Small Business Development – B-BBEE and support

The Department had a budget of R8.15 billion over the MTEF period. Specifically, R2.57 billion was allocated to the Department for the 2019/ 20 financial year. Most of the allocation would go toward economic development. For the 2019/ 20 financial year, SEFA, SEDA and the Department got transfers of R1 billion, R870 million and R460 million, respectively.

Why South Africa is dissolving its Parliament on Thursday

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Department of Small Business Development 2019/20 Annual Performance Plan, with Minister & Deputy Minister

Small Business Development

03 July 2019
Chairperson: Ms V Siwela (ANC)

The Department had mechanisms to monitor public entities. The Minister signs shareholder compacts with the chairpersons of boards. These compacts are monitored quarterly through quarterly reports, quarterly governance forums between the DG and chief executive officers (CEOs); and between the Minister and chairpersons of boards. Entities also present annual reports at the end of the financial year. The Department had public-private partnerships (PPPs) with SA Breweries (SAB) and Nestle, both of which facilitate market access and offtake agreements for SMMEs and co-operatives.

Mr April sought clarity on the product markets the DSBD aimed to develop over the MTEF period. What were the funding, regulatory and monitoring models? What were the targeted economic sectors? Did the DSBD conduct feasibility study before funding businesses? Was the creation of four product markets per year sufficient for the support of small businesses? He noted that the DSBD had introduced the Enterprise Incubation Programme in the 2016/ 17 financial year, but only 55% of the beneficiaries had succeeded in the 2017/ 18 financial year — what had happened to the 45% of beneficiaries that did not thrive? What was the DSBD doing to assist struggling businesses? He urged the Department to harmonise its report in order to avoid confusion.

SEFA planned to implement its corporate plan through six programmes, which include access to finance for SMMEs and co-operatives, post-investment monitoring, effectiveness and efficiency in processes, a strong and effective brand that emphasises accessibility to funding, compliance, governance and enterprise risk management, and property management. The loan approvals to SMMEs and co-operatives financed for the MTEF period and the five-year period were R2.75 billion and R4.82 billion, respectively. The number of SMMEs and co-operatives financed for the MTEF period and five-year period was 280 300 and 480 861, while the number of jobs facilitated were 285 946 and 490 019, respectively. The total disbursements to target groups for the MTEF period and five-year period was R2.80 billion and R4.79 billion, respectively.

The DSBD operational model was hinged on four core areas — enterprise development, finance, information management and creation of viable markets for the products of SMMEs and co-operatives. The Department had a workforce of 209 employees, with 100 in the administration programme, 22 in sector policy and research, 40 in integrated co-operative development, and 47 in enterprise development and entrepreneurship. The budget allocated for the compensation of employees was R141 million, R152 million, R163 million and R174 million in the financial years 2018/ 19, 2019/ 20, 2020/ 21 and 2021/ 22, respectively.

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Meeting Summary

The Committee met to discuss the Annual Performance Plan of the Department of Small Businesses Development (DSBD) for the 2019/ 20 financial year. The Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA) also made presentations to the Committee.

The Department said it was committed to the establishment of viable small, medium and micro enterprises (SMMEs) and co-operatives that provided sustainable jobs and drove economic growth. It had prioritised the goal of the Sixth Administration, which was to create one million sustainable jobs in five years, and two million in ten years. The Department collaborated with SEDA and SEFA to achieve its objectives.

The SEDA coordinates the non-financial programmes and interventions that prepare entrepreneurs to access funds and product markets. The entity collaborates with stakeholders in townships and rural areas to achieve its mandate. Entrepreneurs are incubated for an average of three years to get the necessary skills. The mandate of the SEFA is to provide finance to entrepreneurs and develop post-investment initiatives to monitor financed businesses and recover funds.

Members expressed concern that most big businesses bully small businesses. Some facilities operated by the entities were not user-friendly, especially for people with disabilities. Existing and potential entrepreneurs also had challenges in the registration of businesses due to the different location of the Department’s entities. Corruption was a major challenge in SEFA, and the Agency had to develop measures to recover stolen funds from corrupt former officials and intermediary lenders. The DSBD and its entities should consider co-location to alleviate the plight of entrepreneurs, and structural arrangements should consider people with disabilities.

The Committee and the Department agreed to convey a meeting where various reports of the Fifth Administration would be discussed to address identified gaps and to familiarise the new Members with what had happened in the previous administration. Members urged the various governmental departments and entities to ensure adequate representation at all Committee meetings. They concluded that the Department of Public Service and Administration should brief the Committee at a later date, due to the lack of appropriate representation at the meeting. The Committee’s programme was presented and adopted.

Meeting report

Minister’s overview

Ms Khumbudzo Ntshavheni, Minister of Small Business Development, congratulated Ms Siwela on her election as the Chairperson of the Committee.

She presented the Annual Performance Plan (APP) of the Department with a view to getting approval from the Committee for the Money Bill relevant to the Department’s vote. She promised that the Department would ensure transparency and work with the Committee as needed. The DSBD would ensure adequate coordination of all relevant entities, especially SEDA and SEFA, to achieve economic development in targeted areas.

She commented that SEFA suffered marked impairment in its collection of funds from beneficiaries. Post-care mechanism had been introduced to solve the problem, as it helped with the sustainability of small businesses through appropriate mentorship and guidance after money was given to beneficiaries. The DSBD sought to augment SEFA’s cash flow with some of its unused funds. Small businesses could contribute massively to a nation’s economy, and the DSBD aimed to improve the product quality of small businesses and provide a thriving market for such products. SEFA sought to create 490 000 jobs through the development of small businesses in the medium term expenditure framework (MTEF) period from 480 000 small businesses. The DSBD found this unacceptable, and had targeted 10 jobs for every funded small business.

She urged the Committee to ensure that the Department, SEFA and SEDA — as well as other related entities — worked as an integrated unit to achieve set goals.

Presentation of the Annual Performance Plan

Mr Lindokuhle Mkhumane, Acting Director General (ADG), DSBD, presented the Department’s Annual Performance Plan (APP). The main outline of his presentation included the strategic overview and programme plans of the Department. The strategic goals of the DSBD included policy and planning coherence in the sector; equitable access to responsive and targeted products and services; sound governance and optimal utilisation of available resources; an enhanced contribution to socio-economic development outcomes by the sector; and a professional and coordinated small business development sector.

He said the organisational values of the DSBD were hinged on innovation, integrity, professionalism, customer-centeredness and commitment. It sought to work with relevant persons and entities to achieve its mandate. The nation’s economy was weak in terms of the global economic outlook. He also lamented the lack of access to markets by small businesses.

The DSBD addressed the needs of the SMMEs and cooperatives through blended finance and the expansion of market access initiatives. It also aimed to strengthen collaboration and coordination among all stakeholders and sector role players.

The DSBD had four programmes. These were Programme 1 (Administration); Programme 2 (Section Policy and Research); Programme 3 (Integrated Cooperative Development); and Programme 4 (Enterprise Development and Entrepreneurship).

The Department sought to reorganise in order to appropriately respond to the needs of SMMEs and cooperatives based on available resources. It also aimed to take a thematic approach in terms of service delivery, to prioritise the needs of small businesses.

The DSBD operational model focuses on four key areas. First, it addresses key aspects of finance, including the financial sustainability of SMMEs and cooperatives; risk cover and business rescues, which help to salvage both thriving and struggling businesses; model funding agreements that ensure optimal benefit to beneficiaries; an SMME contracting model that ensures big businesses do not take unnecessary advantage of small businesses; and SMME payment, which ensures timeous payment of benefits to small businesses and funding facilities, which was the core function of SEFA.

Secondly, enterprise development ensures the formulation of a master plan, which the Department previously lacked. It also seeks to develop economic opportunities in townships, villages and other areas. It facilitates cooperative and SMME support. Further, it supports business facilitation (incubation) and informal business.

Thirdly, the DSBD would synthesis useful information from currently and previously funded research. This enhances business communications as well as seamless access and support, which leads to a conducive environment for the growth of small businesses. The Department would ensure an updated register for both SMMEs and cooperatives to keep track of the impact of DSBD interventions.

Lastly, the DSBD seeks to ensure adequate and thriving markets for products from small businesses. This would be achieved by incorporating small businesses into market value chains and government procurement. The DSBD encourages business matching, which facilitates cooperation between big and small businesses.

The Department was guided by legislative and regulatory requirements, including Chapter 5, Section 92 and Chapter 10, Section 195 of Act 108 of 1996, Chapter 4 of Public Finance Management Act (PFMA) (1999), Chapters 5, 6 and 30 of Treasury regulations as well as Chapter 1, Part 3B of the Public Service Regulations. The Department aims to support radical economic transformation through the development of sustainable and competitive entrepreneurs, small businesses and cooperatives that contribute to job creation and economic growth. This would be achieved through coordination, integration and mobilisation of resources and efforts towards the creation of an enabling environment for the growth and sustainability of small businesses and cooperatives.

The strategic goals of the Department include policy and planning coherence in the sector that promotes an enabling ecosystem for SMMEs and co-operatives; equitable access to responsive and targeted products and services that enable the growth and development of SMMEs and co-operatives; sound governance and the optimal utilisation of available resources; enhanced contribution to socio-economic development outcomes by the sector; and achievement of a professional and capacitated small business sector. The DSBD focuses on innovation, integrity, professionalism, customer satisfaction and commitment to service delivery.

Mr Mkhumane said the Department sought to refine the operating model and organisation structure to cope with the challenges and targets of the Sixth Administration. The organisational structure would be enhanced through streamlining of processes and effective support in service delivery, as well as bridging gaps in critical areas such as development finance and statistical analysis. Its programmes included administration, sector policy and research, integrated co-operative development, and enterprise development and entrepreneurship.

The DSBD operational model was hinged on four core areas — enterprise development, finance, information management and creation of viable markets for the products of SMMEs and co-operatives. The Department had a workforce of 209 employees, with 100 in the administration programme, 22 in sector policy and research, 40 in integrated co-operative development, and 47 in enterprise development and entrepreneurship. The budget allocated for the compensation of employees was R141 million, R152 million, R163 million and R174 million in the financial years 2018/ 19, 2019/ 20, 2020/ 21 and 2021/ 22, respectively.

The DSBD was reviewing the integrated strategy on the promotion of small businesses and entrepreneurship. This allowed the strategy to properly address current challenges and realities. The Department would evaluate the co-operative strategy (2012-2022) and improve on the implementation plan. This would enhance the development of an integrated approach to co-operative development.

The Department had a budget of R8.15 billion over the MTEF period. Specifically, R2.57 billion was allocated to the Department for the 2019/ 20 financial year. Most of the allocation would go toward economic development. For the 2019/ 20 financial year, SEFA, SEDA and the Department got transfers of R1 billion, R870 million and R460 million, respectively.

The Department had mechanisms to monitor public entities. The Minister signs shareholder compacts with the chairpersons of boards. These compacts are monitored quarterly through quarterly reports, quarterly governance forums between the DG and chief executive officers (CEOs); and between the Minister and chairpersons of boards. Entities also present annual reports at the end of the financial year. The Department had public-private partnerships (PPPs) with SA Breweries (SAB) and Nestle, both of which facilitate market access and offtake agreements for SMMEs and co-operatives.

SEDA and SEFA report to the Department through governance arrangements. SEDA provides non-financial business development and support services for small businesses in collaboration with other role players. SEFA supports the development of sustainable SMMEs through the provision of finance.

Discussion

Mr H Kruger (DA) said that an identity crisis constituted a major challenge for small businesses in South Africa. There were numerous definitions of small businesses in various sectors. The Small Business Act should help to solve this challenge. He commented that the retail sector sometimes engaged in activities that were detrimental to the development of small businesses in the country. Various governmental departments and entities should collaborate with the DSBD to drive the development and growth of small businesses in the nation. He lamented the bullying of small businesses by big businesses. Over five small businesses closed down every day due to unfavourable conditions and the environment created by big businesses. The government, on its part, should drive the development of small businesses to alleviate the suffering of the poor. He commended the readiness of the DSBD to drive the development of small businesses in rural areas. The DSBD should ensure that the Department of Rural Development implemented its mandate in this regard.

Ms K Tlhomelang (EFF) said the DSBD should prioritise informal businesses. The businesses should be given a conducive environment to thrive and must be protected from unfavourable conditions imposed by big businesses. She sought clarity on the monitoring and evaluation roles of the DSBD. She suggested that the DSBD should integrate both SEDA and SEFA to solve the logistics challenge faced by aspiring and existing small business owners.

Mr H April (ANC) sought clarity on the finalisation of the organisational structure of the DSBD. He requested the DSBD to provide an update on the status of SEFA. To what extent had the DSBD addressed the findings of the Auditor General’s forensic report? Were there measures in place to ensure that small businesses benefited from the R100 billion infrastructure fund. He urged the DSBD to ensure that all government departments were actively involved in the development of small businesses.

Ms M Lubengo (ANC) sought clarity on the sectors prioritised by the DSBD. She said it was not enough for the DSBD to indicate the amount of funds allocated to the development of small businesses. It should state the number of targeted beneficiaries.

Mr F Jacobs (ANC) asked about the yardstick for classifying small businesses, which should be adequately defined to avoid confusion. A conducive environment and legislation must be in place to drive business development by entrepreneurial individuals. Small businesses should be properly funded and there should be measures to ensure the funds were properly utilised. Various government departments should learn from other countries — especially Singapore, Malaysia and so on — where small businesses drive economic growth. He encouraged the DSBD to mainstream small businesses across all sectors of the economy. He suggested that the DSBD should find means to nationalise the by-laws that hinder small businesses. Further, the DSBD should provide a register of the collaboration between big businesses and small businesses.

Mr T Langa (EFF) suggested that the Committee should be briefed on what had happened in the previous Parliament. This would allow new MPs to make informed decisions and better interact with the DSBD and its entities.

Mr April sought clarity on the product markets the DSBD aimed to develop over the MTEF period. What were the funding, regulatory and monitoring models? What were the targeted economic sectors? Did the DSBD conduct feasibility study before funding businesses? Was the creation of four product markets per year sufficient for the support of small businesses? He noted that the DSBD had introduced the Enterprise Incubation Programme in the 2016/ 17 financial year, but only 55% of the beneficiaries had succeeded in the 2017/ 18 financial year — what had happened to the 45% of beneficiaries that did not thrive? What was the DSBD doing to assist struggling businesses? He urged the Department to harmonise its report in order to avoid confusion.

Mr Kruger proposed that the Committee pay an oversight visit to some of the product markets funded by the DSBD, commenting that the success of the product markets was not commensurate with the invested funds.

Ms Tlhomelang asked for details of the amount of funds the DSBD gives to co-operatives and the sectors that were targeted for development. She requested the Department to give a list of provinces that had benefited from the programme in the past, and those that would benefit from the programme in the present and in future.

Mr Z Mbhele (DA) said that the DSBD and other government departments should be a facilitator of the pool of resources to ensure the success of small businesses. The DSBD should play an active role in opening small businesses to opportunities with big businesses through effective linkage partnerships. This would help to conserve some of the DSBD’s funds, while achieving small business development at the same time.

DSBD’s response

Mr Mkhumane said that in the area of intergovernmental relations, the DSBD was working to harmonise the operational structure in terms of the development of small businesses in all the provinces. The agricultural sector played a vital role in DSBD programmes because it provided numerous opportunities for small business owners to thrive. The Department also partnered with big and small businesses to ensure mutual benefits of both categories of businesses. The Department had also established the Office of the Ombudsman that helped to resolve disputes between small and big businesses. This prevented bullying of small businesses. Most municipalities did not have the capacity to handle the challenges faced by small businesses. The DSBD had formulated interventions that would address these challenges. R100 million had been allocated to fund cooperatives and small businesses. The DSBD prioritised cooperatives and small businesses that could deliver results.

The DSBD had a number of interventions that promoted linkage partnerships between big and small businesses. It also sought to have an updated database of small businesses, which would allow big companies and government entities to identify small businesses that were relevant to their operations.

In response to the concern about corruption in SEFA, he said that the indicted cooperatives and corrupt SEFA officials were being decisively dealt with.

To update new Members of the previous administration’s activities, the DSBD was in the process of finalising the 2018/19 Annual Report, which would address the findings of the Auditor General (AG). The report would also address targets achieved and those that were not achieved by the DSBD during the previous financial year.

Regarding the number of product markets, the current target was to have four per annum over the MTEF period. The DSBD would create more product markets if additional funding was available. There should be at least one product market in each municipality.

Ms Rosemary Capa, Deputy Minister: DSBD, urged the Committee to go through its Legacy Report and other relevant documents to get to know the achievements and outstanding matters of the Fifth Parliament. She deplored the lack of cooperation and integration that existed among various government departments and entities. Sometimes, certain departments ignored corporate principles when handling matters related to the development of small businesses. This challenge was being addressed by the President and other high-ranking government officials.

She commented that planning of small business development would be more integrated at a cluster level. This would bring transparency into the bidding process, which would prevent big entities from taking advantage of small and uninformed businesses. Matters relating to disciplinary actions taken by the DSBD against corrupt persons had been properly addressed in the Legacy Report. The DSBD was ready to inform the Committee on matters of concern that arose from the Legacy Report.

Minister Ntshavheni said the DSBD takes proactive measures to define SMMEs in the South African context to the Cabinet. This leads to proper identification of small businesses and removes the current identity crisis that currently plagues the sector. This makes the private sector and other stakeholders deal with small businesses. The DSBD also seeks to develop the database of small businesses in terms of geographic location, sector, size of employees and level of support received from the government. The Department had appropriate interventions to improve the product quality of SMMEs.

She stressed the importance of cooperation and integration among all governmental departments and entities, as well as the Portfolio Committees. This ensured that interventions from all stakeholders were coordinated to achieve optimal outcomes. All unnecessary by-laws, regulations and policies should be removed to encourage the initiation and growth of small businesses. The DSBD worked towards the co-location of SEDA, SEFA and relevant entities to reduce the problems faced by aspiring and existing small business owners. It was important that both cooperatives and SMMEs registered on the same platform to facilitate coordination and effectiveness.

In response to the question on product markets, the Minister said that the DSBD’s work was based on the priorities of the Sixth Administration, which included the automotive manufacturing and agricultural sectors, amongst others. She lauded the existence of effective product markets among certain Indian and Jewish communities. The DSBD could leverage on some of the existing models to link the SMMEs and cooperatives to the private sector and other role players. The DSBD was currently working on the funding and regulatory models, which it would give to the Committee when completed.

She observed that SEDA, the private sector and the DSBD were actively involved in the incubation process. Specific attention was being given to small businesses in townships and rural areas where interventions were mostly needed. However, there were unscrupulous cooperatives that took advantage of the system to suffocate genuine cooperatives.

The DSBD sought to transform cooperatives into fully-fledged businesses that provide quality and sustainable jobs. This would be achieved through post-funding care to cooperatives. She said that economic development in Germany, Spain, Thailand, Taiwan, and Singapore was driven by SMMEs. In most cases, small SMMEs employed ten to 15 workers, while big ones employed 25 to 50 workers. The Sixth Administration sought to create two million jobs in the next ten years, and SMMEs would play a vital role in this regard.

The Chairperson commended the presentation of the Minister. She urged the DSBD to ensure inter-governmental interaction among all departments and entities. The DSBD must utilize its limited resources effectively to make a positive difference to the lives of South Africans, especially those in townships and rural areas.

 

SEDA’s Annual Performance Plan: Presentation

Mr Mbulelo Sogoni, Chairperson: SEDA, said the entity’s board had been constituted at the end of March 2019. The mandate of SEDA was to facilitate the development of small businesses through non-financial interventions. On the other hand, SEFA handled financial aspects of the development programme. The overall goal was to create viable businesses that ensured quality and sustainable jobs.

SEDA played vital roles in the development of business plans that eventually linked small businesses to finance and markets. It had the mandate to provide leadership in the incubation process and coordinated entrepreneurship interventions within government. Efforts were geared towards integrating the operations of SEDA and SEFA to alleviate some of the challenges small businesses faced. In collaboration with the Department and other role-players, it aimed to establish a database for SMMEs and cooperatives in terms of sector, geographic location and turnover. This would facilitate easy identification of businesses by stakeholders within and outside South Africa.

Ms Mandisa Tshikwatamba, CEO: SEDA, said the organisation aimed to position itself as the lead Incubator in government. Effective coordination was envisaged in the entire entrepreneurship ecosystem. It also aimed to support SMMEs and co-operatives to innovate and to improve their turnover and capacity to create jobs. The entity implements the policy of the national government for small enterprise development. It designs and implements a standard national delivery network that must apply uniformly throughout the Republic in respect of small enterprise development. It also designs and implements small enterprise development support programmes to assist informal to medium-sized businesses.

SEDA engages in coordination, interventions and research support that facilitates the establishment of SMMEs and co-operatives that create viable and sustainable jobs. SEDA’s focus areas include the promotion of entrepreneurship, customised and generic non-financial business support services, collaboration with other role-players as an ecosystem facilitator, and the establishment of sustainable and competitive enterprises. Across all the nine provinces, SEDA has 52 branches, 74 co-locations, nine mobile units and 76 incubators. The Western Cape Province had the highest presence of SEDA’s offices because it had more service points for small businesses in the apartheid era, and a number of government offices have been incorporated into SEDA post-1994. SEDA could track the activities and locations of various SMMEs in different provinces through the use of ageo-map.

SEDA provides mainly internal training. It sometimes provides external training to partners and government departments. It develops mechanisms to ensure appropriate training and transformation of entrepreneurs. It aims to achieve an improvement in the support for SMMEs and co-operatives based in rural areas and townships, as wells as to support SMMEs and co-operatives owned by women, youths and people with disabilities. It was important to formalise businesses for supported SMMEs and co-operatives. This helps to develop economies in both the rural areas and the townships across all the districts and municipalities.

The projected number of learners participating in entrepreneurship in schools was 10 000, 12 000 and 15 000 for the 2018/ 19, 2019/ 20 and 2020/ 21 financial years, respectively. SEDA partners with other entities to augment its budget in order to properly implement its mandate. It had a total budget of R938.8 million for the 2019/ 20 financial year. The entity receives R641 million from the National Treasury. The MTEF budget allocation had been reduced by R123 million (5%) from the 2018/ 19 to 2020/ 21 financial years.

SEFA’s Corporate Plan: Presentation

Mr Setlakalane Molepo, Acting CEO: SEFA, informed the Committee that SEFA was the only subsidiary owned by the Industrial Development Corporation (IDC), but its executive management was the Development Bank of Southern Africa (DSBD).

SEFA had been incorporated on April 1, 2012 under Section 3(d) of the Industrial Development Act as a development financial institution with a mandate to provide financial support to SMMEs and co-operatives. SEFA targeted high-risk market segments that were not traditionally served by commercial banks. It addresses market failure through the provision of direct and indirect loans. It had disbursed funds close to R7 billion to 359 572 SMMEs and co-operatives since its inception till 2019, and had supported 401 160 job opportunities.

The entity sought to achieve, in the 2019/ 20 financial year, a balance between the delivery of its mandate, financial sustainability and the medium term strategic priorities of the Sixth Administration. The policies and legislation that guide SEFA’s operations include the National Strategy on the Development and Promotion of Small Business in South Africa (1995), the Co-operative Development Policy (2004) and the National Small Business Act (1996; revised 2004). The products offered by SEFA include direct loans (from R50 000 to R5 million), wholesale loans and equity (R500 to R5 million), business support, credit guarantees (up to R5 million) and rental property.

Targeted ownership groups include SMMEs and co-operatives that were unserved by commercial lenders. These groups include women, black people, youth, enterprises based in townships and rural areas, as well as businesses owned by people with disabilities. The sectors of interest include services, manufacturing, agriculture, construction, mining and green industries. SEFA had around 82 access points throughout South Africa. It co-locates with other role players like SEDA and the IDC to provide seamless services to beneficiaries.

SEFA aims to scale up the development impact among SMMEs and co-operatives using innovation and leverage, while at the same time contributing to the sustainability of funded clients. It was important to introduce targeted lending programmes for groups specifically identified in the June 2019 State of the Nation Address (SONA). SEFA would scale up and deepen post-investment support by reducing impairments, improving collections and client sustainability. It would reposition the Direct Lending Programme and dispose of its property portfolio. It would reduce operating costs, improve efficiencies and build skills and capabilities.

It was vital to develop agile businesses and management information systems for decision-making and improve customer interaction. SEFA would deepen collaboration, especially with SEDA, by providing seamless online services to SMMEs and co-operatives.

Mr Molepo said that the challenges the entity faced arose from legacy issues resulting from the merger of two pre-existing entities to form SEFA. Other challenges included the high cost of lending; high impairments resulting from the deterioration of loan books; non-integrated product design, offering, accessibility and processes; low uptake of the Credit Indemnity Scheme; and socio-economic responsibility that created a cost structure that required subsidisation.

SEFA planned to implement its corporate plan through six programmes, which include access to finance for SMMEs and co-operatives, post-investment monitoring, effectiveness and efficiency in processes, a strong and effective brand that emphasises accessibility to funding, compliance, governance and enterprise risk management, and property management. The loan approvals to SMMEs and co-operatives financed for the MTEF period and the five-year period were R2.75 billion and R4.82 billion, respectively. The number of SMMEs and co-operatives financed for the MTEF period and five-year period was 280 300 and 480 861, while the number of jobs facilitated were 285 946 and 490 019, respectively. The total disbursements to target groups for the MTEF period and five-year period was R2.80 billion and R4.79 billion, respectively.

Mr Molepo said SEFA would leverage on European Union (EU) funding to develop risk sharing mechanisms to support informal businesses and the micro-finance sector. The EU had given a €38 million facility to SEFA. Funding to SMMEs would be channelled through two funds — the Enterprise and Supplier Development (ESD) Fund (€10 million) and the Innovation Fund (€20 million) through various funding windows. SEFA would partner with financial intermediates through the Small Business Innovation Fund (SBIF) to fund 100 000 entrepreneurs over four years. Funding would be targeted towards youth-owned enterprises that create and sustain at least ten jobs each. The February 2019 Appropriation Bill had established and allocated R3.2 billion over the MTEF period to SEFA as the implementer of the SBIF.

Ownership disputes and tenant associations that did not pay caused significant losses to the cash flow of SEFA. The former DSBD Minister had suggested that SEFA should sell non-performing properties to tenants, who would then decide what to do with the properties. SEFA developed measures to recover loans from beneficiaries to maintain a healthy loan portfolio. The IDC had given a R962 million loan to SEFA at inception, and SEFA was taking proactive steps to convert the loan to a shareholder fund, instead of a retailer fund. SEFA also got R240 million funding from the government for the MTEF, and the fund would flow through the IDC. SEFA always tried to cross-subsidise its operational expenses through interest charged on loans and money from the government.

Discussion

Ms Tlhomelang asked how SEDA and SEFA would recover money illegally paid to their board members. She urged them to make their structures user-friendly, especially for those with disabilities. What were measures being taken by SEFA and SEDA to tackle the consistent challenges with the property portfolio.

Mr V Zungula (ATM) asked if there was a timetable for the upscaling and training of existing entrepreneurs. They should receive appropriate training that ensured the sustainability of the businesses. SEDA and SEFA should create favourable markets for the SMMEs through the removal of unnecessary legislation.

Prof C Msimang (IFP) commended the establishment of SEFA and SEDA. He wanted to know if SEFA’s loans were backed by securities. How did it recover funds from financed businesses? He commended the resolve of the DSBD to create favourable markets for SMMEs and co-operatives. How did it deal with big companies that bullied small businesses?

Mr April said that new Members should be briefed on the Legacy Report of the Committee, commenting that the Legacy Report and the presentation of the Department was not a true reflection of reality. He asked if SEDA had penalised any of its accused intermediary lenders, observing that a number of intermediary lenders had stolen an enormous amount of taxpayers’ money. What was SEFA doing to discipline its former CEO? What was SEFA doing to implement instructions from the National Treasury about competitive bidding and procurement?

An ANC Member asked how SEFA and SEDA intended to make their presence known in townships and rural areas.

Mr Jacobs wanted to know how SEDA implemented its training programme. What were the problems with the property portfolio?

Mr April asked which entities SEDA co-located with. Were SEDA’s incubators functional? How many SMMEs were linked to each of the 76 incubators, and how many jobs were created by the SMMEs? He said that the Northern Cape was largely neglected in respect of small businesses. The province had a massive land mass, yet it was economically poor.

Mr Kruger asked the DSBD to share the report of the AG on corruption in the Department with the Committee.

Mr Langa said the Committee should familiarise new Members with the Legacy Report. This would allow new Members to identify the shortfalls of the Fifth Administration and make appropriate adjustments in the Sixth Parliament. He urged SEFA to be prudent in the disbursement and utilisation of taxpayers’ money.

Mr April sought clarity on how SEFA monitored the activities of its intermediary lenders. He asserted that most of the intermediaries extorted exorbitant interest from poor people, and urged SEFA to lend money directly to beneficiaries.

DSBD response

Deputy Minister Capa said that the corruption charges and challenges Members had highlighted were linked to the 2018/ 19 financial year. She suggested that the Committee convey a meeting to consider the Legacy Reports and quarterly reports. These would reveal the shortcomings of the Fifth Administration and the steps the Department had taken to resolve identified problems. She said that the current report dealt with Annual Performance Plan (APP).

The Chairperson urged Members to focus on the agenda of the meeting, which was to consider the APP of the DSBD for the 2019/ 20 financial year, and to make appropriate inputs. She urged Members to support the incoming Minister and Deputy Minister to achieve the set goals. The Committee would consider relevant reports and possibly interrogate the Department on areas of concern.

Ms Tshikwatamba, responding to the question on the user-friendliness of SEDA and SEFA’s centres, said that SEDA was in the process of standardising its structures. SEDA collaborated with landlords to organise its programme, and did not renew contracts with landlords who did not comply with its conditions, especially regarding structure. SEDA encountered numerous challenges in its programmes. Some beneficiaries abandoned SEDA’s network after mastering SEDA’s tools. Some trainees left the programme and patronised entities that guaranteed quick access to cash.

SEDA encouraged big companies to patronise small businesses. It helped to boost the quality of products offered by small businesses. It incorporates small businesses into big businesses in some of its incubation programmes and collaborates with stakeholders in townships and rural areas to implement its programmes. She agreed that SEDA had a lot to accomplish in the Northern Cape. The problems in the province were infrastructural challenges and low economic activity.

Mr Molepo, responding to Prof Msimang’s question on loan security, said that SEFA’s loans did not require securities. It had a post-investment department and regional offices that monitored financed businesses and ensured the recovery of funds. The Department had encouraged SEFA to incorporate Technical and Vocational Education and Training (TVET) college graduates into its programmes.

SEFA collaborated with government to enforce policies that prevented big businesses from bullying small businesses. Government could also leverage on the issuance of licences to influence big businesses to patronise small businesses.

SEFA would try to get its intermediary lenders to lend funds to small businesses at appropriate interest rates. Intermediary lenders pool funds from different sources, which eventually informed the interest they charged. SEFA collaborates with role players to reduce the cost of capital and optimise the return on investment for beneficiaries.

Mr Sogoni said that SEDA’s programmes lasted for an average of three years. It could sometimes take five years to ensure that beneficiaries had what it takes to access funds and run sustainable businesses.

Minister Ntshavheni said that SEFA and SEDA would make their presence more conspicuous in townships and rural areas through the location of their offices in easily accesible areas. The DSBD was taking proactive measures to solve the problem SEFA had with the property portfolio. She urged the Committee to assist the DSBD in finding a solution to the challenges.

In response to Mr April’s concern on intermediary lending, the Minister said that SEFA sometimes disbursed funds to these entities to avoid the policy barriers that inhibit the access of small businesses to funding. The DSBD sought to review the Public Finance Management Act (PFMA) to alleviate the plight of existing and potential entrepreneurs. She urged the Committee to support the DSBD in this regard.

She acknowledged the disparities between the Legacy Reports and the quarterly meetings, and what entrepreneurs actually experience. The DSBD would take the necessary steps to ensure the integrity of its reports. The Committee should effectively perform its oversight function to hold the DSBD accountable.

Discussion

The Chairperson appreciated the disposition of the DSBD towards the Committee. It would maintain a friendly attitude towards the Department, but would perform its oversight function meticulously. The Committee would convene a meeting to discuss all the relevant reports and address all identified gaps. The budget allocation presented a challenge to the Department, but the Committee could influence the National Treasury for augmentation.

The Minister said that the DSBD had mechanisms to augment its budget and would try to act within the allocated funds for the 2019/ 20 financial year. The Department had contacted the IDC on the financial predicament of SEFA. The IDC had promised to provide funds to SEFA, provided the DSBD met certain conditions. The DSBD would consult with the Committee at the end of the 2019/ 20 financial year to approach the National Treasury on a possible upward review of the Department’s budget for the 2019/ 20 financial year.

Ms Capa commented that there were Cabinet engagements every Wednesday, which may affect the representation of the DSBD at Committee meetings. She sought familiarity with Committee Members, irrespective of political affiliations.

The Committee’s programme was presented and adopted.

The Chairperson thanked the DSBD and its entities for their presentations.

The meeting was adjourned.

https://pmg.org.za/committee-meeting/28475/

Een gedagte oor “Small Business Development – B-BBEE and support”

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