Minister briefing on Department of Tourism 2011/12 Annual Report; Auditor-General briefing on audit outcome of Department; Meeting with Chinese Delegation


09 October 2012
Chairperson: Mr D Gumede (ANC)
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Meeting Summary

The Portfolio Committee on Tourism was briefed by the Minister of Tourism and representatives from the National Department of Tourism (NDT) on the 2011/12 annual report, in preparation for the Budgetary Review and Recommendation Report (BRRR). The Auditor-General was also present, and briefed them on financial management aspects of the 2011/12 annual report for the BRRR. The Minister reported that South Africa had made great progress in tourism in recent years, and the sector had grown by 3,3% in 2011. Regional tourism was the driving force of South African tourism, so more focus should be placed on targeting the regional market.

The AG’s report highlighted a number of non-compliance issues in the Department, such as irregular expenditure, deviations from Supply Chain Management policy, unattained targets and IT security management issues. He stated the causes of these issues and provided recommendations on how to solve them. The Department reported on its progress and efforts to improve on the AG’s reports, such conducting internal audits on a quarterly basis, and appointing qualified engineers/quantity surveyors to certify projects. Members were pleased with the turnout of top officials from the department and were generally pleased with the progress of the NDT, but emphasized that a lot more work still needed to be done to maximise the potential for growth of South African tourism. Due to time constraints, members proposed a follow up meeting.

The Committee also met the Portfolio Committee on Finance and Economy of the National People’s Congress of the People’s Republic of China to discuss South African policies and legislation on tourism. The Chinese delegation made suggestions such as strengthening the promotion of the tourism market, ensuring tourist security, and bridging of the language barrier between South Africa and China, in order to improve the tourism relationship between the two countries.

Meeting report

The Chairperson said the committee was happy with the progress made by the NDT. He urged everyone to continue striving to make South Africa a better country. He also stated that the office of the AG was the country’s “quality control” that ensured that the departments delivered on their duties.

Apologies were received from Ms C Zikalala (IFP), Ms J Maluleke (ANC), deputy minister Ms Tokozile Xasa (who was attending a meeting with the President), and Mr Dirk van Schalkwyk, (COO; NDT).

Briefing by the Minister
Mr Marthinus van Schalkwyk, Minister of Tourism, gave an overview of the performance of the Department thus far. He pointed out that even though tourism typically dipped after major events such as the 2010 World Cup, tourism had instead grown in South Africa.   This was an exceptional accomplishment.  Tourism had grown 3,3% this past year.  Tourist arrivals were over 3 million, and in the first two months of this year, they had increased by over 10%. The accommodation sector had increased by 11.2%, and the South African Reserve Bank had reported an increase in travel receipts this year. The reasons for this progress included: excellent partnerships, innovations in product development, diversifying and developing supply systems, excellent services and a highly focused industry.

Regional tourism drove the tourism industry.  Currently, the middle class of Africa was bigger than that of India, so African regional tourism was very strong. The department had mutually beneficial agreements with their tourism counterparts in Swaziland, Lesotho, Mozambique and Zimbabwe. He mentioned that Zimbabwe and Zambia would jointly host a UN tourism conference in 2013.  This would help promote regional tourism.

On the international platform, the NDT had participated in multinational tourism forums that included the United Nations Tourism Conference and the G20 Summit. In 2011, President Zuma
had joined the World Tourism Organisation (UNWTO) and World Travel & Tourism Council (WTTC) Leaders for Tourism Campaign. This was an initiative aimed at mobilizing countries to acknowledge tourism’s key role in delivering sustained and balanced growth and to prioritise the sector high in national policies in order to maximise its potential.

He concluded by thanking the Committee for its support of the Department.

Auditor General’s Report
Mr Terence Nonbembe, Auditor General (AG), reported on
audit outcomes for the NDT for 2011/12. The report focused on: determining whether controls were in place; progress on the implementation of such controls and whether improvement was still required; whether internal controls were in place, or if intervention was required to design and implement appropriate controls.

The audit on Supply Chain Management (SCM) had found that: R6 million of irregular expenditure incurred in the current financial year had been the result of a contravention of SCM legislation; quotations had been awarded to bidders who had not filed declarations of interest and were not employed by the state or connected to anyone employed by the state; and there were deviations from SCM policy. The cause of these problems included the fact that procurement had been done through deviations not approved by the delegated official, and this had resulted in non-compliance findings.  Management should ensure that SCM policies and procedures were in line with the laws and regulations of SCM to ensure compliance.

Mr Nombembe reported that material audit adjustments to the annual performance report for the NDT had been made. This was due to inadequate review of the reported information to ensure that this was supported by reliable evidence. He recommended that the performance information submitted on 31 May should be adequately supported by substantiating evidence to corroborate validity, accuracy and completeness. In addition, the pre-determined objectives (PDO) information should be prepared and reviewed quarterly to ensure reliability and that it was supported by corroborating evidence.

On South African Tourism (SAT), 55% of reported targets had not been achieved.  This was mainly due to the fact that indicators and targets were based on a stable baseline, while external factors like the global economic slowdown and bad media reporting on national safety and security had influenced the actual results negatively. Management needed to review their indicators and targets to take external factors into account.

There were information technology (IT) audit matters, identified by both external and internal auditors, relating to delays in finalising the disaster recovering plan. There were also issues surrounding IT User Access Control - Network and Application level - relating to user account management procedures not being fully implemented and user access internal controls not being based on best practice recommendations. Management had committed itself to address these findings and was taking the necessary corrective steps.

No problems had been found in the Human Resources area of either SAT or the NDT.

SAT had submitted financial statements for auditing that had not been prepared in all material respects in accordance with the requirements of section 55(1)(a) and (b) of the Public Finance Management Act (PFMA): material misstatements of revenue and disclosure items identified by the auditors had been subsequently corrected. This was due to a lack of adequate review of Annual Financial Statements (AFS) by the management and audit committee.  Management should ensure that AFS were prepared regularly (monthly instead of quarterly) and properly reviewed.

The audit had found problems with SAT’s financial health - they had incurred a net deficit which had been funded from accumulated surpluses. Mr Nonbembe explained that in line with its mandate in the Tourism Act, SAT executed marketing activities in numerous international markets and was therefore exposed to significant foreign exchange risk. During the 2011/12 financial year, they had incurred foreign exchange losses of R48 million, compared to foreign exchange profits of R7 million in the 2010/11 financial year. Funding was, however, not provided by National Treasury for foreign exchange cover in respect of the non-overhead component of its approved budget. He recommended that current mechanisms used by the public entity to address the risk of foreign exchange losses be closely monitored. The funding of operations from the accumulated surplus and cash balance was not sustainable and would impact directly on the funding and service delivery of the public entity.

Non-compliance of NDT with Treasury Regulation (TR8.4.1) was reported during the 2010-11 and 2011-12 financial year. The audit of these Expanded Public Works Program (EPWP) projects revealed that: provincial project managers and project implementers did not comply with required reporting procedures; project implementers did not submit annual financial and performance audit reports on the progress of projects; and some provincial project managers did not conduct regular site inspections and did not review the performance of implementers, as required.

Wasteful expenditure by NDT rose from R28 000 in 2011 to R208 000 in 2012.

Briefing by National Department of Tourism
Mr Kingsley Makhubela, Director-General (DG), stated that the performance of the department improved during 2011/12, compared to 2010/11.  This was due to: the review of the departmental strategy and improved planning; improvements in the internal performance management system; establishment of a Risk Management unit that assisted management in identifying and mitigating potential risks that could hinder the department from achieving its objectives within set timeframes; and the reduction of vacancy rates from 21.6% to 9.42%.  He added that the department had no tolerance for corrupt activities, and any unscrupulous individuals who diverted funds from the EPWP projects for personal use would be investigated and prosecuted.

In order to improve on the AG’s findings, action plans had been developed to overcome the internal deficiencies that had given rise to audit findings, and internal audits had been conducted on a quarterly basis on the validity, accuracy, and completeness of the reported performance against the pre-determined objectives.  For new Social Responsibility Implementation (SRI) contracts, the department would appoint the auditors for each project to strengthen oversight.  New SRI contracts were structured to provide even more controls and to guide release of funds, and in relevant cases qualified engineers/quantity surveyors would be appointed to certify projects.

Mr Ralph Ackerman, Chief Financial Officer (CFO), gave a brief overview of the budget and expenditure review for 2011/12. He reported that 55% of actual expenditure had been spent on tourism growth; 27% on tourism development; 16% on administration and 2% on policy, research, monitoring and evaluation.  Performance against targets was generally positive (see Presentation).

Ms Morongoe Ramphele , Deputy Director-General (DDG): Domestic Tourism Management, briefed the committee on tourism development. Out of 818 unemployed youth and graduates enrolled for training as chefs, 546 had graduated and been placed for experiential learning in order to contribute to skills and people development within the tourism sector.  A total of 422 who had been trained in the hospitality field and placed for experiential learning, had graduated, exceeding the target of 300.  The NDT had a goal to facilitate and support economic empowerment through product and enterprise development. They had met their target for a number of products in rural and less visited provinces. The Rural Tourism Development Strategy had been finalised.  On the EPWP, she stated that the IT system had caused compliance issues due toan inability to carry out quality checks through the system. She added that some inspectors lacked an engineering background and had problems dealing with infrastructure  projects.

It was reported that to achieve the strategic objective to provide excellent people development within the tourism sector targeting young people, an MOU had been signed between the NDT and Culture, Art, Tourism, Hospitality and Sport Education and Training Authority (CATHSSETA).  In addition, 27 educator programmes had been facilitated in all nine provinces. The NDT also had an objective to create a conducive environment and contribution to economic growth through providing decent work. They reported attaining their target by completing a situational analysis report and a draft framework for decent work.

On policy research, monitoring and evaluation, it was reported that research had been carried out on communities that lived close to tourist attractions. The findings showed that these communities knew about the attractions, but did not visit them.

Human resource statistics showed that there were a total of 404 employees in the department, of whom 346 were African (86%), 21 Coloured (5%), 12 Indian (3%) and 25 White (6%).  Africans made up 66% of the senior management, Whites 20%, Coloureds 9% and Indians 6%.  Women made up 49% of the senior management. In general, people with disabilities made up 3% of the department. The staff turnover rate was 6%.

The Chairperson stated that since the country was experiencing problems in the mining industry, which was a major foreign currency generator, it was vital for the tourism industry to grow, since it was the other major foreign currency generator. He mentioned that just that morning, the Rand had weakened to the dollar, and if this continued, it would lead to more problems, like higher petrol prices.

He noted that there had been an issue concerning the mismanagement of projects. He gave an example of an incident in St Johns, where the people in the constituency were not even aware that a department had built a community center there. He added that from some oversight visits, the Committee had also noted that the progress in completing buildings was far lower that what the cost on paper suggested.

He asked what action had taken place after issues of irregular expenditure had been exposed.  He mentioned that many tourist guides did not understand why they had to renew their licenses annually. Could the NDT clarify this?

Did NDT partner with any universities to provide training in the tourism industry?

Mr Makhubela replied that they had partnered with a number of universities including: University of Pretoria, University of Johannesburg, University of Venda, and University of Zululand.   

Mr R Shah (DA) expressed gratitude to the department for having all the top officials present. Was there a way to cushion the effects of the fluctuating financial market?  He also asked for an elaboration on the framework of the inter-governmental collaboration.

Mr S Farrow (DA) stated that there had to be a process to allow the department to review its progress; there should not be an issue of targets not matching achievements. Why were reviews not carried out? And why was there no supporting documentation? He congratulated the Department for identifying qualified individuals to carry out projects and for implementing a better auditing system.

Ms M Njobe (COPE) stated that she was happy that the Department had implemented the recommendations of the Committee. However, there was still great potential for domestic tourism. She noted that there had been many negative reports about school trips to tourist attractions, as a result of road accidents. She suggested that the NDT hold discussions with the Department of Transport. On intergovernmental relations, did the Department plan to visit the provinces to establish the reliability of the written reports? Why was there such a large number of trainee dropouts? Why was there such a large rate of unsuccessful community projects? How did the department identify municipalities to assist?

She pointed out to the AG that there was a tendency for negative issues indicated in audit reports to repeat themselves. Did he try to identify these issues and their causes during meetings with departments?

Mr F Bhungu (ANC) asked if the NDT had any forward-thinking types of programs for the future. Did the Department have more programmes to develop rural areas by making them partners, rather than beneficiaries? He also stated that the land issue had not been resolved: people were landless, yet some attractions like golf courses took up vast pieces of land. Who owned such attractions?  He said that although this was a controversial subject, it was an issue that people needed to talk about.

The Chair stated that the land issue was a political question that should be resolved at a political level in Parliament.

Mr Makhubela responded to the question on targets and verification.  Part of the problem was that the audit unit identified flaws with targets and asked management to change them, but this was not done. It was an in-house issue that would be corrected; the department would penalize responsible management officials during reviews. About training dropout rates, he attributed this to pregnancies, and other job offers. He stated that poor domestic advertising was one of the factors that caused low domestic tourism and clarified that the expenditure termed as “wasteful expenditure” had actually been inevitable because some officials had had to change their flights while abroad in order to join the President for a meeting elsewhere.

The members proposed a follow up meeting in order to allow for a thorough discussion on the issues raised.

The meeting was adjourned.

Meeting with the Portfolio Committee on Finance and Economy of the National People’s Congress of the People’s Republic of China on South African policies and legislation on tourism
The Chairperson welcomed the Chinese delegation and asked members of the Committee to introduce themselves.

Mr. Shi Xiushi, head of the delegation, stated that it was a pleasure to meet with the Committee. He apologised because they would be unable to accept the Chair’s lunch invitation due to prior commitments.

He stated that since his delegation was the Special Committee on Financial and Economic affairs, their main task was to have discussions on economic matters. He pointed out that both South Africa and China had rich tourist resources. In recent times, China had greatly improved its tourist resources.

Brief statistics on tourism in China
China led the world in domestic tourism with 2.64 billion people annually.

Tourism revenue totaled 1 trillion Yen in 2011 and total tourism revenue had led to a 4% increase in GDP, in comparison to 8% growth in South Africa. There were 135 million travelers to China. More Chinese were travelling outside China, totaling 27 million. Chinese travelers had spent $72 billion overseas in 2011.  China ranked third in the world in foreign travel, behind France and USA. China also ranked third in foreign spending outside China, behind Germany and USA. He said that South Africa was an important tourist destination for China. The Chinese Ambassador to South Africa had reported that about 80,000 Chinese tourists came to South Africa every year, and this number was expected to have a two digit growth rate annually.

How to enhance tourist cooperation
He proposed five measures to enhance tourism relations between China and South Africa:

           Strengthen promotion of tourist market.  His own experience was that there was inadequate promotion of the tourist market, as prior to coming to South Africa, he had limited knowledge of the country. He did not know about the impressive economic and social development in the country. He would voluntarily promote South Africa to his friends in China.

           Accelerate reform in flights between China and South Africa.  He stated that they had just opened a direct flight between Beijing and Johannesburg, but that currently, there were just two flights a week. More still needed to be done to enhance transportation between the two countries.

           Ensure the security of tourists in terms of transport, food and accommodation.

           Put up signs and introductions each other’s languages in hotels and resorts. This would enhance interactions between Chinese and South Africans

           Have more tour guides who understood each other’s languages. He noted that whereas many Chinese tour guides spoke English, few South African tour guides spoke Chinese. He added that many South African youths were interested in learning Chinese. He gave an example of a young black man they had met at a winery who was planning to go to Beijing to learn Chinese.

He said that with a joint effort between the governments of South Africa and China, they could increase the number of people visiting each other’s countries.

The Chairperson said that in their continued interactions with the delegation, they would be able meet the stated requirements for an improved tourism relationship. Tourism was an important source of foreign currency, and also a major source of job creation. He commended China for being the second biggest economy in the world, and said that the Chinese heritage and cultural tourism was very impressive. On his visit to China, he had visited a number of museums and learned the importance of this kind of tourism. South Africa was in the process of implementing new strategies for tourism but currently, domestic tourism was not very well developed. South Africa was developing its tourism industry responsibly, bearing in mind global challenges that pollution and global warming posed. The country had a National Tourism Sector Strategy that was all-inclusive. On language barriers, he said that the committee would interact with different stakeholders in the industry to address the issue. He added that the suggestion on security would help South African tourism too, but was quick to point out that this should not suggest that South Africa was a dangerous country. Like any other country in the world, South Africa experienced security challenges in some areas.

Mr. Shi replied that even though China was the second biggest economy in the world, its per capita income was still below that of South Africa. He pointed out that China was the largest tourism country in the world only because it had the largest population. Chinese travelers outside China accounted for less that 5% of the population; there was still a lot more work to be done, and just one ministry could not accomplish it all. He stated that legislation was crucial and the National People’s Congress of China was formulating a law for tourism in China. Did South Africa have a law on tourism, and if so, could the Chinese delegation have a copy to use as a reference when creating their own?

The Chairperson stated that South Africa had the 1993 Act to regulate tourism, but a law was still being created which would regulate the standard of tourism guiding, quality control, how hotels should be classified and how hotels should comply with the law. The legal department found that some aspects of the draft law were not compliant with the Constitution, thus it had not been passed.  The Committee would be happy to provide the delegation with a copy of the draft if Parliament approved of this. He thanked the delegation for their visit and looked forward to a continued relationship.

The meeting was adjourned.


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