Department of Small Business Development 2016/17 Annual Report, with DPME input

Meeting report

Department of Planning, Monitoring and Evaluation (DPME)
The DPME conducted a performance assessment for the First Quarter of the 2017/18 MTSF as well as an assessment of the first draft of the 2017/18 APP of the Department in conjunction with National Treasury. Mr Rudi Dicks, DDG: Outcomes Facilitator, appreciated the partnership which had been developed between DPME and DSBD and thanked the DG for promoting these ties as it would ensure the implementation of the National Development Plan (NDP). He said there was a specialised team in place to assess the APP and measure the indicators. He spoke to the current economic context in South Africa which indicated that there was not enough growth to create jobs and improve the economy. He said the roots of slow growth included low commodity prices, political instability and failure to consistently implement policies.

He said there was a five percent fall in private investment in a year to the First Quarter 2017, which was the second largest decline since 1994. An investment of 20% to 25% of GDP was needed to sustain growth and that total stood at 19,4%. He spoke to a statistical profile of small businesses in South Africa from 2008-2015. There was a decline in the number of formal small businesses from 707 000 in 2008 to 670 000 in 2015. During the same period there was an increase in the number of black and female-owned enterprises. Informal small businesses remained unchanged at 1.5m businesses. These figures suggested that formal small businesses were growing more slowly than large-scale companies and informal businesses had grown more rapidly, but remained low-income, precarious and survivalist.

He gave an overview of the MTSF Performance Assessment. Almost no economic outcome targets in the NDP or the MTSF were met. Overall performance for the quarter was uneven and SA had a low share of self-employed which led to low overall employment and the scale of intervention remained small and disjointed. The Preferential Procurement Policy, to set aside 30% of products to be procured from SMMEs was at the legal review stage. The assessment’s recommendations included a review of the official definition of small business because: it was not consistent with international practice; it had not been adopted by other government Departments or by SMMEs themselves; and the sector thresholds had not been systematically updated for inflation. It also recommended continuance of initiatives to eliminate anti-competitive behaviour. The Committee received feedback that the APP needed to be aligned to the Strategic Plan and that performance indicators should be well formulated and measurable. He noted the Technical Indicator Description Table (TID) should be compiled for the new strategic objectives. 

Discussion
Mr H Kruger (DA) said the key to improving small business development was removing red tape and serious steps should be taken to fight this. He asked what the targets and the budget of the Department should be so that it could achieve its goal of creating 11m jobs.

Mr R Chance (DA) said the presentation raised points which called into question the Department’s relevance. It seemed as if the Department was not dealing with real issues and this prevented the growth in SMME numbers. The scale and impact of development were also not being dealt with and the Department could not progress until these were dealt with these. He noted the low labour absorption rate and said this contributed to unemployment as a lack of self-employment opportunities and low SMME development was hampering South Africa. He said the start-up creation rate was 6.9% compared to 36% in Burkina Faso and that the start-up survival rate was only 20% after three years and this figure should be improved to 40%. He believed too much focus was being put on micro and small businesses which were not growing. He gave the example of SEFA which supported enterprises which employed on average 1.5 persons. It also appeared that the Department focused on activity rather than producing results. He suggested the Department and Committee read the SCOPA report on their trip to Malaysia as it indicated how Malaysia helped to increase the number of start-ups and improve their survival rate.

Mr T Mulaudzi (EFF) expressed his dismay that the report was not from 2014 which would have allowed an overall assessment to be done since the Department’s birth. Concerning the NDP goals, he said he was not impressed and wanted to be informed about the decreased investment. He agreed that political instability was a root cause of slow growth and wanted to know why labour statistics for 2014 until the present was not available. He asked why the Department did not try to influence DTI and Treasury to give more support to SMMEs and why co-operatives were not being talked about. He asked the Department how business growth could be accelerated and whether monitoring tools existed to assess whether the 31 co-operatives which were slated for assistance actually received the support. What had been done about only one incubator being approved and what remedial actions could be taken? He also wanted clarity on the scale of intervention and wanted the recommendations of the DPME to have more precise statistics so that in future one could see if there had been a real impact.

Mr S Bekwa asked whether the figures advanced for self and informal employment were true and whether the Department was looking at numbers or at the impact of their actions.
 
Mr Kruger emphasized that the objective of the Department was the protection of the right to trade and the Department had to be measured against this because red tape benefited large companies.

Mr Dicks said it was important to know the roles and responsibilities of the Department and felt that this was misunderstood as the Department was not meant to create jobs but to create a conducive environment for job creation. He acknowledged that the current economic context was difficult and presented a host of challenges. He highlighted the procurement program as a way to stimulate small business and that the DPME was meant to provide an overview of the extent of performance.

The Chairperson said the DPME had an obligation to ensure Departments did not work in silos and the DPME had to step in and instruct Departments on how to achieve their mandates and therefore it was important to understand the responsibility of the DPME. She asked what DPME would say if the Department did not adhere to the inter-governmental framework.

Mr Dicks said the DPME provided recommendations to all economic clusters as well as performance indicators and reports.

The Chairperson said that the Auditor General and the DPME had different objectives and DPME should be more concerned with the impact of the Department and how the Departments were meeting obligations relating to the NDP. She said the Department was meant to co-ordinate SMMEs and co-operatives and to facilitate South Africa’s shift from a consumption to a productive economy thus reducing dependency. The DPME had to look at which Departments were geared towards human development and making South Africans self-reliant. She said that this discussion had to take place because the Department needed to know its role.

On the question about the budget to achieve 11m jobs, Mr Dicks said he could not answer the question because there was a process which needed to be followed first.

He said informal economic activities did help the economy to grow, albeit, at a slower pace. He said that the indicators used in Malaysia were good, but the Department was still new so it might take time to develop them.

He said there was a need to assess impact and scale of development and a need to address systemic failures but all could not be solved through legislation and new ways needed to be created.

He noted there was constant collaboration with the Department and DPME provided assistance in the form of helping to create solutions. He said there was no specific monitoring tool for small business.

The NDP called for 90% of the11m jobs target to be created by SMMEs and the Chairperson asked how one measured whether one was reaching one’s target without a tool.  

Mr Dicks said statistics were available and the DPME worked with StatsSA to develop a data tool to help track progress.

The Chairperson then recounted her experience at the helm of the Sports and Recreation Portfolio Committee when South Africa was set to host the World Cup and explained how the Department had a coordinating role over the other Departments which were involved in the preparations.  She emphasised that the DPME needed to let other Departments know what accomplishments were expected from them. She warned that SMMEs would not develop if such coordination was absent. She said that the Department had to be focused on poverty reduction and job creation.

Mr Dicks agreed that there was need for a much deeper conversation.

The Chairperson reiterated that it seemed the DPME did not understand its mandate because it seemed the Department was putting indicators which were not relevant. She said that in government, when a Plan of Action was developed, one had to state problems because all assessment tools would deal with this issue. She said there was a great need to reduce dependency on the state because it was a bad sign if the number of people living on handouts was bigger than the tax base. She said the DPME could not simplify the NDP and the DPME had to take a leading role.

Mr Dicks agreed that the DPME had a leading role, but there was no silver bullet answer.
 
The Chairperson stipulated that DPME had to have a long-term performance indicator, for example what would make it possible to achieve 9.9m new jobs, the challenges to attaining this as well as how to eliminate the challenges. Thus, the APP had to be informed by what the DPME wanted from the Department and ensure that people moved away from receiving handouts, obtained skills and a conducive environment could be assessed by knowing the targets which had been set.

Mr Dicks said he was afraid the Chairperson wanted DPME to measure what was beyond their control and scope.

On Mr Kruger’s question on whether DSBD was meeting their mandate, he said yes and no. He acknowledged that a change in leadership had led to progress being achieved but it had not been enough.

Mr Kruger said he received emails everyday from frustrated people, for example co-operatives assisted by the Department of Trade and Industry had an 88% failure rate.

The Chairperson said there was no way poverty, unemployment and inequality could be solved without coordination and coordination would only succeed when other departments were mobilised because the Department could not provide all the required services and thus DPME should not carry out assessments in isolation.

Mr Chance believed the discussion was instructive and that coordination was very important because working with other Departments helped to attain objectives. He said the Department was coming nowhere close to supporting businesses that actually needed support. The Department needed to be a catalyst for change and development. He noted the Department should become a protector of the right to trade and needed to reconcile the lack of resources with its core mission.

The Chairperson said the Department had to act as a facilitator.  

Mr Dicks was of the opinion there had been progress at the Department and the Inter-Governmental Regulatory Framework and the Integrated Development Plan spelt out what had to be followed and enforced by DPME. He said they needed to look at how this could be corrected and believed the DPME had a role to ensure Departments did not work in isolation.

Mr Chance suggested that this issue be brought to the attention of Minister Jeff Radebe.

The Chairperson thought it was unfair to expect so much from the Department if DPME was not doing the coordination and maybe a three-day summit was required to clarify the various roles.

Ms Vries appreciated the discussion and the clarification of the role which the Department had to play and noted the Department had many challenges related to resources since 2014.

Mr Dicks said the debates had been constructive especially around the centrality of planning.

Department of Small Business Development (DSBD)
Ms Edith Vries, DG, said the Department received an unqualified audit and achieved 71% overall performance which was a marked improvement from the previous year (51.6%) and as a result it received a grant of R52 000 from the European Union to expand SMMEs. Policy and Research was a new program launched in 2016/17. The vacancy rate was reduced from 16.3% in 2015/16 to 9,8% and an International Relations Unit was established. The Department had concluded a commissioned study on legislative and regulatory protocols impeding SMMEs and Co-operatives. She spoke to the strategic goals that had been attained as well as the provincial spread of support programs. 7 848 informal businesses were supported and the Enterprise Incubation Unit was created. The Department had found creative ways to showcase success stories from which others could learn.

The Department had under expenditure of R121m (9.2%) of its budget. She said more Human Resources needed to be employed to get more work done. It paid 98% of its creditors within 30 days. She said the review of the Strategy on the Promotion of Entrepreneurship and Small Enterprises was not completed. She called for a new approach to planning and implementation to address the performance challenges. The Department had engaged with youth and the disabled to ensure they were included in the process of SMME development. 
She said only 240 out of a targeted 370 cooperatives received assistance through the Cooperatives Incentives Scheme. The Black Business Supplier Development Program (BBSDP) initiative assisted 589 SMMEs, which was below the target of 600 SMMEs. She concluded by acknowledging that she had asked the Auditor General to conduct a forensic audit of the BBSDP and that her Department would obtain forensic services of their own soon.

Discussion
Mr Chance said the Enterprise Incubation Program looked promising but would evaluate it later to see if it was sustainable. He asked why only 21% of township businesses obtained support from the Department and how could this be remedied. Concerning the SMME Eco-System research, he inquired when it would be available and he also wanted an update on the status of the “Gazelles” which were provided with support. Moreover, he asked whether collaboration between SITA and SEDA has been enforced because that was an aspect which has been talked about by the Committee.

Mr Kruger asked if the Small Business Act would be available before their mandate as MP’s ran out. He wanted more details concerning the findings in municipalities relating to red tape. He noted that it was unfortunate that the Business Rescue Strategy was not developed because it was very important especially during tough economic times like what South Africa is faced with and is worried DSBD is doing nothing to protect SMME’s in this context. He Kruger wanted to know how far had gone in establishing strategic partnerships and if transversal agreements had been beneficial.

Mr Mulaudzi asked what the view of the Department was concerning township malls and their effect on the sustainability of SMMEs and co-operatives in rural areas. He appreciated that the Department had not set a low bar for performance and that they paid almost all their creditors within 30 days. However, he asked if there was a monitoring tool within the Department to ensure other Departments followed through with payments to SMMEs. He wanted clarification on the Auditor General’s statement that the International Relations Unit was not functioning. He asked if the monitoring and evaluation framework was going to help the Committee in the current and forthcoming financial year and if it would help the Committee track the amount of money being given to co-operatives and whether it was being used properly. He said that what was written was different from what existed on the ground especially relating to reports from other CIS funded schemes and so a follow-up report was necessary to assess whether what was going on was true. He suggested the DG do an oversight visit to see for herself what went on. He was concerned about the Matsila Development Community Trust which was supported by the Enterprise Incubation program. How was it able to receive R8m even though it has two SMMEs? He noted this skewed support was a disadvantage to other co-operatives which had a high mortality rate. He was concerned by the Department’s underspending and would any remedial action be taken to prevent its occurrence in future. Mr Mulaudzi asked if the Department had enough personnel to draft a Business Rescue Strategy and whether there was enough money to establish the Co-operatives Development Agency. How sure was the Department that the co-operatives received the assistance they were supposed to receive? He wanted to find out why the administration was always faced with a lot of problems and whether those who are responsible for underspending would be held responsible.

Ms Vries said the grant money provided by the EU would be available for distribution by January and it would be oriented towards business development programs.

She said the red tape issue would be dealt with and that the Small Business Act would be available before the MP’s mandate ends. The Department were in the process of drafting the first version of the Bill and hopefully it would be available in November. She said the Integrated Strategy should be available by November and the Review Strategy would follow.

The Chairperson said some issues might necessitate policy change or the institution of punitive measures for failing to adhere to stipulated regulations. She asked how policies could be implemented which could protect SMMEs and detect corruption.

Ms Bhengu noted with dismay that senior officials did not attend meetings when serious issues concerning SMMEs were discussed by the Committee.

In relation to the BBSPD, the support increased to R21m and 80% was allocated towards equipment and 20% towards soft services according to the firms’ needs.

Regarding the Gazelles, on average SMMEs requested assistance of R300 000 but the Gazelles asked for R800 000 and thus a shortfall occurred but National Treasury had intervened.

There was an intention for the Business Rescue Strategy to become a national strategy but if individual companies approached the Department, it did intervene and the Department did have a concern for them.

The transversal agreements were beneficial as they allowed her institution to collaborate with the partner who signed the agreement.

However, the Chairperson was not satisfied with Ms Vries’ definition of transversal agreements, which was incorrect and what had been pursued by her Department were bilateral agreements.

Ms Vries accepted the Chairperson’s position and explained that between SEFA and SEDA the Department had the authority to enforce cooperation between those entities. They had APP’s which were similar to the portfolio APP approach and the Department would not allow Treasury to have separate discussions with SEDA as the discussions had take place through the Department.

She said the Department had no view on township malls but the Department was concerned because mall construction was unregulated and killed small businesses and there has been no policy intervention in this context.

Ms Bhengu was surprised the Department had no view concerning township malls and suggested research should be conducted about their impact on Small businesses.

Ms Vries said at this stage no coherent intervention policy was in place, but noted the Department had a responsibility to establish guidelines to regulate the activity.

She said that the Export Trade Unit was not functioning, but the International Relations Unit was operational because there was no way the Department could work without using international experience and she cited the working relationships they had with the Government of Netherlands and the United Nations Development Program(UNDP).

She said the Department lacked Human Resources because the Department of Trade and Industry has not sent people to work with them.

The Chairperson agreed with this assertion and also acknowledged the Department had capacity challenges relating to lack of personnel.

Ms Vries said there had been issues relating to funding for the Cooperatives Development Agency and that there was legislation in place to deal with people guilty of disciplinary breaches. She promised that structures would be in place by the end of the year to improve coordination.

The Chairperson asked what was so special about Matsila Development Community Trust because it received funding from two different streams. She asked if an audit would be more adequate in the process of budget review and whether this would help to identify challenges.

Ms Vries held a firm view that the Department did not have the right capacity to achieve all its goals and one of the reasons was because the Department was stretched. Underspending was because of a lack of personnel to execute the budget and last year there was only one finding of irregular expenditure.

The Chairperson asked if anybody at the Department had knowledge of co-operatives or community development as well as development economics and if not, who were identifying the development processes.

Ms Bhengu said the co-operatives act needed to be reviewed because it came with restrictions not needed, such as the number of people and the number of years co-operatives need to have been operational before being eligible for funding.

The Chairperson concluded by stating that the Department should help SMMEs get to the next level and in that way, ensure more black-owned businesses emerged which would facilitate sustainable black economic empowerment. 

The meeting was adjourned.