SEDA & SEFA 2019/20 Quarter 3 performance & progress in assisting small enterprises; with Deputy Minister

Meeting report

Deputy Minister’s overview

Ms Rosemary Capa, Deputy Minister: Small Business Development (DSBD) said the Department was focused on assisting and transforming the youth and women in poor neighbourhoods, as well as people living with disabilities. This was to prevent the unemployment that was ravaging the country, particularly among the youth and women.

The Department had taken note of what the President had said in his State of the Nation Address (SONA). It was now reporting what it had done. However, it could not just report --it had to outline how the implementation of the strategies could be improved. It acknowledged that this country had gone down and had not succeeded with its inclusive economy, so the implementation agencies must be aware that the DSBD needed to move quickly towards transformation, and the Committee had to be aware of the its intentions and understanding of its role in South Africa’s current environment.

Small Enterprise Finance Agency: 2019/20 Third Quarter Performance

Ms Tumi Sefolo, Executive Manager: Direct Lending, Small Enterprise Finance Agency (SEFA), presented SEFA’s performance report for the third quarter of the 2019/20 financial year, and said that its total loan book stood at R1.7 billion as at December 31. R876 million had been for wholesale lending, and R892 million for direct lending facilities. During the quarter, SEFA’s approvals were very strong, which was a very important indicator, given that the economy at that time was going through a tough time. Disbursements had also been strong, and the target for the quarter had been met.

The creation and maintenance of jobs had been supported during this quarter, and she stressed the importance of not just creating jobs, but also preserving them. SEFA had had a lag and missed the target for jobs in the micro finance sector, and it was looking forward to improving on that. It was doing quite well in disbursing funds to businesses that were rural based. It had also supported women in business and black-owned businesses, but had missed its target for support for youth businesses and township businesses. There had been an improvement in lending. SEFA’s costa to income had been properly managed in the quarter.

Ms Sefolo moved on to the governance of SEFA, and said that the board of directors had taken key decisions during the quarter. They had looked back to the performance of SEFA in the second quarter and approved a revised procurement policy for the Agency and approved two funding applications in the are of micro finance. The Agency had also approved a revised delegation of authority matrix and the risk committee charter. SEFA had a lot of subsidiaries and made sure that in each of these subsidiaries there were directors that represented SEFA in the interviews.

SEFA’s audit committee had met to discuss the activities of Khula Credit Guarantee (KCG), and had approved the annual financial statement for KCG for the 2018/19 financial year. The internal audit report, as well as the quantitative report, had been approved. Khula was in the process of an insurance licence conversion with the credential authority, and the Agency was looking forward to this process being completed in the next financial year.

The Agency had appointed the executive of Post Investment Monitoring (PIM) and the Head of Legal Services, which were key strategic positions within SEFA. An employee engagement initiative was conducted for the Agency, focusing on the chief executive officer (CEO) of staff engagement, during which session employees with outstanding performance were honoured. SEFA had changed the location of its offices during November to a different building, but it was still in Centurion. She pointed out that the office had been fully functional in the second week of November. In the third quarter, 3 203 employees had been trained during the reporting period, with a total of 62% females and 38% males.

Ms Sefolo took the meeting through the summary of the performance of the agency using a balance scorecard, and listed all the performance areas that were outstanding, and those that were falling behind. She promised that there would be some improvements in quarter 4 in those performance areas where the agency did not do well, and a continuation of excellence in the areas where performance was outstanding.

She gave reasons for the poor performance on supporting people with disabilities, and said that the Agency was trying to resolve a matter where the intermediaries were finding it difficult to report who they were supporting, since some disabled people were not willing to declare their disabilities. However, it was working with the intermediaries to find ways in which the disabled people could be made to declare their disabilities without any offence.

The last part of Ms Sefolo’s presentation was on the DSBD’s priorities. SEFA had started with the implementation of the Small Business and Innovation Fund, and in quarter 3 approvals had been made for this fund, and more approvals would be made in the fourth quarter to ensure that all the resources under this fund were allocated. The other priority areas of SEFA includes a review of the funding model, the development of funding facilities for township and village enterprises, implementation of the One Hundred Thousand Youth Fund, a reduction of loan impairments, and establishment of the call centre, as well as the one-stop-shop portal called ‘My Bindu.’

Discussion

Mr Z Mbhele (DA) asked how the job creation data reported on a quarterly basis was collected. He sought clarity on the disbursement data and job creation data. He assumed that there was no correlation between these two data sets, and pointed out that jobs reported in that quarter might be from beneficiaries who had been approved and funded the previous year. His confusion was whether the Agency was the one that funded and created the jobs, or if it was the small, medium and micro enterprises (SMMEs) which had created the jobs. Regarding the difficulty around obtaining self-declared data from disabled employees, he wanted to know if there were any incentives in the SEFA processes that informed employers with disabled employees that there were extra benefits for such situations, to ensure that employers strived to involve disabled people when creating job opportunities.

Ms K Tlhomelang (ANC) appreciated the presentation itself and the fact that it was given by a young woman. She acknowledged the improvement in developments in the provinces the Department had complained about previously, and said that it was important to uplift the economy of those provinces through this platform. She asked what the strategy for dealing with the turnout for youth involvement in rural areas was, since there had been an underperformance. She also wanted to know if the disabled group involved the youth, women and black people in rural areas.

Mr E Myeni (ANC) asked if SEFA was saying that disabled people did not want to declare that they were physically challenged, even though it was evident.

Mr H April (ANC) said SEFA had to focus on the Northern Cape province, since it was a big and poor province. He was also worried about the “Pitch for Funding” initiative, and said that some people did not know the limits for funding within a certain pitch. He suggested that the application process must be user friendly, even for people in the townships. He was impressed by the Agency’s over-achievements, but was not happy about the under-achievement in the North West and Northern Cape provinces.

Mr F Jacobs (ANC) congratulated the SEFA team for a wonderful turnaround in a small time span. However, he asked for clarity on the number of SMMEs funded, and said that there should be records of the people who got micro funding in the townships, and that the Agency had to relate all the success stories from the beneficiaries in rural areas. He said there should be a deliberate township strategy that could turn the tide there and change lives.

SEFA’s response

Mr Martin Mahosi, Chairperson: SEFA, responded to the issue raised by Ms Tlhomelang. He acknowledged that it had been a hard issue, but SEFA had seen improvements and attested that SEFA took even smaller areas into consideration, conducting workshops and follow up activities. He said the process would be better in future, and that the Agency had a lot of work to do. He believed that there would be improvements in advertising and communicating to the public. SEFA would recommit to the left-out communities and try to cover more communities in the country.

He added that the committee was working hard with approvals of proposals, but admitted that loan approvals would take a bit of time since there should be measures followed before giving out money, to avoid risks. The deal pipeline was intended to highlight that the Agency was positive about reaching the mentioned target, and the reason why they could not capture the figures in this report was that the figures could be presented fully only as quarter 4 progressed.

He said SEFA had increased the funding limit to R15 million, and the period of funding to 10 years, depending on the applicant’s business plan. It acknowledged the difficulty of applications, and said there would be changes. On ‘Pitch for Funding,’ he pointed out that there would be a lag between what the Agency wanted to do and what happened at lower levels, so there would be a deliberate effort to train functionaries at the lower levels.

Regarding the township outreach, it was important to underline that there would be locational differentiation to cater for communities according to their specified needs and skills, so different approaches would be used in different locations.

He lastly appreciated the good feedback from the Committee Members.

Ms Sefolo addressed the issue of disabled people, and pointed out that there was an organisation called the Amavulandlela Fund which had been was launched a few years ago and supported disabled employers. There was also a non-financial incentive that helped the disabled business owners to draft business plans and obtain post funding mentorship. The Agency would make more public engagements for announcing and letting people know about the opportunities open for disabled people.

On the number of jobs created by SMMEs, she said there was a direct correlation between job creation and imbursements. SEFA was supportive of small and medium sized enterprises. Regarding the issue of profiling SMMEs in reports, she promised that SEFA would reintroduce the publishing of success stories of the SMMEs that the Agency had funded.

Lastly, on ‘Pitch for Funding,’ SEFA had held pitch meetings in different provinces, and many people had come to present their proposals. The Agency did not send away the businesses that were not yet ready for funding, but linked them with the Small Enterprise Development Agency (SEDA) to assist them with the development of their business plans and profiles.

Deputy Minister Capa commented that rural areas and disabled people were being left out, and it was her mandate to ensure that equality and transformation was manifested in the operational processes of the Department. The youth must be considered, and the exclusion of rural communities, the youth and the disabled had to be addressed to ensure that this group of people could contribute to the economy. There must be new strategies to ensure that the organisations reached out to such people.

The directors of SEDA and SEFA had to check that the mandate of this organisation was not like that of the banks. The Department had created these organisations to ensure that there was a better way of lending money to those that were unable to get loans from banks.  She suggested that there must be a workshop for the Committee on development, which should be directed towards reminding the DSBD of its mandate and ensuring that all sections within the Department operated in an integrated manner, and not parallel to each other.

Lastly, the gap between the poor and rich must be bridged, and the methodology for supporting and engaging poor people must be simplified. She argued that the portfolio had not worked hard to ensure a transition from the old order to the new order which the Department was trying to implement.

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Small Enterprise Development Agency: 2019/20 Third Quarter Performance

Ms Joy Ndlovu, Acting Chairperson: Small Enterprise Development Agency (SEDA), said the organisation was a fully constituted Agency and had a newly appointed board. The previous chairperson had resigned, and she was the acting Chairperson.

She outlined the key areas that were discussed during the Agency’s board meetings. These were the strategic plan for 2019/20 to 2020/23, the annual performance plan for 2020 to 2024, the information communication technology (ICT) governance framework and strategic plan, the annual stakeholders’ forum in October/November 2019, verified performance evaluation ratings and related performance incentives for the 2018/19 financial year, and quarterly performance and compliance reviews. She added that SEDA’s objectives had been aligned with those of the SONA and those of the Department. The Agency admitted to under-spending; but committed to changing that in the next quarter.

Ms Mandisa Tshikwatamba, Chief Executive Officer (CEO): SEDA, delivered the performance report, and referred to the Agency’s programmes and the allocation of targets within each programme. The programmes included enterprise development, the SEDA technology programme and its administration. SEDA had not done well in some programmes, such as the number of cooperatives assisted with access to finance; the number of clients supported through National Gazelles; the number of clients supported through export, exhibitions and training; the number of informal businesses supported through the Supplier Development Programme; as well as the number of clients supported through enterprise coaching. She gave the reasons why these areas were not performing properly.

She gave an outline of the areas in each programme where SEDA was doing well, and mentioned that there had been a great improvement and increase in the number of enterprises accessing SEDA services. Beyond retail and  services, SEDA clients in this period were mainly spread across sectors such as chemicals, metals fabrication, mixed high technology, manufacturing, agriculture and agro-processing, renewable energy, construction, automotive, tourism, and mining  and beneficiation. She also addressed SEDA’s partnerships with communities that were adding value to both the Agency and the public. She lastly referred to the human resources (HR) environment, and gave all the key figures.                       

Mr Norman Mzizi, Chief Financial Officer (CFO): SEDA, said that as requested at the previous submission, SEDA had combined the financial report for 2018\19 with this report and all the expenditure had been indicated. The Agency would catch up in quarter 4, to ensure the maximum execution of funds, following the previous under-spending. The plans of SEDA were up and running to ensure that in quarter 4 there was no surplus. He outlined the plans that SEDA had put to place to address under-spending in the areas of the National Gazelles project, the plan for the Community Private Partnerships Programme (CPPP) projects, and the Economic Development, Tourism and Environmental Affairs (EDTEA) cooperative assistance programme, as well as incubators.

SEDA-SEFA Collaboration

Mr Mahosi, SEFA chairperson, outlined the framework for SEDA-SEFA collaboration. The primary objective of the collaboration was to provide a seamless integration of financial and non-financial support services to SMMEs and co-operatives in the country, governed by the memorandum of understanding (MoU) signed between the two agencies. The joint programmes and initiatives would provide a more holistic value add, and excellent client experience, targeted to common sectors and target markets. On the governance front, there would be management at board level, with three side committees.

The implementation of the collaboration would be a phased approach, with the current steps in the form of pre-investment support, systems integration and client access. He gave details of the areas of collaboration, and explained the strategies that the two agencies had devised in order to implement this joint approach. He also gave an update on the status of the implementation of these strategies.

Discussion

Mr April advised SEDA to learn something from SEFA’s leadership, because they had made a very compact presentation. He asked both agencies when they would be returning any funds to the Treasury.

Mr T Langa (EFF) said the Department need to be updated about the officials who were undergoing internal disciplinary processes. He said that it did not make sense for the SEDA chairperson to resign without sending information to the overseeing committee about what had transpired and led to the resignation.

Ms Tlhomelang asked what impact the over-achievement by SEDA in programme 1 had made on the number of enterprises targeted. She pleaded that there must be continued awareness on registering businesses. She lastly asked what the reasons behind the zero support for informal businesses were.

Mr Jacobs said the Committee appreciated all the reported success stories. Members were aware that moving to faraway places for outreach may be a daunting task now due to the Coronavirus outbreak. However, the agencies still had to do exhibitions in local areas, as it was unacceptable for them to expect people to come to the agency offices instead of the agencies going to the people out there.

SEDA’s response

Ms Ndlovu promised that at the next presentation, the Agency would make a concise and brief presentation. She acknowledged that SEDA had to check what was going on in local areas, and that it had to engage with the rural areas. It would conduct more outreach activities, such as door to door campaigns. The board would communicate with the marketing team for broader outreach strategies. The Agency was looking at monitoring and evaluation post implementation, so the impact would be reported over a certain period, and not immediately.

Ms Tshikwatamba spoke about the disciplinary hearing processes, and reported that the Agency had at least five board members going through the disciplinary hearing processes now. She acknowledged that SEDA had not informed the Department about the people going through internal processes.

She said the presentations would become more compact. The agency was looking into new strategies for partnering with other partners in the funding ecosystems. The awareness impact came from various points, and some people came looking for information from the Agency, rather than seeking any intervention. These were all captured in the system, and follow-ups were done.

Mr Mzizi said SEDA would exceed the budget, because the Treasury had approved some funds and these would be used to cover all its priority projects. This year there would be no funds returned to Treasury by SEDA.

Deputy Minister Capa commented on the disciplinary hearing processes, and said they were being facilitated by the National Treasury. The previous chairperson had not given a professional resignation letter, but had sent in a 48-hour resignation. The Department would present a full report as to why the chairperson had resigned, since it was important to know why board members decide to resign. The Agencies must be transparent about their intent when they request funds from the Department, and these intentions must be seen through at the end of the quarter.

The Chairperson appreciated all the presentations and the improvements the agencies had described in the presentations. She also advised the agency leaders on the essence of delegation, warning that they must not forget that even if they delegated, they would still be held accountable and responsible for that task. She emphasised that information sharing must be observed, so that even the poorest communities got the information they needed to develop their enterprises.

The meeting was adjourned.