Will things change with National's $100m tourism 'accelerator' fund?

  • Jun 08, 2020 NZST
  • Team Kalkine
Will things change with National's $100m tourism 'accelerator' fund?

Summary

  • The $100 million tourism 'accelerator' fund is designed to boost the tourism industry and the economy by investing in businesses or projects that can pull tourists to New Zealand.
  • The fund is directed only at new projects which will drive tourism demand and not to be used as working capital for the existing business operators.
  • To be invested over four years, the fund will support only 70% of the project, rest to be sponsored by the proprietor.
  • Provides opportunities to existing tourism operators look for projects that will bring them good business prospects when the COVID-19 impact subsides.
  • The accelerator also creates a possibility for investors or business operators from other industries to venture into tourism.

New Zealand’s tourism industry is going through a tumultuous time as COVID-19 has led to border closures and temporary shuttering down of domestic businesses for maintaining social distancing. This has led struggling tourism operators to resort to lay-offs, furloughs, or business closures.

The NZ government, during the Budget 2020 announcement on 14 May 2020, had declared a $400 million fund for the recovery of the tourism sector with a primary focus protecting tourism assets.

According to National Leader Todd Muller, as New Zealand is a leading tourism destination for both domestic and international visitors, the sector needs a boost once the border reopens with tourism operators full of confidence.  

A strategic investment

To boost the tourism sector, National party leader, Mr Muller, announced a National’s $100 million Tourism Accelerator grant programme to help fund tourism projects to increase demand for tourism. So what will the accelerator fund do?

  • The fund will be invested over four years. It will provide direct cash support to new businesses and tourist operators or existing operators who have shuttered their business but are willing to reopen.
  • The Tourism operators must invest a minimum of 30% of the project amount while the government will fund the remaining 70%. The project must meet the criteria of increasing demand within the tourism sector.
  • The accelerator fund is designed to bring innovation and novel concepts that will augment the tourism markets.

In a nutshell, the fund is directed at new projects driving tourism demand and not to be used as working capital for the existing business operators

Prime Minister Jacinda Ardern said she is considering the proposal to be adopted as Government policy. However, the PM feels that the project lacks details.

Decoding industry numbers

In 2019, tourism contributed $16.2 billion, or 5.8%, to the total GDP in New Zealand. In 2010, the tourism GDP was at $7.8 billion, less than half of what the current tourism sector contributes, showing an aggressive growth in the number of overseas visitors driven by marketing promotions from the New Zealand government.

The tourism sector is cyclical in nature, and New Zealand tourism is no exception. While tourism generally peaks during December, the graph starts residing from the following January. In the last five years, New Zealand has experienced increasing visitor footfall with overseas visitor arrivals increased by 1.3% in 2019.  The months following December 2019, witnessed a much steeper trough with little hope of gaining back the growth, given the restrictions imposed to contain the COVID-19 pandemic.

Pre-COVID-19 scenario

According to Tourism New Zealand, before the COVID-19 pandemic, New Zealanders contributed to 60% of New Zealand’s tourism expenditure. New Zealand Tourism was also a significant contributor as the biggest export industry based on foreign exchange earnings. The sector employed 8.4% of the national workforce. However, New Zealand’s tourism industry has gone through a substantial change after COVID-19 pandemic led to border closures and shuttering down of domestic businesses with lay-offs, furloughs, or business closures becoming a common scenario in the sector.

Will the $100 million tourism 'accelerator' fund boost the tourism sector?

  • The New Zealand Tourism sector is currently at dire straits. The business operators in the tourism sector are looking for financial aid that will assist them in offsetting their loss and staying afloat during the COVID-19 crisis.
  • The tourism accelerator fund is not designed to support the current scenario. Instead, the fund focuses on new business concepts that will augment the tourism sector bringing in more foreign currencies in the market.
  • The accelerator provides an opportunity to investors, or business operators who have the financial capacity to invest in a new project as a minimum of 30% investment is required from the proprietor side.
    • In the near term scenario, given the current state of the tourism sector, a handful of operators who are financially secure may be capable of availing the opportunity presented by the fund.
    • Once the international borders open, world economy starts recovering, the number of visitors should increase boosting the tourism sector and the earnings of the tourism operators. Increased earnings may prompt existing business operators to avail the fund by initiating new projects.
  • The fund creates an opportunity for people from other industry to venture into the tourism sector and build projects that will pull tourist towards experiencing New Zealand. And once the border reopens, these projects will be ready to mint money for the operators and the New Zealand government, boosting the economy.

Key takeaway

The $100 million tourism 'accelerator' fund is designed to boost the tourism industry and the economy through new businesses built on novel concepts or projects that can pull tourists in New Zealand. While the present scenario does look gloomy, the fund provides opportunities to existing financially secure tourism operators or financially strong entities from different industries to venture into tourism as it requires minimum 30% investment from the proprietor side. As New Zealand is gradually moving towards easing COVID-19 restrictions, the tourism 'accelerator' fund may bring in more joy for the nation in the coming future.

Disclaimer: All the currencies mentioned are in New Zealand Dollar unless specified.

 


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