Many small, medium and micro enterprises (SMMEs) have been struggling for survival amid the major economic impact of COVID-19. This has left a huge question mark over whether they would be able to honour travellers’ bookings post-pandemic.
Seeza founder, Septi Bukula, said the aim of the proposed guarantee was to incentivise the market to book and pay now, for travel to be undertaken after the lockdown.
“The proposed guarantee would cover a portion of the total cost of the booking, thereby mitigating the risk of total loss for the traveller in the event that the SME is not able to honour the booking in future,” he explained.
Bukula added that, because guarantees were generally open to abuse, the proposed guarantee would need to be designed and implemented very carefully.
He pointed to credit guarantees as being an important public policy instrument for small business support in many parts of the world, with South Africa following the example of many countries around the world, when it established the Khula Credit Guarantee Scheme in 1996, as an important part of the country’s post-1994 small business development efforts.
“Most recently, in response to the economic impact of COVID-19, the government announced a R200 billion (€10bn) guarantee scheme,” said Bukula, commenting that this was “a clear acknowledgement” by the government of both the size of the economic catastrophe wrought by the pandemic and the importance of a credit guarantee as a policy instrument to boost access to credit for firms that would otherwise struggle to receive funding assistance.
However, added Bukula, while this policy intervention was expected to go a long way to aid those firms that sought credit, it had two important limitations in terms of its ability to assist most SMEs.
“Firstly, by its very nature a credit guarantee supports only businesses that seek credit. Those that aren’t are not covered. Secondly, in the specific context of COVID-19, what SMEs need the least is burdening themselves with debt that will need to be repaid, with interest, over many years,” he said.
“What SMEs need urgently is support to carry on trading now, thereby earning revenue and cash flows that will sustain their business during and beyond the COVID-19 lockdown,” Bukula said, noting that this was where an SME-focused tourism trading guarantee (TTG) could play a vital role.
Design and implementation
Some of the design and implementation specifics that Seeza has proposed with this guarantee:
- The guarantee to cover only bookings made and paid for in full within a pre-determined period, including during the lockdown and perhaps several months thereafter while the market is still recovering.
- The guarantee to cover only those bookings that cannot be honoured by the SME because it ceased operating subsequent to receiving the booking. In this event, an effort would be made, in the first instance, to redirect the booking to another SME that offers a similar product and standard of service as the failed SME. Only when this attempt proves not possible, would the client be refunded.
- All bookings and evidence of full payment to be registered with the guarantee at the time of booking, to avoid back-dating.
- The amount covered by the guarantee to follow a graduated scale, with bookings completed during the earlier stages of the lockdown enjoying a higher amount of cover than those concluded later on.
- To strengthen market confidence, the guarantee should be designed to settle claims speedily and with minimum red tape.
“To be successful, the guarantee would need to be accompanied by extensive marketing, encouraging locals to book their future travel now and directing them to platforms where they can access and book with SMEs,” said Bukula.
As part of their own contribution to the operational success of the guarantee, SMEs would be encouraged to offer certain incentives, such as discounts, to clients that made and paid in full for advance bookings, he added.