SA accommodation: Well wide of target

As SA basks in the glory of successfully hosting the 2010 soccer World Cup, preliminary estimates of its economic benefits are falling far short of official projections.

The most disappointing analysis is by Prof Stan du Plessis of Stellenbosch University and Cobus Venter of Stellenbosch- based economics consultancy Econex.

Almost 400 000 international visitors were expected to attend the World Cup. Du Plessis and Venter calculate that only 200 000 tourists came and added 0,1% to GDP this year — a fraction of national treasury’s projection of 0,4% of GDP.

To estimate arrivals, the researchers combined data on air arrivals with hotel occupancy rates in the major cities during June.

Based on these reliable indicators, their early estimate is that SA had 150 000 international arrivals and 50 000 visitors from elsewhere in the region — only 70 000 more than in June 2009, a 30% increase.
Du Plessis and Venter blame the low numbers on the international recession and SA’s high hotel prices.

“SA’s accommodation sector generally did very well out of the World Cup, especially in Johannesburg,” says Venter. “But a legacy of high and rising room rates, compounded by recent rand strength, has priced SA out of the league of entire market segments that seek affordable destinations.”

Hoteliers enjoyed strong pricing power during the World Cup, with room rates rising by as much as 185% compared with June 2009 in Gauteng, 173% in Cape Town, and 115% in Durban. Revenue per room was sharply higher in all three cities, with hoteliers being unambiguous beneficiaries during the event.
This is not a positive development in an industry in which rates were already elevated and which has experienced nearly 20% growth in new hotel rooms since 2007. It implies that rates and/or occupancies could now drop, given the potential oversupply , Venter warns.
In US dollar terms, the real price of an SA hotel room has more than doubled over the past 20 years. Prices increased by more than 20% from the start of the recession to the end of 2009.

“Rand appreciation through 2009 and into 2010 served as a turbocharger, lifting rates higher during the recession, when logic would have dictated dropping them,” explains Venter.

Using their estimates of arrivals and price data from hotels, Du Plessis and Venter made a rough estimate of the likely expenditure by tourists in SA during the World Cup, based on the following assumptions:

There were 150000 international arrivals and 50000 African land arrivals;

On average, these tourists stayed in SA for seven days;

Two-thirds of international tourists stayed in high-end hotels (spending R1400/day on accommodation and R1230 on sundries). African visitors stayed in low-end hotels (spending R1000/day on accommodation and sundries); and
International visitors spent R8000/trip on domestic transport and African visitors R4000.

In total, international visitors spent R24310 on average per trip and African visitors R11000. Combining this data with the number of arrivals yields expenditure of R4,2bn (or 0,16% of GDP) by visitors to the tournament.

Du Plessis concedes that the benefits of hosting the tournament should not be measured only in rands and cents.

“South Africans and international visitors enjoyed the tournament immensely, a benefit that is no less real because it is hard to quantify in monetary terms,” he says. “And there are potential longer-run benefits, mainly because of the improved image of a vibrant economy where institutions function smoothly and which offers attractive scope for trade and investment.”

These less tangible benefits, if they raise the long-run growth trajectory of the economy, will be more valuable in time than the disappointing benefits calculated by Venter and Du Plessis.

This is an extract of a larger story from the Financial Mail. For the full story, click here.

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