ATC161025: Budgetary Review and Recommendation Report of the Portfolio Committee on Tourism, dated 25 October 2016

Tourism

BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON TOURISM, DATED 25 OCTOBER 2016.
 

The Portfolio Committee on Tourism, having considered the performance of the National Department of Tourism and South African Tourism for the 2015/16 financial year, reports as follows:

 

  1. Introduction

 

The past two decades has seen the national government instituting a wide array of incentives and initiatives aimed at stimulating tourism development in the country. The government has always been cognizant of the structural economic exclusion of communities from participating in tourism. This resulted to the implementation of a number of pro-poor tourism initiatives ranging from conceptualising and developing tourism infrastructure in communities through the Social Responsibility Initiative to the recent Tourism Incentive Programme aimed competitiveness of emerging tourism enterprises and destination improvement.

 

 However, South Africa has not yet realised its full tourism potential. The country is endowed with a myriad of attributes that can make the country an even better tourism destination. The major emphasis on the developmental trajectory of tourism has always been along job creation, black economic empowerment, development of emerging tourism enterprises, and local economic development as witnessed in a number of national, provincial and municipal tourism strategies all over the country. For South Africa to fully realise its potential, the country must maximise its comparative and competitive advantages as an eco-tourism and cultural tourism destination. A well-coordinated approach must be developed to ensure more community participation in the sector and advancement of transformation. 

 

The oversight role of the Committee therefore remains pivotal in steering the sector towards the desired goals and its optimal performance. In the 2015/16 financial year, the Committee conducted its oversight work by scrutinising and overseeing the executive action as mandated. The Committee monitored and evaluated the performance of the Department against the Strategic Plan and Annual Performance Plan tabled by the Minister of Tourism to Parliament in March 2015.  The exogenous factors that positively and negatively impacted on the performance of the Department were duly considered.  The work of South African Tourism, including the National Conventions Bureau and the Tourism Grading Council of South Africa were also scrutinised.

 

  1. Mandate of the Committee

 

The rules of the National Assembly as stipulated in Section 57(2) (a) of the Constitution of the Republic of South Africa, (Act 108 of 1996) establishes the Portfolio Committee on Tourism. The Committee is by association, an extension of the National Assembly and derives its mandate from Parliament.  This mandate is dispatched through five core functions, namely, to pass legislation; scrutinise and oversee executive action; facilitate public participation and involvement in the legislative and other processes; participate in, promote and oversee co-operative government; and engage in, participate and oversee international relations.

The Committee fulfils its mandate by conducting oversight over the National Department of Tourism and South African Tourism.  The methodology used by the Committee in implementing its mandate in 2015/16 was through conducting oversight visits and hearings with a number of stakeholders, receiving quarterly reports, and holding briefing sessions with the Department and South African Tourism.

 

  1. Core functions of the Department.

 

The core functions and the mandate of the National Department of Tourism and South African Tourism are executed under the following legislative, policy, and strategic frameworks:

 

1.2.1     Constitutional and Legislative Mandate

 

Part A of Schedule 4 of the Constitution of the Republic of South Africa (Act 108 of 1996) lists tourism as a functional area of concurrent national and provincial legislative competence.  Part B of Schedule 4 lists local tourism as a local government competency.  Tourism is therefore a concurrent function and all spheres of government are constitutionally bound to perform specific functions of tourism.

The Tourism Act of 2014 (Act No. 3 of 2014) enjoins the Minister of Tourism to perform specific tasks and is the core legislation governing tourism in South Africa. The Act seeks to promote practising of responsible tourism for the benefit of the Republic and for the enjoyment of all its residents and foreign visitors; provide for the effective domestic and international marketing of South Africa as a tourist destination; promote quality tourism products and services; promote growth in and development of the tourism sector; and enhance cooperation and coordination between all spheres of government in developing and managing tourism.

The Act has been in existence for two years and the Committee has already identified challenges in some of its prescripts with regard to implementation and legislative gaps. These necessitate a legislative amendment to ensure that the objects of the Act are fully actualised.

 

  1. Policy mandate

 

The Department observes and implements a number of policies and strategies in pursuit of its mandate. These are sector specific and cross-sector policy directives and strategies meant to align government efforts in general, and growing the sector in particular.  The Budget Review and Recommendations Report of the Committee is thus predisposed to a number of policies and legislative requirements with regard to performance of the Department. Some of these include the State of the Nation Address, Cabinet Makgotla and the Medium Term Expenditure Framework, the National Development Plan, and other sector strategies that guide the Department in executing its mandate. The Strategic Plan and the Annual Performance Plan for 2015/16 were thus implemented by the Department in line with the aforementioned policies as detailed below

 

  1. The National Development Plan

 

The National Development Plan (NDP) is the blueprint of government and it recognises tourism as one of the main drivers of employment and economic growth which can contribute towards creating an additional 11 million jobs by 2030. The NDP envisions tourism as a major source of revenue and employment for the country through the investment in infrastructure, product and service development. It envisages rising employment, productivity and incomes as a way to ensure a long-term solution to achieve a reduction in inequality, an improvement in living standards ensuring a dignified existence for all South Africans.  However, the National Development Plan (NDP) does not have specific targets or outcomes for the tourism sector. The role of tourism in the NDP and the broad overview of the sector are directly and indirectly implicit in a number of chapters. Chapter 3 implies the contribution of tourism in economy and employment due to the labour intensive character of the tourism industry. The sector could therefore contribute to the creation of a number of sustainable employment opportunities and growth. To achieve its growth potential, tourist spending and the total number of tourists entering the country will have to increase. The sector needs to leverage on multipliers from tourists arriving by air as espoused in Chapter 3. The focus on trade in services in the NDP sees tourism as one of the fastest growing global segments where South Africa has the potential to compete with other destinations. However this will require skills development to be strengthened and thus the NDP has implication for the development of the National Tourism Human Resources Development Strategy as espoused in Chapter 9.

 

Chapter 4 alludes to economic infrastructure and how this is significant in promoting tourism development, and Chapter 6 deals with inclusive rural economy and the role of tourism in developing rural communities. Inclusive rural economy could create economic and employment opportunities in rural communities through investments in tourism. The NDP highlights the importance of involving local communities so as to realise the potential of tourism in rural areas. Amongst other economic sectors and interventions, the NDP advocates that tourism could contribute to raising economic participation in rural areas from 29 percent to 40 percent.  Chapter 7 deals with positioning South Africa in the world and this implies the role of marketing the country as a preferred destination. Positioning South Africa in the World would yield benefits from greater regional integration and international exposure. This would also lead to increased access to both regional and international tourism markets. South African Tourism is therefore expected to drive regional marketing to penetrate the African market. Chapter 8 deals with Human settlements and implies development of various niche markets, including township tourism. The role of tourism will be in the reduction of poverty traps, among other social ills, in rural and urban townships. Challenges that are faced by small towns, coastal cities are found in areas where tourism can be developed further.  This underscores the role that tourism can play in these areas with largely declining traditional industries and high unemployment rates. The Committee was satisfied that the Strategic Plan and the Annual Performance Plan of the Department in the 2015/16 financial year were aligned to the NDP and programmes implemented were covering various development thrusts of this government policy direction.

 

 

  1. The New Growth Path

 

The New Growth Path recognises tourism as one of the six economic pillars of South Africa. Tourism is a labour-intensive sector, with a supply chain that links across sectors, and therefore a priority sector in the government’s planning and policy framework. The NGP is intended to address unemployment, inequality and poverty in a strategy that is principally reliant on creating a significant increase in the number of new jobs in the economy. For the tourism industry which is largely untransformed, the NGP envisages tourism as a vehicle to expedite inclusive tourism growth that fosters participation in the mainstream economy by South Africans.  This strategy recognises tourism as a key sector for employment creation set a target of 225 000 additional jobs by 2015. This economic plan stipulated that to achieve the intended targets, the industry needs to address quality assurance, training, tourism infrastructure, youth employment and support cultural industries’ main enablers.

 

The Department has implemented programmes that address the objectives of the NGP. The targets set in the New Growth Path are however affected by the change in methodology of collecting tourism statistics. At the time the NGP was developed, tourism figures were based on foreign arrivals and the methodology has since been amended to only account for tourist arrivals. This meant the figures of arrivals had to be revised down thus affecting many other indicators such as tourist spend, revenue and jobs created. The Department is in the process of revising the National Tourism Sector Strategy which will present new targets for the sector aligned to the NDP and the NGP.  In 2015 there were about 9 million tourist arrivals in South Africa.  Tourism contributed R375 billion to the economy of the country which is 9.4 percent of the GDP. A total of 1.5 million people are currently employed in the sector, which accounts for 10 percent of the total employment in the country. 

 

1.2.2.3           The White Paper on the Development and Promotion of Tourism in South Africa

 

The White Paper on the Development and Promotion of Tourism in South Africa (1996) has provided the policy direction, framework and guidelines for tourism development in the country after the first democratic elections in 1994. The White Paper is a pioneering policy that has provided a strong base for other policies and the legislative framework in South Africa.  The policy outlines the government's tourism strategy and prioritises for tourism mobilisation of the country's human and material resources in order to obtain a bigger share of the increasing world tourism industry. The policy acknowledges the potential of the tourism industry to create opportunities for emerging and small entrepreneurs, and in so doing, supporting access to greater socio-economic benefits for the wider population.  The policy also advocates for transformation in the tourism and sets solid foundation for responsible tourism development in South Africa. Many strides have been made since the development of this policy but there is a need for policy review given various changes that have occurred since its advent. The Committee is concerned that some of the areas identified as way back as 1996 still persist in the sector and there have been a number of emerging trends that are not captured in the policy.

 

1.2.2.4            The National Tourism Sector Strategy

 

The National Tourism Sector Strategy (NTSS) is a blueprint for the tourism sector in pursuit of growth targets contained in the New Growth Path (NGP). The NTSS was initiated by the Department of Tourism in partnership with the Tourism Business Council of South Africa (TBCSA) and approved by Cabinet in 2011. This has guided the consolidation of the tourism sector and improved relations between the government and the private sector. The major long-term strategic goal of the NTSS is to provide South Africa with an opportunity to transform the sector into a globally competitive destination that spoils tourists for choice. In the 2015/16 financial year the Department had planned to review the NTSS but the process was not finalised by the end of the financial year.

           

            1.2.2.5 The Medium Term Strategic Framework (2014 -2019)

           

The Medium Term Strategic Framework (MTSF) of government spanning 2014 - 2015 is premised on the National Development plan. There are fourteen core priorities of the MTSF and the the Department was pursuing four of the fourteen government outcomes from 2014 to 2019.  These government outcomes are outcome 4: Decent employment through inclusive economic growth; outcome 7: Comprehensive rural development; outcome 11: Creating a better South Africa, and contributing to a better and safer Africa in a better world; and outcome 12: An efficient effective and development-oriented public service and an empowered, fair and inclusive citizenship.

 

  1. State of Nation Address

 

In the 2015 State of the Nation Address the President of the Republic of South Africa, His Excellency Jacob Zuma mentioned a number of pertinent issues that have a direct and indirect impact on tourism. The multi-faceted nature of the tourism sector makes it imperative for the Department of Tourism to carefully consider the State of the nation address and glean the matters of possible collaboration. This will assist the Department in to craft interventions that could be supported by activities already approved or in the pipeline of other sister departments.  The most critical matter was the reiteration by the President of the need to facilitate travel to South Africa. He alluded that “to attract foreign skills for our growing economy, we will invite dialogue with various stakeholders on the Migration Policy. We will also prioritise the review of visa regulations to strike a balance between national security and growth in tourism”. These were significant pronouncements given the policy uncertainty created by the requirements of the Unabridged Birth Certificates to all minors travelling in and out of South Africa. The subsequent events have however dampened prospects for finality in the matter as the new draft amendments still have similar requirements. The policy impact analysis seems to have not included the unintended consequence to the tourism sector if it was ever conducted. As indicated in the previous Budget Review and Recommendations Report, there is a need for policy review by government with regard to immigration regulations to achieve the growth of the sector. The Inter-ministerial Task Team lead by the Deputy President announced in 2014 made some recommendations but these have not been fully implemented and the draft review still hamper the growth of inbound and outbound tourism. It is therefore vital for the Inter-ministerial Task Team to analyse the economic impacts of the new draft immigration Act.

 

 

  1. Strategic Outcome Oriented Goals of the Department and Delivery Agreements targets for 2015/16

 

The National Department of Tourism intends to achieve its primary objectives through pursuing the following strategic outcome oriented goals:

 

Table 1: Strategic Outcome Oriented Goals

Strategic Outcome Oriented Goals

Goal Statements

Government Outcomes

Achieve good corporate and cooperative governance

Provide a comprehensive corporate support service to the Department to ensure good governance

The Department conducts its business in a manner that creates public confidence in the state. This requires excellent systems for the management of public resources, ridding the system of any inefficiency and enabling oversight by institutions of the state in the interest of the public. The Department is responsible to formulate a legal and regulatory framework for the sustainable development and management of tourism. Decisions in this regard are meant to govern the tourism sector to ensure that South Africa’s approach to tourism development is in line with the principles of sustainability and responsible tourism. This requires the formulation of laws, regulations and policies for the sector to ensure a coherent approach to tourism development. It is also recognised that tourism growth depends on various other, contributing sectors. Therefore, a cooperative governance system must coordinate efforts to create coherence among all role-players.

Outcome 4: Decent

employment through inclusive economic growth.

 

Outcome 7: Comprehensive

rural development.

 

Outcome 11: Creating a better South Africa, and

contributing to a better and

safer Africa in a better world.

Increase the tourism sector’s contribution to inclusive economic growth.

Tourism’s contribution to the economy is measured by jobs created, contribution to GDP, and revenue generated from tourism activity. Furthermore, as a services export sector, tourism is a significant earner of foreign currency. In the South African context, this growth should be underpinned by the principle of inclusivity to drive tourism-sector transformation.

 

An increase in tourism’s economic contribution is driven by an increase in domestic and international tourist arrivals as well as an increase in tourist spend. Along with its partners, the department must create an environment conducive to this increase by ensuring a quality and diverse tourism offering as well as by developing sector capacity.

Source: NDT Strategic Plan 2015/16

 

The Strategic Outcome Oriented Goals are pursued though the following departmental Programmes:

  1. Programme 1: Administration – the programme provides strategic leadership, management and support services to the department.
  2. Programme 2: Policy and Knowledge Services – the programme provides strategic policy development, monitoring and evaluation, research, and knowledge management services.
  3. Programme 3: International Tourism – the programme purpose is to develop and support South Africa’s worldwide tourism potential.
  4. Programme 4: Domestic Tourism – the purpose of the programme is to promote the development and growth of sustainable domestic tourism.
    1. Purpose of the Budget Review and Recommendations Report

 

The Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) mandates Parliament to develop the Budget Review and Recommendations Report (BRRR). The Act sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national department. In October of each year, the Committee must compile the BRRR that assesses service delivery performance given available resources; evaluate the effective and efficient use and forward allocation of resources; and may make recommendations on forward use of resources. The BRRR also acts as a source document for the Standing/Select Committees on Appropriations/Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (MTBPS). The comprehensive review and analysis of the previous financial year’s performance, as well as performance to date, form part of this process.  This report makes recommendations to the Minister of Finance to amend the budget for the Department of Tourism.  Recommendations are also made to the Minister of Tourism for service delivery related activities.

 

  1. Method

 

The Minister of Tourism tabled the Annual Reports for the Department of Tourism and South African Tourism to Parliament in August 2016. This set in motion the Committee process of drafting the Budget Review and Recommendations Report for 2015/16 financial year. The process involved considerations of the oversight visits conducted by the Committee, the quarterly reports, and reviewed a number of relevant documents, both within government and private sector.  The Committee then scheduled the meeting with South African Tourism.  The office of the Auditor-General was then scheduled to receive the audit results of the Department of Tourism and South African Tourism. This meeting was scheduled simultaneously with Fiscal and Financial Commission to investigate the budgetary requirements of tourism in the country and check if the Department is on course to meet the 2020 targets set in the National Tourism Sector Strategy.  The Committee then scheduled the meeting with the Department to brief the Committee on their 2015/16 annual report.  The annual reports of the two institutions were then put under oversight scrutiny by the Committee which culminated in the 2016 Budget Review and Recommendation Report.

 

 

  1. Outline of the contents of the Report.

 

The report contains five broad areas. These are:

  1. Constitutional, legislative and policy mandate of the Committee and the process that was followed in developing this Budget Review and Recommendations Report.
  2. Previous financial performance of the Department on both financial and non-financial aspects.
  3. Financial, non-financial and service delivery issues for the period under review.
  4. Key findings from oversight work of the Committee, public hearings and research by external stakeholders that inform the recommendations.
  5. Recommendations to the Ministers of Finance and Tourism in terms of the budgetary requirements, performance, and service delivery improvement of the Department.

 

  1. Overview of the key relevant policy focus areas

 

Tourism is government by a number of legislative, policy and strategic frameworks and is aligned to a number of government policies.

 

  1. Key Government policies

 

The Department of Tourism considered all the key government policies in delivering their tourism mandate in the 2015/16 financial year. The key policy mandate followed by the Department incorporated the National Development Plan (NDP) which is the 2030 vision for the country. It envisions rising employment, productivity and incomes as a way to ensure a long-term solution to achieve a reduction in inequality, an improvement in living standards and ensuring a dignified existence for all South Africans. The National Development Plan (NDP) recognises tourism as one of the main drivers of employment and economic growth; the National Growth Path (NGP) which includes tourism as one of the six pillars of economic growth; the National Tourism Sector Strategy which provides a blueprint for the tourism sector in the pursuit of growth targets contained in the NGP; and the White Paper on the Development and Promotion of Tourism in South Africa, 1996, which provides a framework and guidelines for tourism development and promotion in South Africa. The government policy environment in the year under review was however complicated by the Immigrating Regulations that had been gazetted by the Department of Home Affairs in May 2014.

  1. Overview of revised Strategic Plan and Annual Performance Plans

 

The Strategic Plan for the 2015/16 financial year was aligned to the national government 2014 – 2019 MTSF priorities, including the national Development Plan. The Department set 11 objectives that were pursued in the period under review. In the assessment of the Strategic Plan and the Annual Performance Plan the Committee discovered that most targets of the National Department of Tourism did not meet the SMART principles as they were not specific and measurable in terms of numbers, for example, of people to be trained. In pursuance of the enhanced understanding and awareness of the value of tourism and its opportunities, the Department planned hosting stakeholder forum meetings. To create an enabling legislative and regulatory environment for tourism development and growth, the Department planned to review the National Tourism Sector Strategy.  In accelerating the transformation of the tourism sector the Department planned to develop an enterprise and supplier development programme to accelerate SMME’s empowerment in the tourism sector. This programme will be implemented through the MTSF period. In facilitating tourism capacity-building programmes the Department planned to facilitate capacity-building for tourism practitioners and policy makers at local level. However there were no figures attached to these training programmes to indicate numbers that will be trained.  It was also not indicated in which provinces the workshops were to be conducted. In addition, the Department had planned to conduct Universal Accessibility Stakeholder awareness workshops.  In diversifying and enhancing tourism offerings the Department planned to facilitate resource efficiency assessments in Mpumalanga. However there was no indication of what was to be done in the subsequent years to implement outcomes of the assessments. In addition, the Department planned to conduct impact evaluation for completed and operational SRI projects. Nothing was however said about the incomplete and non-operational SRI projects. The Department also planned to develop, implement and maintain number of information systems, services and frameworks. Supporting establishments on market access, tourism grading and energy-efficiency were also part of the three priority areas of the pilot phase of the Tourism Incentive Programme planned for the period under review. There were also four research studies planned in collaboration with universities in 2015/16.

 

In providing knowledge services to inform policy, planning and decision making, the Department planned to develop and maintain seven knowledge and information systems. To further boost International Tourism the Department planned to undertake capacity-building programmes through knowledge, insights and tools to equip South African missions abroad and the tourism sector in positioning South Africa as a competitive tourism destination.  To develop new markets it was planned that to collaborate with South African Tourism in growing the markets that are on a watch-list segment of their portfolio and to penetrate markets outside the SAT portfolio.  This was deemed as a serious duplication as SAT has segmented the markets in their latest portfolio review based on their market research.  The Department was going to spend additional funding on marketing activities in addition to the 51 percent of the budget already given to South African Tourism for the same activities. Furthermore, the Department planned to host two trade seminars and engaging with outbound tourism trade.

 

In order to enhance regional tourism integration, the Department planned to host a Ministerial session at Indaba 2015.  This session was attended by other tourism Ministers from the African continent.  In accelerating transformation of the tourism sector the Department planned to support 100 rural enterprises for development.  However the Strategic Plan was not specific on what type of rural enterprises were to be supported and what type of support was to be given. In facilitating tourism capacity-building programmes, the Department planned to host the National Tourism Careers Expo (NTCE) which has been hosted since 2009. Other capacity building programmes included educator exposure programme in four provinces; recruiting three hundred graduates from FET colleges and placing them for the Food and Safety Programme every year in the MTEF; implementing service excellence standards in Manyane Game reserve and Robben Island in 2011/16 and other areas in subsequent years.  In the pursuit to create employment opportunities by implementing tourism projects, the Department planned creating 3 008 full-time equivalent jobs in 2015/16 and 3 970 and 3 944 in 2016/17 and 2017/18 respectively.  The jobs were to be created through SRI projects. 

 

  1. Overview of key developments in the organisational and service delivery environments of Department for 2014/15 and 2015/16 MTEF cycle.

 

There were number of developments in the organisational and service delivery environments in the period under review which had significant implication for performance by both the Department and South African tourism.

 

 

 

 

  1. Service delivery environment

 

Tourism is an international, regional, national and local economic activity that is sensitive to social and economic incidents at all these levels. At an international level, these are mostly external factors over which the Department has no control. These factors include weather, social events such as terrorism and disease outbreaks, and economic events such as foreign exchange rate fluctuations.  At a national level however, some of these developments could be mitigated if the Department engages its counterparts at a Cabinet Level. It was therefore not unexpected that the introduction of the new Immigration Regulations in the 2014/15 and 2015/16 MTEF cycle was the key development in the service delivery environment. Changes to South Africa’s Immigration Regulations affected travel from visa-requiring countries, as well as travel with children from visa-exempt countries. It is notable that in 2015 South Africa was ranked 37th in the world in terms of international tourist arrivals, down from the previous ranking of 34th in 2014. In Africa, South Africa was the third most visited country in 2014 after Morocco and Egypt. The country’s tourism performance was therefore relatively subdued in 2015 with total revenue, from both international and domestic tourism, growing by 0.8 percent to R91.8 billion in 2015 from R91.0billion in 2014. Domestic trips declined by 12.5 percent in 2015 despite an increase of 3.3 percent in the number of tourists taking trips in the same year. These declines were driven by tourists taking fewer trips.

 

With regard to business events, South Africa is the number one meetings destination in Africa and is ranked 38th globally according to the International Congress and Convention Association (ICCA) ranking. Technology is becoming increasingly critical to the success of meetings. Meeting planners are now using specialised delegate management software, social media and dedicated event applications (apps) to create a more streamlined and effective attendance experience. This is a challenge to the South African National Conventions Bureau to ensure that their strategies for bidding are aligned to these technological requirements.

 

With regard to quality assurance, Statistics South Africa projects that the country has 10 000 accommodation establishments with only 50 percent of these graded. The hotel groups account for 50 percent and the other 50 percent are rooms in small to medium-sized establishments. This calls for a policy review to change from voluntary to compulsory grading to ensure that most accommodation facilities and attractions in South Africa are graded to enhance destination quality product offering.

 

2.3.2     Organisational environment

 

The Committee has observed the weakening of management controls, internal controls, and risk assessment in the Department. This is based on a number of projects that are not properly implemented and delays in implementing some projects contained in the Annual Performance Plans. However, major organisational developments took place at South African Tourism. The developments that occurred at SAT include:

 

  1.  The Ministerial Review Report that presented a number of organisational shortcomings that should be addresses;
  2. A constrained regulatory and compliance environment posed by the PFMA and international laws;
  3. A change of leadership in the Board resulting in the composition of a new Board and Chairperson with new ideas an direction for the entity; and
  4. The resignation of the Chief Executive Officer bringing a period of transition for the organisation.

 

  1. Summary of previous year’s key financial and performance recommendations of Committee

 

The Committee made a number of financial and performance recommendations to the Ministers of Finance and Tourism in the previous financial years. The summary is given below:

 

  1. 2014/15 BRRR recommendations

 

  1. Summary of key financial and non-financial performance recommendations made by Committee

 

The Committee made a number of recommendation in the 2015 financial year. These were directed to both Ministers of Finance and Tourism. The recommendations covered a wide array of aspects within the Department and the tourism sector as a whole. The broad areas incorporated in the recommendations were improvement on financial misstatements; determining the budget for National Department of Tourism; governance and leadership; dealing with recurring issues; implementation of the Auditor-General findings; reconstitution of the Tourism Grading Council South Africa and improvement of the Grading Scheme; recovery plan to address negative perceptions created by Immigration Regulations; corporate citizenship in the tourism sector; corporate citizenship in the tourism sector; forensic audits and improved Social Responsibility Implementation (SRI); tourism policy, planning and coordination at local level; radical economic transformation; tourism SMME development; improvement of tourism infrastructure; professionalisation of tourist guides; quantification of marketing budget; Improved domestic tourism; addressing geographical spread and seasonality; operations of the National Conventions Bureau; and addressing concerns on TOMSA Levy.

 

  1. Evaluation of response by the Minister of Finance and the Department

 

There were no responses received from the Minister of Finance with regard to finance related recommendations. The Minister of tourism responded to all the recommendations made by the Committee. A large proportion of the recommendations were accepted and justification made for those which are partially or not accepted.  The Committee is however concerned that some of the responses were not satisfactory to address the issues raised. The Committee had already started to engage the Department and South African Tourism on some of the issues that were not adequately addressed. The major concern is with the response given to the recommendation that the Minister of Tourism commissions an econometric study to determine and quantify the budget needed for both the National Department of Tourism and South African Tourism in order to make realistic budgetary recommendations to the Minister of Finance based on reliable information. The recommendation was made as the Committee had realised the budget appropriated for tourism was too little to fulfil the tourism mandate. This was meant to assist both the Department and South African Tourism in recommending a budget increase to the National Treasury. The response by the Minister that “the motivation for the budget is based on the Department’s plans, taking into cognisance available resources”. This response is deemed shallow and does not assist the Committee in making informed recommendations to the Minister of Finance to appropriate more budget for tourism. If the econometric study is not conducted, the status quo for funding tourism in South Africa will remain as per Estimates of National Expenditure currently projected by the National Treasury. This will perpetuate underfunding of the sector and the full potential of tourism as an economic sector that can yield sustainable jobs and cushion the economy will not be fully realised.

 

  1. 2015/16 Committee Budget Report

 

The Committee, having considered the mandate of the Department and the funds appropriated to vote 33 considers the budget for tourism as inadequate.  The Department’s budget for 2016/17 was R2.0 billion, representing a real growth of 6.55 percent from the 2015/16 allocation. The Main driver of growth in the 2016/17 budget was the Domestic Tourism Programme which is set to grow by a significant 35.90 percent in real terms between 2015/16 and 2016/17. The growth is in respect of the Social Responsibility Implementation sub-programme and more specifically, the introduction of a new spending area in support of rural enterprises. Notwithstanding significant growth mentioned above, this programme is projected to show largest real annual average decline in its allocation over the two outer years of 2016 MTEF period (-4 percent p.a). Over the outer two years of the 2016 MTEF period, allocation to the Department is projected to decline by 3.13 percent in 2017/18 and by 0.76 percent in 2018/19.

 

It is on the basis of the projected decline in the outer years that the Committee is submitting to the National Treasury that the funds appropriated to Vote 33: Tourism should be reconsidered. The National Treasury must be cognisant of the tremendous contribution that tourism makes to the economy of South Africa. In the economic climate where there has been a gradual slowdown of the national economy, tourism continued growth above national economy. The average annual growth rate of 4.1 percent in the Tourism sector impacts positively the rest of the economy and has cushioned the South African economy during tough economic times. The number of tourist arrivals to South Africa continues to grow every year, and the number of tourist arrivals is projected to increase from 9.1 million in 2016/17 to 10.2 million in 2018/19. The reported total contribution of R375 billion to the economy (9.4 percent of the GDP) and 1.5 million people are currently employed in the sector (0 percent of the total employment in the country) warrants that the National Treasury considers increasing the budget for tourism. The Department is also currently revising its National Tourism Sector Strategy and has developed a number of other sector strategies to develop and grow the tourism sector even more. These strategies have a number of projects and programmes that cannot be implemented due to lack of funding. If these strategies were implemented, the sector will create more jobs and address the triple challenge of poverty, inequality and unemployment.

 

 

 

 

  1. Overview and assessment of financial performance

 

The Committee scrutinised the budget allocation and expenditure trends in the sector over the 2013/14 - 2016/17 financial years to establish the trends for vote 33 previously assigned as vote 35.

 

  1. Overview of Vote allocation and spending (2013/14  -  2016/17)

 

The increase in allocation over the medium term provided for the expected increase in the number of international tourist arrivals by air from 3.8 million to 4.1 million and create 16 775 full time equivalent jobs through the Expanded Public Works Programme. South African Tourism will receive additional Cabinet approved allocations of R100 million in 2015/16 and R105 million in 2016/17 for domestic marketing programmes through the economic competitiveness support package. This funding will end in 2016/17.   The Financial and Fiscal Commission has warned that given the prevailing economic environment, it is unlikely to see a significant injection of funds from the national fiscus. To achieve the targets in NDP, the Department should focus on strategic interventions that will have multiplier effects in the sector as well as leveraging the favourable exchange rate climate to attract international visitors.

 

4.2        Vote allocation and spending for 2013/14

 

The Department had an appropriation of R1.52 billion for 2013/14 which represented a nominal increase of R146.4 million, or 10.7 percent, from 2012/13 Transfers and Subsidies comprised the bulk of expenditure and accounted for R1.2 billion of the available budget and of this amount the department transferred R1.2 billion, or 100 percent, mainly to departmental agencies and accounts. This meant the Department had an available budget of R360.2 million for operations.  Of this, the Department spent R352.4 million, 97.8 percent, the majority of which was used on compensation of employees and goods and services.

 

 

 

 

 

Table 2: Departmental allocation and expenditure in 2013/14

Programme

Adjustment Appropriation

Shifts approved by National Treasury

Virement

Final Appropriation

Expenditure

Over/Under expenditure

 

R’000

R’000

R’000

R’000

R’000

R’000

Administration

224 619

 

342

224 961

219 783

(5 178)

Policy and Knowledge Services

928 862

 

831

224 961

219 783

(46)

International Tourism

45 416

 

(247)

45 169

219 783

(75)

Domestic Tourism

384 363

 

(926)

383 437

363 070

(20 367)

TOTAL

1 583 260

 

-

1 583 260

1 557 594

(25 666)

Source: NDT Annual Report (2014)

 

  1. FINANCIAL PERFORMANCE FOR 2014/15

 

The final appropriation for 2014/15 financial year was R1 583 260 and the Department was able to spend R1 557 594 which represented 98.4 percent of the allocated funds. The Department carried out virements between its four programmes after the National Treasury approval had been obtained to establish a transfer payment for tourism interpretive signage as well as to provide for the increase in the compensation of employees to accommodate the salary adjustments of assistant directors and deputy directors as per the Department of Public Service and Administration’s (DPSA) Circular 4 of 2014.

 

Table 3: Appropriation and expenditure for 2014/15

  •  

Final Appropriation (R’000)

Expenditure (R’000)

Expenditure as per

% of Final Appropriation

1.  Administration

  •  
  •  
  1.  

2. Policy and    

    Knowledge    

    Services

  •  
  •  
  1.  

3.International  

    Tourism

   Management

  •  
  •  
  1.  

4. Domestic Tourism

    Management

  •  
  •  
  1.  
  •  

1 583 260

1 557 594

  1.  

Source: Adapted from NDT Annual Report 2014/15

Programme 2: Policy and Knowledge Services, received an additional allocation to assist with the tourism local government conference. National Treasury also granted approval to increase the transfer payment to the Regional Tourism Organisation of Southern Africa (RETOSA) to settle the outstanding membership fees which formed part of the implementation of corrective actions. The amount shifted from Programme 3: International Tourism, was R247 000, which represented 0.54 percent of the appropriated funds. The amount shifted from programme 4, Domestic Tourism, was R926 000, which totalled 0.24 percent of the appropriated funds.

 

  1. FINANCIAL PERFORMANCE FOR 2015/16

 

In the period under review, the Department spent 99 percent of its total budget.  All four programmes spent 99 percent of their respective budgets. Table 4 shows the overview of the financial results of the Department in 2015/16. The underspending in programme 2: Policy and Knowledge Services, amounted to R10, 174 million. This was mainly due to the applications received for tourism grading support, as a function of the Tourism Incentive Programme that were fewer than anticipated.  The Accounting Officer approved the virement in accordance with section 43 of the Public Finance Management Act (PFMA), 1999. The approved virements did not exceed 8 percent of the amount appropriated as allowed by the Act. The virement from programme 1, Administration, was 2.69 percent and 0.04 percent from programme 2: Policy and Knowledge Services. An amount of R3.92 million was shifted to programme 3: International Tourism mainly for compensation of employees and the funding of events at the Tourism Indaba. An amount of R3.601 million was shifted to programme 4: Domestic Tourism, mainly for compensation of employees, and for the creation of a new transfer payment to the Southern Africa Tourism Services Association (SATSA). 

 

Table 4: Departmental expenditure for 2016/17

Programme

Adjustment appropriation

Virement

Final appropriation

Expenditure

Over/ (under) expenditure

Virement

 

R’000

R’000

R’000

R’000

R’000

%

Administration

233 656

(6 278)

227 378

224 811

(2 567)

-2,69

Policy and knowledge services

1 206 214

(515)

1 205 699

1 195 525

(10 174)

-0,04

International Tourism

47 308

3 192

50 500

49 928

(572)

6,75

Domestic Tourism

307 000

3 601

310 601

307 130

(3 471)

1,17

Total

1 794 178

-

1 794 178

1 777 394

(16 784)

-

Source: NDT Annual Report - 2016/17

 

However, the Department struggled for the better part of the year to match their scheduled drawings with actual expenditure. None of the four programmes of the Department managed to spend two thirds of their budget by the end of the third quarter this includes transfers to Higher Education Institutions, Tourism Incentive Programme (TIP), with the exception of the expenditure on transfers and subsidies for households, entity and foreign governments and international transfers. By the end of the 4th quarter the Department had spent R1.3 billion of a possible R1.4 billion as a result of slow spending on TIP.

 

The Department’s spending also correlated with the achieved deliverables; virements were much lower and within the acceptable range. This indicates improvement when compared to the 2013/14 financial year. The Department had virements amounting to R6.2 million, R515 000 of these virements were redirected from the Administration Programme and the Policy and Knowledge services Programme. The virements from programme 2 were shifted from TIP. It should also be noted that the implementation of market access had also been relocated to TIP. It is of concern that funds budgeted for TIP were underspent or transferred to other entities by the end of the fourth quarter resulting in the budget being deferred to the 2016/17 financial year.

 

The 2015/16 budget grew at by R100 million for 2015/16 allocation. This allocation was meant for the improvement of domestic marketing programmes and was South African Tourism. The TIP was added as a sub programme under the Policy and Knowledge Services, the Programme a budget allocation of R171.3 million for the 2015/16 financial year, this allocation is earmarked for the facilitation of market access for local tour operators and tourism businesses in recognised local and overseas exhibitions. Some of the projects for the TIP included assistance towards the grading of tourism establishments and retrofitting renewable energy initiatives for sustainable tourism in 2015/16 to R427 million in 2017/18. 

 

On the other hand, South African Tourism utilised 100 percent of its allocated budget and experienced over expenditure of R82.6 million.  It is alarming that SAT over spent on all indicators including the local indicator such as domestic tourism. A major contributor to the over expenditure has been identified as the negative currency movements. It is also unacceptable that R8.9 million of the expenditure went to performance bonuses even though the Department extremely failed to achieve its targets. It must further be noted that the spending patterns for SAT were inconsistent with what was budgeted for. This provides an indication of some weakness within the planning and budgeting mechanisms in the organisation.

It is commendable that SAT received an unqualified Audit without findings, however, irregular expenditure of R82 000 was recorded for failure to obtain competitive quotes. The irregular expenditure was incurred by a Country Finance manager who had since been subjected to disciplinary process. The 100 percent expenditure of SATs’ financial performance results for the 2015/16 financial year are discouraging given that the majority of the targets, seven of eight targets, were not achieved.  There has also been a growing trend in over expenditure as the over expenditure for the year under review is sitting at R82.6 million whereas during the 2014/15 financial year over expenditure amounted to R65.7 million. There is a need for an urgent intervention to address the over expenditure, which in some instances has been attributed to rate losses.

 

It was noticeable that SAT received an amount of R62 258 719 from Forex gains. This emanated from the funds deposited upfront to foreign offices in a move to curb foreign currency losses. This is however not a sustainable solution to foreign currency losses and a permanent solution should be developed with the assistance of the National Treasury.

 

6.1        Quarterly spending trends

 

The quarterly spending for the Department in the 2015/16 financial year was as follows:

 

  1. Programme 1: Administration

 

In the quarter 1, Programme had 55.2 percent of operational expenditure from April to June was on Administration, representing R48.6 million, mainly for compensation of employees and goods and services. Expenditure under this programme has increased by R3.2 million, or 7.1 percent, when compared with the same period last year primarily due to additional spending on these items, with the additional spending under goods and services mainly on operating leases.

 

In quarter 2, the Department spent 54.8 percent of operational expenditure from April to September on Administration, representing R101.7 million, mainly for compensation of employees and goods and services. Expenditure under this programme has increased by R12.3 million, or 13.8 percent, when compared with the same period last year primarily due to additional spending on goods and services and compensation of employees. The main cost drivers is attributed to the 2015 cost-of-living adjustment, implementation of PSCBC Resolution 1 of 2012 on salary levels 9/10 and 11/12; increases in audit fees for the Auditor-General; and Consultants Fees.

 

A total of 43.7 percent of operational expenditure from April to December was on Administration, representing R160.6 million, mainly for compensation of employees and goods and services. Expenditure under this programme has increased by R13.5 million, or 9.2 percent, when compared with the same period last year primarily due to increased spending on goods and services and compensation of employees. The main cost drivers are attributed to the 2015 cost-of-living adjustment, implementation of PSCBC Resolution 1 of 2012 on salary levels 9/10 and 11/12 and the expenditure related to Office Accommodation. Payments in 2014 were delayed due to the lack of invoices submitted by DPW. In 2015 however, the invoices seem to be submitted at a much faster pace resulting in funds being disbursed faster.

 

  1. Programme 2: Policy And Knowledge Services

 

In the 1st quarter, operational expenditure at the end of quarter 1 was R11 million, the majority of which was spent on compensation of employees. Expenditure under this programme increased by R1.4 million, or 14.5 percent, when compared with the same period last year primarily due to additional spending on these items.

 

Operational expenditure at the end of quarter 2 was R26.5 million, the majority of which was spent on compensation of employees. Expenditure under this programme increased by R6.9 million, or 34.9 percent, when compared with the same period last year primarily due to additional spending on compensation of employees and goods and services. The main cost drivers is attributed to the 2015 cost-of-living adjustment as well as the implementation of PSCBC Resolution 1 of 2012 on salary levels 9/10 and 11/12; spending on training and development to enhance the Tourism Incentive Sub-Programme together with an increase in travel and subsistence in line with the business activities of the TIP programme.

 

Operational expenditure at the end of quarter 3 was R41.1 million, the majority of which was spent on compensation of employees. Expenditure under this programme has increased by R9.5 million, or 30.2 percent, when compared with the same period last year primarily due to increased spending on compensation of employees and goods and services. The main cost drivers are attributed to the 2015 cost-of-living adjustment as well as the implementation of PSCBC Resolution 1 of 2012 on salary levels 9/10 and 11/12.

 

  1. Programme 3: International Tourism

 

The operational expenditure at the end of quarter 1 was R10.3 million, the majority of which was spent on compensation of employees. Expenditure under this programme increased by R2.8 million, or 37.9 percent, when compared with the same period last year primarily due to additional spending on these items.

 

At the end of quarter 2 operational expenditure for Programme 2 was R21.3 million, the majority of which was spent on compensation of employees. Expenditure under this programme has increased by R5.8 million, or 37.1 percent, when compared with the same period last year primarily due to additional spending on these items. The main cost drivers is attributed to the 2015 cost-of-living adjustment as well as the implementation of PSCBC Resolution 1 of 2012 on salary levels 9/10 and 11/12 and an increase in spending on travel and subsistence which is in line with the activities of the International Tourism Programme. The devaluation of the Rand has added to the increase in expenditure under this item.

 

Under Programme 3 operational expenditure at the end of quarter 3 was R32.1 million, the majority of which was spent on compensation of employees. Expenditure under this programme has increased by R5.3 million, or 19.8 percent, when compared with the same period last year primarily due to increased spending on these items. The main cost drivers are attributed to the 2015 cost-of-living adjustment as well as the implementation of PSCBC Resolution 1 of 2012 on salary levels 9/10 and 11/12.

 

  1. Programme 4: Domestic Tourism

 

Programme 4: Domestic Tourism – Operational expenditure at the end of quarter 1 was R18 million, the majority of which was spent on compensation of employees. Expenditure under this programme increased by R3 million, or 19.6 percent, when compared with the same period last year primarily due to additional spending on these items, with the additional spending under goods and services mainly on travel and subsistence, and business and advisory consultancy services

Programme 4: Domestic Tourism – Operational expenditure at the end of quarter 2 was R36.2 million, the majority of which was spent on compensation of employees and goods and services. Expenditure under this programme has increased by R3 million, or 9 percent, when compared with the same period last year primarily due to additional spending on these items, with the additional spending under goods and services mainly on travel and subsistence, and communication. The main cost drivers can be attributed to an increase in travel and subsistence expenditure in line with the business activities of the programme. Another factor which added to the increase in goods and services is expenditure on consultants, specifically accountants and auditors which are used for independent audits on EPWP projects.

 

Programme 4: Domestic Tourism – Operational expenditure at the end of quarter 3 was R133.5 million, the majority of which was spent on goods and services (mainly for training and development) and compensation of employees. Expenditure under this programme has increased by R79.9 million, or 149.2 percent, when compared with the same period last year primarily due to increased spending on these items, with the increased spending under goods and services mainly on training and development. The increase in expenditure on goods and services is as a result of the expenditure on EPWP training projects which in the past used to form part of Transfers and Subsidies.

 

6.2        Transfers and subsidies

 

The Department made a number of transfers and subsidies to stakeholders as follows:

 

  1. Quarter 1

 

At the end of quarter 1 of 2015/16 the department had transferred R515 million or 37 percent of the total available budget for transfers. Nominal decline in transfers from the same period in 2014/15 was 15.2 percent or R92.4 million, with the decline being in those to Departmental Agencies and Accounts. Transfers to Departmental Agencies and Accounts at the end of quarter 1 were R452.9 million, the majority of which was for the South African Tourism: Operations transfer. This represents a decrease of R105.4 million, or 18.9 percent, when compared with the same period last year. The majority of this decrease was under the South African Tourism: Operations transfer.

Transfers to Foreign Governments and International Organisations at the end of quarter 1 were R2.1 million, all of which was to the United Nations World Tourism Organisation: Membership Fees transfer. This represents a decrease of R0.2 million, or 8.2 percent, when compared with the same period last year. This decrease was under the United Nations World Tourism Organisation: Membership Fees transfer. Transfers to Non-Profit Institutions at the end of quarter 1 were R6.8 million, all of which was to the Various Institutions: Operations: Small, Medium and Micro Enterprises Development transfer. This represents a decrease of R4.8 million, or 41.3 percent, when compared with the same period last year.

 

Transfers to Households at the end of quarter 1 were R53.2 million, the majority of which was for the Expanded Public Works Programme: Work Opportunities transfer. This represents an increase of R17.9 million, or 50.7 percent, when compared with the same period last year. The increase was under the Expanded Public Works Programme and Public Expanded Public Works Programme Incentive Opportunities for Work Opportunities transfers.

 

  1. Quarter 2

 

At the end of quarter 2 of 2015/16 the department had transferred R746.6 million or 53.7 percent of the total available budget for transfers. Nominal decline in transfers from the same period in 2014/15 was 10.8 percent or R90 million, with the decline being in those to Households and Departmental Agencies and Accounts. Transfers to Departmental Agencies and Accounts at the end of quarter 2 were R628.3 million, the majority of which was for the South African Tourism: Operations transfer. This represents a decrease of R39.6 million, or 5.9 percent, when compared with the same period last year. The majority of this decrease was under the South African Tourism: Operations transfer.

 

Transfers to Foreign Governments and International Organisations at the end of quarter 2 were R5.8 million, all of which was to the Regional Tourism Organisation of South Africa: Membership Fees, and United Nations World Tourism Organisation: Membership Fees transfers. This represents an increase of R3.5 million, or 154.2 percent, when compared with the same period last year. The majority of this increase was under the Regional Tourism Organisation of South Africa: Membership Fees transfer. Transfers to Non-Profit Institutions at the end of quarter 2 were R11.2 million. This represents a decrease of R0.5 million, or 4.3 percent, when compared with the same period last year. Transfers to Households at the end of quarter 2 were R101.3 million, the majority of which was for the Expanded Public Works Programme: Work Opportunities transfer. This represents a decrease of R53.4 million, or 34.5 percent, when compared with the same period last year. The majority of this decrease was under the Expanded Public Works Programme: Work Opportunities transfer.

 

  1. Quarter 3

 

At the end of quarter 3 of 2015/16, the department had transferred R953.6 million or 77.6 percent of the total available budget for transfers. Nominal decline in transfers from the same period in 2014/15 was 4.8 percent or R48.1 million, with the decline being in transfers to Households. Transfers to Departmental Agencies and Accounts at the end of quarter 3 were R807.8 million, the majority of which was for the South African Tourism: Operations transfer. This represents an increase of R31.9 million, or 4.1 percent, when compared with the same period last year. The majority of this increase was under the South African Tourism: Operations transfer.  Transfers to Foreign Governments and International Organisations at the end of quarter 3 were R5.8 million, all of which was to the Regional Tourism Organisation Of South Africa: Membership Fees, and United Nations World Tourism Organisation: Membership Fees transfers. This represents an increase of R3.5 million, or 154.2 percent, when compared with the same period last year. The majority of this increase was under the Regional Tourism Organisation of South Africa: Membership Fees transfer. Transfers to Public Corporations and Private Enterprises at the end of quarter 3 were R29 million. This represents an increase of R29 million, or 0 percent, when compared with the same period last year. Transfers to Non-Profit Institutions at the end of quarter 3 were R14.2 million, the majority of which was for the Various Institutions: Operations: Small, Medium and Micro Enterprises Development transfer. This represents a decrease of R9 million, or 38.8 percent, when compared with the same period last year. Transfers to Households at the end of quarter 3 were R96.8 million, the majority of which was for the Expanded Public Works Programme: Work Opportunities transfer. This represents a decrease of R103.5 million, or 51.7 percent, when compared with the same period last year. The majority of this decrease was under the Expanded Public Works Programme: Work Opportunities transfer.

 

  1. Auditor-General Report

 

The Auditor-Generals’ report for Vote 33 in the 2015/16 financial year is as follows:

 

  1. Audit opinion

 

The Department achieved a clean audit in the period under review. The tourism portfolio’s overall outcomes for 2015/16 have improved due to the Department achieving a financially unqualified audit outcome with no material findings on both compliance with legislation and predetermined objectives. This is due to the Department implementing the commitments to address the material misstatements identified in the disclosure notes during the 2014/15 audit. In retrospect, the Department had a financially unqualified audit with compliance findings in the 2014/15 financial year. This represented a regression if compared to the 2013/14 financial year where the Department obtained a clean audit. The following issues were however raised in the year under review:

                                                                                             

  1. Matter of emphasis - During the audit of EPWP projects it was noted that there was no proper record keeping in place to ensure that the invoices are categorised and filed accordingly to the expenditure per line item on the Payment Progress Report (PPR) resulting in the PPM’s being unable to determine the classification of invoices to support amounts disclosed on the PPR.

 

  1. Investigations - Government Technical Advisory Center (GTAC) has been requested to review all EPWP projects to ensure finalisation of these projects in an effective and efficient manner. At the date of the report, the investigations had not commenced.

 

Similarly, South African Tourism received an unqualified audit opinion in the period under review. This was a 15th consecutive unqualified for the Entity as the financial statements were free from material misstatements. South African Tourism had improved from the unqualified audit with findings in 2013/14 to a clean audit in 2014/15. This is however misleading if compared to the overall performance of the entity against the pre-determined objectives in the Annual Performance Plan.  The Entity is complying with presenting their financial statements but there is no value for money given the disjuncture between money spent performances. The emphasis should be put on service delivery performance rather than just applauding an unqualified audit. It is important therefore that the Office of the Auditor-General is requested to include performance assessment when auditing South African Tourism in future.

 

 

  1. Pre-determined Objectives

 

The Auditor-General performed procedures to obtain evidence about the usefulness and reliability of the reported performance information of Programme 2: Policy and Knowledge Services, and Programme 3: International Tourism Management. There were no material findings on the usefulness and reliability of the reported performance information for the two programmes evaluated.

 

  1. Additional matter

 

Although the Auditor-General identified no material findings on the usefulness and reliability of the reported performance information for the selected programmes, he drew attention to the achievement of planned targets. This is consistent with the concern of the Committee on the need to conduct performance assessment for the Department to ensure that targets set in the Annual Performance Plan are met.

 

6.3.4     Compliance with legislation

 

The Auditor-General did not identify any instances of material non-compliance with specific matters in key legislation, as set out in the general notice issued in terms of the PAA.

 

6.3.5     Internal control

 

The Auditor-General did not identify any significant deficiencies in internal control. However, the Committee is concerned with the lack of leadership in implementing internal controls which has led to the Department not achieving its planned targets.

 

6.3.6     Other reports

 

The Auditor-General drew attention to the engagements that could potentially impact on the Department’s financial, performance and compliance related matters. The Auditor-General’s opinion is not modified in respect of these engagements that were either in progress or have been completed. This relate to the investigations whereby the Government Technical Advisory Centre (GTAC) has been requested to review all EPWP projects to ensure finalisation of these projects in an effective and efficient manner.

 

6.4       Summary of key issues contained in reports of Finance/Appropriation Committees

 

In the period under review, the Department had no issues raised by the finance or appropriation Committees.  However, it was noted that over the reporting period, there was slow spending resulting from the delays in the finalisation of processes related to the Tourism Incentive Programme (TIP) as well as outstanding documentation from beneficiaries also related to the TIP. The Committee views this as the continuation of challenges facing the Tourism Incentive Programme as in the 2014/15 financial year the budget for the Department had been adjusted downwards by R78.9 million from an original appropriation of R1.66 billion to R1.58 billion. The downward adjustment was due to the declared underspending in the Domestic Tourism programme, particularly TIP.

 

  1. Summary of key financial issues contained in any other relevant report(s)

 

The Standing Committee on Public Accounts (SCOPA) did not raise any issues with regard to spending by the Department.  No financial issues were identified from other sources.

 

  1. 2015/16 MTEF financial allocations

 

  1. Summary of funding submissions to National Treasury for the 2016/17 MTEF.

 

Having considered the financial performance of the Department in the 2015/16 financial year and the performance in first quarter of 2016/17, the Committee observed a serious regression in Departmental performance, particularly in Programme 4; Domestic Tourism. The Department had spent 37 percent of its allocated budget in the first quarter which indicates overall over expenditure by the Department. The expenditure shows some anomalies with Programme 2 having spent half of its budget, which is serious over expenditure per quarter and Programme 4 having spent 9 percent which is gross under expenditure. These two extremes could be attributed to Programme 2 having transferred large amounts of money to South African Tourism to hedge against foreign currency exposure whilst in Programme 4, a number of projects had not been implemented due to delays caused by poor planning. The Committee is of the view that the challenges experienced by the Department in the implementation of projects will improve during the cause of the year and all the appropriated budget will be spent by the end of the financial year.

 

Despite the inefficiencies in the Department, the Committee is of the opinion that the appropriated budget for the Department is not sufficient to fulfil the tourism mandate of the country. The Department is therefore seriously underfunded and this situation should be improved. The tourism sector has been resilient to economic challenges and continues to create job opportunities for the country. The tourism industry currently contributes 9 percent to the country’s GDP and employs 1.5 million South Africans. The continued inclusive growth and success of this sector depends on appropriate and strategic funding. The main funding submissions of the Committee are that the National Treasury should:

 

  1. Assess the full potential of the tourism sector in creating job opportunities for South Africa and appropriate necessary funding to create an enabling environment for such jobs to be created.
  2. Realise that tourism as an export sector that generates foreign income for the country which shield the country’s economy during economic challenges.
  3. Recognise tourism as an important growth sector as it is the only industry that has shown growth globally for six consecutive years.  The industry was however excluded from Operation Phakisa and the National Treasury should establish a tourism funding model similar to Operation Phakisa to transform the tourism landscape in the country.

 

  1. Overview and assessment of service delivery performance

 

The Department operates under global and national economic, social and political climate that has a direct and indirect impact on service delivery performance. The major issues in the period under review was the unemployment rate in the country that had risen to its highest level since 2008, reaching 26.7 percent by the end of the 1st quarter of 2016 and slightly adjusting to 26.6 percent. These results were greatly influenced by major job losses in the mining; agriculture; transport and community and social services sectors.  In recent times, unemployment in the country has become a thorny issue that requires quick and lasting intervention. Despite these factors, the industry contributed a total of 9.4 percent towards the country’s (GDP) in 2014.  This contribution was greater than that of the automotive manufacturing sector. This highlights that efforts and investments made in the tourism industry are not in vain. The Minister of Tourism has indicated that the Department is also vigorously trying to increase domestic tourism by increasing the number of domestic trips to 32.1 million by March 2018. South African Tourism (SAT) has since adopted the new approach of reporting on tourist arrivals as compared to foreign arrivals. Results of the new reporting approach were only evaluated during the 2015/16 financial year.

 

Tourism, being a concurrent function in terms of Schedule 4 of the Constitution, requires the delivery of services from other spheres of government for the easy facilitation of activities such as the development of tourism products, ensuring the geographic spread of tourism, and promoting accessibility. It becomes vital for the Department to pioneer intergovernmental relations amongst sister departments, as well as the three spheres of Government. The success of intergovernmental relations (IGR) within the three spheres of Government will facilitate the work of the Department, thereby enabling it to realise its vision for tourism in the country.

 

Tourism remains an untransformed industry, hence the development of tourism products in rural areas becomes of paramount importance. It is for this reason that the Expanded Public Works Programme (EPWP), which is presented by the Department as the SRI should be monitored very closely, as well as the support to rural tourism enterprises and emerging tourism businesses. Another intervention would be the development of tourist guidebooks and manuals in order to assist tour guides with indigenous knowledge, thus enabling them to meet the requirements for professional guides. In accordance with the reporting of the Department to try and address the transformational challenges in the sector, the Department has developed a Rural Tourism Strategy and has developed spatial nodes that have the potential to stimulate growth and the rural tourism industry.  Furthermore, the Department has developed, and is at the implementation stages of the Domestic Tourism Growth Strategy and the Heritage and Culture Tourism Strategy. It is thus the role of the Department to continuously assess the impact of these strategies to ensure that when a need for realignment arises, it is prepared.

 

  1. Service delivery performance for 2015/16

 

In the year under review the Department had fifty targets and 42 were achieved totalling 84 percent whilst 8 were not achieved totalling 16 percent. The Department did fairly well during the year under review in a number of pre-determined objectives. The Department met the majority of its set targets and even surpassed some of the targets. In its programmes, the Department has further fostered research as an informative tool that will assist in mapping a well-informed way forward.

 

Table 5: Total number of targets achieved per Programme in 2015/16

Programme

Planned targets

Achieved

Not achieved

Achieved (%)

Administration

15

14

1

93.3

Policy and   Knowledge   Services

19

18

1

94.7

 International  Tourism    Management

4

1

3

25

 Domestic Tourism Management

12

9

3

75

Total

50

42

8

84

Source: Adapted from the National Department of Tourism (2016)

The involvement of higher institutions of learning does not only assist in creating a knowledge base but will also strengthen relations between the Department and other relevant institutions in producing relevant skills for the tourism industry.

 

  1. Programme 1: Administration

 

The Administration Programme performed fairly well for the 2015/16 financial year, achieving all but one of its targets partially. The partially achieved target is in relation to 50 percent woman representation in the Senior Management Service (SMS) and 5 percent representation for people with disabilities. This target has been a challenge for the Department as it was only achieved in one quarter during the 2015/16 financial year, and the Department stated that the failure to achieve the target by one percent was due to staff turnover rate. The Department surpassed the vacancy rate target by 2.75 percent. The Department progressed positively where the vacancy rate is concerned, surpassing the target of 8 percent in achieving a vacancy rate of 5.75 percent by the end of the financial year. This is commendable, as this was not only an occurrence at the end of the financial year, however the Department ensured that they exceeded the target in all quarters. It is however very important to note that high vacancy rates of 10.3 and 14.3 were observed for the SMS and critical posts such as financial and related professionals respectively.

 

One of the Departments targets in the Administration programme included a quarterly oversight report over South African Tourism, this is one of the most important targets of the programmes as it provides the Department with insight as to how SAT is doing in terms of its performance targets as well as the financial performance. It is however unclear as to the extent which the Department utilises the quarterly oversight reports to drive change within the Entity, for example the Entity failed to achieve seven out of eight targets, and no clear turnaround strategy was presented by the Entity.

 

The Performance of the Administrative Programme greatly contributed to the audit findings concerning the useful and reliable information submitted for audit purposes, as per the Auditor General’s expressed opinion for Programmes 2 and 3. The Department did, however, make notable achievements for this Programme and these include meeting the targets in the following areas:

 

  1. Development of an Annual Performance Report and four quarterly reports on the implementation of the Strategic Plan and Annual Performance Plan;
  2. The review of the Strategic Plan and Annual Performance Plan for the 2014/15 financial year;
  3. Development of four South African Tourism (SAT) oversight reports; and
  4. Review and implementation of the Department’s Cabinet and Cluster coordination protocol;

 

The Administration Programme’s expenditure accounted for 12.9 percent of the departmental expenditure. The Programme’s 2014/15 expenditure, when compared to the 2013/14 financial year, increased by R7.7 million from R224.1 million to 231.8 million, largely influenced by compensation of employees, which accounted for 52.2 percent of the total budget. The Department recorded under expenditure amounting to R2.567 million for the Administration Programme.

 

  1. Programme 2: Policy and knowledge services

 

This Programme performed fairly well, failing to achieve one of the 17 set targets. This target is a blue print for many of the operations of the Department, which is the review of the National Tourism Sector Strategy (NTSS).  It should be noted that the Department failed to achieve the target set with respect to the NTSS for the 2nd, 3rd and 4th quarters. The Department did not provide any figures and actual performance information for the training of staff at government owned provincial parks. In accordance to the Annual Performance Plan (APP) of the Department, the Department had planned to conduct training and awareness at three government-owned provincial parks in three provinces. It is further very important that in the future capacity building be more detailed in terms of the impact and or certification of the envisaged capacity building exercise, this will deter the Department from doing a 30 minute presentation and term it capacity building.

 

The Department reported on the target regarding the evaluation of the impact of completed SRI projects. This target was achieved and it will be of great significance that the Committee is taken into confidence regarding such impact. Furthermore, highlight challenges within the SRI projects and how to overcome them in the future. The Department in some of the Audit report outcomes for the SRI projects are speculative on some findings, this is likely to not inspire confidence on the Audit report as the expectation is the report should be more factual.

 

The Policy and Knowledge Services Programme’s expenditure accounted for 62.7 percent of the departmental expenditure. The Programme’s 2015/16 expenditure, when compared to the 2014/15 financial year, increased by R210 million in real terms from R 949.5 million to R1.2 billion, largely influenced by transfers to South African Tourism and TIP and business advisory services for TIP. The Programme underspent by R10.1 million. It should be noted that R103.5 was transferred to different TIP beneficiaries during the 4th quarter of the 2015/16 financial year. This is a course for concern as the funds were subsequently not utilised for the year under review and have been deferred for the 2016/17 financial year. This is likely to affect future allocations for the TIP programme.

 

  1. Programme 3: International Tourism

 

The Department failed to achieve 3 out of 4 set targets. This failure to meet targets was consistently observed during the 2015/16 financial year for the International Tourism Programme. It is definitely a cause for concern that the Department would regard capacity building as providing one presentation to the Department of International Relations and Cooperation (DIRCO) as per the request from DIRCO. Furthermore, the other challenge is that the Department has set the target and made mention of an agreed schedule yet failed to have an agreement with DIRCO on the said schedule. The Department further failed to facilitate the implementation of FET Chef Trainer’s skilling workshop due to logistical changes. The Department also failed to achieve the target of facilitating one tourism skill development opportunity. In actual fact the Department reported that preparations were done and that this workshop was conducted for the 2016/17 financial year.

 

The Department failed to achieve the target with regards to the implementation of tourism source market development plans. The Department indicates that they took a strategic decision that the implementation should be driven by South African Tourism. The programme has been tagged for some time as an under achiever in the Department albeit it only having 4 targets from 7 at the inception of the programme in 2012. This programme has been criticised by the committee as a duplication of the work conducted by SAT as well as Programme 1 of the Department. The very move to for the implementation of tourism source market development plans to be implemented by SAT is a clear indication of the duplication. It would be beneficial if the Department could re-evaluate the impact of the programme and take appropriate steps to address the challenges faced by the programme.

 

The International Tourism Programme’s 2015/16 expenditure, when compared to the 2014/15 financial year, decreased by R830 000.00 in real terms from R45.4 million to R46.7 million largely influenced by compensation of employees. The Programme underspent on the allocated budget by R 572 000.00.

 

  1. Programme 4: Domestic Tourism

 

The Department failed to achieve on 2 out of 12 targets. The Department did not achieve the target on the skills audit, since they only managed to do a draft preliminary report on the skills audit whereas they were required to produce a report on skills audit. This report is very important to the sector as it will be able to provide broader details on the available skills within the industry. The Department through Tourism Enterprise Partnership (TEP) provided support to 101 rural enterprises surpassing the target of 100. The figures provided in the annual report are inconsistent with the 120 supported enterprises provided in the fourth quarter report. As great as this maybe, it is important to note that in the APP the Department had not given an indication that part of the deliverables would be as a result of support provided by TEP it is thus, important that such details be clearly indicated in the APP in the Future.

 

After a planned target to create 5625 jobs through the SRI sub-programme during the 2014/15 financial year, the target was then reduced to 4369 in the same year, yet the Programme only managed to deliver 3037, falling short by 1332 jobs. The Department then downwardly revised the FTE jobs target for the 2015/16 financial year to 3008 FTE jobs and surpassed that target by 51 jobs. The Departments makes an indication that the Skills development youth development projects are highly labour intensive and produce more jobs.

 

In previous years the committee had requested that targets pertaining to other role players should be clearly articulated so as to allow the committee to conduct proper oversight on the Departments targets. This more so since the Department had failed to meet the set target for the 1st three quarters. However, the Department was only able to provide a draft report instead of the final report. These intervention plans are critical to the growth and development of rural enterprises. This target is directly proportional to the targets set with regards to the creation of Full Time Equivalent Jobs. The Committee had previously highlighted that targets should be properly thought out and not be deliverables of other entities that the Department just records and not input into.

 

The Domestic Tourism Programme’s 2015/16 expenditure, when compared to the 2014/15 financial year, decreased by R71.5 million in real terms from R363.6 million to R306.2 million largely influenced by compensation of employees. The Programme underspent on the allocated budget by R3.4 million of which R3.2 million was on SRI projects.

 

7.2       An analysis of the Department of Tourism for the first quarter expenditure 2016/17

The Committee has considered the first quarter performance of the Department for 2016/17 and a number of concerns have arisen.

 

  1. Achievement of targets

The Department planned to achieve 91 targets in the first quarter of 2016/17 and 70 targets were achieved whilst 21 were not attained. This totals to 76.44 percent of targets achieved and 23.56 percent not achieved. 

 

Table 6: Achievement of targets per Programme

Branch

Number of planned targets

Number achieved

Targets not achieved

Percentage achieved (%)

Percentage not achieved (%)

Administration

20

17

3

     85

     15

Policy and Knowledge Services

37

31

6

83.78

16.22

International Tourism Management

13

11

2

84.62

15.38

Domestic tourism management

21

11

10

52.38

47.62

Total

91

70

21

76.44

   23.56

Source: adapted from NDT 2016

 

The Department has a trend of reporting on targets not achieved with a significant work done painting a picture that they are on the right track to achieve annual targets. The pattern has been that in most cases, these targets lag behind for the entire year and are subsequently not achieved at the end of the financial year. The Committee is closely scrutinising such reporting, especially the affected targets, for tracking throughout the financial year. The concern is mostly with programme 4 which carries a number of targets that are already behind schedule.

 

7.2.1.1  Programme 1: Administration

The Department achieved 17 of the 20 targets set for the first quarter accounting for 85 percent achieved and 15 percent not achieved.  Firstly, the Department did not achieve 50 percent of women representation in the senior management (SMS) but maintained a 49.3 percent. The Committee acknowledged that this is a fluid target as employees can resign at any time resulting in the non-achievement of the target. The Department could however expedite the recruitment process in line with their employment equity to maintain gender parity. Secondly, the Department achieved 85 percent in the implementation of their communication strategy instead of 100 percent set for the quarter. This target was not achieved due to internal delays in convening workshops with internal stakeholders, and late media monitoring and analysis report from the service provider. The Department could improve coordination of internal stakeholder engagements to ensure that all targets that are not depended on external stakeholders are achieved as these are “low hanging fruits”. Thirdly, the Department did not approve the draft Regulations on lodging of tourist complaints as planned. The reason for non-achievement of target was that the Regulations were not signed off by the designated official.  This target also depends on internal processes that have delayed the process of signing off and points to poor internal stakeholder engagements.

 

7.2.1.2  Programme 2: Policy and knowledge services

The Policy and Knowledge Services branch did not achieve 16.22 percent of their targets, which is six out of thirty seven planned for quarter one. Only the Terms of Reference were developed for the procurement of the service provider to conduct the baseline study for the amended BEE Codes and the service provider was not procured as planned. The service provider for training tourist guides was also not appointed with the Department citing that the service provider did not quote according to specifications. In addition, the service provider to develop the CPD programme for tourist guides was not developed and the reason given was that the appointment could not take place due to consultations that had to be conducted with respective Units in the Department. The service provider to develop the mobile app for tourist guides was also not appointed. The Department reported that the appointment was delayed by the development of the specifications which took longer than initially planned due to difficulty in sourcing required information

The non-achievement of targets in Programme 2 points to poor internal coordination. This in turn points towards poor internal risk auditing and that the Department cannot detect internal bottlenecks that have a potential of delaying project implementation. There are also signals of poor performance from responsible officials who did not practice duty of care to ensure they planned properly and executed the targets they are individually and collectively responsible for.

 

7.2.1.3  Programme 3: International tourism management

Programme 3 did not achieve 15.38 percent of the targets for the quarter which is two of the thirteen targets planned for the quarter. The Department did not conduct phase 1 of language training in Russian for tourist guides due to taking a strategic decision to focus on the implementation of Mandarin within the current financial year.  The Department took a strategic decision to change quarterly targets in the Annual Performance Plan. The strategic decision taken by the Department to change the implementation plan has consequences for non-achievement of quarterly targets as contained in the Annual Performance Plan.  Section 4.2 of the Framework for Strategic Plans and Annual Performance Plans issued by the National Treasury stipulates that to simplify performance tracking, in-year changes to the plan should not be made. Where an institution’s performance exceeds or misses targets due to in-year budget changes or for another reason, this should be noted in its annual report. In addition, the Terms of reference for capacity-building interventions for effective participation in market access were not circulated as planned. The Department cited that this was not done due to delays in alignment with the Domestic Tourism Management branch.  This is also a case of dereliction of duty by staff who did not perform their work on time to meet the planned target.

 

7.2.1.4  Programme 4: Domestic Tourism Management

The Department was only able to achieve 52.38 percent of the planned targets for quarter 1 which is ten out of eleven targets. The audit of the 2010/11 Domestic Tourism Growth Strategy was not conducted due to fact that the terms of reference were not yet approved to appoint service provider. The tourism enterprise developmental portal was not operational due to awaiting the Corporate Identity Manual Approval. Portal will be activated upon approval. The Procurement and appointment of service provider for Sommelier Training course was not done due to the consultative process with the relevant stakeholders taking longer than initially anticipated. The procurement and appointment of service providers for Hospitality Service Training Programme was not done due to delays in procurement. The appointment of the service provider to train 500 food assurers was not done due to the delays as a result of budget challenges which have since been resolved. The contract for the four iconic national heritage sites for the provision of funding for the development of tourism interpretation was not done due to delays in receiving inputs into Memorandum of Agreement (MOA’s) from management authorities of heritage sites.  The 200 unemployed youth were not recruited, orientation not provided, and not placed in the selected 50 beaches due to the process of consulting with municipalities in the three provinces to identify the participating beaches taking longer than anticipated. The framework on the development of the infrastructure Master Plan was not finalised due to the framework on the development of the infrastructure Plan having to be finalised after the second quarter and after sign-off of Service Level Agreement SLA with IDC. 288 full-time equivalent (FTE) instead of 523 jobs were created through the SRI programme due to the procurement of service providers for projects with high FTEs not finalised in the first quarter.

 

 

7.2.1.5  Departmental expenditure for the first quarter of 2016/17

The Department had spent 37 percent of its allocated budget in the first quarter which indicates overall over expenditure by the Department in the first quarter of 2016/17. Programme 1 spent 19 percent of its budget, Programme 2 spent 50 percent, programme 3 spent 27 percent and Programme 4 spent 9 percent. The expenditure shows some anomalies with Programme 2 having spent half of its budget, which is serious over expenditure given that it is only the first quarter of the financial year, and Programme 4 spent 9 percent which is gross under expenditure. These two extremes could be attributed to Programme 2 having transferred large amounts of money to South African Tourism to hedge against foreign currency exposure whilst in Programme 4 a number of projects had not been implemented due to delays caused by internal staff inefficiencies.  The Committee will be scrutinising the Departmental expenditure in the subsequent quarters of the financial year to ensure that the departmental expenditure for 2016/17 is not adversely affected.

 

  1. South African Tourism First Quarter performance

 

South African Tourism (SAT) also reported their first quarter performance of the 2016/17 financial year. The overview of SAT performance shows a continued non-achievement of set targets which is a concerning trend as this entity also failed to achieve all the targets in the 2015/16 financial year, except one. If this non-performance trend that has also emerged in the first quarter persist, the entity may not achieve all of its targets in the 2016/17 financial year as well. The performance information for South African Tourism against the set targets for quarter 1 of 2016/17 is provided below:

 

  1. Number of tourist arrivals achieved

The target was exceeded by 426 927 of tourist arrivals. However this overachievement of the target cannot be verified as reporting by SAT for this target is inconsistent with the reporting period.  The target is for January to March instead of April to June. The issue of the reporting period is a challenge as the Committee is expecting quarterly performance but SAT reports on annual performance on some of the targets. SAT indicated that this target is based on benchmarking with the United Nations World Tourism Organisation. The Committee is however of the view that SAT should be reporting based on the StatsSA figures as the monthly statistics are available. SAT should collate the figures from various data sources and report accordingly.

 

7.2.2.2  Number of domestic holiday arrivals

 

SAT was able to achieve 88 percent of the set target for domestic holiday arrivals. This fell short of the target by 89 474. This shows a continuing trend of decline in the domestic tourism figures. The non-achievement of targets continues despite the additional budget ring-fenced for domestic tourism initiatives. It was however noted that SAT was embarking on new domestic tourism campaigns such as #TourismforAll which is additional and aligned to the #TourismforAll” and “A million experiences are just a Sho’t left away”. The Committee was also concerned with SAT depending on Visiting Friends and Relatives on this target. The view of the Committee is that VFR does not have economic benefits to the sector as travellers do not necessarily utilise commercial tourism establishments. The entity should strive to convert VFR to leisure tourists.

 

  1. Total tourism revenue

 

The total tourism revenue depends largely on a number of international arrivals and domestic trips. SAT reported that the target was achieved by 76 percent. The achievement of this target cannot be verified as the reporting is inconsistent with the reporting period as it reflects January to March not April to June. This is an addition challenges of the entity reporting outside the financial year reporting period.

 

  1. Number of business events hosted in South Africa

 

During the Annual Performance Plan and Strategic Plan briefing in March 2016, the Committee expressed a concern about the South African National Conventions Bureau (SANCB) reporting on certain targets only on annual basis. In this regard, for example, the Committee requested the SANCB to provide a quarterly breakdown of the 138 meetings for the 2016/17 financial year and specify the number of delegates and revenue to be generated by each meeting; indicate in which provinces, cities, or towns the meetings will be held; and a plan to deal with the geographical spread and submit this addendum to the Committee when South African Tourism comes for the first quarter reporting for the 2016/17 financial year. The SANCB did provide a separate annexure on the breakdown of the targets and this must be a standing reporting item in all the subsequent quarters.

 

  1. Number of graded rooms

 

The SAT reported that the underperformance of 10 percent on graded rooms was mainly due to cancellations by hotels. Some hotels had indicated that they were opting out of the grading process as their clients were not particularly interested in using grading establishments. This is a concern as grading is meant to ensure quality assurance in the sector and a continuing trend of cancellations, especially by hotels, jeopardised these quality assurance interventions. The decline is persisting despite the basket of benefits offered to the industry and the interventions by FCB South Africa (PTY) LTD.

 

  1. Budget expenditure

 

SAT has spent 30 percent of its budget, R673.3 million against the R1.2 billion for the year. The over expenditure of R353 million was incurred against the R320 million budgeted for the quarter. This was due to hedging for foreign currency to avoid budget leakage due to foreign exchange which increases costs of doing business abroad. However, the entity under-budgeted for upfront allocations from the NDT in the first by R370.9 million as this amount was not reflected in the Annual Performance Plan targets. On the other hand, the entity under-budgeted by R10.7 million which is money received from the TOMSA Levy.

 

  1. Key reported achievements.

 

The Department recorded a number of achievements in the year under review. A selected list of the key achievements is given below:

 

7.3.1     Strategic planning and reporting

 

Departmental strategic documents were developed and implemented. These included the 2016/17 review of both the Strategic Plan and the Annual Performance Plan (APP); development of Annual Performance Report for 2014/15, as well as the implementation of four quarterly reports on the implementation of the Strategic Plan and the Annual Performance Plan. These have assisted the Department in promoting good corporate and cooperative governance. The success of the Strategic Plan and the achievement of the performance targets in the Annual Report 2016/17 depends on the Department being able to take calculated risks and manage them in a way that does not jeopardise their mandate.

 

7.3.2     Policy, research and stakeholder engagement

 

A high-level survey conducted by the Department together with its partners revealed that there was no tool to assess tourism offerings besides accommodation establishments for Universal Accessibility (AU) compliance. The Department has since developed a UA assessment tool to be utilised in conducting UA audits at government-owned provincial parks, which has been piloted at four such sites.

 

The Department was able to develop a State of Tourism Report which is used to monitor the performance of the tourism sector and it is based on secondary report. It intended to enable users to make informed decisions on tourism matters. The report analyses tourism sector performance both globally and in South Africa. Global performance is monitored by means of indicators such as tourist arrivals, tourism spend, tourism’s economic contribution to global GDP (employment and financial), as well as global aircraft movements, as derived from secondary reports produced by the UNWTO, the World Travel and Tourism Council (WTTC), the International Congress and Convention Association (ICCA). South African tourism sector performance is analysed by means of indicators such as tourist arrivals, domestic tourism performance, tourism’s contribution to the economy, passenger and aircraft movement to and from Airports Company South Africa (ACSA) airports, as well as the performance of the food and beverage industry, the accommodation subsector and the meetings industry.

 

The Department also evaluated the impact of its completed and operational SRI projects on beneficiaries and local communities against initial project objectives. The evaluation was also aimed at determining how these projects were managed, and whether they were still owned by the same beneficiaries. Based on the evaluation, areas for intervention were identified to ensure sustainability, while criteria were also derived to identify sustainable projects for possible future funding. The recommendations and findings from the evaluation report will be used to inform future planning and implementation of SRI projects.

 

To accelerate economic inclusivity in the tourism sector, the Department launched the Executive Development Programme for black women managers in the sector in March 2016. The objective was to train black women through a partnership with the UNISA Graduate School of Business Leadership. Twenty participants have gone through the programme to date. The programme is aimed at increasing the percentage of women managers with the required profile to occupy executive management positions in the tourism sector, which will ultimately provide them with the knowledge to start and grow their businesses.

 

7.3.3     International cooperation

 

Two exchange programmes were conducted, namely the technical exchange on the promotion of national parks as tourism attractions (best-practice study) and the exchange of best practices on culture and heritage (world heritage sites), which were both completed in line with international agreements. Response plans were provided for 12 priority source markets in order to grow the markets that are on the watch-list segment of SAT’s portfolio, and to penetrate markets outside the portfolio. Trade seminars and engagements were held with travel agents and tour operators in conjunction with South African mission embassies.

 

7.3.4     Interventions to improve domestic tourism

 

To continue inculcating a culture of travelling among South Africans, the Department has hosted the 2015 Tourism Month campaign in Limpopo. The World Tourism Day celebrations were also intended to inspire and drive the demand for domestic tourism; spearhead geographic spread of less-visited provinces and regions; reduce seasonality and promote year-round leisure travel, and create awareness among communities of the importance of tourism and its social, cultural, political and economic value. Key interventions required to attract domestic tourists whilst protecting our current international markets were also highlighted. In addition, the celebrations were used to highlight opportunities that still remained unknown to the domestic market, which, if fully exploited, could create millions of opportunities for tourism operators, thereby contributing to economic growth and job creation. In this reporting year, the Department also supported 101 rural tourism enterprises through various business and market access training programmes.

 

Local government capacity-building programmes were implemented in seven identified rural municipalities. Altogether 416 participants took part in these programmes in the 2015/16 financial year. Some of the highlights included the establishment of local tourism organisations in three municipalities – two interim organisations in North West and one permanent organisation in Bushbuckridge. A business breakfast was hosted by local tourism organisations. This business breakfast initiative has been extended to eight of the provinces taking part in the provincial local government induction programme. The programme currently operates in partnership with UNISA, which follows up with a monitoring and evaluation tool in order to identify impact as well as future needs.

 

7.3.5     Review of South African Tourism

 

In 2015, the Minister appointed a Panel of Experts to review South African Tourism. The vision, and mission of the Entity was reviewed according to the organisational mandate. The Committee was tasked with reviewing the institutional landscape and governance arrangements that inform South African Tourism’s operations. The recommendations made in the Ministerial Review Report have culminated to the following interventions:

 

  1. The revitalisation of the Tourism Growth Strategy in consultation with key stakeholders;
  2. The domestic market segmentation refresh;
  3. The successful implementation of the Domestic Tourism Business Plan in accordance with the ring-fenced funds received from the Department;
  4. The re-positioning of South African Tourism to be recognised as tourism and business events industry leader in market intelligence, insights and analytics;
  5. The appointment of a lead creative agency to ensure business continuity and elimination of associated business risks;
  6. The understanding of a robust Brand Ambassador Programme, Executive Leadership Programme, the Organisational Design Project, as well as the Wellness Programme in order to build an inspired and energised organisation;
  7. The successful implementation of the Hub Strategy to respond to the escalating costs of doing business internationally. This resulted in the creation of the Africa Air Hubs, Italy office closure, and the model to appoint Country Finance Managers;
  8. Despite the lack of clarity regarding the Tourism Grading Council of South Africa (TGCSA) for the most part of the financial year, South African Tourism successfully concluded an agreement with the Department that resulted in R15 million partnership to sponsor the TGCSA’s extended mandate; and
  9. The implementation of the Stakeholder Engagement Plan that has improved relations with the Tourism Business Council of South Africa and industry associations.

 

  1. Non-financial Audit outcomes and steps taken to address adverse audit findings.

 

The Auditor-General made findings on non-financial issues that need be corrected by the Department.  These include:

 

The Auditor-General advised that the Government Technical Advisory Center (GTAC) has been requested to review all Expanded Public Works Programme projects to ensure finalisation of these projects in an effective and efficient manner at the date of the report, the investigations had not commenced. This involves the EPWP programme of the Department implanted as Social Responsibility Initiative. The Committee holds a view that the Department must develop a Comprehensive Turn-around Strategy for the Social Responsibility Initiative. This must address all the historical and legacy issues inherited from the erstwhile Department of Environmental Affairs and Tourism, and the current implementation challenges created by the Department. 

 

  1. Other service delivery performance findings

 

This Committee was able to make other service delivery findings for 2015/16 based on oversight visits and research from external stakeholders. These are as follows:

 

  1. Oversight visit reports- summary of key service delivery issues.

 

The Committee conducted oversight visits to the Eastern Cape on the 20th – 24th July 2015 and a joint oversight visit to KwaZulu-Natal on the 14th – 18th September 2015. The following are some of the service delivery and industry observations made:

  1. Policy, planning and strategic alignment

 

It observed that some provinces had developed their Tourism Master Plans whilst others were doing this during the time when the NTSS was being reviewed by the Department. This may warrant the provinces to re-align their strategies once NTSS review process is finalised.

 

  1. Fragmented brand positioning and marketing

 

The Committee observed that branding for the provinces is fragmented. Municipalities and provinces use different branding and these have a potential of communicating and sending different messages to potential tourists, thus confusing the market. The provincial Destination Marketing Agencies and City Destination Management Organisations, and other smaller municipalities also run different and uncoordinated marketing campaigns. There is poor coordination of destination marketing strategies and this leads to the duplication of marketing activities

           

  1. Lack of research capacity

 

The Committee observed that some provinces do not have tourism research capacity at both provincial and metro/municipal levels. This leads to poor market intelligence and tourism trend analysis.  The consequences are loss of market share due to resultant poor marketing strategies.

 

  1. Budgetary constraints

 

Given the fiscal constraints in the public sector generally, the Committee observed that some provinces and mostly municipalities have not allocated reasonable budget for tourism. This also emanates from tourism not prioritised and deemed as an unfunded mandate. The Constitutional mandate of tourism as a concurrent function is also used as an excuse of not funding tourism.

 

 

 

  1. Tourism infrastructure

 

The Committee observed that some tourism support infrastructure at a provincial and municipal levels was not well maintained by relevant authorities, including maintenance of tourist attractions, roads and heritage sites.  Other issues that were seen as impacting on tourism included cleanliness of the towns and maintenance of municipal parks.

 

  1. SMME Development

 

The provinces and local government are involved in a number of tourism SMME development programmes. The Committee also observed that the Tourism Enterprise Partnership programme co-funded by the Department was effective as the SMMEs visited indicated their satisfaction with the support provided. Some of them had won some provincial and national tourism awards.  However, there was a lack of coordination between the SMME programmes provided by the provinces and those undertaken at a municipal level.  This is also attributable to the lack of coherent tourism SMME strategy at the departmental level.

 

  1. Staff competency, efficiency and effectiveness

 

In the interaction with some tourism officials at a municipal level the Committee observed that there are serious competency and efficiency issues with regard to performing expected tourism functions.  This was seen as a cause for some municipalities failing to fulfil their tourism mandate. Staff members were struggling with simple tasks in their portfolios to assist the local communities on tourism.  This included issues such as lack of tourism awareness by locals, knowledge of funding avenues, planning, and coordination of tourism at a municipal level.

 

  1. Tourists safety and incidents of racism

 

The Committee noted with concern the continued incidents of attacks on tourists, especially at the beach area of the Buffalo City Municipality (East London).  These attacks are not only denting the image of East London, but destination South Africa as a whole.  The effort of the municipality to deploy Tourism Ambassadors at the beach is commendable, but a more permanent and effective solution is required. The Committee also noted the incidents of racism meted against tourists by some of the tourism product owners around the country. The Committee will be cautiously monitoring these developments with a view to discourage them.

 

  1. Need for better planning and internal communication

 

The Committee acknowledges that municipalities are responsible for planning and zoning at a local level. Municipalities are also responsible for developing Local Economic Development Plans and should be careful about promoting certain land uses to the detriment of tourism. The Committee warns that tourism is a service industry that is sensitive to other land uses and duty of care should always be exercised when municipalities issue licences for certain projects or businesses.  Internal communication should also prevail within municipalities to ensure that all municipal projects are in synch and do not trigger tourism sensitivities. 

 

  1. Other service delivery issues

 

Other issues observed by the Committee include the need to promote route development and township tourism; improved planning for Social Responsibility Implementation projects; need to consider niche tourism product development; necessity for integrated approach to tourism, environment and arts and culture issues; improvement of tourism signage; need to ensure that communities benefits from World Heritage Sites; need to assist local tour operators to be competitive; establishment of community souvenir shops to integrate local people to the tourism value chain; need for professionalisation of tourist guides; democratisation and access to heritage site; maintenance of heritage sites; ensuring that communities benefit from the wildlife economy; professionalisation and commercialisation of cultural performances in the tourism sector.

 

  1. Relevant external research assessing performance of the Department

 

A number of scholars and institutions publish information on the tourism sector in general, and South Africa in particular. These contributions are considered against the oversight work of the Committee. The thematic issues identified in the year under review include:

  1. The need to continue prioritising domestic tourism

 

A number of tourism scholars acknowledge that South Africa has developed a number of policies and strategies intended to address the structural imbalances of the past, and this has created opportunities for combating the triple challenge of poverty, unemployment and inequalities. Some of these strategies include, but are not limited to, the Rural Tourism Strategy, Cultural and Heritage Tourism Strategy, and Domestic Tourism Strategy. These strategies endeavour to involve the local communities in the tourism value chain and create conditions that encourage South Africans to travel within their own country.  With regard to domestic tourism, studies demonstrate that the promotion of domestic tourism can have significant socio-cultural and economic impacts and contribute to objectives of both national and local economic development. Information based on some of the studies include that  domestic tourism has the potential to make several economic and socio-cultural contributions to a country, key among them being national integration and cohesion and creation of opportunities through various economic linkages at destinations.

 

Positive impacts of domestic tourism also include the geographical spread of tourism benefits and non-economic benefits such as support for nation-building and integration.  It is alluded that the potential economic contribution of domestic tourism can be significant even in circumstances when domestic tourists do not have high buying power, and highlight the untapped potential of sustainable domestic tourism. This is more relevant under current economic conditions in South Africa where the value of the Rand is relatively weak when compared to other currencies. This presents opportunities for seasoned tourists who usually take international holidays to explore destination South Africa.  This also calls for tour operators to become more innovative in generating affordable domestic packages.

 

In addition, domestic tourism can function as an economic dynamo for tourism development in the country. In particular, it can offer self-reliance because it can protect the tourism industry from international instability, as well as being a stabilising element in a tourism economy as it protects the incomes and employment of tourism product providers during the off-season. It is also alluded that the growth in GDP per capita in South Africa has led to the emergence of a new middle class of African consumers who have discretionary income to travel and that under the right conditions, the tourism sector can tap into this wealth. This presents an opportunity for the tourism industry in the country package the destination in a way that will entice new travellers to take holidays within the country, thus create a culture of travel amongst South Africans.

 

7.6.2     Continental and national perspective on visas

 

The African Union (AU) states that currently, Africans need a visa to travel to over 55 percent of African states.  The AU launched a new pan-African passport during their summit in July 2016. Initially, the new African Passport will only be available to AU heads of state and government, ministers of foreign affairs, and the permanent representatives of AU member states who are based at the headquarters of the AU in Addis Ababa, Ethiopia. By 2018, the AU plans to make the African Passport available to all African citizens. The goal of the AU for the passport is to create an ease of movement across the continent which will lead to better and simpler trade between countries. The hope is that Africa, with the use of this passport, will see a very positive economic transformation. With the launch of the new pan-African document, the continent is moving towards the free cross-border movement of goods and people.   So far Seychelles is the only country in Africa that has abolished visa requirements for all African countries, with Ghana, Mauritius and Rwanda having made great strides.  In March 2016, Zimbabwe scrapped its requirement for visas for members of the Southern African Development Community (SADC). Zimbabwe is already one of only nine African countries offering e-Visas which allow visitors to apply online and pay for a visa on arrival, facilitating easy travelling.  Southern Africa ranks as a third most open sub-region in Africa. It allows the highest number of the world’s population into its countries without visa restrictions, whilst East Africa is the continent’s most visa-open sub-region.  Kenya, Rwanda and Uganda share the east Africa tourist visa, an open visa initiative for citizens from the three countries.  The United Nations World Tourism Organisation (UNWTO) has noted that Africa has made significant progress in simplifying the issuance of visas since the organisation started monitoring tourism visa policies in 2008. The UNWTO research has revealed that tourist visa facilitation can deliver important benefits by increasing tourist numbers and generating more income. For a seamless Africa to become a success, the UNWTO posits that it is imperative to continue to push for the elimination of visa requirements, the continuous liberalisation of international air transport to benefit all stakeholders, the promotion of initiatives such as one-stop border pots to reduce delays, and the creation of international transport and road transit.

 

However, there might be obstacles in implementing the pan-African visa system. The first is that many African countries lack the basic measures to roll out the initiative. For instance, they do not have access to the biometric systems needed to register the passports. Currently only 13 of the 54 AU members offer biometric passports. Algeria, Egypt, Gabon, Ghana and Tunisia, for example, do not have them. Second, there is already resistance to migration. This comes in the form of pre-existing visa barriers to other African nationals. For example, Equatorial Guinea, the country with the highest Gross Domestic Product per capita in Africa, requires that citizens from the other 53 sovereign African states acquire a visa when visiting. Other African countries with the same restrictions include the Democratic Republic of Congo, São Tomé and Príncipe, and Sudan. These would need to be repealed before a pan-African passport could be adopted.  South Africa is also not excluded as it has some visa restrictions.  At a national level, South Africa should look deeply into its visa regime and balance the safety of citizens with economic development imperatives, especially ease of movement of tourists. The country should also influence the SADC block to ease travelling restrictions to open a single competitive but competing tourism market.

 

Contrary to the policy decisions proposed by South African government on Immigration Regulations, the United Nations World Tourism Organisation Visa Openness Report (2015) indicates that when considering the advances in the different regions between 2010 and 2015; most visa facilitation measurements took place in Africa, Asia and Pacific, with 40 percent and 29 percent respectively. Particularly, East and West Africa made important changes by replacing traditional visa with visa on arrival. In South Asia, policy improvement has been driven by replacing traditional visa with electronic visa.  The report advices that a major opportunity for destinations is the way visa requests for temporary visitors are processed, as well as the requirements linked to this processes. In order to avoid bottlenecks created by processing procedures, modern information technology facilitates processing applications for service providers and is also crucial in regard to gaining valuable time for security processes. Receiving passenger information ahead of time ‘advances the border’ and reduces wait-times at borders. Besides using a more effective IT-infrastructure and already existing databases, processing capacity can also be increased in peak seasons or for major events by opening visa processing centres and additional consulate services, or by increasing the number of flexible staff that can be placed in different workplaces, depending on demand. Also, segment oriented queue management at the port of entry, such as extra established lines for families, group travellers or frequent flyers, serve as useful instruments to influence strategic relations with key segments and markets. It must also be noted that the then Minister of Tourism was part to the G20 Ministers of Tourism declaration on visa facilitation in Merida, Mexico on the 16th May 2012. Amongst others, the declaration commits member states to leveraging new technology, including electronic visa processes and delivery, as appropriate to the visa regime of each State, could make travel more accessible, convenient, and more efficient without a diminution of national security.

 

It must be noted that the issue of visa regulations and policy uncertainty in this regard continues to be a great concern to all the sector stakeholders in the country. During the process of drafting this report, the Chairperson received a letter on the 19th October 2016 from the Tourism Business Council of South Africa stating a number of concerns. The concerns are with regard to draft Green paper on International Migration and include:

 

  1. the requirement by accommodation establishments to make and keep copies of the lodger’s identification on checking in;
  2. the Unabridged Birth Certificates requirements for visa exempt countries; and
  3. the current alarming passenger congestion at the arrivals counters mainly at OR Tambo International Airport and Cape Town International Airport.

 

It is therefore incumbent on the Minister of Tourism to further engage the IMC to facilitate tourist travel to the country.

 

  1. Concluding comments on service delivery performance

 

The Department did fairly well during the year under review in achieving its targets in a number of strategic objectives. The concern remains with the performance of South African Tourism which is struggling with achieving its targets. The Performance of the Department must also be aligned with the national transformation imperatives and emerging international trends. There is therefore a need to institute an organisational restructuring at both the South African Tourism and the Department of tourism to improve service delivery that is attuned to contemporary tourism trends.

 

 

 

  1. Finance and Service delivery performance assessment

 

The departmental spending has marginally improved from 98.4 percent in 2014/15 to 99.1 percent in 2015/16. The reasons for underspending include implementation of cost containment measures; the underspending on the Tourism Incentive Programme; and exchange rate fluctuations when payments were made. The Department achieved 86 percent of all its performance targets in 2015/16. There was a close alignment between targets met and budget spent, and this suggests that performance indicators were closely aligned with work volume of the Department and resource allocation.

 

The performance indicators are generally well developed, and in most instances, comply with the SMART principle. This is commendable as the Committee has always raised concerns with the way the Department sets its targets. However, there is still significant room for improvement as the assessment of performance targets still reveal some shortcomings.  Some indicators, especially under the Administration programme, use percentages without giving actual numbers of what is intended. This creates vagueness as it is not possible to tell how targets were measured. Some indicators are not specific and lack an output, for example, the “department's cabinet and cluster coordination protocol reviewed and implemented” does not make it clear what output was achieved, for example, report compiled.  Some indicators have no targets such as “Universal Access awareness held” does not make it clear what was the target and also the manner in which awareness raising took place, for example, workshops, flyers, or other forms of interventions. Nonetheless, the performance of the Department in the year under review is commendable.

 

Besides South African Tourism, the Department also makes transfer payments to non- government organisations (NGOs), universities and other agencies, for example Gauteng Tourism Authority. In many instances transferred funds were not spent in the 2015/16 financial year but were to be implemented in the following 2016/17 financial year. This indicates an underspending on transfers, mainly related to the Tourism Incentive Programme.  This further raises a concern about the timing of transfers and if agencies were given sufficient time to spend the money. A further concern relates to whether the department has proper mechanisms in place to properly monitor the spending of transfer payments. The Department must therefore ensure that in future transfers are done in a way that assist the Department to render service delivery within the financial year instead of the following year, except where legitimate reasons prevail. It is therefore fundamental to treat transfers correctly to avoid creating a perception that the Department is involved in fiscal dumping.

 

The prospects of good service delivery in the outer years are not encouraging. The service delivery performance of the Department is expected to be hampered by the decline in budget allocations. The transfers and subsidies are largest items but are projected to decline in all three years of the 2016 MTEF period. It must be noted that a large amount of the transfers is made to South African Tourism. This leaves meagre funds for tourism development by the Department. Compensation of employees illustrates similar trend of declining allocations over the 2016 MTEF period as a result of Cabinet approved reductions to lower aggregate expenditure ceiling. With the exception of a large increase in capital spending, from R3 million in 2015/16 to R56 million in 2016/17, this item also projected to decline over the two outer years of the 2016 MTEF period. It must however be recognised that the increase in capital spending is with regard to the new modified cash standards accounting model for SRI projects, and this does not translate to “new money”.

 

  1. KEY FINDINGS - COMMITTEE OBSERVATIONS AND RESPONSES

 

The Committee made a number of observations that were used as basis for this Budget Review and Recommendations Report

 

  1. Technical issues

 

  1. Funding for Tourism in South Africa

 

The Committee is of the view that tourism is underfunded in South Africa. The announcement by South African Tourism that an Econometric study is being conducted in collaboration with Oxford is welcome. This will assist with mainly determining the marketing budget and foster alignment amongst different stakeholders and spheres of government in the country. However, funding for tourism development will still be a challenge. It has been noted that despite tourism being one of the six economic pillars in South Africa, it has always been excluded from special programmes of the government. These include programmes such as Operation Phakisa, National Infrastructure Plan driven by the Presidential Infrastructure Coordinating Commission (PICC), and others. This has always meant the Department of Tourism has to try and find alignment with these government programmes without clearly spelt interventions for the sector. In addition, the Department is transferring a lot of money to South African Tourism but this budget is used to effectively market the tourism products that still reflect the economic structural imbalances of the past in the sector. There is therefore a need to lobby the National Treasury to include tourism in the government special projects in the future.  A special “Tourism Development Fund” could be developed to expedite tourism development in the country that will address tourism development and ownership anomalies in the tourism sector.

 

  1. Forensic audits

 

The Department had reported that a forensic audit had been finalised but the Committee has not been given relevant details. The details were not provided with regard to how many departmental officials were implicated and what disciplinary measures had been taken; how many companies were involved; and how much money was lost and whether those funds will be recovered. A report should be given to the Committee for a full appreciation of the scale of corruption that occurred in SRI projects.

 

  1. Setting Pre-determined objectives

 

The Department continues to set targets that are dependent on other stakeholders without proper planning and implementation protocols in place. The Department had not conducted adequate ground work to ensure that the targets are attainable. This causes these objectives and performance indicators to fail the SMART principle (specific, measurable, achievable, realistic, and time-bound) scrutiny.  The Committee will be intensifying its oversight work on pre-determined objectives when the Department and South African Tourism table their Strategic Plans and Annual Performance Plans in the subsequent financial years.

 

9.1.4     Delays in finalising Terms of Reference (TORs)/ SCM Committees

 

The Department did not finalise Terms of Reference on time for a number of projects and this led to delays in initiating procurement and/ appointment of service providers. These are internal issue that should not delay project commencement. There is a need for consequence management for senior staff members in cases such delays occur.

 

9.2        Governance and operational issues

 

The Committee evaluated various general governance and operation issues with regard to how well the Department operates; such as IT, infrastructure matters, human resources, disciplinary and grievance processes and audit action plans. The Committee was satisfied with general governance of both the Department and South African Tourism with a room of improvement on implementation of governance instruments developed, including internal controls. On human resources, the Department had fourteen cases of misconduct reported in the financial year and nine were resolved whilst five were pending. This indicates that the Department is effective in dealing with misconduct thus maintaining good governance within the organisation. There were also ten cases of grievances reported and the Department dealt with seven of them whilst only three were pending. The Department is also commended for 5 percent representation for people with disabilities; vacancy rate of 5.75; with concerns in the vacancy rates of 10.3 and 14.3 observed for the SMS and critical posts.

 

With regard to South African Tourism, it is commended that the posts of non-executive employees have been converted to permanent. This has always been a challenge as the employees were on short- term contracts which led to high staff turnover and loss of institutional memory. It is also acknowledged that the entity has filled the position of the CEO which was a vacuum at a strategic level. However in implementing employment equity (EE) the entity used the Gauteng guidelines on economically active population (EAP). Section 16 (1) (i) stipulate the demographic profile of the national and regional economic active population. Since South African Tourism is a national public entity, the entity should ensure that the EE policy is implemented correctly and considers both national and regional demographics. However, the following issues should be addressed:

 

9.2.1     Governance and finances

 

South African Tourism indicated in their financial statement that they have contingent liabilities of plaintiff claim of trademark infringement; two applicants claim of substantive and procedural unfair dismissal; and two plaintiff claim of unlawful breach of contract and other possible statutory liabilities. The nature of these liabilities indicates that the entity did not practice good governance thus exposed itself to these liabilities. It is important that the entity practices utmost governance principles to avoid unnecessary liabilities. In future, the Department should avoid contingent liabilities as these may lead to legal actions that may culminate to the entity incurring litigation costs and diverting funds that would have been directed to service delivery.

 

9.2.2     Internal controls, risk management and leadership

 

The departmental internal audit is also not identifying potential risks that may lead to poor performance by the Department by the end of the financial year. This has happened before whereby the Department has set targets that are not achievable and this is not picked up at a planning phase and complicates service delivery. The Committee also observed with concern that the Department has incurred financial losses through “no shows” when flights and accommodation had been booked. The internal audit team should be able to glean these risks and advice relevant business units accordingly. As the preparation for the Budget Review and Recommendations Report is both backwards and forward looking, there is a serious concern with the potential of the Department to perform badly in the current financial year (2016/17) due to poor management and leadership controls.  This may derail achievement of targets in the forthcoming financial year. The issues of management and internal controls raised by the Auditor-General and addresses by the Committee in the 2014/15 financial year seem to be resurfacing. In the first quarter of the current financial Committee has noticed poor management and internal controls in the Department. There were undue delays in commencing project since the first quarter of the financial year. The Committee is warning the Department to tighten management and internal controls to ensure that the Annual Report for 2016/17 shows improved performance results.

 

  1. Service delivery performance

 

The Committee made a number of service delivery observations and other inherent issues that hampered the performance of both the Department and South African Tourism in the year under review. These include:

 

9.3.1     Policy contradictions and their effect on tourism performance

 

The Committee acknowledges that tourism as a sector depends on multi-stakeholders, including other government departments. This makes the sector susceptible to policies introduced and implemented by other departments. The performance of South African Tourism in the period under review, 2015/16 financial year, was   greatly affected by the introduction of the Immigration Regulations. South African attributed their failure in achieving the target on international arrivals largely to these Regulations. The Committee observed with concern that the Department of Home Affairs had published the draft amended Regulations that still require unabridged certificates and affidavits from parents. In particular, Section 12(b) states that “where a parent or parents, from a visa exempted country, who is or are travelling with a child, such parent or parents may be required by an immigration officer to produce the child's unabridged birth certificate upon admission into or departure from the Republic and the immigration officer must, in granting such child admission into or departure from the Republic consider….”  This may perpetuate the policy uncertainty, particularly with airlines who may continue to ask for the documents, or risk having to carry the costs of repatriating travellers denied entry to South Africa. The airlines may simple refuse travellers to board their planes. It does not make good policy sense to designate tourism as one of the six economic pillars of the economy and enact laws/ policies that hamper the growth of the very same industry earmarked for growth.

 

9.3.2     Gaps in the tourism policy and tourism Act

 

The Committee observed that the Department relies an outdated White Paper on Development and Promotion of Tourism in South Africa adopted in 1996. No regulation and policy analysis has been conducted to establish if this policy still serves the tourism sector well.   The current policy no longer address the contemporary tourism trends the transformation imperatives in the sector and growing the industry as an economic sector. It is thus necessary for the Department to conduct regulatory and policy analysis for the White Paper on the Development and Promotion of Tourism in South Africa, and the current tourism Act with a view of developing a new tourism policy.

 

  1. Need for organisational restructuring

 

It has been noted that the Department has always performed badly in Programme 3. The Committee has always maintained that this Programme is misplaced in the Department as most of its activities could either be delegated to South African Tourism or be incorporated into other Programmes within the Department. In the same vein, Programme 4 is struggling to effectively fulfill its mandate and is not perfectly structured to cater for all the tourism development imperatives.  There is therefore a necessity for a comprehensive recalibration of destination development and management with a view to foster global competitiveness.

 

  1. National Airlift Strategy

 

South Africa is a long haul tourism destination and mostly depends on air transport for international arrivals. The National Tourism Sector Strategy alludes that if the flights into South Africa from various markets are lacking, or are expensive or inconvenient for potential visitors, it prohibits or deters tourists from visiting South Africa. Therefore, addressing the issue of international airlift between South Africa and key source markets, including African countries, is critical to achieve tourism objectives. The same applies to the challenges faced by the domestic tourism market due to the current limitations on the use of frequencies by national carrier flights as well as high cost of flying to regional airports which discourages citizens to use air transport within the country, mainly for holiday trips. The issue of airlift remains an inhibiting factor in growing tourism in South Africa and the Minister of Tourism should robustly engage the Minister of Transport and other ministers in the cluster at the Cabinet level.

 

  1. Annual performance against set objectives

 

South African Tourism had eight performance indicators in the 2015/16 financial year, only one was achieved and seven were not met. This indicates perpetual underachievement by the entity as only 55 percent of the targets were achieved in the 2014/15 financial year. This non-performance is detrimental to the sector as the 2020 targets contained in the National Tourism Sector Strategy depend on the performance of South African Tourism.

 

  1. Developing and promoting domestic tourism

 

It must be noted that in the previous Budget Review and Recommendations Report the Committee had recommended that South African Tourism intensifies programmes that drive conversion of the potential domestic market to take domestic holidays and engage in leisure activities. The Committee is still concerned that South African Tourism which is managing the ring-fenced budget for domestic tourism is not making noticeable inroads in influencing South Africans to tout their own country. It is therefore imperative that the Minister of Tourism intensifies his political oversight role over South African Tourism in ensuring that the entity optimises the gains of the ring-fenced funding for domestic tourism.

 

  1. Entity oversight

 

The Department has assigned an employee at a level of the Deputy Director to conduct oversight over South African Tourism. This is a junior position and the Committee has identified some challenges with performance of the Entity which might be attributed to this employee not being able to engage at a strategic level and interacting with senior entity representatives at a Board Level.

 

9.3.8     Grading

 

The Committee observed with concern that the number of graded establishments continues to decline in South Africa. The continued decline in the number of graded establishments affects the quality of tourism product offering in the country. It must be noted that South Africa competes with a number of other African counties in similar markets. A decline in quality standards may lead to the country losing its market share to competitors. The role of the social media must also not be underestimated as these have created an open network where experiences of poor quality are shared, thus tourists taking decisions to shun the destination.

 

9.3.9     Improving the impact of the National Conventions Bureau

 

In the response to the 2014/15 BRRR responses, the National Conventions Bureau (NCB) indicated that it does offer support to provinces that do not have capacity to generate and follow on leads to bid and acquire business events and that the support provided to the provinces is in the form of financial contributions toward provinces that wants to develop business events strategies; assistance with bid and proposal development; bidding support for the cities and provinces submitting bids and proposals; stakeholder workshops to present the national strategy and to lobby for support for business events; and distribution of leads to provinces based on the key priority sectors for all provinces. This indicates that the smaller cities and towns will remain outside the main strategic thrust of the NCB in bidding and supporting events. The NCB should increase its support to smaller cities and towns.

 

9.3.10   Foreign currency risk

 

South African Tourism operates in a number of international markets and is exposed to foreign exchange risk due to currency exposure. This risk has cost the entity a total of R350 million in currency losses over the past five years. The entity indicated that they have made an arrangement with the National Treasury to pay the international commitments upfront. However, it is not clear if this is a permanent solution. The National Treasury should assist with solving this recurring challenge.

 

9.3.11   TOMSA Levy

 

SAT receives revenue from TOMSA Levy which is a levy collected by tourism businesses with the aim of contributing to the promotion of South Africa as the preferred tourist destination locally and internationally. In the period under review a total of R1.2 million was received indicating an increase from R1.1 million in the 2014/15 financial year. This shows a slight increase and the concern remains with the number of tourism businesses which are not contributing to the levy. The entity has a duty to engage the private sector, especially the Tourism Business Council of Southern Africa to persuade their members to collect the levy. If the issue of TOMSA Levy is not addressed, the Committee will look at other alternatives including instituting a Tourism Tax which is a norm in many successful tourism destinations.

 

9.3.12   Employment impact of the tourism sector

 

The new Tourism B-BBEE Codes stipulate that at least 85 percent of total labour cost should be paid to South African employees by service industry entities and at least 50 percent of jobs created during the Measurement Period are for Black People. The Committee has observed a growing trend in the tourism sector to employ foreign nationals and that this may encumber companies from achieving required BBBEE rankings. It is therefore essential for the Department to understand the type of tourism jobs occupied by foreign nationals to ascertain if this culminates from critical skills shortage. It is also necessary for the Department to consider conducting a study on job creation in the tourism industry to determine the employment patterns.

 

 

 

9.3.13   Transformation initiatives

 

The Committee observed the new B-BBEE Sector Codes present an opportunity for benefits throughout the tourism value chain. There are opportunities for the industry to outsource non-core activities such as laundry and security. The Committee is of the view that there should be an interaction with other government departments to take advantage of the sector codes with regard to empowerment of suppliers.  The entire tourism value chain must be considered and efforts should be coordinated between the Departments other stakeholders with regard to ensuring wide reaching programmes of transformation.

 

9.3.14   Integrated government approach to tourism

 

It was observed that there is a necessity for more coordination between the Department and other sector departments that have an impact on tourism. Amongst these are departments of Environmental Affairs, and Arts and Culture; transport, Small business and others. Coordination will ensure that there is optimal economic development through heritage, environment, air access, SMMEs and skills development; and others. Inclusive tourism development will be achieved if the government at cabinet and FOSAD level creates a mechanism to deliver on the potential of tourism. The collaboration amongst government departments, such as that forged in planning and delivering the 2010 Fifa World Cup, can achieve phenomenal results for the tourism sector. The Inter-ministerial Committee may assist in ensuring a coordinated tourism development approach.

 

9.3.15   Community benefits from World Heritage Sites, game and nature reserves

 

The protected areas in South Africa proffer a number of economic opportunities for surrounding communities. The Department has not tapped into this potential through assisting communities around these areas to exploit concessions that could develop rural tourism and bring communities to the mainstream tourism economy. The manner in which concessions are structured exclude local communities. Where the concessions are ring-fenced for community beneficiation, they are exorbitant resulting to servicing these concessions being unaffordable.

 

 

 

  1. Income leakage

 

When interacting with emerging enterprises during oversight visits and those hosted by South African Tourism at Indaba as part of the “Hidden Gems” challenges with their capacity to deal with the volume of business, particularly during the peak season was cited. An example can be made of capacity of transport used to move the tourist to attractions. The emerging tour operators are struggling to service large tour groups and they outsource their business to big operators or hire vehicles. This leads to income leakage as their businesses lose income to big businesses and rental companies.  An appeal was made by emerging enterprises that the Department considers a small business support programme through the Tourism Incentive Programme to assist them with business expansion. It might be useful for the Department to consider conceptualising a Tour Operator Incubator Programme.

 

  1. Financial performance including funding proposals

 

The financial performance of the Department in 2015/16 was excellent with the 99.1 percent of the appropriated funds spent. All the four Programmes spent an average of 99 percent with Administration at 98.9 percent; Policy and Knowledge Services at 99.2 percent; International Tourism Management at 98.9 percent; and  Domestic Tourism Management at 98.9 percent. The actual expenditure per Programme was 67.3 percent for Policy and Knowledge Services; 17.3 percent for Domestic Tourism Management; 12 percent for Administration; and 2.8 percent for International Tourism Management.   South African Tourism was given R100 million additional budget for domestic tourism.  Despite the additional budget given to SAT, the Entity still failed to improve domestic tourism in South Africa. This raises concerns as Domestic Tourism is the backbone of all successful tourism destinations. South Africa is still struggling in stimulating domestic travel and funds should be spent in a tactful way to ensure that South Africans travel within their own country.

 

The Committee is in the process of engaging the National Department of Tourism to revamp their policy and strategic direction to ensure that the destination is globally competitive. This requires funding to ensure that tourism delivers to its expectations as postulated in the National Development Plan. The Committee therefore makes the funding proposals:

 

  1. The tourism sector should be included in the government special projects;
  2. The National Treasury should consider creating a Tourism Development Fund that will assist the Department in activation Private-Public-Partnerships as envisaged in the PPP Toolkit for Tourism.
  3. The funds appropriated to vote 33 should be increased in line with the mandate of Tourism and considerations should be taken of how the sector contributes to economic growth of the country.

 

  1. Recommendations 

 

The Committee, having considered the global and national conditions under which the Department and South African Tourism operate and the performance in the 2015/16 financial year, makes the following financial and non-financial recommendations to the Misters of Finance and Tourism:

 

RECOMMENDATIONS TO THE MINISTER OF FINANCE

 

  1. Financial performance including forward funding recommendations

 

  1. Funding for Tourism in South Africa

It is recommended that the National Treasury:

 

  1. Adjusts and increases the budget appropriated to vote 33 in the Estimates of National Expenditure.
  2. Facilitates the creation of the Tourism Development Fund to transform the tourism landscape in the country.

 

  1. Foreign currency exposure

It is recommended that the National Treasury assist South African Tourism in finding a lasting solution to losses caused by foreign currency exposure.

 

  1. Recommendations to the Auditor-General

 

It is recommended that the Office of the Auditor-General conducts Performance Assessments for the Social Responsibility Implementation projects, and other Programmes of the Department and South African Tourism in the 2016/17 financial year to ascertain if there is value for money and effective service delivery in the programmess and projects delivered to communities.

 

RECOMMENDATIONS TO THE MINISTER OF TOURISM

 

The following recommendations are made to the Minister of Tourism with regard to both the National Department of Tourism and South African Tourism:

 

National Department of Tourism

 

  1. Governance and Leadership

 

  1. Organisational review for the Department of Tourism

 

It is recommended that the Minister expedites the organisational review of the National Department of Tourism to calibrate the departmental Programmes and business units with the mandate of the Department and contemporary trends in the sector, and rectify a myriad of issues identified by the Committee.

 

  1. Inter-ministerial Committee on tourism cooperation

 

It is recommended that the Minister of Tourism proposes to the Cabinet that an Inter-ministerial Committee be established to deal with cross-cutting issues that affect tourism such as tourism-transport interface including airlift, operating licenses and signage; arts and culture; maintainace of tourist attractions, municipal resort, and others.

 

  1. Understanding the culture of travel amongst South Africans

 

It is recommended that the Department commissions a research study on how to foster the culture of travel amongst South Africans as one of the collaborations with the universities.

 

 

 

 

  1. Strengthening domestic tourism

 

It is recommended that the Minister increases the monitoring and evaluation of the performance of South African Tourism with regard to the interventions and marketing strategies developed to grow and promote domestic tourism.

 

  1. Entity oversight

 

 It is recommended that the Department strengthens the oversight function over South African Tourism and assign a senior official to ensure effective and efficient undertaking of this activity.

 

  1. Setting of targets

 

It is recommended that the Minister ensures that the Department and South African Tourism set targets that are specific, measurable, attainable, realistic and time-bound aimed at improving organisational performance and growing the tourism in the country.

 

10.3.7   Leadership, management and internal controls

 

It is recommended that despite the positive audit opinion issued by the Auditor-General, the Minister ensures that the Department improves on leadership and implementation of internal controls to ensure that targets set in the Annual Performance Plans are attainable and achieved at the end of the financial year.

 

10.3.8   Consequence management

 

It is recommended that the Minister holds the senior management of the Department accountable in ensuring that they provide leadership that offers value for money in all the projects and programmes implemented by the Department and South African Tourism, including Social Responsibility Implementation Initiative.

 

 

 

 

  1. Regulatory and policy impact analysis

 

It is recommended that the Department revises the White Paper on the Development and Promotion of Tourism in South Africa to address the national transformation imperatives and contemporary global trends in the sector.

 

  1.  Leveraging on concessions to uplift communities adjacent to protected areas

 

It is recommended that the Department explores strategies to facilitate partnerships with protected areas in unlocking affordable concessions for community tourism operations. 

 

  1. Tourists safety and incidents of racism

 

It is recommended that the Minister engages the Tourism Business Council of South Africa on measures to curb racism in the sector and general safety precautions for both domestic and international tourists.

 

10.3.12 Sector employment study

 

It is recommended that Department, in collaboration with the Department of Labour, considers conducting a study on employment patterns in the tourism sector to determine, amongst other things, the ratio between SA citizens and foreign nationals employed in the sector, and skills that are sourced mainly from foreign nationals.

 

  1. Support for business expansion

 

It is recommended that the Department considers using the Tourism Incentive Programme to assist emerging enterprises with business expansion to improve their competitiveness and build capacity to deal with high volumes to prevent income leakage to established industry players.

 

 

 

 

 

  1. Strengthening SRI implementation

 

It is recommended that the Minister strengthens the implementation of Social Responsibility Implementation Initiative (SRI) through conducting cost-benefit analysis before projects are approved for funding.

 

  1. Ensuring quality assurance

 

It is recommended that the Minister ensures quality assurance of tourism product offering and tourist experiences through conducting a policy review of the grading scheme.

 

South African Tourism

 

  1. Improvement on performance

 

It is recommended that South African Tourism improves their performance in line with the targets set in the Annual Performance Plan.

 

10.3.15 Reward that meet performance

 

It is recommended that South African Tourism reviews their policy on the payment of bonuses and only give financial rewards to employees who meet targets set in their performance contracts in advancement of improved organisational performance.

 

10.3.16 Improving TOMSA Levy collection

 

It is recommended that South African Tourism works with the Tourism Business Council of South Africa to increase TOMSA Levy collection as failure to do this may influence the Committee to consider recommending to the National Treasury to institute a Tourism Tax regime for South Africa.

 

 

 

 

  1. APPRECIATION

 

The Committee would like to thank the internal and external stakeholders who directly and indirectly contributed to the process of developing this Budget Review and Recommendations Report. A particular word of gratitude goes to the office of the Auditor-General, the Financial and Fiscal Commission, the Minister of Tourism, the Deputy Minister of Tourism; and the offices of the Speaker and the House Chairperson.

 

 

  1. CONCLUSION

 

The Committee acknowledges the fiscal constraints exerted by the shrinking economy of the country. It is the view of the Committee that despite these economic conditions, tourism will continue serving as a cushion for the economy of the country and thus must be funded accordingly. The National Treasury is therefore urged to seriously consider the contribution of the sector to the economy and adjust the appropriation for Vote 33 in the Estimates of National Expenditure accordingly to facilitate growth of the sector.  The organisational review of the Department is viewed as a positive strategic undertaking that will assist in solving a number of issues that have been raised by the Committee over the years. This coupled with the establishment of the Inter-ministerial Committee on integrated tourism development will ensure an inclusive tourism growth. The Committee would like to commend the Department and South African Tourism for their financial performance for the 2015/16 financial year given the tough economic conditions under which tourism takes place. Both the National Department of Tourism and South African Tourism complied with all statutory requirements in terms of financial reporting and obtained clean audits.   South African Tourism spent all their budget whilst the Department spent 99.1 percent. This indicates that these two organisations over which the Committee conducts its oversight have well established and functioning financial controls. The Committee however, remains concerned with service delivery performance as both organisations failed to meet all their targets. The Committee is nonetheless confident that the Department will improve on their target setting and internal controls with regard to implementation of the Annual Performance Plans.

 

Report to be considered.

 

Documents

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