Hon House Chairperson, Ministr Patel and our Deputy Ministers, hon members of the House, officials from both the department of Small Business Development and of Trade and Industry, ndimasiare, during our Budget Vote address, Vote No 31 of Small Business Development, we announced measures to support small, medium and micro enterprises, SMMEs, and co-
operatives. These measures are a response to the priorities of the sixth administration as set out by the President in his state of the nation address.
Our work is cut out. Our work in this term of office will be directed at ensuring that SMMEs and co-operatives contribute to two of the goals that were announced by the President in the state of the nation address. These goals are our economy growing at a much faster rate than our population, and two million more young people being in employment over the next 10 years.
We are fully aware that to achieve these, SMMEs and co-operatives must have access to strategic resources such as skills, knowledge networks, finance, and access to facilities and platforms, amongst others, that will enable them to nurture their innovative ideas and business. Our focus on improved access to finance includes initiatives to make SMME finance more affordable and inclusive. Inclusivity means development finance institutions that foster economic activity, productivity and prosperity for a broad section of our society.
The plan is to make the cost of money less expensive, starting with the cost of Small Enterprise Finance Agency, Sefa, financing. In
this regard, the President announced during his response to the state of the nation address debate, that we will introduce a blended financing model. This model will be introduced over the next three years, commencing in the current financial year. Small Enterprise Finance Agency is collaborating with the department and other government funding entities in utilising grant incentive offerings to offer a blended funding model that will directly benefit SMMEs across funding facilities. We have announced that the Land Bank has joined this partnership. Since our Budget Vote, we have received expression of interests from the private sector as well, and we are inviting more private sector players to join hands with us.
The blended finance model should be of interest to delegates of the NCOP because its initial execution will be funding 100 000 young entrepreneurs across all provinces. The 100 000 young entrepreneurs will be funded through the Small Business and Innovation Fund, SBIF, commencing this financial year. Qualifying start-ups, innovators and SMMEs will be able to access matched grant funding. That grant portion will be up to a maximum of R2,5 million per enterprise.
The SBIF aims to promote and facilitate funding of innovation in key industry sectors, and enhance financial inclusion by increasing access to finance for enterprises owned by targeted groups, which
are women, youth, townships, and in particular black townships and rural communities. The process for entrepreneurs, innovators and SMMEs to access this funding will be announced in the first week of August but at a minimum they must have the potential to create at least 10 jobs. This will translate into at least one million jobs when the programme is successful.
Access to finance will not be a panacea to challenges facing SMMEs and co- operatives. Strategic-public sector decision-making can redirect market failure and actively shape new markets while regulating existing ones. In this regard, Seda will adopt a standard incubator model based on best practice that will be a minimum framework for incubation in South Africa.
In the meantime, Seda will increase the incubation network, deliberately targeting rural areas and townships as part of government's commitment to grow rural and township enterprises. For this purpose, Seda will establish during this current financial year an additional eight incubation centres in the rural and underserviced provinces of Free State, Mpumalanga, Limpopo, Northern Cape and North West.
This is our response to the directive of our President during the state of the nation address, when he committed that we are going to roll out small business incubation centres to provide youth-driven start-ups with financial and technical advice as they begin their journeys. Our commitment to increase the incubation period to a maximum of five years remains. We are also committed to optimise the utilization of our already existing facilities, not only to expand our reach but to increase the return on government's investment. In the previous financial years, we established 13 Centres for Entrepreneurship and Rapid Incubation in TVET colleges. We will upgrade these centres into full incubators for the benefit of small businesses and start-ups that are adjacent to the TVET colleges. An additional, nine centres with full incubation services will be established in all our provinces. We will also coordinate with the private sector to establish incubators in underserviced areas as we ensure improved support to rural and township enterprises.
Within the next six months, we will adopt an SMME business index that track economic health of SMMEs. We will do this so that we can measure the impact of various SMME support programmes and interventions, be they by government or the private sector. We will explore integrated models of impact measurements that provide comprehensive assessments throughout the life cycle of SMMEs.
The President announced spatial interventions to bring economic development in local areas. During my Budget Vote speech, I announced a partnership with Vodacom on the roll-out of digital hubs. This partnership piggybacks on the already existing partnership between Vodacom and the Department of Basic Education for the establishment of youth centres using former teacher training colleges. The plan is to expand the youth centres to become digital hubs Where our young rural and township based entrepreneurs can have access to technology platforms and resources for ideation, experimentation, testing, and end-user computing.
To cover the areas where there are no former teacher training colleges, we have planned for the establishment of at least four digital hubs for geographic inclusivity. We are planning for the gig economy and our SMMEs will transform us into a gig nation. This will push the innovation frontier by further developing state-funded or enabled technologies and crucially contribute to the transition towards the Fourth Industrial Revolution.
In order to improve co-ordination and traceability of support provided to SMMEs and co-operatives, we will shortly commence a process of establishing the SMME and co-operatives database categorised by sector, geographic location, size and product or
service - for we are not only going to be definitive about the number of SMMEs and co-operatives in our country, but we are going to ensure effective and traceable support as we strive for their business sustainability. I must point out that the reference to our support, does not mean government only but it refers to private sector support as well. We will work with the National Treasury to ensure the intercommunication of this database to already existing critical databases and business systems of government. At a minimum, this database must access information about any payment made by government to an SMME or co-operative.
To enable seamless access to support, we plan to establish a one- stop SMME platform for businesses to access both financial and nonfinancial support. The one-stop SMME platform will include walk- in option, online access and call-centre access; this will include social media. The platform will be linked to the SMME database as we firmly believe that our ability to trace assistance provided to SMMEs and co-operatives is critical to improving the effectiveness of the support. Ours is a vision wherein an SMME that is assisted to develop a business by Seda, will exit with funding from either Sefa, National Empowerment Fund, NEF, Land Bank and even the Industrial Development Corporation, IDC, at a minimum.
To enable this, within the 2019-20 financial year, Seda will adopt business templates that are currently used by NEF as we co-ordinate the development of common templates with the IDC, Land Bank, and NEF. The intention is to lobby private banks to adopt same templates as a way of opening access to the much needed but currently elusive private bank financing of small businesses. We also believe that when these templates are known and available, Development Finance Institutions, DFIs, will improve the turnaround time in the approval of funding applications.
For us, the ease of doing business for SMMEs is linked to the eradication of red tape that confronts and inhibits the success and sustainability of SMMes and co-operatives. In this regard, there are three urgent interventions that will be done within this financial year. In consultation with SA Local Government Association, Salga, and the Department of Co-operative Governance and Traditional Affairs, we will review and develop generic by-laws to enable conducive environment for SMMEs and informal traders to conduct their businesses in municipalities. Our view is that streets are economic spaces. We subscribe to a view that streets and public spaces are assets for the livelihoods of the poor and resources for the urban economy as advocated by Mendelsohn. Therefore,
municipalities must start including SMMEs and informal trading in their spatial planning frameworks.
We would engage National Treasury on the cost of tender documents that have become prohibitive, and the requirement for compulsory briefing sessions, as they have become an elimination factor for small businesses. We will table the SMME Ombudsman Services Bill to provide a less costly dispute resolution mechanism. We will also commence with a process of registering informal businesses so that we can offer them co-ordinated support including bulk buying opportunities.
For us co-operatives are businesses and we are going to support them as businesses. The Deputy Minister, hon Zoleka Capa will soon announce tightened mechanisms for registration of co-operatives. Fundamental to that is the fact that co-operatives must not be a forced collaboration of people, in particular women and other vulnerable groups.
To facilitate the change in perspective, the funding model for co- operatives will be changed to blended financing in line with the blended financing model we articulated earlier. We are for a co- operative sense of purpose, co-operative vision, co-operative ideas,
co-perative business and co-operative success. Access to markets is another key determinant to the success of any business. Therefore, we have a non-negotiable responsibility to ensure that products and services from our SMMES and co-operatives have markets, as the Minister of Trade and Industry has alluded earlier.
Our plan for market access is three pronged and based on availing technical support to address challenges of scale and quality where necessary. We will establish trade markets for our SMMEs and co- operatives. In this financial year, we will establish at least four trade markets in Ehlanzeni in Mpumalanga province, Musina in Limpopo province, Mthatha in the Eastern Cape and Mahikeng in the North West
We also accept that government is the largest consumer of goods and services and therefore, it must put its money where its mouth is. With the guidance of our Deputy President, we will finalise the list of goods and services that the SMMEs and co-operatives ecosystem will provide to government as a minimum.
As part of government's programme to open markets for SMMEs, we will finalise agreements with big business on the SMMEs procurement spend and supply value chains, as alluded to by Minister Patel. We are also in the process of establishing the Small Business Advisory
Council which is a structure that will report to the Minister and dedicated towards providing critical information on the sector and advise on the interventions that need to be introduced to ensure that we have competitive and growth SMMEs, and this will include provincial representation. Our budget is based on a stronger Seda and Sefa as our implementing agents and a department that is able to co-ordinate and direct SMME and co-operatives support work of not only the two agencies and government, but across all sectors of our country.
At present, Sefa is struggling to obtain cession agreements with the different spheres of government due to provisions within the National Treasury and regulations relating to the payment of suppliers by contracting departments. This provision places Sefa's bridging loan or revolving credit portfolio at serious risk. Small Enterprise Finance Agency is experiencing high levels of arrears in this portion of its book. To be precise, almost 90% of Sefa's impairments are due to debts owed by govemment to SMMEs. We are facilitating through National Treasury a process which all government entities are directed to accept cession agreements to Sefa through a regulatory regime by the Minister of Finance.
The prohibition of cession agreements for Sefa, has indirectly pointed to the fact that SMMEs predominantly rely on government for business and funding. The private sector has not really come to the party to support mainly black businesses which are predominantly SMMEs. This situation must be changed if the economy of South Africa is to grow and be inclusive.
Secondly, the nonpayment of SMMEs and co-operatives by government is not only destroying the sector but it is a major contributor to the sustainability or lack thereof, of DFIs. Therefore, their nonpayment is not only a travesty of justice but a threat to the economic wellbeing of our country. The Deputy Minister will soon announce concrete measures to address the nonpayment of SMMEs.
I am honoured to present the Budget Vote for Small Business Development to this House. Thank you. [Applause.]