Department of Tourism Strategic Plan 2013: input by Financial and Fiscal Commission

Meeting report

Financial and Fiscal Commission (FFC) on National Department of Tourism’s Budget & Strategic Plan
The Financial and Fiscal Commission delegation comprised of Mr Bongani Khumalo, Acting Chairperson/Chief Executive, Ms Tania Ajam, Commissioner, Mr Ghalieb Dawood, Programme Manager, and Mr Henry Eksteen Parliamentary Liaison Officer.

Mr Khumalo stated that the FFC had a primary responsibility to Parliament. The analysis covered matters relevant to national objectives. The FFC tried to look at how challenges that had been identified by the National Department of Tourism could be addressed. The Committee was given background on the macroeconomic and fiscal situation in South Africa. The South African economy was expected to grow at a slower rate: 2.5% in 2012 and 2.7% in 2013.State debt was increasing and the revised under-collection of revenue was R12 billion for 2012/13. There was huge misallocation of resources. Even though revenue was declining, government expenditure was increasing.

Tourism was considered a critical player in the South African economy. In 2012 tourism made a 10.3% contribution to total employment in South Africa. Total contribution of tourism to Gross Domestic Product (GDP) was R309 billion in 2012 (11% of GDP). If it grew at the current rate of 1.52 % per annum, it would fall short by R150 billion of the National Development Plan (NDP) target of R499 billion by 2020. There was however a marginal gain in tourism jobs over the past five years. Job creation in the tourism sector was negatively affected by the slowdown in the domestic and global economy

Mr Ghalieb Dawood, Programme Manager, said that the NDP hoped to create 225 000 tourism jobs by 2020. The New Growth Path (NGP) also hoped to create 225 000 jobs in tourism but its target was set for 2015. He pointed out the disjuncture in targets set by the NDP and the NGP.

Tourism was listed as a concurrent function in the Constitution (Schedule 4B) and he elaborated upon the importance of intergovernmental relations by the various spheres of government to make the sector grow.
He noted that the National Tourism Sector Strategy (NTSS) was a good blueprint for the sector to achieve the developmental objectives of government. Successful implementation of the NTSS could only take place if provincial departments and municipalities aligned their plans with the strategy and provided sufficient funding to implement the strategy.The Tourism Bill of 2012 was a key lever to promote the growth and development of the tourism sector.Given the prevailing economic environment, it was unlikely to see a significant injection of funds in the sector. To achieve the targets in the NDP, the NDT should focus on strategic interventions that would have multiplier effects in the sector.

Background to the NDT programme spending and Medium Term Expenditure Framework (MTEF) Budget was provided. Average departmental spending increased in real terms by 1.8% per annum (after taking inflation into account) compared to 6.5% expected over the MTEF period. The major programme cost drivers for the period 2009/10 – 2012/13 was the Administration Programme due to the NDT becoming a new stand-alone department and secondly the International Tourism Programme from the increased implementation of bilateral and multilateral engagements and a new programme structure being implemented. Lastly the Domestic Tourism Programme was also a major cost driver over the MTEF as a result of the transfer of the tourism incentive programme from the Department of Trade and Industry to the NDT and infrastructure projects under the Expanded Public Works Programme.

Spending patterns showed that compensation of employees increased by 20.8% per annum in real terms from 2009/10 – 2012/13 mainly from the filling of vacant posts and increased by 4.3% over the MTEF from improved conditions of service.

Spending performance by the NDT was 96.5% of its total budget in 2010/11 compared to 98.8% in 2011/12. The NDT spent 95% of its total budget by February 2013 compared to 92% of total budget at the same time last year (February 2012) against a benchmark of 92%. The NDT was therefore close to overspending its budget for 2012/13. No reason was provided by NDT for the 3% higher than anticipated spending performance in February 2013.

In summarising the financial assessment of the NDT it was difficult to assess the overall service delivery impact of the total NDT budget spent because the South African Tourism (SAT) annual report was not consolidated with the NDT annual report. The biggest challenge for the NDT was to ensure it got value for money from funds disbursed. With the overall funding envelope of the NDT determined upfront, there were the chances of budgetary tensions between allocations for SAT and the NDT for internal activities. The NDT was less likely to receive a major unconditional cash injection, although there was substantial grant funding for job creation initiatives that the NDT could apply for.

How well did the NDT perform in 2011/12? The NDT met or exceeded 92% of all its targets for 2011/12. The major reason cited for exceeding targets was that there was better uptake and response to initiatives. The NDT did not overspend its budget despite 30% of its targets being exceeded, although by marginal amounts in most cases. Nevertheless, programs were either implemented efficiently or there was some fat built into the budget.

Regarding the quality of non-financial information for oversight purposes, indicators were generally found to be of good quality. It was however unclear why some indicators reported on in 2010/11 had not been reported on in 2011/12. One such indicator was the percentage of parliamentary questions with responses provided within specified time frames. An area that could be improved upon was for instance that some indicators were not measurable. An example of such indicator was “percentage implementation of workplace skills plan”. The indicator did not say how the skills plan was being measured. The FFC had made a number of wide ranging recommendations on intergovernmental fiscal relations as part of its 2013/14 Annual Submission to Parliament. A recommendation specifically related to tourism was that job creation target groups such as women, youth and people with disabilities should be included in the reporting of the outcomes measures. Government supported the recommendation. For 2011/12, the NDT had only reported on global job creation targets for the EPWP. Even if the information was internal it should nevertheless be published in the Annual Report for oversight purposes.

Ms Tania Ajam, FFC Commissioner, said that the NDT had the difficult task of co-ordination across the three spheres of government as well as across other sectors. It also had to keep track of the work done by agencies. She noted that there were international opportunities to be take advantage of like the regional growth that was taking place in the rest of Africa. The NDT budget was considered miniscule compared to what was spent by the private sector in tourism. The issue was about how the NDT could become a sector leader even though its budget was small. Most of the funding did not lie with the NDT but lay with agencies, provinces and local government. Much of the funds were transferred to entities. The NDT needed a strong monitoring and evaluation system to check on transfers. Another issue was about how the recommendations made by the FFC could be put in practice.

Discussion
The Chairperson stated that when government cut costs, it was usually on catering and transport. He noted that when things got tight tourism was affected first.

He referred to the issue of parliamentary questions brought up in the briefing and said that members could feel free to comment. He also noted that the last time the Committee checked the National Department of Tourism’s internal controls it was as it should be. The Committee had similar concerns as the FFC over the Expanded Public Works Programme. He agreed with the FFC that transfers and subsidies that were transferred unconditionally were difficult to monitor.

Mr Khumalo said that when the EPWP grant was introduced, the FFC had asked how it was to be allocated. The FFC had concerns with balancing the figures. The FFC still had issues to resolve with the Department of Public Works over the EPWP. There were some technical matters pertaining to the EPWP which were not limited to the NDT. The FFC had in the past made several inputs to Parliament about the EPWP. He said that catering and transport costs were soft targets and were cut first when things got tight. How could national government support provinces? He commented that money in the tourism sector was after all mainly to be found in the private sector.

Mr S Farrow (DA) said that the NDT acted like a clearing house transferring funds to various agencies. He asked why there was a discrepancy regarding the timeframe for meeting the target of creating 225 000 jobs. The New Growth Path set the timeframe at 2015 whereas the National Development Plan set it for 2020. What was the reason for the discrepancy? The FFC analysis was based on information as provided by the NDT. Did the FFC conduct its own investigations and look beyond the information provided? He referred to the answering of parliamentary questions by the Executive within a ten-day deadline and asked how other departments fared. How was the answering of questions tracked?

Mr Khumalo confirmed that the FFC used the official documents of the NDT to do the analysis. The FFC could however go into departments and entities to investigate. Any organisation that received government funding could be investigated by the FFC on how monies were spent. He added that the FFC had not interacted with the NDT in the process of the analysis. Official documents of the NDT were used to perform the analysis.

Ms C Zikalala (IFP) referred to page 13 of the briefing document which spoke about the funding of additional tourism infrastructure and asked the FFC to elaborate as there were three spheres of government. She noted that there seemed to be a lack of communication between the FFC and government. She referred to page 15 and asked was there also a lack of communication between the NDT and the FFC.

Mr R Shah (DA) was also concerned about the disjuncture between the timeframes for the creation of 225 000 jobs as set out in the New Growth Path and National Development Plan. The timeframes were 2015 and 2020 respectively. FFC had pointed out that if the tourism sector’s contribution to GDP remained at 1.5% per annum there would be a shortfall of R150 billion. He asked what the growth rate should be to prevent the shortfall. On page 12 reference was made to wasteful expenditure of R203 000 by the NDT on unused tickets. He asked whether it was 2010 FIFA World Cup tickets or tickets from another festival.

Mr Khumalo, responding to what growth rate would be optimal for meeting tourism targets, stated that the FFC could use a model to generate figures. Mr Dawood said that the disjuncture in the job creation figures for the NGP and NDP were taken from the NDT’s official documents. The wasteful expenditure as set out in the NDT’s Annual Report 2011/12 did not state that it was on FIFA World Cup tickets. Looking at the performance information of the NDT it seemed that it was meeting its performance targets yet it was under spending.

Mr Shah reiterated his question as to what the desired growth rate should be. He noted that at local government level, tourism was treated like an unfunded mandate. He asked if there were legislative loopholes or laws in place that would allow tourism to be taken more seriously. How could local government be made to take tourism seriously?

Mr Dawood said that the FFC would provide the Committee with the growth rate requested by Mr Shah.

Mr Khumalo said that the FFC had earlier in the year reviewed the local government equitable share formula to incorporate basic services, roads, storm water and drainage. Provision was made for maintenance as well. He noted that the onus still remained with municipal councils, the National Council of Provinces and Parliament to ensure that money allocated was spent where it should be.

Ms M Njobe (COPE) commented that the briefing spoke about the under-collection of revenue and that the NDT had to reduce its budget by R5.4m. The Committee had already engaged with the NDT over the EPWP. Her understanding of under spending was different to that of the FFC. The NDT could not report and account because persons responsible had not done their work. Was the FFC expecting the Committee to take the NDT to task? She asked if the 1.5% growth rate per annum in tourism would lead to shortfalls in the future. Had the FFC informed the NDT about this? It was concerning since tourism was supposed to be a driver for growth. The Committee had observed that municipalities and provinces had small budgets for tourism. She asked what recommendations the FFC could make about this. Unlike health and education, there were not any lump sums that were transferred to provinces and municipalities. Growth could not take place because budgets were lacking. She asked what the Committee could do to have the budget of the NDT increased. Even the Minister of Tourism had made a statement that the budget for tourism was sufficient. It was true that there was a visible increase in employment in the hospitality industry. The only problem was that most of those employed were not South Africans. For whom were jobs created?

Mr Khumalo stated that the issue of whether the budget of the NDT was sufficient was huge. Tourism was after all considered a driver for growth. Under-collection of revenue and reductions in the budgets of departments occurred across the board. If funds in the system were used wrongly, the funds could be recalled back into the fiscus and could be utilised elsewhere. Very few departments overspent their budgets, under spending was more common.

Ms V Bam-Mugwanya (ANC) referred to page 13 of the briefing document which provided a summary of the financial assessment of the NDT and asked that the FFC explain it further. She noted that if the NDT audit report by the Auditor-General did not have material findings, then the NDT should be commended. She asked how serious the NDT took the recommendations made by the FFC. The recommendations made by the FFC were good and could lead to job creation and development. The NDT was sometimes hampered by delays and inefficiencies of other government departments. How could the FFC assist with building synergies in order to improve intergovernmental and interdepartmental relations?

Mr Khumalo explained that Parliament was the FFC’s primary stakeholder. He was not overly concerned that recommendations made by the FFC were not implemented by departments. Parliament was there to hold departments accountable. He noted that when the FFC made recommendations, the Minister of Finance responded to them in his Budget Speech. He noted that when the Auditor-General’s Office found no material issues, the issue was more about accountability and measurability.

The Chairperson asked what the debt was that was being referred to on page 3 of the briefing document. Was the debt due to consumption?

Ms Ajam, responding to whether the debt was due to consumption, explained that infrastructure could be built but the problem was how to maintain it. Expenditure on personnel was always high. The challenge was to get the balance right.

Mr Sibusiso Khuzwayo, Committee Content Adviser, asked for clarity on some issues. He referred to page 9 which alluded to the fact that there was a clear shift in spending from consumption (via marketing of tourism through policy and knowledge services) to investment in enterprises for job creation purposes (i.e. tourism incentive program through domestic tourism). He pointed out that the increase in spending on domestic tourism was funding of R319m which had been obtained from the Department of Trade and Industry and was not new money. The funds had always been there. He commented that the increase in the NDT budget was far too little. There were many strategies which could not be implemented. In light of this, he asked if it was still possible to obtain new money. It was all good and well to set targets but funds were needed to implement and reach targets. He asked how the Medium Term Expenditure Framework baseline could be increased. The Committee, its support staff and the FFC should perhaps meet and discuss ways on how targets could be achieved. He added that the problem with aligning the NGP targets set for achievement by 2015 and the NDP targets set for 2020 was that compounding interest was being used. Macroeconomic tools could be used to crunch figures which would allow for more realistic targets to be set.

Mr Khumalo, speaking to the issue of whether the MTEF baseline was correct, noted that the division of revenue process was very sector driven. National priorities would receive more funding than sectors such as tourism. From a vertical division perspective, the tourism sector did not create a case for itself and had a bad baseline. The equitable share did not make a direct allocation to tourism. He suggested that perhaps the Committee could lobby for a conditional grant at national level. The FFC did have discussions with the provinces on the role that they should be playing. The system was developed looking at services, rather than economic growth. There were issues which needed to be dealt with at sectoral level rather than at provincial level. He felt it unlikely that the budget of provinces and municipalities for tourism was likely to increase.

The Chairperson commented that the Committee needed to make recommendations in its Budgetary Review and Recommendation Report for 2013.

The meeting was adjourned.