Audit outcomes of Department & SA Tourism for 2013; South African Tourism on its Annual Report for 2012/13

Meeting report

Opening Remarks
The Chairperson was concerned about the crime that was affecting tourism in Hazyview. Media reports said that a woman had been raped and that children on a school trip had been robbed. Another incident was that two children on holiday had recently drowned at a beach in Cape Town. These and other incidents should be prevented. 

Briefing by Auditor-General’s Office
The Auditor-General’s Office briefed the Committee on the 2012/13 Audit Outcomes of the National Department of Tourism and South African Tourism. The Auditor-General’s Office was represented by Mr Thamsanqa Dibhisha, Business Executive, and Ms Mary-Anne Whitford, Senior Manager. Ms Whitford addressed four key questions:

What was the status and progress of the audit outcomes of the tourism portfolio?
For 2010/11 and 2011/12 both the National Department of Tourism (NDT) and South African Tourism (SAT) had obtained unqualified audit reports with findings. This was an improvement for SAT; the NDT remained unchanged from the two previous years. On compliance with legislation for 2012/13 SAT once again improved by having no findings, whereas the NDT had findings for 2010/11; 2011/12 and 2012/13. Regarding the quality of annual performance reports there was a net improvement from 2011/12 where both the SAT and NDT had no findings for 2012/13.

What were the areas that should be focussed on?
Risk areas to receive attention were supply chain management, human resource management, information technology controls, quality of submitted financial statements, quality of performance reports and financial health. Regarding the quality of submitted financial statements, the NDT was able to avoid a qualification due to the correction of material statements during the audit process.

What vital actions should be taken?
Improving the drivers of key controls would improve audit outcomes. From 2011/12 to 2012/13 there was an improvement across all drivers of key controls – leadership, financial and performance management and governance – for both the NDT and SAT. However, the review of financial statements against applicable reporting frameworks needed to be enhanced. Management should perform monthly reconciliations between the asset register(s) and the amount reflected in the financial system and the supporting documentation needed to be reviewed for correctness.

What was the progress on the commitments and which key role-players should take action?
Commitments required from the NDT and follow ups required from the Minister was enhanced performance and consequence management; preparation of monthly financial statements and reconciliations. There should be implementation of plans to ensure the sustainability of clean audit outcomes.

Discussion
Mr S Farrow (ANC) said that over and under expenditure by government entities was of importance to the Committee. The briefing by the Auditor-General’s Office was silent over the issue. He found it difficult to follow the briefing as information on the NDT and SA Tourism was simultaneously presented. It was difficult to distinguish which was which. The briefing was confusing. It was not a criticism as such but merely an observation. If members knew where there was under and over expenditure the Committee could better interrogate the Auditor-General’s Report. The Committee on oversight visit to provinces had identified corruption at grassroots level.

Mr Dibhisha invited members to discuss the Budget Review and Recommendation Report (BRRR) with the Auditor-General’s Office. If expenditure was material then the Auditor-General’s Office would report on it. Regarding identifying issues at a grassroots level, the Auditor-General’s Office looked at its mandate, as unfortunately it could not be everywhere. It did have interactions with the NDT on a quarterly basis. He would be happy to meet with the Committee to discuss issues picked up by members during oversight visits.

Mr F Bhengu (ANC) said that the Committee should focus on SA Tourism even though NDT was present in the meeting. The NDT would have its chance to account to the Committee the following week.

Briefing by South African Tourism (SAT)
SAT briefed the Committee on its 2012/13 Annual Report. The briefing was undertaken by Mr Thulani Nzima Chief Executive Officer, SAT, who was accompanied by a delegation comprising SAT Executives, Board members and NDT officials. The aim of the briefing was to show how SAT had performed against its predetermined objectives. SAT’s budget for the previous year was just over R900 million. There was a 13% increase in government grants and the contribution from the Tourism Marketing South Africa (TOMSA) Levy had increased by 14%.

Tourism arrivals topped a record 1 billion tourists in 2012. There was an increasing demand for shorter trips instead of long haul travel. Tourism directly or indirectly sustained 9% of employment. SAT’s overall business performance achievement rate for 2012/13 was 70%. The Committee was provided with specifics on performance. For instance, the annual target for 2012/13 for arrivals to SA was set at 11.9 million; the actual figure achieved was 13.4 million. Disappointingly, the annual target for 2012/13 for the number of domestic travellers per year was set at 14.4 million; the actual figure was less than that at 12.5 million.

Tourist arrivals to SA grew to 10.2% in 2012 compared to the global growth of 3.8% for the same period.
Foreign tourist arrivals to SA for January to December 2012 grew by 10.2% over 2011 to reach 9.18m. Europe remained the main source of tourist arrivals to SA with 1.39 million tourist arrivals. This amounted to 9.5% growth from the 1.27 million tourist arrivals in 2011. In 2012, Chinese tourists had been travelling to SA in record numbers and by July 2012 China had become SA’s fourth largest source market for tourist arrivals.

International tourist spend generated from tourist arrivals increased between 2011 and 2012 from R71 billion to R76 billion – an increase of 7.4%. However, average spend per tourist decreased from R8 900 in 2011 to R8 700 in 2012, a decrease of 2.3%. The decrease in spend per tourist was attributed to current economic conditions, with consumers being less generous with their expenditure. Total foreign direct spend generated from tourist arrivals increased by 7.6% between 2011 and 2012.

The average length of stay decreased from 8.5 nights per tourist in 2010 to 7.6 nights in 2012. There was also a decrease in the number of provinces visited by all tourists. Gauteng and Western Cape were by far the most visited provinces and account for the bulk of the nights spent in SA. The total number of nights spent in SA by foreign tourists increased by 1.5% in 2012. However, there was a new trend to use non-hotel accommodation facilities.

The number of domestic trips dropped from 26.4 million to 25.4 million in 2012. While domestic travellers were taking fewer trips they were staying longer. Domestic tourist spend had increased by 1.5% from R20.3 billion in 2011 to R21.8 billion in 2012. SAT was currently finalising a revamped domestic tourism campaign. On SA brand awareness the aim was to have 79% awareness. SAT was concerned about the United Kingdom’s conversion rate and had been moved to put measures in place.

SAT achieved its 12^th consecutive unqualified audit report. For 12 consecutive financial years, SAT had managed to spend its full annual budget despite the uncertain foreign exchange environment in which it conducted its operations. SAT recorded a net deficit of R9.14 million for the financial year 2012/13 compared to a R34.3 million net deficit in the previous financial year.

Revenue had increased by 11% from R766.78 million in 2011/12 to R866.92 million in 2012/13. The net increase in revenue was due to increases in government grants and TOMSA Levies received. Total expenses had increased by 1% from R813.4 million in financial year 2011/12 to R978.89 million in 2012/13.

The total number of graded properties as at the end of March 2012 was 6022.
 
The National Convention Bureau, in conjunction with city and provincial convention bureaus, submitted over 46 international bids with an estimated economic impact of over R1 billion and an estimated 76 589 delegates.

Some strategic initiatives and challenges were highlighted. In order to improve return of investment, a hub approach would be taken in marketing abroad. Discussions with the Department of Home Affairs were taking place to improve efficiencies in visa processing as well. Although retail spending was on the increase there was still an unwillingness to spend disposable income on travel. It was hoped that the revamped domestic tourism campaign would change this.  The domestically aimed Sho’t Left Campaign had been launched recently.

Currency exposure was an issue of concern to SAT. It was working with National Treasury to close the currency exposure gap. The Department of International Relations and Cooperation (DIRCO) had a dispensation on currency exposure that was working well. SAT spent a lot of its funds abroad and hence had to find a solution to the currency exposure issue. Steps needed to be taken to mitigate reckless trading.

Discussion
Members were impressed by SAT’s performance and commended them for it.  

Ms S Lesoma (ANC) said that guiding principles and good governance principles differed from organisation to organisation.  The Committee welcomed the fact that the SAT was performing well. She noted that the role of the Chairperson of the Board of SAT was very distinct. Was it not a risk that the Chairperson was sitting on other committees as well? How did SAT determine how long a strategy should last and when it should change? What informed the decision?

The Chairperson agreed that the Committee needed an explanation on the different roles of the Chairperson of the SAT Board. There needed to be a consistent message from both the Vaya Mzanzi and the Sho’t Left Campaigns.

Mr Nzima responded that the domestic tourism campaign had been changed from the Sho’t Left to the Vaya Mzanzi Campaign.

Ms Siza Mzimela, Board Member, SAT, was aware that the Chairperson of the Audit Committee was also serving on other committees as well. This decision was taken by the SAT Board.

Mr Farrow said that the issue was crucial and emphasised that it should be a temporary arrangement. The SAT Board was comprised of persons serving on a semi-voluntary basis. However, remuneration levels on the Board varied.

Mr Nzima responded that SAT Board members were not remunerated.  

Ms Jan Hutton, Chief Marketing Officer (CMO), SAT, responded that an audit had been done to assess the success of Vaya Mzanzi. The Sho’t Left Campaign focused on the upcoming youth segment and had run for 8 years. The market needed to be widened, hence the introduction of the Vaya Mzanzi Campaign. He noted that brand equity was deep on the Sho’t Left Campaign. The decision was taken to reintroduce the Sho’t Left Campaign with the idea to get South Africans to travel again. The equity from Sho’t Left was taken and reintroduced to target markets. The Vaya Mzanzi Campaign was also audited. The intention was for a shift from retail expenditure by South Africans to expenditure on travel. More target market segments would be covered.

Ms V Bam-Mugwanya (ANC) felt that the change in patterns of marketing strategies might be confusing. She wished that SAT was as efficient in marketing domestic tourism as it was in marketing international tourism. She pointed out that job creation and entrepreneurship was important. What impact did the activities of SAT have on entrepreneurship growth? Regarding the work of the Tourism Grading Council of South Africa in improving standards, what was the impact on entrepreneurship? What was the progress made on the 150 properties that still had to be graded?  After new grading criteria had been set what was the uptake on grading?

Mr Nzima stated that SAT’s developmental efforts included granting awards to emerging entrepreneurs. SAT also supported the Tourism Enterprise Partnership. SAT created space and opportunities for emerging businesses. SAT was able to provide seed funding and grant exposure. He was aware that domestic tourism needed to grow. A balance was needed in promoting domestic and international tourism.

Ms Thembi Kunene, Chief Quality Assurance Officer, Tourism Grading Council of South Africa (TGCSA), said that the TGCSA was involved on the Tourism Enterprise Partnership (TEP). The business model of assessors needed to be reconsidered.

Mr Farrow was concerned about the reduction in domestic tourism. SAT’s focus should be on massive growth in domestic tourism. He asked how South Africa compared on accommodation costs with the rest of the world. He felt that accommodation costs in South Africa were far too high. Restaurants also charged exorbitant prices. Figures on a comparison of costs for accommodation and meals comparing South Africa and the rest of the world should be provided to the Committee. A trend picked up by the Committee during oversight visits was that there seemed to be a replication of tourism marketing efforts by different spheres of government. Co-operation and synergy was needed. In public hearings on the Tourism Bill the feelings were that grading should not be legislated and should not be over regulated.
How much of SAT’s revenue came from grading? What was the amount?

He also pointed out that SANParks refused to pay the TOMSA Levy. They preferred to market themselves. The issue needed to be sorted out. What was the total income derived from the TOMSA Levy? Another issue to be dealt with was exchange rates. Perhaps hedging needed to be considered. Every other business in South Africa which dealt in exchange rates practiced hedging.

Mr Nzima responded that alignment of marketing campaigns was taking place. On the international side, provincial authorities were also conducting marketing campaigns. SAT tried to prevent the duplication of marketing. The challenge was the concurrency of powers by cities and provinces, but progress was being made to prevent duplication.

Balancing international marketing and domestic marketing was extremely important given that international economic conditions were unpredictable. SAT was maintaining a good balance. It was keeping its market share in core established markets whilst experiencing growth in newer markets.
The cost of accommodation locally and internationally was vexing. The concern was that tourism products were more focused on international tourists than locals. SAT was trying to address the issue as it was not a sustainable model.

The TOMSA Levy was collected on a voluntary basis. SANParks and others had their own structures to collect funds which were ploughed back into communities. The payment of the TOMSA Levy was more focused on being paid by airlines and car rental companies. In 2012 just under R111 million had been collected in terms of the TOMSA Levy.
 
Ms Kunene said that the Eastern Cape was the first province to start regulating grading. The Western Cape Province only had graded establishments listed on its website.  

Ms M Njobe (ANC) asked what progress had been made with SAT’s intentions to open offices in countries like Angola. She spoke to marketing efforts in the provinces, noting that the Eastern Cape had a new strategy for tourism called, “Home of the Legends”, and Kwazulu-Natal had also launched a tourism strategy which spoke to the province itself. What had happened to the 150 establishments that still had to be graded? The Auditor-General’s report pointed out that most of the irregular expenditure occurred in SAT’s foreign offices. Could the cause of this be inadequate understanding of procedures by persons in those offices? Ms Njobe was concerned by the issue of foreign exchange and asked how DIRCO dealt with it.

Mr Nzima responded currently SAT could not embark on hedging, although National Treasury was able to. A permanent solution was needed. The difference between SAT and the DIRCO was that DIRCO’s expenditure was mainly on human resource costs whereas SAT had huge marketing expenditure. In terms of the Public Finance Management Act and National Treasury Regulations, measures needed to be taken to mitigate currency exposure.

The Chairperson asked whether there were incentives for establishments to get graded. He asked what the norm for government institutions on staff turnover was. SAT‘s corporate social responsibility programme supported ten young persons. What criteria were used in choosing students? Were they given incentives to remain in the tourism industry?  

Mr Nzima confirmed that there were criteria in place. SAT supported initiatives that would support the tourism industry itself. The idea was to have long term relationships with students. Space was created within the existing internship programme of SAT. When assessing staff turnover the NDT looked at vacancy rates. SAT did not use the NDT’s figure as a benchmark but preferred to set its own figure. SAT benchmarked against its competitors in the industry. On change management, SAT had been making piecemeal changes. 

Ms Kunene conceded that the Tourism Grading Council of South Africa (TGCSA) had not met its target with the 150 properties that remained not graded. There were challenges associated with incentives. As a result TGCSA had decided on a series of actions.

Mr F Bhengu (ANC) was glad to hear that the SAT was so open about the issue of the Chairperson of the SAT Board. The Committee would make a recommendation over the issue. The work of SAT was appreciated. Symmetry and communication was important. The issue of crime and negative media reports needed to be addressed. The current account deficit should also be looked at.

The Chairperson said that if the media was not fed then it would only report negative news. Government should become more proactive in feeding the media good news. He emphasised that domestic travel needed to be encouraged.

The Committee needed to make a recommendation in its BRRR on the TOMSA Levy issue. Regarding the issue of foreign exchange, the option of hedging should perhaps be considered. Tourism was becoming more of an export commodity given the problems that SA was facing on other exports like mining products. Emerging markets in Africa like Angola needed to be looked at.

The meeting was adjourned.