South African Tourism 2019/20 Annual Report; with Minister

Meeting report

The Chairperson accepted the apology of the Deputy Minister of Tourism and a Committee Member. He invited the Minister of Tourism, Ms Mmamaloko Kubayi-Ngubane, to comment on the performance of South African Tourism (SAT) during 2019/20.

Minister’s Remarks
Minister Kubayi-Ngubane thanked the Committee for the guidance and feedback it provided. SAT was starting to see some stability at board level and she was comforted by the work the board was doing. The Department had held a discussion with the board following the finalisation of the Annual Report and the audit outcomes. They had discussed ways to avoid repeating previous audit findings, financial misstatements and ensuring that SAT had the necessary skills and capacity to meet the supply chain management (SCM) requirements of the Public Finance Management Act (PFMA).

Work was in progress and the Department would report on it when the matters had been addressed. The board did seem to be on track. One vacancy on the board remained but she did not think it would be a problem given that a restructuring process would take place next year. She had requested the board to look into how to maximise the value of SAT’s international offices and reduce duplication with Brand South Africa and the Department of International Relations and Cooperation. She was looking forward to the recovery of the tourism sector after COVID-19. She noted that the Department did not see the need for the tourism tax that had been suggested by National Treasury but there was a need to look at ways to increase collection of the tourism levy.

Mr Siyabonga Dube, board chairperson, SAT, said SAT’s performance had improved only marginally in 2019/20. COVID-19 had begun to affect global tourism toward the end of 2019/20, which had affected the achievement of some performance targets, but there were also some areas where SAT could have performed better. Some of these had been identified in the audit. SAT had already begun strengthening its finance office, improving SCM and addressing information and communication technology (ICT) issues. There was a need to do a comprehensive independent study into the tourism levy.

SAT presentation
Mr Sisa Ntshona, Chief Executive Officer (CEO), SAT, said that it had been a hard year for international tourism. International trips to South Africa had declined by 2.3% but domestic travel had grown by 63%. Of 37 key performance indicators (KPIs), SAT had achieved 23, partially achieved four and failed to achieve ten. This was a slight improvement from the previous year. The lower number of international arrivals had had a knock-on effect on the entity’s overall performance. He looked at the performance of each of SAT’s five programmes:

1) Corporate Support: the target vacancy rate had not been achieved, partly due to the difficulty of recruiting specialised staff and complying with local labour laws at international offices. The targeted black economic empowerment level had also not been reached.

2) Business Enablement: The tourism performance dashboard could not be launched publicly because of a possible conflict of interest.

3) Leisure Tourism Marketing: SAT’s main programme had been affected by the reduced number of international tourists. The lower number was due not only to COVID-19 but also to attacks on foreign nationals in September 2019. The increase in domestic travel had mainly occurred in peak season, which had affected the achievement of SAT’s seasonality target.

4) Business Events: This programme had performed well in 2019/20 but was expected to be adversely affected by COVID-19 in 2020/21. The targeted number of meetings at Meetings Africa had not been reached.

5) Tourist Experience: three out of four KPIs in this programme had not been achieved. SAT was re-looking at the value proposition of its grading system. A welcome training event for officials who work at ports of entry had been cancelled in response to COVID-19.

Remedial actions planned or under way to improve performance in 2020/21 included a review of SAT’s organisational structure, the Tourism Sector Recovery Plan and collaboration with provincial tourism authorities.

Financial performance
Ms Nombulelo Guliwe, Chief Financial Officer (CFO), SAT, discussed the under- and overspending of each of SAT’s five programmes. Notably, programme one had exceeded its budget by 17% (R22m) due to the inclusion of certain non-cash items such as translation of foreign financial transactions, property and plant and equipment depreciation. Programmes three and five had underspent by 4% (R44m) and 25% (R25m) respectively due to SAT’s COVID-19 response. SAT had received an unqualified audit opinion with findings related to internal control deficiencies. A detailed action plan had been developed to mitigate these findings, and SAT’s quarterly internal audit had been identified as a way to identify problems early. At some European offices, local privacy laws and the General Data Protection Regulation (GDPR) had made it impossible to obtain personal information of certain suppliers. National Treasury had instructed SAT to find a compromise with local laws and provide evidence where it was unable to comply with South African procurement regulations.

South African Tourism obtained an unqualified audit opinion with findings for the financial year-ended 31 March 2020. The 2019/20 audit highlighted a number of internal control deficiencies which must be addressed in order to improve South African Tourism’s audit outcomes

Mr Ntshona discussed SAT’s human capital. 16 out of 202 approved posts were vacant, and these would be filled once the revised organisational structure had been approved. 62% of SAT’s employees were women and over 70% were African. SAT had invested R3.4m (230% of the skills development levy) in training programmes. A new head of risk position had been created as part of creating a culture of risk management. SAT was in a transitional phase, and it would look first to domestic and thereafter to regional and international markets in its recovery plans.

Questions
Mr K Sithole (IFP) asked how SAT planned to remedy its R49m of irregular expenditure and its vacancy rate. What reasons had been given by the 15 employees who had resigned?  What had caused the delay in signing memorandums of understanding with provinces in order promote travel to specific provinces? Why had there been overspending when some targets had still not been achieved?

Ms N Mazzone (DA) noted that the world was experiencing a second wave of COVID-19 infections. Was SAT prepared for the financial impact it would have on South African tourism? She acknowledged that it was difficult to plan when there was so much uncertainty but wanted to get an idea of the plans that were in place. She suggested that KPIs should be made more fully public, so that people could be made aware of targets that had been impossible to meet because of unforeseeable circumstances.

Ms M Gomba (ANC) thanked SAT for the comprehensive report and good performance given the difficult circumstances. She asked what record-keeping system was in use at SAT. Good record-keeping was important to ensure accountability. She was surprised to learn that some contracts were extended for two years and she doubted that this could be provided for in the PFMA. Was this practice still going on? She asked about the relationship between SAT and its internal audit committee. If it had been functioning optimally, it would have detected issues before they reached AGSA.

Ms L Makhubela-Mashele (ANC) said that SAT’s moderate performance in 2019/20 could be partly attributed to unforeseeable circumstances, and asked what SAT planned to do to promote domestic tourism under the “new normal.” In previous years its domestic efforts had not been very successful, despite ringfenced resources.

Responses
Mr Dube explained that the two-year contract extensions had been classified as irregular because a pre-approval request should have been sent to National Treasury. These contracts had been entered into around five years before, when SAT had issued three-year contracts with built-in two-year extension options. SAT was now working with National Treasury to condone this irregular expenditure. No malicious action had been found. Nevertheless, SAT would not issue contracts longer than three years in future. Tourism was a concurrent function of national, provincial and local government and there was a degree of co-ordination between SAT and different levels of government but there had been a gap at board level and a closer working relationship was required. The tourism sector would be the most deeply affected by another lockdown, and as a marketing agency, SAT needed to promote responsible tourism to lower the likelihood of a second wave of COVID-19 infections.

Minister Kubayi-Ngubane confirmed that government was monitoring the possibility of a second wave across the country. While it was not easy to make predictions, there was some hope that the long summer months ahead would reduce the likelihood of a second wave within the country. She noted that the second wave in other countries would still reduce the number of international visitors. The country was participating in vaccine development but it could be too expensive to provide it to the whole country. Domestic travellers tended not to travel to city centres, so many big hotels were still seeing low visitor numbers, whereas areas aimed at domestic travellers were recovering much more quickly. It would be important to review existing and identify new key source markets. The Department was looking to target the African market, as travellers were expected to be more reluctant to travel to countries without direct flights.

Ms Guliwe said that the root cause of the irregular expenditure was SAT’s contracting regime and this had been addressed. Record-keeping was done using Oracle for financial administration and CaseWare for reporting. SAT had started a project to automate its AP processes, in line with global trends.

Mr Mzilikazi Khumalo, Chief Marketing Officer, SAT, said that there was a strong desire for people to come out of lockdown and go and explore the country. People wanted their lives back. SAT’s approach was to encourage domestic tourism while at the same time providing people with the tools and information they needed to ensure that establishments observed safety protocols. SAT would also be working with the Department of Home Affairs to provide international visitors with the information they needed to comply with regulations.

Ms Sthembiso Dlamini, Chief Operating Officer, SAT, explained that the reasons given for resignations were that the employees were looking for better opportunities. She noted that recruiting would be paused until the restructuring process was complete.

Mr Ntshona said that SAT would be focusing on domestic travel, and it was working with the tourism sector to make sure that its value proposition was adjusted for the benefit of local travellers. The African market would also be important but this would depend on air connectivity, especially the availability of direct flights.

Mr Dube explained that at one of SAT’s most important events, Meetings Africa, expenses had been incurred to provide for the Chinese delegation, which then withdrew from the event. Similarly, a trade show in Germany and SAT’s Indaba had been cancelled due to COVID-19. He agreed that internal auditing was very important. He thanked the Minister and the portfolio committee for their support and guidance.

The adoption of minutes was postponed and the meeting was adjourned.