REPORT OF THE PORTFOLIO COMMITTEE ON TOURISM ON BUDGET VOTE NO 34

REPORT OF THE PORTFOLIO COMMITTEE ON TOURISM ON BUDGET VOTE 34: TOURISM, DATED 20 APRIL 2010

The Portfolio Committee on Tourism, having considered the Budget Vote 34 and Medium Term Strategic Frameworks of the National Department of Tourism and South African Tourism, reports as follows:

1. INTRODUCTION

The Constitution of South Africa (Act No. 108 of 1996) recognises that Legislative Authority has an important role to play in the oversight function in overseeing the performance of departments and public entities.

In terms of Treasury Regulations published in the Government Gazette in May 2002, strategic plans must be tabled in Parliament at least 7 days prior to the discussion of the budget Vote of the Department.

It is important for the Committee to ensure that strategic plans are tabled within the stipulated period because the plans provide information for the budget review process of the Portfolio Committee.

The budget and strategic plan form the basis of the annual report. The Public Service Commission in its report “Evaluation of the Department’s Annual Reports as an Accountability Mechanisms” clearly states that the emphasis on measurable objectives, which should be part of the strategic plan, is to create a clear contract between Parliament and the relevant Minister regarding specific deliverables for which the Minister can be held accountable.

This explains the importance of budget and strategic plan and their necessity for departments to table them on time to ensure that Parliament is provided with information required for its oversight work.

On the 3^rd March 2010, the Department of Tourism and its entity namely, the South African Tourism tabled their budgets and strategic plans for 2010-2014 as required by regulations.

Upon referral of these instruments by the National Assembly, the Committee scheduled extended briefing session with Department and the South African Tourism so as to present their budgets and strategic plans for the ensuing financial years on 16 March 2010.

2. National Department of Tourism

2.1 Policy priorities for 2010/11

The vision for the newly formed Department of Tourism is to be celebrated as a leader in tourism excellence, through ensuring the availability of a skilled workforce for the tourism sector and promoting sustainable and responsible tourism; and dramatically improved service levels.

The key strategic priorities for the National Department of Tourism, as identified in the 2010/2011-2014/2015 Strategic Plan are:[1]

a) The empowerment of people and job creation through the use of labour-intensive methods that seek to build and improve the skills and capacity levels of workers employed in social responsibility projects like the Expanded Public Works Programme (EPWP).

b) The transformation of the Tourism sector, by ensuring demographic representavity within this sector.

c) Sustainable tourism growth and development through the promotion of enterprise development and ensuring the involvement of rural communities in mainstream tourism.

d) The promotion of responsible tourism to ensure that responsible tourism best practices are employed.

e) The tourism sector knowledge and policy leadership, which seeks to support local government tourism growth and development and create an enabling policy and the legislative environment required for tourism growth and development.

f) To ensure the integration of tourism priorities into provincial and local government planning and facilitate interdepartmental contribution to tourism growth.

The Department’s key priorities as outlined above seem to be aligned with the objectives in the State of the Nation Address of creating job opportunities through the Expanded Public Works Programme (EPWP), promotion of an inclusive economy, the aiding of growth and development, an increase in training and skills development and the support of Small, Micro and Medium Enterprises (SMMEs).[2] These will be achieved through the expansion of the product base and service quality assurance to ascertain the competitiveness of the industry. The commissioning of the toolkit by the National Department of Tourism which was then produced by the Tourism Enterprise Partnership (TEP) will also assist Small Medium and Micro Enterprises (SMMEs) and established businesses in the tourism industry to have a better understanding of the importance of providing better customer service and product quality in the tourism and hospitality industry.[3]

The marketing drive partly conducted by South African Tourism (SAT) in line with the Tourism Growth Strategy and carefully considered tourism marketing policy of focusing on priority markets will seek to achieve an increase in foreign direct spend and length of stay. This will increase the direct tourism contribution to the Country’s Gross Domestic Product (GDP) and in turn increase the creation of decent jobs.[4] Securing hosting rights for strategic international events through an integrated inter-governmental coordinated approach could also be beneficial for the increase in direct employment in the sector.[5] For the tourism sector to thrive and grow it is very important that the issue of transformation is taken very seriously and the gazetting of the Tourism Charter as a code of practice is one step towards achieving the ultimate goal of transforming this sector. However, it is also very important that provinces initiate partnerships with the private sector, such as the initiative taken by Kwazulu-Natal to establish a tourism business forum that looks at bringing Government and the private sector together to drive transformation within the sector.[6]

The spread of tourism to include small towns and rural tourism as priority sectors in the growth of tourism is very important, as it will increase investment in the development of rural tourism products. The development of rural tourism comes with benefits such as increased participation of the poor involving ownership and management.[7] This is also encouraged by the White Paper on the promotion of tourism which contends that the prime tourism areas are not only located in the cities but also in the rural areas. Part of the agenda is also the review of existing legislation to ensure the support of local government in relation to effective tourism planning and the development and improvement of public and private infrastructure in the sector.

2.2 Performance and Service Delivery Information

The Tourism Department has overseen through the completion of the five visitor information centres based in Polokwane, Mbombela, Rustenburg, the Nelson Mandela Metro and Mangaung that are part of the 2010 FIFA World Cup^TMlegacy project. These centres have been welcomed throughout these cities and have been praised because of the possibilities they will bring to boost the tourism potential of these host cities. They will provide tourists with a one stop service where they will access a different range of tourism products. In addition, these centres will act as a mechanism to promote greater participation of tourism member authorities such as SMMEs.[8] In order to maximise the benefits of these centres, an emphasis should be put on the development of such centres in rural areas to allow for a broader distribution of the tourism product that the country has to offer.

The drop in the employment rate during the recession period has made the challenges of unemployment much greater for the South African government but with the 2010 FIFA world Cup there is hope that this situation can be remedied through temporary and permanent employment opportunities. A total number of 1606 SMMEs were assisted to create partnerships with developed enterprises and 75% of the mentioned enterprises were historically disadvantaged. However, there is a general concern about the true benefits of the World Cup to South African entrepreneurs as a result of FIFA’s stance on merchandise and business ventures related to the World Cup. As a consequence, the improvement of the World Cup-related entrepreneurial activity is rated to be significantly below the average for all the middle to low income countries. This could be another challenge. In the hospitality industry there are still a number of challenges where entrepreneurs are concerned, and amongst those problems are the unrealistic licence fees for many local entrepreneurs that need to be paid to form part of MATCH, and the zealous protection rights imposed by FIFA to protect its sponsors’ right to do business in surrounding match locations. All the above- mentioned contribute to the hurdles faced by SMMEs in the sector.

The tourism sector has managed to improve on a number of facilities and has also improved accessibility of the sector’s products through a number of platforms. These include the establishment of a National Contact Centre with a global contact number that operates in six different languages; the launch of the ‘rooms for u’ website that provides visitors with a directory for accommodation and other services; and the Geographical Information Systems (GIS) mapping for graded institutions. These achievements are of great importance to the development of tourism in the country and have put South Africa on the map in terms of e-tourism. Hence it is imperative that this platform is utilised to its full potential since it has the ability to make travelling logistics more accessible and less strenuous for potential visitors.[9]

In line with the tourism developmental mandate, the creation of 433 permanent jobs through the implementation of EPWP-related projects was achieved with the overall created job opportunities amounting to over 14 000. The enrolment of 417 young people to the youth development programme linked to the National Youth Service (NYS) and the training and deployment of 4000 volunteers in host cities for the 2009 FIFA Confederations Cup provided an assurance of the Department’s commitment to skills development in the industry, although there are still concerns on the development of skills in relation to industry needs. In addition to that, 20 000 volunteers were recruited for the 2010 FIFA World Cup,^TM 64 tourism graduates were placed in Canada’s Ritz Carlton Hotel for experiential training and Hotel management purposes. The Department also ensured that 120 tourist guides were trained for other languages including French, German, Portuguese and Spanish through the Department’s partnership with the Department of International Relations Cooperation (DIRCO) for foreign language training in preparation for the 2010 FIFA World Cup^TM and beyond.

The number of graded institutions of 3625 is 622 higher than the targeted number, and the completion of the review of the grading system which will improve levels of service delivery in the implementation of the grading system through enhanced capacity across the country shows the seriousness of the tourism industry to be reckoned as one of the best.[10] However there’s still more work to be done in ensuring that the tourism grading system reaches institutions around the country in order to accommodate rural communities.

2.3 Budget Analysis

The Department has a total of four programmes as shown in Table1 below, and the expenditure of these programmes is expected to increase at an annual rate of 3.8 percent reaching R1.3 billion in the 2012/2013 budget year. This slow growth rate is attributed to the cost saving measures to reduce the transfer payment to South African Tourism for international marketing by R51 million, R54 million and 57 million over the Medium Term Expenditure Framework (MTEF) period and the reduction of revenue spent on accommodation and downgrading of travel classes despite the steady growth and the transfer of the Tourism Department as a stand alone Department, the Budget allocation for the year 2009/2010 and 2010/2011 only make up 0.06 and 0.07 percent respectively of the total Economic Affairs Cluster allocation under which the Department has been categorised. This may be because an emphasis has been placed on Poverty Alleviation, Public Safety and Infrastructure Development Programmes which directly affect the state of tourism in the country.

Table

Programme: TOURISM	Budget				Nominal Rand change	Real Rand change	Nominal % change	Real % change
R million	2009/10	2010/11	2011/12	2012/13	2009/10 - 2010/11		2009/10 - 2010/11
Administration	96.0	124.3	139.5	178.5	28.3	20.5	29.48 per cent	21.35 per cent
Tourism Development	325.1	360.9	371.2	342.4	35.8	13.1	11.01 per cent	4.04 per cent
Tourism Growth	719.6	655.6	694.2	736.0	- 64.0	- 105.2	-8.89 per cent	-14.61 per cent
Policy, Research, Monitoring and Evaluation.	15.0	11.0	18.3	34.4	- 4.0	- 4.7	-26.67 per cent	-31.27 per cent
TOTAL	1 155.7	1 151.8	1 223.2	1 291.3	- 3.9	- 76.2	-0.34 per cent	-6.60 per cent

Source: National Treasury (2010) – Vote 34 Tourism

A decline of 0.34 per cent in the Department’s allocation has been observed for the budget year 2010/2011 in nominal terms, although in real terms that translates to a 6.6 per cent decline (Table 1).The budget allocation for Tourism Development is expected to increase at an average annual rate of 1.7 per cent over the MTEF period and this is mainly due to the decline in infrastructural projects implemented by the EPWP. An increase of 31.9 percent per annum is expected for the Policy, Research, Monitoring and Evaluation Programme and this is driven by the need to review legislation to ensure a well defined mandate for the newly formed department.[11] Additional allocations of R47.7 million in 2010/11, R63.3 million in 2011/12 and R74.9 million in 2012/13 have been received for salary adjustments by the Department and South African Tourism as well as for the general capacity increase.

The Administration budget allocated for strategic leadership, centralised administration, executive support and corporate services increased from R95.9 million in 2009/2010 to R124.2 million in 2010/2011. This indicates 29.5 per cent and 21.38 per cent in nominal and real percent terms respectively, while the average annual growth for the programme is at an average of 5.2% over the medium term, and this programme constitutes 5.7 per cent of the Department’s budget. This increase in the programme’s budget has been mainly attributed to the phasing in of an increased establishment over the medium term.[12]

The bulk nominal change boost of 157.14 per cent for the Management budget has been observed and this can mainly be attributed to the salary adjustments for the Department and South Africa Tourism as well as the general increase in capacity. Corporate Affairs and Office Accommodation also showed a significant increase of 20.35 per cent and 4.13 percent in real percentage change. The Goods and Services budget for the current year showed a significant increase of 330 per cent, 37.11 per cent and 6.09 per cent for consultants and professional services; lease payments and travel and tourism respectively.[13]

The Tourism Development Programme’s expenditure increased from R325 million in 2009/10 to R361 million in 2010/11 at a real percentage change of 4.07 per cent which constituted 31.3 percent of the total budget for the department. This programme is entrusted with the facilitation and support of the development of an equitable tourism sector. The expenditure is also expected to marginally increase to R342.4 million over the MTEF period due to the decrease in funding to tourism infrastructure projects implemented in the EPWP. The emphasis on spending throughout the MTEF period will be on Product, Enterprise and Infrastructure development and sector transformation including the implementation of the EPWP projects. A decline of an average annual rate of 21.7 per cent in the Business Trust subprogramme is expected over the MTEF period due to the phasing out of the tourism enterprise partnership administered by the Business Trust.

The Tourism Growth Programme which is responsible for the promotion of growth, competitiveness and quality of the tourism sector received the highest allocation from the Department’s budget at 56.9 per cent of the total budget. The expenditure for this programme over the MTEF period significantly declined by 8.9 nominal per cent from R719 million in 2009/10 to R655.6 million in 2010/11, but this is also expected to increase at a slower average annual rate of 0.8 per cent, reaching R736 million by 2012/13. This is due to the reduction in the transfer payments towards South African Tourism for international marketing over the medium term (Table 1).[14] There will be annual average expenditure increase of 26.7 percent from R5 million in 2009/10 to R10.2 million in 2012/13 for the capacity building programme, this will result in the promotion of service excellence in the industry with the main focus on promoting responsible tourism and human capital development.[15]

The Department’s budget allocation to Policy, Research, Monitoring and Evaluation decreased significantly by 27.3 per cent in nominal terms from R15 million in 2009/10 to R11 million 2010/11, the expenditure for the programme is expected to grow substantially at an average annual rate of 31.9 per cent to reach R34.4 million in 2012/13 and this growth is a result of the phasing in of additional posts. Policy, Research and Evaluation Management was previously not accounted for as there was no allocation dedicated to this subprogramme, the main focus in this programme over the medium term will be on strengthening the tourism policy, research, monitoring and evaluation of the tourism industry.

The budget for Policy, Development and Evaluation has significantly declined in nominal terms of 79.81 per cent from R10.4 million in 2009/10 to R2.1 million in 2010/11.The expenditure for the sub programmes in the programme is expected to significantly increase over the medium term, providing a platform for the review of all existing legislation to ensure a well defined mandate for tourism, and also ensure that the resources are effectively and efficiently spent.

2.3 South African Tourism (SAT)

South African Tourism presented its five-year plan which had been set up in accordance with the Tourism Act. The aim was to maximise the tourism potential of South Africa.

The bulk of the tourists were domestic and from the rest of the African continent. The African market and particularly that of Angola, was of great value and not to be underscored. The Americas and Europe was also important, but second in line. Every three years the portfolio revenue would determine which markets were identified as players. Money constraints imposed difficult and limited choices to marketing options.

The brand was highlighted as an important issue. It was crucial that South Africa developed a trustworthy brand that would also be known for its value for money. The unique and authentic experience of South Africa had to be marketed to easily convince tourists to choose South Africa above its competitors, India and Brazil as a destination. An internal strategy had to be developed to energise and empower the tourism industry. Digital marketing was the primary source tourists used to plan their travel and SAT could boast that they were cutting edge in this field.

Future revenue targets had been set against the baseline target of 2009. The total tourism spend (domestic and international) in 2009 was R109,2 billion and the outcome SAT was working towards would result in an additional R69 billion revenue by 2015, estimating a total tourism spend of R169 billion. SAT’s targets were set against their objectives within a three-year cycle.

SAT recognised that the tourism sector was an essential contributor to the creation of decent work and job opportunities, and aligned itself with the Department of Tourism’s targets for Tourism development. Through activities such as domestic and international marketing, tourism investment promotion, tourism product diversification and also tourism enterprise development SAT would increase its contribution to the Gross Domestic Product from an estimate of R52,38 billion in 2009 to R65,72 billion in 2015. The number of jobs supported by the sector would increase to 640 000 in 2015. In 2015 the international arrivals were expected to increase to 12 068 030 and the domestic tourists to 16 million. Per tourist, R8 100 was spent in 2008, but this would be increased toR11600in2015.

Each year from 2007 to 2009, the high-level objective of total arrivals to South Africa, had been exceeded. SAT is positive that this trend would continue. The average spend per tourist inside South Africa as well as land tourists also exceeded its target with 3,8 % and indicated the significant contribution land markets were making to South Africa’s tourism industry. In 2009, the global average of most of the Brand Knowledge metrics improved, however, it continued to drop for Welcoming People and Safety and Security. The objective was to ensure that South Africa was the most preferred Tourism Brand by 2014. Both the awareness and positivity had improved, but there had been declines on sought info and those who were likely to visit in the next 18 months due to the slowdown in global travel. Nevertheless, SAT aimed to be the Best Tourism Organization by 2010. A breakdown of the total R795 509 million budget for 2010/11 indicated that 90 % of the budget would be spent on marketing. The presentation included a breakdown of the budget and expenditures for the period 2008/9 – 2010/11.

The three major challenges faced by SAT were the reduced budget allocation, safety and security of tourists and also the Provincial- and Local Authority Tourism Authorities. A reduction in the budget had been made despite SAT’s consistent delivery of its objectives and impeccable record of financial management. As a result, SAT would significantly have to reduce its targets around GDP contribution and job creation, as well as close some operations. Safety and security were the two biggest deterrents of tourists and cooperation with Government and stakeholders to curb this phenomenon was crucial. South Africa needed to tap into the domestic market for tourists and encourage people to travel domestically. Provincial Tourisms Authorities had to play their part in promoting tourism within the country and the continent of Africa rather than internationally. The focus had to fall on product packaging and experiences.

The road ahead for Tourism Grading Council of South Africa (TGCSA) from 2011 – 2014 was directed towards the establishment of a recognisable and credible, globally bench-marked system of quality assurance for accommodation and SMMEs experiences which can be relied upon by visitors when making their choice of establishment. More people had to be graded to establish a database from which Government could then use the graded establishments which would be better for businesses.

2.4 Key issues for the committee

The committee welcomed the proposed budget allocations and the medium term strategic frameworks as presented. The committee further resolved to make follow up on the following key issues:

a) Rural tourism development remains a challenge in the country, Parliament needs to prioritise overseeing of the implementation of infrastructural development aligned to rural communities and also ascertain whether there are any support facilities in rural areas for the tourism sector.

b) As a cost saving measure the Department has reduced the transfer payment to South African Tourism by R51 million, R54 million and R57 million over the MTEF period. Parliament needs to interrogate how the Department plans to increase the level of employment by marketing South Africa as a preferred destination on international markets with a reduced allocation. Parliament also needs to monitor the effectiveness of this cost saving measure through the regular analysis of departmental reports.

c) Parliament needs to engage the Department and request that clarity is provided in terms of the tourism sector goals relating to international marketing. Further, Parliament needs to track the country’s progress in achieving that goal and ascertain whether this cost saving measure could have a negative impact on the progress already made in that regard.

d) The Department was planning to put a moratorium on the filling of posts through a reprioritisation process as a cost saving measure, but at the same time it was mentioned that the appointment of consultants will also be monitored. Parliament needs to clarify whether it is being implied that, for purposes of service delivery, the services of consultants will be utilised.

e) The Department has introduced various cost saving measures for its staff, for example, it has reduced the amount of accommodation hired, downgraded the classes of travel and the booking of venues for conferences. Parliament needs to get clarity on the effectiveness of this exercise. The Department needs to provide information on the total amount of projected savings, as well as provide clarity on the projected nominal increase of 13.19 % for travel and subsistence over the MTEF period.

f) The compliance with the gazetted Sector Codes remains organisation-specific and also depends on the organisation’s interaction with government, parastatals and corporate citizenship and also the willingness to contribute to transformation of the industry. Parliament needs to conduct public hearings on the matter to get a better understanding of the issues that affect SMMEs and also get clarity on what measures the Department will employ to ensure the 70 percent compliance of the tourism industry with the Tourism BEE Charter and Score Card by 2014.

g) The development of models that enhance local tourism development planning is a critical part of contributing to cultural tourism and rural development, with the completion of the South African Tourism Planning toolkit for local government. Parliament needs to oversee the application of these models and get clarity on progress made through the implementation of the document.

h) Given the success of the Tourism Enterprise Programme, the Department took the decision to institutionalise the programme in 2008 as a Section 21 company. Parliament needs to get clarity on the developments that transpired between 2008 and 2010 that resulted in the initiation of the phasing out of the programme from the Business Trust, and ascertain whether this programme will become independent or whether it will result in the total exclusion of the programme and further, find out how this will affect the development of tourism enterprises.

i) The Department has expressed the decrease in funding to tourism projects implemented in the EPWP. Parliament needs to get clarity on how the Department is planning to achieve the objective of creating 24518 jobs by 2013.

3. RECOMMENDATIONS

Having considered the budgets and medium term strategic frameworks of the Department and South African Tourism, the committee concluded by recommending that:

a) Responsible tourism promotion would make strides if national minimum standards for tourism were introduced in the next financial year;

b) Public Education and Awareness should be linked with outreach initiatives of the Department;

c) Rural development and support in the sector should take into account the geographic spread, amongst provinces.

d) The Human Resource Development Strategy should take into account the dire effect of the HIV/AIDS in the workplace

e) National Department of Tourism must put more effort to ensure the employment of people with disabilities to meet equity;

f) The Tourism Sector was an essential contributor to the creation of decent work and job opportunities and should be given the necessary support in terms of legislation, human capital and finance.

g) The National Department should initiate / develop a framework of inter-governmental relations for implementing the Human Resource Development Strategy in the tourism sector.

h) Department should work towards strengthening linkages to economic growth and development to ensure that there is an added boost to the performance of the sector through special programme interventions.

i) The Department is encouraged to double its efforts to ensure that the notion of public-private partnerships is well endorsed practice for building capacity to deliver in the sector.

j) It was crucial for the country to develop a trustworthy brand that would also be known for its value for money; and

4. APPRECIATION

The committee would like to extend special appreciation to the Minister, Deputy Minister, the Acting Director-General of the Department, programme managers and to all heads of associated entities for availing themselves and attending the budget hearings.

5. CONCLUSION

It will be necessary to track and monitor support in implementation. In this regard, all specific targets and milestones made by both Department and South African Tourism will be monitored by the committee. Once, again the department is called upon to establish a monitoring mechanism to assess progress in the provinces and intervene with corrective and support measures.

[10] National Department of Tourism (2009b).