City declares an intergovernmental dispute to ensure all SMMEs qualify for relief funding

24 May 2020

Today, the Executive Mayor of Cape Town, Alderman Dan Plato, declared an intergovernmental dispute with the Minister of Tourism, Ms. Mmamoloko Kubayi-Ngubane, on the application of racial criteria for tourism businesses applying for funding relief. This follows numerous attempts by Mayor Plato and Mayoral Committee Member for Economic Opportunities and Asset Management, Alderman James Vos to engage the National Minister on this matter.

The COVID-19 pandemic has brought the tourism sector to a complete halt as our borders were understandably closed to tourists, after President Cyril Ramaphosa declared a ‘national state of disaster’ in terms of the Disaster Management Act, in a bid to contain the spread of the virus that is wreaking havoc on economies across the world.

In acknowledgement of the severity of the impact these measures would have on the economy, numerous relief funds were announced by the national government.

The Department of Tourism made R200 million available to assist Small Micro and Medium Sized Enterprises (SMMEs) in the tourism and hospitality sector who are at risk of closing their businesses due to the new travel restrictions. The Tourism Relief Fund provides a once-off capped R50 000 grant assistance to SMMEs in the sector to help keep them going through the lockdown and after. This fund has received more than 11 000 applications for funding assistance and it is reported that 5400 applications have been completed. Due to the court action being pursued against the National Department by other organisations, it has yet to be confirmed whether any funds have been released yet.

The Tourism Relief Fund’s website specifically states that:

‘Guided by the Tourism Broad Based Black Economic Empowerment (B-BBEE) Codes of Good Practices approved by the Minister of Trade and Industries in 2015 (in line with the BBBEE Act No.53 of 2003), the Tourism Relief Fund is administered in line with the objectives of Economic Transformation, and our vision to ensure sustainable and inclusive tourism development.’

Effectively this means that many SMMEs in the tourism sector will not qualify for the funding that they need to keep their businesses going based solely on whether their business is BEE compliant. We are in a crisis and now is not the time to apply ineffective transformation goals to emergency relief funding that is needed by all business owners and the many staff they employ.

The Cape Town economy relies heavily on the tourism sector. According to the latest available statistics by Statistics South Africa, the tourism value added to our local economy in 2018 was roughly R18,1 billion. In the same year according to the same source, the tourism sector directly supported just over 113 000 jobs. These statistics illustrate how vital this sector is to our local economy.

In these unprecedented times and especially since millions of jobs and businesses are on the line, all businesses should qualify for relief funding and discriminatory criteria should not apply in a state of disaster. Now is not the time for race based policies, now is the time for all of us to work together if we plan to weather this storm.

The City of Cape Town has taken the following steps to engage with Minister Kubayi-Ngubane on this issue:

On 10 March, Executive Mayor of Cape Town wrote to the President of South Africa, Cyril Ramaphosa, requesting that BBBEE be scrapped from the emergency financial relief being offered by the national government. The Presidency responded to say that the matter would be referred to the relevant Ministers.

- On 18 March 2020, Alderman Vos wrote to the Minister Kubayi-Ngubane to offer the City’s support in administering any relief packages and to specifically request detailed information and timelines for any financial relief to be provided by the National Government for the tourism and hospitality sectors impacted by COVID-19, as well as information on any possible criteria for these sectors to qualify for financial relief.

- On 25 March Alderman Vos again wrote to Minister Kubayi-Ngubane after it had come to light in a communication that ‘At least 70% of beneficiaries will be businesses that are Black owned’. In the letter Alderman Vos requested clarity on the criteria and argued that all SMMEs should qualify to benefit for relief from the State during a state of disaster.

- Having received no formal response to the previous letters,  Alderman Vos wrote to Minister Kubayi-Ngubane on 3 April 2020 to request that she broaden the criteria for assistance to make it easier for all tourism businesses to apply and benefit. He stressed that by working together, we can weather this storm but only if we bring as many businesses as possible along with us.

- Minister Kubayi-Ngubane responded on 3 April 2020 to Alderman Vos’s letter requesting the criteria for relief be broadened. In her response, she stated categorically that the racial criteria will remain. This effectively excludes many SMMEs from receiving the financial relief they desperately need to stay viable and thereby, putting thousands of jobs and livelihoods on the line.

- Following the unfavourable response from Minister Kubayi-Ngubane, Alderman Vos then wrote to President Cyril Ramaphosa imploring him to broaden the criteria. The City has yet to receive a response.

- On 24 April 2020, taking into account the Intergovernmental Relations Framework, Mayor Plato, wrote to Minister Kubayi-Ngubane to request a meeting to negotiate and put forward our request that all SMMEs be allowed to qualify for relief, no matter their race.

- No response has been received despite follow up requests from the Mayor’s office.

As a result, the City is now compelled to initiate an intergovernmental dispute, in line with the Intergovernmental Relations Framework.

Many tourism-based small businesses who do not qualify for relief assistance and who desperately need help in order to remain open, support their staff, and be ready to welcome tourists back once the lockdown is lifted, have pleaded for National Government to make the funding available to all businesses, regardless of race.

Cape Town Tourism (CTT), the City’s official Destination Marketing Organisation, conducted a survey of businesses linked to the industry, including accommodation providers, tour operators, attractions and restaurants.

Only 4% of the businesses surveyed have the resources to survive for more than a year, only one in three (36%) of respondents say they were only able to provide partial pay to staff, a third of respondents (31%) have staff on unpaid leave and almost one in five respondents (18%) have had to retrench employees.

A survey conducted in April this year, of 1 610 respondents (half of which are based in the Western Cape and two thirds are micro enterprises with between one and 10 employees) in collaboration between the World Bank’s International Finance Corporation, the Department of Tourism, and the Tourism Business Council of South Africa found that:

- ‘99% of responding firms are affected by COVID-19.

- 83% of firms’ report revenues in March 2020 are down more than 50% compared to March 2019, and 34% of firms say revenues are 100% less.

- 58% of firms were unable to service their debts and 54% of firms were unable to cover fixed costs in March 2020.

- Firms so far report having managed their workforce in different ways, with most favouring reduced wages over furlough or redundancies.

- 11% of firms have made more than 50% of their workforce redundant, and 53% have not made any redundancies.

- The most commonly applied mitigation measures by businesses are temporary closure at 69%, supporting deferment instead of cancellation at 60%, and significant downscaling at 58%.

- All businesses prioritized the need for financial support for cash flow, financial support for recovery, and tax relief.

- The support facilities with the most respondent awareness are the UIF scheme and the Tourism Relief Fund of the Department of Tourism, but while there has been strong uptake for all facilities, success rates in these early days are uniformly low.’

If this sector is denied the opportunity to reopen, billions will be lost and thousands of people will lose their jobs, not only in tourism but also in the sectors that support it such as food and beverage, accommodation and transportation.

In the address to the nation on 21 April 2020, President Ramaphosa stated that:

‘Our new economy must be founded on fairness, empowerment, justice and equality. It must use every resource, every capability and every innovation we have in the service of the people of this country.’

As the Mayor of Cape Town, and with the ongoing efforts of the City’s Mayoral Committee Member for Economic Development, Alderman Vos, I want to say that the City of Cape Town fully agrees with the President’s sentiments, but unfortunately his words will ring hollow if there are not urgent changes to the National Government’s financial relief being offered. As it currently stands, the financial relief being offered is not fair, it is not just or empowering, and it most definitely does not promote equality.

Having exhausted the avenues available to the City of Cape Town to ensure that all tourism SMMEs in our City are granted the relief they need, the City of Cape Town has now formally declared an intergovernmental dispute with the Tourism Department due to the application of racial criteria to determine who may receive relief funding. In terms of section 42 (1) of the Intergovernmental Relations Framework Act, the City has requested a meeting to be convened between 26 May 2020 and 1 June 2020.

Issued by Greg Wagner, Spokesperson to the Executive Mayor, 24 May 2020