Hospitality sector calls for municipalities to lower rates and utilities

The Federated Hospitality Association of Southern Africa (Fedhasa) supports The Capital Hotel and Apartments Group’s call for municipalities to lower rates and utility charges to aid recovery in the industry and further boost employment.

According to the group’s managing director, Marc Wachsberger, the tourism industry, which suffered significantly during the wake of the pandemic, is struggling to recover because it is obligated to pay the same rising municipal rates, taxes and inflated utility costs as the sectors that survived and thrived during the pandemic.

Wachsberger says municipalities must cater to hotels by adding a new category for the sector to their property classifications and charge rates and utilities that will still cover costs. This, according to Wachsberger, will mitigate the exploitation suffered by hotels.

“… it is also true that most hotels are charging the same rack rates as they were in 2019 – even though Eskom’s rates have gone up significantly every year, and municipalities’ rates have increased too,” he says.

Wachsberger believes the hotel sector will not recover and create jobs if municipalities continue to place them in the same category as commercial property and heavy industry, which pay rates and utility costs that are triple those paid by residential property owners.

Government ‘not supportive’

Fedhasa chair Rosemary Anderson says municipal rates for hotels discourage people from venturing into the industry and that the expensive rates and utility costs make it difficult for hotels to compete with Airbnbs, guest houses and B&Bs.

“If government wanted to discourage anyone from building a hotel, they could not do a better job than … they are doing now, with the unrealistic excessive rates they are charging,” she says.

“I am sincerely surprised how many businesses in fact did survive, since everything was against us, from government restrictions, no help from government, insurance companies not honouring business interruption cover and restrictions that made it financially unviable to trade, even when allowed to theoretically ‘trade’, due to the prohibitive restrictions placed on the terms of trading.”

Revenue losses, job losses

Minister of Tourism Mmamoloko Kubayi-Ngubane confirmed in June 2021 that revenue in the sector declined by more than 50% in 2020 in comparison to the previous year, and that 36% of businesses in the sector indicated a total loss of revenue.

Read: Tourism sector lost R164bn in spending by visitors in 2020

Wachsberger says despite the survival of many hotels during the latter half of the pandemic, they operated at a loss – and those that did not manage to withstand the pressures of the pandemic closed, resulting in job losses.

“Those that would like to reopen and welcome their former employees back simply cannot, because their municipal rates and utilities costs are just too prohibitive,” he adds.

“This means that the hotel businesses that still owe municipalities money despite having closed their doors will never reopen – and the municipalities are unlikely to ever see the money that is owed to them.”

Anderson maintains that because 10 million people rely on the tourism and hospitality industry, government should be proactive in lowering its municipal rates.

Instead, she says, the government has not made any attempt to encourage job creation in the tourism and hospitality industry.

“Government needs to create an enabling environment for it to once again become financially viable to operate in hospitality – then you will see more businesses growing and new ones emerging and there will be job creation.”

Sun International chief operating officer Graham Wood shares the same sentiments, saying: “The lack of economic growth is the greatest impediment [in] our industry. We need economic growth; we need people to travel and attend conferences. Our industry is a benefactor of sustainable economic growth.”

According to Tourism Business Council of South Africa CEO Tshifhiwa Tshivhengwa, many things need to change for the sector to recover in a holistic sense.

“Government has to play its part and generate international and domestic demand. It must look at the registration of business costs, liquor licences and more. Relief in terms of the reduction of rates and taxes will go a long way.”

Nondumiso Lehutso is a Moneyweb intern