South African Tourism on its Quarter 3 performance; Update on preparations of Free State Province

Meeting report

Opening Remarks

The Chairperson stated that the Committee was not too happy about targets not being met on domestic tourism. She also asked how far Statistics SA (StatsSA) was on resolving the issues around statistics. South African Tourism (SAT) was asked what its interactions with the Department of Home Affairs (DHA) were on the congestion at OR Tambo International Airport. She asked whether SAT was communicating with African countries that they should not be deterred by instances of xenophobia as SA was safe as a tourism destination. She asked SAT whether it could account for the R200m that had been ring-fenced for domestic tourism. How was the SAT dealing with foreign currency exposure?

Briefing by South African Tourism (SAT) on its Quarter 3 2016/17 Performance Results

The delegation comprised of amongst others Mr Sisa Ntshona Chief Executive Officer (CEO), Ms Stembiso Dlamini Chief Operations Officer (COO), Mr Tom Bouwer Chief Financial Officer (CFO) and Mr Enver Duminy SAT Board member and member of the Committee for Audit, Risk, Marketing and Awards, Tourism Grading Council of SA. The National Department of Tourism (NDT) was represented by Ms Nomzamo Bhengu Chief Director: Governance.

Mr Sisa Ntshona, Chief Executive Officer, SAT, undertook the briefing. In the interests of time only key highlights on performance were spoken to. The Committee at the outset was given the explanation that the SAT relied on statistics from StatsSA. The challenge was that StatsSA worked with calendar year statistics. There was thus a disjuncture in that SAT reporting had to be for financial years. SAT was working with StatsSA on the matter. StatsSA was relooking at its model of statistical compilation. There was also a ministerial committee working with Grant Thornton on how statistics was compiled. SAT had obtained an unqualified audit opinion.

Detail on Quarter 3 performance was provided. On the number of tourist arrivals the target of 2 239 457 had been surpassed with actual achievement being 2 449 664. However on the number of domestic holiday trips the performance was well below target. The target had been 553 190 whereas only 356 550 had been achieved. There was a 22% decrease in total trips in 2016. The main reason given for the drop was affordability as well as the South African economy continuing to underperform. Revenue figures were also down. The total tourism revenue target was set at R23.3m however the actual achievement only sat at R20.9m. The underperformance was attributed to a 40% year on year decline of Total Domestic Direct Spend (TDDS). On the number of graded establishments the target was set at 1 457, actual achievement was only 1 279. Notwithstanding an increase in the number of establishments graded year on year the target was not met. The Tourism Grading Council of SA (TGCSA) was even in SA’s tough economic environment trying to beef up its value offering for establishments to get graded. There was a basket of benefits that went along with being graded. Government should encourage departments to use graded establishments.

SAT was going through a process of organisational review and had suspended all new appointments unless they were critical. It had an annual target of 7% to maintain on percentage of staff turnover. SAT had opted to employ contract workers instead. It would however start filling vacancies from the 1 April 2017. SAT was aspiring to become a performance based organisation driven by the 5 in 5 principle ie to have 5m tourists within 5 years, 4m from international and 1m from domestic. SAT was realistic about challenges that existed. SA’s economy was only growing at 0.3% and its inflation rate was between 5%-6%. Conversion also remained a challenge.

The xenophobic attacks also had an impact on numbers. SAT had been forced to close its offices in Lagos, Nigeria for two days. A building of South African cell phone giant MTN in Nigeria had been damaged in response to Xenophobic attacks on Nigerians in SA. Xenophobic attacks should not be happening as people should be welcomed to experience SA.

Mr Tom Bouwer, Chief Financial Officer, SAT, continued with a financial performance overview for the Quarter. Year to date total expenditure sat at R989.32m. For Quarter 3 the expenditure sat at R224.02m. Marketing expenses of R773.10m year to date made up 78% of total expenditure. The remaining 22% was made up of administration costs. The marketing expenditure related to investment in leisure marketing, quality assurance and business events. SAT was expected to meet its expenditure targets.

Discussion

Mr G Krumbock (DA), on page 8, pointed out that domestic holiday trips achieved had declined by 22%. He was concerned that the figure was so high. Figures usually declined by single digits not double digits. Could affordability be the only reason for the decline? He asked whether SAT did modelling on what domestic tourism amounted to in terms of econometric models. Why was the decline so great? He pointed out that his colleague and member of the Committee, Mr J Vos (DA), had always brought up issues of discounted rates for South Africans and that small tourism resorts in provinces needed to be revitalised. SAT was asked how they could address these issues. He asked why was the SAT still speaking about currency depreciation when at the moment the rand was doing well against the dollar. It was roughly R13/$1. Some time ago the exchange rate had been R23 per one Pound Sterling and R17/$1. On brand positivity rankings, what scale was used? The SAT was asked what benchmarks had it set. What did the SAT consider to be an acceptable brand positivity ranking?

Mr Ntshona conceded that it was concerning that domestic holiday trips had declined by 22%. There were things that needed to be considered: how SAT collated statistics on domestic tourism and how the SAT captured activities that were happening. The sample sizes were small. He would like to see more technology being used. SAT needed live data but at the moment things were very grey. SAT was reviewing its organisational structure and had built analytics into it. At the moment the SAT was feeling its way through as it did not own the product that it was marketing. The industry owned the product. The industry mainly focused on international and not much on domestic. He conceded that there was stock that lied with provinces and local government that could be used on the domestic market. SAT worked closely with the National Department of Tourism (NDT). An incremental amount of R200m had been received for infrastructure for domestic tourism. He noted that with the Sho’t Left Campaign website there was no button where bookings could be made. It was therefore important that collaboration was needed. Sports tourism was another opportunity that was out there. The Premier Soccer League (PSL) had to come on board. SAT had to ensure that it used platforms that were there. SAT also had partnerships with stokvel and taxi associations. Improvements in market intelligence were needed. Not enough was being done to understand the market of domestic tourism. Inclusive growth should make the sector grow and bring new players in. SAT had to ensure that it became granular and had to have a book button on the Sho’t Left Campaign. There was information on the numbers of hits but a booking button was needed. He was not trying to make excuses but SAT was trying to have a better product mix. Opportunities for domestic tourism were being missed. Bed & breakfasts had to be brought to the fore for the target market.

Ms Nomzamo Bhengu, Chief Director: Governance, NDT, appreciated the engagement that was taking place as it allowed for better understanding of underlying issues. The figures spoke for itself that domestic tourism was not doing well. The reporting process did assist with the NDT better understanding what it needed to do to improve. The NDT is an enabler and it understood its role. Some of the issues raised were about unblocking. For instance long lines at OR Tambo International Airport were something that the NDT needed to address. The NDT had to decide on what institutional arrangements could be put in place.

Ms Stembiso Dlamini,Chief Operations Officer, SAT, stated that the entity did promote discounted local resorts. She was aware that there were questions about how to renovate and better market them.

Mr Enver Duminy, SAT Board member and member of the Committee for Audit, Risk, Marketing and Awards, Tourism Grading Council of SA, on the decline in domestic holiday trips by 22% explained that school terms had been shifted and were now aligned nationally. Destinations unfortunately had not taken this into account. It was assumed that the alignment of school terms was one of the major factors which had affected domestic holiday trip figures. The behaviour of South Africans had also shifted. When South Africans were under financial pressure then it affected their behaviour. Another factor to consider was shifts in weather patterns. Many areas in SA had received heavy rains and so peoples plans changed. The issue was about technology and data being in line with how the market changed. On discounted pricing he pointed out that attractions would consider dynamic pricing. There would be different prices charged at different times of the day. International tourists could afford prices at premium times whilst South Africans could go when it was cheaper. Dynamic pricing had for years been used by hotels and airlines. He explained that it was difficult to manage exchange rates. It all depended on where the tourist was in his/her life. It would determine where they wished to go. A student whose parents footed the bill would not care about price whereas the pensioner would be more financially prudent. The issue was also about including the informal accommodation sector.

Mr Ntshona on the issue of SAT’s relevance to local authorities said it was all about alignment. The work that the SAT did had to be translated into action at local level. Alignment of efforts was key.

Ms L Makhubele-Mashele (ANC) asked whether the underperformance of the SAT in Quarter 3 would affect the performance of SAT annually. Information on key performance indicators not due for reporting would be appreciated by the Committee.

Mr Dlamini on key performance indicators not due for reporting said that preliminary results could be provided to the Committee.

Ms P Adams (ANC) pointed out that the Tourism Indaba was to be held on from 16-18 May 2017. She asked why the event was to be hosted midweek. Was stakeholders informed of the decision before it was made. She said that if by Quarter 3 77% of SAT’s budget had been spent would the remaining 23% be spent by the end of Quarter 4. Members often observed that when it came to the end of financial years there was a great deal of fiscal dumping. On page 49 she asked why there was under spending on the India Roadshow. If the underspending was due to a change in the SAT’ s marketing campaign the question should be asked as to why the marketing campaign had been changed in Quarter 3. Planning should have been done properly from the outset. It was evident that not enough research had been done. She asked whether not filling of vacancies could be regarded as savings. Was service delivery not being compromised when there were vacancies? The SAT was asked whether it felt that temporary staff could do the same level of work as full-time staff. Was the savings included in the R773.1m amount? She asked what the outcome was on surveys that the SAT had conducted in nine provinces had been. What strategies had the SAT put in place based on the outcomes of the surveys? She pointed out that if Africa was 3% of the world tourism market should SA not be focussing more on it. SAT was asked what strategies it had on tapping into the Iranian market. There were huge Muslim communities all over South Africa. She also felt that the SAT should concentrate more on Provinces like the Northern Cape, North West and the Eastern Cape. SAT was asked whether its stakeholder engagement was good enough. If there were 277 camping sites that were non-operational she asked the SAT what it was doing to convince local stakeholders to upgrade the dilapidated sites.

Mr Ntshona on improving geographic spread said that events should be used as a magnet to attract people. Events needed to be held in outlying areas so as to attract people to those areas. On the Tourism Indaba the industry had noted the Indaba to be old and stale and needed a refresh. Stakeholders were taken on board as there were issues of capacity and seasons.

Mr Bouwer assured members that SAT did not do fiscal dumping when it came to the end of financial years. He said that the issue on the India Roadshow was all about timing. Most of the funds were upfront funding and if there were deviations then National Treasury had to be approached. On whether savings formed part of the R773m he answered that it did not.

Ms Dlamini on the shifting of the dates on the Tourism Indaba explained that there had been stakeholder engagement. By the time that buyers came to the Indaba then deals had already been made. The Tourism Indaba was thus more of a showcase. The industry had been consulted on what would be acceptable dates. On whether service delivery was compromised due to vacancies she said that the structure of SAT had to follow strategies. SAT had to decide whether it wished to appoint full time employees. It decided on employing contract workers for the time being. The contract workers were however specialists in their respective fields. Service delivery was not compromised. Part of the savings made was used to bolster marketing efforts. On Iran she said that SAT had in its Strategic Plan identified the Middle East as a critical market. The region would be serviced out of the SAT’s India Office. She noted that SAT funds for Africa were ringfenced. SAT was working with African tourism agencies. Africa was a critical market for SAT and it was being serviced out of SAT’s head office.

Ms E Masehela (ANC) asked the SAT during its stakeholder engagements which issues were raised most and what had been done to address them. She commended the SAT for moving away from outsourcing its work. The SAT was also commended for obtaining an unqualified audit opinion.

The Chairperson did not regard money not spent on filling vacancies as savings. She asked whether the ministerial round table talks had not come up with any strategies to increase Africa’s contribution to world tourism from 3%. She noted when it came to India the places most often spoken about was Mumbai and Delhi. She asked the SAT in which areas did it experience difficulties in having roadshows. The Department of Home Affairs (DHA) had experienced problems with facilitation centres in India. In some areas things ran smoothly whereas in others they did not. The SAT was asked whether it had benchmarked what countries like Kenya and Morocco and others had done on domestic tourism. Given the fact that tourist arrival figures had increased in Quarter 3 and 4 she asked what the social impact was.

Ms Dlamini stated that the comments on domestic tourism benchmarking were noted. She noted that Brand Tracker was now done on both international and domestic tourism.

Mr Ntshona regarding the India Roadshows explained the blame could not only be placed on the policy side. Visa processing capabilities differed from one office to the other in India even if they followed the same policy. The problem was that in India a person had to apply for leave in the month in which he wanted it. So if visa processing took a month the person would lose out. He pointed out that previously 5m Germans used to visit Turkey but with the recent socio-political problems Germans no longer visited Turkey. It was an opportunity for SA.

The Chairperson remarked that people needed to experience the flavour of SA at the Tourism Indaba.

Update on preparations for Committee oversight visit to the Free State Province 27-31 March 2017

The Committee Secretary Mr Jerry Boltina explained that the Province was busy with preparations and would be sending the Committee its programme by the end of the day.

The meeting was adjourned.