DSBD, SEDA, SEFA Quarter 2 & 3 performance, with Minister & Deputy Minister

Meeting report

Opening remarks

The Chairperson welcomed the Minister Lindiwe Zulu, Small Business Development (DSBD), the Deputy Minister, Mr Cassel Mathale, Chairpersons and CEO’s of SEDA and SEFA, and Mr Jeffrey Ndumo, Acting Director-General of the Department.  She also welcomed the Department of Small Business Development (DSBD) officials and representatives of the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA). The Chairperson said that the absence of the Minister and Deputy Minister from some previous Portfolio Committee meetings had been due to their commitments at Cabinet meetings.

The Committee had been happy when the Department had made its presentation about two weeks previously. The Committee had been impressed by the Department’s understanding of the State of Nation Address (SONA) and its response to issues raised at SONA which were relevant to the Department of Small Business Development. It was indeed a very important moment as it was the first time that Parliament had asked the Department to make a presentation about its response to SONA before it had developed its strategic plan. The Chairperson commended the leadership of the Department and said that a better understanding had been developed amongst all. The Committee had been particularly impressed by the Acting Director-General who seemed quiet and introverted but really knew what he was talking about. Every Member of the Committee had congratulated the Department, which was what one really wanted to see.

Opening Remarks by the Minister   

On behalf of the Ministry, herself and the Deputy Minister, the Minister thanked the Chairperson, Members of the Portfolio Committee on Small Business Development, from all political parties, for their support and the oversight role of the Committee. She said many times Ministers were torn between attending Cabinet or Portfolio Committee (PC) meetings. Their absence from PC meetings was not an act to undermine the PC. In particular, they had tried to be present when reports were being presented. She thanked everyone in the ministry and the Department for their support. The mandate to start a Department from scratch under very difficult conditions had been very difficult as there had been no structure and yet they were expected to deliver efficiently. It was understood that the finalisation of such a structure was not dependent on decisions made by the Minister of Public Service and Administration only, but also on the President to agree and give approval to the way in which the Department had wanted to work.

The Minister thanked the leadership of SEDA and SEFA and said it was also challenging to get the agencies to appreciate the role of the Department, the Portfolio Committee, and to align their programmes with that of the DSBD. From 2014 up to 2019, it had been a journey worth travelling to reach an understanding of SMMEs and cooperatives in South Africa, and the DA could also attest to that. If the work on SMMEs and cooperatives had begun when the first legislation was passed in 1995, the Department would have progressed much further by that stage.  But one could be pleased if one looked at what had been achieved over the past five years in terms of the awareness of what SMMEs are, the role of SMMEs in South Africa’s economy and their contribution to the country in addressing poverty, unemployment and inequality. The Minister said the current support to SMMEs should be increased as SMMEs could make people independent of social grants.  

She said Members of Parliament would be happy with the reports presented by the Department. As the Chairperson, had stated, “We are not here for ourselves, but for the SMMEs and Co-Operatives and we are here to address needs of those”.  She gave an assurance that with the start of the Sixth Administration, the Department would follow up with the new Administration on a new structure for the Department.

Requests to increase support for SMMEs and co-operatives in future would be looked at. Government had to adopt a coordinated approach in supporting SMMEs and cooperatives and that the President had recognized the fact that the Department was well informed and educated on the needs of SMMEs. She said that was so obvious that whenever fellow Cabinet Ministers saw her, they “saw SMMEs”, but she did not mind being labelled as such, as it was a label earned based on the fact that their desire to see better progress for SMMEs in South Africa.

In conclusion, the Minister said that the Department had looked at its performance through all the Quarters and had taken a decision to focus on the weaknesses. The presentations should include corrective action in areas of underperformance so that the targets not achieved would be addressed.

The Chairperson compared the Department to the head of a human body and the agencies to the arms and the legs. She asked the Department to present first and then the Members would keep an eye out to ensure that the agencies complemented the Department’s policies and strategies.

Briefing on Quarter 2 and Quarter 3 Performance

Mr Jeffrey Ndumo thanked the Chairperson for the complimentary remarks. He said the Report reflected on the various functions of the Department.

The Performance Report revealed that on the matter of Governance and Compliance, progress had been made in that the DSBD had held five out of six scheduled meetings during 2018 in October, November and December. Two meetings had also been held with the Risk Committee instead of only one.

Performance Targets Achieved

In Quarter 2 of 2018/19, the Department had achieved 72.7% of its targets, which improved slightly to 75.8% in Quarter 3, 2018/19. Enterprise and Entrepreneurship had not done well in the Second Quarter with only three out of seven targets being achieved but that had improved significantly in the Third Quarter when six of the seven targets had been attained. By the end of Quarter 3, expenditure was at 75% of the total budget of R1.4 billion. The DG said that a Preliminary Performance Report for Quarter 4, 2018/19 showed that the Department had spent 75.8% of its budget. The Department had hoped that by Quarter 4, expenditure would have increased above 80% but it was almost 3% lower.

Financial Performance

Ms Semphete Oosterwyk, CFO, DSBD, said there was an overall under-performance in expenditure.

Quarter 2: The actual expenditure for the period 1 April to 30 September 2018 amounted to R 361,16 million resulting in a pro rata under spending of R 64,38 million (15.13%), against the pro-rata budget of R 425,54 million. Commitments at the end of September 2018 were about R 34,96 million.

Quarter 3: the actual expenditure for the period 1 April to 31 December 2018 amounted to R 566,84 million resulting in a pro rata under spending of R 75,13 million (11.70%), against the pro-rata budget of R 641,97 million. Commitments at the end of December 2018 were about R 23,68 million.

Ms Oosterwyk gave reasons for the under-performance as the non-processing of the transfers payments amounting to R57.1 million for various programmes.

Human Resource Performance

Mr Ndumo continued with the briefing. He indicated that nine appointments had been made, of which two were internal promotions. Three officials had terminated their employment, one post had been abolished and two posts had been created. Women in Senior Management reached 50% in Quarter 3 and 3.1% of staff were persons with disabilities (PWD).

To address the projected shortfall of staff, the DSBD had initiated corrective actions with the approval of 18 intern posts aimed at work opportunities for young people to gain work experience. Four administrators had been appointed and their services would be shared amongst staff in the Department.

Administration

The Department had achieved some successes in terms of settling debts within 30 days and also worked closely with SEFA to develop a new system for CIS which would minimise errors. The other successes included that of women in small businesses, the employment of people with disabilities and the interaction between the DSBD and communities. The Department also assisted 11 municipalities with how to implement red tape reduction, which had caused many barriers with SMME applications. Several targets to reduce red tape had been achieved.

Speaking on Integrated Co-Operatives Development Achievements, the Acting DG said the Department had made sure that provinces aligned their provincial strategies with that of national corporate strategies.  Although the Department had failed to achieve its target in Quarter 2, it had managed some achievements in Quarter 3.

On Enterprise Development and Entrepreneurship achievements, he said progress had been made with the cooperation of the Informal Micro Enterprise Development Programme (IMEDP) and SEDA had assisted the Department with a backlog of the past two years.  He said a Recovery Plan would be put in place to do “corrective action” on a weekly basis. Efforts had been made to involve SMMEs, including SMMEs owned by PWD, to participate in innovative programmes and to interact with Deputy Ministers from various departments.

Mr Mkhumane thanked the Members for the opportunity to make the presentation.

The Chairperson thanked him for an informative and detailed report.

Presentation by SEDA

Ms Zanele Monakgetza, Acting Chairperson, SEDA, thanked the Chairperson and acknowledged the presence of the Minister and Deputy Minister. She apologized for the absence of SEDA’s chairperson who was in India. She said SEDA had performed well in most areas, although it could not be described as exceptionally well as there was under-performance in some areas. The Board of SEDA had met to discuss how to implement corrective action to improve services to SMMEs. She invited Ms Mandisa Tshikwatamba, the CEO, to make the presentation.

Quarter 2 and 3 Reports

Ms Tshikwatamba said the entity had set goals to improve the sustainability of SMMEs and co-operatives, to increase network to reach areas where not serviced and to maximise support offered to its clients through the contributions made by its stakeholders.

The “co-location” points where other entities made use of SEDA’s offices or SEDA made use of the offices of other entities, had been increased and worked well for all role players. The move by SEFA to also co-locate with SEDA turned out to be a great help as the two entities had forged good relations. Co-location agreements had been made with municipalities in KwaZulu-Natal, Eastern Cape and Northern Cape. The co-location at municipalities helped SEDA to understand the way each municipality operated its Local Economic Department (LED) programmes. That also led to SEDA and LEDs working on some initiatives together.

She said there had been a definite improvement on making services accessible to people. Events held in Quarters 2 and 3 in all the provinces had focused on women, youth, black entrepreneurs and PWD. She said many of the clients had requested help with marketing, finance, legal issues and human resources. Ms Tshikwatamba said SEDA had also signed a Memorandum of Understanding with municipalities, the media, businesses and organisations that promoted entrepreneurships in schools.

She thanked the Committee and handed over to the CFO to deliver SEDA’S financial report.

The CFO stated that the actual expenditure for the period 1 April to 31 December 2018 amounted to R566.84 million resulting in a pro rata under spending of R75.13 million (11.70%), against the pro-rata budget of R641.97 million. Commitments at the end of December 2018 were about R23.68 million.

He explained that underspending during Quarter 3 which would be addressed in Quarter 4 and that spending in Quarter 4 would be in line with its performance. He thanked the Committee and asked Members to note that the presentation also outlined various success stories of SEDA’s services and training provided to its clients.

Small Enterprise Finance Agency Quarter 2 and Quarter 3 Financial Report

In her opening remarks, Ms Hlonela Lupuwana, Chairperson, SEFA, said the Board was happy with the progress made by the entity.  She said corrective measures had been implemented to remove barriers which had caused a decline in the approval of applications made by small businesses for assistance. Ms Lupuwana said SEFA’s support to township-owned businesses had also increased compared to previous years. She said that, to access more people with disabilities, SEFA had gained access to the National Central Data Base to locate PWD and had held structured meetings with such sectors. Several applications made by PWD for assistance had been processed. She thanked the Committee and handed over to Mr Setlakalane Molepo, Acting Chief Executive Officer of SEFA.

Mr Molepo said SEFA remained focused on its vision and that SEFA would not compete with commercial banks but rather draw in SMMEs who had been refused finance by commercial banks.

He said that during the past six years, SEFA had approved R4.9 b into the small business sector and disbursed a total of R5.6 b to SMMEs of which, 97% was disbursed to SMMEs in rural areas.  SEFA had also financed 286 678 businesses and facilitated 312 570 jobs over the same period. He said SEFA had recovered R1.9 b of the R2.9 b disbursed.

Mr Molepo said during Quarter 3 a total of 18 439 SMMEs have received financial support through SEFA’s loan programmes which had resulted in the creation of 27 637 jobs. In terms of disbursement, SEFA had progressed well as the money was going into the economy of the country. SEFA had reached 95% of its annual disbursement target.

He said that 63% of loans were at risk but SEFA continued to follow up on businesses still in operation to recover loans taken. He said the highest concentration of clients with outstanding balances of 60 days or more were in the Gauteng and KwaZulu-Natal provinces.  He thanked the Committee and said SEFA’s success stories were detailed in the document.

Discussion

Mr H Kruger (DA) asked if the Department had a strategy to quantify red tape. What was the Department’s definition of red tape?  He asked if the top ten issues relating to red tape were in any way linked to the World Bank’s rating of countries with whom they had business links. He said that the World Bank ratings of countries it had business with, showed that South Africa was “slipping” as the country now rated number 83 out of 119 countries. How much had red tape cost South Africa and its small businesses? Big businesses did not complain about red tape but used it as a competitive advantage against small businesses.

Mr Kruger acknowledged it was good to have the Co-Operative Incentive Scheme (CIS) but along with SEDA and SEFA, those entities remained unknown to people in rural areas.  He said although the DSBD had a footprint in the rural area where the Minister was known, people were still not aware of what the Department could do for them.

He suggested that the Department deploy mobile trucks, as did Home Affairs, as mobile offices in various areas to inform people of its services and how to get assistance from the Department and government. He reminded SEFA that one of the principles of government was to help people who cannot help themselves. He said that, because of the past, people did not have the ability and skills and that hampered their freedom to trade.  He said such obstacles had to be removed to allow people to compete and take advantage of competitiveness in businesses in the cities and in rural areas.    

Mr Kruger said when he had visited a co-operative in 2012, a woman had been selling chicken. But when he visited the area early this year, the structure still existed but there were two pigs, no chickens, the woman was nowhere to be found, and a huge dagga plant was growing there. He ask how the Department followed up on such projects as the money had been given for a chicken farming business and nothing else. He also called on the Department to move away from the “Big Data Strategy” since there was world-wide opinion against it.

Mr R Chance (DA) said there was a contradiction in Ms Oosterwyk’s report on page 14 in the document regarding overspending and underspending. He wanted to know why the Deputy Director-General posts were not filled. Had they been presented to Cabinet, and if so, had the appointments been approved? He asked why the Red Tape Reduction Strategy was not included in the ANC ‘s Manifesto since it was an important part of the Department’s strategy.

He requested that the Department provide a total on businesses processed after they had been analysed and to say what had happened to them. He questioned whether two or three businesses made a difference to the performance of SEDA.  He also asked the Department to define the word “support” so that had had a clear understanding what type of support small businesses were given.

Mr Chance also asked the Department to provide the Committee with report of the 10th Annual Review of Entrepreneurship Strategy. Why did SEDA spend nearly three quarters of the total turnover on their client base and was it a good turnover? He asked whether SEDA was serving its purpose in assisting Micro Enterprises.

He said, in his view, the Minister of Finance, Tito Mboweni, should have instructed National Treasury to allocate more funds to small business development. He said he had asked the Minister why that was not done, and the Minister had replied that government needed to be more focused on funding of small businesses. Government should not have closed down the Small Businesses Development Corporation which was SEDA’s predecessor.

Mr Chance said SEFA was also a victim of market failure as the taxpayer had to bail SEFA out every year. He also asked SEFA to explain what it meant by the de-risking of the private sector and why it failed to ensure its loans were paid back. Currently SEFA showed that 63% of loans were at risk. He called on the entire government strategy towards assisting small businesses with financial or non-financial support and looking at bundling financial solutions such as debt equity and grants.

He also suggested for the Department should have a fundamental re-think on the best ways to deal with financing small businesses to generate growth.  Mr Chance said the thousands of jobs SEFA said it had created through the growth of SMMEs, were inadequate as it only made a small impact. He said it was important to help people with proper jobs to sustain themselves. Existing programmes were only “scratching the surface and not moving the tile.” The government must re-think its approach to small business development, whether it’s micro-, start-up- or hydro-businesses.

Mr Chance said on page 16 of the SEFA document there were six funding partners for the Land Reform Empowerment Facility with an exposure of R280 956 440 but a 0% performance for Impairments. How was that possible?  He said it was important to create jobs within small businesses but also important for SEFA to dig down to a level of detail which would help the Department to understand the impact of SEFA’s financial support to small businesses. He described the quality of loans and the creation of jobs for SMMEs as very poor.  He said the small businesses supported by SEFA were not creating many jobs and of those created were not sustainable. He said suggestions on how government’s money could be used more effectively, should be discussed at the next Committee meeting.

Mr X Mabasa (ANC) agreed with Mr Kruger that the Department should explore more avenues on government’s assistance available to people on how to start small businesses. He said there was an urgent need to look at repairs of roads, to make access to rural areas easier and that mobile offices of the Self-Employed Women's Association (SEWA) and SEFA had to be deployed in these areas. He asked what had happened to the Tshakhuma Market Area in Limpopo. To what degree had SEDA and SEFA addressed the challenges faced by private shops that were forced to close their businesses?

Referring to page 7 of the DSBS document, he asked why the Department only had five meetings instead of the scheduled six meetings. He also asked the DSBD to brief the Committee on the outcomes of the submissions made to the Department of Planning, Monitoring and Evaluation (DPME) on the Department’s Performance.  The Department should have reached 100% of its Quarter 3 targets and spent about 75% of its Annual Budget to avoid fiscal dumping at the end of the financial year.

Mr Mabasa said in Quarter 3, the Department had met 70% of its target and had utilised 39.8% of its annual budget. He pointed out that there was a big gap between plan and actual performance on operational targets.  The programmes and projects were supposed to have made a positive impact on small businesses and co-operatives and yet the Department did not have the capacity to implement projects. He questioned the inconsistency in performance by the Department. Could the Department explain why the cash estimated for the month September (R143.245m) was not drawn down from the Paymaster-General’s account?

Mr Mabasa said the Department’s year-to-date drawing was R1.5 b and a 97.8% expenditure budget which resulted an underperformance of R25.5m. Could the Department to explain its support given to street vendors in Diepkloof in Soweto and whether the Department gave enough support to general dealers as many had had to close down their businesses. He said in its report SEFA gave the impression that it was an underspending department which could have implications when requests were made for a bigger budget.   

Mr N Xaba (ANC) apologised to the Chairperson and Committee for arriving late due his attendance of another meeting. He agreed with Mr Mabasa that the Department was in need of assistance to implement projects and programmes for small businesses and co-operatives. The Department had to state how many PWD had been employed in senior management positions. Mr Xaba asked SEDA to what extent had the digital usage in the sector been exposed to the Fourth Industrial Revolution.

The Chairperson asked why the small business which manufactured reflector jackets and was 100% owned by PWD, was not seen as a pilot project, despite a recommendation made in the Oversight Report. There were indications that those people were being exploited and called on the Department to intervene in the matter. The Tshakhuma fruit and vegetable market on a road in Limpopo had many women with babies and small children selling their goods but without proper structures and facilities such as toilets. Many of those women raised doctors, lawyers and magistrates from income made at the market. She questioned why the CIS allowed the women to operate under such conditions. Was it because they were poor that they were treated like animals?

The Chairperson said the Department spent more money on human resources rather than on programmes and projects. She suggested that the word, “event”, which was a once-off thing, should be replaced with “programme “, which was an ongoing intervention.

She said there appeared to be no understanding of where the worst cases of poverty existed in South Africa. She pointed out poverty-stricken areas in the Eastern Cape and Northern Cape which the Department should prioritise in its allocation of intervention programmes. What services were designed to facilitate the correct structure for co-operatives?  She said there was no presence of SEDA and SEFA in some parts of the Northern Cape, a province with a high unemployment rate and extensive substance abuse. The SEDA and SEFA offices should be accessible to all the people, especially in areas where most needed.

Responding to Mr Kruger’s questions on the DSBD’s definition of red tape, Mr Mofelaya Mohoto, Acting Deputy Director-General: DSBD, said the Department had been in discussions on how to develop a strategy for red tape and a meeting between DSBD officials and the Competition Tribunal was currently taking place. In defining red tape, the Department worked with the Municipal Red Tape Production Guidelines which had been developed a few years previously. He said the Department had a very long definition of red tape and had discovered areas where it could root out red tape. The Municipal By-Laws referred to several areas of red tape: poverty, pricing in terms of bullying by big businesses, plans with regard to speeding up of building. The red tape strategy was aligned to the requirements of the World Bank and included access to finance and the business operations environment.  

He said that business processes were important but there was a need to reduce it. Business processes carried out at municipalities were compared with one another to ensure improvement. If the Department had the capacity, it would have covered a wider area for business processes such as targeting schools. After identifying areas of improvement, recommendations had been made to municipalities for implementation. The Department had not yet reached the level of quantifying red tape. The Department aimed to develop a strong base strategy for red tape and the research component would be the key focus.

On the question of rural people not having easy access to the opportunities offered by the Department, SEDA and SEFA, Mr Noko Manyelo, Head of Communications, DSBD, said a big campaign would be launched in Nkangala in Mpumalanga on March 15, 2019. A mobile truck would be based in Nkangala and the Department had partnered with the Government Communication and Information Systems (GCIS) to launch a community radio campaign to ensure that rural people would have access to funding for businesses. The campaigned aimed to target young people, women and PWD. The campaign would be in collaboration with SEDA and SEFA and would be advertised in various print media, prominent in the relevant areas throughout the country.

Ms Oosterwyk stated that there was no contradiction on cash flow projections on page 14 of the document. 

Replying to the question about vacant posts in the DSBD, Ms Bridgette Petersen, Chief Director: Corporate Management, DSBD, said all procedures had followed and the structure had been approved in August 2017. The delay in filling the vacant posts was due to some changes made to the structure.

Minister Lindiwe Zulu gave the undertaking to once again follow up with the Minister of Public Service and Administration to discuss the urgent approval of the appointments to the vacant posts.  The Minister said the Tshakhuma project should be a lesson to the Department to strengthen relations between the Department, provincial and local structures. The interventions in Tshakhuma during the period of the previous premier, were good but not adequate. She said the programme was not speaking to the overall development of the area and the erecting of sheds had to fit in with the character of the area. It was suggested that people trading in that space should form a Committee. She said it was unacceptable for government or the provinces to promise people development or assistance and not fulfil their promises five years later. Tshakhumas were needed in all provinces as most people did not have access to viable infrastructure for their businesses.

The Chairperson said it was unacceptable that the posts had not been filled as it was the end of the Administration’s term. She said it was abnormal for a Department to take five years to fill a vacant post.     

On the issues of Spaza shops, Ms Lize van Schalkwyk, Acting Chief Financial Officer, SEFA said programmes initiated by the Gauteng Provincial Housing had identified an opportunity for established retailers to assist privately-owned businesses in becoming more competitive. This programme had started in 2016 and SEFA had committed itself to joining other funders who had played a role in transforming existing general dealers. SEFA also empowered the store owners, who did not pay a franchise fee but had access to bulk buying, logistics and top management to help them become competitive. Some of the transformed stores had a monthly turnover of between R500 000-R3 m per month.   

 On the Integrated Strategy, Mr Lindokuhle Mkhumane, ADG, DSBD said it was being finalised and due to be tabled before Cabinet in April 2019. The type of support provided to SMMEs and Co-operatives included training, mentoring and finance.  He said the Tshakhuma project, a fruit and vegetable business, posed several challenges and the Department had to intervene by meeting with the Municipality.

Mr Ndumo said that new guidelines for the Cooperatives Incentive Scheme (CIS) included the need for toilets. The Department had also attended to the issues raised and feasibility studies had informed the guidelines.  On the outcomes of the forum between the Department and National Treasury on 28 September 2018, he reported that matters of the Friendly Society Bill, Co-Operatives Legislation and the Strategy for Co-operatives were discussed, and two resolutions had been adopted:

1. Participants would ensure that legislation on Co-Operatives was proclaimed and that the proclaimed legislation should be popularised so that it reached everyone.
2. The Friendly Society Bill would include members of the Society and be recognized as Co-operatives.    

Mr Ndumo said that the Small Business Colloquium had taken place on October 25, 2018 at which resolutions were taken, but they were not yet available. Another forum was on relations with Brazil-Russia -India-China-South Africa (BRICS). The resolutions from that meeting were also not yet available.

Mr A Roy Dirks, Head of Strategy, SEFA, said the entity only had an office in Kimberly and that Northern Cape remained a challenge due to its geographic space and density of the enterprise.

Closing remarks

Minister Zulu said the Northern Cape and Kimberly were large areas and many things were happening there, such as mining. She asked what the Department was doing in conjunction with the mining companies. Mining companies should be told that “you keep on digging the hole forever.” The Kimberly hole was a tourist attraction, but who was running the industry there? The government should join hands with the university in Kimberly and with the private sector and take overall responsibility of projects and programmes.

The Deputy Minister, Cassel Mathale said that the footprint in Northern Cape was not adequate, in fact it was a 0.005% presence. He said that had to be corrected and government had to return to the Province to look at feasibilities, such as deploying a mobile truck to provide services to the people.

The Chairperson thanked the Minister, Deputy Minister and all present for a successful meeting.

The meeting was adjourned.