Small Enterprise Development Agency 2011 Annual Report

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Meeting Summary

The delegation from the Small Enterprise Development Agency  (SEDA) presented their annual report for the 2010/11 financial year. The South Africa Labour Force Survey for 2010/11 reported that approximately a quarter of South Africa’s economically active population remained unemployed. SEDA-assisted clients seemed to have faired much better than the general trend. 37% of the surveyed clients indicated an increase in their turnover and 27% indicated an increase in the number of people employed, despite the fact that the majority of SEDA clients were made up of micro and survivalist entrepreneurs. The SEDA Technology Programme was able to create 893 direct jobs and a further 2 920 indirect jobs as well as 1 492 causal jobs during the financial year. SEDA was a key player in the job creation administration.

For the third consecutive year, SEDA received an unqualified audit opinion with no emphasis of matter and no non-compliance issues or supply chain management issues. Service delivery highlights included 93% client satisfaction, 37% of assisted clients indicated an increase in turnover and 27% of assisted clients indicated in the number of people employed. There were payment s worth R198 million facilitated by the SMME Payment Assistance Hotline. The Tradepoint programme assisted in excess of 200 small businesses. The SEDA Technology Programme supported 1 479 clients. .STP assisted 26 small businesses with technology transfer. SEDA assessed and referred a further 56 small businesses to other institutions. SEDA supported 129 small businesses through conformity assessments and product testing. SEDA saw a marked improvement in media reporting with a ratio of 194:4 and SEDA had efficient financial management with 98.7% of approved funds being utilised.

On the incubation programme, the DTI was assisting SEDA to get other stakeholders to participate; the target was to have 250 incubators by 2015. There were currently 31 managed under the STP

Committee members raised questions as to client participation in the Guateng and Limpopo provinces, the reason for deficit in the financial statements and how SEDA could align itself with cooperatives and SMME regarding local procurement in the Western Cape. Members also asked why SMMEs were divorced from the private sector and if there was adequate monitoring in rural areas.


Meeting report

Briefing by Small Enterprise Development Agency 2011 Annual Report
The delegation from the Small Enterprise Development Agency (SEDA) presented the organisation’s annual report for the 2010/11 financial year.

Mr Linda Mngomezulu, Chairperson of the SEDA Board of Directors stated that 2010/11 marked a change in SEDA’s direction as the Agency concentrated on collectively owned enterprises. SEDA’s activities in 2010/2011 operated against the backdrop of the global financial crisis. The South Africa Labour Force Survey for 2010/11 reported that approximately a quarter of South Africa’s economically active population remained unemployed. SEDA-assisted clients seemed to have fared much better than the general trend. 37% of the surveyed clients indicated an increase in their turnover and 27% indicated an increase in the number of people employed, despite the fact that the majority of SEDA clients were made up of micro and survivalist entrepreneurs. The SEDA Technology Programme was able to create 893 direct jobs and a further 2 920 indirect jobs as well as 1 492 causal jobs during the financial year. SEDA was a key player in the job creation administration. SEDA hoped to continue to receive support from the Department of Trade (DTI), the Committee and other partners that it dealt with at the provincial and local levels. This period had been defined by a strong belief in SEDA’s organisational capabilities.

Mr Mngomezulu invited Ms Hlonela Lupuwana, CEO of SEDA to present the findings of the annual report.
Ms Lupuwana stated that the Auditor General found no matters affecting SEDA’s audit opinion and there were no matters under service delivery. For the third consecutive year, SEDA received an unqualified audit opinion with no emphasis of matter and no non-compliance issues or supply chain management issues. Service delivery highlights included 93% client satisfaction, which eclipsed the goal of 80%; 37% of assisted clients indicated an increase in turnover, which eclipsed the goal of 35% and 27% of assisted clients indicated in the number of people employed, which eclipsed the goal of 25%. There were payment s worth R198 million facilitated by the SMME Payment Assistance Hotline. The Tradepoint programme assisted in excess of 200 small businesses. The SEDA Technology Programme (STP) supported 1 479 clients, which eclipsed the goal of 500.STP assisted 26 small businesses with technology transfer, which eclipsed the goal of 10. SEDA assessed and referred a further 56 small businesses to other institutions. SEDA supported 129 small businesses through conformity assessments and product testing, which exceeded the goal of 125. SEDA saw a marked improvement in media reporting with a ratio of 194:4 and SEDA had efficient financial management with 98.7% of approved funds being utilised.

Mr Sipho Zikode, Deputy Director General for The Department of Trade and Industry Empowerment Enterprise and Development Division congratulated SEDA for achieving the vast majority of its performance indicators, however there were a few areas of improvement.

Mr Zikode stated that the DTI Minister suggested a review of the programmes and institutions that provided service to Small Medium and Micro Enterprises (SMMEs) on of the most important outputs of this review was that the SMME agenda be elevated to a higher national political level. There was a suggestion to establish a council of Ministers responsible for economic development and this council would deliver the report to the president by the end of the 2011/12 financial year. DTI recently held a conference where experts and activists in enterprise development were invited to validate the work of this council. On the incubation programme, the DTI was assisting SEDA to get other stakeholders to participate; the target was to have 250 incubators by 2015. There were currently 31 managed under the STP. DTI was engaging with multilateral organisations like the United Nations Development Programme and also engaging with big business like SASSOL who were willing to support incubation in other business chambers. Through this effort, over a period of three months the DTI had managed to get nine incubation proposals across the country.

Discussion
The Chairperson opened the floor for discussion

Ms B Abrahams (DA; Gauteng) asked why the Gauteng client performance was so low.

Ms M Dikgale (ANC; Limpopo) raised concerns that the collaboration points for Limpopo reflected that the province was not doing so well. How did SEDA conduct its awareness programmes in the Limpopo municipalities? How did SEDA do its monitoring?

Mr K Sinclair (COPE; Northern Cape) noted that the Annual Report statement of financial performance reflected an improvement in the deficit from R36 million in 2010 to R13 million in 2011. However a deficit still remained. What was the reason for the deficit? He further raised concerns regarding the R40 million drop-off of external investment. The report referenced the fact that a number of Board Members resigned or were not re-appointed, remuneration between board members was reflected a variance: what was the reason for the variance? The CEO saw an increase in remuneration from R900 000 to R1.2 million from 2010 to 2011. Mr Sinclair suggested that SEDA took a different approach to cooperatives in the Northern Cape, one with increased integration of local economic activities with local governments. What was SEDA doing in terms of engaging local authorities regarding local economic development?

Mr F Adams (ANC; Western Cape) thanked SEDA for its work on fisheries and asked how it aligned itself with cooperatives and SMMEs regarding local procurement in the Western Cape.

Mr B Mnguni (ANC; Free State) asked if SEDA could shed more light on its failures and challenges. Regarding the increase in incubators, what was the time period of the process from incubation to being a stand-alone business? SEDA seemed to overshoot all of its targets significantly, was the estimation of these targets correct, or did SEDA underestimate its targets?

Ms E Van Lingen (DA; Eastern Cape) asked why SMMEs were divorced from the private sector in the annual report. She stated that it was clear that SEDA was working with the municipalities and the big metros, but raised the concern that there were a large number of unsuccessful development agencies. Did SEDA have the experience of working with successful development agencies in the municipalities and big metros and were these agencies delivering? 

The Chairperson noted that SEDA had received increased funding from Sweden. He asked what was in it for the Swedes.

Mr Mngomezulu responded that the variance in Board Member salaries was because some member served a full term and some did not.

Mr Mngomezulu replied that cooperatives had become very important in the transformation of the economy. Cooperatives needed to be proactively assisted and pulled into sectors that work. Cooperatives required the element of technical support through incubation. On the issue of procurement and access to markets there were great opportunities but access to finance was an issue. State owned financial institutions would find it easy to transfer funds where there was proper coordination. Municipalities should open doors for small business, but there tended to be less achievement because there was no coordination. The level of coordination among small enterprises needed to be increased. South Africa should achieve national coordination with joint planning that synchronised the SEDA plans and activities and ultimately reached a point where there was joint reporting so that there could be a full report as to the work that the government was doing on the ground.
 
Ms Lupuwana explained that there were limitations in terms of the budget and SEDA’s relationships with municipalities depended on the appetite of municipalities to work with it in terms of enterprise development.

In terms of the performance agreements of branch managers and provincial managers the issues of co-location and partnerships was one of the key performance indicators. In response to the question about Limpopo performance indicators, Limpopo was one of the performing provinces the expansion in terms of co-location points was a factor of budgets. Where SEDA could request assistance from the Committee members was on information from the provinces and contact persons in the municipalities who could assist in establishing a co-location point.

The variance in salaries for board members also depended on the terms that the board members had set because they were staggered. Other factors were whether Board members were chairs of committees or were ordinary members. Remuneration also depended on attendance because SEDA was a schedule 3A entity, which did not have a set retainer, so if a board member did not attend a meeting, they received no remuneration. The CFO salary related to whether a full term was completed, because the bonus was linked to whether the full year was finished, so it was pro-rated and in the previous year, the CFO did not complete the entire financial year.

The DTI was asking SEDA to look at a new strategy in terms of cooperatives especially around the area of secondary cooperative, which had been found to be working. SEDA was also reviewing the Departmental incentives.

In response to the issue of engaging local authorities, SEDA’s strategy was to work with institutions that had a similar mandate.

SEDA would be delighted to work with the Western Cape in terms of taking forward the rollout of the incubation. There would be three incubators that SEDA was establishing in this financial year, one of those was in the Western Cape. SEDA welcomed assistance from the Committee in terms of how it could roll out enterprise development in the Western Cape and perhaps take over some of the Red Door offices.

Regarding shedding light on failures and problem areas, SEDA stayed away from the wording ‘problem areas’ because it gave the appearance that the Agency was unable to come up with a strategy or intervention to correct the challenges. In the annual report, these were referred to as ‘development areas’ where SEDA focused its attention. These areas were issues of funding, skills development, stringent criteria for service providers and the issue of elevating developing SMMEs at the national level.

In response to the issue of the strategy for funding the rollout of the incubators, the DTI was engaged with private sector institutions, who have pledged R250 million for the rollout of incubation. SEDA was looking for other areas where it could get the funding. The jobs fund was an important element of the incubation. The private sector was pledging funds and asking the DTO to match the funds

On the question of targets, SEDA worked with a rigorous board. The STP targets had changed during the currently financial year, because the board felt that the targets were on the low side and the board directed SEDA to amend the targets appropriately.

Small businesses were divorced from the private sector for historical reasons. Because South Africa had a colonial economy in the past, the issue of enterprise development in South Africa was still in its embryonic stages. South Africa was not an enterprising nation and there was a lot of work to be done in terms of raising the levels of entrepreneurship in the country. This needed to be done consistently through training, education and skills development.

SEDA was working with the cities of Cape Town and Durban, more so in Durban, particularly projects on collectively owned enterprises. Now that the Western Cape government was moving away from enterprise development, SEDA was glad to fill this void through taking over the Red Door project.

The time period that it took to incubate a business was normally between 3-5 years, but it depended on the sector.

Mr Koemie Slabbert, Chief Operating Officer for SEDA stated that the information regarding institutions that SEDA was working with in the Eastern Cape could be provided to the Members.

There was a mobile unit that provided SEDA services that move around Limpopo in the Sekhkhune district and there was lots of activity in the region. This has made Limpopo on of the highest performing provinces.

Ms Dikgale followed up and asked whether there was adequate monitoring

Mr Slabbert responded that there was lots of activity and monitoring taking place, because SEDA worked closely with the Provincial Governments and the National Department.

Ms Marilize Hogendoorn, CFO for SEDA responded to the question about the deficit which was R36 million in 2009/10 and was reduced to R13 million in 2010/11. There was a retained surplus from 2008/09 of R77million added to a previous surplus of R30 million this was a balance of R107 million. In 2009/10, R36.6 million of the surplus was used and in 2010/11, R13.5 million of the surplus was used. These expenditures were budget for by utilising surpluses accumulated from previous years.

Mr Zikode stated that on the issue of localisation and SMME alignment, the Department was focused on the enhancement of the supply development programme which targeted sectors that would be designated by the Minister for localisation of procurement. This approach to localisation would help the DTI to avoid the government having a big burden in terms of procuring the products that did not match the standards. It was important that the suppliers were developed to match the required standards. DDG Zikode agreed with Mr Sinclair on the issue of co-ops, the review of the legislation for the proposed Co-op agency and co-op academy would enable the Department to establish more institutional frameworks to support co-ops.             

On the interest from Sweden, there was a history of political cooperation between the Swedish and South African governments. A financial commission was established that was co-chaired by the Deputy President and the Deputy Prime Minister of Sweden, under this agreement lots of cooperation was established.

The Chairperson opened the floor for follow-up questions.

Ms Abrahams asked who would qualify for the proposed co-op academy.

Mr Sinclair noted that there was a drive by the DTI to get rid of red tape. What was SEDA doing to make it easier to set up a business in South Africa? Mr Sinclair raised concerns that the DTI call centre was not very productive. How much was being spent on consultants, and what was the value for money on consultants.

Ms Lupuwana replied that in terms of making it easier to set up a business in South Africa there was a strategy of developing IT systems where small business could have access within a branch to work with the IT systems themselves.

When SEDA was first established, there was a call centre, because the huge network did not exist. As SEDA had developed, there were now in excess of 100 co-location points compared to none when SEDA was first established, this reduced the number of people who used the call centres because they were comfortable using a branch and talking to a person rather than calling in terms of personnel employed in the call centre, the numbers have decreased to one or two from six when SEDA started.

On the issue of consultants, the SEDA model used to be such that business advisors were dealing less with clients. Through skills development intervention through frontline staff, the number was tracked and business advisors were doing far more work, than when SEDA was first established. As the programme continued to develop, SEDA used less and less consultants but took a more cautious approach because consultants were also small business and SEDA did not want to do away with them. There needed to be a balance between projects that were taken on by consultants and work that was done in house by business advisors.

Mr Sinclair requested a list of the consultants and a breakdown of what provinces they worked in.

Ms Van Lingen asked about what was going on in the North Western province regarding enterprise development?

Mr Adams asked about the buzzword ‘informal economy’. Did SEDA see itself playing a role in this informal economy in terms of municipalities?

Ms Lupuwana replied that she would send a list of consultants to the committee. Other enterprise development agencies tended to use the same consultants.
In terms of the North West, there was a lot of work taking place, but this was not necessarily reflected in the annual report because the work did not take place before the end of year. Setting up partnerships took a lot of work, but there was a lot of change in the province. A support programme was set up for enterprise with the Royal Bafokeng.

In terms of the informal economy, there were no massive   interventions, except for community collectively-owned enterprises, related to co-ops and the work done in conjunction with the apex fund.

Mr Mngomezulu added that lots of work was being done in the North West with the incubator on platinum. The Royal Bafokeng had established an entity with SEDA that assisted people involved in the mining sector. This would show results in the North West very soon. Sophisticated business required sophisticated personnel.

The Chairperson thanked the SEDA and DTI delegation for its presentation.

Consideration and Adoption of Committee Minutes
Mr Adams proposed that the minutes went back to February and he proposed adoption with amendments if there were any amendments to be made.

Ms Van Lingen seconded the proposal.

The Chairperson stated that minutes needed to be approved within an appropriate amount of time. Perhaps the programme should be changed and minutes be approved at the beginning of meetings, rather than the end.

The Chairperson adjourned the meeting.


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