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Briefing to the Portfolio Committee on Tourism

Briefing to the Portfolio Committee on Tourism. For an Equitable Sharing of National Revenue. 17 October 2014. Presentation Outline. Role of FFC Background Departmental Analysis FFC Recommendations Concluding Remarks. Role and Function of the FFC. What?

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Briefing to the Portfolio Committee on Tourism

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  1. Briefing to the Portfolio Committee on Tourism For an Equitable Sharing of National Revenue 17 October 2014

  2. Presentation Outline Briefing to the Portfolio Committees on Tourism • Role of FFC • Background • Departmental Analysis • FFC Recommendations • Concluding Remarks

  3. Role and Function of the FFC Briefing to the Portfolio Committees on Tourism • What? • Permanent statutory body established in terms of Section 220 of Constitution • Independent and subject only to Constitution and the law • Must function in terms of the National Legislation • Mandate of Commission • Makes recommendations, envisaged in Chapter 13 of the Constitution or in national legislation to Parliament, Provincial Legislatures, and any other organs of state determined by national legislation • Legislative provisions or executive decisions that affect either provincial or local government from a financial and/or fiscal perspective • Includes regulations associated with legislation that may amend or extend such legislation • Commission must be consulted in terms of the FFC Act (Section 3) • Current research strategy focuses on developmental impacts of IGFR

  4. Background Briefing to the Portfolio Committees on Tourism

  5. Macroeconomic and Fiscal Outlook Briefing to the Portfolio Committees on Tourism Global growth forecasts for 2014 and 2015 were revised downwards by -0.1% and -0.2% in its October outlook South African economy downward revisions of the order of -0.3% (from 1.7% to 1.4% for 2014) and -0.4% (from 2.7% to 2.3% for 2015) respectively A result of both external and domestic factors

  6. Tourism Trends [cont.] Source: World Travel and Tourism Council (2014) Briefing to the Portfolio Committees on Tourism 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 annum. Currently, significantly below this rate of growth Domestic expenditure on tourism shows fastest growth (4%) pa. The global recession led to renewed focus on domestic tourism to cushion impact on local tourism industry. The Commission welcomes increased emphasis on domestic tourism in department’s budget Infrastructure investment in tourism has fallen over the five years largely from a slowdown in the local economy, although improvement from 2011 as the economy started to recover. Will require significant future investment to continue growing the sector

  7. Tourism Trends Source: World Travel and Tourism Council (2014) Briefing to the Portfolio Committees on Tourism • Tourism labour –intensive sector and significant contributor to total employment (12% in 2013) • Direct contribution in 2013 recovered to 2008 levels, although indirect contribution still marginally short of full recovery • Job creation in tourism sector negatively affected by the slowdown in the domestic and global economy

  8. Tourism Outlook Briefing to the Portfolio Committees on Tourism Upward Trajectory In Demand For Accommodation Continued In July But This Trend May Reverse In Coming Months As Tourists Are Cancelling Trips To South Africa and Indeed African Countries Because Of Ebola

  9. Policy Considerations Briefing to the Portfolio Committees on Tourism • National Development Plan (NDP) • Tourism sector important driver of growth and poverty reduction • Tourism sector targets for 2020 creation of 225 000 jobs and total direct and indirect contribution to GDP of R499 billion by 2020 • State of Nation Address • Tourism identified as one of the major job drivers • Identified foreign tourists as a main target to focus on expanding • Target is to expand foreign tourists from 9.6 million in 2013 to 15 million visitors in 2017 • New Growth Path • Tourism key sector for employment creation (225 000 jobs by 2015) • Quality assurance, training, tourism infrastructure, youth employment and support cultural industries main enablers

  10. Main Intergovernmental Characteristics of tourism sector Briefing to the Portfolio Committees on Tourism • Tourism listed as a concurrent function in the Constitution (Schedule 4B) • National Department responsible for national policy development whilst provincial departments of tourism formulate and legislate on provincial tourism policy and strategy • South African Tourism (SATOUR) is a public entity under NDT and is responsible for international and domestic marketing. Each province also has a similar structure to implement provincial tourism marketing strategy • Provincial and local municipalities have concurrent spatial planning functions in support of tourism and public infrastructure responsibilities • Local municipalities responsible for the general maintenance and upkeep of tourist sites whilst the local tourism board registers tourism businesses and monitors minimum service standards in the locality

  11. Achieving Developmental Agenda Briefing to the Portfolio Committees on Tourism The National Tourism Sector Strategy (2011) (NTSS) good blueprint for the sector to achieve the developmental objectives of government (i.e. Pro-poor job creation, rural development, etc) Successful implementation of the NTSS can only take place if provincial departments and municipalities align their plans with the strategy and provide sufficient funding to implement the strategy The Tourism Act (2014) key lever to promote the growth and development of the tourism sector Given the prevailing economic environment, unlikely to see a significant injection of funds from the national fiscus. To achieve the targets in NDP, NDT 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

  12. Departmental analysis Briefing to the Portfolio Committees on Tourism

  13. background to National Department of Tourism (NDT) Briefing to the Portfolio Committees on Tourism • NDT established as a stand-alone department in 2009 • The department is responsible for one public entity (i.e. South African Tourism) • Market South Africa internationally and domestically • Four main programmes: Administration, Policy and Knowledge Services, International Tourism and Domestic Tourism • After excluding transfers, departmental allocation equates to 23% of the overall budget in 2014/15 • Medium-term priorities: Expand domestic and foreign tourism, increase contribution of tourism to economic growth, create job opportunities, sector transformation and integration of tourism sector • Financing: Unconditional transfer (includes budget for public entity, and other sector priorities such as the tourism incentive programme) • Conditional transfer (EPWP)

  14. Progression of programme spending and mtef budget Briefing to the Portfolio Committees on Tourism Average departmental spending increased in real terms by 2.2% per annum (after taking inflation into account) compared to 4.9% expected over the MTEF period The major programme cost drivers for the period 2009/10 – 2013/14 is Administration as a result of filling vacant posts and International Tourism from the increased implementation of bilateral and multilateral engagements and a new programme structure implemented Domestic Tourism is the major cost driver over the MTEF as a result of a new tourism incentive programme to support SMMEs and social responsibility programme to create jobs through the EPWP grant

  15. Prioritization of spending and mtef budget Briefing to the Portfolio Committees on Tourism Domestictourism and policy and knowledge services are being prioritized over the MTEF period, whilst Administration is moderated over medium term Department is balancing consumption spending (via marketing of tourism through policy and knowledge services) and investment in enterprises for job creation purposes (i.e. tourism incentive program and social responsibility programme through domestic tourism)

  16. Progression of line item spending & mtef estimates Briefing to the Portfolio Committees on Tourism • COE increased by 18% per annum in real terms from 2009/10 – 2013/14 mainly from filling vacant posts and increases by 2.1% over the MTEF from filling of posts and improved conditions of service • Goods and services increased in real terms by 37% p.a from 2009/10 – 2013/14, but declines by 3.4% over the MTEF. The major cost drivers were computer services, property payments, travel and subsistence and consultants; amounts to two thirds of total G&S budget in 2014/15 • Transfer and subsidies declined in real terms from 2009/10 – 13/14 by 2.1%, but increases again over the MTEF by 6.4% largely from the additional funds received for job creation programs

  17. Compensation of Employees • Relative share of CoE is declining over the Medium Term, suggesting the department may have reached a level of stability in its operations while also allocating relatively more resources to other priority areas Briefing to the Portfolio Committees on Tourism

  18. Goods and Services • The department has implemented cost containment measures consistent with National Treasury’s medium term guidelines while also balancing operational requirements. This is reflected in a relative decline in the share of goods and services compared to the total budget from 10% in 2013/14 to 8% in 2016/17 Briefing to the Portfolio Committees on Tourism

  19. Transfers and Subsidies • Transfers and subsidies (T&S) comprise the bulk of total expenditure and budget of NDT. T&S increases its share of total budget over the MTEF from 76% in 203/14 to 79% in 2016/17. The department has reprioritized its resources to create jobs while reducing relative resource allocation to overhead costs • The Commission welcomes the strategic direction being adopted, although the department should carefully monitor the transfers being made and also the quality of spent so that intended outcomes are achieved Briefing to the Portfolio Committees on Tourism

  20. Capital Assets • The share of capital assets is minimal and spending is expected to remain below 1% as a share of the total budget over the MTEF period. This is largely as a result of managing staff numbers, thereby reducing the need to budget for additional office equipment and other related capital assets Briefing to the Portfolio Committees on Tourism

  21. Expenditure Outcomes: 2010/11-2013/14 • Total spending performance by NDT have improved from 97% of the total budget in 2010/11 to 99% in 2012/13. Briefing to the Portfolio Committees on Tourism

  22. Expenditure OutcomesProgramme 1: Administration • The Administration programme underspent by 10% in 2010/11, largely due to slow filling of vacancies. However, over the past three years, spending performance close to 100% Briefing to the Portfolio Committees on Tourism

  23. Expenditure OutcomesProgramme 2: Policy and Knowledge Services • A large share of the Policy and Knowledge Services budget is allocated to South African Tourism (SATOUR) as a transfer payment • SATOUR has consistently spent its full allocation over the years. Good spending by SATOUR contributed to the overall spending by the programme being close to 100% of its allocation over the four year period. Briefing to the Portfolio Committees on Tourism

  24. Expenditure OutcomesProgramme 3: International Tourism • International tourism 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 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 Briefing to the Portfolio Committees on Tourism

  25. Expenditure OutcomesProgramme 4: Domestic Tourism • Spending as a share of budget by the Domestic Tourism programme has improved over the four year period, rising from 93.5% in 2010/11 to 99.7% in 2013/14. The Domestic Tourism programme is a key job creation lever n the department. Any underspending by the programme can therefore reduce overall departmental impact of supporting job creation and contributing to economic growth Briefing to the Portfolio Committees on Tourism

  26. Expenditure Outcomes Per Programme– Explanation of Variances Briefing to the Portfolio Committees on Tourism

  27. In-year Spending profile Briefing to the Portfolio Committees on Tourism Spending pattern follows a consistent pattern over the three-year period (i.e. 2011/12 – 2013/14), with April, July, October and to a lesser extent January, typically high spending months, largely because of transfer payments to public entities and households Disbursements in January 2013/14 significantly higher than the previous two years, which suggests the department may have been spending relatively slowly in the first nine months of the financial year compared to previous years

  28. Fruitless and Wasteful Expenditure Briefing to the Portfolio Committees on Tourism An amount of R2.78 million and R648 000 fruitless and wasteful expenditure reported relating to 2012/13 and 2013/14 respectively Investigations into conduct of providers underway who participated as implementers in previous years’ EPWP projects

  29. Irregular Expenditure Briefing to the Portfolio Committees on Tourism No irregular expenditure reported for the 2013/14 financial year The department has established appropriate supply chain committees and have capacitated these committees to deal with bidding administration

  30. Aspects Highlighted by the Auditor-General, 2013/14 Briefing to the Portfolio Committees on Tourism • Audit opinion of department = financially unqualified, with emphasis of matter • Matters raised by A-G are the following: • Classification of expenditure incurred on EPWP projects recorded as transfers and subsidies instead of goods and services or capital expenditure • Significant internal control deficiencies • Achievement of some targets incorrectly reported but subsequently amended • Evidence to support targets achieved in Domestic Tourism could not be provided

  31. Summary of financial assessment [cont.] Briefing to the Portfolio Committees on Tourism • The department is doing well to achieve a high rate of its targets and spending in line with its budget • The biggest challenge for the department is to make sure it gets value for money from the funds disbursed • Forensic audit investigation found misuse of state funds for EPWP projects, although some claims have not been verified by the audit but points to lack of proper internal controls relating to transfer payments • Monitoring and evaluation of transfer payments is generally weak in government departments • Funding of additional tourism infrastructure seems unclear

  32. Summary of financial assessment Briefing to the Portfolio Committees on Tourism There could be overlap of responsibilities between SAT and department regarding marketing SA internationally and domestically. Budget documents do not clarify respective mandates Less likely to receive major unconditional cash injection, although there is substantial grant funding for job creation initiatives that the department has already tapping to

  33. Achievement of Performance Targets Briefing to the Portfolio Committees on Tourism

  34. Achievement of Performance Targets [cont.] Briefing to the Portfolio Committees on Tourism NDT met or exceeded 88% of all its targets in 2013/14 Close alignment between targets met or exceeded and budget spent suggests performance indicators closely aligned with work volume of the department and hence, resource allocation By program, Administration met or exceeded 83% of its targets, Policy and knowledge Services 94%, International Tourism 100% and Domestic Tourism 80% In many cases, where targets were exceeded, planned outputs for 2013/14 lower than the baseline figure in the previous year. This raises the question of whether some of the department’s targets are in fact credible Quality of performance indicators have significantly improved since 2011/12 and aligns more closely with the SMART principle The Auditor-General made no material findings on the performance information of the department

  35. Entities receiving transfers from NDT Briefing to the Portfolio Committees on Tourism

  36. Public Entities Briefing to the Portfolio Committees on Tourism • South African Tourism • Responsible for marketing South Africa internationally and domestically and putting in place measures to maintain and enhance standards of tourist facilities and services • Eastern Cape Parks and Tourism Agency • Responsible for biodiversity conservation and sustainable use of natural resources in the Eastern Cape’s nature reserves

  37. Transfers to Entities • Both entities spent the full allocation received from the department in 2012/13 and 2013/14 • EC Parks is a non-business entity and the funding received was for national tourism careers expo • SATOUR receives the bulk of the transfer funds • Allocations to SATOUR was over half of the total departmental spending in 2013/14 • In terms of the Public Finance Management Act (PFMA), the NDT is the executive authority of SATOUR. NDT therefore has a responsibility to monitor the performance of SATOUR Briefing to the Portfolio Committees on Tourism

  38. Entity Audit Outcomes- Satour Briefing to the Portfolio Committees on Tourism • SATOUR received an unqualified audit from the AG in 2013/14 • The AG however raised the following financial matters pertaining to the entity: • SCM irregularities • Person in employ of SATOUR part of process that awarded contract to person who’s a close family member/partner/associate • Significant internal control deficiencies resulting from its finding on performance information

  39. FFC Recommendations Briefing to the Portfolio Committees on Tourism

  40. ffc recommendations related to tourism – 2013/14 annual submission Briefing to the Portfolio Committees on Tourism 40

  41. ffc recommendations related to tourism – Previous Submissions Briefing to the Portfolio Committees on Tourism

  42. Thank You. Financial and Fiscal Commission Montrose Place (2nd Floor), Bekker Street, Waterfall Park, Vorna Valley, Midrand, Private Bag X69, Halfway House 1685 www.ffc.co.za Tel: +27 11 207 2300 Fax: +27 86 589 1038 Briefing to the Portfolio Committees on Tourism

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