While the impact of the Covid-19 lock-down on the tourism sector may seem clear, the potential impact on its supply chain has not been investigated. StatsSA data is analysed to establish which goods and services receive the most expenditure from three key tourism industries, but also which goods and services rely most heavily on tourism expenditure. Surprisingly it is soft drinks, tobacco, and transport-related goods that are likely most affected, not construction or agriculture.
In 2018, according to the Tourism Satellite Account (TSA) (StatsSA 2019a), tourism’s direct contribution to the economy was 2.7% of Gross Domestic Product, or R130 billion; the sector accounted for about 740 000 direct jobs. In addition, the sector has strong backward linkages to industries that supply it with goods and services – its indirect impacts (UNWTO 2014). The World Travel and Tourism Council (2018) models indirect jobs and for South Africa these were estimated at a further 740 000 in 2018.
There has, however, been limited detailed analysis or disaggregation of these indirect impacts of tourism. This article addresses this gap by identifiying those goods and services attracting the most procurement (demand) from three key tourism industries: ‘Hotels and Restaurants’, ‘Air Transport’ and ‘Recreational, Cultural and Sporting’ activities. It also indicates where this tourism procurement constitutes a significant share of supplying industries’ total value of supply. The latter signals which goods and services are likely to experience a significant sales’ contraction as a result of tourism operations in these subsectors having markedly slowed down around the country due to the National Disaster Act regulations that seek to limit Covid-19 infections. The question is: are these the major, or largest, suppliers – or perhaps not?
The Tourism Industry Survey of South Africa: Covid-19 of July 2020, Survey 2, found that restrictions in the country have led to 61% of tourism businesses having temporarily closed. For 95% of tourism businesses surveyed, revenues were down more than 50% in May 2020 compared with May 2019 (Department of Tourism 2020a).
The analysis in this article is based on StatsSA’s TSA and Supply and Use Tables (SUT) for 2017, which marks the latest data available (although provisional 2018 TSA data has been published).
2. Categorising tourism industries: The Tourism Satellite Account (TSA)
The TSA document explains the difficulties in measuring tourism as an economic sector. “The tourism sector is … an amalgamation of industries such as transportation, accommodation, food and beverage services, recreation and entertainment, travel agencies, etc” (StatsSA 2019a). Tourism is a consumption-based concept that is measured by the expenditure of visitors.
Table 1 lists the so-called tourism-characteristic and tourism-connected industries, their total domestic supply (output), aggregate visitor expenditure on these industries, and the share that this visitor expenditure comprised of total domestic supply of each industry in 2017 (i.e. the tourism product ratio).
Table 1: TSA tourism industries – value of supply and visitor expenditure, 2017
Table 2: Value of total use (procurement) of goods and services, 2017 (R billions)
Next calculated are the goods and services on which the three industries spent the greatest share of their procurement or use value in 2017. In order to do this, the procurement spend was disaggregated per good/service for each of the three tourism industries and the relevant tourism product ratios applied.
Hotels and Restaurants industry
Soft drinks and tobacco products were the largest value items procured by this industry by far, followed by a number of services. Only two food-related goods – meat and bakery products – make it into the top ten procurement categories.
Table 3: SUT Hotel and Restaurant industry – top ten goods and services procured by value (R millions), 2017
Air Transport industry
Petroleum products dominate procurement by the Air Transport industry at 41% of total value in 2017. Leasing, rental services (for equipment, not real estate) was also a large value item, followed by other transport-related goods and then a number of services.
Table 4: SUT Air Transport industry – top ten goods and services procured by value, 2017 (R millions)
Recreational, Cultural and Sporting (RCS) activities
For RCS procurement, other business services dominates at 28% of overall procurement spend; this includes marketing, advertising and consulting work. Motor vehicles, parts and legal, accounting were also large procurement items, followed by a number of other services.
Table 5: SUT RCS industries – top ten goods and services procured by value, 2017 (R millions)
4. Goods and services which rely on tourism industries’ use
A further analysis was undertaken to establish which goods and services industries relied most heavily on supplying to these three tourism industries. The results of this subset analysis appear in Table 6 and Figure 1. The last column (‘Share of supply’) reflects the vulnerability of the supplying industry to the scale of activity in the three tourism industries.
Table 6: SUT goods and services most reliant on the Hotels and Restaurants, Air Transport and RCS industries, 2017 (R millions)
Figure 1: Suppliers most reliant on aggregate use by share of total supply value
The two tourism supplying industries most vulnerable to Covid-19 impacts are soft drinks and tobacco products. (Note that the Covid-19 ban on the sale of tobacco products means that its high reliance on Hotel and Restaurants is immaterial at the moment). Beyond these two, leasing, rental services, other transport equipment and rubber tyres rely somewhat on tourism use.
The other goods and services in Figure 1 do not have a heavy reliance on tourism.
Tourism economic policy discussions have seldom drawn on an analysis of the SUT to rigorously establish (a) on which goods and services the tourism sector spends the most or (b) which industries are dependent on the tourism sector as a major source of demand.
This analysis shows that for three main industry sub-secors, i.e. Hotels and Restaurants, Air Transport, and Recreational, Cultural and Sporting activities the top goods and services procured are those also most vulnerable to fluctuations in these industries. In terms of soft drinks and tobacco products, Hotels and Restaurants spend a significant amount (28% of total procurement) on each of these goods’ categories – while the tourism industries also constitute a substantial share of the overall supply of the soft drinks and tobacco industries (17% and 12% respectively).
What is also notable, is that these are not the goods and services often associated with tourism sector procurement. Perhaps surprisingly, neither agricultural goods (including food) nor construction services are significant categories of tourism sector use. Therefore, they are not the most vulnerable to a decline in tourism-sector turnover. For example, Hotels and Restaurants spend 4% on meat products, which accounted for only 2% of total meat supply. It is also notable that alcoholic beverages do not make it into the top ten categories of expenditure. This is likely because the Hotels and Restaurants category includes many takeout cafes (StatsSA 2020a) and smaller accommodation establishments (StatsSA 2020b).
Aside from soft drinks manufacturers, it is several transport-related goods and services which are probably the worst affected by Covid-19-related contractions in tourism operations. These are ‘pockets’ of industries previously not adequately considered for their tourism linkages.
Written by Kate Rivett-Carnac, Cape Town, Independent researcher, Econ3x3