South Africa Tourism Report Q3 2008

Tourism Overview Growth in foreign tourist arrivals remained strong in 2007 at 8.3% year-on-year (y-o-y), with almost 9.1mn visitors, but slowed compared with the previous year. Tourist arrivals from African countries recorded strong growth of around 9% y-o-y, although growth was down sharply compared with 2006. The growth rate in tourist arrivals from Europe, meanwhile, more than halved, compared with a year earlier, to 2.3% y-o-y, with low growth in arrivals from the UK and a decline in visitors from Germany. Growth in tourist arrivals from North America and the US though remained relatively favourable, up 8.6% and 8.7% y-o-y respectively, while growth in arrivals from Australasia slowed markedly. Indeed, only two regions recorded a pick-up in growth in tourists in 2007, Asia and the Middle East. Latest data for the period January to February 2008 show that foreign tourist arrivals were up a relatively strong 7.5% y-o-y.

Hospitality BMI estimates that hotel occupancy rates declined in 2007 to an average of around 62%, from an estimated 67% in 2006. Latest available official estimates on the total number of tourist (foreign and domestic) room nights in all accommodation establishments show that there was over 5.4mn nights in Q108. Surprisingly, this represented a buoyant 17% y-o-y, after a 6.4% y-o-y increase in tourist nights Q407. Occupancy rates in all accommodation establishments in Q108 also showed marked improvement, standing at an average of 56%, compared with 48.5% a year earlier, although the strong growth in occupancy rates occurred outside the hotel sector.

Forecast Scenario Despite strong real GDP growth in Q407, we believe that economic expansion will slow this year, mainly driven by deteriorating external and internal demand. In our view, the ongoing power crisis is likely to constitute the main risk to growth over the medium term.

After a slowdown in growth in foreign tourist arrivals in 2007, BMI foresees steady growth in arrivals in both 2008 and 2009 (but again slightly weaker), with growth averaging 6% per annum over the two-year period. This is supported, in part, by the current weakness in the value of the South African rand, which has had a bad year so far, depreciating markedly against the US dollar and the euro year-to-date, and we forecast that the currency is likely to experience further downside over the coming months. In 2010, we expect growth in tourist arrivals and tourism receipts to pick up sharply, as the country hosts the FIFA World Cup. Two major and immediate concerns for the tourism industry include the recurrent power crisis in the country, which could undermine the successful hosting of the World Cup, and recent violent attacks against foreigners in South Africa, which are likely to raise fears among potential visitors over their personal safety.

FIFA World Cup In its most recent statement, FIFA said it was fully satisfied with the South African government's progress in terms of the World Cup preparations. The government confirmed that the various transport projects across all host cities in South Africa are on their way to being completed.

Sun International Results for the six-month period ending December 2007 show Sun International recorded a satisfactory 12% y-o-y increase in revenue to some ZAR3.8bn. However, pre-tax profit fell almost 27% y-o-y to ZAR576mn. The company also reported that conditions at the group's casinos in South Africa are expected to remain difficult for the remainder of the year.