South African Tourism on its Annual Report 2009/10 and Mid Year 2010/11 Performance Information

Committee: Tourism

Chairperson: Mr D Gumede (ANC)

Date of Meeting: 18 Oct 2010

Summary

SA Tourism had a portfolio review methodology done every three years where it adopted a “fresh eyes” approach by considering all the countries in the world based on a set of objective attractiveness criteria. The process enabled SA Tourism to identify markets that were a priority. In keeping with SA Tourism’s alignment with the Department’s targets for tourism development, there was an expected increase of tourism’s direct contribution to GDP from R52.38bn in 2009 (estimate) to R65.72bn in 2015. The indirect contribution to GDP was expected to increase from 210bn in 2009 (estimate) to 258bn in 2015. Relating to marketing efforts of SA Tourism, global arrivals declined by 4% in 2009 whilst SA‘s arrivals grew by 3.6%. South Africa’s growth had outstripped global growth every year since 2004. The domestic market was affected by the financial crisis as domestic tourism decreased by 8% in 2009 with 30 million trips being undertaken compared to the 33 million in 2008. Domestic tourists also tightened their spending in 2009 as total revenue declined by 14% to R22 billion in 2008. The success of the World Cup had created immense goodwill and positive brand reputation for SA, leading to a more receptive world. The huge effort after the tournament was to convert World Cup awareness into arrivals and continue the upward trend in arrivals to SA. Visitor arrivals for the first seven months of 2010 grew by 13.3% over the same period in 2009 to reach 6,329,643.

From a financial point of view SA Tourism achieved its ninth consecutive unqualified audit report from the Auditor General and held the record in government (including all departments, public entities and local authorities) with the most consecutive unqualified audit reports with no emphasis of matters. SA Tourism’s total expenditure increased by 17% from R724,27m in 2008/09 to R849,15m in 2009/10. There was a total increase of SA Tourism’s funding by 19% over the previous year 2008/09. Other revenue also increased by 8% over 2008/09. Key challenges for tourism include SA Tourism’s competitiveness, barriers to travel like safety issues, risks in the form of economic recession and transformation in the industry was slow.

Members discussed the definition of tourist. There seemed to be confusion as to what definition had been used in the Annul Report - the old or the new. SA Tourisms clarified that for internal reporting purposes the issue was about visitor figures. For purposes other than internal reporting, tourist figures were used.  The impact of the 2010 World Cup on tourism was of interest to the Committee. The importance of obtaining figures for this could not be emphasised enough. The figures would however not be available any time soon as the task of sorting and compiling figures was huge.


Minutes

The Chairperson thanked SA Tourism for the work they had done during the FIFA 2010 World Cup in positioning SA in world markets. He congratulated them for the various achievement awards they had won. SA Tourism had for eight consecutive years obtained unqualified audit reports. The one issue that was not addressed by SA Tourism adequately was domestic tourism.

South African Tourism Annual Report 2009/10
The SA Tourism delegation comprised of Mr Jabu Mabuza, Chairman: SA Tourism Board; Ms Thandiwe January, Chief Executive Officer; Ms Roshene Singh, Chief Marketing Officer; Mr Johan Van Der Walt, Chief Financial Officer, and Ms Thembi Kunene, Chief Quality Assurance Officer: Tourism Grading Council of SA. Ms January kicked off the briefing saying SA Tourism had a portfolio review methodology done every three years where it adopted a “fresh eyes” approach by considering all the countries in the world based on a set of objective attractiveness criteria. The process enabled SA Tourism to identify markets that were a priority. The results of the evaluation would illustrate the suggested core (attractive and easier), tactical (less attractive but easier), investment (attractive but difficult) and watch-list (less attractive and difficult) markets within each region. The markets were ever changing and it was not uncommon for a country to shift from one to the other. For example Brazil used to be a tactical market now it was an investment market. The fourth portfolio review process took place during July/August 2009. The USA, Angola, Australia and Germany were part of SA Tourism’s core markets. Investment markets were Mozambique, Brazil, China and Sweden. Tactical markets were Lesotho, New Zealand and Ireland. Watch-list markets were Zimbabwe, Argentina, and Denmark. In keeping with SA Tourism’s alignment with the Department’s targets for tourism development there was an expected increase of tourism’s direct contribution to GDP from R52.38bn in 2009 (estimate) to R65.72bn in 2015. The indirect contribution to GDP was expected to increase from 210bn in 2009 (estimate) to 258bn in 2015.

Ms Roshene Singh continued with the marketing efforts of SA Tourism. Global arrivals declined by 4% in 2009 whilst SA ‘s arrivals grew by 3.6%. South Africa’s growth had outstripped global growth every year since 2004. India grew by 17.5%, China grew by 12.4 % and Africa grew by 5.7%. The domestic market was affected by the financial crisis as domestic tourism decreased by 8% in 2009 with 30 million trips being undertaken compared to the 33 million in 2008. Domestic tourists also tightened their spending in 2009 as total revenue declined by 14% to R22 billion in 2008. But the domestic market did provide real potential for growth especially in the younger upcoming segments. Whilst SA Tourism’s core markets were still what paid the bills, the focus would be on expanding in China, India, Brazil and African air markets where there was better potential for growth. The success of the World Cup had created immense goodwill and positive brand reputation for SA, leading to a more receptive world. The huge effort after the tournament was to convert World Cup awareness into arrivals to continue the upward trend in overall arrivals to SA. Visitor arrivals for the first seven months of 2010 grew by 13.3% over the same period in 2009 to reach 6,329,643. This was driven by a growth in all markets.

Most of SA Tourism’s key performance indicators had met its targets. The Committee was shown comparisons between targeted figures and actual figures. For example the number of trade contracts with travel agents and operators was targeted at 13 000, the actual figure for 2009/10 was 31 367. SA Tourism had high level objectives. Achieving total arrivals to SA and achieving average spend per tourist inside SA were two such objectives. Actual arrivals during 2008 was 9 591 828; during 2009 actual arrivals was 9 933 966 - a 3.6% increase over 2008. Actual spend per tourist inside SA was R8 100 per person in 2009; it had increased to R8 400 per person. Members were also provided with breakdown of arrival figures from various regions in the world. The third objective was that SA should be the most preferred tourism brand by 2014. The global awareness target for December 2010 was 77% and the target for 2013 was 79%. The fourth objective was for SA Tourism to be the best tourism organisation by 2010. Members were provided with lists of accolades that various organisations within the tourism industry in SA had achieved.

Mr Van Der Walt continued with a breakdown of SA Tourism’s financials. SA Tourism achieved its ninth consecutive unqualified audit report from the Auditor General and held the record in government (including all departments, public entities and local authorities) with the most consecutive unqualified audit reports with no emphais of matters. SA Tourism’s total expenditure increased by 17% from R724,27m in 2008/09 to R849,15m in 2009/10. There was a total increase of SA Tourism’s funding by 19% over the previous year 2008/09. Other revenue also increased by 8% over 2008/09. Further figures on SA Tourism’s financial performance were provided.

Ms Kunene provided specifics on the performance of the Grading Council for the 2009/10 financial year. Total new gradings had increased from 986 in 2002/03 to 8196 in 2009/10. Members were given a breakdown of gradings that had been done for various establishments across the provinces. The Northern Cape was the least performing province whereas Gauteng was the best performing. The Tourism Grading Council of SA (TGCSA) had clear strategies to ensure its road ahead. The introduction of globally recognised grading criteria which were credible to visitors and stakeholders and the improvement of the integrity of the grading process using IT infrastructure, were such strategies. The TGSA’s IT infrastructure went live on the 14 October 2010. There had been an increase in grading fees: the increase was substantially more for high end than for low end establishments.

Ms Singh continued with performance figures for SA Tourism for the period April –September 2010. SA continued to outperform global growth, which grew by 6,9%in the first 6 months of 2010. There was also a growth in visitor arrivals from regions like Africa, the Americas and Europe as a result of the 2010 FIFA World Cup that was hosted in June and July. SA Tourism was still in the process of studying the impact of the 2010 FIFA World Cup on tourism in SA. There was no doubt that SA Tourism was feeling the pressure to sustain the momentum created by the World Cup. SA Tourism would continue to strive to meet arrival and revenue targets at a time when its key markets were in decline. The Egyptian Tourist Authority spent 64% of its adspend on television. SA Tourism spent 38% of its adspend on the internet. In terms of adspend amongst its competitors, SA Tourism was ranked 5th, Egypt was ranked 1st. SA Tourism spent R315,8m or 81% of its budget of R389,9m budget during the first 5 months of the 2010/11 financial year. Some key challenges for tourism include SA Tourism’s competitiveness, barriers to travel such as safety issues, risks in the form of economic recession and the fact that transformation in the industry was slow. SA Tourism’s current staff complement was 174 and it would be increased to 177 by the addition of three new staff members with the opening of the Luanda office in April 2011.

Ms January concluded by stating that the profile of tourism within government would be raised and the battle for more funding would continue. Core markets would be defended, new growth markets like Brazil and India offered quick wins for growth and watchlist countries like Spain and Argentina offered tactical opportunities.

Discussion
The Chairperson highlighted issues which he felt needed addressing. The accuracy of statistics and the sources thereof needed to be checked. If budgetary problems existed, the Committee needed to be informed. Quality control of grading was an important issue. Why did ad spend by SA Tourism focus on different media than that of its competitors? SA Tourism focussed on the internet whereas the Egyptian Tourism Bureau focussed on television.

Mr Mabuza replied that SA Tourism did spend on television and other media. SA Tourism chose to spend more on person to person interactions via the internet. It was not an option to try to outspend Egypt and Australia.

Mr Van Der Walt stated that the Business Plan and Budget had been tweaked. More would be spent on emerging market activities. Australia spent 6% of its Gross Domestic Product (GDP) on tourism marketing. SA only spent 0,1% of its GDP on tourism marketing. Support was needed from the Committee to lobby for the budget of SA Tourism to be increased.

Ms Kunene referred to the presentation slides to better explain grading.

The Chairperson said that there were hotels that apparently had the same grade but were vastly different when service levels were compared. He emphasised that quality control should be maintained and that new entrants to the industry should not be treated softly.

Mr Mabuza responded that grading in SA was voluntary. Progress was good but the challenge was the voluntary nature of grading. Many establishments were not graded. Standardisation had been sorted out. For the World Cup the requirement had been 110 000 graded rooms. Occupancy during the World Cup had not been what had been expected.

Mr G Krumbock (DA) asked what definition of “tourist” was referred to in the briefing. It looked as if the old definition was still being used. He asked how the weakening rand affected SA Tourism’s efforts.

Mr Mabuza responded that Annual Reports from about 2007 onwards had looked at visitor arrivals. The point of reference was visitor arrivals. In late 2009 SA Tourism decided to follow the internationally accepted definition of a “tourist”. A tourist was considered someone who spent a night. When the definition of “tourist” had changed, SA Tourism had not explained the difference to the Committee. The Minister had spoken on targets based on arrivals. SA Tourism’s targets were on 3-5 year periods. The problem was that targets were based on the old definition of a tourist. SA Tourism might have to work with the Department in order to revise its targets given the new definition

Mr Krumbock responded that the problem was that both definitions could not be used. He had spoken to Department officials earlier and he had been informed that there had been no change in the definition of a tourist. Yet Mr Mabuza had just said that there was a change in the definition. He noted that there was a difference between arrivals and tourist arrivals. What definition was the briefing referring to? The Annual Report still reflected the old 10 million figure when in terms of the new definition the figure should be 7.2 million tourist arrivals.

The Chairperson said that a way forward should be found. A figure needed to be agreed upon in order to assess SA Tourism’s performance.

Ms Singh replied that the ‘visitor’ figures had only been provided to the Department and the Committee. The rest of the time ‘tourist’ figures were used. Visitor figures were internal and were based on compliance. Only when SA Tourism spoke to targets were visitor figures used. Usually tourist figures were spoken of. When SA Tourism spoke to the media and stakeholders tourist figures were used. Stats SA themselves used tourist figures. She said that by the end of the year the figure would no longer be 10 million.

Mr Dirk Van Schalkwyk, Acting Director General: Tourism Department, replied that letters had already been sent to StatsSA and the Department of Home Affairs on how agreement was to be reached on figures and definitions. The Department would report back to the Committee on the issue in due course.

The Chairperson said that the problem was that the terms ‘tourists’, ‘visitors’ and ‘arrivals’ were used interchangeably.

Mr Krumbock accepted the way forward explained by Mr Van Schalkwyk. He referred to page 10 of the Annual Report and asked if the title of the graph should be changed. Should the title of the graph be “foreign arrivals” as opposed to “foreign tourists”?

Mr Mabuza responded that targets were set on “arrivals”. SA Tourism meant to report on arrivals. The role of StatsSA was acknowledged. SA Tourism used the statistics provided by StatsSA. If the word “tourist” was removed, “arrivals” was what SA Tourism spoke to. He agreed to expunge the use of the word “tourist”.
SA Tourism’s costs were US Dollar based. The SA Rand went further. The negative side was that SA Tourism was selling a Rand destination. The strength of the Rand made SA seem expensive. 

Mr L Khorai (ANC) asked why all agencies seemed to be based in nice places like Sandton. He said that the grading system was still not understood by many persons, especially those in rural areas. What was the solution? People had renovated their properties in anticipation of the 2010 FIFA World Cup but in the end had not benefitted from the tournament. He said that the ex SA soccer player Mr Lucas Radebe had been an ambassador for SA Tourism during the World Cup. What was Mr Radebe’s role in the entity? It was all good and well to increase the profile of SA Tourism. How was it to benefit persons in rural areas?

Mr Mabuza acknowledged that many persons had upgraded their bed and breakfasts but had not benefitted from the World Cup. Ms Singh replied that the services of Mr Radebe had been used six months prior to the World Cup. He had also travelled with SA Tourism to the UK, Germany and the USA. He was employed for a limited timeframe, that is, for the 2010 FIFA World Cup.

Ms M Njobe (COPE) congratulated SA Tourism on its unqualified audit report. She asked why SA Tourism was providing loans to its employees. Should loans to employees be encouraged? If persons from the Democratic Republic of Congo and Angola were interested in visiting SA why was there no interest from Nigeria? Nigeria had such a large population and was reasonably wealthy. She also felt that Zimbabwe was a potential market for business tourism. What were the efforts of SA Tourism to bring back figures or even to exceed figures from where they had been in the past on European visitors to SA? The world recession was an obstacle but Europeans were big spenders. She asked why transformation in the sector was slow. What work was being done to boost domestic tourism? It was agreed that the budget for tourism was far too small, National Treasury should be pressurized to increase it.

Mr Mabuza replied that Europe itself was not a growing market. New markets like India, China and Brazil need to be looked at.

Ms Singh answered that Nigeria was seen as a core market. Zimbabwe was a watchlist market. Transformation in the industry was taking place but it was at a slower pace than what SA Tourism would like to see.

Mr Van Der Walt stated that the staff loans were for accommodation costs for a costing manager. It was for the payment of two months rental in advance.  There were also loans for education and for family tragedies.

The Chairperson asked if the loans to employees were transparent.

Mr Van Der Walt answered that there were proper processes in place.

Ms V Bam-Mugwanya (ANC) asked what was being done to promote tourism in rural areas. Efforts in rural areas seemed not to be aggressive. What was the Department doing with other departments to engage on rural tourism?

Mr Mabuza replied that all provinces had tourism development agencies. Some district authorities also had tourism agencies. The mandate for SA Tourism was to deal with international tourism. Provincial and local tourism authorities could do more for tourism in rural areas. He agreed that rural development was important.

Mr Krumbock asked if the figures for average tourist spend was based on spend by a tourist or on an arrival. During the World Cup Tournament what was the percentage take-up of tourists that went to townships as opposed to the usual bed and breakfast establishments. He added that the World Cup figures should have been stated in the Annual Report as a separate unusual item. It should not have been included under other tourism figures. Figures were required inclusive of and exclusive of the World Cup. It would show the extent of the impact that the World Cup had on tourism in SA. The Committee needed the figures for August and September 2010 - whatever the trend might be. A great deal of media coverage was about the costs of the stadia that had been built for the World Cup. Hence it was important to know what the spin-offs from the World Cup were. He felt that SA Tourism should be more proactive and that they should work out scenarios that if their budget was increased to x amount then this would be the figures, as a result of the increase. The Committee wanted to be told what was needed to boost tourism figures. Egypt’s tourism spend was huge yet it only had the Nile and the Pyramids.

Mr Mabuza said that SA Tourism would map scenarios based on an increase in its budget.

The Chairperson remarked that the 2010 World Cup might corrupt figures if one was not careful. The impact of the World Cup on tourism figures should be provided to members as soon as they became available.

Mr Mabuza said that it was unlikely that the impact of the World Cup figures would be ready by the end of the year. There were too many sets of statistics from various parties to consider.

The Chairperson said that time had run out and that the rest of the questions would require written submissions to the Committee.

The meeting was adjourned.