Small Enterprise Development Agency: 2009/10 Annual Report

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Meeting Summary

The Small Enterprise Development Agency (Seda) briefed the Committee on its 2009/10 Annual Report. It had a mandate to assist all those wanting to start their own businesses, and partnered with the financial institution Khula, to try to improve access to finance, although Seda itself offered overall assistance in advice, product development, marketing, technical support and management of finances. It was also to coordinate other small, medium and micro enterprises (SMME) assistance programmes. In the past, despite the importance of small businesses, they had not received enough attention, but Seda was now in a position to deal with impact issues, to promote public-private partnerships and cooperatives. Seda ha changed its focus from increasing the number of participants, to measuring the impact. Some of the year’s highlights were set out, including the integration of the Seda Technology Programme into Seda, increased outreach to rural areas, improvement of services, and improved financial management which had achieved an unqualified audit report with matters of emphasis.

Members questioned whether there was sufficient outreach, commenting that people still seemed unaware of where Seda had offices and what it could offer, while some questioned whether it was correct that Seda should be sharing municipal offices and suggested that it should be approaching tribal authorities. They stressed the importance of communication, enquired where the branches were and how many business advisors were at each. They questioned why Seda had its own learning academy, the cost per student, what was included in the content of courses, and whether it would partner with other learning institutions. Members questioned the figure of 60% of clients assisted, wondered whether they were all serious entrepreneurs, and whether the progress and success of clients was tracked. Members also asked about the investments, the surplus, why there was an overdraft despite savings also being held. Members asked about the feedback from some cooperative programmes, and asked if cooperatives were successful, as some felt that they destroyed entrepreneurial spirit. A breakdown of those assisted was requested, with further details particularly for people with disabilities. Members asked for, but could not obtain details of why a Free State project in Welkom had been suspended, and why there was no funding in North West. They were interested how Seda would reach rural areas, and asked for more details about provincial partners, particularly non-government partners, where projects were located, and where new incubators would be situated, also asking for breakdowns in this regard. They questioned why the Board was so large, felt that it should be reduced, and asked why some members had not attended meetings. Details were sought about the irregular expenditure, and other issues raised by the Auditor-General around non-recoverable debt, and the lack of planned and recorded indicators, which seemed to suggest that some of the statistics presented in the meeting were not accurate. Members suggested that the example of how China dealt with small enterprises was useful, and there should be a national plan for small enterprises and cooperatives in South Africa. The Committee stressed that the use of consultants should be minimised, and that more attention must be paid to getting the performance indicators correct and bringing the fixed asset register, as well as focusing on green programmes.


Meeting report

Small Enterprise Development Agency (Seda): 2009/10 Annual Report briefing
Mr Linda Mngomezulu, Chairperson, Small Enterprise Development Agency, noted that the Agency (Seda) had 42 branches across the country, and its mandate was to assist anyone with ideas on starting their own small business. With the incorporation of the Seda Technology Programme (STP) into Seda, basic incubators had been established to assist with a wide range of businesses in different sectors, from furniture to jewellery. These incubators assisted small, medium and micro enterprises (SMMEs) in developing ideas, and would mentor them until they were established and can stand on their own. He stated that this process had shown “quite a bit of success”.

Seda worked alongside the finance institution Khula, because it was receiving many complaints about the fact that financing was inaccessible to those wanting to start small businesses. Mr Mngomezulu explained that Seda would offer overall assistance, and assist SMMEs with product development, marketing, technical support, and managing their finances. Seda was packaged to be the leading business support service. Seda had a mandate to assist small business and coordinate other SMME assistance programmes across the country. That integration had suffered in the past few years, despite the legislation and organisations being in place.

Mr Mngomezulu quoted the Deputy Minister of Trade and Industry’s statement that small businesses were the backbone of the economy. However, he conceded that they had not received enough attention to support that role. Seda was now prepared to deal with larger issues and was able to assist industries to make an impact. It was now in a position to deal with impact issues as it had a network across the country which was able to prioritise important industries that could benefit the country. One of the difficult areas in Seda concerned the private-public partnerships, but he stated that there had been some successes this year.

Ms Hlonela Lupuwana, Chief Executive Officer, Seda, presented the Annual Report of 2009/10. She explained that over the past year Seda had changed its focus from increasing the number of participants to analysing their impact on small businesses. She emphasised that this was the first year of that strategy, thus many targets shown were baseline targets. Her presentation detailed the performance highlights of the year 2009/10. These included the integration of the Seda Technology Programme (STP) into Seda, an increased outreach to rural areas, and the improvement of Seda’s service.

She explained that for the past two years Seda had achieved an unqualified audit opinion, turning around from the qualified audit given two years ago. There were still some audit findings noted by the Auditor-General, but Seda had managed to reduce these. A financial improvement plan had been implemented after the qualified audit.

Discussion
Mr A Lees (DA, KwaZulu Natal) found it interesting that the presentation had mentioned an outreach programme. He commented that a Seda office had been opened across the street from his office in Ladysmith, but that most people in the area did not know what it was, and even he had had to make enquiries. He stressed that outreach and communication were vital in order for Seda to reach its admirable targets.

Mr Ranjit Alummoottil, Acting Chief Operating Officer, Seda, replied that the branch had most probably moved offices, as it was an existing branch.

Mr Lees asked whether the staff and funding from the STP programme had moved, from the time it was  under the leadership of the Department of Trade and Industry, when that programme also moved to Seda.

Mr Jayesh Ravjee, Acting Executive Manager, Seda Technology Programme, replied that all the staff had transferred to Seda, as also had the budget and funding.

Mr Lees asked how many branches Seda had across the country, noting that it had 167 advisors.

Ms Lupuwana replied that there was a total of 167 advisors, with an average of 4 to 5 business advisors to each branch, and there were 42 branches.

Mr Lees asked why Seda had opted to have its own learning academy, rather than joining up with a technikon or university, and he also enquired about the cost per student to Seda.

Ms Lupuwana replied that she did not have the breakdown on the cost per student with her at the meeting. However, Seda was the one institution that had amassed knowledge on small businesses. Seda was able thus to offer both technical and practical knowledge. Seda did work with universities, but it had determined the content of the courses, based on its experiences in the field.

Mr Alummoottil replied that the business providers required a unique set of tools to assist the clients and the Learning Academy assisted with this process.

Mr Lees appreciated that Seda’s focus was not on numbers. However, he wanted to know more about the quoted success rate of “60% of clients assisted”. He wondered how many of these “clients” were serious entrepreneurs or whether this statistic included people who just made superficial enquiries, or visited once but did not return.

Ms Lupuwana explained that the success rate was based on a pared-down process whereby the ideas, skill and training of clients were tested prior to offering assistance. Thus, of the 112 386 new clients, 60% were then registered to become established clients with Seda.

Mr Lees asked about the R14 million Seda earned in interest. He estimated that Seda had invested R250 million. He wondered why this money was not being used, and whether it was regarded as working capital. He also asked about the investments, and whether they were short term or long term.

Ms Marilize Hogendoorn, Chief Financial Officer, Seda, agreed that Seda had earned a large sum in interest over the year. She explained that the cash reserves were short term cash reserves, which were invested in current accounts. In 2008/09 Seda had accumulated a profit of R108 million in reserves, which the National Treasury gave Seda permission to retain for utilisation in future years. In 2009/10, Seda had a deficit. This indicated that in fact the previous surplus was being utilised.

Mr Lees was curious about the statement that Seda had no plans for new offices, and wondered what it planned to do to expand, and also asked why a new office had then recently been established.

Mr Lees asked about Seda’s partnerships with municipalities. Many municipalities, especially in rural areas, were labouring under substantial difficulties, and some were even dysfunctional. He noted that Seda planned to give them additional responsibility. He emphasised how critical it was to give support for small businesses was, but felt that this would place too much stress on municipalities.


Ms Lupuwana replied that Seda worked with the municipalities. The municipalities received funds for specific programmes, and Seda worked with them to establish small business development programmes if the municipalities did not have the capacity to develop these programmes themselves. The municipalities did not have to give funding or co-location. She asked the Committee members for assistance, particularly in their constituencies, in building the relationship between Seda and local municipalities.

Mr Lees asked about the 18 institutions working with Seda in KwaZulu-Natal, enquiring who they were and whether this included municipalities.

Mr Alummoottil replied that the list varied from municipalities to regional business management centres, to the offices of the Department of Economic Affairs. The Durban Chamber of Commerce had also been helpful.

Mr Lees wanted feedback from Seda in 2011 on the results of the Kokstad Co-Op. He felt that cooperatives were doomed to failure, partly due to the lack of support given to them, but largely because they destroyed entrepreneurial spirit.

Ms Lupuwana explained that part of Seda’s mandate was to assist small enterprises including cooperatives. When establishing the Kokstad Co-Op, Seda had ensured that the local municipality supported the agreement, while certifying that the project would be sustainable and that there was a market for the goods created. She commented that this project was working very well. This project was also a good example of a partnership, as the Israeli Embassy was working with the Kokstad Co-op on irrigation and on improving the quality of the production of crops.

Ms M Dikgale (ANC, Limpopo) congratulated Seda on its hard work. She suggested that Seda move to the tribal authority offices, rather than use the resources of the municipalities who were struggling.

Ms Lupuwana noted that Seda had not really considered working with tribal authorities. She reiterated that it was up to municipalities to offer their resources and for them to initiate co-location.

Ms Dikgale asked what Seda could do to help people in the rural areas who could not afford the fees to register their projects.

Ms Lupuwana explained that this was the mandate of the Companies and Intellectual Property Registration Office (CIPRO), but because Seda had a network across the country it was offered free of charge.

Ms B Abrahams (DA) asked about the 1 150 jobs created through the STP programme. She asked that a breakdown of those assisted be provided, particularly for women and people with disabilities.

Mr Ravjee replied that in total Seda employed 6 778 people, including direct, indirect and casual jobs. Of those, 3 319 were created in the agriculture incubators, and 40% were women-owned businesses. He did not have with him the figures of jobs held by peoples with disabilities. However, he mentioned that the programme had trained about 32 people with hearing disabilities, to encourage them to become entrepreneurs.

Ms Abrahams also asked why neither Gauteng province nor institutions in Gauteng had given funds to Seda.

Ms Lupuwana replied that this was a historical matter. When Seda was formed, there was no provincial office established in Gauteng, as it was believed that there were enough small business institutions in Gauteng. This had now changed and a Gauteng branch had been founded.

Ms Abrahams requested that Seda work on plans to cater for people with disabilities.

Ms Lupuwana replied that Seda had established a programme called MODE for those with disabilities.

Mr Alummoottil commented that MODE had been used to train a group of individuals in entrepreneurial skills, and to assist them in fitting into a smaller company. This year some of the material of Seda had been translated into Braille, beginning with a brochure. Recently Seda had reached an agreement with the National Council for the Blind, and even more recently Mr Alummoottil had made an agreement with the National Council for the Deaf. 

Mr B Mnguni (ANC, Free State) asked how many of Seda’s 112 386 new clients were expected to become successful and sustainable.

Mr Mnguni asked why the project in Welkom in the Free State, sponsored by the Finnish government who were in partnership with Seda, had been suspended.

Ms Lupuwana replied that she did not have the specifics.

Mr Mnguni asked about financial training. Most SMMEs lacked financial training and were unable to draw up a business plan. He wanted to know how often Seda would offer its training, and how many of the 112 000 new clients were trained on financial and business management.

Ms Lupuwana replied that financial training for small businesses was included in one of the packages under development services.
 
Mr Alummoottil added that Seda ran a direct business course with two levels. The first, more basic level concerned how to run a small business, and the second level focused on financial planning.

Mr M Maine (ANC, North West) asked why there was no funding in the North West, and whether the problem had been isolated.

Ms Lupuwana replied that it was up to the provinces or municipalities to choose whether they wished to work with Seda.

Mr Maine agreed with Ms Dikgale’s suggestion to approach the tribal authorities to share office space in the rural areas.

Mr Maine asked about the R27.7 million payments facilitated by Seda to SMMEs, particularly asking for a breakdown of what had been paid in the North West, how many SMMEs had been assisted and how much each received.

Mr Alummoottil replied that there were two approaches used by Seda to reach the rural areas. The first was the mobile unit, while the second was the use of the regional facilitators to visit a specific area and educate communities.

Mr A Nyambi (ANC, Mpumalanga) congratulated Seda on its improvement from 2004 to 2010. He asked why one of the board members had not attended any meetings during 2009/10, how Seda had dealt with this and whether it had affected the proper functioning of the board.

Mr Nyambi asked if there were any links between Seda’s Learning Academy and the Public Administration Leadership and Management Academy (PALAMA).

Ms Lupuwana replied that Seda’s Learning Academy was internally focused, for building the capacity of Seda’s frontline staff.

Mr Mngomezulu added that Palama was working with Seda on training, for Palama focused on issues of administration.
 
Mr Nyambi also asked if some background could be given on the irregular expenditure, amounting to more than R3 million.

Mr Mngomezulu explained that Seda was involved in a cooperative that was being established in Limpopo. The project had insufficient funds to pay the project manager, who was owed R3.6 million. The committee appointed to oversee the project then bypassed the procedure for transferring funds from Seda, who had been appointed to pay by the Department of Trade and Industry, instead transferring the money directly from Seda to the project manager. It was thus classed as irregular  expenditure. Seda was forced to account for the money to the Auditor-General, who noted the irregularity.

Mr Nyambi referred to the Auditor-General’s report on Seda, which stated that planned and recorded indicators were not well defined (set out on page 74 of the Annual Report). The Auditor-General listed assessments on the number of clients trained, number of new clients attracted and the percentage of clients assessed by business advisors as some of the indicators affected. He thought that some of the statistics shown in the presentation were misleading. He asked for clarification.

Ms Lupuwana replied that for the first time in this financial year, the Auditor-General had looked at the performance information. This was a new strategy, so there were mixed understanding on what the Auditor-General was measuring and how it was to be measured.

Ms E Van Lingen congratulated the Chief Financial Officer on having put improved systems in place. She asked for clarification on the number of business advisors, asking if the 75 business advisors trained internationally were included in the number of 167 business advisors mentioned elsewhere in the presentation.

Ms Lupuwana replied that there were a total of 167 business advisors trained.

Ms van Lingen then asked about the co-location partners of Seda. She enquired how many people were sitting with and assisting the municipal Local Economic Development (LED) officers. She noted that many of the municipalities had overworked LED officers, since they required more staff, and she wondered what exactly the Seda staff were doing when they co-located. She appreciated that co-location did make sense for Seda, but noted that many municipalities already lacked enough space for their own officials.

Mr Ravjee explained that incubating was part of the LED strategy. Therefore Seda was dependent on the decisions taken by the municipalities and provincial government.

Mr Alummoottil said that he could submit a list of partners for the Committee. Seda used co-location to extend the reach of Seda into both urban and rural areas, so it was encouraged.

Ms van Lingen asked about the funds leveraged from provincial partners, asking who these partners were.

Ms van Lingen also asked about the top Eastern Cape project for STP, and whether it was located in Kokstad or Mthatha.

Ms Lupuwana replied that this was in Kokstad.

Ms van Lingen asked what new incubator was being started and where it would be situated.

Mr Ravjee replied that Seda was currently in negotiations to build a mixed incubator in the Eastern Cape.

Mr F Adams (ANC, Western Cape) asked for a breakdown on what had been done in each province, how the incubators had been allocated, and where they were. He also asked who had benefited from the two STP incubator programmes in the Western Cape.

Mr Ravjee replied that he would submit a copy of the list of the allocations to the Committee. In the Western Cape, there were two incubators based in Franschoek for the SMMEs in that area. There were strong links between these incubators and the University of Stellenbosch.

The Chairperson asked about the progress on the Mtubatuba project.

Ms Lupuwana replied that according to the last report received, it was doing very well.

The Chairperson noted that China’s GDP was derived mostly from SMMEs. He felt that South Africa should look at China’s example and learn from that country. He asked if there was a national plan to take SMMEs seriously in order that they could contribute to the country’s GDP.

Ms Lupuwana replied that there was a plan, which had been explained in Seda’s business plan and its strategy. One of the areas in which the Board hoped to focus was procurement opportunities for small businesses. All clients should be based in the incubators or should be on the Seda database, so that when there were opportunities they could be assisted by Seda. Seda also hoped to prioritise sectors and the incubators were already playing a role.  

Mr Mngomezulu commented there needed to be a national campaign to emphasise the importance of small businesses. Programmes and legislation were now in place, but there were no strategic goals for small businesses in South Africa. 

The Chairperson commented that cooperatives had a poor record. He enquired what had motivated the relaunch of the concept.

Mr Alummoottil replied that part of Seda’s mandate was to promote and support cooperatives, and, provided that the appropriate interventions were made, they could prove to be successful. 

The Chairperson asked why the irregular expenditure was listed as “irrecoverable”.

The Chairperson asked how much of the total revenue of Seda was used for service provision, and what percentage was used to pay staff. He referred to page 77 of the Annual report, which noted an increase in liabilities, and asked what had motivated this increase.

Ms Lupuwana replied that in the year under review, a lot of funds went into one-off programmes and projects, which would skew the total amount which was spent on services.

Ms Hogendoorn noted that staff expenditure amounted to about 35% of the total revenue, which was fairly low for a service-based industry. She stated that 45% of the total revenue was direct programme expenditure. The increase in liabilities was related to higher building costs, and the provisions for donors.  

The Chairperson noted that the partnerships mentioned in the presentation seemed to be largely formed with other government institutions. He wondered if Seda was planning to develop more private sector partnerships with entities such as the National Empowerment Fund (NEF), Business Unity South Africa (BUSA) or National African Federated Chamber of Commerce and Industry (NAFCOC).

Ms Lupuwana replied that this was an area in which Seda hoped to improve, but pointed out that in fact Seda did have some partnerships in the private sector. Currently Seda was working with Metropolitan to build a database of their small business clients, in order that private sector institutions could explore that database when looking for small businesses. Absa Bank was another partner with Seda.

The Chairperson used the example of his constituency to point out that communities had to travel too far to visit Seda offices.

Mr Alummoottil replied that Seda hoped to alleviate this problem through regional facilitators and mobile groups.

The Chairperson asked how Seda was minimising the use of consultants.

Ms Lupuwana replied that the use of consultants depended on the competence of business advisors, as some of the advisors were not specialised in all sectors and had to rely on consultants for specific assistance from time to time. The use of Seda’s Learning Academy would also, over time, diminish the need for external consultants.

The Chairperson asked why Seda required 22 board members, as it was not such a big organisation.

Mr Mngomezulu replied that a large board was purposely appointed, so that the absence of any board members would not paralyse the board. The board did have annual assessments of both the members individually and of the board collectively.

Ms Jodi Scholtz, Group Chief Operating Officer, Department of Trade and Industry, stated that the Minister of Trade and Industry had appointed a task team to review the SMME landscape. The task team would be looking at the institutions and the support programmes offered. The report from the Auditor-General this year had been a shock to most of the departments and their agencies. The current challenge facing departments was how to enhance and fine-tune performance information, while also keeping track of progress and evidence.

Mr Lees commented that he found the audit fee of R2,1 million to be quite excessive. He stated that he was also confused by a reference to a R1,9 million overdraft, when there was R163 million in the call account. He enquired why there were credit balances in the accounts receivable, and also enquired whether there were bad debts. He also wanted to know what was being kept in the consumer stores.

Ms Hogendoorn replied that 0,39% of the expenditure was paid to the Auditors. She stated that the R1, 9 million overdraft was a temporary measure. The negative accounts receivable were provisions. The bad debts were staff-related, and these were debtors where payments were made in advance. The advances to staff had now stopped. She explained that the items kept in the consumer stores were stationery and IT related consumables.

Mr Lees noted that when Seda referred to the cooperatives as a success, it had highlighted marketing, and commented on the historical use of marketing.

Mr Mnguni asked how many of the new clients this year, and the clients from previous years were successful and were still in business.

Ms Lupuwana replied that Seda had changed the focus of its programme to measure the impact of the assistance, rather than the numbers of people assisted. Seda would now be tracking past clients over a period of time, in order to evaluate the success of the programmes.

Mr Lusapho Njenge, Senior Manager: Strategy, Seda, stated that the clients were visited every six months to ensure they were still functioning. Once they finished training, they would be visited once a year in order to check the success or failure rates of SMMEs.

Mr Mnguni disagreed with Mr Mngomezulu’s remark that there were no economic goals for SMMEs. He stated that the main objectives of government were to reduce poverty, to achieve equality in employment, and to reduce inequality. SMMEs played a large role in fulfilling these aims.

Mr Mnguni asked what was included in the content of Seda’s training, and whether its objectives were reflected in that content.

Mr Nyambi stated that he was not satisfied with the explanation given that the new system for analysing performance indicators was faulty, and thus the conclusions reached by Seda as to its positive performance were correct. He felt that the information was now unreliable and he was not convinced by the argument.

Ms Lupuwana replied that Seda was being evaluated on performance indicators for the first time. She described possible miscommunication between Seda and the Auditor-General on the criteria for various performance indicators. The Auditor-General asked Seda to limit the number of indicators, saying that there had been too many to evaluate. The indicators used were strategic indicators, but she explained that since some information was left out, the results were incomplete. She admitted that this was an area where Seda had to improve.

Mr Nyambi hoped that this would not only happen at the end of 2011. He asked the Chairman of the board if he was happy with the mandate given to Seda.

Mr Nyambi asked whether Seda had a fixed asset register that was kept up to date.

Ms Hogendoorn replied that a comprehensive exercise was done, which brought 4 000 assets to book. It also led to the recording of R7,6 million of assets, which were now being re-evaluated and recorded on the fixed asset register. Two or three groups of staff were now being trained to manage these new assets. 

Ms Abrahams asked what the acronym MODE stood for, and wondered whether quadriplegics and paraplegics were also included in the programmes.

Mr K Sinclair (COPE, Northern Cape) was concerned that there was a lot of emphasis on cooperatives, and pointed out that the previous Minister had been concerned that only 12% of the cooperatives in South Africa were functioning.

Ms Lupuwana stated that cooperatives were part of Seda’s mandate. She suggested that perhaps the Committee should engage the Department of Trade and Industry on this issue, and should also amend the legislation as well.

Mr Sinclair stated that economic policies should not make Johannesburg, Cape Town and Durban more prosperous. Development should be centred on the rural areas. He suggested that Seda should seriously consider a programme to support small entrepreneurs in a green economy. 

Ms Lupuwana replied that she would look into such a programme. This was a sector that the board had already isolated for additional attention.

The Chairperson asked why there was a surplus shown, if it was now being used. He also felt that the question about private-public partnerships was not answered fully.

Ms Lupuwana replied that there were more plans for private partnerships. Seda was currently in negotiations with NAFCOC and the Foundation for African Business and Consumer Services (FABCOS).

Mr Mngomezulu stated that Seda needed a more robust relationship with private businesses.

The Chairperson stated that some departments did receive clean audits, so it was not correct that most of the departments had been confused by the inclusion of performance indicators.

The Chairperson felt that it was unworkable to have a board of 22 members, and thought that there was a need to amend the relevant provisions in this regard.

The Chairperson stated, in conclusion, that Seda needed to focus on rural areas, to minimise the use of consultants, and to sort out the fixed assets internally.

The meeting was adjourned.

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