Arthur Gillis: What’s wrong in transformation?

Change was very much a focus of the first day of HICA 2013: I’ve already written about ‘Hard talk between airlines, tour operators, and hoteliers’ – the session that was moderated by Paul Bannister, CEO of strategic marketing consultancy Ignite: I quoted him as saying, “I’m hoping to wake the audience up to the principle of competition.”

But Arthur upstaged him a little when he said that Protea can’t find funding to put some of its smaller hotels into the hands of black entrepreneurs.

That woke ‘em up.

So I cornered him, and asked him about it (watch the complete interview here – it’s a little less than 7 minute’s long).

“We have a situation where there are a lot of black people who are employed in our industry – at menial level and all the way through to senior level; we also have a number of investors in our industry.

“Protea, for example, is more than 50% black-owned.”

But those owners include the chairman of Nedbank, Reuel Khoza, and a union that boasts hundreds of thousands of members.

“But the fact of the matter is that these investors are not actually involved on a day-to-day basis” – which prompted Protea’s team to ask how it could create wealth in the hands of a significant number of black hotel managers.

Their solution? Develop entrepreneurs by helping managers to buy hotels of eighty bedrooms or less.

Protea, said Arthur, wants to put businesses into the hands of families – husbands, wives, parents, children – who’ll run them with the kind of drive and dedication that can only come from private ownership.

“We’re happy to contribute a significant slug of the equity portion to them, and they would then work their debt off – it’ll take eight or ten years, but at that point, 100% of the debt and 100% of the equity should be paid back.”

You’d think that government institutions and the banks would be falling over themselves to help: in a country that’s striving to right the wrongs of the past, here’s a corps of solid – but previously disadvantaged – people who have the experience (and the backing of Africa’s largest hotel chain) to make their projects work.

But they can’t.

“The problem,” said Arthur, “is not finding the hotels, not finding the individuals, nor finding the equity.

“The problem is finding the debt.

“Most of the government agencies are very happy to fund brand new hotels, but are – for some obscure reason – completely averse to funding existing properties.

“And that’s what I can’t understand, and that’s my frustration.”

So has he any idea why this might be happening?
Not really: he’s baffled. “I’m trying to say to them that if you build a new hotel, it’s going to be 1.5 million rand a room – but an existing one is six or seven hundred thousand rand a room. And that’s a very big difference in your pay-back period.”

Money’s money, of course, and Arthur doesn’t care whether the solution comes from government-backed agencies or commercial banks.

“Right now, there doesn’t seem to by anybody who’s prepared to up their game and say, ‘I’m going to stand up and be counted: I’m going to make this happen’.”

Although Protea is trying to do that.

“We’re prepared to enter into soft franchise agreements with them: we would charge an absolutely minimal fee, and they would get all the benefits of the power of purchasing, distribution, and marketing” – because the groups know that this will make success more likely.

“It would also give the lender a lot of comfort to know that our quality assurance teams are in there all the time – because we won’t allow our brand to be put onto properties that aren’t up to standard.”

Initially, he said, he’d like to see ten hotels transferred to black ownership in this way – but the number could eventually rise to two hundred.

So would this make such a difference in the greater scheme of things? He’d be empowering just 200 families? It doesn’t really create a lot of wealth for a lot of people, does it?

“Well it does, you see – that’s the part that people are missing because every person that works in South Africa and sub-Saharan Africa feeds up to ten people.

“When you have a family there – let’s say a traditional family: husband, wife, three kids, two sets of grandparents – all of those people can live and exist on that property. and everybody – from the suppliers of meat to the people who are growing the vegetables will benefit from it.

“If we could create a couple of hundred proper entrepreneurs in this country – real people that have been given the opportunity to have their own hotels – I think that we’ll be a long way down the line to righting the wrongs of the past.”

But there’s hope, of course: there were a lot of bankers and officials in the room today, and the talk at lunch was all about how they should change their policies.

And that’s what HICA was designed to do: find the constraints, and create the linkages that’ll remove them.

• Watch my interview with Arthur Gillis below or on YouTube.
• HICA 2013 is currently under way at Durban’s Elangeni Hotel
• HICA is presented by the Tourism Business Council of South Africa – TBCSA: www.tbcsa.travel
• For blog posts about HICA 2013, please visit www.thistourismweek.co.za
• Twitter: please follow @TBCZA and watch and use the hash tag #HICA13

[youtube]http://youtu.be/WihVE1TABiQ[/youtube]