ATC131029: The Budgetary Review and Recommendation Report of the Portfolio Committee on Tourism, dated 29 October 2013

The Budgetary Review and Recommendation Report of the Portfolio Committee on Tourism, dated 29 October 2013.

The Portfolio Committee on Tourism, having considered the performance and submission to National Treasury for the medium term period of the Department, reports as follows:

1. Introduction

1.1.                Mandate of Committee

The Portfolio Committee on Tourism is established by the rules of the National Assembly as enshrined in Section 57(2) (a) of the Constitution of the Republic of South Africa, Act 108 of 1996. The Committee is therefore an extension of the National Assembly and derives its mandate from Parliament.  The mandate of the Committee fulfils the following functions:

•          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.

•          Engage in, participate and oversee international relations.

The Portfolio Committee on Tourism fulfils its mandate by discharging its oversight role over the National Department of Tourism and South African Tourism which is its marketing entity.  The Committee conducts oversight visits and hold public hearings to ensure public participation and corporative governance as enshrined in the Constitution. The Committee processes legislation, and in the period under review a Tourism Bill that repeals the Tourism Act of 1993 was processed as part of its legislative mandate.

1.2  Core functions of the Department.

This section provides the legislative and policy framework that govern the Department of Tourism and South African Tourism.

1.2.1          Constitutional and Legislative Mandate

Part A of Schedule 4 of the Constitution of the Republic of South Africa, 1996, lists tourism as a functional area of concurrent national and provincial legislative competence.  The Tourism Act, 1993 (Act No 72 of 1993) as amended, also makes provision for the promotion of tourism to and in the Republic and for further regulation and rationalisation of the tourism industry; measures aimed at the maintenance and enhancement of the standards of facilities and services hired out or made available to tourists; and the co-ordination and rationalisation, as far as practicable, of activities of persons who are involved in the tourism industry.

Whilst the government has prioritised tourism and the Department is doing everything to ensure tourism growth, the provincial and local spheres of government have not fully embraced this economic sector as part of their mandate.  At a local government level tourism generally competes with other service delivery needs and always gets little budget or is not budgeted for at all. In this sphere of government tourism is seen as an unfunded mandate and thus neglected.  This is contrary to the tourism mandate enshrined in the constitution and all spheres of government should take tourism seriously.

Tourism, in the main, happens at a local level.  The abdication of the constitutional mandate by the local government undermines the importance bestowed on tourism by the state as the sector is classified as one of the six priority economic sectors in the New Growth Path.

1.2.2          Policy mandate

The main founding policy document for the Department is the White Paper on Development and Promotion of Tourism in South Africa which sets out broad principles on which tourism mandate is discharged.  The White Paper provides framework and guidelines for tourism development and promotion in South Africa.

The National Tourism Sector Strategy (NTSS) was developed and agreed upon by both the public and private sector. NTSS provides a blueprint for the tourism sector in pursuit of growth targets contained in the New Growth Path (NGP).  The NTSS seeks to create 225 000 new jobs and contribute R499 billion rand towards the Gross Domestic Product (GDP) by 2020.  The collective vision which is a driving force of tourism in South Africa is to be one of the top 20 global destinations by 2020.

The Department developed a number of strategies to guide the development and promotion of tourism in South Africa, including the National Tourism Sector Strategy, Domestic Tourism Growth Strategy, Heritage and Cultural Tourism Strategy.  The Tourism B-BBEE Sector Code provides guidelines initiatives to transform the industry.

1.2.3             Strategic Outcome Oriented Goals of the Department

The government set five priorities that govern programmes of government departments.  These priorities are:

•          decent work and sustainable livelihoods

•          education and skills development

•          fighting crime and corruption

•          health

•          rural development & Agrarian reform.

In fulfilling its mandate, the Department observed the five government priorities, and set seven strategic outcome oriented goals aligned to these priorities.  The Departmental strategic oriented outcomes are as follows:

•          Achieve good corporative and cooperative governance

•          Improve the impact of tourism on the livelihoods of all South Africans

•          Integrate tourism priorities in the sector departments, and provincial and local government’s planning

•          Improve tourism sector research, and information and knowledge management

•          Increase contribution tourism sector to inclusive economic growth

•             Improve levels of competitiveness and sustainability in the tourism sector

•             Strengthen regional, African and international collaboration and partnerships.

The Department is involved in a number of programmes aimed at achieving the set outcomes thus address the five priorities of government.  The following activities are amongst other programmes that were conducted by the Department in 2012/13 financial year to advance the five government priorities:

•          The Department is involved in a number of job creation programmes whereby seventy projects are being implemented through the Expanded Public Works Programme. However, there is still a challenge with inclusive growth that creates permanent jobs and promotes sustainable livelihoods.  The Department still need to ensure meaningful participation of the historically disadvantaged communities and individuals in the mainstream tourism industry.

•          The Department is involved in tourism capacity building programmes that are meant to strengthen skills development and human resource base in the tourism industry. The Department has conducted a tourism skills audit and revised tourism curriculum with UMALUSI to ensure proper skills development for the sector.

•          The Department is addressing health issues in the industry through promoting universally accessible accommodation facilities that cater for the needs of disabled tourists.

•          The Department is involved in rural development whereby tourism projects are funded in rural areas. A rural tourism strategy was developed and gives guidelines on what could be done to develop rural tourism.  In addition, the Department commissioned a study with clear findings on how tourism routes can be used to promote rural tourism.

•          The Department is intensifying the fight against crime and corruption whereby forensic auditing and court cases have been opened against service providers who were suspected of defrauding the Department.

1.3 Purpose of the BRR Report

The Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) 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, portfolio committees must compile Budgetary Review and Recommendation Reports (BRRR) that assess 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 are also source documents 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.  The purpose of this report therefore is to make recommendations to the Minister of Finance to amend the budget for the Department of Tourism.

1.4 Method

In developing this Budget Review and Recommendation Report the Committee interacted with a number of institutions and reviewed a number of supporting documents.  The Committee had a hearing with the Auditor-General on the 8th October 2013 to receive independent audit outcomes of the Department of Tourism and South African Tourism for the period under review.  South African Tourism presented their Annual Report to the Committee on the 8th October 2013 and the Department presented their Annual Report for 2012/13 on the 15th October 2013.

The Committee also considered outcomes of public hearings with a number of organisations that appeared before, it including the meeting held with the Financial and Fiscal Commission on the 16th March 2013. The oversight visits to various provinces were also considered as they provided much insight on the service delivery by the Department and other spheres of government.

1.5 Outline of the contents of the Report.

The report deals with five broad distinct issues. These issues are:

(i)                Constitutional, legislative and policy mandate of the Committee and the

process that was followed in developing this Budget Review and

Recommendations Report.

(ii)                   Previous financial performance of the Department on both financial and non financial aspects.

(iii)              Financial, non-financial and service delivery issues for the period under

review.

(iv)          Key findings from oversight work of the Committee, public hearings and research by external stakeholders that inform the recommendations.

(v)                  Recommendations to the Minister of Finance in terms of the budgetary requirements of the Department.

2 Overview of the key relevant policy focus areas

2.1 Key Government policy

It is acknowledged that policy in respect of oversight in the Legislative Arm of the State is derived from a number of sources. It is this policy that provides the necessary framework for the Executive to carry out Government programmes. It is from this policy framework that Governments service delivery programme is informed. In addition the State of the Nation Address provides priorities and directives for the calendar year and subsequent Cabinet Makgotla assist to refine the detail.  The National Development Plan was introduced during the course of the year under review and has serious implications for tourism in the years ahead.

The following key government policy documents drive the mandate of the Department and were considered crafting 2012/13 tourism programmes:

(i)     State of Nation Address

Issues impacting on tourism as raised in the 2012 State of the Nation Address included the need for close monitoring of tourism linked infrastructure development through the   Expanded Public Works Programme; constant engagements with regard to cultural tourism; need for the Committee to monitor the different programmes pioneered by the NDT to attract investors for infrastructure development in rural areas; alignment in the promotion of events which took place in different provinces; the  need for Department to adhere to the 30-day payment period for services.  The Department should enhance domestic tourism marketing and development; expedite transformation in the tourism sector.

(ii)     New Growth Path

Tourism has been designated as one of the six economic drivers in South Africa. The New Growth Path recognises tourism as a key sector for employment creation and sets a target of 225 000 jobs by 2015. This economic plan stipulates that to achieve the intended targets, the industry needs to address quality assurance, training, tourism infrastructure, youth employment and support cultural industries’ main enablers.

2.2.                Outcomes-based approach

The Minister signed a performance agreement with the President whereby a commitment was made to address four of the twelve government outcomes.  The contribution of Tourism to the government’s outcomes based approach to service delivery for 2012/13 and 2013/14 is leveraged on the following four outcomes:

·         Outcome 4 - Decent employment through inclusive economic growth

·         Outcome 7 – Vibrant equitable and sustainable rural communities and food security for all, and

·         Outcome 11 – Create a better and safer South Africa and world for all.

·         Outcome 12 - A development-orientated public service and inclusive citizenship

The Department attached each strategic outcome to one of the four government outcomes chosen for the sector.  The correlation between the government outcomes and Departmental strategic outcomes is as follows:

·          Achieve good corporate and cooperative governance – Outcome 12;

·          Improve the impact of tourism on the livelihood of all south Africans – Outcome 4;

·          Integrate tourism priorities in other sector departments and provincial and local governments planning – Outcome 12;

·          Improve tourism sector research and information and knowledge management – Outcome 4;

·          Increased contribution of tourism sector to inclusive economic growth – Outcome 7;

·          Improve levels of competitiveness and sustainability in the sector – Outcome 4 and Outcome 10; and

·          Strengthen regional, African and international collaboration and partnerships – Outcome 11.

Amongst the above mentioned outcomes, the major part of the Department’s work is meant to significantly contribute towards decent employment and inclusive economic growth, and the smooth functioning of an efficient and effective Public Service. This means that the Department must work on increasing tourism investment and foreign earnings, focus more on the development of Small and Medium Enterprises (SMEs); promote mentorship and support programmes; and increase the scarce skill base as identified by the skills audit.

Supporting product development in rural areas for tourist consumption is a critical tool for tourism’s contribution towards rural development. In line with the abovementioned points, the role of the local sphere of government needs to be developed and clearly defined in order to positively contribute towards the National Tourism Sector Strategy. Thus, the Department is in a continuous dialogue with municipalities, especially in targeted areas and contributes towards tourism product development in areas where there is the possibility of establishing feasible projects.

2.3 Overview of revised Strategic Plan and Annual Performance Plans

The revised Strategic Plan puts more emphasis on implementation rather than planning. Since the separation of Tourism from the erstwhile Department of Environmental Affairs and Tourism in 2009, the Strategic Plans of the new Department of Tourism have concentrated more on planning.  In order to achieve this, the Department has developed a number of sector plans which include inter alia, the National Tourism Sector Strategy; Domestic Tourism Strategy; Rural Tourism Strategy; Heritage and Cultural Tourism Strategy and Responsible Tourism Strategy.

The implementation of the above mentioned strategies will include improved tourism sector research, information and knowledge management in order to increase tourism’s contribution to GDP growth and job creation.  This will be done through the provision of adequate Tourism Sector Knowledge and Information Services; implementation of the National Visitors Information Centres (NVIF); ensuring that National Visitors Information Gateways (NTIGs) are operational; and implementation of a standardised research framework for the tourism sector.

Responsible Tourism is given special attention in the revised Strategic Plan with the planned roll-out of tourism incentives to encourage development and implementation of the toolkit for Certification Agencies and tourism businesses.  Attention is given to the implementation of the National Minimum Standards for Responsible Tourism (NMSRT) as the industry’s response to Climate Change.

The Department established a new International Tourism Branch. The previous Strategic Plan focused on developing profiles for different countries to streamline marketing endeavours and increase the number of foreign tourist arrivals.  The revised Strategic Plan focuses on the introduction of strategic interventions for selected tourism markets; activation of South African missions abroad for utilization in marketing activities; facilitation of implementation of international agreements and participation in multilateral forums.

With regard to Domestic Tourism, there is a focus towards implementing aspects of various tourism strategies that were developed in the previous financial years.  The Department will continue to support community projects through Expanded Public Works Social Responsibility Initiative Programme (SRI). However, the Department has not indicated how they will improve the implementation method for these projects that have proved to be very problematic in the past.  The Department should establish a new implementation model for the EPWP projects. Skills Training and service excellence programmes have also been enhanced with some SRI projects focussed on skills training as opposed to infrastructure projects.  Collaboration with CATHSSETA and UMALUSI on tourism curriculum is also one of the positive initiatives in addressing skills in the sector.  This coupled with training of municipal officials will, in a long term, ensure proper skills base for both public and private sector.

2.4                 Overview of key developments in the organisational and service delivery environments of Department for 2012/13 and 2013/14 MTEF cycle.

The Department received the Tourism Incentive Scheme from the Department of Trade and Industry in the 2012/13 and is developing an implementation plan for the Scheme in 2013/ 14.  The major change will be in 2014/ 15 when the scheme will be implemented.  The effect of this long planning cycle is that in the period under review there has been no targeted assistance given the emerging tourism enterprises through the scheme.

The Department commissioned research with five universities in the country and they yielded invaluable insights into various aspects of the tourism sector. There is also an improved impetus with regard to enhancing skills development in the sector and enhancing Service Excellence amongst service providers.

3 Summary of previous year key financial and performance recommendations of Committee

3.1 2012/13 BRRR recommendations

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

In the 2012/13 Budget Review and Recommendations Report, the Committee recommended amongst other things that the budget for the Department of Tourism be increased to:

•          Open Tourism offices and marketing hubs in African markets to have marketing presence and conduct activations in these emerging markets, as marketing intelligence indicates an increasing demand for short haul instead of long haul travel.

•          Create optimal level of advertising that would in turn ensure greater generation of jobs.

•          Implement strategies that will enhance development of domestic tourism.

•          Facilitate implementation of strategies and programmes that have been developed to achieve the objectives of the National tourism sector Strategy.

•          Create more Full Time Equivalent jobs from the Expanded Public Works Programme, especially in rural areas.

•          Assist the SMMEs in funding their businesses for start-up capital, staff training, and extension of existing tourism establishments.

3.1.2             Evaluation of response by Department and Minister of Finance

The National Treasury responded by saying the recommendations of the Committee were supported.  Marketing South Africa to African countries is an important diversification strategy, especially during the economic downturn in the Eurozone.  The Department of Trade and Industry has agreed to transfer the tourism investment incentive to the Department of Tourism; the programme supports SMMEs and the upgrading of existing tourism establishments.

The response by Treasury is not adequate to enable the Department to fulfil its mandate and address all the needs of the sector. The Tourism Incentive Scheme that was transferred from the Department of Trade and Industry had already been available in the sector for a number of years but did not make remarkable impact, especially to the SMMEs.  The only change is that the fund will now be administered by the Department of Tourism.

There is therefore a need for National Treasury to look closely at the mandate of the Department of Tourism and the contribution this sector is making to the economy .  Treasury must acknowledge the capacity of this sector to contribute to job creation, GDP and balance of payments of the country, thus improving livelihoods of South Africans.  Tourism, for example, is already outperforming critical economic sectors in the country such as mining and automotives sectors and this warrants more resources to unleash the full potential of the tourism.  It is therefore recommended that Treasury revises the baseline budget for tourism in the MTEF and subsequent financial periods to ensure that tourism performs at its full capacity.

3.2 2013/14 Committee Budget Report

Noting the role the Department plays in contributing to job creation and GDP towards meeting the 2020 targets as propounded in the National Tourism Sector Strategy, the Committee recommends that the baseline budget for the Department needs to be reviewed in the MTEF and subsequent financial years to allow the Department to carry its mandate effectively.

4. Overview and assessment of financial performance

The following  section provides an overview and assessment of reported financial performance for 2012/13 and 2013/14; as well as projected financial needs or areas needing improvement in terms of spending for the 2014/15 MTEF.

4.1 Overview of Vote allocation and spending (2009/10 2014/15)

Table 1 below indicates budget allocation for Tourism Vote 35 from a period spanning 2009 to 2015.  The table shows that there has been a steady increase in budget allocation for Tourism over the years.  However, this allocation should be viewed in the light of service delivery realities and mandate of the Department of Tourism. Table 1: Budget Vote allocation for the period 2009/10 -  2014/15
Programme	2009/10	2010/11	2011/12	2012/13			2013/14	2014/15
	Outcomes	Outcomes	Outcomes	Main	Adjusted	Outcomes	Estimates	Estimates
Prog 1: Administration	80.2	155.8	195.1	179.224	191.936	179.224	205.7	221.4
Prog 2: Policy and Knowledge Services	714.5	644.2	694.0	794.024	793.395	794.024	875.5	924.4
Prog 3: International Tourism	10.7	26.4 22.1	22.1	28.792	41.830	27.133	49.6	52.3
Prog 4: Domestic Tourism	340.2	317.1	339.1	372.103	346.982	371.578	369.8	496.0
Total	1 145.6	1 143.5	1 250.2	1 374.359	1 374.143	1 371.959

The expenditure pattern by the Department indicates that the Department has been able to spend its entire budget over the years. This demonstrates a financial discipline by the Department and capacity for service delivery.   Table 2 below indicates that in the year under review, the Department was able to spend 99.84% of its allocated budget.

Table 2: Percentage of spending by programme 2012/13

Programme	Total Appropriation	Virements	Total Expenditure	Expenditure %
	R’000	R’000	R’000	R’000
Prog 1: Administration	179.224	12.712	179.224	100
Prog 2: Policy and Knowledge Services	794.024	629	794.024	100
Prog 3: International Tourism	28.792	13.038	27.133	94.2
Prog 4: Domestic Tourism	372.103	25.121	371.578	99.9
TOTAL	1 374.359	51.500	1 371.959	99.84

4.2 Financial performance 2012/13

This section of the report provides a broad picture of spending patterns and challenges for 2012/13. It looks at adjustments, virements, cashflows, over/under-spending, rollovers and savings, and assess the impact.

4.2.1       Quarterly spending trends

The quarterly spending trends for the Department in 2012/13 financial year were as provided in table 3 below:

Table 3: Quarterly spending 2012/13

R million

2010/11

2011/12

2012/13

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Q1

Q2

Q3

Q4

Approved Expenditure

R423

R804

R979

R1184

R307

R597

R951

R1265

R325

R766

R1124

R1374

Actual Expenditure

R404

R696

R856

R1143

R258

R557

R935

R1250

306

R728

1102

R1374

Variance

R27

R108

R124

R40

R50

R39

R16

R15

R19

R39

23

R2

% Variance

6.3%

13.5%

12.7%

3.4%

16.2%

6.6%

1.7%

1.2%

5.9%

5.1%

2.0%

0.2%

The quarterly spending patterns for 2012/13 indicate that there was a variation of 5.9 percent in the first quarter and 5.1 percent in the second quarter.  There was a remarkable improvement on spending in the third quarter with only a variance of 2.0 percent recorded.  In the fourth and the last quarter of the period under review the Department’s expenditure pattern had completely recovered and only 0.2 percent variance in spending was recorded.

4.2.2       Adjustments for 2012/13.

Table 4 below indicates all the adjustments that were effected in 2013/14 per Programme with percentages.

Table 4: Budget adjustments

Programme	Main Appropriation	Adjustment Estimates	Budget after shifts approved by National Treasury	Virements	Final Budget (Adjustment estimate plus/ minus virement)	Actual Amount spent	Over/ under expenditure	% Spent	Virement as a % of budget
	R’000	R’000	R’000	R’000	R’000	R’000	R’000	%	%
Administration	195,043	191,936	181,936	12,712	179,224	179,224	-	100%	-1.4%
Policy and Knowledge Services	787,994	793,395	793,395	629	794,024	794,024	-	100%	0%
International Tourism	46,834	41,830	31,830	13,038	28,792	27,133	1,659	94.2%	-6.5%
Domestic Tourism	337,450	436,982	366,982	25,121	372,103	371,578	525	99.9%	1.5%
Total	1,367,321	1,374,143	1,374,143	-	1,374,143	1,371,959	2,184	99.4%

4.2.3       Auditor General Report

The Department obtained an unqualified audit for the 2012/13 financial year whilst South African Tourism also received an unqualified and no matter of emphasis report for the 12th consecutive year.  The only major finding of the Auditor-General is in regard to material misstatements of disclosure notes.  This amounted to non-compliance with section 40(1) of the Public Finance Management Act. The misstatements were in regard to asset management.  The information in the asset register did not match information provided in the disclosure notes. However the Department was able to avoid a qualification due to the correction of material statements during the audit process.  The Auditor-General suggested the following remedial actions:

•          Review of financial statements against applicable reporting frameworks needs to be enhanced to ensure that there are no material adjustments made to financial statements.

•          Management should perform monthly reconciliation between the asset register (s) and the amount reflected in the financial system and the supporting documentation need to be reviewed for correctness.

•          Implement and monitor action plans to address all internal and external audit findings.

•          Monitor adherence to the controls in respect of fixed assets.

The Committee noted that some of the findings from the oversight visits were not reflected in the Auditor-General findings as they were not part of the criteria used for assessment. These relate amongst others, to forensic and criminal investigations that are in progress relating to Expanded Public Works Programme projects involving Project Implementers   The Auditor-General recommended that the Department should enhance performance and consequence management for both services providers and staff.

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

The Department incurred R97 000.00 fruitless and wasteful expenditure.  This was incurred due to late cancellation and no shows with regard to travel bookings.  The Department is investigating these issues to determine liability.   The Department also incurred under spending of R2.075 million in the period under review.  Underspending occurred due to the following reasons:

(i)    Compensation of Employees – Underspending on compensation of employees related to the vacancy rate as well as on goods and services (Heritage DVD Project not completed).

(ii)   Transfers and subsidies –  Underspending under transfers and subsidies were  due to the following:

•                Memorandum of understanding (MoU) with Tourism Business Council was cancelled.

•                No inflation increase to the payment of The Federated Hospitality Association of South Africa (Fedhasa).

The underspending incurred by the Department was within 2 percent of the total appropriation and was therefore condoned. However, the Department needs to ensure that it spends on all goods and services budgeted for in a particular financial year.  Feasibility of implementation and proper assessment of all the Memoranda of Understanding (MoUs) entered into between the Department and other institutions must be carefully examined before they are signed to ensure that there are no delays or cancellation during the financial year that may affect expenditure of appropriated budget.

4.2.5          Summary of key financial issues contained in any other relevant report(s) for 2012/13

The Financial and Fiscal Commission raised the following issues in regard to increasing funding for tourism:

(i)        Domestic expenditure on tourism shows fastest growth of 5.7 percent per annum. The global recession led to renewed focus on domestic tourism to cushion impact on local tourism industry. This is an area that NDT should further prioritize over the MTEF.

(ii)       Infrastructure investment in tourism has fallen over the five years largely from a slowdown in the local economy, although in 2012 significant improvement as the economy started picking up.  Significant future investments are required to continue growing the sector.

4.3 Financial performance 2013/14

4.3.1Quarterly spending trends

The quarterly spending trends for the Department in the first and second term of the current 2013/14 per programme are as follows:

Programme 1: Administration – at the end of the first quarter of 2013, this programme had spent R41.2 million which is 20 per cent of the allocated budget. The majority of the budget was spent on compensation of employees for improved conditions of service and on goods and services.

Programme 2: Policy and Knowledge Services – at the end of the first quarter of 2013, this programme had spent R8.6 million which is 20.3 per cent of the allocated budget. The bulk of the budget was spent on compensation of employees for improved conditions of service. The Department did not make any transfers towards higher education institution resulting in 0 percent spending for that transfer.

Programme 3: International Tourism – at the end of the first quarter of 2013, this programme had spent R7.6 million that is 17.3 per cent of the allocated budget. The majority of the budget was spent on compensation of employees for improved conditions of service. A further R1.8 million was recorded as a transfer to the United Nations World Tourism Organisation (UNWTO) for membership fees. This represents 33.3 per cent of the budget for foreign governments and international organisations.

Programme 4: Domestic Tourism – at the end of the first quarter of 2013, this programme had spent R14.7 million that is 19.7 per cent of the allocated budget. The majority of the budget was spent on compensation of employees for improved conditions of service. This programme also received transfers amounting to R70.4 million which translates to 26.7 per cent of the total allocation for the EPWP programme by the end of the first quarter.

The spending pattern for the first and second quarter of 2013/14 does not show much deviation from the expenditure pattern in 2012/13.

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

No financial issues were picked up from other reports as SCOPA did not raise any issues with regard to spending by the Department.  However, there are some financial issues that were discovered by the Committee on oversight visits with regard to EPWP projects in regard to financial controls.

4.5           2014/15 MTEF financial allocations

4.5.1       Summary of funding submissions to National Treasury for the 2014/15 MTEF.

The National Treasury should increase the budget for the Department allow the Department to fulfil its mandate. In addition, the National Treasury should assist South African Tourism with minimising foreign currency exposure on costs incurred on marketing activities abroad in 2014/15 and outer years.

4.5.2             Concluding comments on financial performance

The Department and South African Tourism show good financial health in the period under review. Allocated funds were used appropriately; negligible underspending was incurred and condoned. However, the Department incurred a total of R14,5 million on contingent liabilities and all precautionary measures should be taken in future to avoid litigation against the Department.

5 Overview and assessment of service delivery performance

5.1    Service delivery performance for 2012/13

This section provided information on the performance of the Department against pre-determined objectives.

5.1.1                Annual Performance Plan: Total number of targets for 2012/13 and total number achieved.

The Department had 92 targets. Table 5 indicates the spread of targets per programme and achievement thereof.  Of the 92 targets, 89 were achieved and only 3 were not achieved.   Programme 2 had most targets in the Department and they were excellently achieved.  Of the 3 targets that were not achieved, a substantial amount of work had been done towards attaining them. This leaves the Department with only 1 target that was not achieved.  The Committee is generally satisfied with achieved of targets as this indicates that the Department takes service delivery seriously and makes all efforts to perform according to set targets.

Table 5:  Targets achieved

Programme	Number of Annual Targets	Achieved	Not Achieved But Significant Work Done	Not Achieved
Administration	23	21	1	1
Policy and Knowledge Management Services	46	45	1	0
International Tourism Management	6	6	0	0
Domestic Tourism Management	17	17	0	0
TOTAL	92	89	2	1

5.1.2          Programme Performance

Performance of the Department in 2012/13 per each of the four programmes is given below:

(i)             Programme 1: Administration

Administration Programme had a total of 23 targets and 21 were achieved with only two that were not achieved.  This programme’s performance was notable and commendable as it contributed significantly to the audit findings concerning the useful and reliable information submitted for audit purposes. However, it is also worrying that the Department failed to reduce vacancy rate to 5 per cent, instead ended up with an 11.17 percent vacancy rate, which is 1.75 per cent higher than the 2011/12 vacancy rate. This shortcoming can pose a serious challenge for the Department in meeting the pre-determined objectives if it is allowed to continue. Other achievements and challenges of the Department include:

•          103 per cent implementation of the Workplace Skills Plan;

•          Meeting the targets in as far as representation of designated groups are concerned;

•          Meeting targets in as far as reaching out to stakeholders, corporate legal support, and economic efficient and use of resources, and effective internal audit services are concern.

(ii)                       Programme 2: Policy and knowledge services

Programme 2 had 46 targets and a remarkable achievement of 45 targets was recorded, with only 1 target not achieved.  This programme performed well and managed to develop the annual progress report of the NTSS and also submitted the budget structure to National Treasury. In the Annual Performance Plan (APP), the Department planned to produce a draft report on the implementation of the budget structure by provinces, however, that was not reported on. Further achievements for the programme are as follows:

•          Development of two reports for the implementation of the Department of Home Affairs (DHA)  Memorandum of Understanding (MOU);

•          Development of reports on the annual tourism state of airlift, the implementation of the NDT stakeholder engagement framework, the implementation of the National Visitors Information Framework (NVIF), the extent of empowerment from PPPs concessions and assets disposal and the implementation of knowledge management Framework;

•          Development of a municipal tourism training programme and self assessment tool;

•          Development of a tourist arrivals forecasting model;

•          Integration of tourist guiding module into law enforcement agencies’ training programmes;

•          Signed MOU on rules of engagement between NDT and Field Guides Association of Southern Africa (FGASA);

•          Completion of six commissioned studies;

•          Tourism charter equipped with a functional secretariat; and

•          The development of electronic stakeholder database.

(iii)                       Programme 3: International Tourism

Programme 3 had 6 targets in the period under review.  The programme delivered 100 per cent of the predetermined objectives and even surpassing the target on three of the seven indicators.

(iv)          Programme 4: Domestic Tourism

Programme 4 had 17 targets and was able to achieve 100 percent performance.  This programme also performed well, however it had noticeable virements amounting to R35 million into the Social Responsibility Programme. The virements allowed the Department to surpass their targets of fulltime equivalent jobs created projects funded. Of big concern though, are the reasons provided for the variance between targets and actual performance, the Department states that this achievement was due to projects under-planning and moving quicker into implementation as well as the allocation of the EPWP incentive funding from Treasury. Other achievements of the programme include:

•          Completion of the nine provincial profiles;

•          Development of two regional packages;

•          Initiation of the domestic tourism campaign;

•          Hosting of the National Tourism Careers Expo;

•          Facilitation of six annual tourism leadership dialogues; and

•          Report on curriculum analysis.

5.1.2                Key reported achievements.

The Department was able to table the Tourism Bill in Parliament which is currently being considered by the National Council of Provinces after having been processed by the Portfolio Committee on Tourism.

(i)             Increased arrivals

In line with government outcome 11, which is to create a better and safer South Africa and world for all, there was an increase in the percentage of arrivals to the country.  The 2012 Tourism figures announced by President Jacob Zuma  on the 25th April 2013 indicate that the Department and South African Tourism were able to achieve 9 188 368 international arrivals compared to 8 339 354 in 2011, which was 10.2 percent increase against the international average of 4 percent.

South Africa saw particularly good overseas tourist growth (tourists from outside of the African continent), which grew by 15.1 percent, one of the highest growth rates in the world last year.  Europe remained the highest source of overseas tourists to South Africa, growing by 9.5 percent on 2011 figures and attracting a total of 1 396 978 tourists to the country last year,  more than half the total number of overseas tourists.

The United Kingdom continues to be South Africa’s biggest overseas tourism market, with 438 023 UK tourists travelling to South Africa in 2012 (4.2 percent up on 2011 figures). The United States is South Africa’s second biggest overseas tourism market, with 326 643 tourists from the USA visiting in 2012 (up 13.6 percent on 2011 figures), with Germany the third biggest overseas market with 266 333 tourists (up 13 percent on 2011 figures). China has become South Africa’s fourth biggest overseas tourism market, 132 334 (up 55.9 percent on 2011 figures), with France now South Africa’s fifth biggest overseas tourism market with 122 244 tourists in 2012 (up 16 percent on 2011 figures).

The Chinese market in particular, needs a special attention.  This market has a potential to grow and South African Tourism should increase their marking presence in China.  A Chinese tourist is particular with their tour packages, including travelling arrangements and cuisine. South African tourism industry should cater for tastes and preferences for this market.  Market intelligence indicates that, for example, the Chinese want exclusive golf experience, they are particular about the equipment they use for golf and so they bring their own equipment; in a five day itinerary at two days must have Chinese cuisine; they want a branded clothing shopping experience and are very sensitive with time and therefore delays should be avoided.  The Department and South African Tourism should therefore conduct intensive research to understand this market and prepare the tourism industry accordingly.

(ii)            Skills Development

In the previous financial year the Department in partnership with Culture, Arts, Tourism, Hospitality & Sports Sector Education and Training Authority (CATHSSETA) conducted a skills audit in the tourism sector. A number of critical skills were identified in the sector, including a shortage of trained professional chefs. In line with the government priority of improving education and skills development in the country, the Department implemented a National Young Chefs Training Programme whereby 133 learners were placed with the SACA Hotel Schools and 33 continued with their Diploma.  In addition, the Department was able to train 3 267 enterprises on skills development, tourism awareness, customer service, toolkits and business skills.

(iii)           Assistance to SMMEs

The Department has realised that the growth of the tourism industry relies on having a robust and thriving small business tourism sector.  The small business enterprises are the ones with a potential of creating more job opportunities in the sector. In 2012/13 financial year, the Department identified and assisted a number of Small-Medium and Micro Enterprises (SMMEs) which included 1 664 rural enterprises and 4 145 members from designated groups.  The support included 104 SMMEs who were enrolled in mentorships which are meant to increase efficiency and capacity of these enterprises to deliver quality tourist experience.  The intention is for SMMEs to grow and eventually become large tourism enterprises. A total of 852 businesses were supported with market access.

(iv)          Job creation

In performing its mandate, the Department was sensitive to the triple challenge of unemployment, poverty and inequalities. In addressing the challenge of unemployment, the Department was able to create over 5 003 full time equivalent jobs through the Social Responsibility Implementation programme.

The Department also hosted a National Tourism Careers Expo whereby over 7 300 learners participated and a total of 361 curriculum vitae from unemployed graduates were received from the recruitment corner.  This initiative addressed both skills development and job creation.

(v)           Rural Development and inclusive growth

Tourism in South Africa has always been concentrated in big cities and along the coastal areas.  The Department has supported a number of rural communities through the Social Responsibility Implementation Initiative whereby Community-Based-Tourism projects have been implemented.  These projects, in most cases, are owned by Traditional Councils and operated by Community Trusts.  Beneficiaries of these projects are local communities who derive benefits through temporary employment during construction and permanent employment during the operation phase of the projects.

Two regional support packages were developed whereby rural development was prioritised.  Seventy (70) EPWP projects were implemented in the period under review and a bulk of them are in rural areas.  A total of 1 664 rural enterprises were supported.

(vi)          Reducing crime and corruption

The Department discovered some irregular practices in through its reporting system for the Expanded Public Works Programme whereby some Project Implementers were defrauding the Department and had reported incorrect financial statements. In line with the government priority of reducing crime and corruption in the country, the Department immediately suspended all the projects and funding for phase 2 was put on hold. A forensic investigation instituted by the Department has led to some matters being referred to court and some Project Implementers will be prosecuted.

(v)           Payment of service providers

In line with the sentiments raised by the President in the State of the Nation Address, the Department was able pay its service providers within a 30-day time period.

5.1.4     Key reported challenges.

The Department reported the following challenges in the period under review:

(i)             Vacancy rate

The Department had a vacancy rate of 11.17 percent.  This performance was against a revised target of 10 percent that was initially set at 5 percent. The Department reported a challenge of the delays in appointing suitable candidates for advertised posts.  There is a tendency amongst government officials to ask for counter offers from their current employers when they are offered positions by the Department.  Candidates then decline appointment by the Department when they have been given a counter offer by the current employers.  In line with the government priority of job creation, the Department should engage other departments in order to find a solution to this transversal government challenge.  The Department also may develop an attractive retention strategy to keep experienced staff.

(ii)            Fraud in Expanded Public Works Programme projects

The Department continued to experience challenges with the infrastructural Expanded Public Works Programme (EPWP). Some Project Implementing Agents had committed criminal offenses that affected completion of projects. Once the criminal activities were detected, the Department was proactive in arresting the situation. A number of projects throughout the country were put on hold and second phase funding halted.  In line with the government priority of fighting crime and corruption, the Department instituted forensic investigations against suspected Project Implementing Agents.  Forensic auditing was instituted for all projects after discovering fraudulent reporting of financial statements by some Project Implementers. In some instances, criminal charges were laid against some project implementers.  Advance payments to Project Implementers before reaching some project milestones was also one of the challenges in controlling expenditure on these projects as Expanded Public Works Programme and Treasury condoned this practice.

(iii)           Foreign Currency Exposure

South African Tourism (SAT) continued to experience currency loss due to foreign currency exposure based on their marketing activities abroad. The challenge is that SAT could not embark on financial hedging and a permanent solution is needed. In terms of the Public Finance Management Act and Treasury Regulations, cost incurred on marketing is not covered as only Human Resources costs are considered.  There is an increase in the interest shown by emerging markets to South Africa. Some of these markets warrant an increased marketing presence by South Africa.  In other African markets a hobbling strategy has been adopted by South African Tourism but as these markets grow more individualised marketing campaigns will become necessary.  This means that South African Tourism will experience more foreign currency exposure in the future.  The National Treasury therefore should intervene in reducing the effects of this exposure to South African Tourism.

5.1.5       Non-financial Audit outcomes and steps taken to address adverse audit findings, if any.

The Auditor-General had findings on misstatements in regard to asset management. Information in the asset register did not match information provided.  The statements submitted for auditing were not supported by full and proper records and this constituted an audit finding. The Department updated the asset register during the audit period and was able to avoid a qualification.  The auditor-General indicated that if this finding had not been rectified on time, this would have caused the Department to get a qualified audit report.

5.2 Other service delivery performance findings

This section contains service delivery findings for both 2012/13 and 2013/14 based on oversight visits and research from external stakeholders.

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

The Portfolio Committee undertook three oversight visits in the period under review. Oversight visit were undertaken to Mpumalanga and Eastern Cape provinces in 2012. Two other provinces, namely, Free State and KwaZulu Natal were visited in 2013.  A Tourism Summit was also convened in 2013 to establish the state of tourism in South Africa. The Committee was concerned by the following service delivery issues that need to be addressed:

• Extended Public Works Programme: The major concern expressed by the Committee on service delivery was on the Social Responsibility Implementation programme (SRI) which is a departmental Expended Public Works Programme initiative.  The Committee noted lack of project management skills and controls in implementing these projects. There was poor workmanship and no value for money. Project beneficiaries on the ground also raised issues about project implementers who are not from their provinces and who do not implement projects accordingly.

However, the Committee noted that the SRI projects are governed by criteria set by the Department of Public Works and the National Treasury. Some of these criteria are not particularly suitable for the tourism industry and should to be reviewed to serve the industry better.

• Small, Medium and Micro Enterprises (SMMEs) : SMMEs are still struggling and not part of the mainstream tourism economy. Spheres of government should work towards strengthening competitiveness and promotion of SMMEs and tourism cooperatives.  Some municipalities in particular do not recognise tourism as a local economic development sector as they do not have Local Economic Development/ Tourism Officers. Municipalities should appoint staff that deal with tourism to assist SMMES to access the sector.

• Market Access – despite tourism having low barriers to entry, there are few entrepreneurs getting into the sector and there is a challenge with accessing potential market.  The Department should facilitate market access and entry into the value chain by small businesses and cooperatives and reduce regulatory burden on small businesses

• Local Government: the local sphere of government is an important contributor to the success of tourism activities in terms of community driven tourism philosophy. Municipalities control municipal rates, by-laws, and electricity prices which affect SMMEs and the industry at large. Municipalities should provide an enabling environment for tourism to thrive at a local level and should be guardians of individual interest over community benefits. Some municipalities however, do not have tourism directorates to assist in aligning tourism to other municipal activities for the benefit of the industry.

• Job creation at local level: tourism is a demand-driven sector and there is a need to conduct studies on how the volume and value of demand inform investment in supply and job creation. A jobs model developed by the department should be implemented to ascertain how many jobs are created by the sector.  Niche products and tourism routes should be developed at local level to enhance opportunities for job creation within communities.

• Public-Private Partnerships (PPP’s) : the Department should work closely with national Treasury to implement the PPP Toolkit for Tourism. The Social Tourism project of auditing all underutilised public assets for tourism development was seen as a good collaboration.  The Independent Development Corporation could assist in developing potential sites into low cost tourism accommodation.

• Road Signage and infrastructur e : poor road signage and infrastructure impact negatively on access to tourism products, especially in rural areas. The poor condition of some roads, such as R74 that runs between the Free State and KwaZulu-Natal provinces, has caused some tourism businesses to close down. Tour operators have taken destinations affected by poor road conditions out of their itineraries. This in turn has caused loss of permanent job opportunities to local communities. Collaboration between the Department of Tourism and the Department of Transport needed to be intensified.

• Tourism information: the public is not fully aware about the programmes of the Department therefore public education, awareness and information dissemination should be linked to outreach initiatives. It was observed that there is slow movement in transformation and there should be greater support in implementing the Tourism Sector Codes and Tourism B-BBEE Scorecard. Innovation is needed from the Department to expedite transformation.

• Skills Development : while the committee acknowledges the initiatives taken by the department to engage five universities in the country to develop skills and capacity in the industry, there is also a need to support FET colleges and Sector Education and Training Authorities to be linked to business, industry and other advanced education and training programmes.

• Air Lift: travel by air to some destinations in the country is too expensive. Other destinations in the country have poor air connectivity or no connectivity at all. The Yamoussoukro Decision is also not fully implemented and affects regional connectivity. There is a need for national government to assist in increasing number of flights and reduce cost of flights.  This should apply to both local and regional air travel.

• Implementation of infrastructure development : parliament should prioritise overseeing the implementation of infrastructure development aligned to rural communities and also ascertain support facilities in rural areas for tourism sector, particularly road and air connectivity.

5.2.2       Relevant external research assessing performance of the Department.

There needs to be a close link between what the Department does and the response of the private sector in growing the industry in South Africa.  The Tourism Business Council of South Africa (TBCSA) perspective on the performance of the industry therefore is crucial in that regard.  TBCSA uses the Tourism Business Index (TBI) as a tool of measuring industry performance. The survey elicits information on trends, current performance, and expectations of market players as to future performance. The methodology conforms to the international OECD (Organisation for Economic Development and Cooperation) and the survey is administered by an e-mail link to an online survey which is carried out on a quarterly basis.  The TBI methodology is based on a business survey sent to CEO’s or senior tourism business executives.

In their Annual Report for 2012, the TBCSA confirmed that overall, 2012 was a far better year for tourism businesses in South Africa compared to 2011. In this period, tourism business performance peaked in the last quarter to 104.6, the earliest indications yet that the industry was recovering from the previous quarters’ performance lows having achieved 101,9 in the first quarter, 88.2 in the second quarter and 101.6 in the third quarter.   On the back of improved performance in the last quarter of 2011, the industry went into the new year with cautious optimism. This was evident with the index surpassing normal performance levels slightly to reach a TBI score of 101.9; a significant development when compared against a score of 79.6 in the same period in 2011. However, this soon changed in the second quarter of the year, when performance dipped to an index of 88.2, only to recover in the last two quarters of the year.

The TBI is fairly optimistic about the prospects for 2013. In this specific edition, respondents were asked additional questions to assist in establishing the industry’s outlook for the year ahead. Respondents were asked to indicate their expected employment levels, capacity growth, which markets they believe had the most potential for growth in 2013 and the biggest constraints they have identified to doing business in 2013.

On balance, the accommodation respondents to the survey expect a fairly similar overall annual performance at a -0,6 percent, however, this balance statistic has been improving steadily every quarter from a low of -70,3 in Q3 2011. Other Tourism Businesses are on balance +37,6 percent positive about the outlook for the year, which is significantly higher than in Q4 2012 and the highest ever positive outlook recorded. A large number (41,5 percent) of the respondents believe that their businesses will perform better than normal in the next year.

Notwithstanding positive gains in 2012, the industry has cited the following as specific constraints to doing business in 2013:

•          The accommodation and other Tourism Business respondents, cited as major threats to business in 2013, the global economic recession, the political uncertainty and labour/community unrest in South Africa and the negative perceptions this has created, profiling South Africa as an unsafe destination to foreign visitors.

•          Rising operational costs, especially municipal rates, fuel and electricity prices.

•          The Accommodation Sector identified price wars within the sector as a major threat to the industry, with many operators undercutting rates. Competition from European destinations with accommodation operators offering top standard accommodation at very low rates was mentioned by some of the respondents.

•          Lack of direct air access of international flights to Cape Town was highlighted by many respondents as a challenge for 2013.

•          The other Tourism Businesses, especially the operators in the transport industry, believe e-tolls to be a major constraint to business in 2013, increasing operational costs and decreasing the disposable income of their customers.

•          Other constraints and threats mentioned by more than one respondent include a lack of destination marketing by South African Tourism and other Destination Management Organisations (DMOs), a lack of municipal service delivery, labour strikes, increase in competitive establishments and businesses, the corporate and business travel market reducing their spend on travel, reduced disposable income for the domestic market, exchange rates, slow debt repayment by customers and bad weather conditions.

•          Exposure to the growing Asian and African markets and lack of Destination Marketing Organisations.

•          Maintaining market share as online travel portals make it easy for tourists to book direct, thus cutting out the need for a tour operator or travel agent.

•          Long haul destination making access to South Africa expensive and difficult.

These issues therefore need attention of both the Department of Tourism and South African Tourism. Some of the issues raised by the private sector were also raised by stakeholders during public hearings. These issues are very important for the sector and should be taken seriously. The Committee recommends that the Department investigates issues raised by the private sector and consider them their marketing campaigns.  It must be acknowledged that the private sector is the one in the forefront of providing a tourist experience in the country and their perspective is based on practical industry experience.  . A comprehensive approach in addressing these issues will however need coordination of all stakeholders, public and private sector, and all spheres of government.  This also means tourism need more budget to address some of the pertinent issues.

5.3        Concluding comments on service delivery performance

Judging by the increase in the number of arrivals in South Africa, both the Department and South African Tourism performed fairly well.  However, the Committee is concerned about a trend of continuous decline in domestic tourism. The Committee acknowledges that tourism is a sector that depends on a number of other government departments and that the national Department of Tourism alone cannot provide holistic service delivery. A more coordinated approach to tourism development in the country is needed amongst all the stakeholders.

Despite the Committee being generally satisfied with service delivery to communities, a number of service delivery issues emanating from poor coordination of resources amongst the three spheres of government were observed.  The Department should use all intergovernmental forums to create synergy amongst all spheres of government and the private sector.

6. Finance and Service delivery performance assessment

This section assesses the service delivery performance against spending patterns for 2012/13 and 2013/14 including efficiency, effectiveness and value for money.

Generally, all the service delivery performance of the Department and South African Tourism show effectiveness, efficiency and value for money. The area where there is no value for money is Expanded Public Works Programme.  Most of the projects were incomplete but the entire budget had been spent.  In some cases there is poor workmanship on the structures constructed whereby structures had to be dismantled and new ones constructed to meet required standards.  In other instances, cases of fraud had been reported and forensic investigations are in progress.  The Committee supports the Department in its endeavours of conducting forensic audits and opening court cases to reduce crime and corruption.

7. KEY FINDINGS

7.1 Technical issues

Section 40 (1) (e) of the Public Finance management Act of 1999 stipulates that the accounting officer for a department, trading entity or constitutional institution must, in the case of a constitutional institution, submit to Parliament that institution’s annual report and financial statements, and the Auditor- General’s report on those statements, within one month after the accounting officer received the Auditor-General’s audit report.  The Department and South African Tourism tabled their Annual Reports on time and met the technical requirements of submission to Parliament. The Committee notes with appreciation that the Department and South African Tourism have always met this technical requirement over the years.  This gave the Committee ample time to study the documents in preparation for the BRRR.

However, there is a challenge with regard to quarterly reporting.  The Committee made a concession with the Department that the Department will be allowed to present quarterly reports bi-annually instead of quarterly.  However, the Department did not honour that concession as no reports were presented to the Committee for the whole financial year under review. This meant that the Committee only received service delivery and performance information when the Department tabled Annual Reports. Non-reporting by the Department at regular intervals undermined the capacity of the Committee to detect emerging service delivery and performance issues as they occurred.  This posed a challenge during the compilation of this report as no quarterly information was available from the Department. The Department should revert to the quarterly reporting intervals so that all the relevant service delivery information could be available on time.

The Committee notes the improvements made by the Department and South African Tourism in leadership, supply chain management and governance from the 2011/12 audit report Improvements.  The Committee urges the Department and South African Tourism to keep improving and maintain the clean audit they received in the period under review.

The quarterly information for 2012/13 and the first and second quarter for 2013/14 financial years were requested from the National Treasury in preparation for this report.

7.2        Governance and operational issues

This section deals with general governance and operation concerns and Committee evaluation of how well the Department operates; such as IT, infrastructure matters human resources, disciplinary and grievance processes and audit action plans.

The Auditor-General had no findings with regard to governance issues in the Department. However, there were material issues discovered by the Committee during the oversight visits.  During oversight visits allegations were made by project beneficiaries that some companies appointed to implement Social Responsibility Implementation projects were not South African and did not have capacity to deliver on these projects.  Some of these implementing agents had disappeared without a trace. The way in which project Implementers are appointed should be reviewed to eliminate associated risks.

There is a concern with regard to the reporting system for SRI projects.  The Project Implementers report electronically but in some instances work on the ground does not reflect the reported outcomes.  This has led to Project Implementers being paid for substandard work based on milestones reported on the system as opposed to what has been actually delivered on the ground.  The Department should provide capacity building for Provincial Project Mangers on project management and close monitoring of reports before payments are affected.  Project aftercare should also be monitored post project implementation.

In regard to South African Tourism, the Committee is concerned that this Entity did not fully comply with the King Report which provides guidelines of good governance in South Africa.  The King Report stipulates that the Chairman of the Board may not be the Chairperson of the Remuneration Committee. However, SAT does not comply with this as the Chairperson is also the Chairman of the Remuneration Committee.  SAT also has the Chairperson of the Board as a Chairperson of the Audit and Risk Committee and this is against the King Report recommendations and contravenes good governance principles.

The Committee acknowledges that the Department has instituted some forensic investigations and some cases have been referred to courts with regard to Implementing Agents and staff members that were allegedly involved in fraudulent activities with regard to SRI projects.  However, there is a lack of information on the progress of these cases and how much the Department has incurred in instituting such legal matters.

7.3 Service delivery performance

The Department has set specific service delivery targets in the National Tourism Sector Strategy (NTSS) and the National Development Plan (NDP), particularly, that the tourism sector is expected to contribute 225 000 new jobs and R499 Billion to the Gross Domestic Product by 2020.  The performance of the Department and South African Tourism in the period under review indicates that the Department might not be able to reach the set targets by 2020.  The Financial and Fiscal Commission reported that the total contribution of tourism to GDP in 2012 was R309 billion (i.e. 11% of GDP) and that if it grows at current rate of 1.52 % p.a., will fall short by R150 billion of NDP target of R499 billion by 2020.  The growth rate should be increased to a higher pace to allow the Department to meet its 2020 targets.

The Department should conduct regular service delivery assessments, particularly with regard to tracking the achievement of targets set in NTSS.  The Department also needs to apply the recently developed tourism jobs calculation models to determine how far the sector has gone in developing targeted jobs figures.  The job figures need to be reported to the Committee regularly to ensure that Parliament can track achievement of the set job targets.

Despite meeting its full-time-Equivalent jobs in the period under review the department is not doing well in ensuring that sustainable jobs are created.  A major departmental programme that could have yielded more sustainable permanent jobs in the sector is the Expanded Public Works programme.  However, most of these projects throughout the country are generally not operational and creation of permanent jobs has been delayed. Non-completion of these projects has delayed inclusive tourism growth, particularly for previously disadvantaged communities and thus affects livelihood of communities.

The Committee notes with appreciation that the Department was able to comply with the 30-day period of paying service providers. This assists service providers, particularly small business, with their cash flow and to sustain their businesses.

7.4      Financial performance including funding proposals

The overall financial performance indicates that the Department was able to spend 99.84% of its appropriated budget in the year under review.  This indicates that the Department has capacity to manage and utilise funds appropriated for service delivery.  The Department is however not able to implement all its planned strategies to grow tourism in South Africa.  The industry is expected to create 225 000 new jobs and contribute R499 billion to the Gross Domestic Product of the country by 2020.  These targets are based on implementing all the strategies that have been developed to ensure value, volume and growth of tourism.  If tourism growth continues at the current rate the industry will not be able to meet the set targets.

The Department therefore requires more funding to fulfil its mandate in the following areas:

(i)     Funding for pro-poor tourism initiatives in rural areas. This is necessary for identifying, planning and development of heritage, cultural and recreational tourism attractions in previously neglected communities.

(ii)    Increased marketing presence in emerging markets in Asia and regional Africa to capture market share for South Africa.

(iii)   Increased domestic product development and marketing to facilitate travelling by South Africans and increasing contribution of the sector to the GDP.

(iv)  Cushioning South African Tourism from foreign currency exposure when they conduct their marketing activities abroad.

(v)   Initiate targeted interventions to expedite transformation within the tourism sector.

8. Recommendations

The recommendations made to Parliament, the Minister of Finance and the Department are categorised into two, namely financial and performance related matters:

8.1 Financial performance including forward funding recommendations

The Committee would like to make the following recommendations to the Minister of Finance with regard to the budget of the Department of Tourism:

8.1.1 Increase in Tourism Budget - Successful execution of the mandate of the National Department of Tourism depends on budget that allows permeation into all different aspects of the sector. These include amongst others, planning, transformation, research, development, and marketing. Marketing traditionally takes a huge budget for the department.  There is also a need for funding for tourism in rural areas to allow for identification, planning and development for attractions in previously disadvantaged communities.

It is recommended that the National Treasury reviews the baseline budget for tourism through a steady increase over the MTEF period and that the Department should quantify the amount required to allow them to effectively execute their mandate.

8.1.2 Recognition of tourism as an export sector - tourism is one of the biggest foreign income earners for the economy of South Africa. South African Tourism is exposed to foreign currency risk when conducting marketing activities abroad.  Consequently, South African Tourism incurs costs that are not covered in the allocated budget and this affects the budget for this entity.

It is recommended that National Treasury covers the costs incurred by South African Tourism due to foreign currency exposure as the Public Finance Management Act only covers personnel costs and not marketing related costs.

8.2 Performance related recommendations

The following recommendations are made to Parliament and the Department with regard to service delivery and performance of the sector:

8.2.1 Tourism statistics - South Africa enjoyed an increase of 10.2 percent in tourist arrivals in 2012. The committee notes that this performance is far above the global average of 4 percent. Nevertheless, as much as the substantial increase is applauded, more work still needs to be done to consolidate tourist data collection methodology to ensure reliable and impeccable tourist statistics in South Africa.  It is recommended that the Department, South African Tourism and Statistics South Africa:

(i)        develop mechanisms, such as a Tourism Satellite Account, to record proper tourism statistics as opposed to total arrivals in South Africa.

(ii)       facilitate the establishment of the Tourism Economic Accounts for provinces and municipalities to allow them to have destination specific statistics and quantify the value and volume for tourism at a local level. Availability of local statistics will allow municipal councils to prioritise tourism and provide adequate budget.

8.2.2 Need to strengthen marketing - there has been a growth from Africa land markets with 8.2 percent achieved in the period under review.  A good growth in tourist arrivals from African air markets was also experienced with tourist arrivals at 14.2 percent.  This growth was evident from all markets in the region and the marketing endeavours in Africa are starting to bear good results. This demands a more consolidated marketing strategy in Africa to drive more growth in numbers. More resources are therefore required to continue penetrating the African markets.  Marketing also needs to be consolidated in other emerging markets such as BRICS countries, with special attention to China which is presentation a promising growth trajectory.  Marketing presence must also be sustained in the established core markets to maintain good arrivals from these destinations.

It is recommended that South African Tourism open more offices in the African market and emerging markets in Asia to ensure more visibility in those markets and increase arrivals from the region.

8.2.3 Social Responsibility Implementation (SRI) – The Department needs to review the implementation methodology for SRI projects to ensure accountability, efficacy, effectiveness and value for money.

The following recommendations are made in relation to SRI Projects:

(i)        A turn-around strategy for all SRI projects which are not operational needs to be developed before the end of the 2013/14 financial year.

(ii)      The Department of Public Works need to look at reviewing the EPWP programme and a new implementation model needs to be developed, including revising remuneration and contract management of project implementers.

(iii)      Treasury and Department of Public Works need to look at assessing whether the EPWP programme is still serving its intended purpose and also allow criteria to be customised for specific sectors.

(iv)      SRI projects should be directed at sustainable job creation and skills development, particularly in rural areas.

8.2.4 Integrated tourism planning - South Africa still experiences challenges with regard coordinated tourism planning at a provincial and municipal level. This is happening despite the provisions of the National Tourism Sector Strategy that recommends tourism institutional arrangements at all spheres of government. More effort needs to paid to coordinated tourism planning by all spheres of government. This necessitates strong monitoring of the implementation of the National Tourism Sector Strategy by various spheres of government.

It is recommended that the Department assists provinces and municipalities in aligning tourism plans at all spheres of government.

8.2.5 Changing global tourism markets - There is a shift from established to emerging markets in tourism segmentation for South Africa with a marked increase in arrivals from the eastern countries.  The committee notes that China, for example, has moved to the fourth position as one of the core markets of the country. The committee has observed that these new markets, especially China, come with new demands on the tourism industry and South Africa has not been adequately prepared for these new demands.

It is recommended that:

(i)            South African Tourism intensifies marketing presence in the emerging

markets such as China to get more market share than our competitors.

(ii)  South African Tourism conducts market analysis of the new markets and

provides market intelligence to the private sector to ensure the tourism industry is ready to receive and service these markets.

8.2.6 Tourist Airlift - The committee notes with concern the challenges of airlift in South Africa.  The Department needs to work with other stakeholders to ensure that airlift barriers are eliminated at a national, regional and international level.  The Following recommendations are made:

8.2.6.1   International Airlift

The Committee notes the loss of airlift capacity in some of South Africa’s core markets, rising oil prices, and the unilateral approach taken by the European Union in implementation of the carbon emissions trading scheme.  However, the committee also notes the new regional airlift capacity provided by new routes that have been established in African countries. It is observed with concern that there is a continued the slow pace and resistance of some African states in ratifying the Yamoussoukro Declaration in opening African skies and having seamless airlift capability in the region.

It is recommended that:

(i)      An integrated approach should be established between the National Department of Tourism and the Department of Transport in tackling airlift issues.

(ii)     Parliament to interact with the African Union in influencing other African States to ratify the Yamoussoukro Declaration.

(iii)    Parliament engages the European Union with regard to the methodology used to implement the carbon emissions trading scheme to ensure tourists using the national carrier do not incur exorbitant airline ticket prices.

(iv)    The Department should work closely with the Department of Home Affairs to facilitate issuing of visas to potential tourists and to continue working on a univisa regime in the country.  However, this should not comprise border control and security of the country.

(v)     The Department should engage the BRICS countries in promoting the South-South air connectivity to boost tourism in the emerging markets.

8.2.6.2   Domestic Airlift

The Committee noted lack of airlift and poor servicing by airlines of some towns which are tourist destinations within the country.

It is recommended that:

(i)      The Department engages low cost airlines to service all potential tourism destinations and towns in South Africa.

(ii)     South Africa Tourism works with airlines in developing domestic tour packages to inculcate the culture of travel amongst South Africans.

(iii)     Department of Tourism works closely with the Department of Transport to incorporate tourism issues in the Airlift Strategy.

8.2.7 Domestic tourism - the committee notes with concern that the number of domestic trips taken declined by 3.8% from 26.4 million in 2011 to 25,4 million in 2012. The average number of trips taken by a South African adult remained constant at 2.1 trips however the number of travellers decreased from 13,9 million in 2011 to 12,5 million in 2012. As a result of the decrease in travellers, despite the constant number of trips taken, overall trips decreased in 2012. This calls for a more focussed domestic marketing campaign.

It is recommended that the National Department of Tourism in collaboration with provincial destination marketing organisations (DMOs) intensify domestic marketing campaigns on the ground and ensure that South Africans travel within their own country.

8.2.8 Effectiveness of the grading scheme - there has been a vast improvement with regard to acceptance and uptake of the new grading system by the private sector. However, the emerging tourism enterprises still find it expensive to undertake grading. It was also observed that the grading system has embraced by social media platform such as Trip Advisor which is a positive contribution to marketing endeavours. The exclusion of emerging tourism enterprises in the grading scheme due to unaffordable prices means the emerging enterprises are losing leverage on extended social media marketing.

It is recommended that the Grading Council develops incentives to entice more properties to enroll in the scheme and ensure that emerging tourism enterprises also benefit from the grading scheme.

8.2.9 Community-Based tourism development - participation of local communities in the tourism industry remains minimal. Community-based tourism endeavours in most communities have failed due to poor implementation models. The public-private partnership (PPP) tourism toolkit has not been fully actualized in the industry. The National Department of Tourism, municipalities, and other public entities need to enter into meaningful agreements and partnerships in activating the PPP Tourism Toolkit.  The National Treasury has indicated willingness to work with the National Department of Tourism in piloting some PPP tourism projects and the full extent of this opportunity must be explored.

It is recommended that the Department engages Protected Areas Management Authorities as custodians of some valuable tourism assets that could be utilized in the PPP projects to partner with communities in developing community-based tourism projects.

8.2.10 Transformation - the Committee observed with concern that transformation in the tourism industry is not taking place at an acceptable rate. The committee acknowledges the gains made in transformation with regard to the Tourism BEE Scorecard that has not translated into success that is visible in the sector.  However, transformation at that level has not translated into meaningful and visible transformation in the tourism industry.

It is recommended that the National Treasury increases the budget of the Department to allow them to develop innovative ways of expediting transformation of the sector.

8.2.11 Indaba as premier African consumer show - effectiveness of Indaba as a premier African tourism show remains a concern.  Issues about the value for money, price of the stands, and transactions have been raised by stakeholders in the sector.  The lack of a long term strategy for the events and the size of the venue also remain critical issues. Observations have been also made that some African countries are also developing their own tourism trade shows similar to Indaba and this is creating competition for South Africa.

It is recommended that South African Tourism develops a long term strategy for Indaba and innovative ways in growing Indaba and adapting it to the world standards and dynamic international shows of similar nature.

8.2.12 Unresolved Land Reform Claims - the prolonged land reform processes, especially around Protected Areas is affecting tourism development and depriving local communities’ meaningful participation in the mainstream tourism industry.

It is recommended that the Department develops a database of all projects affected by land reform and work closely with the Land Claims Commission to develop ways of sustaining affected tourism businesses.

8.2.13 Tourism Funds - the Tourism Incentive Scheme that was transferred from the Department of Trade and Industry to the National Department of Tourism has been on hold and this has caused some delays in assisting tourism SMMEs with their business ventures.

It is recommended that the Department expedites the process of disbursing funds to qualifying emerging tourism enterprises.

8.2.14 Leveraging on SIPS - the Committee noted that tourism does not have direct benefit from the Special Infrastructure Projects (SIPS) championed by the Presidential Infrastructure Coordination Commission (PICC) as there are no tourism specific projects included in the SIPS.

It is recommended that the Department facilitates collaborations amongst various government departments and state entities to leverage the indirect benefits from a wide array of the Special Infrastructure Projects with tourism potential.

8.2.15 Assessment of targets – the Financial and Fiscal Commission indicated the Department will fall short of meeting the 2020 targets as enshrined in the National Tourism Sector Strategy.

It is recommended that the Department works closely with the Financial Fiscal Commission on tracking the performance of the Department against the set targets and give quarterly reports to the Committee.

8.2.16 Provision of Bulk Infrastructure – the Committee noted that the lack of bulk infrastructure such as electricity, water and roads in some areas in the country stifles tourism growth.

It is recommended that the Department of Tourism engages relevant authorities responsible for providing bulk infrastructure where potential tourism projects are planned.

8.2.17 Destination Management Organisations – some destinations do not have functional Destination Management Organisations. Some have closed down whilst others are struggling.  This creates a marketing vacuum at a local level.

It is recommended that the South African Tourism works closely with destinations to facilitate establishment of functional Destination Management Organisation to align the national and local marketing plans and campaigns.

8.2.18 Alignment with the National Development Plan (NDP)

The National Development Plan (NDP) recognises tourism as one of the main drivers of country’s economy and job creation. The plan envisages the promotion of South Africa as a major tourist destination, with unique features, in order to boost tourist numbers and enable tourism to contribute to sustainable economic growth and poverty reduction.  Tourism is seen as a sector which is an important driver of growth and poverty reduction.  Tourism sector targets for 2020 are creation of 225 000 jobs and total direct and indirect contribution to GDP of R499 billion.  Attainment of these targets will ensure that South Africa occupies a space in the global arena as one of the top 20 tourism destinations.

It is recommended that all spheres of government should align their tourism activities and budgets to the National Development plan to ensure that the sector achieves the set targets.

9.         APPRECIATION

The Committee would like to thank all the internal and external stakeholders that participated in one way or another in making it possible to compile report. Special appreciation goes to the offices of the Speaker and the House Chairperson for their continued support in the work of the Committee, members of the Committee for their dedication and ensuring growth in the sector, the Minister of Tourism for his accountability to the Committee and the senior Departmental officials for always being available when the Committee wants to exercise oversight on various aspects of the work of the Department, and the office of the Auditor-General for always co-operating with the Committee.

Report to be considered.