South African Tourism on its 1st Quarter 2016/17 performance

Meeting report

The Chairperson at the outset of the meeting pointed out that SA Tourism might be referring to its Performance Report as being a 1st Quarter Report 2016/17 but according to section 32 of the Public Finance Management Act (PFMA) it was a 4th Quarter Performance Report 2015/16. She asked SA Tourism to address issues relating to it taking up the services of an agency i.e. the FCB South Africa, its vacancy rate, when the post of Chief Executive Officer (CEO) was to be filled and also to speak on the issue of hedging.  

SA Tourism 1st Quarter 2016/17 Performance Report

The delegation comprised of Mr Thebe Ikalafeng, Deputy Board Chairperson; Ms Margie Whitehouse, Chief Marketing Officer; Mr Tom Bouwer, Chief Executive Office; Ms Amanda Kotze-Nhlapo, Chief Convention Bureau Officer; Mr Thekiso Rakolojane, Marketing and Communications Manager Tourism Grading Council of SA (TGCSA); and Ms Belu Mabandla, General Manager: Operations.

Mr Ikalafeng r[ported that it was an excellent Quarter for SA Tourism. The number of trips had increased from 6.8m in Quarter1 of 2015 to 10m in Quarter 1 of 2016. Domestic tourism accounted for 7.3m trips in Quarter 1of 2016 compared to 4.6m trips in Quarter 1 of 2015.This was an increase of 60%. One of the reasons for the increase was that there were more public holidays in Quarter 1 of 2016 compared to Quarter 1 of 2015. Some key markets like the US and Canada had been affected by the lag of progress on or rather the understanding of the visa regulation requirements.  SA Tourism had just come out of a lekgotla where work was being done on the Tourism Review Strategy. On the tourism indaba SA Tourism had gone through the process and had issued a tender. SA Tourism got responses but it was decided not to take on a strategic partner as it did not make commercial sense. It would have cost SA Tourism more money to bring a strategic partner on board rather than to do it on its own. On the matter of the vacant post of CEO, candidates had been shortlisted and a suitable candidate had been recommended. The process was referred to cabinet.

Ms Whitehouse continued with the actual briefing with Mr Bouwer dealing with the financials of SA Tourism for the Quarter. Statistics SA (StatsSA) was the official authority on statistics. SA Tourism on international arrival figures received statistics from StatsSA. There was a working committee comprising of StatsSA, the National Department of Tourism (NDT) and SA Tourism. There needed to be better alignment. South Africa was an agent that was taken on by SA Tourism and was used as a delivery arm. On leisure tourism, performance in Quarter 1 foreign tourist arrivals was 2.7m, which was up by 18.7% compared to the Quarter in 2015. Adding onto the opening remarks on domestic tourism figures.
 

The total spend in domestic tourism in Quarter 1 of 2016 was R8.8bn, which was a 90% increase from Quarter 1 in 2015 which was R4.6bn. Members were provided with geographic spread information across provinces on arrivals, spend, length of stay etc. Comparing Quarter1 for 2014, 2015 and 2016 there was an increase in revenue across all regions that SA Tourism covered i.e. Africa Land, Africa Air, Americas, Asia and Australasia and Europe. 

The Committee was provided with an in depth overview of the organisational performance of SA Tourism for the Quarter taking into account key performance indicators. On the number of international tourist arrivals achieved the annual target had been set at 9 077 995. The Quarter 1 target was 2 294 078. The actual achievement was 2 721 005. The target was exceeded by 19%. The year on year performance in tourist arrivals increased by 18.7% from 2 292 169 in Quarter 1 of 2015 to 2 721 005 in 2016. The reasons for the increase amongst others was that SA was a value for money destination, the opening of more visa facilitation centres across China, the Air China direct air route and that SA was increasingly being seen as a safe destination in terms of random acts of terrorism compared to the rest of the world. On the number of domestic holiday trips achieved the annual target was set at 3 059 764. The Quarter 1 target was set at 750 474. Actual performance was 661 000. Although performance on domestic holiday trips was 12% below target, there was a 60% year on year increase in total trips taken in Quarter 1 of 2016 compared to Quarter 1 of 2015. On the number of graded establishments, the annual target was set at 5 650. The Quarter 1 target was 1 273. The actual performance was 1 251. Although the performance on graded establishments was 2% below target, 75 of the 307 establishments that had cancelled their memberships had re-applied for grading.

Detail was also provided on SA Tourism’s workforce profile and on employment equity. SA Tourism was operating at 86.14% occupancy rate against the approved staff establishment of 202. There was a total of 28 vacant posts. The Committee was urged not to be alarmed by the vacancy rate as it was a decision taken not to fill posts until SA Tourism’s organisational structure reformation was complete.

On the financial performance of SA Tourism for the Quarter. For Quarter 1 SA Tourism had spent 30% of its budget. A challenge encountered was central database requirements from National Treasury. However, from 5 June 2016 foreign countries were no longer required to comply.  Detail was provided on revenue and expenditure figures for the Quarter.

On governance the SA Tourism Board consisted of fourteen members. Some key focus areas for Quarter 2 of 2016/17 were the drafting of SA Tourism’s Strategic plan and Annual Performance Plan which was due in November 2016 and budget planning.

Discussion

Ms P Adams (ANC) referred to page 24 which spoke to the business unit’s actual versus budgeted figures for Quarter 1. What needed to be done to turn the red non smiling faces on some of the units within the business unit to green smiling faces? On page 23 she asked why there was lower spending on

leisure tourism. Was there a deficiency in the skills of staff to spend money? She was not happy with the explanation given that it was far too early to report on the performance of the 2016 Indaba which was held in May as the figures had not yet been audited. SA Tourism had showcased many indabas and by now members expected them to have things in place. Was the risk management of SA Tourism good enough? According to her calculations the vacancy rate of SA Tourism sat at 13.9%. She felt that the figure was far too high. She asked whether vacancies would be filled by the time that the Committee received the Annual Performance Plan of SA Tourism.

Ms Adams asked whether employment equity provision was made for disabled persons. She understood that figures on domestic trips in SA needed to go up. She noted that the domestic trips figure in France sat at 60% and that SA should consider what the French were doing correctly. SA Tourism was asked what it could do to encourage spending on visiting friends and relatives. On the provincial share of trips under domestic tourism illustrated on page 4 she said that some provinces like Gauteng featured prominently at 25%. Why were figures on all nine provinces not provided? The focus of efforts should be on those provinces that were least visited. SA Tourism was asked why it had only reached five out of fourteen key performance indicators. It meant that 64% of key performance indicators had not been reached. What were the challenges that SA Tourism had faced? She asked whether SA Tourism was having discussions with National Treasury and if so what the issues were so that the Committee could be of assistance.

Mr Ikalafeng agreed that the vacancy rate at SA Tourism was far too high. He explained that SA Tourism was in the middle of an organisational review and hence wished the process to continue until a SA Tourism which they wished to have was achieved. In this way SA Tourism did not wish to make appointments if the organisational review was not yet complete. SA Tourism had undertaken not to fire any staff. Vacancies would be filled once the organisational review was complete. 

Mr Bouwer said that the recruitment cost of appointing SA Tourism’s Chief Executive Officer was between R800 000 and R900 000. This was the reason for over-expenditure. Work was being done to change the faces from red to green by putting in place better controls. On figures relating to tourism indabas he would in future present the unaudited figures to the Committee. He explained that where a service provider was taken on overseas approval from National Treasury was required. On international procurement SA Tourism engaged with National Treasury and so was the NDT. SA Tourism did comply with National Treasury requirements. Discussions on having a special dispensation for foreign countries were taking place.

Ms Mabandla, on key performance indicators, stated that eight of the fourteen had not been done for reports. Two of the eight key performance indicators came out of ministerial reviews. The first issue was about a bad reputation of SA Tourism amongst stakeholders. SA Tourism was engaging stakeholders and by the end of 2016 there would be a stakeholder matrix. In 2017 there would thus be information on stakeholder satisfaction. The second issue was that on staff satisfaction and engagements the figures that were available were from 2011. There was therefore a need to set new baselines. SA Tourism would be tracking business events. It was also waiting for its 2015/16 Annual Report to be finalised. There were different reporting periods for different things hence there seemed to be misalignment of reporting periods.

Mr G Krumbock (DA) said if the 1st Quarter was from January to March then the 4th Quarter was from October to December. He asked whether SA Tourism worked with financial years or calendar years. He asked why on slide 25 was country offices spend shown in overseas currencies. It should be reflected in Rands. He pointed out that the briefing document was a much consolidated report and did not contain enough detail. He looked at the 60% increase of total domestic trips comparing 2015 figures to that of 2016. President Jacob Zuma had called for tourism to grow. Analysts said that the economy was shrinking. He felt that domestic tourism figures were going down. He suggested that 2016 figures be compared with 2014 figures rather than 2015 figures. He understood that SA Tourism made a comparison of actual performance against targets. He considered targets to be just a number. SA Tourism should rather state where it was and where it wished to be. Such an assessment was needed. He noted that domestic tourism figures had dropped over the last two years. The question was whether SA was reaching its potential. The assessment should go beyond figures.

Mr Bouwer said that he would convert the figures in foreign currency to Rands for the benefit of the Committee.

Ms Whitehouse noted the comment about the presentation but said that annexures had accompanied the presentation. SA Tourism was required to report in a certain manner using a performance template. SA Tourism would discuss the matter and could perhaps add more narrative. She conceded that domestic tourism was problematic for now. SA did not have a culture of tourism. It was a long term process that could not be addressed with a quick fix. It could take up to 20 years to address. She noted that millennials did not place local destinations on their wish lists of places to visit. They wished to go to Paris, New York and London. It was therefore a long term journey.

Ms L Makhubele-Mashele (ANC) referred to the appointment of FCB South Africa as SA Tourism’s lead marketing agent for domestic and international. For what period was FCB South Africa appointed? SA Tourism was asked whether FCB South Africa was doing skills transfers to SA Tourism and whether there was an exit strategy in place. How long was the contract with FCB South Africa? She asked how FCB South Africa was capacitating SA Tourism. On the matter of SA Tourism appointing a partner to assist with tourism indabas she noted that there was a total turnaround by SA Tourism. SA Tourism now no longer wished to appoint a service provider as it did not see the benefit of outsourcing indaba work. SA Tourism had changed its mind completely. It had given the Committee reasons why it had wished to appoint a service provider. SA Tourism was asked to provide the Committee with reasons why it no longer wished to appoint a service provider.

Mr Ikalafeng said that FCB South Africa was contracted for a three-year period with an option of review for two years. The contract started in 2015. FCB South Africa carried out duties like marketing services, public relations and media buying and planning. FCB South Africa did not replicate the work of SA Tourism but was rather in a supporting role. All agencies did the same thing. Skills transfer would most probably take place on issues of managing and leading. SA Tourism would however get benefits of economies of scale.

Ms Kotze-Nhlapo conceded that SA Tourism had considered taking on a strategic partner on the issue of tourism indabas. SA Tourism had called for tenders and a preferred bidder had been chosen. SA Tourism however took a financial decision not to go ahead with the appointment of a strategic partner. The cost implications were simply too great. There was no equity present. Financial advisers had stated that the risk to the South African government was too great. SA Tourism would not handle the tourism indaba in-house. The decision was taken to take on the help of an organiser i.e. FCB South Africa. As previously stated the contract was for three years with an option for extending it for a further two years. Targets and measurable had been set. SA Tourism did approach the industry on indaba issues. The date for the next tourism indaba was in the process of being finalised and negotiations were for it to be held on 10, 11 and 12 May 2017. The date for the World Economic Forum could not be changed. Durban wished to host the Tourism Indaba. Build up towards the Tourism Indaba 2017 could start on 7 May 2017.

Mr S Bekwa (ANC) asked where the 138 business events had taken place. He referred to page 21 and asked where the additional funds from the Tourism Marketing SA (TOMSA) Levy had been allocated. SA Tourism was asked how much it spent on the remuneration of its Board.

Ms Kotze-Nhlapo said that the list of business events held was reflected in the annexure to the presentation. Most of the events were held in the big cities like Cape Town, Johannesburg and Durban. Events were however held in the Kruger National Park, Stellenbosch, Skukuza and in Port Elizabeth. Information on pre and post business event tours was also included in the annexure.

Mr Bouwer stated that the additional funds from TOMSA had to be used for marketing. He explained that expenditure on the SA Tourism Board was R39 000 divided amongst ten board members.

Mr J Vos (DA) said it was important for reports to speak to targets. He noted that SA Tourism needed to have good relationships with provinces as they had their own marketing strategies. Given that it was currently tourism month he asked what activities were on offer in the different provinces. Each province had its unique selling point, it was SA Tourism’s job to showcase it. There were many municipalities that did not do effective destination marketing, SA Tourism needed to assist such municipalities. These municipalities lacked skills and expertise. He said it looked as if domestic tourism figures were down. With domestic tourism the issue was about affordability. Provinces were putting in efforts to make tourism more affordable to locals and during tourism month there was even free access. Affordability and geographic spread were the stumbling blocks associated with domestic tourism. The SA National Parks (SANParks) had also come on board and offered discounts to SA citizens. Another area that needed attention was route development. Route development for the most part fell within the domain of municipalities. Once routes were developed then SA Tourism could do marketing. Synergy was what was needed. The question remained as to whether grading should be voluntary or compulsory. Many establishments had closed down or had chosen not to be graded. What were the reasons? He pointed out that domestic tourism was not only about visiting friends and relatives but also the attendance of funerals. This needed to be changed. People should be encouraged to travel domestically. Each province had its own uniqueness.

Mr Vos noted that the Western Cape had introduced an airlift strategy and that it had shown good results. New routes were added with direct access to destinations in the UK and North America. What was SA Tourism doing to encourage provinces to come up with additional routes? The unabridged birth certificate requirement was still a problem abroad especially in the UK. The inter- ministerial committee had come up with concessions but had not done away with the requirement for an unabridged birth certificate. The tourism indaba was considered an important tool to promote tourism products. The announcement by SA Tourism that it was planning to appoint a strategic partner to assist with indabas had excited the industry. SA Tourism had now changed its mind over the matter. SA Tourism preferred to appoint an organiser to assist SA Tourism with the tourism indaba. The Committee needed clarification over the issue. Reports were already showing that the number of buyers at the tourism indaba had declined by 40%. Trade shows were very important to showcase products and to assist Small, Medium and Micro Enterprises (SMMEs). He agreed that there were many reasons like Ebola that negatively affected tourism figures but asked what about crime. Crime stats released showed that figures on murder, robbery and contact crimes were up. The National Department of Tourism (NDT) and SA Tourism needed to work closer with the South African Police Services (SAPS). The Northern Cape was the only province where crime had dropped. In all other provinces crime had increased. 

Mr Ikalafeng said SA Tourism worked hand in hand with the NDT on issues like crime. Work was done inter-ministerially on issues. Tourism needed an integrated approach by ministers and their departments. He appreciated the suggestions made that SA Tourism should expand its role to empower municipalities and provincial governments on delivery in their respective spheres.

Mr Rakolojane said that on grading within the next few weeks there were trade focus campaigns. It would allow for the Tourism Grading Council of SA (TGCSA) to articulate the message to its members to get graded or to be regraded. In Quarter 1 there had been cancellations totalling 307 but 24% of them came back to be graded. Hence 75 establishments re-applied to get graded. It was encouraging to note that when establishments received their cancellation notices they changed their minds and opted to be graded again. The TGCSA was short of its target by 22 even though for Quarter 1 an additional 23 establishments were graded. The grading system remained voluntary. At the core of the system was the basket of benefits on offer. One issue was that where establishments were no longer graded they still had their grading plaques. The TGCSA had a quality protection officer who rather than policing tried to entice establishments back into the fold. Reasons for people not grading their establishments were sometimes out of the TGCSA’s control. Sometimes businesses simply closed down or the owner found it easier to convert the property to a long term rental than a bed and breakfast. The TGCSA was working with the NDT on initiatives to reduce the number of people leaving the system. Nine hotels had left the system but the TGCSA had managed to claw some of them back. A hotel group had cancelled its grading because a huge client in the pharmaceutical sector only wished to stay in ungraded establishments.

Ms Whitehouse said the Hilton Group of hotels had withdrawn from grading. It was their international stance to say that their brand was bigger than grading. She confirmed that a pharmaceutical group preferred to stay in ungraded hotels. On domestic spend, it was realised that affordability and accessibility had to be considerations. The spend for Quarter 1 was less because more was spent throughout the year. On provinces, the problem was that each province had its own authority. SA Tourism tried to work with provinces and to convince them to focus on domestic tourism rather than international tourism. It was up to provinces to showcase what they had on offer.

Mr Vos responded by asking whether SA was purchasing products from the pharmaceutical group He did not understand why the group would not want to stay in graded establishments. He said provincial authorities were lacking in destination marketing and product development. It was thus important for SA Tourism to assist.

Mr R Cebekhulu (IFP) observed that SA Tourism had eight temporary employees. How long was that temporary employment and were there contracts in place.

Ms S Xego-Sovita (ANC) agreed that the Committee needed to see the trends in all the provinces. She picked up a trend of her own province the Eastern Cape wherein Eastern Capers tended to visit other provinces a great deal but the Eastern Cape was not visited much. She was also confused about how SA Tourism conducted its reporting periods i.e. financial years. On the collection of statistics SA Tourism was asked whether it depended upon StatsSA or did it have an alternative. When did SA Tourism profile its staff when its job was marketing? 

The Chairperson stressed that SA Tourism needed to correct its manner of reporting. The periods of reporting were not what the Committee was accustomed to. SA Tourism referred to the current report as a Quarter 1 Report of 2016/17 whereas the Committee believed it to be the Quarter 4 report of 2015/16.  SA Tourism’s reporting had to be in line with the Public Finance Management Act (PFMA). She also pointed out that StatsSA now released statistics on a monthly basis. Crime in tourism depended a great deal on work done in other government departments. The problem was that government employees worked in silos. Other departments also regarded tourism to be on the periphery. SA Tourism had been allocated R100m for domestic tourism and had given an undertaking that 70% of the funds would be spent on selling domestic tourism and 30% would be used for doing or implementation. Results on domestic tourism were not what the Committee had expected. What would SA Tourism be doing differently on the tourism indaba?  SA Tourism was asked to provide the Committee with a convergence of visiting family and relatives (VFR) actual spend. SA Tourism’s new strategic plan and annual performance plan had to have quarterly targets. She pointed out that the European Union had its own grading system notwithstanding grading systems that individual member states had. Grading in SA at hotels was also up and down. There were also establishments who cancelled their grading memberships. She noted that the Sho’t Left Campaign spoke about the Southern and City Lodges but no mention was made of bed and breakfasts. 

Mr Rakolojane on the issue of Euro-grading stated that the TGCSA had looked at grading harmonisation in the SADC Region. It was early days to report on progress. Fluctuations in grading happened because the system was voluntary. Establishments were urged to meet their customers’ expectations. A guest review system was in place.

The Chairperson asked SA Tourism to do a cost-benefit analysis of the Tourism Indaba. Even if SA Tourism did not meet targets it should still report on it. It was not good enough to say that SA Tourism would report later on them. She asked that the annexure be made available to Members.

Committee Minutes

Minutes dated 26 August 2016 were adopted unamended.

The meeting was adjourned.