Department of Small Business Development on its 3rd & 4th Quarter Performance Reports

Meeting report

Briefing by Department of Small Business Development

Mr Lindokuhle Mkhumane, Acting Director General, Department of Small Business Development (DSBD) briefed the Portfolio Committee on the third and fourth quarter performance of the Department, and highlighted the following challenges:

• The programmes were still structured as per the Department of Trade and Industry’s (DTI’s) strategic objectives, and the report was therefore aligned to the DTI’s strategic objectives, and going forward they would be aligned to the new mandate.
• Delays in the transfer of functions from the DTI to the Department, and in certain instances functions had been transferred without funds.
• The budget was centrally controlled, with an intra-transfer of funds within the DTI. This had a bearing on the expenditure patterns and allocation, as the budget was only given this year to the Department.
• Other functions were dependent on the DTI’s capacity, which was centralized through particular business units such as research and procurement.
• The transitional process had affected delivery, and only 60% of the targets had been met.

The Small Enterprise Development Agency (SEDA) Technology Programme during the third quarter had created 749 jobs against an annual target of 1 650 and a third quarter target of 412. The target for the fourth quarter was 414 jobs, and 465 had been created. The number of established incubators supported through the programme was two, which matched the target for the quarter. The target for the fourth quarter was to support four incubators. To date, the programme had supported 48 established incubators and six new incubators, and the annual target had been achieved within the financial period.

The number of clients assisted through the technology transfer programme had been ten, against an annual target of 63 and a third quarter target of 15. This was due to incomplete information, which had delayed approval. The target for the fourth quarter was 16 and output was 13 due to incomplete information, which had delayed approval.

The target for implementation of the Cooperatives Act, as amended, through a report on the phased-in operation of the Community Development Agency (CDA) and Cooperative Tribunal, was not due to no budget allocation, so implementation was postponed to the 2015/16 financial year.

Submission for approval of the draft National Strategic Framework on Gender and Women’s Economic Empowerment was partially met in the third quarter due to the suspension of the Framework, but the unit produced a preliminary report on consultations. The target was not met in the fourth quarter due to insufficient capacity in the Department.

Reports had been produced on the pilot implementation of the National Information Business Upliftment Strategy (NIBUS) in the third quarter. Benchmarking lessons from KwaZulu-Natal (KZN) had been captured and packaged ready for piloting the NIBUS rollout in the Eastern Cape and Gauteng. Informal Traders Upliftment Project (ITUP) workshops for the selection of pilot participants had been completed, in consultation with provincial and municipal partners, as well as other relevant stakeholders in targeted locations. There had been increased interactions with provincial and municipal officials on specific Shared Economic Infrastructure Facility (SEIF) projects in the targeted pilot areas. Actual business plans and proposals were being developed around the guidelines. For the fourth quarter, a preliminary pilot report on ITUP had been produced and tabled at the project steering committee, so the implementation of NIBUS was progressing as planned.

The Mass Youth Enterprise Creation Programme (MYECP) had been migrated to the Department of Small Business Development (DSBD). Due to the new planning process in the Department, the concept was yet to be presented to the executive board and the Minister of the DSBD for approval.

A quarterly report had been produced in the third quarter on the Integrated SMMEs and Cooperatives Development Framework and Action Plan. The MinMEC task team meeting was held on 3 December 2014 to align the national annual performance plans (APPs) of the economic cluster with provincial departments of the Department of Economic Development. For the fourth quarter, a task team meeting was held on 12 March 2015. Provinces presented their three most high impact projects as part of aligning the national APP of the economic cluster with provincial departments, and a quarterly report was produced. This output was progressing as planned and the effort to align the national APP of the economic cluster with provincial departments of Economic Development was ongoing.

Two additional Centres for Entrepreneurship had been established and launched in March 2015. Support had been provided to 207 projects under the Cooperative Incentive Scheme (CIS) incentive to the tune of R65 million, and to 783 projects under the Black Business Supplier Development Programme (BBSDP) incentive, amounting to R288 million.

The budget of the Department was R122.1m, while expenditure was R106.8m. Transfer payments amounted to R998.3m, and were allocated to the BBSDP (R288.3m), CIS (R65m), SEDA Technology Programme (R126.4m), SEDA (R502.2m) and the SA Women’s Entrepreneurs Network (SAWEN) (R16.3m).

Discussion

Ms T November (ANC) commented on the challenges presented by the Department and hoped all that had been said was about to change, as everything revolved around DTI. She added that the DSBD was no longer new as it had been in existence for over a year, and asked when it would start functioning as a department. She added that the target on the implementation of the Co-operatives Act, as amended, for the third quarter had not been met, was not met and the fourth quarter target had only partially been met due to no budget allocation. She asked what percentage of the target had not been met.

Mr Mkhumane replied that the Department had officially started this financial year. The DSBD report was under the Dti annual financial report, as they were still within the budget of the Dti. With effect from the current quarter, they would be reporting on their own programmes and aligning with the strategic objectives of the DSBD

Mr H Kruger (DA) expressed concern that 60% of the targets had not been met, but 98% of the budget had been spent. The implementation of the Cooperatives Act as amended, had not been achieved due to budget allocation, and he wondered why the Department had not started working on the budget in the third quarter, since the same challenge of no budget existed. He asked why the Department had not transferred or allocated money in votes to implement this performance indicator. He added that there should be workshops on budget strategies, as strategies could be part of the reasons for not meeting targets. He added that a delay of information had been part of the reason for the variance on the SEDA Technology Programme, and asked if there was a communication problem in the Department.

Mr Mojalefa Mohoto, Chief Director: DSBD, said the national informal sector business upliftment strategy had not been presented as a sole strategy on its own to the Committee, as it had been presented by the DTI. A copy the strategy could be made available and presented to the Committee, along with the Youth Enterprise Development Strategy. He said the new information that was reflected as a deviation in the Student Technology Programme (STP) was that sometimes when applications were sent to the STP, certain information was lacking, and these applications were returned in order to get further information. This delay in the submission of relevant documentation for the applications to be considered properly was impacting negatively on the performance in particular quarters.

He said the Department had left the work on the incubators to the Small Enterprise Development Agency (SEDA), but there were 48 incubators that were operational. As SEDA normally presented its performance plan to this Committee, it could provide details on the incubators. The department was presenting the figures in terms of its target, which were the jobs produced by the incubators

Rev K Meshoe (ACDP) commented that in the challenges presented, certain functions had been transferred without funds, and asked whether the funds had been withheld while the functions had been transferred. He wanted to know what functions these funds would be used for, since the initial functions had been transferred. The quarterly target on the youth enterprise development strategy had been to enter into an agreement with the National Rural Youth Service (NARYSEC) and he asked whether it was not also beneficial to have an agreement with the National Youth Development Agency (NYDA) because he believed there should be areas of agreement where their objectives were similar. He observed that more than R1m of the budget on Skills for Economy had not been used, and asked why so much money was not used to enhance the skills of those that needed the money in order to be more productive and fruitful.

Mr Mkhumane replied that the function of youth development had previously been led by the NYDA, as it was now being coordinated in the Presidency. However, it was waiting for approval from the DSBD Executive Committee to enter into agreement with NARYSEC.

Mr R Chance (DA) said that a lot of the challenges came down to a lack of capacity. He asked for the status of the Department’s ambitions to find premises and fill essential positions. He said the Committee had long wanted an organogram from the Department, as it was vital to ensure that the advertised positions were sensible and filled by qualified people. He suggested that the Committee in its next oversight visit should have a look at some of these incubators in order to interrogate the information about them, as the SEDA Technology Programme (STP) had supported 48 established incubators and six new incubators. He asked how many people were employed; how many businesses the STP had incubated; what sectors were they from; the success rate and how many businesses were created, as the Committee needed more details. He said there was no correlation between the number of jobs created through the STP and the number of clients assisted through the technology transfer programme. He asked how many of these clients had created jobs, as it was meaningless if not correlated, as there was a need to understand which programme was working or not. The Committee did not want to throw money away -- as SEDA had always done in the past -- as they could not afford that any more.

It seemed that the moment the information on the new department had been announced, things within the DTI had ground to a halt on the implementation of the Co-operatives Act as amended. He asked if this would have happened if the Department had not been formed. He asked why there was no progress and what was holding it back. A lot of reports had been mentioned in the presentation and he would like to see these reports, as he hoped the reports had some value. He said the integrated SMMEs and cooperatives development framework should be an overarching policy for the Department and should come top of the list in terms of reporting. Others were just implementation, but this was fundamental strategy, especially as it related to provincial and municipal departments because the departments had capacities which were not being properly integrated.

The DSBD board had not been formed in the third quarter, but Youth Enterprise Development Strategy had been presented to the DSBD Exco for approval on 19 February, 2015 -- he asked what had changed and who was on the board. At the end of last year, when he had met with the Minister, an advert had been placed in the newspapers seeking members for top positions. Earlier this year, there had been an advert in the newspaper for the post of the Director General. He asked when the Department’s top management would be put in place and when Executive Board would be constituted.

Elaboration was required on the curriculum and objective of the Centre for Entrepreneurship. The Committee needed to see the outcomes of the CIS and BBSDP. In September last year, the then acting Director General had presented various programmes of the Department at a strategic workshop, and he was surprised that the Acting DG had said the activities were still within DTI strategic frame work. He asked whether all the work done before the current ADG assumed office had disappeared, and why the activities of the Department had not been properly reflected in this framework. He said it was impossible to have no variance between the SEDA budget and expenditure.

Mr Mkhumame replied that the structure had been approved by the Department of Public Service and Administration (DPSA) on 30 April. It was a small start up structure and could go back to National Treasury only when the department had a budget, as it would not be approved without a budget, so it would have to live with this structure for the next few months. The Department hoped to get a bigger budget in order to increase the structure. The Department had received a letter from the DPSA objecting to advertising the post because the structure was being reviewed, so it had to wait for a letter from the DPSA before starting the recruitment process. The positions of the Director General and human resource manager had been advertised. The position of the DG had been re-advertised because the Minister had not been satisfied with the quality of applications that had come in. Other posts that had been advertised and were critical, were corporate services, internal audit and auxiliary services, like security officers. The applications closed on 1 June and it was hoped to have the posts filled. However, there were still budget constraints as the budget could fill only 18 positions. Priority would be given to the operational administration sector, like human resources and the financial unit.

Mr Jeffrey Ndumo: Chief Director DSBD replied that the target for implementing the Cooperatives Act as amended was to have established an agency and tribunal by 2014.This depended on the Act being finalized and proclaimed into law. The two institutions had been established through the 2013 Cooperatives Act. The challenge was that before the budget could be rolled out from National Treasury, the Act needed to be proclaimed. The process had been delayed because of the transition, therefore adversely affecting this particular target of securing funding so that the leaders of the two institutions could start implementing their policies. The Minister recently announced that he would proclaim the law and make sure they undertook the process.

The initial budget for the CIS was R100 million, and when the budget was allocated it was under the DTI. One of the challenges the Department had faced was the transfer of R35 million to the BBSDP, which left it with R65 million, out of which R64 million had been spent. He said R65 million was strictly for programmes, and there was a period when there were complaints from the CIS about staff. He believed that was the period money had been moved to cater for some services delivered for the staff, and that was the reason for the negative variances. He said the details could be provided if required.

Mr Mohoto said that the incubation support programme was divided into three areas: jobs produced by the entities; support in establishing the incubators; and the technology transfer fund needed for providing a particular technology and machinery when the beneficiaries exited the incubator. There was a linkage between the three.

Mr Mkhumane said the Department would adopt a different reporting system which would provide more details from the new financial year. The reports on the integrated SMMEs and cooperatives would be made available. The integrated SMMEs and cooperatives development framework was a critical instrument. The style of reporting would be improved because this would assist in co-coordinating with the provinces and the Department of Economic Development.

One of the functions of Skills for Economy was to mobilize skills for the ITUP programme, and this would continue within the DTI. The programmes presented were part of the APP, as they had had to report them according to the way they had been formulated when they were still under the DTI. Beginning from this financial year, they would report on their own programmes, aligning them with the DBSD strategic objectives. The two key programmes that had not been achieved were the Implementation of the Cooperatives Act as amended and the National Strategic Framework on Gender and Women’s Economic Empowerment, and because of the importance of these two programmes, the Department had done its own calculations and had come up with 60% being achieved.

The Chairperson said the Committee had expected the Director General or the CFO to address the issue of vacant posts, but this was still being addressed by the Assistant Director General. Another crucial position in the Department was head of operations and human resources. When this position was filled, the right people would be in the right places. Human resources would identify potential and provide the necessary skills where they were lacking through skills development programmes. It was difficult to take people from one department to another without teaching them how to adapt. She hoped the Deputy Minister would be able to discuss this at the Ministerial level.

Mr X Mabasa (ANC) asked how soon things would begin to be done within the Department and what functions had been transferred without funding. He asked what plans were in place to meet the outstanding 40% targets that had not been met.

Mr Mkhumane replied that the functions that had been transferred without funding were informal business, export and research. Henceforth, the Department would monitor performance differently on the 40% not met. The Executive Committee had been restructured to meet regularly and address issues and ensure that people met their targets. They would ensure that issues and challenges were not addressed only at the end of the quarter.

Mr T Ramokhoase (ANC) commented that specific performance challenges had to be dealt with, and added that it would be wise for the Department to look out for recommendations that would take it forward. Elaboration was required on the National Strategic Framework and Gender Economic Empowerment, as it needed a number of partnership engagements with other departments that had similar agendas. All the other departments had their budgets earmarked for their agendas. He suggested that there was need to have a survey of entities or services rendered by other departments on youth enterprise development strategies in order to come up with models informed by their practical experiences. They should not reflect what was happening previously if they were not beneficial or the best.

Ms Nomvula Makgotlho, Chief Director: DSBD, agreed that a national strategic framework for gender and economic empowerment was by nature broader, as it gave guidelines which entailed broader and wider consultation with all government departments and entities. She said this was what the economic cluster had said when the Department had presented the draft. The Department had under-estimated the process leading to the framework, because most of the processes had been confined within the previous department. The economic cluster had advised them to go back and do more consultation. The challenge they faced when planning these consultations was that there were concerns by other departments about reporting to the DSBD on women’s economic empowerment. The Department of Women, Children and People with Disabilities had said they were already handling the issue and wondered why the DSBD would want to impose itself on them. Indeed, the framework on gender and women’s economic empowerment could be interpreted as imposing on the departments. The second challenge was that the cluster indicated the need to do detailed research on why a stand-alone-entity for women’s economic empowerment was needed. The framework, however, indicated that there was a need for a dedicated entity, and the National Treasury indicated that to establish this dedicated entity, a business case had to be developed. The Department did not have the capacity to develop a business case. The Department had put aside a budget for the research but the funding had exceeded the threshold of the PFMA, so the Department had to go through a bidding process. Documents were prepared and the DSBD had gone to adjudication. However, the proposal was not approved by the adjudication committee, which further compounded the delay in finalising the framework. The department should look toward putting up a strategy for gender and women’s economic empowerment, and not a framework, as a strategy would apply to entities that were accountable to the Department. Even though other departments would be engaged, they would not determine the finalisation of the document.

Mr T Khoza (ANC) asked why there had been overspending on the CIS and BBSDP. He also expressed interest in the geographical spread of the Youth Initiative, and asked if the initiative was spread across all the provinces, or only certain provinces. He asked which areas the pilot implementation of the Youth Enterprise Development Strategy (YEDS) was situated.

The Chairperson commented that SEDA was an entity under the DSBD, but the report did not give one a clear picture of SEDA as a whole. It did not cover how money had been spent, as a breakdown had not been given. In terms of reporting what funds had gone to SEDA, it could be assumed that the DSBD had spent according to the budget, but this could only be verified when provided with the breakdown.

Mr Mohoto said the entire SEDA component would be included in the next report. He said the Centre for Entrepreneurship was basically working with the higher education institutions, where centres for education of students on entrepreneurship had been established. Also considered were the communities around the colleges, and the training they needed was being provided to give them a competitive advantage in the area. In March, two other colleges had been launched, in addition to the two that had previously been launched. Training manuals and programmes had been prepared, as at the time they had been launched the money had not been spent, which was responsible for the surplus.

The Chairperson commented that the Centre for Entrepreneurship was in partnership with small scale business development and higher education, as the DSBD was training in relation to job opportunities around the college environment, and asked for elaboration on this.

Mr Mohoto replied that training was influenced by the location’s predominant market or business, as the competitive advantage in the area was considered before providing training. This enabled the trainees to take advantage of existing opportunities.

Mr Kruger asked what percentage of the fund was with DTI, as it would be a problem if a large portion was with DTI.

The Chairperson commented that the question related to the question on functions that had been transferred without funds.

Mr Mohoto replied that it had been agreed with the DTI to transfer half of the budget for Skill for Economy, which was R 9 773 000, since the DTI was transferring the capacity that dealt with the Centre for Entrepreneurship.

Mr Kruger asked what the DTI was going to do with the remaining half, since it was targeted to develop small businesses.

The Chairperson asked what the impact of the incubators had been; whether they had yielded the expected results; whether the incubators were laying and hatching the eggs to produce more chickens, or if the hens were only being fed and not yielding more chickens. She said the Department had worked around the issues that had been identified as problems, and should develop strategies to deal with challenges. She hoped the new way of reporting would speak to the mandate of the Department, and all the strategic plans would talk to the mandate and address the issues that had been raised and were needed by the constituencies.

Mr Mkhumane said the manner of reporting would certainly change. The Department had a shortlist for the post of CFO and was on the verge of interviewing the candidates. The submission of applications for the post of head of operations and human resources was closing on 1 June, and the recruitment would be finalised as soon as possible.

Ms Elizabeth Thabethe, Deputy Minister: DSBD, said the Department had noted all that had been said by the Committee, and their comments would be accommodated and taken care of in the next quarter. The stumbling block on the posts that were not yet filled had been the public service, as the Department had been told not to advertise for the post until a structure had been agreed on. The DSBD had a start up structure, but the budget was very small -- it had been given a budget of R3.5 billion by Treasury for a two-year period and was required to do more with less. A lot of things had been stalled because of the budget, which made some of the tasks given to the Department impossible. The DSBD had been able to launch two Centres for Entrepreneurship when it was supposed to have launched more. The Department had listened carefully to what the Committee would like to see, which was in line with what the mandate was all about.

Mr Kruger said the Committee had heard all the challenges and excuses, but the people of South Africa out there were hungry. The Department was in its second year and with the support of the Committee, it should make it a priority to sort the challenges out.

Ms Thabethe replied that the Department was not giving excuses, but facts -- it was the reality of the situation.

Mr Ramokhoase said the Department should strive to have systems, because with systems in place, even when targets were not met, it would still be good enough. The Department should always ask the Committee for recommendations

The Chairperson said that as spokesperson for the Portfolio Committee, she had at no time said it was excuses, and advised the Deputy Minister not to focus on party politics. The Department should take home her closing remarks, which were filling up the key positions for the Department to move forward, understanding the challenges of resistance and adaptation to changes management, and capacity building of the staff, as the delay in filling up the key positions had resulted in people going back to the DTI.

The meeting was adjourned.