Economic Partnership Agreement between SACU; Mozambique (together SACUM) & United Kingdom; Department of Tourism 2018/19 Annual Report

Meeting report

The Chairperson Mr MI Rayi (ANC) indicated that this meeting would include presentations from both the Department of Trade and Industry and the Department of Tourism. The Committee would first hear presentation on the Economic Partnership Agreement between the South African Customs Union (SACU) and Mozambique (together SACUM). The annual performance report 2018/19 for the Department of Tourism would be presented afterwards.

DTI: Trade with UK after Brexit

Ambassador Xavier Carim, Deputy Director General: International Trade and Economic Development Division, Department of Trade and Industry (DTI) first outlined the background and context of Brexit. The United Kingdom (UK) had voted to leave the European Union (EU) in June 2016. Article 50 of the EU Treaty was invoked by the UK on 29 March 2017, which provided the country with two years to negotiate its exit and set a course for a future relationship with the EU. The UK was set to leave the EU on 31 October 2019, but this had been delayed, and a new deadline had been set for 31 January 2020.

As a result of the Brexit dilemma, there had been a great deal of uncertainty over the future of South Africa, Mozambique and the South African Customs Union’s (SACU’s) trade relations with the UK. It was because of this background that the new SACUM-UK Economic Partnership Agreement (EPA) with the UK needed to be considered. It was an insurance for a continuation of preferential trade between SACUM countries and the UK to continue, in the possibility that the UK may leave the EU without an agreement.  

Trade with SACUM had been established under an agreement with the EU which came into force in 2016. SACUM was given extensive preferential access to the EU market on a whole range of markets, except for aluminium and some agricultural products. Specific rules of origin were also negotiated between the various parties, and this defined the level of how much of the product had to be locally produced in order to obtain the preferential access set out in the EPA. Traditional parts of the trade agreement include trade remedies to deal with unfair trade. This had been established in the EPA with the EU. Another trade remedy was a safeguard which allows for an increase in import duties where there is a threat of injury to the local market.

Having been part of the EU for all of these years, the UK was a part of this arrangement. The risk was that if the UK leaves the EU Customs Union, it would no longer form part of this agreement, and SACUM would have World Trade Organisation (WTO) tariff rates imposed on trade with the UK. The tariff rates do not give preferential access to the UK’s markets, which would be an issue for SACUM countries. To avoid this, a principle agreement between the Ministers of SACUM and the UK had been worked on. The agreement would rollover the terms of the SADC EU economic partnership into an economic partnership with SACUM and the UK.

There was a discrepancy with the SA-UK trade figures for 2018, due to the fact that the country used the figures obtained from SARS, which did not include gold exports. In the next week, the Minister would present the figure of R140 billion worth of trade between the two countries. This would include the gold exports. It was clear from this figure that the UK was an important trade partner for South Africa, and that was why the country wanted to maintain the preferential access to its market.

The new EPA and the old EPA were almost identical in their context except for a few areas, such as the tariff rate quotas. Tariff rate quotas were a mechanism for trade, where a state does not open its entire market to a trade partner. Instead, the trade partner would have access to a limited number of products. With the UK leaving the EU, South Africa had to make a change to the tariff rate quotas, due to the fact that the UK was deeply integrated into production processes with the EU in terms of their exports. With their exports, the UK uses inputs from other countries in the EU, in its production process before exporting its products. The UK wanted South Africa to recognise the inputs from the EU as part of their exports. This had been agreed to in principle.

There was also an issue of bilateral safeguard measures. Currently there was a safeguard duty on poultry imports from the EU. This had to do with the significant increase in imports over the last four to five years and the injury it had caused to the domestic market. When the UK voted to leave the EU, the DTI had to ensure that this duty continued to apply to the UK if they were to leave the EU. A big problem was whether the trade flow between the two countries would be affected by Brexit. A built-in agenda had been negotiated between the two countries as well. These were some of the differences observed in the new EPA.

In summary, the new EPA agreement between SACUM and the UK acts as an insurance policy for South Africa in the scenario that the UK would leave in 2020. This agreement had been established to ensure that trade between South Africa and the UK was not affected.

Discussion

Mr T Brauteseth (DA, KwaZulu-Natal) said that the December elections would not solve the confusion on Brexit. He asked if this new EPA was in fact an insurance policy, and if it would protect the country’s trade with the UK.

As a result of Brexit, there may be a referendum in Scotland. He asked if the Department had thought about this possibility and if it was prepared.

Mr M Dangor (ANC, Gauteng) said that the Department was not disadvantaged by this agreement. This agreement acted as an insurance policy against the possibility of a no-deal Brexit. He asked that the Committee adopt the trade agreement.

Mr E Landsman (ANC, North West) asked if both the Department and The Presidency had a plan for the working strategy between it and the President’s newly appointed special envoys for investment.

Mr Brauteseth indicated that one of the issues was that there were certain components obtained from different countries in the EU that South Africa used to create the products it sells to the UK. For instance, if a manufacturer in South Africa manufactures a BMW motor vehicle, it had to use certain components that it obtains from different states, which might include EU states. If a BMW vehicle that was assembled using those particular components was sold to the UK, this might create a clash with the separate deals the country had with the UK and the EU. He asked if the Department had considered how this would specifically affect the relationship with both the UK and the EU, if Brexit did happen.

The Chairperson asked what the consequences would be if members of SACUM did not ratify this agreement.

Mr Carim said that the intention of this new EPA was to maintain the trade relations that South Africa had with the EU and the UK. It was possible that exports may be affected by Brexit, but the agreement did provide for dispute settlement and other remedies for the country.

The Department was yet to disaggregate the country’s trade with England, Wales, Ireland and Scotland. Presumably, if Scotland were to have a referendum, it would want to leave Britain but to still remain in the EU, which would cover the trade agreement that South Africa already had with EU.

He said that automotive companies in South Africa that produce vehicles that are sold to countries in the EU also receive some of their components from the UK. There was a substantial number of products made in South Africa, with UK components, and sold to the EU, and this had been preserved. However, the Department was considering whether receiving components from the UK and selling goods to the EU would keep preferential access to the market. This depended on the agreement between the EU and the UK. This was a risk to South Africa.

If there was no Brexit, then the agreement did not need to come into force. There were different possibilities -- for instance, if the UK did leave the EU but remained in the Customs Union, the Department would not need to utilise this agreement. The key issue was whether the UK leaves the Customs Union.

Issues on tourism had not been dealt with directly in the context of the trade agreement. However, there were processes to increase investment promotion activities, which would be outlined by the Department of Tourism in the later briefing.

The procedures for the ratification of trade agreements were different for each country in SACUM. For instance, Botswana had ratified the agreement, but Namibia had not yet ratified it. Given the extension, it would be a surprise if any of the countries did not ratify the agreements. In the event that some member states did not ratify their agreements on time, the Department had a memorandum of understanding which acted as an insurance policy. This would ensure that trade relations could continue.

The Chairperson said that the Committee must decide whether it should recommend to the National Council of Provinces (NCOP) plenary that this agreement must be ratified. He filed for a motion, and it was agreed by Members that it would be recommended to the NCOP plenary that the trade agreement must be ratified. It would then be tabled to Cabinet.

That concluded the briefing by the DTI.

Department of Tourism: Annual Performance Report

The Chairperson said he would have to attend a conference before the end of the meeting, following which Mr M Mmoiemang (ANC, Northern Cape) would assume the role of Chairperson for the remainder of the meeting.

Two weeks ago, all the Bills that had been tabled in the 5th administration of Parliament had been resuscitated. One of the Bills brought back to the table had been the Amendment of the National Gambling Bill. This Amendment Bill had been discussed by the Committee during its sitting last week. It was agreed that from 18 to 22 November, the Members would travel to their respective provinces and would brief the legislatures on this Bill; as this was a Section 76 Bill.

Mr Victor Tharage, Director General: Department of Tourism (DoT) said there were four programmes within the Department -- corporate management, tourism research policy and international relations, destination development and tourism support.

It was the first time that the Department had received a qualified audit opinion from the Auditor General (AG). The Department had seen this coming for a long time, mainly because there were capital projects that required additional money for the completion of the projects. Several discussions had taken place between the AG and the Department regarding the inclusion of a firm of independent built-environment professionals. Their duty would be to evaluate and quantify the true value of each project. Fruitless and wasteful expenditure listed in the audit report was related to the projects that were started between 2007 and 2014. The AG had required that the projects must remain a part of the financial records of the Department, and must be disclosed in its financial statements. There were two categories of projects that had been accounted for -- projects that were yet to be concluded, and those that had been concluded.

The AG had also flagged the financial books of the Department. Part of the reason was due to the fact that the Department had struggled to implement the Modified Cash Standard. Training of officials who were in charge of implementing the Standard was in process, in order to improve its implementation.

There were two categories of irregular expenditure incurred by the Department. The first was on the goods and services over R30 000, and was related to issues of quotations. In 2017, the AG had picked up that in some instances the Department would have two quotations, and in others there was only one. This was treated as irregular expenditure. The second related to the Department’s implementing agents, who were not able to implement the 80/20 principle. This was deemed as irregular by the AG. The Department was confident it could address this matter.

Another issue flagged by the AG was local procurement. The Department had procured locally, but in the documentation of the tender, this was not stated. This was also deemed as irregular by the AG. A matrix would be put in place by the Department to ensure that all of these highlighted issues were dealt with.

There had been findings on the Expanded Public Works Programme (EPWP). The Department had not been able to provide the AG with the feasibility studies given by the built-environment professionals on the costs vs value of the Department’s projects. Prior to the findings by the AG, the Department had already been working on addressing this issue. One of the measures was to include a firm of independent built-environment professionals. The professionals were from different parts of the country and had extensive experience in their respective fields.

He informed the Committee that the Department had a fully functioning audit committee.

Discussion

Ms M Moshodi (ANC, Free State) indicated that she had seen the Department’s project at Gariep Dam and was impressed with it. As part of her oversight responsibility, she would visit the newly built lodge in the Free State. She asked why the Department did not have strict measures to prevent occurrences of irregular expenditure. The AG had indicated in the report that the Department did not have credible asset registers – how could the Department account for its immovable assets without a register? As the SA Tourism entity had achieved only 56% of its key performance indicators, how was the Department conducting oversight to assist it? Regarding the investigations into criminal activities by employees of the EPWP, how many investigations were currently under way, and how far was each investigation presently?

Mr Dangor said the cases of wasteful and irregular were of concern, and asked how the Department would prevent such acts from recurring. Had the internal audit committee identified the instances of wasteful and irregular expenditure, and if so, had it reported them to the Department immediately?

It had been mentioned before that representatives of the Department were often not prepared to represent the brand of the country to potential foreign tourists. He asked if the Department had trained representatives before they were made to present in other countries. 

Ms H Boshoff (DA, Mpumalanga) pointed out that the irregular expenditure of South African Tourism had increased from R4.1million in 2017/18, to R90 million in the 2018/19 financial year. She asked who was meant to oversee this expenditure, and why it had been allowed to occur. This instance of irregular expenditure indicated that the Department had poor oversight mechanisms. She also asked if the Department could expand on the measures taken to deal with wasteful and irregular expenditure.

The Minister had previously mentioned to the Committee that the former CEO, Mr Ntshona, had been suspended, and that there was currently an investigation into his conduct. She asked what the outcome of the investigation was, as it should have been completed. She also asked if there would be a report submitted to the Committee on this matter. Did the case involve spending money without condonation on the Cape Town International Jazz Festival, and if so, would a civil case be opened against him?

The Minister had indicated previously that she would replace both the chairperson and deputy chairperson of the Board. She asked if the Department could provide details on whether this had happened, or if the matter was still in discussion.

The Department had still not finalised and tabled the Tourism Amendment Bill. She asked for timelines on when it would be finalised and tabled in Parliament, as this Bill may have an impact on the tourism figures.

In previous sessions, the Department had been asked to provide feedback on the Northern Cape Putfontein Project, as details had emerged that there had been misappropriation of R3.5 million and livestock. In each instance that the Department was asked about this project, it had not provided answers on what had taken place. She asked the Department to provide the Committee with details on this project and its current status.

It was well known that crime committed by locals on tourists had had a serious effect on tourist numbers in the country. She asked if the Department was in discussions with the South African Police Service (SAPS) to deal with this issue. Also, what discussions were taking place with the Ambassadors to promote South Africa’s image internationally?

It appeared that the implementing agents of the DoT may be the reason why projects were not implemented. She asked if the Department had a report on the stringent measures that had been put in place to vet the implementing agents.

She asked for a breakdown of the number of Africans, Coloureds and Indians represented in Department’s the workforce.

Mr J Londt (DA, Western Cape) said that the Department’s performance had regressed in comparison to the past. He asked it assesses its own performance. The Department was not assisting unemployment in the country by not correcting the issues affecting the decline in tourist numbers.

There were fascinating tourist sites throughout the country, and there should be ways to link tourists to the different sites. What was the Department doing to link the different sites, and were there package deals that would link tourists to each site?

The Chairperson asked whether tourist operators would require closer collaboration with the National Transport Regulator.

What was being done to improve the negative image of the country?

The DoT must be aware that the Department of Public Works (DPW) acted as an implementer of infrastructural programmes, and since it had struggled with project management (and the built environment), why had it not approached the DPW for assistance?

He asked what the DoT had received as part of the stimulus package to improve the tourism industry, as part of the commitment of government to ensure this industry played a critical role.

Earlier in the presentation, it had been mentioned that the performance of the Small Enterprise Development Agency (SEDA) had contributed to the underperformance of the Department. He asked the Department to clarify the funding proposal to the Small Enterprise Finance Agency (SEFA), and what the stringent rules were.

Ms Morongoe Ramphele, Deputy Director General: Corporate Affairs, DoT said the breakdown of the racial composition of the Department’s workforce was Africans 86%, Coloureds 5.4%, Indians 4.4% and whites 4.5%.

Mr Ralph Ackermann, Chief Financial Officer: DoT, said that most of the irregular expenditure that occurred within the Department was due to implementing agents who did not follow the same procedures as government. The agents did go through a quotation process, but did not apply the principles required. To tackle the issue of irregular expenditure, the Department had drafted delegations for implementing agents. These would be distributed to them and training would be provided, to ensure that each complied.

He said that the asset register was listed in the audit findings as an ‘asset register,’ but it was actually the work-in progress of the implementing agents. The asset register was classified under the Departmental assets.

Ms Lulama Duma, Deputy Director General: Corporate Management, said that the Department had had a partnership with SEDA for over two years, which included assisting of the small, medium and micro enterprises (SMMEs) with training on financial literacy. SEDA had an internet company which provided tutors that assist with training of financial literacy. Under the agreement, the Department was expected to deal with the logistics, which included the venue and the travel of non-officials of the Department. SEDA was tasked with paying for the tutors, but they had not been able to do so, and this money had been reprioritised to other SEDA projects. This training had assisted the SMME’s greatly, especially with their financial accounting.

Towards the end of last year, the Department had created a strategy that focused on tourist safety. Various stakeholders had been involved in the development of this strategy. The strategy addressed three areas. The first was the precautionary measures that must be taken to prevent crime. The second was the measures the Department must take to assist the tourists during distress, and the last was the aftercare. If a tourist reports an instance of crime to the SAPS, the Department does reach out to them. Importantly, SAPS was a part of the forum, and currently the Department had a memorandum of understanding with SAPS to deal with crime. The police had been notified about the various crime hotpots, and there were tourism monitors in all nine provinces. The monitors give tourists information on which areas to avoid and what to do if an incident of crime takes place.

The Department had had meetings with the Ambassadors on how to improve the country’s brand.

Mr Tharage reminded the Department that three markets were targeted in the State of the Nation Address (SONA) -- India, China and Nigeria. The Department had recommended that, given the political sensitivity of the markets within China and India, the Minister should attend engagements in the two countries. Through the engagements, the Department had recognised that the representatives of South Africa did not present the country’s brand well enough to foreign countries. The Department prepared those individuals through SA host training. It took the people allocated to specific market hubs for training on diplomatic understanding.

On 5 December, the Minister would for the first time meet with all of these individuals at once. All other relevant departments across government would also be involved in this meeting, to ensure that these officials have a proper understanding of how to represent South Africa. Once each person is posted to their designated market, the Department would create mechanisms for them to interface with one another. This was to ensure that one unified message was put across. He admitted that this was still a work in progress. It had also been considered by the Department, that those posted to different countries should have an understanding of the language and culture of their area, to ensure that the messages were better understood by the people in each country.

Oversight over SAT was being conducted by the Department. In this particular case of irregular expenditure, there had been a contract which had a provision for renewal. The renewal had been beyond the required 15% stipulated by the Department’s rules. As a result, it was classified as irregular expenditure. Before a matter was handed to the political authorities to conduct their oversight functions, there were certain processes that the board had to follow. The Minister had flagged this instance of irregular expenditure with the AG, and had also met all the staff of SAT.

There was an interim chairperson of the board at SAT. Currently there was a process under way to appoint a new chairperson, as well as his/her deputy.

The Tourist Amendment Bill was currently with the National Economic Development and Labour Council (NEDLAC). This process could take three to six months. Once that was completed, the Department would submit it to Cabinet for approval. If this was completed in three months, the Department would be able to table the Bill in Cabinet, and then be in a position to submit it to the Committee at the beginning of February.

As previously mentioned, the CEO was currently undergoing a disciplinary process, and that was the only information that could be shared with the Committee at this time.

Ms Boschoff said that the Minister had told the Committee that the investigation had been completed in July, yet there had been no update on the findings or the outcome.

Mr Tharage clarified that once the investigation had been concluded, the board had made a request to the Minister to commence with the disciplinary hearing. The Minister had agreed to the commencement of the disciplinary hearing, and that process was under way.

Mr Tharage said that internal audit did flag instances of irregular expenditure that occurred in the Department.

The Chairperson said that the Department could provide written responses on the outstanding questions, as there was another meeting that Members needed to attend at 13h00.

The meeting was adjourned.