Small Enterprise Development Agency on its Programmes Review results & Annual Performance Plans

Meeting report

Briefing by SEDA on its Annual Performance Plan 2016/17 – 2018/19
Mr Lusapho Njenge, CEO (Acting). SEDA, noted that on inclusive growth, there is prioritisation of women, black, youth and people with disability to address participation levels of businesses owned by people from these demographics. SEDA’s programmes are structured to drive towards the following intermediate outcomes:

• Increase in turnover of assisted small enterprises
• Increased number of people employed in assisted small enterprises
• Reduced mortality rate of assisted small enterprises

On creating sustainable rural communities, SEDA has a focused programme for cooperative and community private public partnership development. Of the approximately 84,000 clients assisted during the 2009/10 to 2014/15 period, nearly 40% indicated an increase in the number of people employed subsequent to SEDA’s interventions. The SEDA Technology Programme, which is able to track the actual number of jobs created, has created 14,686 direct and permanent jobs since incorporation into SEDA in 2007. He said the core assumptions that underpin SEDA’s interventions includes amongst others training and capacity building that improves business skills and performance which results in business sustainability and growth, also the provision of information by SEDA leads to better decision making and results in business sustainability and growth for its clients.

On the Annual Performance Plan (APP), SEDA has three intense programmes, which include; Enterprise Development, SEDA Technology Programme and Administration as programme 1, 2 and 3 respectively. Enterprise Development focuses on providing needs based and growth oriented business support to small enterprises and cooperatives through SEDA branches across the country. This programme enables SEDA to continuously provide business related information, advice, consultancy, training and mentoring services in all areas of enterprise development to its clients. Rural enterprise and cooperative development are supported through the Cooperatives and Community Private Partnerships Programme (CPPP). The medium-term target for the current financial year for the number of diagnostic assessment conducted on clients’ businesses is 10 830, 10290 for the next financial year, and 9776 for the following financial year. The number decreases because as SEDA continues to offer its services to its clients, their business operations improve, therefore, this proves the effectiveness of SEDA’s services to its clients. As the client’s business grows and gains stability, the less the client requires SEDA’s services.

Programme 1: the medium-term target for increasing the number of clients trained on national and international standards is 563, 591 for the next financial year, and 621 000 for the following financial year. By virtue of the strategic objective this number should increase each financial year in order to continue fostering improvement for the sustainability of small enterprises and cooperatives. The medium- term target increase for collocation points with identified partners in the current financial year is 26, 29 for 2017/18, and 32 for 2018/19. This is to ensure that SEDA’s delivery network to reach under serviced areas is widened.

Programme 2: SEDA Technology Programme is aimed at providing technology oriented interventions and incubation support to small enterprises and cooperatives. Through the SEDA Technology Programme, SEDA provides technology transfer, business and technology incubation services, as well as incentives for management systems implementation, product testing and certification, as well as machinery and equipment. Both the number of clients incubated and supported by the information systems implementation is targeted to increase in the next three financial years to ensure that sustainability of the small enterprises and cooperatives continue to improve.

Programme 3 Administration: under this programme SEDA will focus on budgeting and allocating more funds towards direct service delivery areas, such as the provincial network and incubation, and this programme is more from a support functions perspective. The budget allocated to the delivery network is targeted to increase by 1 percent in the next three financial years, for 2016/17 it is 74 percent. The vacancy rate is targeted is constant at 10 percent, whilst the number of partnerships for small business development and support will increase by five from the 20 targeted at the end of the current financial year. In the current financial year, the financial support sourced from partners is R10.6 million, R10.9 million in 2017/18 and R11.2 million in 2018/19.

There is no income allocated by the MTEF for the Department’s Specific projects, the total income for the current financial year from the MTEF budget amount to R663.7 million. The urge to increase the number of Business Advisors is pertinent; therefore, the implementation of a programme to retain and upskill Business Advisors is an initiative that will assist in delivering the strategic plan of the organisation.

Briefing by SEDA on its Review of Non-Financial Support Programmes
Mr Lusapho Njenge noted that the programmes considered for the review included Quality, Technology Transfer, Access to Market, Access to Finance, Cooperatives, Export Development, Supplier Development, Manufacturing Support, Women Enterprise Coaching, and National Gazelles. These programmes were considered for review because of their long-term nature, prioritised as SEDA’s high impact programmes, the amount of funding required, and they are multi stakeholder involved. The review was conducted through information gathered from past performance of SEDA programmes that were reviewed, online surveys with 47 SEDA clients from a random sample of 181 clients, 46 SEDA staff members, face-to-face key informant interviews with SEDA Board and Executive, the DSBD, SEDA Business Partners, Black Business Council, Business Unity South Africa, and Small Business Development Institute, amongst others. On the demographics of the surveyed clients, with respect to the annual turnover the most surveyed clients had an annual turnover of under R250 000, whilst the least surveyed clients had a turnover base of over R5 million forming 3% percent of the total percentage of the clients surveyed. Clients with 1 – 5 employees made up the highest percentage of the surveyed clients, whilst clients that employ more than 21 employees formed 9 percent.

Some key findings of the survey provided that paucity of information on the SMME sector in South Africa, there is no updated database or coordinated research agenda on the SMME sector, and the absence of a sector wide monitoring and evaluation system on the sector. Therefore, it was recommended that the DSBD should spearhead a process to develop a framework and research agenda for the SMME sector. This is all based on Objective one, which was aimed at performing a situational analysis of the small enterprise sector, focusing on the size of the sector, and key characteristics and challenges of small enterprises, (see document for more). Some of the key findings, amongst others, relating to the programmes included that in overall, the programmes are found to be effective and relevant; the incubation programme is highly regarded and the national gazelles are promising; and interestingly, clients rated the SEDA programmes higher than internal staff; however, there are low levels of awareness or familiarity of SEDA programmes, especially the new ones and the organisation network is well established and the staff is reasonably trained and a sound relation with key stakeholders is prevalent. The only programme with a higher level of awareness is the Access to Market programme, and the programme with the least awareness is the National Gazelles, and this particularly because this programme is still new, however, SEDA will commit itself to ensure that a wider catalogue of clients is aware of this programme.

The key additions to SEDA’s programmes that were suggested by customers included a SARS Support Programme, franchising programme, Procurement tender process, companies and Intellectual Property Commission (CIPC) programmes and exports and imports programmes. So the SEDA Programme Analysis and Development unit will look into the possibility of offering these services, and where it is possible SEDA will partner with other institutions that already offer these services. Key recommendations that were provided by SEDA’s staff included the availability of online assessment tools, improving processes for quick turnaround times, and improve relations with complementary organisations. In light of the online assessment tool, a project is already underway to avail the SEDA registration and diagnostic tools online and link these to the SEDA client system for a more holistic access for customers.

The key findings on Business Advisors provided that the knowledge and capabilities of business advisors is more suitable for the lower end of the SMME sector, and notably, there is a limited sectoral expertise and financial skills from Business Advisors. One of the key recommendations in relation to the Business Advisors provided that Business Advisors’ performance should be monitored on an ongoing basis. Therefore, an internship programme to recruit unemployed graduates in critical areas such as production management and engineering is being conceptualised.

Key findings on SEDA’s service providers stated that the quality of services rendered by service providers is not always of an acceptable standard and the reliance of service providers results in limited business, technical, marketing and legal capacity in SEDA’s Business Advisors. It was recommended that a competency assessment of service providers and training programmes should be conducted in order to address identified gaps, notwithstanding that a more stringent vetting and quality control of service providers should be done. Therefore, a process of accrediting service providers is being reviewed in collaboration with the IBASA (Institute of Business Advisors of South Africa), and the delivery model is going to be reviewed especially the roles of involvement of Business Advisors and service providers within the next financial year.

Discussion

Mr H Kruger (DA) said he had a problem with the sample size that was used by SEDA, because the sample size used was significantly small, so he questioned the legitimacy and validity of the survey which was conducted on the 36 clients or customers.

Mr X Mabasa (ANC) expressed a primary concern about both presentations made by SEDA. It was expressed in the presentations that SA as a developing country has a high unemployment rate, a wide inequality gap and so forth. The presentation did not touch on the development of the informal sector and what SEDA is going to do to uplift them. It is not easy to assist these businesses because identifying them is a bit of a challenge, however, there are no strategies outlined in the presentation on how to address the challenge of reaching out to those informal businesses.  On slide 11 of the Review Presentation, where should intellectual property be placed, because it is not under the listed programmes. On Slide 14 the total number of clients (total population size) that is 2150 and the sample size of 47, does it constitute partly the informal businesses mentioned earlier? On slide 16, what additional measures has SEDA taken to make sure that informal youth owned businesses are part of the client base. To what degree has the rural population has been covered in the survey, particularly those that form the client base of SEDA.

Mr Kruger expressed his concern about the assistance of the street vendors or informal sector as a whole. He said the review is not very credible due to the fact that the sample used by SEDA is very low. The common barrier for small businesses in SA involves finance and red tape, but the issue of red tape was not addressed in both presentations in terms of what SEDA is going to do to alleviate that.  He asked about the cost of the evaluation. On page 27, sixth bullet, that is the most important part of SEDA and is the tool that is to be used to deliver its services effectively to its clients.

Rev K Meshoe (ACDP) said on page 27 about the low level of awareness of SEDA programmes, how are the people made aware of the services of SEDA programmes? Secondly, why only two percent of SEDA clients were targeted, and how come is there such a small figure of clients that responded from the 181 sample size, according to page 14.  Does SEDA have support programmes that are geared to develop township businesses, and educate them about the critical parts of business functions? Lastly, on page 6, what is being done to help those that are at the bottom to elevate to an upper level, and are there any success examples of the SEDA’s programmes that have actually helped small township businesses elevate to micro businesses.

Mr S Mncwabe (NFP) asked what measures had been taken so far to address the recommendations of the customers outlined on page 35. Nothing was said about Cooperatives in the vision and mission statement of the organisation and it appears that there is no strategy on addressing Cooperatives as well, so how are the challenges facing Cooperatives going to be addressed.

Mr T Khoza (ANC) said on page 16 the percentages added together exceed a 100 percent, so how did SEDA arrive to that number. Also the high number of youth owned clients that were surveyed is due to the fact that the youth is technologically competitive and given that the survey conducted online somewhat suggests that perhaps there wasn’t adequate efforts put in to reach out for those in the rural areas and technologically disadvantaged. On page 23 under key findings, the absence of a sector wide monitoring and evaluating system on the SMME sector is unfortunate, therefore, what is being done about the absence of that database system because the absence will make it impossible to rectify some of the issues that have been identified.

Mr T Chance (DA) said the statistical methodology and the sample size of 0.002 percent against the population size is significantly low, therefore, the people that have conducted the survey have looked at whether the sample size constitutes a valid statistical analysis, in other words is it a statistically valid sample because if it isn’t the survey is not a scientifically valid survey. He asked for comparative comments from SEDA on whether the sample size used adds any legitimacy to the survey. Therefore, the findings from the survey may not be legitimate or remotely constitute a valid statistical analysis. He suggested that SEDA should go back and try to get an in-depth understanding of what really happened. On slide 31, SEDA’s employees rating for Access to Finance is zero in terms of excellence so the basis in which SEDA and its sister agency Small Enterprise Finance Agency (SEFA) is constituted needs to be re-evaluated. On the National Gazelles Programme, are the applications restricted to the SEDA clients or not, and what budget is being assigned to the gazelles programme. When you compare the Gazelles programme with the Black Industrialist Programme they seem distinctly alike, however, is the National Gazelles Programme really going to foster impact within the SMME space. Why are resources focused on the Black Industrialist Programme that does not essentially support entrepreneurship and innovation but instead take businesses from one person to another?

Mr Chance asked about the difference between the Business Advisors and the Service Providers, and what exactly are the skills of these Business Advisors that are employed by SEDA, and whether they are technically competent, and if they are entrepreneurs themselves, and most importantly what experience do they have that SEDA saw as an ability to be helpful in assisting the organisation provide it services to its customers. About SEDA’s Programmes, which programmes could be said are effectively and efficiently working, and which programmes are not working at all and shouldn’t be sitting in SEDA at all.

Mr Chance asked why SEDA is not measuring itself against international benchmarks such as the GEM Report, because this will encourage stronger interest into the longevity of the assisted businesses. For instance, if SEDA supported a business in year one, is it still around in year 3. So to what extent is the sustainability of the business prioritised? Does SEDA consider itself a developing agency like its sister agency SEFA. There are private sector role players within the space SEDA operates, but how does SEDA distinguish itself between these private sector role players – is SEDA competing with them or supporting them. Whatever the case may be, SEDA shouldn’t be just another role player it this space, but rather a core player or a leader. Lastly, the organisation has had an Acting CEO for a while now, when is a permanent CEO going to be employed, because an organisation without a permanent CEO tends to be drifted apart over time.

Mr S Bekwa (ANC) said SEDA seeks to increase its collocation points as reflected on page 13, and on the strategic plan little is being said about developing or increasing a network delivery for small businesses in rural areas. So what is SEDA going to do to ensure that the collocation points increase in the rural areas? On page 27 (Review Presentation) under the key findings related to programmes, what efforts are being applied to ensure that the SMME and Cooperative spectrum is significantly covered?

Mr N Capa (ANC) asked why there is no mention of lack of finance under the Core Assumptions underpinning SEDA’s interventions on page 7 as an actual assumption. It seems as though there is less concern about Cooperatives as per the presentations made, so what exactly is SEDA’s stance on Cooperatives. On the service providers is there a possibility of in-house development, to ensure that there is less dependence on external service providers.

Responses
Mr Njenge said in light of the significance of the Business Advisors, when SEDA has assisted a client within 13 days of assistance the client is furnished with a survey in respect of the usefulness of the Business Advisor, and if they were able to attend to the services required by the client effectively and efficiently. So that information exists in the organisation. And then six months after the client was assisted SEDA goes back to the client to assess whether the business is still operational, if it is growing in terms of turnover, employment and reducing its costs.

In respect of the survey the organisation decided to ask for different scale items to see whether those scale items will provide the same information or will yield different information, and so different questions were asked to see whether the outcome is going to come out the same or not. On the sample size, different sample sizes of the population were consulted to see whether the conclusion is going to change significantly as the sample size changes or if it is going to remain the same. The outcome of the 47 clients surveyed collaborated with the information that already exists in SEDA’s database. However, if the outcome came out differently SEDA would go back and dig deeper in order to ascertain the causes of the variation in the outcome. Basically, what this is communicating is that you can survey as many people but essentially the outcome is going to come out the same, the 47 clients that were surveyed was a different data source to ascertain if the information will collaborate with what already exists in the database.

The Chairperson asked whether the clients surveyed were SEDA’s clients only or small businesses within the SMME space irrespective of whether they have been serviced by SEDA, so that the DSBD, SEFA and SEDA can have a discussion around the issues that SMMEs face in the sector and come up with solutions of how those issues or needs will be best serviced or addressed within that space

Mr Njenge said it was only SEDA’s clients that were surveyed, however, with general studies on clients’ needs, and as well as coming up with new products or services the organisation does consult outside its client base. With this particular survey, SEDA was specifically looking at internal processes such as relevance, and effectiveness of its programmes as well as mechanisms within the organisation. So for the purposes of this survey, it was sensible to consult or survey clients that already have an interactive experience with the organisation and its programmes.

The Chairperson believed that that is where the dilemma is, because the Committee specifically asked the DSBD, SEFA and SEDA to review their programmes and deduce based on the outcomes of the surveys which programmes will best service the felt needs of the SMMEs within the sector as a whole. Therefore, focusing on internal clients gives a narrow view and only represents a few. If SEDA would have consulted or surveyed clients outside its internal database, that would have provided a holistic view and a much broader understanding of the SMME sector as whole, because SEDA would then come up with programmes that will be specifically addressing the needs of SMMEs within the sector, and also focus on programmes that are effective and discontinue ineffective programmes.

Mr Njenge said SEDA has a continue framework of programmes and all of the current programmes are programmes that clients have already indicated their effectiveness and address their felt needs. There are programmes that have been discontinued from the past based on the feedback of SEDA’s client base. Although, the survey focused on internal clients there were gaps and loopholes or programmes that the clients felt would address their felt needs, such as the SARS Support Programmes and Tender Procurement Programmes.

The Chairperson insisted that SEDA must agree that the conducted survey was significantly limited. She questioned the legitimacy of the definition of small businesses as presented by SEDA particularly the number of employees and turnover.

Mr Chance dissected that the current analysis of small businesses and how they are defined is significantly erroneous, because for instance, in the United Kingdom SMMEs make turnovers more than one million pounds per annum and actually produce some value into the economy, there is a value added effect in their operations. South Africa must redefine SMMEs in order to establish a sustainable and lucrative SMME sector that adds value to the economy.

Mr Njenge said the definition of SMMEs is provisioned by the Act and it is based on the number of jobs the small business employs as well as turnover, however, the problem with the turnover is that when the Act was promulgated the time value of money from then and now has changed. So the number of jobs created by the enterprise is a more static definition, but efforts need to be channelled into making sure that the number is changed from less than five people employed. SEDA intervenes in the informal and township business space but not in a strategic way. However, the organisation is currently consulting the NIBUS (National Informal Business Upliftment Strategy) on how SEDA can deduce what it needs to do in order to formulate its own strategy and become more effective in the informal and township business space.

Mr Mabasa argued that SEDA has been operating for a long time to not have come up with a solid strategy to address the felt needs of the informal and township businesses, perhaps one may concluded to say that it was not on the mandate to do so to begin with.

Mr Njenge said clients have been assisted within the informal and township business space when SEDA was still under the Department of Trade and Industry (dti), but there was no coherent strategy, however, now that SEDA has moved to the DSBD it will work on a more focused programme that particularly addresses that space.

The Chairperson asked when SEDA was in the dti who was responsible for sponsorships to assist informal businesses in townships, and who was servicing these businesses.

Ms Thenjiwe Dlamini, Acting Chief Strategy and Information Officer, SEDA, said when SEDA was still under the dti the customers were not categories according to their level of businesses, they were referred to as survivalists, so when SEDA did an outreach to assist these businesses it was not reported accordingly as well as the customers assisted their information was not obtained.

Mr Mabasa lamented that this is a problem because it appears these businesses are not known where they are located, and following up on them or initiating monitoring is impossibility, and it also means that they cannot continue receiving assistance from SEDA because their information was not obtained and reported.

Mr Njenge said onthe vacancy rate, by the end of quarter 3 it was 7.6 percent. Normally at the end of the financial year the rate increases because a lot of people tend to resign around that time. However, it has been stable under 10 percent. SEDA intervenes in intellectual property by working closely with the CIPC and other organisations within that space such as the Department of Science and Technology and those that specifically look into prototyping and modelling. Within this space it is mostly clients in the incubation space that approaches SEDA with an idea that may potential be intellectual property. This is an area with major costs implications because SEDA needs to be certain that the client is at a stage where there is a high chance that there is actually intellectual property and the client’s idea is unique enough.

Mr Mabasa posed a follow up question about the inputs made by indigenous people who had historically discovered things, it was discovered that these people were on the receiving end and disadvantaged because anything they discovered would be quickly snatched by big businesses and capitalised on them. So what role has the amended act played to ensure that does not continue to happen?

Ms Dlamini said that often times SEDA is not aware of some of the discoveries made by black people, because they seldom come forward or approach SEDA. Therefore, a more comprehensive awareness campaign needs to be done to raise awareness in that respect as well so that people can be able to come forward.

Mr Njenge noted that a less reliance approach in respect of the online tool for the survey needs to be devised in order to ensure that those customers that do not have access to technology can be part of it so that the survey is broader and comprehensive, so basically the informal and micro businesses that Mr Mabasa was talking about were not part of the survey. However, the organisation will look into the provided statistics in order to deduce if the informal and micro businesses were included or not.  For instance, on slide 19 the 32 percent that was part of the survey which employed 1 to 5 employees are micro businesses, if they are Spaza Shops or Hawkers SEDA will have to back to the data and dig deeper to find out precisely what constituted that 32 percent or whether it is in relation to the informal businesses.

The Chairperson emphasised that the purpose of the exercise was to review SEDA’s programmes in order to circumvent the high mortality rate of both SMMEs and Cooperatives, hence, the existing programmes needed to be reviewed and if they do not address or service the felt needs of the SMME and Cooperative sector new programmes can be devised to alleviate the mortality rate. It is not appreciated that SEDA only consulted its internal client base and ignored the entire sector. Does SEDA even take into consideration the reports and proposals that are made in Parliament and by the Committee?

Mr Njenge said every programme that SEDA currently has is supported by substantial research, so all the programmes that are continuing are supported by the responses and feedback and needs of the clients, hence, there are less programmes recommended from the survey and the organisation is not discontinuing the existing ones. SEDA does look and scrutinise external documentation and assess what can be done to make use of them to assist in servicing its customers in the manner that will provide them with sustainability.

The Chairperson asked if clients are rejected by SEFA when seeking for financial support does SEDA come in to assist the customer in a manner that will refine the application adequately that when they re-apply their application is considered for finance

Mr Njenge said currently SEDA is looking at ways in which the red tape or accessibility is minimised. The customers with access to technology and have technological competitiveness have more access to SEDA’s services and support programmes. Interventions have been initiated looking at how contact can be established between SEDA and the customers who do not have technological advantage. When clients are trying to access finance from SEFA, SEDA tries to ascertain what the Development Finance Institution (DFI) or commercial bank can potentially fund or not fund so that the client can be assisted with a comprehensive business plan or funding application and recommend what funding requirements are mostly likely to be considered for funding. SEDA also plays a role of linking clients to relevant funders. There is an online tool called Fin-Finder that provides clients with comprehensive information about funders, their terms and conditions, location points and those clients without the access to this technology are assisted through Business Advisors.

The survey cost was R96 000, the juxtaposition of service providers and business advisors is that service providers assist clients up to a certain point and business advisors provide assurance to SEDA by diagnostic assessments, forecasting the sustainability of the client and come up with ways that will help sustain the business should the client face various market relating issues. The business advisors are also internal staff employed by SEDA, and service providers are outsourced. The business advisors diagnose the client and advise on the appropriate interventions that SEDA should initiate. With regard to the lower levels of awareness, SEDA does not market its programmes but instead its interventions, so that has been the shortcoming, hence, the survey presented the low levels of awareness. In relation to the suggested programmes by customers, SEDA is currently looking at how other partners within the space would be able to assist, for example SARS can fill up that gap to provide the SARS support programme that the customers proposed.

On graduating clients from micro or informal enterprises to small enterprises is exactly where the technical diagnostic process comes in because it advises accordingly on what measures need to be taken in order to ensure the sustainability of the client’s business. When the business is able to sustain itself it grows. So the main focus is on proposing sustainable measures for businesses.

Mr Ivor Zwane, Chairman of the Board of Directors for SEDA noted that the issue of finding a permanent CEO has been going on for a while because the DSBD wanted to be involved in the process of appointing a new CEO and that is the reason why the process has been slow. Two candidates were submitted by SEDA to the DSBD, and the DSBD has not yet said anything about their preferred candidate, and since one of the candidates withdrawn their application.

The Chairperson asked when is the process going to be finalised.

Mr Lindokuhle Mkhumane, Acting Deputy DG for DSBD, said he spoke to the Director General and she said the Minister of Small Business Development, Ms Lindiwe Zulu, would communicate with SEDA in the coming week. In light of the CDA (Cooperative Development Agency) there is no budget allocation for it yet, so once the master plan of the CDA has been finalised all the functions of Cooperatives within SEDA and SEFA will be absorbed by the CDA. So this explains why SEDA has not yet devised a master plan for Cooperatives, however, SEDA is currently engaging with the DSBD in respect of the master plan and once it has been concluded it will be migrated to the CDA.

The meeting was adjourned.