Department of Small Business Development on its Quarter 4 performance

Meeting report

Department of Small Business Development (DSBD): Fourth Quarter Performance

Ms Edith Vries, Director-General: Department of Small Business Development (DSBD), said that the Department had 38 performance indicators, but was reporting on only 37 quarterly targets in the fourth quarter report. It had achieved all its quarterly targets under the Administration programme, and under Research and Policy, only two targets had not been achieved. With Programme Design and Support, three targets were not achieved.

Quarterly achievements included the following:

• 4 436 trained informal businesses supported through the National Informal Business Upliftment Strategy (NIBUS)/Informal Micro Enterprises Development Programme (IMEDP), against a quarterly target of 2 500).
• A total of 315 and 2 112 jobs were supported under the Cooperative Incentive Scheme (CIS) and the Black Business Supplier Development Programme (BBSDP), respectively.
• Two Shared Economic Infrastructure Facility (SEIF) applications were approved – from Matsila Community Development Trust and Umuziwabantu Municipality.
• Four Integrated Development Plan (IDP) engagements were done, together with the Department of Cooperative Governance and Traditional Affairs (COGTA) and the Free State Department of Economic Development.

Three partnership agreements had been signed:

• Nestle would provide support to co-operatives and small, medium and micro enterprises (SMMEs) through its various enterprise development programmes, while the DSBD, the Small Enterprise Finance Agency (Sefa) and Small Enterprise Development Agency (Seda) would provide financial and non-financial contributions to the Nestle programmes.
• Rustenburg Platinum Mines would focus on sustainable community development and improving the standard of living of members of the community affected by its mining activities.
• UN Women would provide technical assistance in mainstreaming of gender equality policies and programmes; collaborate with the DSBD in implementing programmes aimed at strengthening the capacity, skills and access to information for women-owned businesses, and facilitate market access and funding.

Five incubators had been supported through the Enterprise Incubation Programme (EIP):

• The Matsila Trust Small Business Incubation Project would focus mainly on primary production, agro-processing, tourism and arts and culture.  
• The Limpopo Wildlife Business Incubator would focus on various support services such as developing and stocking emerging farmers' farms, developing business plans, skills training and building management teams, raising capital, providing access to markets and a range of specialist professional services.
• The Sibanye Gold Construction Incubator would focus on supporting SMMEs in the construction sector. An offtake agreement had been secured with Sibanye Gold in relation to their housing project unit.
• The South African Creative Industries Business Incubator would bring an extensive system of creative industry networks into the arts and culture sector.
• The Nomakhwezi Benya Primary Cooperative would establish an incubation facility for the development of engineering designs and the manufacturing of automotive, non-automotive, defence, aero-industry and related components and equipment.

Non-achievements were as follows:

• 43 cooperatives supported through Cooperative Incentive Scheme (CIS) against a target of 45, as there had been undue delays with the systems transfer from the Department of Trade and Industry (Dti) to theDSBD.
• One  co-location point was established in Matlosana in the North West Probince, in collaboration with Anglo-Gold Ashanti, although the goal was to establish four co-location points. However, the annual target of ten co-location points had been achieved.
• The Cooperatives Development Agency (CDA) was not launched, in accordance with the 2016/17 annual performance plan (APP) due to the lack of a dedicated budget allocation for the CDA, and the delay in the proclamation of the Cooperatives Act.

Ms Vries reported on the overall financial performance, highlighting that the overall Departmental spending for the fourth quarter was 96.1%, or R265 million of the R275.9 million budget, resulting in under-spending of R10.9 million. Variances were due to administration overspending largely due to payments that were projected for the third quarter, but were paid in the fourth quarter; Policy and research had underspent due to the delay in finalising some of the research projects and filling critical vacant posts. In Programme Design and Support, the main contributor to the overall under-spending was that R19.7 million had not been disbursed in the quarter.  The variance for the quarter was related to the under-spending on CIS (R4.5 million), BBSDP (R2.8 million) and NIBUS (R45.6 million), as well the over-expenditure on EIP (R14.1 million). National Treasury had approved the redirection of R19.1 million from NIBUS that had been under- spending for the year to Seda. Compensation of employees had been underspent by R1.3 million, while goods and services had been overspent by R6.1 million, largely due to expenditure related to the Global Entrepreneurship Congress.

Small Enterprise Development Agency (Seda): Fourth Quarter Performance

Ms Mandisa Tshikwatamba, Chief Executive Officer (CEO): Seda, said that the entity’s performance information was structured in line with its approved APP for 2016/17 and 2018/19. Out of a total of 20 strategic indicators, 15 quarterly targets had been achieved, which was a 75% achievement. Year to date targets had been achieved on 17 of the targets, which was an 85% achievement.

Some of the performance highlights where the organisation had performed exceptionally well included the following:

Enterprise Development (year to date):

• 167 clients supported through the supplier development programme;
• 353 clients supported through trade facilitation;
• 115 primary cooperatives established;
• 1 747 clients supported through Basic Entrepreneurial Skills Development (BESD) programme;
• 65 partnerships sourced for small business development;
• 41 clients supported with systems implementation;
• 98.7% indicated that they were satisfied with the quality of Seda services;
• 76.9% of surveyed clients showed an increase in their turnover;
• 54.4% of those surveyed reflected an increase in the number of people employed,

 

Seda Technology Programme:

• Through the Seda Technology programme, 2 582 jobs had been created to date

Areas of concern where corrective action had been taken:

• The number of clients supported through the National Gazelles programme, where the process of selecting the second cohort was nearing completion. Going forward, the programme would focus on the top 40 qualifying small enterprises.

• Value of service delivery costs covered by partners. The amount of funds raised was within the annual target, with funds realised only once utilised. Going forward, the indicator would be expanded to include the financial value of other contributions, such as co-location.

Other major initiatives in the fourth quarter included:

• Participating in the Global Entrepreneurship Congress (GEC) in March.
• The top three winners at the GEC digital pitch competition were all Seda incubation clients.
• Research partnerships were concluded with the Tshwane University of Technology.
• Supplier development partnerships were signed with the Automotive Industry Development Centre. Suppliers developed for Volkswagen SA and Mercedes Benz.
• 34 clients taken to exhibitions under the export development programme in France.
• Two workshops on international trade held in Gauteng, in which 57 clients participated.
• The French South Africa Tech Lab in Cape Town, and a Rapid Youth Incubator in Mogwase, North West, were launched.
• A partnership was concluded with University of Pretoria, to establish TuksNovation, an incubator to commercialise ideas, technologies and intellectual properties in the built, engineering and information communication technology (ICT) sectors.

Seda supported a total of 115 primary and 45 secondary cooperatives across all nine provinces. In terms of new SMMEs established per sector incubation, 120 were established in agriculture and agro-processing, which was the highest, followed by manufacturing at 96. The most clients that were supported per incubation sector were in agriculture (607), followed by manufacturing, at 508. However, the most jobs created were in the construction sector, with 1 022 jobs created in the quarter.

Mr Norman Mzizi, Chief Financial Officer, presented the financial report, and said that the total revised revenue budget for Seda for the 2016/17 financial year amounted to R759.5 million, and the draft actual expenditure for the period 1 April 2016 to 31 March 2017 amounted to R 771.2 million. Programme 1 – Enterprise Development -- had absorbed most of the budget.

Small Enterprise Finance Agency (Sefa): Fourth Quarter Performance

Mr Thakani Makhuvha, Chief Executive Officer: Sefa, presented the fourth quarter report, and commenced with the introduction that the total loan book approvals and disbursements for the financial year represented 94% and 153% of the respective annual targets. During the financial year, Sefa financed 43 699 enterprises through its various loan programmes and facilitated in the creation and maintenance of 59 396 jobs. The weak macro-economic indicators negatively affected the performance of the Sefa loan book, and loan book impairments at 31 March 2017 was 47% of total loan and advances, higher than the target of 29%.

In terms of Sefa’s loan book approvals, the organisation approved R827 million as at the end of the 2017/18 financial year or 94% of the annual target, and achieved 173% of the fourth quarter loan approvals target. With regard to disbursements, R1.1 billion, or 153% of the 2016/17 annual target, was disbursed. Sefa had achieved 162% of the quarterly disbursement target, and the over-achievement in the disbursements was derived from the wholesale product channel’s revolving loan facilities. Direct lending under-achievement on disbursements was mainly due to the tightening of credit.

In terms of the development impact, the number of SMMEs and co-operatives financed represented 94% of the annual target, and achieved only 80% of the annual target on the number of jobs facilitated. The majority of the enterprises and jobs facilitated came from the Sefa micro-enterprise and informal sector financing programme.

With regard to post-investment and restructuring, 359 site visits to Sefa clients were completed and 128 mentors were appointed to support clients post-Sefa's disbursements. A total of 40 loan accounts amounting to R98m had been restructured, and to enhance the collections functions, an automatic ‘sms’ functionality was developed on the loan management system. A total of 3 980 notifications were sent via the system.

The organisation’s financial performance report showed that interest from loans and advances of R89m (excl. fees) was R27m below budget, and R3m below the 2016 financial year. The below budget interest from loans and advances was due to lower than budgeted loan book average balances during the year and also higher than budgeted suspended interest, and fee income for the period of R6m was R5m below budget and R6m below the 2016 financial year. In terms of operating expenses, personnel expenses were R168m, 13% (R26m) below the budget of R194m, due to vacancies being filled later in the year than was anticipated, and also due to some of the planned vacancies. In addition, other operational expenses of R79m were 39% (R50m) below budget, mainly due to R24m saving from capacity building of R5m.

Direct lending was at 70% (R462m), wholesale – micro loans at 17% (R27m) and wholesale – SME loans at 18% (R59m). The total movement on impairment and bad debts was R68m, made up mostly of direct lending.

Discussion

Mr H Kruger (DA) thought it would be helpful to get the year to date information, as it seemed the information presented was based on the fourth quarter. He asked about Department’s effort to reduce red tape. In terms of transversal agreements between departments, it seemed that the Committee did not get all the information about this from the DSBD. Why had the Department written off the bad debts? With regard to the Small Business Act, the ‘small business’ definition meant different things to different departments, so how were all these definitions going to be cloned into one definition?

For Seda, the report indicated, 260 clients were supported in the sector incubation, but only 128 jobs were created, and in manufacturing, 508 clients were supported but only 297 jobs were created. He asked why these were the only numbers that could be achieved.

For Sefa, the number of days for applications – 20 days -- was a very long time. Could the days not be streamlined and reduced? He proposed that the target should be brought down to 10 days.

Mr X Mabasa (ANC) applauded the agencies for the unqualified audit reports, and urged the agencies to keep it up. He referred to the support given by Seda and Sefa in certain areas/locations, where a number of workshops had been conducted by both agencies, and asked if the agencies knew which cooperatives and SMMEs they had supported in Soweto, or in all the areas where they had made themselves visible and supported SMMEs and cooperatives.

He asked for more details regard to the partnership agreements, particularly the Nestle partnership, saying not enough information had been presented to the Committee. With regard to the overall under-spending (R10.9 million), he shared his concern about this type of expenditure being so high, because the DSBD could make it difficult for National Treasury to provide more requested funding. He asked for more details around the National Gazelles Programme, and what amount of budget it absorbed in comparison to other needy areas.

Mr R Chance (DA) asked when the CDA would be funded, and how much the DSBD was expecting to budget for it.? In which departments was the DSBD experiencing low morale in within the organisation?

He asked for the research report to be provided to the Committee, because it would be interesting to see what the reported ‘undesirability’ referred to.

Did Seda have information that could enlighten the Committee on the long term impact regarding the support it provided to SMMEs and cooperatives? Local economic development was where the activity happens, and if the stakeholders -- DSBD, Seda and Sefa -- could not get municipalities to participate, what steps had been taken to persuade municipalities to participate? Were Sefa’s impairments a continuing trend? Why had there been such an huge increase in wholesale lending? He said that Sefa seemed to be financing businesses that did not have the potential to produce more jobs, and asked how many of these businesses had been supported over the years, and whether they still came back for loans and demonstrated any success or survival.

Mr T Khoza (ANC) asked why the Department was still functioning under the interim arrangement that had been implemented in October 2016. Why had the structure not yet been finalised? What was causing the low morale in the organisation, as this may actually be affecting the overall performance of the Department? He said it was the DSBD that had set up the key performance indicators (KPIs) targeting the launch of the CDA, so it should have allocated the budget for it. Why was a budget not allocated?

He wanted to know about the age of the incubators and their success rate, and the registration dates of these companies. By what percentage was Seda planning to increase the number of enterprises in its development programmes? Could it indicate whether indeed it had supported the cooperatives in terms of their development? He was worried that some of those cooperatives had members who had passed on, but were still being given money by Sefa. It was also worrisome that the number of jobs did not reflect the value of the funding provided. Perhaps the agencies and the DSBD had looked at their underspending towards the end of the term and then rushed into dishing out support to even unproductive businesses and cooperatives.

Rev K Meshoe (ACDP) asked about what kind of support was being spoken about in the presentations, and whether there was tangible proof that could be provided so that the Committee could see that support actually yielding results. He referred to the 34 clients who were taken to an exhibition in France, and wanted to know the costs involved in catering for these clients -- did the DSBD pay for them, and what was the selection process applied to determine who should or should not go? Were the business advisers operating in offices, and if so, what kind of advice were they giving to clients? Did they assist or advise clients telephonically, or did they go out on the ground to meet the clients. He asked about the percentage of SMMEs and cooperatives that were financed directly by Sefa and those financed by intermediaries, as well as the interest rate differences between Sefa and intermediaries. If Sefa discovered that some intermediaries charged a higher rate, what done about it?

The Chairperson referred to the partnership agreements, and asked what the specific contribution of Nestle was in those partnerships outlined in the presentation. With regard to the national fair in China, what was the level of competitiveness of South Africa’s SMMEs compared to those of China? What should be exhibited by local SMMEs in such an industrialised country? Linked to this, what were the costs for the exhibition in relation to the direct costs that were going to support the 110 SMMEs and cooperatives that would be exhibiting? She also wanted to know about the expected benefits from participating in the fair, and whether South Africa had had a national fair for SMMEs, and the lessons which could be shared in terms of what happened.

She asked whether Seda had its own incubation programme, how much was given to incubators, and how their performance was measured in relation to the funding allocated to them.

The Matsile Trust benefited from two grants, the Compensation Fund (CF) and the Enterprise Incubation Programme (EIP) grant, and the Committee understood that it was the municipality that had applied on behalf of the beneficiary for the CF grant. Agriculture was the biggest sector in the contribution of job creation, so why were only 607 clients assisted and only 631 jobs created? What type of agriculture was this, because agriculture was the most labour intensive sector? Why was the number of jobs so limited to almost the same number of clients assisted?

Mr Mabasa asked if the Department was supporting any street vendors, so that the Committee could get a sense of whether it was attempting to assist those types of businesses.

The Chairperson commented that Seda had said it supported 45 cooperatives, so what informed the establishment of those secondary cooperatives as opposed to the service that could be provided by primary cooperatives?

Department’s response

Ms Vries responded on the issue of red tape reduction, saying that the Department had scrutinised and applied the 2012 red tape reduction guidelines, and had conducted road shows in various provinces to educate relevant stakeholders about the implications of the guidelines. The Department was aware that those guidelines were being used effectively by the Western Cape, so in this financial year there were two targets set to do an assessment of what had been done. The department had identified a few areas in KZN, and the Free State that would be assisted in terms of the guidelines. The department aimed to re-engineer those national procedures which impacted on the ease of doing business at the national level. If the guidelines could be regulations, they could be enforceable.

Mr Mzizi said that the bad debts that were written off had been inherited from Dti, and the amount of time to recover the money had lapsed, so the Department had been advised that the debts should be written off. With regard to the value of the ‘gazelles,’ they should be receiving support of R1 million each, which translated to R40 million for the 40 ‘gazelles,’ which amounted to 3.6% of the R1.3 billion.

Mr Kruger lamented that he understood that the red tape bill was deemed undesirable, but then the DG had said that the Department would regulate red tape, yet the Red Tape Reduction Bill aimed to exactly do that.

Ms Vries said that there was a report on all the transversal agreements that had been signed since the inception of the Department, so the DSBD could provide this information by next week and the Chairperson could indicate whether that was sufficient in terms of what the Committee would like to know, and could identify areas where it felt it needed more clarity.

The Chairperson said that would be beneficial, and would assist the Committee to understand whether the DSBD had truly understood what it meant by the concept of transversal agreements that the Committee had been talking about. Transversal agreements bound a number of departments to achieve a certain objective. Therefore the Department should provide that information so that the Committee could be better informed on the DSBD’s understanding of this concept and engage on those agreements. 

The DG said that the DSBD was not ready to bring in the legislation, but it would be ready in 2018 and presented to Parliament. In the interim, the DSBD was working together with the relevant stakeholders to formulate appropriately the relevant information that needed to be incorporated into the bill.

Mr Mzoxolo Maki, Acting Deputy Director General, DSBD, said that the the three-year Nestle partnership agreement involved the recruiting of 50 micro distributors for distributing Nestle products to about 250 stores, including supermarkets and spaza shops across the country. Nestle would provide a stipend of about R7 500 per month for that, as well as market access through discounted prices for their products, and would provide business development services collaboratively with Seda. As these micro-distributors grew, they would be in a position to employ people and work together with Nestle in the distribution business. The DSBD would participate and fund the initial stock by the 50 micro-distributors through the small enterprise development programme. When the market access element was in place, they would be able to sustain their businesses. It was planned that over the three-year period, about 350 businesses would be recruited through the programme.

The Chairperson asked about who was responsible for marketing in the Department, and what their qualifications for this function were.

The DG replied to say that the Department did have a team in the Department, and she was convinced that it was doing well in terms of marketing the department. She did not know about their qualifications, but it was one of the success stories of the Department.

Rev Meshoe asked what products would be distributed by the micro-distributors through the Nestle partnership agreement, and what discounts would be granted to make this profitable for the micro-distributors.

The DG said the agreement with Nestle had just been signed, and she could avail the inclusive information in the information pack that would be provided next week, along with the information about the ‘gazelles.’

The Chairperson clarified that the question was about the technicality of the partnership agreement, and whether technical advice had been obtained from well-informed people about how lucrative the partnership agreement was for micro-distributors, and for the Department.

The DG said that the budget that was available to deliver the mandate of the Department was inadequate. However, it was indefensible that the money that had been was allocated could not be fully utilised. The Department had engaged with the National Treasury on weekly engagements and assessments on its performance to ensure that money allocated was used effectively.

Ms Tshikwatamba said that Seda did not have the figures for how much went to the incubatees at the present moment, but it had recently recognised that its support went deeper than supporting the incubator. It was only starting to gather the information in order to ascertain the value made by the incubator to the incubatee – the end user, or beneficiary. At the moment, the portfolio of incubators was quite vast, and Seda was putting mechanisms in place to ensure that it focuses more deeply on the value made by the incubators.

The Chairperson said that the Committee had visited an incubator in Mpumalanga which was supposed to provide funding to a local cooperative that was producing sweet potatoes that Spar was interested in purchasing. The cCooperative lacked only the funding to be able to make this happen, which was where the incubator should have come in, but it had failed to do so. When the Committee went back, it had been astonished to find that Spar was not yet supplied by the cooperative. When interrogated, the incubator could not disclose how much it received from Seda in an open meeting, but the figures had been disclosed in private when the Chairperson spoke to the incubator separately. She had then written a report to Seda advising it of the facts. What the Committee wanted to establish was where the money was going to. The money was supposed to assist the SMMEs and cooperatives, not the service provider or the incubator. If Seda started off by attending to the incubator instead of the incubate, then it weas started off on the wrong foot.

Mr Mzizi said that the amount allocated to the ‘gazelles’ was R40 million for the grant, and R20 million for the operations, which amounted to a total of R60 million. This was 9.8% of the R615 million allocated to the programme. When Seda spoke of 40 clients, these would be provincial gazelles, but in total there were 200 clients which were taken care of through the gazelles. The number of clients catered through the gazelles was undoubtedly very low, because it had been proved that when one looked at the upper band of the market the amount that one spent on those clients it was higher compared to the amount spent on clients on the lower scale.

Mr Mabasa said that if Seda spoke of 200 clients, and that was translated to R1 million per client, did this mean in actual figures that the total amount was R200 million?

The CFO replied that the R60 million spent on the gazelles was to provide an intervention to assist the 200 clients.

Ms Tshikwatamba added that the R1 million incentive grant was the additional grant that could be provided to the gazelle, and it was only the top 40 that were eligible to apply for it.

Mr Kruger asked about what one must do to be in the top 40 of the gazelles.

Ms Vries proposed that the Department should do a presentation on the gazelles so that the Committee could be provided with comprehensive information, which would include the criteria and the selection process.

She said that the spaza shops and street vendors in the informal sector would not be represented at the exhibition because there was a theme for it, and it had to do with innovation. South Africa would get a free exhibition space, since it was a co-host. There were different aspects that were sponsored by the Chinese. At the exhibition venue, there was space for these businesses to market their products, particularly those with the potential to expand – enterprises that were globally competitive. The DSBD did not have the budget for that -- the budget for that sat with the Dti, and before the DSBD could commit to the co-hosting, it had to engage with the Dti to release some funding. The DSBD had written to all the heads of departments (HODs) in the provinces to advertise and popularise the event and make it as broad as possible. Although it had been widely publicised and advertised, it was disappointing to get only four applications or responses from the provinces.

Mr Mabasa again asked whether it was possible to have maybe two businesses from Soweto that could attend the exhibition.

The DG replied that the exhibition was in October, and the selection stage had not yet commenced. Last week, the organising committee had met with the Chinese. The event preparations were still on the application phases.

The Chairperson submitted that the Department was very light in its efforts to contribute to the development of technical training, and in developing technical skills in cooperatives. The launching of the CDA had also been very slow, and very little had been said about the Department’s relationship with the technical colleges in its efforts to develop technical skills, because these skills were lacking the most in cooperatives.

Before the Department went out of the country to co-host an exhibition, had one been done by the Department in the country? Was it not duplicating what had been done by Dti?  

The meeting was adjourned.