Policy for small enterprises & National Small Business Advisory Council: Department's briefing

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Trade and Industry

08 September 2009
Chairperson: Ms J Fubbs (ANC)
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Meeting Summary

The Committee received a presentation by the Enterprise Development Unit of the Department: Trade and Industry about policy on Small, Medium and Micro Enterprises (SMMEs) and the National Small Business Advisory Council. The presentation set out the history of policy on small enterprises from the White Paper in 1995 to the current Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises, which aimed to bring agencies together and reduce fragmentation. The presentation also covered the ways in which government could help small enterprises, by increasing supply of support services, creating demand for products and reducing the regulatory burden.

The Department’s presentation also covered the background and work of the National Small Business Advisory Council, established by the Small Business Act, 2003. The Council was an independent body of experts that aimed to represent and promote the interests of small businesses, by providing advice to the Minister on any issues affecting small enterprises. In particular it provided advice on how to deal with market failures, the impact of legislation and ways to improve infrastructure. The Council’s term had ended in July 2009 and a report had been submitted to the Department with recommendations. The process of appointing a new Council was underway.

Members asked questions about the need for a small business bank, the lack of focus on skills and knowledge in the Department’s presentation, the involvement of tertiary institutions in supporting small businesses and the role of the South African Bureau of Standards. They also asked questions about the National Small Business Advisory Council. They asked in depth about the Council’s outputs, outcomes, budget and degree of independence. They also asked about the Council’s community outreach, the links to Local Economic Development and the impact on cooperatives. The Committee had extremely serious concerns about the role that the Council had played, feeling that it had been ineffective, unsatisfactory and had produced no useful output whilst using a budget of R10 million over three years. The Committee agreed to look closely at the Council’s report and the original legislation and would set out a position on what organisation they believed should be in place and how it should be operating.

Meeting report

Small Medium and Micro Enterprise (SMME) policy and the National Small Business Advisory Council (NSBAC or the Council): Department of Trade and Industry (dti) briefing
Mr Mojalefa Mohoto, Acting Chief Director: Enterprise Development Unit, Department of Trade and Industry, gave a presentation to the Committee covering the policy on small, medium and micro enterprises (SMME) and the background and work of the National Small Business Advisory Council (NSBAC, or the Council). He apologised for the absence of Mr Sipho Zikode, due to other commitments.

Mr Mohoto began by outlining the purpose of the Department of Trade and Industry (dti or the Department) Empowerment and Enterprise Development Division, which aimed to promote broader participation, equity and redress in the economy. Within this division was the Enterprise Development Unit, responsible for creating an enabling environment conducive to development and growth of SMMEs and cooperative enterprises.  He gave some history of SMME policy within South Africa. This included the White Paper on the Development and Promotion of SMMEs in 1995. The National Small Business Act of 1996 had established Ntsika Enterprise, Khula Enterprise Finance, the National Small Business Advisory Council (NSBAC) and the National Manufacturing Advisory Centres. There had been a mid-term review in 2000, and a ten-year review in 2004. The Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises emerged from this, and aimed to bring agencies and programmes together and reduce fragmentation.

Mr Mohoto described the current SMME strategy as encompassing three pillars. It aimed to increase supply of financial and non-financial services, create demand for small enterprises’ products and reduce small enterprises’ regulatory constraints. Other priority areas for small enterprises were to create a culture of entrepreneurship and to improve the survival rate of small enterprises. Currently three out of every five businesses did not survive, which was a much higher rate of failure than in other similar countries. The policy also sought to improve competitiveness and access to markets, finance and information for small enterprises.

Mr Mohoto presented a table that described the characteristics, numbers and support required by medium, small, micro and survivalist enterprises. He highlighted that the medium sized enterprises needed equity finance of R250 000 or more. Banks were not willing to provide this finance. Since South Africa also had very few venture capitalists, Government needed to fill this gap. He also pointed out that survivalist enterprises existed through necessity, but that there were opportunities for these to grow into small or medium sized firms.

He went on to describe the strategic objectives of enterprise development, and outlined some statistics on SMMEs in the economy. Between 2004 and 2007 there were almost 40 000 new formally-registered enterprises every year. The contribution of small enterprises to Gross Domestic Product (GDP) was 40%, which was low in comparison to, for example, India and South Korea. He pointed out that the fastest growing economies were driven by SMMEs. He also mentioned that the recession had hit domestic expenditure and had therefore had a negative impact on small enterprises. He set out some common challenges faced by SMMEs, such as access to markets, services, finance and information, compliance with legislation and lack of infrastructure.

Mr Mohoto then described the NSBAC, which was established in the Small Business Act, 2003, to represent and promote the interests of small business and provide advice to the Minister. The Minister appointed the members of the NSBAC and determined the constitution of the Council. The Council was made up of experts in the field of small business, including analysts and those with experience on the ground. The Council advised the Minister on any number of issues, key amongst them being strategies to address market failures, determined as a result of analysis, the impact of legislation on small businesses and measures to develop infrastructure. He emphasised the independence and autonomy of the NSBAC and noted that the dti managed the budget of the Council. He stated that it was crucial for the Council to be regarded as an objective advisory body.

Finally, Mr Mohoto described the work of the NSBAC. The previous Council had finished its term in July 2009 and a new Council was yet to be appointed. He said that, since there were no guidelines at the outset, much time was taken up by establishing the Council and its constitution and putting systems and operations in place. The Council also spent a great part of its work benchmarking, consulting and interacting with stakeholders. The outgoing Council had provided a report to the dti containing recommendations. These included measuring the value of small business summits, increasing the independence of the NSBAC, and increased cooperation to deal with the emergence of many small business organisations. The Council also pointed out that small businesses needed further relief from government, for example in terms of value added tax (VAT), income tax, grants and procurement procedures.

Mr S Marais (DA) enquired about the small business bank and what its purpose would be. He commented that there were already many institutions within dti to provide financial services and another structure would just increase costs.

Mr Mohoto replied that the small business bank was a suggestion by the Council, and had been considered previously within the dti. It would involve integrating all the different pockets of funding that currently existed into one funding source. Small business banks were common in other countries and the idea was one that demanded thorough investigation.

Mr Marais asked about the definition of a small business. He thought that the different definitions within dti, including preferential procurement rules and broad-based black economic empowerment (BBBEE), should be better aligned.

Mr Mohoto replied that there would be a review of definitions, including that of ‘small business’. Part of the issue was that definitions become outdated over time. This review would feed into other reviews and legislation, for example on preferential procurement.

Mr Marais expressed huge concern that the three pillars shown in the presentation had not explicitly recognised improving skills and knowledge, especially financial management skills, as a strategic objective. He commented that money would be wasted unless these skills were in place. He felt that the lack of skills should also be included in the list of major challenges facing SMMEs.

Mr Mohoto recognised that skills and knowledge were not specifically outlined as one of the three pillars, but said that they were embedded in the non-financial support component. Improving human capacity was a very strong element of policy and was managed by the Small Enterprise Development Agency (SEDA). A SEDA college was launched a month ago in Pretoria. This would improve business service development skills of officials in the SEDA offices.

Mr A Williams (ANC) asked if this college dealt with cooperatives as well as small businesses.

Mr Mohoto replied that it did, and that SEDA had a unit that managed cooperatives.

Mr X Mabaso (ANC) asked if it was possible to involve business studies students at universities and technikons as support mechanisms for small businesses.

Mr Mohoto said that there was a good relationship with tertiary institutions. Centres of entrepreneurship had been set up with funding from dti at the Universities of Johannesburg, Witwatersrand and Fort Hare and at the Tshwane University of Technology.

Mr Mabaso asked about the South African Bureau of Standards (SABS) and how it had been utilised as a tool for small enterprises.

Mr Mohoto said that the competitiveness of small enterprises needed to improve in order to take advantage of global markets. Interaction with bi-lateral and multi-lateral institutions produced opportunities for small businesses. He said that SABS had a strong component of enterprise development, as it provided standards for the products of small businesses and advice on these standards.

Mr Mabaso asked what the Committee could contribute to the work of the Council, and the strategy on SMMEs.

Mr Mohoto replied that the questions and advice from the Committee enhanced and directed the work of the Department. He felt that it was very important to work closely with the Committee at all times.

Mr Z Ntuli (ANC) expressed concern that tangible benefits on the ground were difficult to find. He asked what the community outreach programmes were for the Council and how these were advertised, since he had seen no evidence of them.

Mr Mohoto replied that the Council had carried out stakeholder consultation in nearly all the provinces. This involved meeting stakeholders, in particular small businesses, to establish and analyse what was happening on the ground. He added that community outreach was not done by the Council but by other organisations, such as Khula and SEDA. The Department’s programme of ‘taking dti to the people’ involved reaching the most remote areas of the country.

Mr Ntuli mentioned Local Economic Development (LED) at municipality level, but said that he could not find the link with the NSBAC. He requested clarification on this.

Mr Mohoto responded that LED in municipalities was much broader than just focussing on small businesses, although enterprise development was a component of LED. The Provincial Coordination Committee was the forum used by the dti to find out what was happening on the ground in the provinces.

Mr Ntuli asked when the new Council would be appointed.

Mr Mohoto informed the Committee that the process was under way with a target date of November 2009. The actual date was not yet known as NSBAC appointments required Ministerial sign-off.

Mr A Van Der Westhuizen (DA) asked why, if the Council members were experts on matters of small businesses, they needed to consult around the country.

Mr Mohoto replied that the members of the Council had to seek second opinions. He pointed out the difference between a ‘top-down’ approach and the ‘bottom-up’ approach adopted by the Council. The Council members needed to understand the reality of the challenges on the ground.

Mr Mabaso wished to know to what extent an ‘enabling environment’ had been created for cooperatives. He requested five concrete examples of where the Council had intervened with cooperatives successfully.

Mr Mohoto replied that the Council had advised that the kind of infrastructure that SMMEs and small businesses could afford was an important issue. In particular, government buildings that were lying idle should be considered. He pointed out that the Council had interacted with a very wide range of small businesses through their stakeholder engagement. He did not have concrete examples of cooperatives to hand but would send these to the Committee.

Ms P Lebenya (IFP) was very concerned about the supposed independence of the NSBAC. She felt very strongly that a Council chaired by the Minister and that used dti officials as its Secretariat, and that was charged with advising the Minister could not be classed as independent or autonomous.

Mr Mohoto admitted that this anomaly was realised at the very first meeting of the NSBAC. In order to avoid having to amend the legislation, which was a protracted process, a Convenor of the Council was appointed. This Convenor met with the Council, debated with the Council and advised the Minister.

Mr Van Der Westhuizen noted that the outgoing Council had met at least twelve times. He asked what the budget had been for the NSBAC, and what its impact had been. He asked what benchmarks had been set.

Mr Mahoto replied that the budget was approximately R3,5 million per year. He also said that the impact would not be seen directly from the Council, but through dti action. The Council produced analyses, and advised the Minister. When the Minister actioned this advice through dti policies, it translated into impact. He gave the example of ‘one-stop shops’ in the provinces as an instance of where the Council had an impact. He also mentioned the Council’s recommendation to analyse the impact of small business summits was something that would be done in the future.

Mr Van Der Westhuizen commented that this amounted to R10 million over three years, but he felt that the Council had not achieved much. He felt strongly that the money had not been well spent in helping small businesses.

The Chairperson agreed that this was a serious matter of concern. She wanted to hear about the outputs and outcomes of the NSBAC.

Mr Mohoto replied that the Council had not been able to ‘hit the ground running’. There were no guidelines at the start of the process and the Council had to put many systems in place. He also said that the outputs of the Council were the recommendations, which were then translated into policy by the dti. He commented that the Council did a lot of work on international benchmarking with sister organisations in Brazil and India to see how the work of the dti compared, and to learn from their experiences.

The Chairperson asked what the extra independence requested by the Council would be used for. She was concerned that the Council had been in existence for three years, but that there was no widespread knowledge of their work. She asked why there had been so many other small organisations set up during this period and why the Council had not highlighted the gaps being filled by these organisations, which should have been filled by government.

Mr Mohoto replied that there had been engagement with the provinces, and that SEDA had spread across the country. A number of local organisations had emerged because the provinces felt that national agencies were not meeting all their needs. The NSBAC identified a need to integrate all these agencies and better coordinate the activities. If services were already being provided locally then the aim was to coordinate these services, not to replace them.

The Chairperson commented that independence was not purely a budgetary matter. The fact that the Council budget was controlled by the dti was no excuse for not doing a good job. She also expressed disappointment that the final report of the NSBAC had not been shown to the Committee, and asked that this be circulated. She was extremely unhappy that the Acting Deputy Director General, Mr Zikode, was not able to attend the Committee meeting.

The Chairperson thanked Mr Mohoto for standing in for his superiors. She accepted that the NSBAC was an advisory council and that it was therefore important for the Committee to see the advice produced by the Council in its report. She said that she would be writing to Mr Zikode and the Minister in order to get written answers to the queries of the Committee.

Other Committee members present expressed extremely serious concerns about the NSBAC. They believed that the Council had been ineffective, unsatisfactory and had produced no useful output. They felt that the Committee should get the chance to speak to the Minister and the NSBAC to find out if value for money was being achieved.

The Chairperson agreed with all of these concerns. She believed that the Committee should deliberate on the need for an advisory council. She proposed that Committee members should look at the report of the NSBAC, and the Small Business Act of 2003 to see exactly what the original intentions were. The Committee would then set out to the Department and Minister what it believed should be in place and how it should operate.

The Chairperson also said that the Committee would request that it must be kept informed of all entities in the Department, or linked to the Department, and especially the expiry date of the terms of office. She also felt that the Committee needed to indicate in writing that it was unacceptable to have people not attending Committee meetings without very good reasons, submitted in writing. The Chairperson felt that, overall, the Committee had not at all been well-informed about the activities of the Council and, whilst this was disappointing, she hoped that this would not set a precedent or spoil the good relationship thus far established with the dti.

Future Committee Business
The Chairperson reminded the Committee that it would soon be necessary to interview for the position of the Chairperson of the Lottery Board. She said that it was important that the Committee decided on criteria for a suitable candidate prior to the interview process.

Adoption of Committee Minutes
The Chairperson tabled the minutes of six of the Committee’s previous meetings between 28 May 2009 and 1 July 2009. Members considered each report and adopted them with minor amendments.

The meeting was adjourned.

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