figures we found for RSA were from the first quarter of 2002. They stated the economy had turned from a deficit of 2.7 billion Rand into a surplus of 4.2 billion Rand by the end of the quarter (Graham para 13). No further data was found. Budget Deficits Revenues are currently at $22.6 billion, while expenditures are at $24.7 billion.

According to the IDEAS (International Development Economics Associates website), RSA has followed the advice of the World Bank over the past ten years and worked to lower their annual budget deficit from 6% in 1996 to roughly 1.7% in 2001, the latest figures available. Degree of Inflation Currently, the rate of inflation for RSA is at 9.9%. The country's high unemployment rate has acted to keep inflation up even as the government has moved towards conservative fiscal policies and deficit reduction. Exchange Controls According to the MBendi website: Exchange controls are implemented by a country to limit and control the outflow and inflow of capital... During the apartheid era when South Africa was viewed negatively and the price of gold declined, South Africa's exchange controls became increasingly restrictive to protect the rand from further devaluation.

(MBendi 2003) Over the past five years the Treasury Department has relaxed controls considerably, resulting in increased direct foreign investment. Recently RSA has begun to debate the merits of removing the exchange controls system altogether, in order to encourage foreign investment in the economy (Harris p. 1). Currency Convertibility The currency of RSA is the Rand. It has remained relatively stable over the past two years, fluctuating around ten or eight 8-10 rand to one US dollar.

As of April, 2003 the current rate is 8: 1 (ESSA 2003). See Appendix D. Gross Domestic Product and Growth Rate The Gross Domestic Product for the Republic of South Africa is currently $432 billion after adjusting for purchasing power parity. South Africa ranks as the 21st largest GDP globally and number one for the continent of Africa overall. This translates into an average per capita of $10,000. The real growth rate of the economy is currently at a positive 3%.

If we break down the GDP by sector, it is as follows: agriculture: 3%; industry: 28.9%; and Services: 66.7%. (CIA / WB, 2002). See Appendix E. (ESSA 2003) THIRD SCREENING Political and Legal Forces The conventional long-form of the country's name is Republic of South Africa. (CIA World factbook. 2002.) As mentioned prior, it has numerous political parties, but as of right now, the ANC is in "power" with Thabo Mbeki as President. Entrance and Profit Remittance Barriers Now that we have had a quick lesson on the current politics, let's get more into what we are concerned about: entry barriers and profit remittance barriers.

A major part of our tourist venture includes chartering small planes to take customers on aerial tours. As of right now, this facet of our business has a very small entry barrier. Basically, even private individuals who own planes are allowed to charter. (Competition Tribunal of South Africa.

). Therefore, we need not worry about that portion of the industry. In our research, we found nothing on profit remittance barriers for South Africa. The module also asks for "other forces". There are atrocities within the country that are not widely advertised. However in our research we found one barrier that is a cause of concern.

That barrier is the mass rapes and murders that have been occurring for almost 10 years. In 1994, the year South Africa became a democracy, 18,801 cases of rape were reported. By 2001 that figure had risen to 24,892. (BBC.

Com. 2003. ). Whites have been the major targets in these crimes, which also include theft, arson, and maiming, and just plain harassment. There are 40,000 white farmers in South Africa. Over 1200 have been brutally murdered since 1994 - the year the Marxist African National Congress, backed by the United Nations, European Union, Russia, China and the U.S. State Department, took power.

(Lobaido, Anthony C. 2002.) Every country has its good and bad. If we were in the business of exporting South African made goods, we may be successful. However, running a tourist industry in such a hectic environment could be cause for lawsuits and a tarnished reputation overall. We will have to judge our screens on an overall basis. FOURTH SCREENING Sociocultural Forces It is critical to understand the sociocultural characteristics of South Africa while determining whether or not our tourism service will work in its global business arena. Culture, religion, education, health, and labor aspects give rise to general opportunities and threats in South Africa's global commerce.

The fourth screening gives us more of an intriguing human view and helps in determining how successful our tourism service may be in dealing with the local businesses and residents. Demographics As indicated by the free encyclopedia Wikipedia, South Africa took a census October 1996 which showed a population of 40,583,611 (after an official adjustment for a 6.8% under enumeration based on a post-enumeration survey); estimates for this country explicitly take into account the effects of excess mortality due to AIDS; this can result in lower life expectancy, higher infant mortality and death rates, lower population and growth rates, and changes in the distribution of population by age and sex than would otherwise be expected. (July 2002 est. ), (population sub heading, para 1. ).

The make-up of ethnic groups is more or less: 1. Black 75 percent 2. White 14 percent 3. Malay and Black decent 8 percent (formerly called Colored) 4. Indian 3 percent Cultural There is no simple way to define culture. Culture includes such factors as: beliefs, art, music, morals, laws, and other components that distinguish one faction from another.

South Africans come from many cultural traditions. The traditions that our tourism service will spotlight are museums, literature, theater, music, art, wines and cuisine. South Africa's culture is also very similar to US / Canada/Europe ways of life and due to their history as a Dutch colony it may ease the global transition. Tourism more than most industries depends on a stable country environment. It is vital to the success of our tourism endeavor to understand and embrace the cultural stability of South Africa. As it stands currently, South Africa provides a climate with great potential for tourism.

Religion Uyaphi Web site asserts: "Freedom of worship is guaranteed by the Constitution, and official policy is one of noninterference in religious practices" (Religion subheading, para. 2). Roughly 68 percent of the South African people belong to the Christian faith. Some other key religious sects include the Dutch Reformed, Anglican, Methodist, Roman Catholic, and Zionist. This leaves close to 30% of the South African population are members of traditional African religions. A small remainder of the populace abides in the practices of the Muslims, Hindus, and Jews.

As per the Uyaphi Web site, "A minority of South Africa's population does not belong to any of the major religions, but regard themselves as traditionalists or of no specific religious affiliation" (Religion sub heading, para. 1). In some areas of the world tourism focusing on religious culture is a mainstay and flourishes because of the enormous attraction of religious ruins and artifacts. This may be an additional advantage when considering diverse offerings of tourism packages. Education Under Apartheid the education system suffered. There are a wide variety of associations, regional consortia, government and non-government agencies supporting higher education in South Africa.

The Library of Congress Country Studies Web site asserts, "In 1995 South Africa had a total of 20,780 primary and secondary schools. Of these, 20,303 belonged to the government and 477 were private" (Education sub heading, para. 11). There is an enormous level of illiteracy and it would benefit our tourism service to look into ways to support the efforts of adult as well as juvenile education thus creating a bond with the business community. Health Library of Congress Web site stresses, "Although health officials were concerned about the spread of AIDS, some were still more concerned about the incidence of tuberculosis in the mid-1990's.

They argued that tuberculosis caused as many as thirty-six deaths each day, on average, compared with less than one death per day from AIDS (Health sub heading, para. 14). This is one risk area to take seriously when considering where to set up shop and will be researched further for safety and wellness issues. Labor The Library of Congress Web site goes on to state, Impressive growth in the services sector including restaurants and hotels accounted for most of the jobs created during the 1980's and the early 1990's. The services sector also included the country's large domestic work force, estimated at more than 800,000 in the early 1990's.

The distribution of labor continued to change in the 1990's, in response to global and regional market factors and political change in South Africa. For example, despite the importance of mining revenues throughout the twentieth century, the mining industry employed a dwindling share of the work force -- only about 7 percent in 1995, down from nearly 10 percent a decade earlier. (Labor Force sub heading, para. 2 & 3). We believe that the area of labor is a very attractive enticement for tourism to move into the South African market. FIFTH SCREENING Competitive Forces Specific statistical information on the competitive forces within South Africa's (SA) travel industry is difficult to find but research conducted by a United Kingdom (UK) organization, the Overseas Development Institute, sheds some light on the subject (Overseas Development Institute [ODI], 2003).

The study revealed that, although some regional investment in the market exists, the tourism market in South Africa is dominated by two or three nationally owned companies (ID 21, 2000). This results in the majority of all non-airline earnings being retained domestically. Even much of the 40 percent earned by the airlines remains within the country. Only about 10 percent of tourism income goes to foreign agents. Since the tourism industry is dominated by nationally owned organizations, the government of South Africa provides insight into the marketing strategies used by these service providers. The direction was set in 2000 by Valli Moosa, South African Minister of Environmental Affairs and Tourism, when he gave a high-level overview of the country's marketing plan (Sapa, 2000).

According to Moosa, SA is. ".. embarking on the 'biggest-ever' international marketing campaign to garner more tourists for South Africa" (para. 6). In addition to the European market, which traditionally has been the strongest, the United States (US) is coming on strong. Moosa does talk of developing domestic tourism but the primary focus of upcoming marketing strategies is the international sector with Europe and the US ranking high. Another market share factor that should be noted comes to light in a recent Business Report article (d'Angelo, 2003). This article cites SA's deputy director-general of environmental affairs and tourism, Patrick Mat lou, as he criticized South Africa Airlines (SAA).

The airline is "focusing on retaining its share of the lucrative business market at the expense of encouraging growth in tourism" (d'Angelo, 2003, para. 3). While SAA is encouraging the tourism portfolio committee to restrain from seeking foreign airline resources on the grounds of a lack of commitment to the South African market, SAA is not developing itself to be able to support a growing tourist market. It is for these reasons that we recommend caution as we consider expansion into South Africa. First of all, until there is evidence of adequate development of the airline industry we do not want to rush in. It would be easy to develop a client base that would serve South Africa only to find the tourists could not reach their destinations in a timely fashion.

This critical issue needs a resolution before proceeding. Also, careful consideration should be given to a {political? } climate, which is currently dominated by the two or three major national organizations. However, this should not drive us away from the market. The government and people of South Africa could welcome further development of the industry, even from foreign interests, since tourism can provide a means for job growth within the country but it would also mean additional revenue going outside of the country.

Further investigation of the market of South Africa is required before a decision should be made. SIXTH SCREENING Modes of Entry Taking into consideration both the fact that South Africa has a growing $10 billion a year tourism industry, the various risk factors and potential foreign trade and investment information discussed, it is advisable to start our business as a joint venture. Research has shown us that South Africa is anxious to develop their industries and reduce unemployment. Additionally, they are offering to invest to promote globalization and their region. To accomplish this venture we can utilize TISA's services to facilitate investments and links to partners for joint ventures. Being new to the global arena, it is advisable for us to work with agencies designed to work globally.

This will enable us to gain easier access to regulations, laws and guidelines for the selected region. This avenue also allows us a network to others willing to invest in the tourism industry in South Africa and can limit our initial risk. By getting our feet wet this way we can learn and potentially find ways to thrive and / or become a direct investor over time. Conclusion There are many factors within our screening process that sway us in both directions.

Without a doubt, the mass amount of available labor is very attractive. In addition, the nature of the region itself will help sell our vacation packages to customers. However, we cannot ignore the high crime rate. These screens weigh heavily on our final decision of where to go with our business. BBC News Online. April 9, 2002.

Rape- Silent War on SA Women. Retrieved from the World Wide Web on August 16, 2003 from: CIA Online. The World Factbook. Retrieved August 17, 2003, web Competition Tribunal of South Africa.

Date Unknown. PDF File on Merger Between Imperial Holdings Limited, and National Airways and Finance Corporation Limited. Retrieved from the World Wide Web on August 16, 2003 from: web D'Angelo, A. (2003, August 13). SAS flies into turbulence over growth in tourism. Retrieved August 27, 2003, from: web ESSA (ESSA), (2003).

Website updated April 2003. Retrieved August 16, 2003 from: web Graham, Stuart. 2002, June 23. Sunday Times South Africa. Labor Costs More as Jobs Decline. Retrieved from the World Wide Web on august 16th, 2003 from: web Harris, Jim.

(2002, September 1). Money web. South Africa Needs Sound Money Without Exchange Controls. Retrieved from the World Wide Web on August 16, 2003 from: web ment ID 21 (2000, June). Backing the tourist industry in Africa. Retrieved August 17, 2003 from: web IDEAS Web Site (2003) Trade and Payments: South African Finance Minister Admits He Was Wrong.

Retrieved from the World Wide Web on august 16, 2003 from: web Labaido, Anthony C. June 6, 2002. WorldNet Daily. South Africa's White Farmers under Siege. Retrieved from the World Wide Web on August 16, 2003 from: Library of Congress Web Site (2003) Country Facts: Education.

Retrieved on August 18, 2003 from: web (DOCID+za 0067) MBendi Information for Africa. Africa - Overview. Retrieved August 17, 2003, web Organization for Economic Co-operation and Development. Retrieved August 16, 2003 from: web Overseas Development Institute (2003, August 7). About ODI. Retrieved August 17, 2003, from: Sapa, (2000, September 5).

Moosa moves to ban plastic, boost tourism. Retrieved August 17, 2003 from: South Africa Info. Trade Unions in SA. Retrieved August 17, 2003, web SouthAfrica. Info. Gearing up for growth.

Info. Incentives for Investors. Info. Key investment industries. Info. Transport, energy, telecoms.

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