THE BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON TOURISM, DATED 29 OCTOBER 2014.

The Portfolio Committee on Tourism, having considered the performance of the National Department of Tourism and South African Tourism for the 2013/14 financial year, reports as follows:

1. Introduction

The tourism sector globally, and particularly in South Africa, has shown signs of resilience and continued to grow year-on-year despite global economic instability. The tourism industry has continued to grow year-on-year despite unfavourable foreign exchange rates amongst countries. Tourism has also proved that it is a labour intensive sector and continues to create a substantial number of direct and indirect jobs. In 2013 the tourism sector created 144 000 jobs which is equivalent to 12 percent of all jobs created in South Africa in the year under review.

The tourism sector however, is still reflective of structural constraints in the economy and has made little inroads in transformation. The Department of Tourism driving development and promotion of tourism is relatively new. Established in 2009, the Department has been able to establish a solid policy and strategic frameworks to provide the direction for the sector towards achievement of National Development Plan targets. The Department has also established an enabling legislation which provides a conducive environment for tourism development and investments in the sector.

Tourism is highly affected by globalisation. The global economic climate and the depreciation of the rand has seen more international arrivals due to South Africa being a relatively cheaper destination. In addition, South Africans who might have taken overseas trips have been grounded due to financial constraints. This should have worked well for the domestic industry. However, the South African tourism industry is not structured to promote domestic tourism. The industry is geared more towards international tourism and less efforts have been made to develop and promote domestic tourism over the years. The global trends dictate that domestic tourism shields the sector from global economic turmoil. The Department therefore faces a daunting challenge of balancing international and domestic tourism.

The appropriation of funds to tourism should therefore take cognisance of the role the sector is playing in the economy of the country. The allocation of funds should be commensurate to the mandate of the Department to enable implementation of all the strategies that have been developed to grow the sector.

Section 42(3) of the Constitution of the Republic of South Africa, Act No 108 of 1996, bestows oversight of executive action function to the National Assembly. One of the functions of the oversight listed in the Oversight and Accountability Model of Parliament of the Republic of South Africa is to ensure that policies announced by government and authorised by Parliament are delivered. Furthermore, the money Bills Amendment Procedure and Related Matters Act, 2009 (Act NO. 9 of 2009) requires that the National Assembly, through its committees, conducts an annual assessment of the performance of each national department with regard to the medium term estimates of expenditure.

In fulfilling its legal obligations, the Portfolio Committee on Tourism has exercised rigorous oversight to the National Department of Tourism, hereunder referred to as the Department, and South African Tourism to ensure fulfilment of the departmental mandate. The transition in oversight from the Fourth Parliament to the Fifth Parliament has been seamless in terms of providing oversight to the Executive. The Committee is ensuring that funding allocation and expenditure is made towards implementing strategic interventions that promote transformation, job creation and contribution of the sector to the GDP. This Budget Review and Recommendations Report is therefore compiled to provide overall assessment of financial and service delivery performance of the Department in the 2013/14 financial year.

1.1. Mandate of Committee

The Portfolio Committee on Tourism, hereunder referred to as the Committee, 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 is fulfilled through five core functions, namely, to pass legislation; scrutinise and oversee executive action; facilitate public participation and involvement in the legislative and other processes; participate in, promote and oversee co-operative government; and engage in, participate and oversee international relations.

The Committee fulfils its mandate by discharging its oversight role over the National Department of Tourism and South African Tourism. The Committee conducts oversight visits and hold public hearings to ensure public participation and corporative governance as stipulated in the Constitution. The Committee processes legislation, and in the period under review the Tourism Act, 2014 (Act No.3 of 2014) that repealed the Tourism Act, 1993 (Act No. 72 of 1993) was processed as part of its legislative mandate and became operational in 2014.

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 (Act 108 of 1996) lists tourism as a functional area of concurrent national and provincial legislative competence. Part B of Schedule 4 of the Constitution also lists local tourism as a local government competency. The Constitution therefore mandates all the spheres of government with a tourism function thus making it a prerogative of each sphere of government to decide on certain aspects of the industry.

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. However, as of June 2014, tourism is governed by the new Tourism Act, 2014 (Act No.3 of 2014).

The challenge posed by concurrency of tourism mandate stifles tourism development, particularly at local level. The government at a national level has prioritised tourism and the Department is striving for inclusive tourism growth. The challenges are still experienced at provincial and local spheres of government where tourism has not been prioritised in budgeting and planning. Poor planning and budgeting at a local level reverses strides made at national level as tourism happens at a local level which is a critical sphere of government as a base for service delivery.

1.2.2 Policy mandate

Tourism, like all other sectors in South Africa, is governed by the National Development Plan (NDP) which is the government blueprint that sets targets to 2030. The NDP recognises tourism as one of the main drivers of employment and economic growth.

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

The White Paper formed basis for the development of a sector strategy which was adopted in 2010. 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 targets in the NTSS were transposed to the National Development Plan.

The NTSS suggested a number of strategies that had to be developed for various facets of the tourism industry. Subsequently, the Department developed a number of strategies to guide the development and promotion of tourism for various niches, including the Rural Tourism Strategy, Domestic Tourism Growth Strategy, National Heritage and Cultural Tourism Strategy. To facilitate transformation, the Tourism B-BBEE Sector Code provides guidelines for both government and private sector on how to transform the industry.

1.2.3 Strategic Outcome Oriented Goals of the Department and Delivery Agreements targets for 2013/14

The Department set seven strategic outcome-oriented goals to meet the five government priorities. The five government priorities on which the departmental goals and programmes are based are decent work and sustainable livelihoods; education and skills development; fighting crime and corruption; health; rural development and agrarian reform. The major focus is on inclusive economic growth.

The five government priorities were unpacked into twelve government outcomes. The President signed a performance agreement with the Minister of Tourism and the Minister committed to deal with four of the twelve government outcomes in the 2013/14 financial year. The four outcomes are Outcome 4: Decent employment through inclusive economic growth; Outcome 7: Vibrant equitable and sustainable rural communities and food security for all; Outcome 11: Create a better and safer South Africa and world for all; and Outcome 12: An efficient, effective and development oriented public service and an empowered, fair and inclusive citizenship. The government outcomes were catered for in the Departmental Strategic Plan for 2013/14 through seven strategic outcome oriented goals that were set and aligned to government priorities as indicated in Table 1. The strategic outcome oriented goals of the Department are as follows:

Table 1: Strategic Outcome Oriented Goals

STRATEGIC OUTCOME ORIENTED GOALS	GOAL STATEMENTS	GOVERNMENT OUTCOMES
1. Achieve good corporate and cooperative governance	Provide comprehensive corporate support service to the department to ensure good governance	Outcome 12: An efficient , effective and development oriented public service and an empowered, fair and inclusive citizenship
2. Improve impact of tourism on the livelihood of all South Africans	To monitor and evaluate the Implementation of tourism programmes, strategies and policies	Outcome 4: Decent employment through inclusive economic growth
3. Tourism priorities integrated within other sector departments, provincial and local governments planning	Render policy frameworks, stakeholder management and planning related support services at provincial and local government level by analysing and participating in their planning processes	Outcome 12: An efficient , effective and development oriented public service and an empowered, fair and inclusive citizenship
4. Improved Tourism Sector Research, Information and Knowledge Management	To advance Research, Information and Knowledge Management within the tourism sector	Outcome 4: Decent employment through inclusive economic growth
5. Increased contribution of tourism sector to inclusive economic growth	Facilitation of compliance to the gazetted Tourism charter by identified tourism sub-sector	Outcome 7: Vibrant equitable and sustainable rural communities and food security for all, and Outcome 4: Decent employment through inclusive economic growth
	To provide international tourism (country and/ or region) analysis to inform strategic intervention
	Profile regions and develop appropriate integrated support packages that respond to tourism development and growth trends
6. Improve levels of competitiveness and sustainability in the sector	To promote responsible tourism best practices to inculcate a culture of responsible tourism of South Africa	Outcome 4: Decent employment through inclusive economic growth
7. Strengthen regional, African and international collaboration and partnerships	Strengthened regional, Africa and international collaboration and partnerships through bilateral and multilateral engagements	Outcome 11- Create a better and safer South Africa and world for all.

Source: NDT Annual Report (2014)

In his interaction with the Committee, the new Minister of Tourism has acknowledged that the tourism industry needs transformation. He pronounced that in the next five years the Department will focus on five key areas, namely, job creation and contribution to the gross domestic product; SMME support and development; skills development and training; quality assurance; and intergovernmental and stakeholder relations.

1.3 Purpose of the Budget Review and Recommendations Report

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

The process of developing the 2013/14 Budget Review and Recommendation Report involved a number of institutions and reviewed a number of supporting documents, both within government and private sector. The Committee also reviewed a number of documents from government institutions and private sector organisations about the general performance of the tourism industry. The Committee had a hearing with the Auditor-General and the Financial and Fiscal Commission on the 17^th October 2014 to scrutinise the departmental audit outcomes, financial and service delivery performance in the year under review. This prepared the Committee well for the briefing held with the Department of Tourism and South African Tourism on the 24^th October 2014 on their Annual Reports. The Committee also received written submissions from the Public Service Commission on the performance of the Department. The Committee also considered outcomes of public hearings, and oversight visits. This assisted the Committee in assessing the work done by the Department against industry performance and expectations of the general citizenry on tourism.

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 Ministers of Finance and Tourism in terms of the budgetary requirements, performance, and service delivery improvement of the Department.

2. Overview of the key relevant policy focus areas

2.1 Key Government policies

Policy in respect of oversight in the legislative arm of the State is derived from a number of sources. The State of the Nation Address is one such policy that provides priorities and directives for the calendar year and subsequent Cabinet Makgotla that assist to refine it in detail to inform the strategic plan of departments. Other government policies and strategies are taken into account when planning for a year ahead. The Department of Tourism took all these government policy directives when planning and executing their mandate in the year under review. The Executive carried the tourism mandate and service delivery programmes for 2013/ 2014 based inter alia on the following policy documents:

(i) White Paper on Development and Promotion of Tourism in South Africa

This White Paper on the Development and promotion of Tourism in South Africa (1996) is a pioneering policy that has provided a strong base for other policies and the legislative framework in South Africa. The policy outlines the government's tourism strategy and prioritises for tourism mobilisation of the country's human and material resources in order to obtain a bigger share of the increasing world tourism industry. The policy acknowledges the potential of the tourism industry to create opportunities for emerging and small entrepreneurs, and in so doing, supporting access to greater socio-economic benefits for the wider population. The policy also advocates for transformation in the tourism and sets solid foundation for responsible tourism development in South Africa.

(ii) New Growth Path

Government identified tourism as one of the six strategic economic drivers in the New Growth Path (NGP) adopted in 2010. The six sectors are infrastructure, agriculture, mining, tourism, green energy and manufacturing. The New Growth Path is intended to address unemployment, inequality and poverty in a strategy that is principally reliant on creating a significant increase in the number of new jobs in the economy. For the tourism industry which is largely untransformed, the NGP is ought to be used as a vehicle to expedite inclusive tourism growth that fosters participation in the mainstream economy by South Africa. The New Growth Path recognises tourism as a key sector for employment creation and sets a target of 225 000 additional 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.

(iii) National Development Plan

The National Development Plan (NDP) offers a long-term perspective economic policy for the country with a vision of creating an additional 11 million jobs by 2030. It defines a desired destination and identifies the role different sectors of society need to play in reaching that goal. The National Development Plan recognises tourism as one of the main drivers of the country’s economy and employment. The plan envisages the promotion of South Africa as a major tourist destination, with unique features, to boost tourist numbers and enable tourism to contribute to sustainable economic growth and poverty reduction. The Department supports these objectives and implements a number of strategies to set and maintain high service standards and encourage growth in the sector.

The targets set in the New Growth Path were transposed to the National Development Plan. The targets in the NDP also form the basis for execution of the National Tourism Sector Strategy (NTSS) which is the strategy blueprint of the tourism sector. The NTSS aims to increase tourism’s contribution, both direct and indirectly, to the economy from the 2009 baseline of R189, 4 billion which was 7.9 percent of GDP at the time, to R499-billion by 2020. The employment effect is that tourism currently supports one in every 12 jobs in South Africa. The NTSS is as also aligned to the target of creating a total 225,000 new jobs by 2020. This calls for all tourism stakeholders in the sector to work collaboratively towards realising the goals and targets set in the National Development Plan.

(iv) State of Nation Address

In His State of the Nation Address (SoNA) for 2013, the President reiterated that tourism has been identified as one of the job drivers in South Africa. He asserted that the industry had performed very well with tourist arrivals growing at an impressive 10.7 percent between January and September 2012, which was higher than the global average of four percent for the previous year. South Africa is still a Safari destination that prides itself with the Big 5 wild animals which include the rhinoceros (Rhino). The State of the Nation alluded that ironically, the very success of South Africa’s national conservation effort resulting in over 73 percent of the worlds’ rhino population being conserved here, has resulted in our country being targeted by international poaching syndicates. The dwindling number of this species may affect South Africa as a tourist destination of choice for the Safari enthusiasts. The country may lose these tourists to our competitors elsewhere within the African continent. Tourism also affected by the delays in finalising the Land Claims process. The State of the Nation Address specified the need to shorten the time it takes to finalise a claim. Other issues raised in the 2013 SoNA include the need to continue improving on the Social Responsibility Implementation Programme (SRI) which is an Expanded Public Works Programme (EPWP) implementation programme for the Department; implementation of proper tourism strategies to attract more tourists; constant engagements with regard to cultural tourism and heritage tourism; the need for the Department to adhere to the 30-day payment period for services. It is also imperative for the Department to expedite transformation of the sector to ensure inclusive growth that creates jobs. In the State of the Nation Address for 2014 the President highlighted that the country should attract 15 million visitors by 2017. This sets the agenda for the Department in line with the National Development Plan and the National Tourism Sector strategy.

(v) Tourism BEE Charter and Scorecard

This Tourism BEE Charter and Scorecard expresses the commitment of all stakeholders in the tourism industry to the empowerment and transformation of the sector and its commitment to working collectively to ensure that the opportunities and benefits of tourism are extended to black South Africans as well.

The BEE Charter sets two targets, namely 2009 and 2014, which were subsequently changed to 2012 and 2017 respectively. The targets represent the ideal scenario at which the tourism enterprise will score full points for the respective indicator. During the period of interpretation, the tourism enterprise will be awarded proportional points on each indicator, represented by the proportion of the relevant target achieved by the enterprise. Two targets were set for each indicator, namely: a 2009 milestone to be used during the first five years of implementation, ending on 31 December 2009 and a 2014 target ending on 31 December 2014. The 2009 targets were to be used by all companies measuring the BEE status of a tourism enterprise until 31 December 2009. The overall BEE targets for 2014 were to be used when one measures the BEE status of a tourism enterprise in the five-year period between 1 January 2010 and 31 December 2014.

The national Department of Tourism is charged with the responsibility to drive transformation of the sector. However, the success of the Department in promoting transformation depends largely on the willingness of the private sector to implement and comply with the Tourism Sector Codes. It must be noted that the government does not have any enforcement mechanisms or punitive measures to ensure compliance by the industry. Transformation is therefore left to the good will of the industry and the only incentive is that tourism companies which are BEE compliant can do business with government. This however is not a compelling incentive as some businesses do not rely on government business and therefore whether they are compliant or not does not affect their business model.

According to the Tourism BEE Scorecard the tourism industry complies with most elements in the scorecard. The irony, however, is that transformation in the tourism industry does not ensure involvement of the historically disadvantaged communities as only existing companies are made to comply with the Tourism Sector codes without necessarily adding new entrants in the mainstream tourism economy. The daunting question is whether the existing legislative frameworks have led to any real transformation in the tourism sector. The study conducted by the Department on the state of transformation indicates that the industry remains in the hands of the population groups that have historically been involved in the sector. The lack of transformation in the sector is therefore evidence-based and not anecdotal sentiments raised by the historically marginalised groups.

2.2 Overview of revised Strategic Plan and Annual Performance Plans

The Department of Tourism is relatively new having been established in 2009 after being separated from the erstwhile Department of Environmental Affairs and Tourism. The Department therefore is implementing its first five-year strategy spanning 2010/11 – 2015/16.

Since drafting of this five-year strategic plan, the Department has been tabling revised annual Strategic Plans and Annual Performance Plans. The 2013/14 strategic plan was guided by the Departmental vision to be a catalyst for tourism growth and development in South Africa, and driven by the mission to create conducive conditions for growing and developing tourism through innovation, strategic partnerships and collaboration, providing information and knowledge management services.

In the year under review, the Department reviewed their organisational programme performance indicators to improve monitoring and evaluation of the Strategic Plan. This enabled Parliament through the Committee to conduct oversight more effectively. The Auditor-General had previously raised issues on the setting of predetermined objectives or targets and the Department had tried to improve on this. However, the Department still needs to put more efforts in refining the way they craft their pre-determined objectives/ targets to ensure more effective oversight.

The revised 2014/15 Strategic Plan is still based on the same mission, vision and strategic objects as the 2013/14 plan. However, the revised plan gives more effect to the Departmental mandate of tourism growth and development through taking cognisance of the triple challenges of poverty, unemployment and inequality. The focus of the Department is more on inclusive economic growth and job creation in order to address the challenges as outlined in the National Development Plan.

The revised Strategic Plan puts more emphasis on the implementation of the sector plans that had been developed by the Department in the previous financial years. The Department, through the Domestic Tourism Branch, has started already in the 2013/14 to implement a number of projects contained in the National Tourism Sector Strategy; Domestic Tourism Strategy; Rural Tourism Strategy; Heritage and Cultural Tourism Strategy and Responsible Tourism Strategy. In advocating for inclusive growth, the revised Strategic Plan emphasises the implementation of the Tourism Incentive Programme.

The Department will continue to support community projects through Social Responsibility Initiative Programme (SRI). The Department has however opted to implement more training programmes than infrastructure projects. To this effect, a Tourism Buddies Programme is implemented in all nine provinces.

In terms of policy environment, the Department in the revised Strategic Plan purports to draft regulatory frameworks for Tourist Guides and Business Information; develop norms and standards for visitor information services; and review of Tourism BBBEE Sector Codes.

2.3 Overview of key developments in the organisational and service delivery environments of Department for 2013/14 and 2014/15 MTEF cycle.

The Department operates in a highly globalised environment and is susceptible to global trends. Tourism involves travelling amongst different countries/ or and destinations and thus connectivity amongst countries is very critical. At the heart of the current global trends in international tourism is the significance of travel facilitation. South Africa is a long haul destination and highly affected by air connectivity.

The increase in the airfares in Africa, which is almost 50 per cent higher than those outside the continent, contributes to a price versus value mismatch. These increases do not bode well for attraction of tourists. The higher the airfares, the greater the challenge to attract tourists, as many of them would simply consider more accessible destinations that compete with tourism in South Africa. Up to 55 per cent of international passengers on African airlines are travelling for business, compared to just 15 per cent who travel for what is traditionally understood as leisure tourism, and 30 per cent travel to visit family and friends. Notwithstanding the importance of business tourists, who are foreign investors and facilitate increased trade in goods and services, there is a need to improve efforts to develop packaging and marketing of tourism offerings that increase the share of leisure tourism. The absence of a comprehensive Airlift Strategy in the country compromises the ability of the tourism industry to reflect on the often non-transparent pricing factors, such as taxes and monopoly behaviour of airlines, which drive up the cost of air passenger travel thus affecting number of tourists attracted by South Africa.

The effect of global economic turmoil also had effect on the performance of the Department against the set targets. The factors that affected tourism are particularly fragile economic recovery and expected economic recession; promising outbound tourism growth but short haul travel; shrinking disposable income due to austerity measures in foreign markets; exchange currency weaknesses; and unemployment dampening domestic tourism.

The economy has shown signs of weakness in some of the department’s key markets, which affects decisions of tourists who may tend to take shorter trips or stay for shorter periods affecting tourism earnings for South Africa. The unemployment rate in South Africa, and a low culture of travel amongst South Africans reduces the size of the domestic market, affecting its growth. The perceived lack of tourism skills impacts on the perception of what quality of service the sector can provide, thereby influencing the decisions of tourists to travel to and within South Africa.

South African Tourism also have their work cut out in terms of distinguishing South Africa from the rest of the African continent to international tourists. Unfortunate occurrences such as the current Ebola epidemic in West Africa sends jitters to the international tourism industry about Africa as an unsafe destination. South African Tourism therefore must make concerted efforts to ensure that the country does not get negative publicity and messaging. Messaging should depict a safe South Africa for all prospective international tourists.

The Department experienced high staff turnover in the period under review and suitable candidates declined offers, and personnel suitability checks (PSCs) were not timeously available, all of which impacted on the ability to deliver on its mandate The challenge of personnel shortage affected achievement of critical programmes such as the Tourism Incentive Programme. The Department received the Tourism Incentive Scheme from the Department of Trade and Industry (DTI) in the 2012/13. This was due for implementation in the 2013/14 as a revised Tourism Incentive Programme (TIP) as reported in the Strategic Plan and Annual Performance Plan. An amount of R4, 536.000 was moved as a virement from Programme 1 to Programme 4 from the TIP which was not implemented. The Department has displayed lack of capacity in delivering on its Strategic Plan and Annual Performance Plan. At the time of drafting this report, the programme had not been properly packaged and there was no concept document in place. The Department had also not appointed suitable staff to implement the programme and reported delays in the recruitment process. Based on the recent briefings with the Committee, it was established that the Department will also not be able to implement this programme in the 2014/15 financial year. This matter is of serious concern to the Committee as the TIP is an important service delivery issue in the tourism industry, and the programme has been on hold since it was transferred from the DTI. The delays in implementing the TIP has mostly affected the emerging tourism enterprises who need the most of assistance in their fledging businesses.

The failure of the Department to implement the TIP raises some issues of concern with regard to the ability of the Department to utilise its appropriated budget. In 2012/13 Budget Review and Recommendations Report, the Committee had recommended, inter alia, that the budget of the Department be increased to enable the Department to fulfill its mandate. However, with the failure of the Department to implement the TIP, the Committee is reviewing such recommendations until the Department has full capacity to utilise all its currently appropriated budget.

A major positive key development in the 2013/14 was the passing of the Tourism Bill by the National Assembly. The Bill was gazetted and assented into law by the President in April 2014 as Tourism Act, 2014 (Act 3 of 2014). The Act will inter alia pave a way for the promotion of responsible tourism for the benefit of South Africa and for the enjoyment of all its citizens and foreign visitors; effective domestic and international marketing of South Africa as a tourist destination; promotion of quality tourism products and services; promotion of growth and development of the tourism sector; and enhancement of cooperation between all spheres of government in developing and managing tourism.

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

The major financial recommendation made in the 2012/13 financial year was that the National Treasury had to review the baseline budget for tourism through a steady increase over the Medium-Term Expenditure Framework (MTEF) period and that the Department should quantify the amount required to allow them to effectively execute their mandate. This recommendation was based on the assertion that the successful execution of the mandate of the Department depends on budget that allows permeation into all different aspects of the tourism 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.

The progress made by the Department in addressing the recommendations made in the 2012/13 Budget and Recommendations Report is provided in table 2:

Table 2: Summary of 2013/14 BRRR Recommendations and Departmental Responses

Recommendation	Departmental Intervention
(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.	The department has undertaken a process to revisit SRI policy and procedures to ensure sustainability of projects. An audit has been conducted.
(ii) SRI projects should be directed at sustainable job creation and skills development, particularly in rural areas.	As part of the Expanded Public Works Programme, SRI projects are focusing on developing tourism infrastructure in rural nodes.
(iii) It is recommended that the department assists provinces and municipalities in aligning tourism plans at all spheres of government.	Assessment of IDPs and PGDs has been conducted and feedback provided to provinces and municipalities about how best to align their plans. We have also provided capacity building to local government
(iv) An integrated approach should be established between the Department of Tourism and the Department of Transport in tackling airlift issues.	The department is an active member of the Strategy Planning Committee coordinated by the Department of Transport, at which agreements are reached on markets to be focused. The department participates in the bilateral air service negotiations. Agreements are reached on the position and approach towards bilateral air service negotiations before engaging any country.
(v) The department should work closely with the Department of Home Affairs (DHA) 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	The department is currently engaging the DHA on issues related to visa issuance. The department further conducts training workshop for DHA officials that were posted to various missions.
(vi) 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.	The department is undertaking a study on the impact of land claims settlement. Phase 1 has been undertaken on tourism attractions, i.e. how land claims affect tourism attractions.
(vii) The department should engage the BRICS countries in promoting the South-South air connectivity to boost	This is a priority for the 2014/15 financial year.
(viii) It is recommended that the department expedites the process of disbursing funds to qualifying emerging tourism enterprises.	The department has developed the Tourism Incentive Programme (TIP) to support emerging tourism enterprises effective 2014/15.
(ix) It is recommended that the department facilitates collaboration amongst various government departments and state entities to leverage the indirect benefits from a wide array of the special infrastructure projects with tourism potential.	All provinces engaged to submit tourism infrastructures projects in line with the requirements of the PICC. The projects were then submitted to the PICC Technical Committee which is part of the economic development department.

Source: NDT Annual Report (2014)

3.1.2 Evaluation of response by Department and Minister of Finance

The National Treasury responded to two recommendations made by the Committee. Firstly, the response was given to recommendation that the National Treasury should review the baseline budget for tourism over the MTEF period and the Department should quantify the amount required to fulfil its mandate. Costs incurred by South African Tourism due to foreign-currency exposure should also be covered by National Treasury as the Public Finance Management Act only covers personnel costs and marketing-related costs. The response from the Minister of Finance was that the National Treasury undertakes to work with the Department and South African Tourism to address any budget shortfall. An amount of R20 million was allocated in 2013 Adjustment Budget to mitigate the impact of foreign exchange fluctuations on South African Tourism.

Secondly, a recommendation was made that all spheres of government should align their tourism activities and Budgets to the National Development Plan to ensure that the sector achieves its targets. The Minister of Finance responded by saying the National Treasury supports this recommendation. To this effect, an amount of R120 million has been approved over the 2014 MTEF period for the construction of the Golden Gate Highlands National Park Interpretative Centre.

The response by the Minister of Finance is appreciated. However, the foreign currency exposure by South African Tourism continues at a higher rate. Currently, this entity is exposed to R80 million which was not budgeted for. The National Treasury should consider allocating more money to South African Tourism commensurate with currency exposure to mitigate this problem. The allocation of R120 Million for the construction of Golden Gate Highlands National Park Interpretative Centre is also acknowledged. However, it would be more effective if a Tourism Development Fund was established to cater for all tourism development needs instead of piecemeal and ad hoc allocations.

The Committee observed that the Minister of Finance and the Minister of Tourism commendations responded satisfactorily to recommendations, however with scanty details in others. The responses provided by the Department are not sufficient in that they do not provide sufficient information on action taken. There are also no action plans linked to the departmental interventions. Some of the responses are too broad and general and do not address the core issues raised. The Committee is making new recommendations in the 2013/14 Budget Review and Recommendations Report. The Department is urged to ensure that comprehensive responses are provided and action plans developed to address the recommendations. Implementation of recommendations should also be incorporated in the revised Strategic Plan and Annual Performance plan for the 2015/16 financial year. The Department should also provide written responses to Parliament on all the recommendations made.

3.2 2013/14 Committee Budget Report

The Department has a broad mandate of developing tourism in South Africa and South African Tourism is charged with responsibility of marketing South Africa domestically and internationally. In fulfilling this mandate, the Committee in 2012/13 recommended that the baseline budget for tourism be increased in the MTEF and subsequent financial years to allow the Department to carry its mandate effectively. The mandate of the Department cannot be achieved if the budget appropriated for Vote 35 is not sufficient to implement its programmes. This requires the Department to have an increased capacity in both financial and personal resources to be able to carry its mandate. The Committee noted with concern that in the 2013/14 financial year the Department had not established requisite capacity to fulfill its mandate, especially with regard to implementing the Tourism Incentive Programme. The Committee therefore urges the National Treasury that the budget of the Department be increased once the Department has established necessary capacity to spend the allocated budget. The Department should also prioritise critical service delivery programmes and leverage partnerships with other spheres of government and private sector to maximise performance with little resources available. South African Tourism still needs to quantify its budgetary needs for a proper funding recommendation to be made. Currently South African Tourism budget is anecdotal and based on their Strategic Plan which is not benchmarked with other Destination Marketing Organisations.

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 2015/16 MTEF.

The Estimates of National Expenditure for Vote 35: Tourism, as issued by the National Treasury (2013) indicates that the spending focus over the medium term will be increasing through transfers to South African Tourism in the Policy and Knowledge Services programme, and on funding the research and policy formulation strategy of the Domestic Tourism programme, which aims to encourage South Africans to travel within the borders of the country. An increase in both domestic and international tourism numbers is expected to contribute to government’s broader objective of growing Gross Domestic Product and creating jobs.

To further this objectives of job creation and contribution to GDP, at the beginning of April 2013 the Department introduced a new Tourism Incentive Programme that aims to help SMMEs and established businesses to grow by improving their access to international buyers and markets. The incentive programme is allocated R99.6 million in 2014/15, R199.6 million in 2015/16 and R210.4 million in 2016/17. The need for increased capacity for this programme required that the department expands its establishment from 467 in 2012/13 to 544 in 2016/17. A total of 36 posts were vacant at the end of November 2013, mainly as a result of departmental restructuring. The department is expected to fill these posts in 2014/15. The Department uses staff to deliver its programmes and consultants are used mainly to support the department’s IT unit. The vacancy rate has affected the financial performance of the Department with regard to spending allocated budget.

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

The increase in allocation over the medium term provide for the expected increase in the number of international tourist arrivals by air from 3.8 million to 4.1 million and create 16 775 full time equivalent jobs through the Expanded Public Works Programme. South African Tourism will receive additional Cabinet approved allocations of R100 million in 2015/16 and R105 million in 2016/17 for domestic marketing programmes through the economic competitiveness support package. This funding will end in 2016/17.

The Financial and Fiscal Commission has warned that given the prevailing economic environment, it is unlikely to see a significant injection of funds from the national fiscus. To achieve the targets in NDP, the Department should focus on strategic interventions that will have multiplier effects in the sector as well as leveraging the favourable exchange rate climate to attract international visitors.

Table 3: Overview of vote allocation and spending

Programme	2010/11	2011/12	2012/13	2013/14			2014/15	2015/16
	Outcomes	Outcomes	Outcomes	Main	Adjusted	Outcomes	Estimates	Estimates
Prog 1: Administration	155.8	195.1	179.2	212.6	208.1	212.0	221.8	234.3
Prog 2: Policy and Knowledge Services	644.2	694.0	794.0	911.8	901.8	908.790	925.2	1 026.1
Prog 3: International Tourism	26.4 22.1	22.1	27.1	41.0	41.0	37,886	51.9	54.4
Prog 4: Domestic Tourism	317.1	339.1	371.6	355.0	369.6	353,991	463.2	548.4
Total	1 143.5	1 250.2	1 372.0	1520.6	1 520.674	1 512.667	1 662.6	1 863.2

Source: Treasury Estimates of National Estimates (2013)

In line with this warning, the Cabinet has already approved reductions of R32 million in 2014/15, R48 million in 2015/16 and R9 million in 2016/17 have been made, of which R29 million in 2014/15 and R40 million in 2015/16 will be rescheduled to 2016/17 for use in the Expanded Public Works Programme. The rest of the total reduction amount is to be effected on the transfers to South African Tourism, the Expanded Public Works Programme, transfers and subsidies for SMMEs, and spending on non-essential goods and services items, such as catering, travel and subsistence, and consultants.

4.2 Vote allocation and spending for 2013/14

The Department is funded through the funds appropriated in terms of the annual Appropriation Act (and the Adjustments Appropriation Act). The Department of Tourism had an appropriation of R1.52 billion for 2013/14 which represents a nominal increase of R146.4 million, or 10.7 per cent, from 2012/13. Transfers and Subsidies comprise the bulk of expenditure and account for R1.2 billion of the available budget and of this amount the department has transferred R1.2 billion, or 100 per cent, mainly to departmental agencies and accounts. This means the department had an available budget of R360.2 million for operations. Of this, the department has spent R352.4 million, 97.8 per cent, the majority of which has been used on compensation of employees and goods and services.

The Departmental budget is distributed to four main programmes, namely, Administration, Policy and Knowledge Services and International Tourism and Domestic Tourism respectively. After excluding transfers, Departmental allocation equates to 23 percent of the overall budget in 2014/15. The medium-term priorities for the Departmental spending are to expand domestic and foreign tourism, increase contribution of tourism to economic growth, create job opportunities, sector transformation and integration of tourism sector

A total of 76.7 per cent of expenditure was under transfers and subsidies and payments for financial assets, with the remaining 23.3 per cent spent on departmental operations. Operational expenditure, 57.4 per cent was on compensation of employees, 39.3 per cent on goods and services and none was spent on interest and rent on land. Only a negligible 3.3 per cent of expenditure was on payments to capital assets.

The largest portion of operational expenditure in 2013/14 was R211.7 million spent under the Administration programme mainly on compensation of employees and goods and services totalling 60.1 percent of the budget. The main cost driver is the spending under Administrative Fees on the payments made to Department of Public Works for office accommodation which is paid under this item. Expenditure under this programme has increased by R33.1 million, or 18.5 per cent, when compared with the previous year primarily due to additional spending on these items with additional spending under goods and services mainly on computer services, and operating leases.

Table 4: Departmental allocation and expenditure in 2013/14

Programme	Adjustment Appropriation	Shifts approved by National Treasury	Virement	Final Appropriation	Expenditure	Over/Under expenditure
	R’000	R’000	R’000	R’000	R’000	R’000
Administration	208,110	-	4,536	212,646	212,000	(646)
Policy and Knowledge Services	901,843	10, 000	-	911,843	908,790	(3,053)
International Tourism	41,013	-	-	41,013	37,886	(3,127)
Domestic Tourism	369,608	(10,000)	(4,536)	355,072	353,991	(1,081)
TOTAL	1,520,574	-	-	1,520,574	1,512,667	(7,907)

Source: NDT Annual Report (2014)

The next largest element was R68.5 million under the Domestic Tourism programme, followed by R39.3 million under the Policy and Knowledge Services Programme, again primarily for compensation of employees and goods and services.

Operational expenditure has grown at a nominal rate of 18.6 per cent, or R55.4 million, when compared to the previous financial year. Rand value expenditure growth was greatest in the Administration programme, mainly driven by increased spending on goods and services and compensation of employees. The Domestic Tourism and International Tourism programmes show the next highest growths primarily due to increases in spending on compensation of employees and goods and services, and compensation of employees respectively.

Transfers to Foreign Governments and International Organisations to the end of financial year were R4.8 million, all of which was to the Regional Organisation of Southern Africa (RETOSA), and United Nations World Tourism Organisation for Membership Fees transfers. This represents an increase of R1.3 million, or 37.9 per cent, when compared with previous financial year. The majority of this increase was under the Regional Tourism Organisation of Southern Africa for Membership Fees Transfers.

Transfers to Non-Profit Institutions at the end of the financial year were R26 million, the majority of which was for Strategic Partners in Tourism as Operations Transfer. This represents a decrease of R0. 1million or 2 per cent, when compared with the previous financial year. The Tourism Enterprise Partnership (TEP) is the operating entity for Strategic Partners in Tourism which is a Non-Profit Company (NPC) who utilises funding from Corporate South Africa and government to facilitate the growth, development and sustainability of small tourism businesses in the country.

Transfers to Households at the end of the financial year were R253.6 million, the majority of which was for the Expanded Public Works Programme (EPWP) as Social Relief Assistance transfer. This represents a decrease of R30.2 million, or 10.6 per cent, when compared with the previous financial year. It must be noted that the issue of classification of EPWP payments is outstanding between the National Treasury and the Department. Table 5 provides percentage spending by Programme.

Table 5: Percentage of spending by programme 2013/14

Programme	Total Appropriation	Virements	Total Expenditure	Expenditure %
	R’000	R’000	R’000	R’000
Prog 1: Administration	212 646	4,536	212 000	99.70%
Prog 2: Policy and Knowledge Services	911 843	-	908 790	99.70%
Prog 3: International Tourism	41 013	-	37 886	92.40%
Prog 4: Domestic Tourism	355 072	(4 536)	353 991	99.70
TOTAL	1 520 574	-	1 512 667	99.50

Source: NDT Annual Report (2014)

Average departmental spending increased in real terms by 2.2 percent per annum (after taking inflation into account) compared to 4.9 percent expected over the MTEF period. Total spending performance by the Department has improved from 97 percent of the total budget in 2010/11 to 99 percent in 2013/14.

The Administration programme underspent by 10% in 2010/11, largely due to slow filling of vacancies. However, over the past three years, spending performance has been close to 100 percent. The Administration Programme spent 99.70 percent of its budget in the year under review.

The large share of the policy and Knowledge Services budget is allocated to South African Tourism as transfer payment. South African Tourism has consistently spent its full allocation over the years. Good spending by South African Tourism contributed to the overall spending by the programme being close to 100 percent with 99.67 percent achieved in 2013/14.

International Tourism Management consistently produced the lowest spending performance in the Department in 2011/12 (5.5%), 2012/13 (6%) and 2013/14 (8%). Contribution of International tourism is small relative to total spending in the Department and therefore does not significantly impact the spending performance of the department as a whole. However, this does not detract from department putting in place measures to improve alignment of budgets with spending in the programme. The International Tourism Programme spent 92.4 percent of its budget in 2013/14.

Spending as a share of budget by the Domestic Tourism programme has improved over the four year period, rising from 93.5 per cent in 2010/11 to 99.7 percent in 2013/14. The Domestic Tourism programme is a key job creation lever in the Department. Any underspending by the Programme can therefore reduce overall departmental impact of supporting job creation and contributing to economic growth.

4.3 Financial performance 2013/14

This section of the report provides a broad picture of spending patterns and challenges for 2013/14. It looks at adjustments, virements, cashflows, over/under-spending, rollovers and savings, and assess the impact.

4.3.1 Quarterly spending trends

The quarterly spending trends for the Department in 2013/14 financial year were as provided in Figure 5:

Figure 5: Quarterly spending trends including 2013/14 financial year

Source: Adapted from Financial and Fiscal Commission (2014)

The quarterly spending of the Department in 2013/14 followed a consistent pattern with the previous financial years. The months of January, April, July and October show high spending by the Department. This is attributed to transfer payments to South African Tourism and households. The disbursements in January 2013/14 were however significantly higher than the previous two years. This means the Department spent relatively slowly in the first nine months of the financial year compared to the previous years. This is not a good trend as this may lead to fiscal dumping in future if the Department is not able to spread its spending evenly throughout the year. The Department is however commendable as it was able to spend almost all its budget in the period under review, notwithstanding virements made in some programmes.

4.3.2 Adjustments and virements for 2014/15

An adjustment was made for Programme 2: Policy and Knowledge Services for an additional R20 million which was allocated for the transfer payment to South African Tourism to make provision for the depreciation of the Rand on foreign currency denominated expenditure.

The Accounting Officer also approved virements in terms of Section 43 of the Public Finance Management Act (PFMA), 1999. In accordance with this section of the Act, the amount of a saving under a main division of a vote that may be utilised, may not exceed 8 per cent of the amount appropriated under that main division.

An amount of R4, 536,000 (1.2 per cent) was shifted from Programme 4: Domestic Tourism to Programme 1: Administration. Domestic Tourism’s saving is related to the Tourism Incentive Programme which has not been fully implemented. Administration’s over expenditure is related to the purchase of computer hardware and software as well as the creation of additional office space on one floor of the head office building, Tourism House. National Treasury granted approval for the shift of R10 million from Programme 4: Domestic Tourism (Expanded Public Works Incentive Programme) to Programme 2: Policy and Knowledge Services (SA Tourism transfer payment) to alleviate foreign currency losses.

The virements effected in the period under review reflect poor planning on the side of the Department. The virements done on Programme 4 highlight the challenge that the Department has in relation to implementing the Tourism Incentive Programme. This shortcoming has not been addressed as the Committee has conducted a hearing with the Department in the second quarter of 2014/15 and the Department had not finalised planning for the TIP. This is an early indication that the Department will not be able to utilise these funds and may also effect some virements on the same programme or send money back to treasury in 2014/15. Table 6 below indicates all the adjustments that were effected in 2013/14 per Programme with percentages.

Table 6: Budget adjustments

Programme	Main Appropriation	Adjustment Estimates	Shifts approved by National Treasury	Virements	Final Budget (Adjustment estimate plus/ minus virement)	Actual Amount spent	variance (Over/ under expenditure)	% Spent	Virement as a % of budget
	R’000	R’000	R’000	R’000	R’000	R’000	R’000	%	%
Administration	212 646	208 110	-	4 536	212 646	212 000	646	99.7	1.2
Policy and Knowledge Services	911 843	901 843	10 000		911 843	908 790	3 053	99.7	-
International Tourism	41 013	41 013	-	-	41 013	37 886	3 127	92.4	-
Domestic Tourism	355 072	369 608	(10 000)	(4 536)	355 072	353 991	1 081	99.7	1.2
Total	1 520 574	1 520 574	-	-	1 520 574	1512 667	(7 907)	99.5	-

Source: Adapted from NDT Annual Report (2014)

An amount of R10 million was shifted from Programme 4 to Programme 1 and this indicates poor planning as the Expanded Public Works Programme (Social Responsibility Implementation) currently faces a number of challenges. The funds could have been utilised to address challenges in the SRI projects which is geared towards job creation and transformation of the sector. This also reveals some challenges with regard to planning at South African Tourism in regard to making provision for foreign currency exposure. South African Tourism and National Treasury have to find solution to this challenge as it is an annual occurrence and needs a permanent solution that will not affect the appropriated budget for the Department in a particular financial year.

4.3.3 Auditor General Report

The Auditor-General’s opinion for the period under review is that the Department had a Clean Audit with no findings on Predetermined Objectives and Compliance. The financial statements present fairly, in all material respects, the financial position of the National Department of Tourism as at 31 March 2014 and its financial performance and cash flows for the year then ended, in accordance with basis of accounting described in Treasury note 1 of the accounting policies to the financial statements and the requirements of the PFMA.

The Department improved its performance from an unqualified audit with findings to clean audit for the 2013/14 financial year. The Department had in the 2012/13 financial year received an unqualified audit with findings due to material misstatements of disclosure notes. In 2013/2014 the Department was able to produce financial statements free from material misstatements. The Department, However, struggled to:

· Implement internal control processes to pick up the errors in the performance information that was submitted for audit and they relied on the Auditor-General to detect these so that they could be corrected. For example, in the Domestic Tourism Programme, evidence to support targets achieved could not be provided. Subsequently achieved targets were amended to include only those that could be supported by evidence.

· Measure and report on their performance in accordance with the predetermined objectives in their Annual Performance Plan in a manner that is reliable and useful.

· Implement stringent financial management principles and controls.

· Comply with ICT governance and control as ICT policies and procedures were not updated on time and sometimes not existing at all.

The South African Tourism regressed from a Clean Audit opinion with no findings to an unqualified audit with findings on predetermined objectives and Compliance. The entity has achieved thirteen consecutive unqualified audits. The findings at SAT pertained to flouting of Supply Chain Management processes. The Chief Financial Officer declared interest in the building tender when SAT was extending their offices but did not recuse himself in the adjudication of the tender. The company which got the tender had his ex-wife as one of the executives. South African Tourism also struggled to:

· Implement policies, procedures and controls to ensure they comply with the relevant legislation, especially Supply Chain Management.

· Implement internal control processes to detect errors in the performance information that was submitted for audit. They also relied on auditors to pick up the errors so they can correct them.

· Set clear performance indicators and targets to measure their performance against the predetermined objectives.

The Committee noted that some of the findings and observations made with regard to poor implementation of the Expanded Public Works Programme were still not reflected in the Auditor-General’s Report. The Auditor-General made an undertaking to the Committee to take this matter up with their Performance Management Unit to ensure assessment of some projects on the ground for future auditing purposes. The Committee also observed that the audit findings resulted from human error in terms of misstatement when reporting and also poor governance in terms of observing relevant legislations. Leadership, especially at South African Tourism, did not perform their function of ensuring compliance with legislation.

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

The Department had no unauthorised expenditure in the year under review. In the previous year 2012/13, 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 had reported that they were investigating these issues to determine liability. The Department also incurred under spending of R2.075 million in the previous year.

The Committee noted with concern that issues raised in the previous year’s Budget Review and Recommendations Report (BRRR) are still prevalent in the year under review as the Department continued to incur wasteful and fruitless expenditure of R1 944 000.00 relating to travel expenditure. This expenditure is pending an investigation. Once investigated, the expenditure will be condoned or transferred to the departmental debt account for recovery. The Department has however, developed a guideline document for the treatment of fruitless and wasteful expenditure to deal with this matter in the future.

An amount of R330 000.00 was incurred for the cancellation of the year end function. This was condoned as a valid expenditure. In addition, an amount of R15 000.00 was incurred due to late cancellation/ no shows/ flight amendments with regard to travel bookings. This expenditure was also condoned as valid expenditure. A further amount of R303 000.00 was incurred due to late cancellation/ no shows/ flight amendments with regard to travel bookings is still under investigation to determine liability.

The staff in the Department is bound to travel as the Department is implementing and supporting a number of projects throughout the country. The Department should ensure that the guideline document developed to curb wasteful expenditure related to travelling is effectively implemented.

An amount of R15 215.00 was incurred on liabilities with regard to claims against the Department. The opening balance of this expenditure was at R14 546.00 at the beginning of the financial year. Two claim relate to personnel issues with one in regard to compensation arising from the alleged dismal by the Department and was already in the books of the Department by the end of the previous year but had not been resolved, and the other relating to claiming for damages arising from negligent driving by the official of the Department. Three claims relate to contract management.

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

The Committee had a briefing with the Financial and Fiscal Commission (FFC) as part of preparation for developing the Budget Review and Recommendations Report. Invaluable insights were gained in regard to the spending patterns and forward planning for the Department. Some of the issues raised by the FFC include the following:

· A total contribution of tourism to Gross Domestic Product (GDP) of R323 billion was recorded in 2012 (i.e. 11 percent of GDP). To achieve National Development Plan target of R499 billion by 2020, total contribution to GDP must grow by 7.7 percent per annum. Currently, the contribution to GDP is significantly below the required rate.

· Domestic expenditure on tourism shows fastest growth (4%) per annum. The global recession led to renewed focus on domestic tourism to cushion impact on local tourism industry. The increased emphasis on domestic tourism in department’s budget is welcome.

· Infrastructure investment in tourism has fallen over the five years largely from a slowdown in the local economy, although improvement is noticeable from 2011 as the economy started to recover. A significant future investment is required to continue growing the sector.

· Upward trajectory in demand for accommodation continued in July 2014 but this trend may reverse in coming months as tourists are cancelling trips to South Africa and other African countries due to the outbreak of Ebola. The Departments must track the impact of Ebola on Tourism to ascertain to what extent this epidemic is affecting projected international tourist arrivals.

5. Financial performance 2013/14

5.1 Quarterly spending trends

The quarterly performance of the Department given below covers the period up to, and including the second quarter of the 2013/14 financial and a picture at the end of the year.

Table 7: Expenditure per Programme as at 30^th September 2013

Summary of Expenditure as at 30^th September 2013 (Two Quarters)
Description	Original Budget	Adjustments	Updated Budget	Actual Expenditure	Variance	% Spent
Administration	205 721	2 389	208 110	93 416	114 694	45%
Policy and Knowledge Services	875 483	6 360	881 843	432 951	448 892	49%
International Tourism	49 602	8 589	41 013	18 134	22 879	44%
Domestic Tourism	369 768	160	369 608	144 736	224 872	39%
TOTAL	1 500 574	_	1 500 574	689 237	811 337	46%

Source: National Treasury (2014)

Programme 1: Administration

In the second quarter of 2013/14 financial year the Administration Programme had spent 45 percent of its budget and achieved 45 percent of targets. However, the Department was falling short on its vacancy rate targets. The Department was at that point sitting at a vacancy rate of 11 percent. The Department had lost 80 officials and 4 percent of staff had moved to other departments. The Department did not have a staff retention programme and this was a course of high staff turnover and the Committee had suggested to the Department that they need to look at developing a staff retention policy to reduce the rate of resignations from the Department.

Programme 2: Policy and Knowledge Services

The Policy and Knowledge Services Programme had spent 49 percent of its budget and did not meet all its targets as at quarter 2. The Department had aimed to host a National Tourism Sector Strategy Delivery Forum in September 2013 but it did not happen due to clashes with the 2013 Tourism Summit. The Forum did however take place in October 2013. A Tourism Leadership Dialogue scheduled for the end of September 2013 could also not take place due to unavailability of the steering committee members for the Department and the private sector. The Tourism Leadership Dialogue did however take place in October 2013.

Programme 3: International Tourism Management

At the end of the second quarter, the 44 percent of the budget for programme 3 had been spent. The International Tourism Management programme had targeted 42 missions for support to institutionalise tourism. However by the end of September 2013 only 39 missions had been supported. The remainder of the targets were to be supported in quarter three. The Department had also set a target of having a Strategy Framework for NDT’s participation in Brazil, Russia, India, China and South Africa (BRICS). However, due to delays in stakeholder engagements only a draft framework was in place by the end of September 2013. By quarter 3 the framework would be complete.

Programme 4: Domestic Tourism Management

Only 39 percent of the budget appropriated for programme 4 had been spend at the end of the second quarter. The Domestic Tourism Branch had met the following targets: a Draft Report on the progress on the implementation of Domestic Tourism Growth Strategy had been completed; a workshop on Social Tourism had also been hosted; a Maloti Drakensberg Route Working Group Meeting had been convened in September 2013; four Educator seminars had also been successfully held; and a Domestic Tourism Implementation Plan had furthermore been completed. However, the Department was struggling with meeting the targets for planning towards the implementation of the Tourism Incentive Programme

Total expenditure in 2013/14 was 99.8 per cent of the 2012/13 adjusted appropriation. Expenditure in the first six months of 2013/14 was R689.237 million, or 45.3 per cent of the adjusted appropriation of R1.521 billion for the year. In comparison, mid-year expenditure in 2012/13 was R727.720 million, or 53 per cent of the 2012/13 adjusted appropriation. Compared to the first six months of 2012/13, expenditure over the same period in 2013/14 decreased by R38.483 million, or 5.3 per cent. This was mainly due to undisbursed funds for projects related to the Expanded Public Works Programme.

At the end of the financial year, the Department had spent 99.5 percent of its appropriated budget amounting to R1 512.7 billion of R1 520.6 billion total appropriation. An amount of R7.9 million was not spent. This under expenditure was incurred mainly due to vacant posts which were filed towards the end of the financial year and operational costs relating to these posts and the implementation of cost cutting measures as per Treasury Instruction 1 of 2013/14. However, Treasury expressed that this under expenditure is negligible and does not represent an issue for the Department in terms of management of their financial affairs in 2013/14 financial year.

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

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

5.3 2015/16 MTEF financial allocations

5.3.1 Summary of funding submissions to National Treasury for the 2015/16 MTEF.

The Committee recommends to the National Treasury to maintain funding of the Department over the MTEF as presented in the 2014 Estimates of National Expenditure. No additional budget should be appropriated for the Department until it has developed internal capacity to spend the currently appropriated funding. The National Treasury should however in the long term, look at a feasibility of establishing a Tourism Development Fund that will enable the Department to fulfill its mandate.

5.3.2 Concluding comments on financial performance

The Department has displayed good financial management in terms of reporting to the National Treasury. The financial performance of the Department warranted a Clean Audit Award which was conferred to the Department by the Auditor-General for 2013/14 financial year. South African Tourism also reported efficiently on their finances in the period under review with challenges in Supply Chain Management.

It is noteworthy that the Department has spent almost all of its budget year-on-year since it was established in 2009 and underspending for the past 3 years has been within the generally accepted margin of 2 percent set by National Treasury. The underspending was mainly due to the implementation of cost cutting measures as per Treasury Instruction Note 1 of 2013/14 as well as vacant posts.

The Department has also put satisfactory measures in place to promote professional ethics, in that they have maintained a 100 percent compliance rate regarding the submission of Financial Disclosure Forms. Evidence exist that there is willingness to uproot corruption and investigate and deal with reported cases of corruption. In addition, the Department has not reported any cases of financial misconduct in the year under review. The Department should consider putting measures in place to deal with late cancellation or no shows with regard to travel bookings as this is a recurring challenge, leading to fruitless and wasteful expenditure.

6 Overview and assessment of service delivery performance

6.1 Service delivery performance for 2013/14

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

6.1.1 Annual Performance Plan: Total number of targets for 2013/14 and total number achieved.

The Department achieved 89 percent of all its planned targets in 2013/14. The achievement of targets depict a close alignment between targets met or exceeded and budget spent, and suggests that performance indicators were closely aligned with work volume of the department and resource allocation. Table 8 depicts departmental achievement of targets by Programme and indicates that Administration achieved 88 percent of its targets, Policy and knowledge Services 94 percent, International Tourism Management 100 percent, and Domestic Tourism Management 80 percent.

Table 8: Total number of targets achieved per Programme

Programme	Planned targets	Achieved	Not achieved	Achieved (%)
Administration	24	21	3	88
Policy and Knowledge Services	33	31	2	94
International Tourism Management	6	6	0	100
Domestic Tourism Management	25	20	5	80
Total	88	78	10	89

Source: National Treasury (2014)

The reported achievement of targets by the Department is however misleading. In many cases, where targets were exceeded, planned outputs for 2013/14 were lower than the baseline figure in the previous year. This raises the question of whether some of the department’s targets are realistic and reliable. The Auditor-General made no material findings on the performance information of the department. However, in close assessment of Departmental performance, it is clear that the Department has improved since the issue of poor setting of predetermined objectives was raised in 2011/12. Nonetheless, the Department still needs to improve in setting targets that will align more closely with the SMART principle.

The Department reported that there were no major internal challenges that impacted on the Department’s ability to deliver on its Strategic Plan and Annual Performance Plan (APP) during the period under review. No key management personnel resigned during the 2013/14 financial year. However, this is not collaborated by non-achievement of some targets, such as the Tourism Incentive Programme whereby the Department reported reasons for non-achievement of the target as delays in the vetting process as well as candidates being counter-offered, and failing to attract the right candidates. This had negative impacts on staffing the responsible unit and meant the Department had no capacity to deliver on the Strategic Plan and Annual Performance Plan. This means the Department has to be more careful when doing environmental scanning to assess internal and external factors that might have negative impact on achieving the set objectives.

South African Tourism also did not achieve most of its target set for 2013/14. The reason provided for non-achievement of targets is the unattainable National Tourism Sector Strategy targets which were set under different economic conditions. Poor performance was recorded in the following pre-determined objectives:

Objective 2: Increase domestic visitor arrivals coming to South Africa - South African Tourism set a target of 15.0 million to increase domestic visitor arrivals coming to South Africa for 2013/14. Only 12.0 million was achieved, with the deviation of 20 percent from planned targets. South African Tourism indicated that these adverse results were anticipated given the unattainable NTSS target which was set under different economic conditions. Revision of targets will be considered during the NTSS Review planned for 2015. However, South African Tourism should not have planned targets they knew were impossible to achieve. This reflects poor strategic planning and ability to set pre-determined objectives.

Objective 3: Increase in Tourism trended revenue contribution to the economy - South African Tourism set a target of R115.4 billion to increase tourism trended revenue contribution to the economy for 2013/14. Only R90 billion was achieved from January to September 2013. This is a deviation of 22 percent from the planned target. This is misleading given that figures provided are only for three quarters. South African Tourism gave an explanation that Statistics South Africa did not have all the information at the time of submitting information for auditing. Information provided after auditing indicated that the trended revenue of R128 billion was achieved at the end of the period under review and surpassed the target.

This also reflects poor project management by South African Tourism in drafting terms of reference with service providers as there were anomalies in the spend data that was produced by the service provider and as a result, a review of the methodology was required to determine the reasons for the anomalies in the data produced.

Objective 5: Provide quality assurance for tourism products - South African Tourism set a target of 6 789 for 2013/14 for graded establishments. Only 5 587 were achieved which amounts to the deviation of 18 percent from the predetermined objectives. This shortfall was due to an increase in non-renewal of graded establishments, payment defaults and cancellations. The Tourism Grading Council needs to implement a new business model to ensure that more establishments and rooms are graded. The Committee also observed that the grading system was not yielding much revenue and payment system for grading needs to be revisited.

6.1.2 Programme Performance

Performance of the Department in 2012/14 per each of the four programmes is given below:

(i) Programme 1: Administration

Programme 1 achieved 88 percent of its targets in the year under review. This is a drop in performance when compared to 97.8 percent achieved in 2012/13 financial year. The serious shortcoming in the performance of Programme 1 is in regard to vacant posts within the Department. The Department takes too long to fill vacancies. The Committee acknowledges the reasons of delays caused by vetting of suitable candidates. However, this challenge is known in advance and the Department has been providing the same reasons to Parliament over the previous years. The Department is also affected by high staff turnover. This talks to failure of Department to retain staff in its establishment. Failure to recruit suitable staff has affected performance of other programmes, particularly Programme 4 where the Tourism Incentive Programme has not been implemented due to lack of suitable staff. It is however acknowledged that the Department achieved 8.6 percent on its vacancy rate on an 8 percent target set for the year and that this is higher than government target of 10 percent.

The challenges on Information Technology reported by the Auditor-General are also results of shortcomings in IT management. Programme managers should intensify controls and ensure that all systems that need to be developed and maintained are effectively and efficiently operational.

Programme 1 is also responsible for reporting performance of the Department to Parliament. The Department has been reporting on biannual basis to Parliament. This led to poor accountability of the Department with some challenges in Departmental performance only uncovered by Parliament in the Annual Reports. The Committee has resolved that the Department should report quarterly to ensure effective oversight over the Executive.

(ii) Programme 2: Policy and knowledge services

Programme 2 achieved 94 percent of the set targets in 2013/14. This Programme has developed a number of tools that assist the Department to monitor and evaluate performance of the tourism industry in general. The challenge is with implementation of the tools and models that have been developed. There is a challenge with monitoring and evaluation of implementation of programmes. For example, Programme 2 is responsible for coordinating NTSS delivery forums. Meetings are held at a national level for various working groups and the NTSS delivery forum set twice in the year under review. However, there is still a gap in the implementation of the NTSS at provincial and national level. Some provinces and municipalities do not have structures to coordinate implementation of the National Tourism Sector Strategy. This presents a risk with regard to attainment of NTSS targets as implementation needs to occur and be monitored at all levels of government.

The Programme is also responsible for a number of targeted initiatives and platforms to promote compliance with the Tourism BEE Scorecard. The tourism industry is still untransformed and the challenge for this Programme is to develop programmes that will expedite transformation in the sector. The current initiatives under the Tourism BEE Scorecard have not achieved desired outputs with regard to transformation. The Programme Managers should package innovative initiatives that will augment the Tourism BEE Scorecard. The Committee acknowledges that the Department is currently consulting stakeholders on the new Tourism BEE Scored. This presents an opportunity to the Department to assess progress made with the old Scorecard and plan new effective mechanisms to expedite transformation.

Some of the achievements of Programme 2 include:

· The 2012 State of Tourism Report was developed, which sheds light on tourism performance in the country.

· Two models were developed to forecast tourist arrivals in the country. These models will be tested using 2013 data and the one with acceptable results will be adopted for use by the Department. In addition, a model which forecasts the number of tourists creating one job was also initiated and will be finalised during 2014/15 financial year.

· To regulate some of the functions that are of importance to the industry, two frameworks that will inform these regulations were developed. The frameworks are for regulations in respect of tourist guides and a call for information from tourism businesses.

· The Resilience Strategy was developed, which seeks to guide tourism businesses on how to respond to economic crises.

· A study was undertaken on land settlement cases with tourism implications in order to understand the effect of land claims on tourism businesses, as well as land settlement cases with tourism implications. A report, which shed light on the implication on some of the tourism businesses affected, was developed.

· Local government was supported by rolling out capacity building for the municipalities through various training programmes designed together with University of Pretoria. Policy makers and other tourism practitioners at local government level were trained during 2013/14 financial year. In order to understand the challenges and share information in tourism, four tourism leadership dialogues were hosted. These dialogues were attended by stakeholders from both private and government sectors. To understand the impact that other services have on tourism, four studies were conducted in collaboration with universities, the results of which would be shared with other stakeholders through research colloquiums.

· In order to monitor the state of transformation in tourism, the BBBEE Charter Council Plan of Action was implemented, and reports developed on quarterly basis.

· An investigation was undertaken to understand the state of universal accessibility in tourism in provincial parks. A report was developed to give the current state of accessibility in provincial parks.

(iii) Programme 3: International Tourism Management

Programme 3 achieved 100 percent of the set targets in 2013/14 and this was on par with the performance achieved in 20112/13. The work done by the International Tourism Programme has similarities with the mandate of South African Tourism. The Financial and Fiscal Commission indicated that there could be overlap of responsibilities between South African Tourism and the Department regarding marketing South Africa internationally and domestically. The Department should reassess whether the International Tourism Programme adds value to the Departmental mandate as initially intended or this branch should be disbanded and its mandate spread between South African Tourism and other branches within the Department. Some achievements of International Tourism Programme in the year under review are:

· Bilateral agreements - During 2013/14 memorandum of agreements were signed in the field of tourism with four countries, namely Seychelles, Saudi Arabia, Mexico and China. In terms of outbound tourism as measured by international tourism expenditure, Russia and China continued to be the most important source markets in the world. China`s outbound expenditure in 2013 was $129 billion compared to $102 billion in 2012. South Africa acknowledges that China will remain an important source market because of its large population, spending.

· Multilateral fora - The department developed the multilateral framework which is designed to prioritise multilateral organisations to be engaged, and also to define the agenda, which the department can influence in each of these organisations.

· Southern African Development Community (SADC) - The Department of Tourism has been instrumental in the restructuring of the Regional Tourism Organization of Southern Africa (RETOSA) and the establishment of a tourism desk at SADC Secretariat which will be aligned to the African Union (AU) Structure. The AU has recognised tourism as an important sector that contributes to the economic growth of the continent. South Africa, through the department, is part of the working group that took a decision to establish the AU Ministers of Tourism Conference which is a platform for addressing the growth and development of tourism in the continent.

· United Nations World Tourism Organization (UNWTO) - South Africa, represented by the department, is a member of the Executive Council of the UNWTO, responsible for approving and shaping the agenda and programme of the UNWTO and General Assembly.

(iv) Programme 4: Domestic Tourism Management

Programme 4: Domestic Tourism Management is a crucial programme in the Department in terms of fulfilling its mandate of job creation and contribution to the Gross Domestic Product. This Programme is also critical in ensuring provision of necessary skills in the sector, including critical skills and transformation of the sector in terms of promotion of emerging tourism enterprises. The Tourism Incentive Programme is also administered under Programme 4. Domestic Tourism achieved only 80 percent of its targets for the 2013/14 financial year. This is a cause for concern as this Programme carries a critical mandate for the Department. It is also noted that some critical posts have not been filled in this Programme, including the director responsible for the Tourism Incentive Scheme and the Chief Director for the Southern Region.

It is however acknowledged that this Programme implemented critical projects in the year under review and some of the achievements of Programme 4 are:

· SMME development - The Department entered into an agreement with Tourism Enterprise Partnership (TEP) to ensure SMME support takes place to improve the performance and increase the profitability of SMMEs by focusing on skills, product development, quality assurance and access to finance. This is done to actively support the creation of new jobs and maintenance of existing jobs, as well as to increase the participation of Black tourism enterprises in the economy by focusing on enterprise development and market access for enterprises that are predominantly black-owned. The SMME support programme has created 4,040 fulltime equivalent (FTE) jobs. There were 2,757 enterprises trained, 977 assisted with market access and 891 rural enterprises supported with skills development.

· Expanded Public Works Programme - The Department is driving the Social Responsibility Implementation Programme that facilitates the development of tourism infrastructure projects under the Expanded Public Works Programme through the use of labour intensive methods targeting the unemployed, youth, women, the disabled and SMMEs. Through the programme, the Department created 2,797 full-time equivalent (FTE) jobs during the period under review.

· Chefs Youth Training Programme - The Department identified that there was a shortage of chefs in the tourism industry in South Africa and embarked on a training programme with the South African Chefs Association to design a training programme for young people to become chefs. Eight hundred (800) unemployed young people in all nine provinces of South Africa are in various stages of training in the Professional Cookery (Chef) qualification. The hospitality industry in South Africa is characterised by a dire skills shortage and are currently not meeting the demand for qualified chefs. Currently, graduates of the programme have been employed by some of the major hotel chains, others have started their own catering businesses and some have gone on to their third year of training.

· Tourism Buddies Programme - The Department has continued with the project since 2011, which has been rolled out across all nine provinces. The youth are trained in the hospitality field and will emerge with a SAQA qualification in either Accommodation Services or Food and Beverages Services. Learners are trained and placed in various hospitality institutions for experiential learning. In the 2013/14 financial years, 3,860 learners were enrolled in the programme nationally. Four hundred and forty one learners have been permanently employed by the hospitality industry during the period under review.

· Capacity building - The National Rural Tourism Strategy was developed in order to ensure a developmental approach to the packaging of rural tourism products and opportunities in South Africa. This approach is also meant to prioritise spatial nodes that have the potential to stimulate growth of the rural tourism sector in the country. In order for the Department to maintain its principle for sustainability and responsible tourism, the strategy adopted a nodal developmental methodology in order to achieve a higher sustainability.

6.1.3 Key reported achievements.

The following achievements were made by the Department of Tourism and South African Tourism in the year under review:

(i) Clean Audit Award

The Department of Tourism was recognised for its clean audit achievement at an awards ceremony for state entities. The Clean Audit Awards were handed over by the Auditor General to 13 out of 41 audited state entities in the Economic Cluster for the 2013/14 financial year. The Auditor-General indicated that the National Department of Tourism was the only National Department to receive the award in the cluster.

(ii) New Tourism Act (Act no 3 of 2014)

The major achievement in the year under review is that the Department was able to finalise a long legislative process which began in 2011 of drafting and finalising the new Tourism Act (Act No. 3 of 2014). The Department was able to repeal the old Tourism Act (Act no72 of 1993) which had a number of shortfalls. The Tourism Bill was introduced to Parliament in 2012 in terms of Joint Rule 159. The Bill was debated in the National Assembly and National Council of Provinces (NCOP) and was passed by the National Assembly in February 2014. The President has since assented the Tourism Bill in April 2014 into the Tourism Act, 2014 (Act 3 of 2014) which was gazetted in April 2014. The new Tourism Act, 2014 (Act 3 of 2014) paves the way to promote responsible tourism for the benefit of South Africa and for the enjoyment of all citizens and foreign visitors; for the effective domestic and international marketing of South Africa as a tourist destination; promote quality tourism products and services; promotes growth and development in the tourism sector; and enhance cooperation and coordination between all spheres of government in developing and managing tourism.

(iii) Increased arrivals

South African Tourism achieved 14,8 million in increased arrivals in the year under review from a target of 13 million. This is equivalent to 14 percent over-achievement of pre-determined objectives which was 10.5 percent growth from 2012 against 10.2 percent in 2011.

(iv) SMME Development

The Department entered into an agreement with Tourism Enterprise Partnership (TEP) to ensure SMME support takes place to improve the performance and increase the profitability of SMMEs by focusing on skills, product development, quality assurance and access to finance. This is to actively support the creation of new jobs and maintenance of existing jobs, as well as to increase the participation of Black tourism enterprises in the economy by focusing on enterprise development and market access for enterprises that are predominantly black-owned. The SMME support programme has created 4,040 fulltime equivalent (FTE) jobs. There were 2,757 enterprises trained, 977 assisted with market

(v) Job creation

In the first quarter of 2013 tourism generated R35 billion when compared to mining which generated R32 billion. The industry at large generated 1, 4 million jobs in 2013. This continues to advocate a case for tourism as a priority sector that is able to generate labour intensive employment. Through internal projects, the Department is driving the Social Responsibility Implementation Programme that facilitates the development of tourism infrastructure projects under the Expanded Public Works Programme. The programme uses labour intensive methods targeting the unemployed, youth, women, the disabled and SMMEs. Through the programme, the department has created 2,797 full-time equivalent (FTE) jobs during the period under review.

(vi) Critical Skills Training

The Department has trained 800 Chefs in partnership with the South African Chefs Association. This is important for the sector as the country is already importing chefs, especially from neighbouring countries to fill this critical skills gap in the hospitality sector.

(vii) Tourism Buddies Programme

The Department has continued with the project since 2011, which has been rolled out across all nine provinces. The youth are trained in the hospitality field and will emerge with a SAQA qualification in either Accommodation Services or Food and Beverages Services. Learners are trained and placed in various hospitality institutions for experiential learning. In the 2013/14 financial years, 3,860 learners were enrolled in the programme nationally. Four hundred and forty one (441) learners have been permanently employed by the hospitality industry during the period under review.

(viii) Fighting crime and corruption

The Department has instituted forensic auditing for the Social Responsibility Implementation projects. The audit is at the advanced stage. Some matters are already before the courts for prosecution.

6.1.4 Key reported challenges.

The following challenges were either reported by the Department tor deduced from the analysis of Departmental operations. The Department and South African Tourism should improve on the challenges and improve its systems to ensure mitigating and eradicating recurrence of such challenges in subsequent financial years. Challenges in the period under review include:

(i) Planning

The key challenge observed through reported performance of the Department and South African Tourism is poor planning when setting pre-determined objectives. Both the Department and South African Tourism failed to consider prevailing circumstances when setting their targets. The Department, for an example planned to activate 18 national programmes to implement the approved Domestic Tourism Growth Strategy’s action plan. However 15 programmes were supported. The reason for deviation is given as the miscalculation on the finalisation of the plan when the Annual Performance Plan was finalised. South African Tourism also knows in advance that they operate in international markets but this is not factored into the budget and the reason given is that the Public Finance Management Act does not allow hedging of funds. However, the Entity has no plan in place to cater for this exposure. South African Tourism also planned a high target for domestic arrivals but when they failed to achieve them a reason was given that these were difficult to attain due to targets set in the NTSS under different economic conditions. South African Tourism has always been aware of the NTSS targets but they did not set their targets realistically. Both the Department and South African Tourism need to improve on their planning and ensure targets set in the Strategic Plan and the Annual Performance Plan meet the SMART principle of being specific, measurable, attainable, realistic and time-bound. Tourism is dependent on many other factors outside the jurisdiction of the Department. The Economic climate, both globally and domestically influence the movement of tourists. The management of the Department and South African Tourism should practice forward planning and take all these, and other factors when setting targets in a particular financial year.

(ii) Vacancy rate

The Department experienced high staff turnover and internal promotions. These, coupled with suitable candidates declining offers and personnel suitability checks (PSCs) not timeously available impacted on the vacancy rate. The Department achieved an 11.17 percent vacant rate in 2012/13 and had targeted 8 percent in 2013/14. There was a deviation of 0.6 percent from the planned target. The Department also failed to meet its target on the percentage of representation of designated groups. The reason cited for this was a lack of suitable candidates with disabilities to fill available positions. Vacancies in critical line functions such as domestic tourism programme led to non- achievement of targets.

(iii) Foreign Currency Exposure

In 2012/13 the Budget Review and Recommendations Report the Committee indicated that South African Tourism (SAT) experienced currency loss due to foreign currency exposure based on their marketing activities abroad. The challenge of foreign exchange and currency exposure continued in 2013/14 financial year. Treasury allocated an amount of R20 million to assist SAT with this matter. However, the challenge is not abating as SAT has indicated to the Committee that they have already been exposed to an amount of R80 million in the current 2014/15 financial year and this may increase as the year goes on. As stated before, South African Tourism is aware of this annual challenge and they need to consider its implications in their planning to avoid further expenditure not reflected in the budget to cover foreign currency exposure induced expenditure.

(iv) Fraud in Expanded Public Works Programme projects

The Department continues to face challenges with regard to fraud and corruption in the Social Responsibility Implementation projects. In 2012/13 the Budget Review and Recommendations Report the Committee highlighted that 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. In the period under review, the Department had not finalised forensic audits and the challenges experienced in the previous years are still prevalent in the Social Responsibility Implementation projects.

(v) Failure of self-regulation in the tourism industry

The tourism industry is mainly self-regulated with many voluntary undertakings by the private sector. The two of these undertakings which had challenges in the year under review is the grading system and TOMSA Levy which are both voluntary. The number of levy collectors decreased from 506 contributors in 2012 to 470 in 2013. On the other hand the number of graded establishments decreased from 6 022 in 2012/13 to 5587 in 2013/14. The decrease in figures for both these activities can be ascribed to voluntary implementation and enrolment by the industry. The Department should assess the impact of self-regulation on these aspects of the sector and review implementation if necessary.

(vi) Flaws in Internal Auditing

The Department and South African Tourism both have internal audit committees. However, the Auditor-General discovered numerous errors in the records submitted for auditing. These misstatements could have been picked up and corrected before submitting. However, they were only corrected after Auditor-General had uncovered them. In the case of South African Tourism the Auditor-General also made a finding that observation of relevant legislation was not made in regard to supply chain management. This raises serious concerns about internal auditing capacity and quality assurance in both organisations.

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

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

(i) Information Technology controls

The Department has a challenge with the design and implementation of IT policies. The Department should take responsibility of IT programmes as SITA only provides the software but responsibility remains with the Department.

(ii) Risk management

Management did not play oversight over the Departmental programmes. There was a challenge with tracing achievement of targets and reporting these to the Auditor-General. This poses a risk to the Department in the future if not adequately addressed.

(iii) Capacity to implement Expanded Public Works Programme

The Auditor-General raised a concern that the Department did not have full capacity to implement the Expanded Public Works Programme and the Parliament needed to play more oversight role to ensure that objectives of this programme are met.

(iv) Quality of performance information

The Department submitted performance information to the Auditor-General with a number of misstatements. Had it not been for the Auditor-General, those issues would not have been discovered. The Department should ensure that performance information is verified before submitted for auditing.

The Auditor-General suggested some commitments to the Committee. The Committee should:

(i) Intensify the oversight role on Expanded Public Works Programme to ensure that objectives are being met;

(ii) Request progress on the discussions with the National Treasury regarding the correct accounting treatment for EPWP expenditure at the Department;

(iii) Request updates on the controls being implemented by both the National Department and South African Tourism to address the misstatements in the predetermined objectives;

(iv) Follow up on action plans implemented to address the IT related findings.

6.2 Other service delivery performance findings

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

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

The Committee undertook three oversight visits in the period under review. Oversight visits were undertaken to Western Cape, Free State and KwaZulu Natal. The Committee also hosted a Tourism Summit that was convened in September 2013 to establish the state of tourism in South Africa. The Committee reported on some of the tourism issues discovered in the oversight visits and the Tourism Summit in the 2012/13 Budget Review and Recommendations Report. The committee also received briefings from the Department and South African Tourism on their programmes. The Committee observed the following factors affecting tourism in South Africa:

(i) Lilizela awards

The Lilizela Awards had been hosted twice at a time of compiling this report. The Committee noted that winners of these awards reflect lack of transformation. This depicts a picture of transformation in the entire industry. The awards have a wide range of categories but despite this, the profile of winners remains a concern. South African Tourism should look at the categories and ensure that they accommodate all the sectors of the industry.

(ii) Transformation

The tourism industry in South Africa remains grossly transformed. There is a big gap between emerging enterprises and large tourism businesses. The transformation programme of the Department is based on the Tourism Scorecard and BEE Sector Codes has not achieved transformation in the sector. The Department should conceptualise and device innovative transformation programme that will change the state of the tourism industry in the country.

(iii) Small, Medium and Micro Enterprises (SMMEs)

The tourism industry is characterised by a number emerging enterprises. These SMMEs are struggling with a number of issues including market access, access to funding and appropriate skills. The Committee observed that at a local level there is also unequal development amongst SMMEs with more attention given to those in urban areas at the expense of those in peripheral areas such as townships and rural areas. The SMMES in the city were fairing much better than those in townships.

The Committee noted that the Department is assisting SMMEs through a number of programmes, including Tourism Enterprise Partnership Funding. However, the Department lacks a comprehensive SMME strategy geared towards incubating SMMEs to ensure they are self-sufficient and sustainable. SMME programmes are fragmented and impact is not visible on the ground. A number of SMME success stories have little to do with Departmental interventions. The Department should therefore have a targeted SMME strategy that will ensure growth and sustainability in the SMME sector.

(iv) Entrepreneurship spirit

The SMMEs who had started businesses on their own without government assistance displayed more sustainability and some of them had won some national competitions including Emerging Tourism Entrepreneur of the Year Award (ETEYA) or the newly implemented Lilizela Awards. This indicates that in addition to government support that must be afforded to SMMEs, SMMEs themselves should be self-motivated and not entirely depend on government. There needs to be a strong balancing act between assistance given to SMMEs and their self-drive to make their business ventures successful.

(v) Tourism at local level

Municipalities are at a coal face of tourism delivery and therefore success of tourism heavily relies on this sphere of government. However, the Committee observed that some municipalities do not prioritise tourism in their budgets and local economic development plans. Planning and legal issues such as rezoning and bylaws also hamper tourism development at local level. The Committee urges municipalities to ensure proper planning that creates a conducive environment for tourism development at local level. The Department is also encouraged to assist municipalities in infusing tourism in their plans.

(vi) Collaboration amongst spheres of government in implementing Extended Public Works Programme

The Committee observed that provinces vary in terms of their coordination efforts in implementing the SRI projects. It was discovered that whilst other provinces were struggling to coordinate among the national, provincial and local structures, others had good structures on the ground that assisted with coordination.

(vii) Institutional arrangements and coordination

The Department has well established governance and coordination structures at a national level as enshrined in the National Tourism Sector Strategy. Some provinces and especially municipalities do not have these structures. The Minister holds quarterly MinMec meetings which should be informed by discussions at a provincial and local level. The MECs are expected to cascade information to all the structures at a provincial level. However, the lack of governance structures at a local level break the conduit of cascading information to all levels. The Department has an important task of assisting provinces and municipalities to establish their structures for planning in general.

(viii) Lack of bulk infrastructure

Tourism developments needs bulk infrastructure such as water and electricity, including road access. Some areas identified with prime tourism development potential do not have this infrastructure. This stifles development, especially along the coastal areas and rural communities.

(ix) Air Lift

South Africa is a long haul destination and airlift remains at the centre of facilitating foreign tourist arrivals and unlocking domestic tourism in the country. Travel by air within South Africa is too expensive and stifles domestic tourism. In addition to expensive air travel, some destinations in the country have poor connectivity. Some smaller towns with tourism potential have poor connectivity or frequency of flights and can be accessed through connecting flights via OR International airport. The Committee has also noted that the cost of flights is also linked to other travel related charges such as airport taxes which are very high in some airports in South Africa. Relevant authorities such as the Department of Transport, Public Enterprises and Airports Company South Africa must be consulted to discuss the impact of poor airlift in the tourism industry.

(x) Private sector contribution to marketing

There is decline in TOMSA Levy collectors and the private sector is not matching the contributions made by government. This is ascribed mainly to levy collection being voluntary. Marketing of South Africa therefore relies more on state funding from South African Tourism whereas business should be responsible for marketing their products. The TOMSA Levy should be revisited to access its impact and implementation methodology.

(xi) Project management and Appointment of Implementing Agents

The Committee observed that the Department has challenges with project managing the Social Responsibility Implementation projects. SRI projects are implemented more efficiently in the provinces with resident project implementers whereas the same cannot be said for provinces where implementers are sourced from other provinces. Resident implementers could provide project management on daily basis. In such provinces, municipalities also provided maximum support to the projects to ensure their success and sustainability. It is acknowledged that these are national projects and adverts for implementers are issued nationally. However, the Department should try, where possible, to appoint implementers in the provinces where projects are located.

(xii) Signage

Tourism signage is poor in some areas and non-existent in others throughout the country. Some major national and provincial attractions such as World Heritage Sites have no proper signage from national roads and major access routes. Travelling to these attractions and facilities becomes difficult and time consuming. Poor signage also exposes tourists to danger and make them prone to opportunistic crimes such as mugging and hijacking. It is acknowledged that the Department has started efforts to coordinate signage issues with the Department of Transport. However, collaboration between the Department of Tourism and the Department of Transport should be intensified to get a quick solution to this problem.

(xiii) Maintenance of tourist attractions

Some tourist attractions fall outside the span of control of the Department. Some important attractions such as cultural and heritage sites fall within the ambit of the Department of Arts and Culture, provinces or even municipalities. The committee noted with concern that some of these attractions are not well maintained and some are in the estate of disrepair. This affects product offering as some of them such the Robben Island Museum are internationally acclaimed and draw a number of tourists to South Africa. The Department is urged to work closely with relevant departments and authorities to promote proper maintenance of tourist attractions throughout the country.

6.2.2 Relevant external research assessing performance of the Department

The Committee reviewed a number of documents from various organisations to get insight into their perspectives on service delivery by the Department and South African Tourism. Some of the thematic issues identified include:

(i) Tourism Statistics

Statistics South Africa (StatsSA), in their release of 2013 tourism statistics, indicated that international foreign arrivals to South Africa reached its highest levels ever, namely 14 860 216 in 2013. This 10.5 per cent increase in international foreign arrivals (over 13 451 565 in 2012) translated to 9.6 million international tourist arrivals. All international tourist arrivals combined increased by 4.7 per cent, while the overseas tourist arrivals sub-category increased by 7.1 per cent. South Africa welcomed a total of 9 616 964 tourists in 2013, up from the 9 188 368 tourists that visited South Africa in 2012. Tourist arrivals to South Africa in 2013 showed positive growth from all regions.

In total, South Africa recorded 417 582 North American tourists in 2013, up from 393 446 in 2012. South Africa’s second largest market, the USA, accounted for 348 646 tourist arrivals in 2013, reflecting 6.7 per cent growth on the 326 643 Americans that visited South Africa in 2012. Asia, and Central and South America continued to record good growth on top of the exceptional levels witnessed in 2012, in which these markets grew by 34 per cent and 37 per cent respectively. A total of 435 076 Asian tourist arrivals were recorded in 2013, a 9.2 per cent increase on 2012 numbers. China, South Africa’s fourth largest source market for tourist arrivals for the second year in a row, continued to perform, growing by 14.7 per cent to reach 151 847 tourist arrivals in 2013. Arrivals out of India tempered in 2013, growing by 5.5 per cent to reach 112 672 arrivals. Africa, by far the largest source of tourism arrivals to South Africa, grew from 6 634 933 in 2012 to 6 889 389 in 2013. This amounts to growth in arrivals of almost 4 per cent. African air markets continued to perform, with African air tourist arrivals growing by 12 per cent in 2013, with growth recorded from all markets. Nigeria, the largest African air market for South Africa’s tourist arrivals, grew by 15.4 per cent to reach 84 589 tourist arrivals.

The PWC (2014) report also reported that increases in foreign overnight visitors were recorded from each region. Despite sluggish economies, travellers from Europe increased 5.4 per cent, while the number of North American visitors rose 5.6 per cent. In Latin America and Asia-Pacific, where economic conditions have been relatively healthy, travel to South Africa rose by 7.4 per cent and 6.7 per cent respectively. The number of visitors from countries outside of Africa rose 5.7 per cent in 2013. Visitors from other countries in Africa totalled 6.9 million in 2013, up 3.3 per cent from 2012 and accounting for 72 per cent of the total number of foreign visitors to South Africa.

(ii) Rethinking TOMSA Levy

The tourism industry is a multifaceted and complex sector that is linked and interdepended with a number of other sectors. The major role-player is the private sector as they own and operate the tourism plant. The relationship between the Department and the private sector is therefore pivotal to tourism growth and achieving the National Development Plan targets set for the sector. In this regard, the Tourism Business Council of South Africa (TBCSA) is a strategic partner. The TBCSA collects tourism marketing levy from its members through Tourism Marketing South Africa (TOMSA). According to Tourism Business Council South Africa (2014), TOMSA has contributed over R800 million to the marketing efforts of South African Tourism (SAT) since its inception in 1999. As the appointed marketing agency for Destination SA, SA Tourism allocates the funds to the dedicated marketing and promotion of South Africa as a preferred destination of choice for local and international tourists. With this contribution, TOMSA has actively been a part of the growth in visitor numbers to South Africa.

However, in their 2014 annual Report, TOMSA has indicated that while levy collections were on the increase, the number of collectors decreased from 506 contributors in 2012 to 470 in 2013. This is considered as grounds for concern but the decline can be rectified with the correct mix of TOMSA brand awareness in marketing Destination SA. The decrease in number of collectors could be ascribed to unhappy product owners who do not see any benefits of TOMSA levy in their destinations. Some of the benefits from TOMSA levy include discounts on exhibitor rates at Indaba and discounts for grading fees. However, stakeholders at local level do not see the benefits as South African Tourism uses TOMSA levy to market the country at a national and international level. Some provinces have suggested charging a Hospitality Levy of ten per cent which will be equivalent to a tourism tax. This may create a precedence whereby many sub-destinations may start imposing tourism levy at provincial level.

The Department, particularly South African Tourism, should work closely with the TBCSA to revisit TOMSA levy collection and benefits accruing to members. South African Tourism markets destination South Africa as a whole and benefits even those private sector members who do not pay the levy. In other countries a Tourism Tax is imposed to ensure all tourism businesses pay towards national fiscus which is used for marketing their countries. The option of a Tourism Tax should be investigated to ensure all tourism businesses which benefit from South African Tourism funded from national fiscas pay for destination marketing. The voluntary payment of the levy is also a challenge. This therefore is unfair to levy collectors. If the number of levy collectors continues to decline, an idea of a standardised Tourism Tax should be considered against the TOMSA Levy. Initially, the idea of TOMSA Levy was that government would match the money collected in budget allocations to South African Tourism. However the money allocated to South African Tourism far exceeds what the industry is contributing. In 2013, TOMSA Levy contributed R104 million to South African Tourism whilst the Department transferred R866, 333,000 to South African Tourism for marketing initiatives in 2013/14. The Tourism Tax will ensure that all tourism establishments are treated fairly and equally. This will also discourage provinces from legislating their own hospitality levies which will make destinations expensive and destroy tourism.

(iii) Contribution to skills development

The Tourism Enterprise Partnership (TEP) which is partly funded by the Department reported in their 2013/14 Annual Report that they supported 920 small tourism businesses, which collectively created 4 040 new jobs and increased their turnover by R850.5 million, during the financial year. The Department transferred an amount of R25 million to TEP in the period under review. Even with a number of strategic changes, TEP has yet again presented a solid performance, achieving and, in some cases, exceeding the exacting targets identified for the year. The increased turnover of over R850 million reported by TEP clients during the period compares with an increase of R775 million in 2012/13 and R472 million in 2011/12. The 4 040 increase in jobs compares with 4 901 for 2012/13 and 5 095 in 2011/12. TEP continued to show increased efficiency in delivering services, seeing a decrease in the investment required to generate R1m increase in turnover. During the period under review, an average of R40 913 was invested by TEP per R1m increase in revenue by its clients. This compares with an average of R75 408 per million in 2012/13 and R128 289 per million in 2011/12. Similarly, the investment per job created decreased to R8 608. This compares with R11 924 in 2012/13 and R11 885 in 2011/12.

(iv) Status of South Africa in the Global Competitiveness Index

At an international level, the World Economic Forum produces the annual Travel and Tourism Competitiveness Report to indicate competitiveness of countries in the Travel and Tourism sector. This Report was issued for the seventh time in 2013. The Travel and Tourism Competitiveness Index Ranking assesses and ranks 140 economies/ countries. The index is based on three broad categories that facilitate or drive travel and tourism. These are: (1) the T&T regulatory framework sub-index; (2) the T&T business environment and infrastructure sub-index; and (3) the T&T human, cultural, and natural resources sub-index. Each of these three sub-indexes is composed in turn by a number of pillars of T&T competitiveness, of which there are 14 in all. These are Policy rules and regulations; Environmental sustainability; Safety and security; Health and hygiene; Prioritization of Travel & Tourism; Air transport infrastructure; Ground transport infrastructure; Tourism infrastructure; ICT infrastructure; Price competitiveness in the T&T industry; Human resources; Affinity for Travel & Tourism; Natural resources; and Cultural resources

In the period under review, the 2013 Travel & Tourism Competitiveness Index (TTCI) Report ranked South Africa 3rd in the region and 64th overall, gaining two places since the last edition. South Africa comes in high at 17th place for its natural resources and 58th for its cultural resources, based on its many World Heritage sites, its rich fauna, its creative industries, and the many international fairs and exhibitions held in the country. Infrastructure in South Africa is also well developed for the region, with air transport infrastructure ranked 43rd and a particularly good assessment of railroad quality (46th) and road quality (42nd). Overall, policy rules and regulations are conducive to the sector’s development (ranked 29th); this is an area where the country has improved steadily over the past few assessments, with well-protected property rights and few visa requirements for visitors. Indeed, tourism continues to be one of the five priority sectors in the country’s growth plan, and the government has reviewed tourism legislation in an effort to streamline it further. However, there are also some areas of weakness that have brought down the country’s overall ranking. Safety and security remains quite worrisome (ranked 117th), as does the level of health and hygiene (87th) as a result of low physician density and concerns about access to improved sanitation. Related to this, human resources are also negatively affected by the poor health of much of the workforce, with a low life expectancy (129th, at 52 years) driven by high rates of communicable diseases such as HIV (137th). Improving the health of the workforce is of urgent concern for the future of the T&T sector, as well as for all other sectors in the economy. Additionally, this year South Africa has experienced an increase in fuel prices (77th) and ticket taxes and airport charges (105th), which have diminished its price competitiveness.

The 2013 TTTCI reveals that Switzerland, Germany and Austria lead the world in terms of travel and tourism competitiveness, with Spain, the United Kingdom, the United States, France, Canada, Sweden and Singapore completing the top 10. The Department needs to strengthen those indicators under their control and work closely with other government sector departments and the private sector to improve in those areas falling outside their span of control.

(v) Growth in the Hospitality Sector

The South African Hospitality outlook 2014 -2018 produced by PWC in 2014 indicates growth in the hospitality sector in 2013. This publication focuses on segments within the hospitality industry with detailed forecasts and analysis. It discusses the key trends observed in each segment as well as critical challenges and future prospects. In the South African market, overall spending on rooms in all categories rose 14% in 2013 to R17.3 billion, reflecting an increase in stay unit nights and an 8.4% rise in the average room rate.

6.3 Concluding comments on service delivery performance

Service delivery depends amongst other things, on the capacity of the Department to deliver on its predetermined objectives. The Department had staff challenge with resignations and slow process of recruitment which reduced their capacity to deliver. On some programmes. Nonetheless, the Department met a number of their predetermined objectives in line with their mandate and five goals of government. Tourism arrivals in South continued to increase and 1.4 million jobs were created in the industry as a whole. The Department is also coordinating its efforts with a number of other government departments and the private sector to grow and promote tourism both domestically and internationally. The Department did not do well in domestic tourism. This could be ascribed to the economic climate in the country and poor marketing efforts for domestic tourism. Service delivery at the local government level remained a challenge and more efforts must be made to improve capacity of this sphere of government. Collaboration of the Department with universities in conducting specific critical studies in the sector is also seen as a good initiative that will improve service delivery of the Department in the future.

7. 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.

The Department showed improvement in financial performance in terms of service delivery. The Department had an available budget of R360.2 million for operations and was able to spend R352.4 million, which is equal to 97.8 per cent. The majority of this budget was used on compensation of employees and goods and services. A large amount of money was transferred to South African Tourism for marketing the country.

The Department implemented a number of Social Responsibility Implementation projects. As in the previous financial year, some of these 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 noted and supports the Department in its continued endeavours of conducting forensic audits and opening court cases to reduce crime and corruption related to service delivery.

8. KEY FINDINGS - COMMITTEE OBSERVATIONS AND RESPONSES

8.1 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.

In the period under review, the Department continued to report performance to the Committee on biannual basis as agreed with the Committee in the Fourth Parliament. This perpetuated the challenge, poor oversight by the Committee over the Department and South African Tourism. The Committee in the fifth Parliament has resolved that the Department should report quarterly as required to ensure performance related issues could be identified and rectified within the financial year instead of discovering them at the end of the year when the Department and entity table their Annual Reports.

8.2 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 and briefings with the Department. Governance and operational issues are:

(i) Forensic Audits

The Committee noted that Department had taken too long to finalise the forensic audits and criminal charges regarding financial mismanagement and corruption in the SRI projects. It is acknowledged that the investigations are subjudice, however the Committee is concerned that no information has been provided to Parliament to date since investigations began. The Department should report to Parliament once matters have been finalised in court.

(ii) Performance Misstatements

The Department and South African Tourism had challenges with internal audit. The information in the performance report submitted for auditing had material misstatements that had to be corrected after being identified by the Auditor- General. This points to poor internal controls and verification of reported performance by various business units. The Department and South African Tourism should ensure quality assurance of information before it is submitted for auditing.

(iii) Information Technology

The user access management and programme change management were not effectively monitored in the Department. This resulted from management oversight in ensuring that the IT system is implemented properly. The Department should tighten management of its IT systems as there were a number of issues raised by the Auditor-General in this regard.

(iv) Compliance with good governance principles

The Board of South African Tourism did not comply with the King 111 Report recommendation in terms of good governance. The King 111 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 was also the Chairman of the Remuneration Committee. The Committee is concerned about this issue as it is a recurring challenge and the new chairperson of SAT Board should ensure the entity adheres to good governance principles.

8.3 Service delivery performance

In the year under review, the Financial and Fiscal Commission indicated that total contribution of tourism to GDP R323 billion in 2012 (i.e. 11% of GDP). To achieve NDP target of R499 billion by 2020, total contribution to GDP must grow by 7.7 per cent per annum. Currently, the industry is performing significantly below the required growth rate. This is concerning since the FFC had already warned in the previous year that if the growth for tourism remains at the then rate of 1.52 percent per annum, the industry will fall short by R150 billions 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. This calls for a more coordinated approach between the Department and private sector to ensure that he set targets are met. The Committee is concerned that the Department will not be able to meet its 2020 targets and the review process of the National Tourism Sector Strategy should ensure that targets set for the sector follow SMART principles.

8.4 Financial performance including funding proposals

The financial performance of the Department for 2013/14 is commendable in that 99.48 percent of the appropriated budget was spent, despite poor performance on the Tourism Incentive Programme. The Department has developed a number of strategies to develop and promote tourism in South Africa. However, there has been slow implementation of programmes proposed in those strategies. The department should devise innovative ways of implementing tourism programmes given poor prospects of additional funding for tourism under the current national fiscus climate. The department should consider:

(i) Identifying projects for their global significance and demonstrate feasibility for further development and active promotion domestically and internationally.

(ii) Redirecting spending towards activities that directly or indirectly create jobs through enhancing productivity performance.

(iii) Supporting provinces and municipalities in their planning endeavours to ensure tourism is prioritised in the budgets of municipalities.

(iv) Funding pro-poor tourism initiatives that promote transformation in the tourism industry through community-based projects.

(v) Ensuring funding appropriated for domestic tourism is maximised in terms of value for money in the initiatives meant to inculcate culture of travel amongst South Africans.

(vi) Quantifying marketing budget requirements by South African Tourism to allow the Committee to make informed recommendations

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

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

(ix) Enhancing partnerships with the private sector for marketing South Africa internationally.

9 Recommendations

After thorough consideration of the performance of the Department of Tourism and South African Tourism, and the environment under which these entities operate, the Committee would like to make the following recommendations to both the Minister of Finance and Minister of Tourism:

Recommendations to the Minister of Finance

9.1 Financial performance including forward funding recommendations

9.1.1 Appropriation of Tourism Budget

It is recommended that the National Treasury appropriates the budget for Vote 35 as per current projections in the Estimates of National Expenditure and the increase be only considered once the Department has established internal capacity to deliver on the allocated budget.

9.1.2 Classification of EPWP Expenditure

The EPWP payments are currently classified as transfer payments to households. National Treasury issued Modified Cash Standards in February 2014 which required the reclassification of expenditure. Given the timing of the finding and magnitude of the changes to be made within the financial system the National Treasury has granted permission to the Department to continue with this classification for the 2013/14 financial year. Reclassification of the payments to goods and services and capital payments will be considered in accordance with the Modified Cash Standard for the 2014/15 financial year.

It is recommended that the Department finalises the discussions on classification of Expanded Public Works payment with the National Treasury.

9.1.3 Tourism Development Fund

South Africa has no mechanism to fund tourism development similar to the Tourism Development Fund in other countries. In South Africa there is no mechanism to fund tourism development. A huge chunk of the National Department of Tourism budget goes towards marketing through a transfer payment made to South African Tourism. There is therefore no sufficient budget to fund tourism development related activities. The fund will support investment in tourism industry related accommodation, infrastructure, experiences and facilities. The focus could be on funding new innovative tourism ideas and expansions for smaller operators. Clear funding criteria and guidelines will need to be developed to ensure the fund is not misappropriated but is directed to the purpose for which it will be established. This fund could be an enhancement of the existing Tourism Incentive Programme that was transferred from the Department of Trade and Industry.

It is recommended that the National Treasury explores possibilities of establishing a Tourism Development Fund that will cater for all aspects of the tourism sector.

Recommendations to the Minister of Tourism

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

National Department of Tourism

9.2 Governance and Leadership

The senior management in the Department has provided solid leadership and displayed quality governance on Departmental strategic and compliance issues. However, the Department should improve on the following issues:

9.2.1 Accountability to Parliament

It is recommended that the Department reports to Parliament on quarterly basis instead of biannually as agreed with Committee in the Fourth Parliament to enable the Committee to properly and efficiently track financial and service delivery performance of the Department.

9.2.2 Setting of Predetermined Objectives

It is recommended that leadership of both South African Tourism and The Department should ensure proper setting of predetermined objectives and compliance with relevant legislations. The Department and SAT should also develop action plans to ensure improvement towards achieving and maintaining clean audits and reflect this when tabling their 2015/16 Strategic plans and Annual Performance Plans.

9.2.3 Wasteful and Fruitless Expenditure

It is recommended that the Department implements the internal guidelines developed to curb wasteful and fruitless expenditure incurred due to late cancellations, no shows and flight amendments and report to Parliament on quarterly basis with regard to progress on eliminating this needless expenditure. This will curb expenditure such as the R1.9 million incurred in 2013/14.

9.2.4 Reassessment of the International Tourism Management Programme

It is recommended that the Minister assesses whether Programme 3: International Tourism adds value to the mandate of the Department or creates duplication of activities with South African Tourism. This must be done with an objective of realigning the Departmental structure to avoid wastage of resources if duplication exists.

9.3 Contract Management

It is recommended that the Department strengthens their contract management capacity from the point of drafting the Service Level Agreements with service providers and/ or implementing agents to actual project management during implementation of projects to avoid liabilities incurred due to claims against the Department due to repudiation and termination of contracts.

9.4 TOMSA Levy Collections

It is recommended that the Department engages the Tourism Business Council of South Africa to maximise TOMSA Levy collections as failure to this creates the possibility of establishing a Tourism Tax in the long term.

9.5 Social Responsibility Implementation (SRI)

It is recommended that the Department:

(i) expedites the process of forensic audits on SRI projects and report findings to Parliament as soon as matters have been finalised in court.

(ii) reviews the implementation methodology for SRI projects to ensure accountability, efficacy, effectiveness and value for money.

9.6 Tourism Institutional Arrangements

It is recommended that the Department assists provinces and municipalities to establish their tourism coordinating structures as proposed in the National Tourism Sector Strategy.

9.7 International Tourist Airlift

It is recommended that the Department works with the Department of Transport to finalise the Airlift Strategy and advocate for the open skies policy to ease tourist travel and attract more visitors to South Africa.

9.8 Domestic Airlift

It is recommended that the Department and South African Tourism works closely with the Low Cost Airlines and Destination Marketing Organisations in provinces to develop affordable packages and increase airlift in less visited provinces.

9.9 e-Visas

(i) It is recommended that the Department intensifies its interaction with the Department of Home Affairs to explore possibilities of introducing an e-Visa in South Africa to facilitate ease of travel for tourists.

(ii) It is recommended that the Department engages the Department of Home Affairs to ensure that Visa agencies used by the Department of Home Affairs abroad should be located within embassies to facilitate processing of travel documentation.

9.10 Domestic tourism

(i) It is recommended that the Department prioritises domestic tourism and implement programmes that enhance product development, skills development, market access and cultivate the culture of travel amongst South Africans in order to grow this market and be on par with the global trends.

(ii) It is recommended that the Department champions preferential pricing for South Africans with dual pricing for domestic and international tourists to ensure affordability for locals.

(iii) It is recommended that the Department conducts product development that promotes involvement of local communities.

9.11 Community-Based tourism development

It is recommended that the Department initiates projects that foster community-based tourism and activates the PPP Toolkit for Tourism targeting communities living around protected areas.

9.12 Transformation

It is recommended that the Department initiates innovative programmes that enhance transformation in the tourism sector beyond compliance with the Tourism Scorecard and Sector Codes.

9.13 Signage

It is recommended that the Department intensifies efforts to improve tourism signage throughout the country, especially to cultural and heritage sites.

9.14 Provision of Bulk Infrastructure

It is recommended that the Department works closely with South African Local Government Association to facilitate provision of bulk infrastructure such as electricity, water and roads in areas earmarked for tourism development, especially in rural areas.

South African Tourism

9.15 Quantification of marketing budget

(i) It is recommended that South African Tourism conducts a funding or budget needs analysis to quantify how much is needed to effectively market South Africa both internationally and domestically.

(ii) It is recommended that South African Tourism investigates measures that could be taken to mitigate foreign currency exposure.

9.16 International marketing

It is recommend that South African Tourism adapts their marketing strategy to changes in international trends, particularly emerging markets that are not core markets for South Africa.

9.17 Improved domestic and regional marketing

It is recommended that South African Tourism:

(i) intensifies their domestic tourism marketing campaigns to inculcate culture of travel amongst South African thus growing the domestic tourism market.

(ii) increases their marketing presence in regional Africa markets to attract more visitors from the continent.

(iii) promotes and grows local events to ensure geographical spread of business tourism and thus grow domestic tourism.

9.18 Revision of Targets and Tourism statistics

It is recommended that South African Tourism:

(i) revises tourist arrival targets against the National Tourism Sector Strategy to ensure that realistic attainable targets are projected.

(ii) cleans the tourism statistics of the country and reports on tourist arrivals instead of foreign arrivals to South Africa.

(iii) works closely with Statistics South Africa to assist provinces and local municipalities to establish their Tourism Economic Accounts to allow them to have destination specific statistics and quantify the value and volume for tourism at a local level.

(iv) considers international trends and external factors such Ebola when setting targets for international tourist arrivals.

9.19 Improvement of Indaba as premier African tourism consumer show

It is recommended that South African Tourism improves Indaba as a Premier African Consumer Show to match international standards and withstand domestic and regional competition.

9.20 Reviewing of some aspects of the Tourism Grading Scheme

(i) Given the declining numbers in graded establishments and meagre revenue collected from grading, it is recommended that the Grading Council of South Africa explores a possibility of reviewing the payment scheme of grading tourism facilities from a voluntary scheme with payment for grading to a compulsory but free grading system.

(ii) It is recommended that the grading scheme must be extended to other tourism services beyond accommodation facilities.

9.21 Proper planning by the National Conventions Bureau

(i) It is recommended that the National Conventions Bureau sets realistic targets which represent a true picture of business tourism in South Africa.

(ii) It is recommended that the National Conventions Bureau ensures an equitable geographic spread of business tourism in South Africa through distribution of events equitably in all provinces.

10. APPRECIATION

The process of developing a Budget Review and Recommendations Report involved a number of stakeholders inside and outside Parliament. The Committee would like to thank all the stakeholders that participated in various ways in ensuring that the BRRR was compiled with the industry-wide inputs. As 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.

Report to be considered.