Minister & Department of Tourism & SA Tourism briefings on 2012 Annual Reports

Meeting report

Chairperson’s opening remarks
The Chairperson noted the presence of the Minister of Tourism. He noted that this Committee was prepared to interrogate the Department of Tourism (DOT or the Department) thoroughly, as even though this Department was of world-class, the Committee had to not only commend it, but also ensure that it continuously performed at optimal levels. Certain issues surrounding the Department’s quarterly reports needed further explanation. Other issues included the Auditor General’s report on performance. He said that since the report of the Board pre-dated that of the AG, the Board’s response to the AG’s report had not yet been heard.

Department of Tourism and South African Tourism (SATOUR) Annual Reports 2011/12
Mr Marthinus van Schalkwyk, Minister of Tourism, agreed with the Chairperson’s remarks on the mandates of both the Committee and the Department. He relayed apologies from the Deputy Minister, who was attending a meeting of African ministers in Tanzania, and the Director General, who was ill. He briefed the committee on the latest statistics on South African tourism, which indicated that tourism had increased by 10.5% in the first six months of 2012, in comparison to the 5% average global growth rate. There were 4.4 million tourists visiting South Africa between January and July 2012, compared to 3.9 million last year. These figures excluded people who had travelled to South Africa for reasons other than tourism. Tourism in the country had experienced excellent growth, despite the global economic downturn. The regional African market was identified as having great tourism potential, and the Department had approached National Treasury (NT) to get more funding to invest in this region. He added that the Department’s approach was to find out what it could do to improve.

He was confident that South African Tourism (SATOUR) had a strong team at and assured members that non-performers would be quickly replaced. He thanked the Chief Operating Officer (COO), the Board and its Chair for their good leadership.
 
Mr Frank Kilbourn, Chairperson, SATOUR, stated that 2011/12 had been a hard year because of the inability to replicate the successes of 2010. In addition, there were global challenges such as the European financial crisis that impacted negatively on South Africa, because Europe was a core market for South Africa. However, achieving a balanced portfolio reduced the impact on the South African tourism industry. There had been growth in the American, Asian and African markets. He was grateful for the additional funds provided by NT for investment in the African market. He added that this entity had received its 11^th unqualified audit report.

Mr Thulani Nzima, Chief Executive Officer, SATOUR, agreed that the whole tourism industry had been trading in a harsh economic environment in the year under review. A United Nations report predicted a slowdown in the tourist travel globally, saying that people would not be travelling far for vacations and would reduce time spent in the travel destinations. Most European countries had been going in and out of recession and had thus implemented stringent austerity measures, including 19% to 21% tax rates in some cases. This had reduced tourists’ disposable income. Core markets, like the United Kingdom and Portugal, also had high unemployment. Unfortunately, the Americas’ economies were very intertwined with the European market, and if their performance declined then the European countries also performed badly. On the other hand, the emerging markets had been doing well, and there would be a greater focus on investing more in these regions. On the subject of key deliverables on specific investments, he stated that SATOUR had set ambitious targets hoping that the European market would improve at a faster rate. It now planned to try to achieve the unmet targets in the coming financial year.

South Africa had experienced a 7.5% growth of total arrivals, in comparison to 4% in the world. Arrivals from Latin America showed a significant recovery, considering that the huge numbers in 2010 were due to the World Cup. Even excluding the World Cup numbers, South Africa would have still grown 7.4% in comparison to the world growth rate of 4.4%. There was 15% growth in the Asian market and a 3% growth in the American market. Total revenue generated through tourism this year was R71 billion, a slight drop from last year, for the reasons already outlined. He stated that SATOUR was focusing on the African land market, because the region had not had much growth, having not had as much invested in it as other regions.

Mr Nzima reported that R36.9 million in bed nights’ accommodation was paid for by visitors from Africa. Gauteng and Western Cape had the highest numbers of bed nights occupation. The Department and SATOUR were working with the provinces to promote tourism in all regions of the country.

Domestic tourism declined in 2010 because people thought it would be expensive to travel domestically, due to the World Cup, but it recovered in 2011. He noted that there had been a decline in number of trips, but an increase in the amount of money spent during trips. He stated that it was important to market South Africa as a tourist destination. In 2010 79% increased awareness was achieved, and it was important to ensure that it was positive awareness.

Mr Johan van der Walt, Chief Financial Officer, SATOUR, stated that the Department of Tourism was in the top 19% among Departments, judged by its audit performance, and was ranked first in terms of receiving unqualified reports.

Mr Nzima stated that there were great benefits to investing in regional Africa. An additional R280 million for 2013 was invested in this, and the results would be seen in future. He said that it was important to continue focusing on growing the domestic market. The Department had embarked on the “Vaya Mzansi” campaign to assure people that they would find a good tourist experience right in South Africa. The plan for communicating Product South Africa this year would be for visitors to “meet South Africa.” This message would evoke an emotional and heartfelt connection. The Department had already embarked on this Project in its international markets. He added that the National Convention Bureau was already up and running, and would focus on the business aspect. There was a slight challenge in China, in terms of registration status to avoid tax liabilities.

Discussion
The Chairperson asked Members if they would have any opposition to increasing the budget to the African market.

Members indicated their agreement on this point.

The Chairperson stated that on page 109 of the Annual Report, it was noted that only four out of nine targets were achieved. Page 14 stated that when the auditors visited, the Department did not have statements ready. He asked what corrective actions were taken in this regard.

The Chairperson also noted that page 12 of the Annual Report indicated that not all staff had submitted declarations of interest when they were employed by the Department. He asked for an explanation on this.

The Chairperson commended the Department for having qualified parties come in to investigate the irregularities that had occurred in the Department.

Mrs M Whitford, Senior Manager: Auditor General of South Africa, stated that corrections to financial statements were only needed from SATOUR. The problems reported here were material adjustments and issues related to fixed assets. On the report of targets, SATOUR had now implemented a new reporting format that required a report on whether the targets were attained. However, it was not possible to show progress or regression because no performance had been recorded of the previous year, since it was a new system.

Mr R Shah (DA) pointed out that page 17 of the report showed non-adherence to Supply Chain Management (SCM) policy, compliance issues and lack oversight. He asked for a report on what measures were taken to deal with these.

Mr Shah asked what criteria would be used for setting the goals in the future.

Mr Shah asked for further details on the Board’s approval of a risk register, and what that process would entail.

Mr Zweli Mntambo, Deputy Chairperson, SATOUR noted that the Board revised the risk register annually, and in addition brought in external parties to assist the Board every two years because it was an involved and thorough process. He said that the Board took matters of irregular expenditures seriously and would carry out internal audits and refer to the AG’s reports to resolve the issue. He assured Members that although the expenditure was irregular, because in some cases staff had not followed regulations to the letter, it was not wasteful expenditure. The SATOUR was trying to educate managers to pay attention to detail because the Public Finance Management Act was very strict. The new board was currently delegating duties to specific people and by early next year it would have a revised Supply Chain Management system. Measures were in place and steps had been taken against the responsible management. Most cases, however, had been due to system failures.

Mr Shah noted that a delegation from China had indicated to the Committee that language was a barrier and had proposed that more tour guides should be trained in Chinese. He asked for the Department to comment on that issue.

On the question of languages, the Minister advised some caution. South Africa already had eleven official languages and it was already a huge challenge to try to introduce signage in even the local languages. If China’s request was accommodated then other countries might insist on this also for their own tourists. One possible solution to the problem could be to harness existing technology, such as mobile phone applications that could scan signs in one language and translate them in another.

Mr Nzima stated that the “Meet South Africa” campaign was about how tourists interacted with the country, through the people. It was felt that the strongest asset, when marketing South Africa, was the people. In relation to the tour guides, he noted that this was offered through a programme called Fundi. This included an understanding of cuisines of different countries, such as India and China, so that tourists from these areas would not have to bring their own chefs from abroad. They had also taken South African products on road shows, for example to Italy, to promote the South African brand.

Mr Shah noted that the Tourism Grading Council had failed to reach its targets. He also noted that it had had a 17% decrease in revenue, and asked what particular challenges the Council was facing.

Mr S Farrow (DA) stated that his province was considering making it mandatory for establishments to get approved ratings.

Mr Farrow was pleased that the Department had decided to exclude casual arrivals from the statement of tourism figures. He asked for clarification on the figure for African arrivals.

Mr Farrow asked why some figures on the AG’s report on non-compliance were not reflected in the Annual Report and presentation.

The Chairperson requested the Department to provide a definition of the term “tourist.”

Minister van Schalkwyk stated that the Department used the same definition of the term “tourist” that was used by the United Nations World Tourism Organization (UNWTO). He said that some departments, like Statistics South Africa, had a different working definition of tourists, and, for instance, did not consider regional visitors as “real” tourists.

Ms J Maluleke (ANC) stated that the Department should aim for a clean audit, but commended it for addressing issues surrounding people with disabilities.

Ms C Zikalala (IFP) stated that many South Africans preferred to take their vacations abroad. She asked what could be done to promote domestic tourism.
 
Ms Zikalala noted some complaints from small businesses in the tourism sector regarding lack of support and noting their concern that tourists were being largely encouraged to go to big hotels as opposed to bread and breakfast establishments (B&Bs), for example. She asked what could be done to remedy this.

Mr van der Walt said that many B&B facilities that opened up during the World Cup were struggling to stay open. On of the challenges they faced was increased running costs, which mainly consisted water and electricity, and rates and taxes. He added that the cost of electricity had a high impact of the competitiveness of many small businesses.

Minister van Schalkwyk answered the question on grading establishments, by noting that it had been the subject of ongoing debate as to whether grading should be voluntary or mandatory. He noted that making it mandatory would be difficult. The former Minister of Tourism had disbanded the Tourism Grading Board because it was marred by corruption and grading was then handed over to the private sector. A mandatory grading policy had been implemented in KwaZulu Natal, on an experimental basis, but had failed so far.

Minister van Schalkwyk linked this to the question of current trends in accommodation and said that tourists rarely relied on official government grading when selecting accommodation, but instead mostly visited private sites like Trip Adviser. Such trends would continue in the future, making government grading less relevant.

Mr van der Walt added that the grading council system was outdated. Some businesses had taken it up in 2010 for the World Cup in order to qualify for FIFA deals, but dropped it afterwards.

Ms Zikalala asked if there were other opportunities similar to the World Cup, that South Africa could tap into, in order to boost performance of the Department.

The Minister answered the questions about opportunities by saying that indeed South Africa had a number of major events to look forward to. They would invite the Convention Bureau to update the Committee on their bookings until 2015, which was a very positive report. He mentioned that South Africa was currently hosting the T20 Champions League, and this was generating a lot of revenue.

Mr F Bhungu (ANC) asked whether there were external factors that were conspiring to bring down the image of South Africa, following recent negative media reports and the countries downgrading by Standard & Poor. He commented that it was a shame that the Committee had not had an opportunity to engage more with the Chinese delegation during the previous meeting. Members would have been able to enlighten them on some perceptions they had of South Africa, instead of the one-sided meeting that was held.

The Chairperson noted that the Chinese delegation had approached the Committee from a consumer-standpoint and that it was thus difficult to engage them on an equal level. In relation to the downgrading, he suggested a meeting with different stake holders to come up with a media strategy. He said that the new development plan showed that South Africa was over dependent on minerals and when South Africa was reported as having problems in the mines, investors immediately feared that South Africa would be unable to sustain economic growth.

Ms M Njobe (COPE) asked how the Department established figures for unpaid accommodation.

Ms Njobe asked in which regional directorates had the Department placed countries like Russia and China. She also noted that the Department had said that it would open offices in regional Africa, in Angola and Nigeria, and questioned why this was not yet done.

Mr Nzima confirmed that the target was to have one regional office in Africa each year for the next four years. However, there were certain risks that had to be taken into consideration, such as the regulatory environment in these countries. For instance, when preparing to open an office in Angola, it was realised that, from a regulatory point of view, if the Department rushed into this it would be in danger of ending up in a similar situation as in China, where an office was set up but the registration status was such that it could not take advantage of tax concessions in the country. Such a situation could result in defaulting on serious liabilities.

Ms Njobe asked for concrete evidence on the success of the National Convention Bureau, which was established last year.

Mr Nzima responded that the National Convention Bureau was fully operational. It had signed up business-worth of 10 000 delegates, who would be coming to South Africa, at the Trade Fair in Las Vegas. The NCB’s target for next year was to generate 54 000 new delegates through the Convention Bureau.

The Chairperson requested an update on national tourism sector strategy, particularly on the National Convention Bureau and its interaction with sport.

Ms Njobe asked why the Department was requesting more funding to strengthen African marketing, in view of the fact that the Minister had asserted, earlier, that the budget of the Department was adequate for the work that needed to be done.

Ms Njobe asked about South Africa’s ranking as a tourist destination.

Mr van der Walt stated that South Africa was currently ranked 29^th as a tourist destination in the world.

Mr L Khorai (ANC) asked how SATOUR and the Department could assist Members to promote tourism in their constituencies.

The Chairperson requested an update on the safety of South African seas.

Minister van Schalkwyk replied that it was important to set ambitious, but achievable targets. It was easy to set achievable targets, but if they were not ambitious, then no progress would be made.

Mr van der Walt stated that it was necessary to re-analyse how the targets were presented. The report only gave a yes or no response on achievement of targets, but did not give an accurate representation of their progress. For instance, if a target was 78%, and the Department had achieved 76%, the report would indicate that the target had not been reached, instead of indicating the progress made. The worst performance apparent in the DOT was in attaining only 54% on one target.

Mr van der Walt reported that there had been 50 million tourists to Africa this year. South Africa had outperformed the rest of Africa by receiving 8.3 million tourists, up from 8.1 million last year.

Mr Walt van der Walt reminded Members that he had previously advised that the Department would secure a substantial amount of its international marketing budget upfront early in the financial year so that it could transfer it to their offshore country offices’ bank accounts, thus eliminating foreign exchange risk. However, the Department was now a stand-alone entity from SATOUR, and had lost that advantage. The Department was engaging with SATOUR to see to what extent they could be accommodated without contravening NT regulations. The Department had previously engaged with NT on the coverage for foreign exchange, but the offer made was unacceptable. Of their budget of R1 billion, R200 million was for overhead and running expenses. National Treasury could only give foreign exchange coverage for overhead expenses. Since 80% of the budget was for marketing, it was important to get coverage for at least 80%.

The meeting was adjourned.