South African Tourism on its 2015/16 Annual Report

Meeting report

Issues raised by Chairperson

The Chairperson asked what the status of the National Tourism Sector Strategy (NTSS) was and what the efforts of SAT on job creation were. She asked why the vacancy rate of SAT was so high. Why were SAT using guidelines on staffing from the Gauteng Province and not national guidelines? She needed greater clarity on the National Conventions Bureau and the conventions that it had secured. She also asked what the progress on the Tourism Grading Council of SA (TGCSA) was.

Minister of Tourism Mr Derek Hanekom graced the meeting with his presence. Also in attendance was Dr Tanya Abrahamse SAT Board Chairperson.

Opening remarks by Minister Derek Hanekom

Minister Hanekom provided some context to the briefing to be given by SAT. Tourism was important to SA as a job creator. SAT had a newly appointed Chief Executive Officer (CEO) which had only held office for nine days to date. Growth in SA was below 1% and there was a need for a higher growth path. The economy simply had to grow. Investment in infrastructure was important. Growth in tourism could take place fast and it could also create jobs just as fast. Tourism contributed 9% towards the Gross Domestic Product (GDP) of SA. Tourism had a great value chain. There were also associated services linked to tourism but the correct things needed to be done. Domestic tourism was a challenge that needed to be addressed. There was a need to encourage domestic travel. In general, 2016 was especially a challenging year. There had been a drop in foreign tourist arrivals in recent times but a turnaround had taken place in November 2015. There had been a drop in foreign tourist arrivals of 6.8% in the calendar year 2015. At present the figures looked much more encouraging. Figures for the first part of 2016 looked good.  

The exchange rate was also a factor that affected growth in 2016. SAT was especially affected by the exchange rate as it made its pay-outs in foreign currency. In the year under review there had been the establishment of a panel of experts under the leadership of Mr Valli Moosa. The development of a trade strategy was in the works. There were also positive developments within SAT. A new SAT Board and CEO had been appointed. The NTSS had been revised but the revised strategy had not been enough due to major challenges in the sector. The decision was taken to start afresh and come up with a national sector strategy. Old key components were still retained. Thus far there had been extensive consultation. There were no time limitations. There was also clearer implementation plans that were time bound. The strategic plan and annual performance plans of the National Department of Tourism (NDT) and SAT would be affected. The sector strategy was currently with provinces and Members of Executive Councils (MECs) and comments from them were being awaited. The next step would be for the sector strategy to go for cabinet approval and to be published for public comment. Some key pillars of the sector strategy were to enhance the visitor experience, destination enhancement, remove barriers to the sector, ease of access to the sector and to ensure that growth in tourism ensures broad based benefits.

Comments by SAT Board Chairperson

Ms Tanya Abrahamse, SAT Board Chairperson, said 2015/16 had been an interesting year for SAT as it had been a year of change. The new Board was made up of people from different arenas and hence many new ideas were shared. SAT had in the year under review engaged in a number of activities which had set the foundation for growth. SAT had embarked on a thorough process searching for a CEO and had found one in Mr Sisa Ntshona. The foundations built had been based on the outcomes of the ministerial review. One of SAT’s key shortfalls was that its marketing investment strategy was not agile enough. Intensive work had been done on it. It had been a wakeup call for SAT that its marketing investment strategy had to be more savvy and agile. SAT had also engaged to build the brand of SA. Greater engagement with the industry had also taken place. The Tourism Marketing of SA (TOMSA) Levy had also grown and a new Memorandum of Understanding (MOU) had been signed by SAT with TOMSA. The growth of the TOMSA Levy was an indicator of a better relationship. There had also been a relook at the organisational structure of SAT. The idea was to create a culture of excitement and energy. There was a need to clarify the role of tourism in the value chain. SAT was considered a key player in the ecosystem of tourism. The 2017 Annual Performance Plan of SAT would implement the enhanced growth strategy.

Comments by SAT CEO

Mr Sisa Ntshona, CEO: SAT, stated that he was under no illusion about the task that lay ahead for him at SAT. His presence in the meeting was essentially to observe and learn from inputs made. He was focused on concerns that Members may raise.

South African Tourism (SAT) on its Annual Report 2015/16

The delegation comprised of Mr Sisa Ntshona CEO; Ms Sthembiso Dlamini Chief Operations Officer; Mr Tom Bouwer Chief Financial Officer; Ms Amanda Kotze-Nhlapo Chief Convention Bureau Officer, Mr Darryl Erasmus Chief Quality Assurance Officer and Ms Ntokoza Langa, CEO Office Manager. Ms Dlamini undertook the briefing and said that in the interest of time she would highlight important aspects in the briefing document.

The Committee was given insight into the organisational structure of SAT. SAT had received its 15th unqualified audit report for 2015/16 from the Auditor General’s Office. On funding, SAT had experienced approximately R350m in currency losses in the past five years due to the depreciation of the Rand against major currencies. It had substantially reduced SAT’s marketing budget in real terms.

The Committee was provided with detail on the performance of SAT for 2015/16. For example, on the number of international tourist arrivals achieved the planned target for 2015/16 was 10 977 407 the actual figure achieved was 8 903 773 an underachievement of -18.9%. Some of the reasons for the decline in numbers were lack of forward bookings due to the Ebola outbreak in parts of West Africa, visa processing capacity constraints and the lack of understanding of visa requirements. SAT took steps to address the underperformance with future performance expected to grow with amendments to the immigration regulations, better alignment with industry, cities and provincial tourism agencies, an improved airlift strategy and also the implementation of the South African Tourism enhanced growth strategy. There was also underperformance on domestic tourism with the number of holiday trips achieved not meetings its target. The planned target was 2 841 209 but actual figures achieved was only 2 700 000 an underachievement of -5%. Reasons given for the underperformance was that SA had poor economic growth and due to South Africans not having a culture of taking holiday trips. Some efforts by SAT to overcome the shortfall was to undertake a domestic target market segment refresh exercise to inform a more robust domestic marketing strategy and to embark on programmes that would seek to create a culture of travel amongst South Africans. The performance of the Tourism Grading Council of SA (TGCSA) and the South African National Convention Bureau was also touched on.

Mr Bouwer continued on the financial performance of SAT for 2015/16. The two main sources of income for SAT were from the National Department of Tourism (NDT) R977.7m and from the Tourism Business Council of SA (TBCSA) R123.2m. The two revenue streams contributed 92% towards SAT’s total income. The remaining 8% was derived from interest income R10.3m, grading income R18.4m and sundry income R79.5m. Sundry income comprised of income from exhibitions such as the Tourism Indaba and Meetings Africa. On expenses an audited amount of R982m was spent on marketing expenses during the 2015/16 financial year. This represented SAT’s highest cost. The balance of R100m received during the financial year was for domestic marketing. SAT’s clean audit status was reiterated. The audited financial results showed an operating deficit of R46.7m which was fully offset by unrealised foreign exchange gains of R62.3m. The audited surplus for the financial year was R15.7m

Discussion

The Chairperson, as did other Members, congratulated SAT on obtaining a clean audit.

Mr S Bekwa (ANC) on domestic tourism, said there was a need to increase domestic holiday trips. It would increase tourism’s revenue as well as creating more jobs. He asked whether SAT paid bonuses to its executive staff members even if they underperformed.

Minister Hanekom, on declining figures on domestic tourism, gave an assurance that targets set would be relooked at. Things that were measurable would be looked at. Declining figures did not necessarily mean that there was poor performance on the part of SAT. Sometimes things were beyond the control of SAT.

Ms Abrahamse explained that bonuses were paid in terms of proper performance assessments. For 2015/16 staff that received bonuses had deserved them.   

Mr G Krumbock (DA) said SAT’s benchmark study had been called for by the Committee years ago. He was nevertheless pleased about it as it would shed light on the optimal amount that SA needed to market itself. He had at the 2016 Tourism Indaba spoken to various service providers from various spheres of government. He hoped that the benchmark study would assist SAT in going to smaller provinces and local governments where assistance was needed. Referring to performance information on domestic tourism he said not meeting targets was not about the lack of a culture of travel in SA. The lack of travel culture was there before targets were set. The reasons for targets not being met were due to something else. Being cash strapped also contributed towards South Africans not travelling as much as they would have liked. It would not have been as bad if targets were not met by small percentages. The fact was that the shortfalls were by double digits. Targets were being missed by far. Were the targets set perhaps too ambitious? What were the reasons why targets were not met?

Minister Hanekom understood the point made by Mr Krumbock on the culture of travel issue. The challenge was however to create a culture of travel. The R100m for domestic tourism was for people to be made to see the value of travel and to influence consumer spending. The missing of targets by huge margins was an issue to be addressed. He believed that 2016/17 figures on international arrivals would exceed targets. The departure of the SAT’s previous CEO and Board was considered a minimal disruption to SAT. It had to be remembered that SAT had received a clean audit.

Ms Abrahamse said the Board was relooking at the manner in which SAT was setting targets. The SAT did not set targets to obtain a clean audit. In 2017 greater attention would be given towards target setting. On domestic tourism, when the Board had considered the manner in which data was gathered it was not convinced that the survey done was sufficiently evidence based. The actual instrument for measuring successes in domestic tourism was not vigorous enough. On domestic tourism pricing and packages for everyday South Africans needed to be looked at. Spending patterns of South Africans on what they spent their money on needed to be looked at as well. People should be convinced to spend their money on travel and vacations.

Ms Dlamini, on the investment model, said there were deliberate things that had been done that had emanated from the ministerial review. There needed to be a consultative process. Guiding principles included that the roles of the NDT, SAT and cities had to be clarified. The model had been welcomed by the industry and the decision was taken to make the model open source. There would be levels of access for various parties. There would be assistance to municipalities. On SAT’s target setting model, it had been addressed. SAT had moved to an econometric model. It was extended to the domestic model as well. On the 70% of the R100m allocated to domestic tourism being spent on awareness, SAT had repurposed its Sho’t Left Website with 84 000 new visitors. There was some level of awareness. Most of the deals on the website were affordable. The average deal price was R1100. There was something for everyone. The campaign was focused on first time travellers. It was important to consider the mode of transport to be used. Most were road trips and hence the use of mini bus taxis came into play. On positive messaging SAT had partnered with BrandSA. There was a memorandum of understanding in place.

Mr T Rawula (EFF) pointed out that the Auditor General’s Report on SAT had stated that there were no findings on key controls. What was a bit worrying was that the Chief Executive Officer and the old SAT Board had left the organisation? Was it perhaps an indication of troubles at SAT? There had also been resignation of staff which meant that there were vacancies. On the decline in domestic tourism perhaps locals needed to be incentivised to travel. There were guesthouses that were graded which sometimes got contracted by government and due to this their pricing tended to be on the higher end which was not accessible to everyday South Africans. Did the Tourism Grading Council of SA (TGCSA) impact upon the prices that establishments charged? He suggested that greater work needed to be done with other State Owned Entities (SOEs) like South African Airways (SAA). SAA should perhaps be encouraged to extend it destinations internationally as well as domestically. It could stimulate travelling both internationally and locally. For example, flights to Polokwane and Limpopo Province were problematic. Did SAT have a relationship with SAA? He also asked what support SAT provided to small bed and breakfasts in townships. It looked as if SAT was spending huge sums of money. Did SAT do benchmarking?

Mr Bouwer, on key controls, said the guarantee that the Auditor General gave was that they looked at system controls and regulatory controls etc. SAT did do benchmarking. It might look like SAT was spending huge sums of money but when converted to dollars it was not much. SAT had undertaken cost containment measures.  

Ms Abrahamse responded that on vacancies the Board had taken a decision to restrict the filling of posts based on the former organogram of SAT. Only posts that would be needed in the future organisational structure of SAT like that of the Human Resources Manager would be filled. There was a moratorium on the filling of vacancies on the old SAT organisational structure. The departure of the previous CEO of SAT had been by mutual agreement as the individual’s contract was nearing its end. A fair departure point had been negotiated.

Minister Hanekom, on incentives for domestic travel, said on domestic tourism there was a budget of R105m. There was a need to create a desire to travel. Affordability of travel also needed to be looked at.

Mr Erasmus responded that the TGCSA did not influence the prices that establishments charged. The TGCSA did offer encouragement to establishments but there was a need for greater formal assistance in collaboration with the NDT. Perhaps there could be an incubation programme for properties in villages and townships. 

Ms E Masehela (ANC) was glad that the SAT was doing something about its vacancy rate. She too was concerned about the SAT not meeting its targets. When targets were set they needed to be smart. She said that perhaps grading of establishments needed to be compulsory. If 70% of the R100m set aside for domestic tourism was used on awareness she asked what the impact of such expenditure was.

Mr Erasmus, on whether grading should be voluntary or compulsory, said the discussion should form part of a policy review.

Mr J Vos (DA) stated that Minister Hanekom had said that the NTSS was under review and that feedback from provinces was being awaited. The reviewed NTSS should become the blueprint for tourism. There was an opportunity for the NDT to create a sector strategy that set out clearer roles. Greater emphasis should be placed on product development and product support. Tourism products had to be market ready. Cross cutting ministries needed to be held responsible for their part of work that needed to be done at municipal level. The reality was that there were poor roads, poor infrastructure which affected the NDT to deliver on its mandate. He suggested that in the development of the sector strategy there needed to be action steps. He highlighted the fact that unused municipal resorts needed to be converted to budget resorts. Municipalities needed to get involved. At present many municipalities could not run these resorts. He felt that the NDT and SAT should focus its efforts on these resorts. The marketing of these resorts should not be with municipalities but rather with the industry. He pointed out that Minister Hanekom had not said much on sustainability. He emphasised that the Committee needed to have a full unpacking of SAT’s deliverables. SAT needed to also align its marketing plan with the marketing plan of cities. He said the National Convention Bureau was doing well but asked what its role and workings were. Was there alignment with provinces and cities? He suggested that a workshop on grading be held. The matter of whether grading should be voluntary or compulsory could be discussed. He agreed with Members that the performance of SAT on its targets seemed to fall short. The Committee needed a full explanation of SAT’s Marketing Strategy.

Minister Hanekom pointed out that many community based projects had run into trouble. The NDT was reconsidering how it was using Social Responsibility Infrastructure (SRI) Project funds. There was agreement that more funds were needed on destination enhancement. The model would be relooked at. There had to be an understanding of why municipal resorts had failed. A model was needed to make municipal resorts more sustainable. A business case was also needed with partners coming on board. The NTSS would have serious action steps. All the answers towards grading were not known yet. Perhaps a grading policy relook was what was needed. It was in the pipeline.

Mr Ntshona pointed out that one of the key focus areas was collaboration and coordination between national, provincial and local government. He would be meeting up with provincial and local government structures. Instead of starting afresh; he suggested that provinces link up with national efforts.

Ms Dlamini stated that SAT did have structures in place to see to it that coordination took place. The Board had approved a Stakeholder Engagement Plan.

Ms Abrahamse noted that SAT had engaged on different fora. There was a need to review and relook at the agenda of these engagements. A need existed for quick and low hanging fruit. Visible coherence was needed. A balancing act was needed as well as one or two quick wins. 

The Chairperson asked about SAT’s expenditure with its partners. She also asked for more information on the activities of the National Convention Bureau, especially as it related to conventions being held in smaller cities. What did the bidding process cost? The Tourism Grading Council of SA (TGCSA) was asked why it seemed as if there were only figures on the grading of hotels and not on smaller establishments. Tourism relied on NDT’s sister departments also doing their bit on roads, signage, visas, airlift strategy etc. She asked Minister Hanekom whether the Committee could anytime in the near future expect legislation to come before the Committee.  

Minister Hanekom said the current Tourism Act had a number of anomalies and an amendment act would be coming to the Committee in 2017. The amendment act would also address issues of guides who were not registered. There were currently 11 000 guides that were registered. The issue of the unabridged birth certificate was still not resolved. On airlift there was an Air Transport Strategy. Engagement with the Department of Transport was taking place. Sometimes things needed to be done for strategic reasons and not for profit. One example would be if SAA offered a direct flight from Mumbai to Johannesburg. There were huge growth prospects for tourism from India. SAA used to have a direct flight from Mumbai to Johannesburg.

Mr Erasmus explained that the TGCSA did star grading of establishments ranging from caravans to five star hotels. Hotels only made up 15% of graded establishments, SMMEs made up 84%. There was a stabilisation of graded properties and that things were looking on the up.

Ms Kotze-Nhlapo on conventions stated that there was uptake in smaller towns. There was a movement of people from bigger centres to smaller centres. Conventions had been held in towns in the North West and Mpumalanga Provinces. In provinces where there were no convention bureaus the National Convention Bureau assisted business units to win bids. On the cost of bidding she explained that there were always four or five parties involved in a bid. For 2016/17 during the first two quarters on a total of twelve bids made R6m had been spent. She pointed out that the return on investment was way beyond the R6m. Australia spent six times more than what SA did on bidding.

Minister Hanekom said even though the Committee held the NDT to account it also assisted with inputs which gave direction towards policy matters. The inputs made by M embers were taken seriously. 

The Chairperson noted that the interaction had been a good and valuable one.

The meeting was adjourned.