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Tourism Sector BEE ownership:

1. Introduction and Applicability

  • 1.1 Sector Code Overview: The Amended Tourism Sector Code provides a framework for measuring B-BBEE compliance specifically within the tourism industry in South Africa. It aims to address the unique characteristics of this sector, including its labour-intensive nature, its contribution to economic growth and job creation, and the need for greater inclusivity.
  • 1.2 Scope of Application: The Tourism Sector Code applies to a wide range of tourism-related activities, including:
    • Accommodation establishments (hotels, guesthouses, lodges, etc.)
    • Tour operators
    • Travel agencies
    • Restaurants (under certain conditions – see below)
    • Conference and exhibition venues
    • Tourist attractions
    • Car rental companies
    • Other tourism-related businesses (as defined in the Code)
    • Restaurants, taverns, shebeens and pubs are measured only if they have a liquor license and derive more than 50% of their revenue from the sale of food and beverages for on-site consumption.
  • 1.3 Legal Basis: Section 9(1) of the Broad-Based Black Economic Empowerment Act (No. 53 of 2003, as amended) and the Amended Tourism Sector Code (Government Gazette No. 40433, 20 November 2015). There was a later amendment in Government Gazette 40910 in 2017.
  • 1.4 Effective Date: 20 November 2015 (with some transitional provisions).
  • 1.5 Precedence: This Sector Code supersedes the Generic Codes for entities within its scope.

2. Ownership Scorecard and Thresholds

IndicatorWeightingTarget
Exercisable Voting Rights (Black People) 6 points 30% + 1 vote
Exercisable Voting Rights (Black Women) 2 points (40% of 30%)
Economic Interest (Black People) 6 points 30%
Economic Interest (Black Women) 2 points (40% of 30%)
Economic Interest (Black Designated Groups/Broad-based schemes) 3 points 10% +
Net Value 6 points Net Value Target: Based on a phased-in approach, linked to “years of recognition.” The target is expressed as a percentage of 30%.
Total 25 points
  • 2.1 Ownership Scorecard: see table above
  • 2.2 Priority Element Status: Ownership is a priority element.
  • 2.3 Subminimum Requirements: 40% of the Net Value points (i.e., 40% of 6 points = 2.4 points).
  • 2.4 Entity Size Thresholds:
    • EME Threshold: Annual Total Revenue of R5 million or less. (Lower than the Generic Codes).
    • QSE Threshold: Annual Total Revenue between R5 million and R45 million. (Different from the Generic Codes).
    • Generic Threshold: Annual Total Revenue above R45 million. (Lower than the Generic Codes).
  • 2.5 Automatic Recognition for EMEs/QSEs:
    • The usual automatic levels apply (Level Four for EMEs, Level One/Two for 100%/51%+ Black-owned EMEs and QSEs).
    • Crucially: Are there any conditions or restrictions on this automatic recognition? No. The Tourism Sector Code does not have a similar provision to the Construction Sector Code’s Clause 3.1.3 (restricting automatic recognition for BEPs).

3. Specific Ownership Requirements and Interpretations

  • 3.1 Unique Ownership Targets: The Tourism Sector Code has higher targets for voting rights and economic interest (30% + 1 vote and 30%) compared to the Generic Codes (25% + 1 vote and 25%). It also places emphasis on ownership by Black women and Black Designated Groups.
  • 3.2 Flow-Through and Modified Flow-Through: Standard Flow-Through and Modified Flow-Through Principles apply.
  • 3.3 Exclusion Principle: Standard Exclusion Principle applies.
  • 3.4 Treatment of Specific Entities: The Code provides specific recognition criteria for BBOS and Trusts.
  • 3.5 Multinationals: No specific provisions beyond the Generic Codes. Equity Equivalents would likely apply as usual.
  • 3.6 Ownership by Qualified Professionals/Specific Roles:
    • Not a specific requirement.
    • Crucially: Are there any requirements for ownership to be held by individuals in specific roles (e.g., executive management, as in the Construction Sector Code for BEPs)? Are there penalties for not meeting these requirements? No.
  • 3.7 Sale of Assets: No specific deviations from the Generic Codes.
  • 3.8 Private Equity Funds: Ownership by B-BBEE compliant Private Equity Funds is possible under the Tourism Sector Code, provided the fund meets the requirements outlined in the Generic Codes (Statement 100, paragraph 3.10). No specific provisions prevent or modify this.
  • 3.9 Other Unique Provisions:
    • Higher Ownership Targets: The 30% target for Black ownership is a significant difference.
    • Lower Thresholds: The lower thresholds for EMEs and QSEs reflect the structure of the tourism industry, with many smaller businesses.

4. Areas of Uncertainty and Interpretation

  • 4.1 Ambiguities: As with the Generic Codes, valuation methodologies and the application of the Flow-Through Principle can be areas of interpretation. The specific rules for BBOS and Trusts may also require careful interpretation. The conditions under which restaurants are included can be ambiguous.
  • 4.2 Industry Practice: Industry practice is developing, and engagement with the relevant industry bodies is important.
  • 4.3 Potential Disputes: Valuation disputes, challenges to the legitimacy of ownership structures, and interpretation of the specific rules for various entities.

5. Deal Process, Parties, and Costs

  • 5.1 Typical Deal Structures: Direct ownership, trusts, and BBOS. ESOPs may be relevant for larger tourism businesses.
  • 5.2 Key Parties Involved: Tourism businesses, Black investors, community trusts, legal advisors, financial advisors, B-BBEE verification agencies.
  • 5.3 Deal Process Overview: Similar to the Generic Codes: due diligence, valuation, negotiation, legal documentation, and implementation.
  • 5.4 Cost Considerations: Similar to the Generic Codes: legal fees, valuation fees, advisory fees, B-BBEE verification fees, and the cost of the ownership transaction itself.

6. Gotchas and Best Practices

  • 6.1 Common Mistakes: Failing to meet the Net Value subminimum, inadequate documentation, fronting, not understanding the specific rules for BBOS and Trusts, incorrectly classifying the entity based on the lower revenue thresholds. (Pay particular attention to any specific requirements like those for BEPs in the Construction Code). Not applicable here.
  • 6.2 Fronting Risks: High risk.
  • 6.3 Best Practices: Thorough planning, expert advice, genuine commitment to transformation, careful structuring of ownership deals, ongoing monitoring of compliance.

7. Alternatives to Ownership
Other elements include:

  • Management Control
  • Skills Development
  • Enterprise and Supplier Development
  • Socio-Economic Development

8. Conclusion

The Tourism Sector Code builds upon the Generic Codes but introduces several important distinctions, including higher targets for Black ownership (30%), lower thresholds for EMEs and QSEs, and a strong emphasis on broad-based participation. Crucially, it does not impose restrictive ownership requirements based on professional registration and executive management roles, unlike the Construction Sector Code for BEPs.

Please contact us for a confidential discussion around your unique BEE ownership needs.

Chapter: Sector codes:
Chapter: Sector codes:
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