DSBD, SEFA & SEDA 2020/21 Quarter 2 performance; with Deputy Minister

Meeting report

The meeting began with the adoption of Committee minutes dated 24 February 2021

DSBD: Quarter two performance report

The Chairperson introduced and welcomed Ms Rosemary Capa, Deputy Minister of Small Business Development, who handed over to the Acting Director-General (DG), Mr Lindokuhle Mkhumane, to present on behalf of the Department of Small Business Development (DSBD).

He said that the report was informed by the Department’s revised 2020/21 annual performance plan (APP). The revisions, including adjustments to the DSBD’s targets, had been made in line with budget cuts and the economic reconstruction and recovery plan.

The audit and risk committee had not met during the quarter because there had been challenges in recruiting members to the committee. The national lockdown had delayed advertisements of the positions, and subsequent recruitments were not approved due to issues with the candidates. The recruitment process was now being finalised. 

The Department had met 17 of its 19 quarterly targets (89%), an improvement on previous quarters. The following targets were not achieved:

• Below 10% vacancy rate in funded posts;
• 200 crafters supported through the Craft Customised Sector Programme.

The former was not achieved because the recruitment process had been halted by a review of the organisational structure and the finalisation of national macro organisation of government process. The Small Enterprise Development Agency (SEDA) expected to meet its target by the end of the month.

The latter target was not met because the consultative and approval process to conclude the new relief programme took longer than planned. Implementation resumed in the third quarter, with financial support disbursed to more than 400 crafters.

All quarterly targets were met in Programme 2 (Sector Policy and Research) and Programme 3 (Integrated Co-operatives Development).

The Department highlighted progress in several key programmes, including:

• Specifications workshops conducted for the small, medium and micro enterprises (SMME) database, which would be integrated with the databases of other government agencies;
• Draft produced of the SMME-focused localisation policy framework and implementation programme, mentioned in the President’s economic reconstruction and recovery plan, and prioritised by the Department;
• Consultations held on the draft national integrated small enterprise development masterplan, with positive responses from stakeholders; and
• Consultations held on the creative industries masterplan, working closely with other departments

The Department also engaged with key stakeholders in the private sector towards its annual target of 200 products produced by SMMEs and co-operatives linked to the market. The response from stakeholders had been positive.  

Ms Semphete Oosterwyk, Chief Financial Officer (CFO), DSBD, reported that the Department had overspent by R39.2 million (4%) during the quarter. The remaining budget for the year was R588 million (25%) at the end of the quarter. The bulk of the budget was spent on Programme 4 (Enterprise Development and Entrepreneurship).

The main reasons for overspending were overspending in transfers and subsidies (R33.5 million), largely due to cash flow misalignment following unplanned budget reprioritisation during the Special Adjustment Budget process in the first quarter, and overspending on compensation of employees (R6.2 million) and goods and services (R4.2 million), due to cash flow misalignment

Nine of the 26 (35%) 2018/19 audit findings remained unresolved. Ms Oosterwyk added that an internal audit process was currently under way, and feedback would be provided to the Committee by the deadline for the third quarter report.

SEDA: Quarter 2 performance

Dr Joy Ndlovu, Acting Board Chairperson, SEDA, handed over to the agency’s Acting Chief Executive Officer (CEO), Ms Ntokozo Majola, for the presentation.

Ms Majola said SEDA had performed well on 11 of 24 indicators (45.8%). The following targets were not met:

• Number of districts where the facilitation model was implemented;
• Number of spaza shops supported;
• Number of SMMEs participating in export development;
• Number of SMMEs assisted with access to finance;
• Number of SMMEs assisted through the information centre;
• Number of business development support providers and practitioners capacitated to provide sector-specific support;
• Number of cooperatives supported through ecosystem partners
• Number of SMMEs accessing business development support 
• Number of tech start-up enterprises supported;
• Number of SMMEs supported with conformity assessments; 
• Number of SMMEs accessing procurement opportunities in the government and corporate sectors;
• New jobs created and reported by eco-system partners supported; and
• Number of jobs sustained by eco-system partners supported.

Ms Majola emphasised the impact of the COVID-19 lockdowns on SEDA’s performance. Face-to-face engagement had not been possible, and the uptake of online services was low over the period. More specific reasons for underperformance included:

• Slow progress in engaging with municipalities and local stakeholders about the facilitation model;
• Spaza shop owners being reluctant to join the programme;
• Adapting to new ways of doing business was a challenge, for both clients and staff;
• Restrictions on movement during lockdown affected the planned implementation of training courses and engagement with co-operatives (some of whom were not tech-savvy);
• Lockdown made it difficult to engage clients, who were mostly interested in COVID-19 relief funding;
• Incubation budget cuts affected the resources to service clients, and as a result there had been huge jobs losses in all the supported incubators; and
• More private sector companies were financially constrained.

Ms Majola added that some provinces, like Gauteng and the Western Cape, had implemented their own support programmes for spaza shop owners. These programmes were more appealing to beneficiaries – perhaps due to the amounts offered, or the registration requirements – and thus reduced the uptake of SEDA support for spaza shop owners.

SEDA also reported on its governance and compliance structures, the demographics of its clients, and its human resource situation. There had been a moratorium on recruitment, so that board approval was needed before filling critical positions.

Ms Majola discussed several specific high-impact SEDA projects, which had been selected because they would have multiplier effects on socio-economic development in the relevant areas. Among these projects were three township-based incubators, and a textiles business incubator established in partnership with the City of eThekwini Metropolitan Municipality.

Ms L Taute, Acting CFO, SEDA, said that during the first two quarters, SEDA had underspent by nearly 30%, primarily in the goods and services account. In Programme 1 (Enterprise Development) and Programme 2 (Technology), spending was lower than in the second quarter of 2018/19. She added that underspending was driven by the effects of the COVID-19 pandemic and the national lockdown, particularly its effects on travel costs and capital expenditure.

Small Enterprise Finance Agency (SEFA): 2nd Quarter Performance Report

Mr Martin Mahosi, Board Chairperson, SEFA, opened the presentation with a broad overview. He said that SEDA’s presentation was almost “a mirror picture” of SEFA’s. They had faced the same difficulties of increasing uptake through applications and approvals. This was mainly due to the effects of the COVID-19 pandemic and low economic activity. Other organisations, including business partners, were seeing comparable trends. Uptake of SEFA loans had been lower than projected, and development indicators had fallen as a result.

Mr Mahosi drew Members’ attention to SEFA’s continued over-performance in collections. Looking towards the next financial year, SEFA had been asking how they could further improve collection numbers. He also highlighted that SEFA had met their targets in portfolios at risk and accumulated impairments, both key indicators. He was proud that SEFA had decreased the impairment rate from previous quarters.

Mr Mxolisi Matshamba, CEO, SEFA, emphasised that the lockdown measures had created a “very difficult environment.” The measures, particularly during the hard lockdown, had impacted negatively on businesses, which could not operate. This in turn had impacted uptake. Overall, SEFA had underperformed on ten out of the 13 indicators measured in that quarter.

Total loan book approvals for the quarter were R418 million, 50% of the target. R255 million had been approved in wholesale lending, and R163 million in direct lending. Underperformance in loan book approvals was attributed to a low uptake of the micro and informal funding schemes, and low demand conditions in the economy, as the majority of businesses were partially operating under the COVID-19 lockdown restrictions

Total loan book disbursements for the quarter were R400 million, 67% of the target. R106 million was disbursed in wholesale lending and R294 million was disbursed in direct lending. The COVID-19 lockdown impacted negatively on the achievement of disbursements targets, as businesses were closed and there was not much economic activity.

SEFA had also underperformed on development impact. It had financed 5 584 SMMEs (17% of its target), mostly in the micro-enterprise sector, facilitating 12 349 jobs (25% of its target) as a result. It did not achieve its targets for disbursements to businesses owned by youth, people with disabilities, women, or black people, nor did it achieve its targets for disbursements to businesses based in townships and rural communities. The presentation also surveyed the developmental impact on the provincial and district levels.

At the end of the quarter, the amortised total SEFA loan book was worth R2.3 billion – R1.2 billion in wholesale lending, and R1.1 billion in direct lending. The portfolio at risk was 42%. Wholesale portfolio at risk was 37%, and the direct lending at risk was 45%.

SEFA had over-performed in collections. Collections had amounted to R38.8 million, or 105%, compared to the target of 85%. The majority (R28 million) was collected on the wholesale lending book.

Mr Matshamba commented that SEFA’s financial performance had been good. The cost-to-income ratio was 89%, compared to the target of 122%. This was due to more interest income received than budgeted, and the achievement of cost savings

The accumulated impairment provision was 34.2%, compared to the target of 40%. This was due to:

• Effective management of the portfolio at risk by minimising portfolio roll-forwards;
• Restructuring of loans;
• The six-months payment holiday granted to clients during the COVID-19 lockdown; and
• Portfolio growth through increased disbursements.

Discussion

Mr M Hendricks (Al Jama-Ah) said that many small businesses would have a “shopping list” of challenges faced during the pandemic. The nation, reassured by the President, relied on the Department and its agencies to rise to the occasion. The presenters had been using the same excuses for their agencies’ underperformance during the pandemic. “We didn’t come up to scratch,” particularly in job creation: the picture was of “doom and gloom in all the reports,” yet they needed to move on. He urged Members to use their Parliamentary offices to promote job creation efforts.

Mr Hendricks said that Al Jama-Ah had offered to start a business incubator, especially for the Cape Flats region. The President and the Minister of Small Business Development had both told him they were quite keen that there should be some activity on the Cape Flats. The incubator would assist people to make use of the opportunity provided by the Department’s programme to integrate the products of SMMEs and co-operatives into the market (see slide 18). The programme would especially help those in townships, people with disabilities, and youths. He had attended a previous presentation which had asked people outside the Department to provide infrastructure and assistance for incubator programmes, and Al Jama-Ah had done so. Yet he had written to everyone that needed to be written to, including two or three Members of the Committee, with no response. He had spoken face-to-face with the Minister, who had been excited about the initiative and directed him to her assistant. He asked Members to support the incubator programme, stressing that this was not a party-political initiative.

Mr H Kruger (DA) thanked the Department and the agencies for their presentations. He said he had not received, but would welcome, a letter from Mr Hendricks about the proposed incubator project. 

Mr Kruger was concerned about the ease of doing business. The Department of Tourism had recently invited applications to the Tourism Equity Fund, to be handled by SEFA. He had visited the website himself and found the application much too difficult, and his bookkeeper agreed. Although SEDA consultants would assist small businesses in their applications, they did so in exchange for a share – in some instances, a large share – of the money allocated to the business. SEDA must make it easier for potential entrepreneurs to access government funds.

He also asked about the provincial distribution of SEFA disbursements. The figures in the presentation suggested that there were disparities in the average amounts received by businesses in different provinces. For example, in Mpumalanga, SEFA disbursed roughly R55 million among 501 businesses, while in the North West, SEFA disbursed roughly R8 million among 8 businesses (see slide 15). This implied that the average disbursement in Mpumalanga was roughly R110 000, compared to roughly R1 million in the North West. What explained this disparity?

Mr J De Villiers (DA) thanked the Department and the agencies for their presentations, and introduced himself as a new Member of the Committee. He said that the media and the public were “excited” about the Department’s programme to integrate 1 000 products from SMMEs and cooperatives into the market (see slide 18). He requested clarity and transparency about the programme. What were the 200 products that had been decided so far, and what would the final 1 000 products be?

Mr De Villiers noted that multiple SEDA officials held acting posts. Why was this? Was there a specific cause or problem, such as instability within SEDA, or was it coincidental? Important agencies like SEDA and SEFA could not function properly without stable, permanent leadership.

He also raised two points brought to him by members of the public. Firstly, he had been asked whether there a merger of SEDA and SEFA was planned – apparently this had been discussed previously in the Committee. Secondly, he asked whether it was true that the National Education, Health and Allied Workers’ Union (NEHAWU) was leading a go-slow strike within SEDA and SEFA. The presentations had not referred to such a strike.

Finally, he asked who Members should contact at SEFA and SEDA when they received complaints from the public. Members of the Committee received various complaints from members of the public who had been denied SEFA funding and who sought clarity or to appeal the decision, but Members were not themselves capable of assessing their applications and the validity of their complaints.

Mr H April (ANC) praised the presentations as “well thought-out,” although he said it was regrettable that the Committee was always pressed for time, leaving unanswered questions. He commented that everything looked so wonderful in the SEFA presentations, but that this picture was at odds with the bleak and dim picture painted by engagements with the public. The latter made him wonder where SEFA’s money was being spent. Simple, specific issues reported to SEFA did not receive responses – he could not think of one positive case of such an issue in the Committee being resolved by SEFA or by the Department. It made one wonder what was really happening –  was it just a couple of good administrators who knew how to put together presentations and financials, to bring them to the Portfolio Committee and come for rubber-stamping? The Committee might need to tell the leadership of entities that they needed to “pull up their socks” in some of these areas. However, the Department’s performance against its targets in the second quarter showed a strong improvement from the first quarter -- 89% compared to 38%.

He asked about the highlighted objectives of some the Department’s policy initiatives and interventions aiming at supporting small businesses. The Department’s presentation had mentioned, for example, the SMMEs-focused localisation policy framework and implementation programme, the SMMEs and co-operatives funding policy, the creative industries masterplan, and the national integrated small enterprise development masterplan.

He also observed that in the first quarter report, the Department’s programme branches had been administration, sector and market development, enterprise development, and development finance, which were different from those listed in this quarter’s response. Why did this change take place?

Finally, according to the Department’s presentation, the Executive Committee meetings on 27 July and 21 September 2020 had been cancelled due to the non-existence of strategic matters to be part of the agenda (see slide 6). Mr April asked what this meant, and what implications those cancellations had.

Mr D Mthenjane (EFF) agreed with Mr Hendricks’s and Mr April’s comments -- there was a disjuncture between the “nice presentations” in meetings and the picture in Members’ own constituencies. The reality was that all that was being said in the meeting was not happening in practice. The Committee’s oversight function must involve realising exactly the reality of the situation. The Department was reporting positive numbers, but Members did not believe what they were telling them, because it was not supported by constituents’ experiences.

He asked why the Department still had an Acting DG, rather than a permanent DG. Acting officials could not “take charge” and be accountable. The Department must address this issue urgently.

Mr Mthenjane also asked about the Department’s plan to deal with the effects of the COVID-19 pandemic, such as high unemployment. People were suffering. When constituents asked for help, he sent people to SEDA – after explaining what it was, because they did not know – and later heard that SEDA had not helped them. He asked whether the Department should change the criteria used by SEDA and SEFA to allocate funding. Many people did not qualify for funding, for example, because of their credit history. 

Ms B Mathulelwa (EFF) said that the presentations were not a true reflection of what was happening on the ground in communities. She raised concern about instances in eThekwini, where people who trained for small businesses were supposed to receive NQF Level 4 certificates, and similar cases in co-operative development programmes in the Eastern Cape, and SEDA was nowhere to be found. The Department was not serving its purpose. Even registering a company was very difficult for many – people were expected to pay R3 000 or R4 000, even when registering start-ups that were not yet generating income. The process was not accessible. SEDA or the Companies and Intellectual Property Commission (CIPC) should have offices in all cities. 

She also asked about the scope of the DSBD and the Committee. What kinds of small businesses were the Department helping, and what kinds did the Committee aim to develop? She had never heard the taxi industry mentioned in the Committee, but taxi enterprises were small businesses which needed assistance in development, and which played an important economic role. They were “a perfect business,” and unlike other entities, such as South African Airways, they had not been “rescued” by government bailouts or the COVID-19 Relief Fund.

Mr April interjected with a point of order. He said that Ms Mathulelwa’s statements were very repetitive, and that the taxi industry was under the purview of the Department of Transport, not the DSBD or the Committee.

Ms Mathulelwa replied that the taxi industry comprised small businesses that needed to be developed, and thus should be attended to by the Committee.

Ms K Tlhomelang (ANC) welcomed the informative presentations, but said her interest lay not with the presentations but with the end product -- the effect on the lives of the people. She applauded the Department’s 89% achievement rate for its quarterly performance targets. She asked how the SMMEs and co-operatives funding policy served previously disadvantaged groups (see slide 16). Could the Department provide the highlighted objectives of this policy initiative? She also asked about the Department’s annual target of supporting the registration of 2 000 women-owned businesses on an international platform (see slide 18). Would the Department only be able to help them register, or would it also provide them with financial support and the skills to trade on international platforms?

Mr F Jacobs (ANC) said that Members’ feedback reflected the challenges that had arisen due to the pandemic. Lives had been lost and livelihoods must be restored. The Department must be “at the coalface,” supporting the poor, the marginalised, and those in rural areas and townships. The Members’ assessment seemed to be that the DSBD and its agencies lacked the institutional capacity to implement its political mandate. There was much room for improvement in the implementation of COVID-19 relief, the recovery plan, and the programmes to revitalise townships and rural areas.

The fundamental question was whether the Department had the capacity to serve South Africa’s township and rural economy. Could it focus on the marginalised, women, rural, poor, and the youth? There had been underperformance on many targets, including those relating to the youth, rural areas, women, and people with disabilities. What would be done in the last quarter to improve? Moreover, there might be “busy-ness” without “impact,” the achievement of targets notwithstanding. He suggested that targets could be reduced to focus on fundamental targets.

Access to finance was the biggest challenge. Did the entities have the capacity to disburse to “our” people? Mr Jacobs was glad that Department officials had visited townships and rural areas, including areas on the Cape Flats. Many people had attended the meetings on the Cape Flats, and had made applications, but that had not translated into assistance for those communities. If those applications were not successful, why not?

Responding to Ms Mathulelwa’s comment that some people had paid R4 200 for registering a company, he commented that registration costs R70 on BizPortal. Agencies must help people with registration and protect them from exploitation. Could Department officials play that developmental role in the communities? Did they have the capacity?

Mr Jacobs commended the R13 million in support given to co-operatives by the DSB over the quarter (see slide 19). Cooperatives involved a promising new kind of ownership. Where had that R13 million been spent? What was the plan for co-operative development going forward? Were there any good examples of co-operatives across the country that the entities could learn from?

He observed that SEDA had provided access to finance to only 48 SMMEs against a quarterly target of 2 500 (see slide 6). On the other hand, SEFA claimed that people were not applying for access to finance, including in townships. Was there communication between SEDA and SEFA offices in a given town? Was an enterprise’s SEDA business plan taken to SEFA to be evaluated and funded? If SEDA and SEFA were not collaborating, SEDA must be closed. The need for seamless integration between the agencies was also related to the question about a potential merger between them.  

Mr Jacobs also remarked on the Department’s provision of support to 1 146 township and rural enterprises (see slide 21). Given the annual target of 28 000, this was “a big indictment.” There must be people across the country who needed such support. What would the Department do differently in the future? Similarly, what would it do to support women and young people?

Finally, he mentioned the South African Informal Traders Alliance (SAITA), the micro- and informal business association of South Africa, with more than 40 000 member businesses. Had SAITA been engaged about their needs and concerns?

Responses

The Chairperson invited representatives from SEDA, then SEFA, and then the Department to respond to the Members.

SEDA

Dr Ndlovu acknowledged ongoing concerns about the agencies’ institutional capacity and the scope of businesses assisted by them. There were 2.5 million SMMEs in South Africa, and SEDA had never managed to assist more than about 200 000 SMMEs annually. The need for assistance had grown during the pandemic. However, due to resource constraints, SEDA could not assist all SMMEs. It was thus not surprising that some Members had encountered individuals who did not know what SEDA was, or who had not been assisted by SEDA.

She agreed with Mr De Villiers that it was concerning that many SEDA staff members, including those in the executive, held acting posts. The question had been raised in the Committee previously. The situation had arisen because a moratorium on appointments had been instated, so no permanent executive appointments could be made. SEDA had a robust succession planning policy, so acting officials had been properly trained and prepared. To date, there had not been significant issues. They had not encountered the instability about which Mr De Villiers was concerned. However, SEDA had requested permission from the Minister to make critical appointments on a fixed-term contract, as they had for other positions.

She said that the moratorium was related to the pending merger between SEDA and SEFA, but deferred to the Department for further detail about the merger. Progress seemed to have been made, and transition arrangements should start by July.

Dr Ndlovu confirmed that NEHAWU was leading a go-slow strike at SEDA. Due to the COVID-19 pandemic, a decision had been taken to redirect funds to assist more SMMEs. Funds had been redirected from the salary bill, as well as from the incubation programme budget. Management, and at one point the board, had engaged with the union to explain the decision. However, on 14 September 2020, NEHAWU had declared a dispute. The matter had gone to the Commission for Conciliation, Mediation and Arbitration (CCMA) for conciliation. On 27 September, NEHAWU was given a certificate for a protected strike. About 23 people picketed at the SEDA national office on 27 November. CCMA had also recently issued a certificate for arbitration in the dispute about performance bonuses.

The board had decided that in the current economic climate, it would not be appropriate to give salary increases and bonuses. At the board’s encouragement, management was seeking other, non-remunerative ways of motivating staff. Although staff probably acknowledged that salary reductions and retrenchments had been widespread, SEDA staff were upset that SEFA had given its employees a 3% pay increase. However, SEFA had provided the increases before it received the Department’s directive instructing the agencies to freeze salaries to assist with redirecting funds. SEFA could retroactively revoke those increases. In addition, other departments had also paid bonuses and so on, which appeared unfair to SEDA staff.

Most SEDA staff were, understandably, not happy, and had written to the media. They had also taken their grievances to the Minister and, she had been led to believe, to the Committee. In their letter, the staff had spoken of SEDA’s “total collapse.” Dr Ndlovu disputed the term, citing Ms Majola’s presentation as evidence that SEDA was functioning.

SEDA would not prevent staff members from striking lawfully, but it would also assert its rights as an employer. Employees who did not honour their contract of employment would incur consequences. The board had told management, “no work, no pay,” and management had been told to report to the board about staff who were not performing. The board wanted continuous quantification of the size of the problem. However, there had been no reports of staff members not performing. Ms Majola could speak further to the issue.

The new administration had brought a significant change in communication and collaboration between SEDA and SEFA. As mentioned previously in the Committee, the boards had been working together, with joint meetings of the boards and meetings between the board chairpersons. There were joint task teams at the executive and operational levels. In light of this, SEDA’s underperformance in providing access to finance to SMMEs was not caused by poor communication between the agencies, as Mr Jacobs suggested. SEFA had their own criteria for allocating funding, and some SEDA clients did not meet them. SEFA could not change their criteria for SEDA clients. However, when a SEDA client did not qualify for SEFA funding, SEDA tried to help them meet the criteria so they could qualify in the future.

Dr Ndlovu said that SEDA’s past and present engagement with SAITA was not “robust.” However, SAITA had been invited to SEDA’s next annual stakeholder forum, and would hopefully share feedback and trade information with SEDA. 

Ms Majola added to SEDA’s response. She had referred to Mr Hendrick’s question about support for Al Jama-Ah’s incubator to the Department. SEDA was guided by the Department in such matters even, for example, in advertising calls for digital incubators and township hubs. She had also referred Mr De Villiers’ question about the 2 000 products to the Department. SEDA’s role in the project was to support the entrepreneurs with development services, such as product testing, product certification, quality management systems, meeting standards and technology transfers. The long list of products contained 1 000 products, but the current focus was on 200 projects.

She clarified that the letter written to the Committee about the ongoing labour dispute at SEDA had not been sent by NEHAWU, but rather by an individual who belonged to NEHAWU. The letter had been written in response to SEDA’s management of the go-slow and work-to-rule. SEDA had made it clear that, although the union had the right to strike, SEDA had the right and the responsibility to manage the strike, including through lock-ins. Lock-ins were necessary when SEDA needed to recruit external resources for service delivery.

She was confident that there had not been a collapse in SEDA services, contrary to the claims of the letter. There had been a work-to-rule. Without performance incentives, the staff had reduced their effort levels – usually, at this time of year, staff would be working to exceed targets to receive bonuses. However, the presidential engagement with SMMEs last week had run smoothly, conducted using SEDA offices throughout the country, and she thought the Deputy Minister had attended.

Ms Majola, who worked on the ground in the Eastern Cape, had not gained the impression that people had been turned away from SEDA offices. When problems of that kind were discovered, “we deal with it decisively.”

She thought Ms Mathulelwa’s concerns about SEDA in eThekwini must be related to an organisation called SEDA eThekwini in Durban. However, that organisation was not a SEDA branch, but rather had been supported by the City of eThekwini. There had been plans to integrate the organisation into SEDA, but that had never occurred, and SEDA had terminated the relationship after encountering resistance from the organisation. SEDA was currently recruiting to man those premises, based on an arrangement with their owner, Durban Metro. When the lease expired, SEDA would man the offices full-time. Services would then become available on a permanent basis. However, because of the pending merger and the moratorium on recruitment, SEDA was recruiting only on a 12 month-basis for critical positions like business advisors.

Regarding Ms Mathulelwa’s concern about cooperative development programmes in the Eastern Cape, she committed to follow up with the relevant SEDA branches and provide feedback to the Committee.

In response to Ms Mathulelwa’s concern about company registrations, Ms Majola said that the CIPC entered into Memoranda of Understanding with various different stakeholders in different provinces. Those stakeholders – such as the Eastern Cape Development Corporation (ECDC) – assisted with company registration. SEDA assisted with registering spaza shops, because registration was a prerequisite for SEFA funding. However, providing this service came with many challenges. In particular, SEDA became accountable to the client for CIPC’s slow turnaround time or unresponsiveness.

Ms Majola agreed with Mr Jacobs that SEDA faced challenges in institutional capacity. In particular, capacity was hindered by low staff numbers. The headcount for SEDA branches’ “foot soldiers,” who interacted with members of the public, had not increased since 2004 – when SEDA first became operational – even as SEDA’s mandate had evolved and expanded. The National Treasury had been imposing cost containment measures for about three years. This meant that intermediaries had become crucial for service delivery. The district development ecosystem facilitation model involved using partners to assist SEDA in delivering services to SMMEs. The agency had learned from its experience during the COVID-19 pandemic. It had generated a catch-up plan, which indicated how SEDA should divide internal capacity, for example, between different kinds of clients. It also leveraged the external capacities of partners and stakeholders, using the district development ecosystem facilitation model. The catch-up plan had been submitted to the Department and was being implemented.

Ms Majola said that when the Department visited districts, it required prospective clients to apply through the system. However, many of those clients – alluded to by Mr Jacobs – had applied manually. Those applications had since been submitted to the system, and those clients would be assisted.

When clients applied for finance, SEDA referred them to other financial institutions, as well as to SEFA. This could explain the disjuncture mentioned by Mr Jacobs. In addition, as she mentioned in her presentation, SEDA’s work in assisting clients with access to finance had been under-reported in the second quarter, since the figures did not record instances where SEDA assisted clients with compliance for the debt relief scheme. That had been corrected in the third quarter report.  

Ms Majola echoed Dr Ndlovu’s comments about collaboration between SEDA and SEFA. Like the board chairpersons, the agencies’ CEOs communicated with each other. Further measures were being put in place, including measures to track clients who were referred between SEFA and SEDA. However, as Dr Ndlovu had said, neither SEDA nor SEFA could secure SEFA funding for a client who failed to meet SEFA’s requirements.

SEFA

Mr Mahosi opened SEFA’s responses by reminding Members of the context of the report. It was a second quarter report, and there had been other developments since the second quarter. SEFA’s presentation had acknowledged a “slump” in quarterly performance, mainly due to occurrences in the macro environment. These had affected the low number of applications. The economy operated through supply chains, and it took time to restore those supply chains following shocks like the hard lockdown. As he had said in the presentation, such challenges had affected private sector business partners, as well as SEFA and SEDA.

The frustrations of COVID-19, and difficulties accessing COVID-19 relief funding, had contributed to pessimism of the kind Members observed in their communities. There had not been sufficient relief funds to cater for everyone. However, this was “a matter for another time.” The Township and Rural Enterprise Programmes (TREPs) had been rolled out. Once COVID-19 interventions were provided, it would be opportune to move on to post-COVID-19 programmes to kickstart the economy. As Mr Jacobs had said, people’s livelihoods must be restored.

Mr Mahosi understood Mr Hendrick’s point about the proposed Al Jama-Ah incubator as an invitation to collaborate. He warmly welcomed the invitation, and SEFA would assist where possible, although the incubator might fall mostly under the scope of SEDA. 

He clarified that there was no go-slow at SEFA. The NEHAWU dispute pertained only to SEDA.

He invited Mr De Villiers and other Members to find SEFA’s contact details on its website, or to contact him or Mr Matshamba directly if necessary. It was unfortunate that Mr April could not recall ever receiving an effective response from SEFA. Mr Mahosi did not know of those requests, so they should be escalated if not addressed satisfactorily. SEFA’s leadership could not become aware of the grievances of Members’ constituents without hearing about them.

He admitted that SEFA faced challenges – it was not perfect. The board worked hard to improve the conditions at SEFA and to improve its performance. He acknowledged Members’ frustration about an apparent disjuncture between the picture presented in reports and the picture on the ground. However, one also should not allow feelings of frustration to distort the reality. The presentation showed where SEFA money had been spent and, if necessary, in the interest of transparency, SEFA could reveal exactly which businesses had been funded. Presentations must be factual, or SEFA would be misleading Parliament. However, there may unfortunately be issues “in the macro space” which presentations could not address.

Mr Mahosi agreed that people often confused SEDA and SEFA. This justified the current political dispensation to merge the agencies. Until the merger, the agencies must endeavour to communicate and market their services to the public.

He emphasised that SEFA was entrusted with state funds and therefore operated within certain parameters. It had to be prudent. Its mandate was not to roll out grants, but to assist SMMEs for as long as they met certain criteria. Those criteria were not supposed to be stringent, but sometimes they were not met. When an applicant did not meet the criteria, it was important to be transparent and explain why they did not qualify. Then, as Dr Ndlovu had said, SEFA could refer them back to SEDA for help in qualifying in the future.

Mr Jacobs was right that SEFA faced challenges in institutional capacity, but SEFA was dealing with them. At the regional level, some staff were under-skilled and had to refer clients back to the national office. In some instances, there was “sluggishness,” and some systems could be improved. For example, he believed that SEFA should improve its outreach. SEFA should not rely on clients “coming to knock on its door.” This was also important for the accessibility of SEFA’s services, and for improving its penetration. SEFA was pursuing this point. It hoped to track outreach on a database and to make partnerships with other organisations.

SEFA would reach out to SAITA. He asked Mr Jacobs to provide its contact details. SEFA welcomed such recommendations.

As requested by Mr Jacobs, Mr Mahosi described several measures SEFA was taking to rectify its underperformance.

Firstly, it had addressed the marketing and communications shortfall by appointing an agency at the end of the last year. Public promotions would appear shortly, increasing SEFA’s visibility and explaining its services.

Secondly, to increase uptake, SEFA had adopted a programme, Pitch-For-Funding, previously a SEDA programme. Under this programme, SEFA, SEDA and the DSBD visited different districts and listened to small businesses pitch their products. The agencies, with the assistance of the Department, then provided services to those businesses. In addition, SEFA had identified a “bottleneck” in the applications system, especially during the provision of COVID-19 relief funding. SEFA was trying to automate the early stages of the application review process, in order to reduce the turnaround time on applications and improve SEFA’s capacity to deal with large volumes of applications.

Finally, SEFA had been revising the TREP interventions, aiming to improve uptake and increase interest in the programme. The revisions would be followed by a marketing re-launch of the programme.

Mr Mahosi agreed with the SEDA delegates that the agencies had been working together. The agencies had agreed that integration was crucial and must come with increased efficiency, especially in terms of the staff’s skills. The boards of SEDA and SEFA had been engaging at various levels. Next Monday there would be a joint board session for the agencies to discuss their strategic plans for the 2021/22 financial year, and to discuss how best to align their programmes.

To address Mr Kruger’s concern about the ease of applying for the Tourism Equity Fund, Mr Mahosi introduced Ms Tumi Sefolo, Executive Manager: Direct Lending at SEFA.

Ms Sefolo said that the Tourism Equity Fund had several key qualifying criteria. Firstly, the minimum project value was R10 million. This criterion had been set by the Department of Tourism, which had other schemes for smaller project sizes and therefore wanted the Fund to target medium-sized opportunities. Applicant businesses also had to be 100% owned by South African citizens and majority black-owned. Businesses had to be registered and compliant with the South African Revenue Service. Finally, the businesses had to operate in certain tourism sub-sectors targeted by the Department of Tourism.

Ms Sefolo said that the Fund had received 227 applications to date, showing that the application process was not unmanageable. Application support was provided by telephone and email. If specific entities required assistance, Mr Kruger should refer them to those channels.

Mr Matshamba answered Mr Kruger’s question about the average size of SEFA disbursements in different provinces. He said that in provinces like KZN, Mpumalanga, and Limpopo, SEFA worked with intermediary micro-lenders, who distributed small loans, often on a repeating basis. On the other hand, in provinces like Gauteng, loans were usually large and generally disbursed to medium-sized enterprises.

Regarding the Members’ suggestion that the agencies had used COVID-19 to excuse under-performance, Mr Matshamba said that SEFA had introduced a catch-up plan as soon as the lockdown had been relaxed. The plan would be shared with Members at an appropriate time. At the time of the meeting, SEFA had approved R1.2 billion in loans to 58 000 SMMEs – compared to R1.2 billion in loans to 72 000 SMMEs in the last full year. This was a great achievement, especially given the trying circumstances.

DSBD

Mr Mkhumane responded to Mr De Villiers regarding the integration of the 1 000 products, and said that the Department’s annual target was to list 200 such products with retailers and wholesalers. That list would be finalised by Monday 6 March, and would be posted on the DSBD’s website. The Department would share it with the Committee.

As requested by Mr April, Mr Mkhumane detailed the objectives of two of the Department’s policies.

The national integrated masterplan -- the Department’s first masterplan -- provided a plan for assisting SMMEs, along with specific roles for various stakeholders. The Department relied on collaboration with the private sector and social partners. Universities, associations, banks and so on, had participated fully in devising the masterplan.

The creative industries plan, announced by the President, was part of the re-imagined industrial strategy, led by the Department of Trade, Industry and Competition, and part of the medium term strategic framework (MTSF). It aimed to ensure that the creative industry sector, in which many young people worked, was supported and played its role in the economy. The plan included commitments from the private sector and would be published once finalised. He would explain further policies if asked.

Regarding the cancellation of executive committee meetings, he replied that the Executive should not meet “to tick a box.” If the agenda did not contain items of importance for service delivery, there was no need for a meeting, and the time could be used more effectively elsewhere.

Mr Mkhumane said that the Department had engaged with the taxi industry. In October 2020, there had been a summit, led by the President, after which the Department of Transport had approached the DSBD and requested its participation. The DSBD had made it clear that it could support taxi enterprises only once they had been formalised and registered as small businesses. Since the DSBD used taxpayers’ money, it had to be able to trace the money spent on enterprises. However, he agreed with Ms Mathulelwa that the DSBD had to work with the taxi industry and facilitate its growth. There were also many opportunities for growth in related value chains. 

He provided detail about the SMMEs and co-operatives funding policy, as requested by Ms Tlhomelang. As demonstrated by the day’s meeting, there was still a serious need for access to finance. The policy was the first of its kind -- an overarching funding policy, which aimed to coordinate the efforts of government departments and development finance institutions. Currently, such organisations were “doing their own thing,” and it was difficult to monitor the impact of money invested in SMMEs. The policy would prescribe how, when, and by whom support would be given to SMMEs and informal businesses.

He told Ms Tlhomelang that the Department would assist the 2 000 women-owned businesses with export opportunities and training, not only with their international registration. The International Trade Centre was assisting with market intelligence.

At Mr Jacobs’s request, the Department would provide further information on the R13 million spent on co-operatives, including information about which co-operatives were supported. The Department could share positive examples, but Mr Mkhumane noted that some of the co-operatives were still struggling. SEDA had been helpful.

Mr Mkhumane clarified that the goal to support 28 000 township and rural enterprises was an annual target. 1 000 had been the quarterly target. Thus the Department was on track and was projected to reach its target by the end of the month.

He said that the Department was working with SAITA. SAITA’s President, Ms Rosheda Muller, interacted with the Department on a daily basis and provided input on policies. The Department had designated a senior official, Mr Stephen Umlaw, to liaise with SAITA. SAITA had “reach” -- its Secretary-General sat in Mafikeng, and its President sat in Cape Town. It was bringing its members to the Department.

The Chairperson invited the Deputy Minister to respond to Members’ questions and comments.

Deputy Minister Capa thanked the Chairperson and Members for a productive discussion. She added that another challenge faced in funding co-operatives was that funding had been given without stipulations about the enterprises’ operations and the term of the budget. The Department was very proud of the due diligence work done by SEDA. SEDA had reported to the Department which enterprises were really still operating. Some funds that were supposed to be directed to new projects were going to those co-operative enterprises, because they were in dire need and had already received extensive assistance.

She said that the Department could account for the policies under discussion. The Department would like the Committee to have an opportunity to be taken through some of the Department’s work, in the interest of transparency. Members could always contact her by phone. She always responded to complaints about SEDA, and followed up on them. She had received letters from those satisfied by the resolutions reached.

She acknowledged Ms Mathulelwa’s concerns about the Eastern Cape. She had visited the Alfred Nzo District, the poorest in the province. The Department had delivered items costing more than R4 million to municipalities in the district, including for the use of informal sector enterprises. Those items had been promised by the previous government regime, but had not been provided. In addition, with the cooperation of the Eastern Cape Premier, Mr Oscar Mabuyane, the Department had engaged in Mbizana with small businesses and co-operatives from the Alfred Nzo District.   

The Deputy Minister offered to visit Mr Hendricks’ constituency. As Mr Jacobs had mentioned, the Department had visited and reached out to many areas of the country. They had been hosted by constituency offices. Communication with the public about the Department’s work and agencies could not be “once-off.” It required strong partnerships and continual engagement with the public, including helping them step-by-step.

There were many positive stories. The Deputy Minister and Minister had visited a trade hub in Mogwase, North West Province. The young people in that area were “extremely innovative,” producing perfumes and body lotions – they had even brought some to give to the President. There were also trade hubs in Rustenberg and Stellenbosch. 

The Deputy Minister said that recruitment processes were guided by the Department’s leadership and by state capacity. The DG post had been advertised in June 2020 and closed in July. In September, a master-list had been drawn up, and the vetting process had begun in November but was halted due to the impact of COVID-19. Interviews had now been conducted, and the Department would have a new DG after the Public Service Commission had finalised its work. When the process was concluded, the Department would provide the Chairperson with a specific report about the difficulties that had been faced in making appointments.

She thanked Members for sharing the sentiments of their communities. She had never received reports of clients being mistreated. However, the application process – including due diligence and requests for further document –irritated some people. For example, she knew of a client in the Eastern Cape who had applied for assistance with a shopping complex. The ECDC had refused to hand over the land to be used. When SEDA and SEFA requested the relevant land documentation, the client had appealed to the President and the MEC instead – but to date, the client had not been able to provide the documentation. The Deputy Minister said she would always go out of her way to identify staff who mistreated clients, and apologised if mistreatment had occurred. Any grievances would be addressed until all parties were satisfied, as everyone was equal before the law.

The Department looked forward to working with the Committee and its clients. Clients should be assisted throughout the process “from scratch,” including company registration and opening a bank account. The Department’s duty was to work for small business development, not just funding.

Closing remarks

The Chairperson thanked the Deputy Minister, her team, and the Members. Since there would be a plenary sitting shortly, she asked attendees to make written submissions about any outstanding issues.

She said that the meeting had been “vibrant,” and highlighted several important points that had emerged. The Department must urgently fill its audit and risk committee, regardless of the moratorium on recruitment. That committee had a crucial role in helping the Department to respond to the Auditor General’s (AG’s) findings. The Department and its agencies should also attend to the problem that the number of SEDA “foot soldiers” had not increased since 2004.

In addition, the Committee’s main concern was insufficient disbursement of funding assistance and insufficient access to finance, especially to rural areas. The database would be helpful in monitoring the distribution of funds. She also welcomed the project to integrate both SMMEs and co-operatives into the market – there had previously been concern that co-operatives were being neglected.

Finally, she indicated that the Committee would like to receive copies of the agencies’ catch-up plans. In closing, she said that the quarter had involved under-achievements due to COVID-19, but that hopefully those issues would be addressed in the third and fourth quarters.

The meeting was adjourned.