Over the past two decades a major burst of scholarship has occurred around tourism and local economic development futures in South Africa. This study addressed the question of key stakeholder perceptions of local economic development through tourism as the economic driver. In addition, it examines the challenges for enhancing the local development role of the tourism sector. Arguably, stakeholders at the coalface of tourism and local development issues, such as tourism business owners and local government officials, can offer useful insights into the everyday problems of maximizing the impact of tourism in local municipalities. The focus is on the King Sabata Dalindyebo Local Municipality (KSDM) in Eastern Cape province. The results are presented and dissected from 33 interviews conducted with private sector stakeholders as well as 20 government stakeholders. Stakeholder perceptions were investigated concerning three major themes: (1) the role and prospects for tourism and local economic development, (2) the use of municipal assets for tourism development; and, (3) the challenges facing tourism businesses for local economic development The research findings underscore several factors that explain the decline of the tourism economy of KSDM since 2006 and reduced its contribution to local economic development. Central issues surround crime and safety, infrastructural deficiencies, and shortcomings of the local government itself, including its failure to maintain critical municipal assets essential for tourism development.