Department of Tourism on its underspending and virements in 2014 Adjustments Appropriation: hearing

Standing Committee on Appropriations

11 November 2014
Chairperson: Mr P Mashatile (ANC)
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Meeting Summary

The Department of Tourism took the Standing Committee through its expenditure performance for its various programmes as at 30 September 2014. It explained that the government limit of 8% for virements was exceeded with the shifting of R6.5 million from the programme of International Tourism which has rather a small budget of R51 million. It provided a motivation for the virements: The delay in filling vacant posts has realised a savings of R2.8 million under Compensation of Employees. Reallocation of this  amount  to Programme 1 to cater for shortfall on  equipment and replacement of vehicles. The R3.7 million allocated to South African Tourism (SAT) was originally budgeted for under goods and services within the International Tourism branch.  A virement of R3.7 million went from the International Tourism branch to the Policy and Knowledge Services branch for SAT to procure the translation and distribution of marketing collaterals to the South African missions abroad.

On unspent funds, DOT noted that R78.9 million of the 2014 budget for the Tourism Incentive Programme in the Domestic Tourism programme has been declared as unspent funds. A process to develop the Tourism Incentive Programme (TIP) was delayed due to the need for staff appointments and for establishment of governance and management structures. The full budget allocated to the TIP could therefore not be used for the intended purpose. The TIP implementation would be deferred until 2015/16, as would three other programmes. No negative impact of virements on service delivery had been perceived. Challenges with regard to unspent funds were that road shows were not undertaken, and no calls for applications were made. Tourism industry expectations were affected. Looking at the future, the Director General said that DOT intended that the tourism industry contribute half a trillion to the GDP by 2020 and create 250 000 jobs.

In discussion, the Committee stressed the fact that tourism was a major contributor to the GDP, with great potential for job creation. Capacity to spend caused concern. The Department had to demonstrate the ability to implement programmes. There was concern about the filling of funded vacant posts. Posts had to be filled to boost capacity. There were critical comments about planning and strategy. There was concern about the 8% government limit for virements being exceeded. The status of the Expanded Public Works Programme (EPWP) was questioned. Why did the Department have to "assist Eskom", and what the effect of the new visa regulations would be on tourism. There was a question about cooperation with the Departments of Small Business and Agriculture. A DA Member felt that the Department was neglecting the lucrative overseas tourism market. Applications for posts took too long to process. There was a call for more focus on jobs for young people, and rural and township tourism. The Committee accepted that the Department would have better capacity in 2015/16, but it was advised to look at strategy and planning. There had to be better coordination by the National Department, and cooperation with other departments.
 

Meeting report

Department of Tourism: 2014 Adjustment Appropriation
Mr Kingsley Makhubela, Director General, and Mr Ralph Ackermann, CFO took the Committee through expenditure performance as at 30 September 2014, for the programmes of Administration; Policy and Knowledge services; International Tourism, and Domestic Tourism. Under details of virements, it was noted that the 8% government limit for virements had been exceeded. R6.5 million was shifted from International Tourism. There was a transfer payment to South African Tourism to procure the translation and distribution of marketing collaterals to the South African missions abroad. The delay in filling vacant posts had realised a savings of R2.8 million under Compensation of Employees.

Unspent funds of R78.9 million was explained. A process to develop and implement the Tourism Incentive Programme (TIP) was embarked on in 2014/15. However, the launch and implementation thereof had been hampered by delays in the appointment of staff, and the establishment of governance and management structures. Consequently it was determined that the Department would not be in a position to utilise the full 2014/15 budget allocated to the TIP for the intended purpose. The International Trade Exhibition Assistance Programme could only be rolled out in the 2015/16 financial year.  The same applied to the International Trade Mission Assistance Programme, and the Domestic Exhibitor Assistance Programme. No negative impacts of the virements on service delivery had been perceived. Challenges with regard to unspent funds were that road shows were not undertaken, no calls for applications were made and the tourism industry expectations were affected.

Discussion
The Chairperson remarked that tourism had contributed substantially to the GDP over the preceding years. Currently the contribution stood at 9%, which surpassed mining. There was great potential for job creation. The Committee was looking at DOT's unspent funds which meant there was money that was not being used. There could be underfunding in future if the Treasury decided that there was a lack of capacity to spend. It would become harder to ask for more money. It did seem, however, that the R78.9 million would not be lost to the Department. Treasury would not take the money away. There could be rollovers. Tourism was an important sector and people could do more to support it. But the Department had to show the ability to implement programmes.

Mr Makhubela replied that the R78.9 million would be given to Treasury in the current year, but not in the following year. There would be R183 million in the following year. The baseline would not be affected. Treasury had asked that sacrifices be made to assist Eskom. The Department still had money earmarked for the following year. There were better mechanisms for spending, and more capacity. The Department had set itself higher targets. It intended to contribute half a trillion to the GDP by 2020, and to create 250 000 jobs.

Dr C Madlopha (ANC) remarked that the President had called for vacancies to be filled, in the 2011 State of the Nation Address (SONA) address. There was incapacity in government. The country faced high unemployment. Government had funded vacant posts. She asked how many vacancies had been budgeted for, and how many had been filled, in the preceding six months. The DG had indicated savings of R78.9 million. The difference between savings and underspending was that with savings the budget was spent. Underspending referred to spending that did not yield results budgeted for. There had been a shift in the budget for vacant posts. Not spending the money showed a problem of capacity. Shifting unspent funds was a contradiction. The question was why the budget had been shifted from vacancies if there was lack of capacity.

Mr Makhubela replied that the Department had a small staff establishment of 544 funded posts. If ten people moved away, there was significant impact on percentages. Some years before it was thought that the vacancy rate could be reduced to 3%. People with disabilities were reached out to. The current vacancy rate of 8.6 % was still below the 10% allowed by government.

Dr Madlopha remarked that the Annual Performance Plan (APP) had not been implemented. Targets were not met and projects were not implemented. It was a sign of poor planning. The matter of returning to the translation of contracts at a late stage had delayed expenditure.

Mr Makhubela replied that the Department had at first thought that it could come up with collaterals, but then decided to use the already existing translated contracts. It was discussed with Treasury, who accepted it. The translations had to be in many languages.

Dr Madlopha remarked that the CFO had motivated a virement of 12.5%. The Public Finance Management Act (PFMA) prescribed that virements not exceed 8% of a programme budget. It was a gross violation of the Act, and had to be explained.

Ms M Manana (ANC) asked about jobs created by the EPWP. There were only 635 jobs. She asked if there were measures in place for improvement. There had to be support for rural jobs. She asked if targets would be achieved at year end.

Mr Makhubela replied that there was a formula for the amount that had to go to jobs and training. There were currently low numbers but it was a cyclical process. The large numbers would come later on. 29 people were employed full-time at Witsieshoek. The EPWP was set in a framework composed of the Department, the Department of Public Works (DPW) and Treasury. The Department did oversight over approved projects. Sustainable benefit to the community was considered. The EPWP was on course, and would yet perform well.

Mr M Figg (DA) found the information to be thin. He asked how Eskom operations affected tourism, and why the Department found it necessary to be concerned about Eskom.

Mr Makhubela replied that energy was a source of mobility. Energy was the key to transport, and to maintain tourist centres like hotels. Unpredictable energy supplies dissuaded people from visiting the country. Energy had to flow to enhance competitiveness.

The Chairperson noted that the question was also about budget obligations to Eskom.

Mr Makhubela replied that ordinarily there was no obligation, but there was an appeal to the cluster, and the Department had to respond. It was a once-off payment. Money would not be returned.

Mr Figg assked how the new visa regulations would affect tourism.

Mr Makhubela replied that the Minister was talking to the Home Affairs Minister about the matter.

Mr Figg referred to the tables on slide 2. Drawings were more than expenditure. He asked where the R12 million was currently sitting.

Mr Ackermann replied that the amount was currently in the Department bank account.

Mr Figg referred to the motivation for virements (slide 4). He asked why there were so many vacant posts, and how many had been filled.

Mr Figg remarked that exhibitions had to be planned six months beforehand. The explanation about exhibitions was not valid.

Ms Nyalungu asked about links between the Department, and the Departments of Small Business and Agriculture. There was overlap with those departments.

Mr McLaughlin referred to tourism and the GDP. The most lucrative market was overseas. Yet only 3.12% went to international tourism, whereas 55.66% had been spent on policy and knowledge services.

Mr Makhubela replied that there was a current focus on local tourism. 98% of tourism in the United States was domestic. Domestic tourism was not susceptible to turbulence. People had to be allowed to take their holidays locally.

Mr McLaughlin asked why money was currently needed for vehicles and equipment. Staff would be reduced, yet more vehicles and equipment were needed? He asked why the virements did not go to more productive areas. There was a lack of assistance to the international trade mission. The Department was not attracting money needed, and was not spending the money it had.

Mr McLaughlin said that it was taking too long to process applications. Seven months was too long. It seemed that there had been no calls for job applications. People had not been asked to apply.

Mr Makhubela replied that applicants had to be screened, and the Department could not do that. In the previous year, the screening agency had its hands full with screening MPs for the election. The problem was that while applicants were being screened, they would approach other departments for a counter offer, and the process would have to be started afresh. It was becoming a prevalent practice. Some people performed well in interviews, but then turned out to be incompetent, and the process would have to be restarted. The Department had just completed a huge recruitment drive, especially for the International branch. The vacancy rate target of 8% would be met.

Mr N Gcwabaza (ANC) referred to the R618 000 shifted from training and development. He asked if there had been costing during planning for training of internal staff or subsidising youth who wanted the enter the tourism industry. Young people could be absorbed into tourism. It was a growing sector. The Department was not planning properly for that. Tourism was a rapidly growing industry. To shift funds away from training showed that the Department did not have a growth strategy.

Mr Gcwabaza noted that of the 498 rural enterprises identified for 2014/15, 140 were assisted. There was huge scope for rural tourism, and also for township tourism. There was a lack of focus on those areas. There were many tourism related projects in Soweto. The Department was not growing in that respect. The shift of funds to no-growth areas had to be explained. There were no transfers to provinces. Interaction with the provinces was important.

Mr Makhubela replied that there was a strategy for rural tourism. There were no transfers to provinces, as tourism was a concurrent function. The same clients were dealt with. The gap between the three spheres was being closed. The relationship with the provinces was a good one. Challenges were at the local government level. There would be a conference with local government in the following year.

Mr Ackerman accounted for the savings of R2.8 million. R1.7 million had gone towards telephone installation and software licence fees. R900 000 had been spent on replacing two vehicles that were under lease agreement, due to kilomentres done. R200 000 went to internal auditing, and R618 000 to goods and services. It was classified as a transfer payment.

The Chairperson referred to the 75% that had gone to South African Tourism (SAT). It would have been good to have SAT present to ask questions about its performance. It was commendable to invest in domestic tourism, but there also had to be growth in international market investment. It did not have to be an either/or scenario. Tourism was an important area and everything had to be done to make it grow. Smaller matters had to be fixed. The Committee wanted to see the agencies at work, especially SAT. The target of 250 000 jobs by 2020 was commendable, but the Committee was concerned with current performance. He encouraged the Department to engage with its vision, but to also look at strategy. Tourism provided opportunities to create jobs for young people. The Committee wanted the department to do well, but the same applied to its agents.

Dr Madlopha remarked that she appreciated the responses. The Department had to do well and support well. The President had called for radical economic transformation. There had to be changes related to high unemployment, through filling vacancies. It would not help to have a target of 250 000 jobs, whilst there were vacancies in the Department.

Dr Madlopha said that the Department had to do better with the Annual Performance Plan (APP). The Medium Term Economic Framework (MTEF) period stretched over three years. Planning could be done in the first year, and implementation could start in the second. If the Department had initially done better research, it would not have taken so long to decide to use the existing translated contracts. If the Department had planned better, it would not have been necessary to shift funds during implementation.

Mr Makhubela replied that it would help the Department to have a session to talk with the Committee early in the year. The Department had received an unqualified audit report for five years. There was improvement with regard to its predetermined objectives, which led to a clean audit for the current year.

Mr Figg asked who the two replaced vehicles was for.

Mr Ackermann replied that it was for the Deputy Minister, one in Pretoria and one in Cape Town.

The Chairperson said that the Committee would watch targets. It accepted the offer to be briefed about plans with SAT. The Committee wanted to see improvement. The Committee accepted the reassurance that there would be more capacity in the following year. There had to be better alignment and coordination by the National Department, and better coordination with other departments, as Ms Nyalungu had suggested.

Mr Makhubela  said that the Department would factor in the issues discussed, and do its best to achieve targets.

The Chairperson concluded that the Department could respond in writing to the issues raised.

Committee minutes
Minutes of 4 and 5 November were moved for adoption, seconded and adopted.

Committee programme
The Chairperson asked if the Committee was in favour of a visit to National Treasury between 25 and 27 November. The intention was to also visit the Reserve Bank, but Parliament was not willing to fund that. If Members were not keen to go, the visit could be postponed until the following year.

Mr Gcwabaza responded that it would be difficult to conduct the visit at the beginning of the following year. It was also important to gain a broader understanding ahead of the budget. It was advisable to get Parliament to interact with the budget process earlier. Parliament could currently only engage with the fiscal framework at a late stage, hence it was presented as a fait accompli.

Mr Figg remarked that the Committee had been assured by the Department of Basic Education that textbooks would be available at the end of the year. He asked if that could be confirmed.

The Chairperson replied that the Committee was supposed to have another meeting with the Department of Basic Education before the end of the year, but there was a struggle to find a suitable date. Mr Figg could write to the Minister about textbooks.

Ms Manana asked when the proposed visit to the Eastern Cape would take place. The province was in crisis.

The Chairperson replied that the visit would have to be deferred until the following year. It was not possible in the current year.

The Chairperson adjourned the meeting.

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