Tourism Emerging Businesses: Tourism Enterprise Partnership & Khula briefings

Committee: Tourism

Chairperson: Mr D Gumede (ANC)

Date of Meeting: 21 Feb 2011

Summary

The Tourism Enterprise Partnership (TEP) gave a presentation on tourism emerging business development. TEP undertook enterprise development on behalf of the Department. The focus of TEP  was on job creation and maintaining existing jobs, transformation through the facilitation of market access  and increasing the sustainability of tourism Small and Medium Enterprises (SMEs). Statistics on the numbers of business products that had been registered, businesses assisted and the numbers of jobs created were presented. Members were, however, disappointed in the presentation. Although the picture presented seemed positive, Members noted that they had not received any positive feedback on the TEP during its oversight visits, had noted complaints that TEP was not assisting SMEs and that TEP was inaccessible to those who were in need of assistance. Members asked about TEP’s budget and spending, asked for the names and locations of businesses assisted, whether it assisted people in bringing their products up to standard, its rural access and whether there was sufficient alignment with national, provincial and local government. 

Khula Enterprise Finance Limited, a fully State-owned enterprise falling under the Department of Trade and Industry, gave a presentation to the Committee on its mandate and work in assisting emerging businesses for inclusive growth and development. Khula helped SMEs to develop by helping them to access finance, of between R10 000 and R3 million, although it was stressed that Khula was not currently able to provide retail finance. Khula had 11 regional offices in all nine provinces. Members commented that Khula’s bad track record made members sceptical as to whether it was delivering on its mandate, and commented that it seemed to be inaccessible. They questioned Khula’s requirement that SMEs must contribute commitment fees, asked about Khula’s relationship with the TEP, and enquired how it was intending to address negative perceptions and increase its spread, particularly into rural areas, and profile. They asked why foreigners, rather than black South Africans, seemed to be taking over formerly white-owned businesses, and wondered if Khula was really maximising development.


Minutes

Tourism Emerging Business Development:
Tourism Enterprise Partnership (TEP) briefing
Ms Lisa Ann Hosking, General Manager: Operations, Tourism Enterprise Partnership, noted that the Tourism Enterprise Partnership (TEP) had agreements with the NDT for 2011-2012 and for 2012-2013, in terms of which R20 million was allocated to the TEP for enterprise development. The main objectives of the TEP were job creation, which included the creation of new jobs and maintaining existing ones, transformation through the facilitation of market access, and increasing the sustainability of tourism Small and Medium Enterprises(SMEs). The focus of the TEP was consequently on product development, the packaging of high quality tourism products and the facilitation of market access.

Ms Hosking stated that in the tourism sector, many new small businesses closed down within two years. The TEP had offices in all 9 provinces and worked with SMEs. Not everyone that applied to the TEP Programme was successful. There had to be a market for the product on offer. SMEs were not accepted into the TEP Programme simply for the sake of acceptance. Critical requirements for job creation and small business sustainability included skills development at various levels of business sophistication, quality assurance to ensure that products were acceptable quality, and market access to raise the profile of SME products. It was highly unlikely that, in the absence of these requirements, either job creation or sustainability would occur. The TEP graduation model reflected the business development or advice and assistance that were given in the various stages of development of a SME.

Ms Hosking stated that 1 500 individuals participated in the Tourism Awareness Programme. There was also participation in a Customer Service Standards Programme. Both these Programmes took place at operational level. At management level, TEP would concentrate on developing business skills and there was a Mentorship Programme. TEP’s top clients took part in a Sustainable Leadership Development programme, which covered aspects of leadership.

The TEP achievements from 1 April 2010 to 31 December 2010 were presented to the Committee. 4 200 small business products were registered, 5 057 enterprises were assisted, 3 257 historically disadvantage entrepreneur (HDE) enterprises and 1 270 rural enterprises were assisted. 200 SMEs were assisted with market access, and 19 000 jobs and 13000 HDE jobs were created. In the area of skills development, 3 749 SMEs were trained, 80% of HDE SMEs were trained and 934 rural SMEs were trained.

Ms Hosking noted that the Business Development Fund, a component of the TEP, assisted 800 SMEs and 500 HDE SMEs with funding. It had a 12-day turnaround time. Ms Hosking noted that the work of the TEP had continued even though the budget of the TEP had been reduced from R45 million to R20 million.

Ms Hosking tabled slides showing good models of community development in the Eastern Cape area, especially in the Wild Coast area. The TEP, in collaboration with Standard Bank, was also involved with projects in Soweto, Fordsberg and Alexandra. Members were also shown the results of a survey on the TEP that had been done on 200 individuals. 78% of respondents stated that the assistance by the TEP had benefited their businesses, 70% had received funding, and 77% had said that the training received had been valuable. Ms Hosking felt that the survey had shown that there was room for improvement.

She also touched on the TEP/NDT targets for 2011 to 2013. The targets for 2011/12 market access would be facilitated for 160 high quality SMEs. In the area of skills development, it was hoped to train  3 000 SMEs, of which 450 would be based in rural areas. For 2012/13, market access would be facilitated for 170 high quality SMEs. 3 190 SMEs, including 470 rural SMEs, would be trained in skills development. She stressed again that job creation, transformation, rural development and small business profitability and sustainability were priority areas for the TEP.

Discussion
The Chairperson asked if the TEP had any unspent funds. He also asked how many jobs the TEP had created.

Ms Hosking answered that the TEP had no unspent funds. On the contrary, the TEP required more funds and had to find ways of generating an additional R15 million. A total of 32 000 jobs had been created.

Mr L Khorai (ANC) pointed out that some of the slides of the presentation were missing from the hard copies. He also asked for a breakdown of the TEP in the provinces.

Mr Salifou Siddo, Chief Executive Officer, TEP, gave the Committee a breakdown of businesses assisted by the TEP in provinces. These were as follows: Northern Cape - 142 businesses, Western Cape - 430, Eastern Cape - 363, KZN - 1039, Free State - 322, Gauteng - 842, Mpumalanga - 371 and Limpopo 292. He noted that the North West, Limpopo, Northern Cape and Free State had reached saturation.

Ms C Zikalala (IFP) noted that the Department should assist individuals at grassroots level. She asked what individuals should do to obtain assistance.

Ms V Bam-Mugwanya (ANC) stated that although TEP was painting a positive picture, Members were getting complaints at grassroots level that assistance in tourism was lacking. The presentation seemed academic. She asked for more detail as to what was considered to be “market access”, which markets were being accessed, and for whom. She also asked about the selection criteria, and asked how TEP would identify and access the SMEs. She was particularly interested in hearing how information on the TEP was made available to persons in rural areas, as she had discovered that people in these areas were unaware of TEP.

Ms M Njobe (COPE) was aware that the creation of jobs in tourism was a huge task. She commented that the presentation should have included more figures, to indicate the performance. She too was interested in the geographical spread of the work done by the TEP, and asked that the actual locations where the work had been done should be given to the Committee. She also asked how entrepreneurs could get registered with the TEP. Whilst it was true that tourism products should be of a quality that was acceptable domestically and internationally, she asked what would be done to assist those whose products did not meet the standard. She also enquired whether the figure of R20 million represented the budget for a single year.

Ms Hosking stated that any products not meeting quality standards were not simply rejected. The TEP would, in this case, assist in bringing the level of quality of these products up to standard, provided that there was a market for the product.

Ms J Maluleke (ANC) asked whether the TEP had offices in the provinces from which people could access information.

Mr Siddo stated that the TEP had a small head office. The TEP had service providers in the provinces, who provided information on TEP to individuals in the provinces. These service providers were contracted to the TEP on an annual basis.

Mr Khorai asked about the event currently being held at the Sandton Convention Centre.

Ms Leonore Beukes, Chief Director: Product and Enterprise Development, Department of Tourism, stated that a South African Tourism meeting was being held, opened by the Minister of Tourism, that provided a forum for tourism buyers and sellers to convene.

The Chairperson asked whether the budget of R20 million was sufficient. He asked how the TEP was hoping to access additional funds to supplement its budget of R20 million.

Mr Siddo responded that the TEP had started as an initiative of the Business Trust, with an initial budget of R80 million per annum, but this arrangement was only to last for five years. The period was extended beyond the five years after 2004, but government was then asked to come aboard. Funding therefore shifted from the Business Trust to government. Due to the drop in funding, the same level of delivery could not be maintained. The TEP had to raise additional funding to supplement the R20 million received from government.  

The Chairperson asked how the services of the TEP were being marketed and how access to rural areas was being obtained. He referred to the Macufe African Festival held in the Free State, and stated that there had been complaints that the TEP was not supportive. On a recent oversight visit to Gugulethu, Committee Members had also heard complaints that the TEP did not respond to correspondence sent to it, and that TEP was not providing assistance. Similar complaints had been received in Limpopo. The Chairperson stated that the issue was about alignment, and how it was working with national, provincial and local government.

Ms Hosking asked that any complaints received by Members should be forwarded to the TEP, so that these complaints could be addressed.

Ms Hosking said that the TEP’s provincial offices had a good relationship with local government. Partnerships with municipalities were in place as the TEP had limited funding.

Mr Siddo added that he was fortunate enough to have visited five provinces since he was appointed in January 2011. On 3 and 4 February 2011, the TEP had met with the Eastern Cape Provincial Department of Tourism and Development. The idea was to present the TEP as a platform for a rural development strategy. The Eastern Cape Wild Coast had been identified as a developmental node. The Eastern Cape Province agreed to make resources available so that TEP could enter into a partnership with that province.

Ms Bam-Mugwanya asked how the TEP managed to assist with the sustainability of operators and with mentorship and development, given its limited funding.   

Ms Hosking responded that the TEP had identified industry mentors, who provided mentorship to operators, either on a voluntary basis, or against a stipend of R2 500.

Ms Zikalala expressed her concern that the Committee had yet to see where the TEP was assisting small businesses. During an oversight visit to Khayelitsha, Langa and Gugulethu in the Western Cape, Members had only witnessed frustration from small businesses because they were not being assisted.

Mr Siddo agreed to look into improving assistance to small businesses in Khayelitsha, Langa and Gugulethu. 

Lerato Matlakala, Chief Director: SRI, Department of Tourism, agreed to provide a written breakdown, per province, of businesses assisted by the TEP, and said that this would also indicate the location of those businesses.

The Chairperson thanked the TEP for its presentation but asked that in future more complete information should be provided to the Committee.

Khula Enterprise Finance Limited
Mr Errol Gardner, Regional Manager: Western Cape, Khula Enterprise Finance Limited, touched on the vision and mission of Khula, indicating that Khula was set up to provide sustainable developmental assistance to SMEs, particularly by helping them to access finance.

He indicated to the Committee that Khula was 100% State owned, through the Department of Trade and Industry (dti), and had 11 regional offices in all nine provinces. Khula’s main role was to provide financing to SMEs, ranging between R10 000 and R3 million. The developmental spinoff in providing finance to SMEs was that jobs would be created, rural development would take place and women would be empowered. Khula acted as a wholesaler of business loans and other financial products. The financing partners, such as banks, took on the role of a retailer in actually providing the finance, and the SME would be the end consumer taking up the finance. Khula’s target market was primarily black-owned and owner-managed formal SMEs. Funds were usually needed for start-up and early expansion capital where these SMEs lacked the required collateral or equity. The most common loan sizes were between R10 00 and R250 000. In order to access the financing, the SMEs had to show a viable business idea with a profit motive. The business had to be owner-managed and had to be registered. Its activities should be in South Africa. The borrower also had to make a contribution himself, which ranged between 2.5% and 10%, depending on the size of the loan. Lastly, the entrepreneur must have some knowledge of the business.

Mr Gardner identified taxation, operating costs and access to finance as the biggest problems that SMEs faced. He noted that some of Khula’s business partners were ABSA, Standard Bank, First National Bank and Nedbank.

Discussion 
The Chairperson asked about Khula’s relationship with the TEP.

Mr Gardner responded that the relationship with the TEP was not what it should be.

The Chairperson asked whether the TEP could approach Khula for assistance.

Mr Gardner responded that Khula’s doors were open to the TEP. The two organisations would synergise.

Ms Maluleke asked how Khula was intending to address the negative perception of Khula that people held.  She asked how many SMEs had been assisted in rural areas. She noted that Khula usually assisted those who already had some money, and asked what was done about people who had absolutely no funds.

Mr Gardner stated that Khula only currently had offices in major city centres. Khula planned roadshows in every province, and was going to intensify its efforts to become better-known, especially in the rural areas. He pointed out that Khula’s communications department had grown substantially.  

Ms Bam-Mugwanya said that communities were frustrated by organizations like Khula. People at grassroots level felt that Khula was of no assistance to them. Part of the problem was that Khula required “commitment fees”, which many of the individuals, particularly in rural areas, simply did not have available. She asked how Khula’s performance had improved over the years, what type of assistance Khula had provided to tourism enterprises, and in which provinces.

Mr Gardner responded that Khula’s management had realised that people were frustrated with the organisation. Khula was now becoming more hands on, and was questioning why delivery was not taking place.

Mr Gardner said that he could not comment on the issue of contribution fees, other than to say that the mandate of Khula required contribution fees to be paid. Contribution fees did not necessarily have to be in cash, but could be a contribution in kind, such as contributing assets such as a motor vehicle towards the business.

Ms Njobe stated that the effect of Khula’s work was not particularly evident. She was not saying that Khula was not doing any work, but it did not seem to be achieving its mandate of giving assistance to SMEs. She pointed out that historically, African people did not have opportunities, but now that matters had changed, South Africans should empower themselves to take up this challenge. In many rural areas the previously white-owned businesses had been taken over by foreigners like Somalians, Nigerians and even Bangladeshis, and she enquired why black South Africans were not taking the initiative. She thought that part of the challenge was that many South Africans did not understand how to start a business.

Mr Gardner stated that a huge problem was that Khula’s target market was not business orientated. Education was the only solution. Entrepreneurs needed training. In addition, the risks of running a business should be known.

The Chairperson noted that Khula’s problem was lack of visibility to those who actually needed Khula’s help. Khula had a major shortfall in the public relations arena, since nothing much was heard of Khula, and this seemed to indicate that it may not be going in the right direction. He asked what was hampering the performance of the organisation. He wondered if Khula had internal problems. He asked if it was maximising development, and if it was sticking to its mandate.

Mr Gardner responded that Khula’s mandate did not allow it to lend funds directly to SMEs. Khula only indemnified. Khula could not dictate to banks what they should do. Khula’s mandate had always been that of a wholesaler of funds, and not a retailer of funds. However, this mandate was going to change with Khula Direct.

Mr Gardner admitted that Khula’s visibility was a problem. Attempts had been made to improve public relations, including appointment of a public relations person.

The Chairperson thanked Mr Gardner for the presentation but noted that Khula could have sent a representative from national level to address the Committee. He felt that there was a great deal of room for improvement by Khula.

Other business
The Chairperson reminded Members of the Tourism Summit that was scheduled to be held on the 28 February and 1 March 2011. The first day of the Summit would cover government departments and the second day would cover other organisations. The Committee would have an additional day to engage in discussions and recommendations. He stated that the programme for the Summit was still to be refined.

The meeting was adjourned.