Ntsika & Khula on Small Business Empowerment: briefing

Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
22 May 2002
NTSIKA AND KHULA ON SMALL BUSINESS EMPOWERMENT: BRIEFING

Ntsika Powerpoint Presentation
Ntsika Speech Presentation (see Appendix)
Khula Powerpoint Presentation

Relevant news articles
New agency to take over Khula's role 10/04/02
State under fire for tying up billions 20/02/02
Erwin plans to increase tally of small businesses 21/02/02

SUMMARY
Ntsika and Khula reckoned that they needed to review and refocus their functions in the light of challenges that they had faced since their inception. The committee noted that Khula and Ntsika's strategies were passive and needed to be proactive, focused and they should have concrete programmes and time schedules.

MINUTES
The Chairperson welcomed and introduced the delegates to the committee. The delegates were Mr. Brendan Mbatha, Marketing Executive of Khula and Mr. Lefa Mallane, Chief Executive Officer of Ntsika Enterprise Promotion Agency. The Chairperson specifically urged the delegates not present their agencies' visions and missions but rather to focus on "concrete issues". It was also suggested that Khula and Ntsika should work with MP constituency offices to get their message across to communities.

Ntsika
Mr. L Mallane (CEO) introduced Ntsika as a provider of non-financial services to develop small, medium and micro enterprises (SMMEs). He outlined the structure of SMMEs development strategy and positioned Ntsika as playing the role of making markets accessible to SMMEs. He reckoned that there was R145b available for procurements and that this money could only be distributed to SMMEs through the support and functions of Ntsika.

Khula
Mr. B Mbatha indicated that his presentation was similar to the one he had made on 8 May 2002 to the committee during the DTI's industrial policy hearings. Mr. Mbatha felt it was wise to reiterate the vision of Khula because the agency was undergoing an evaluative review and refocusing. He said the, " the vision of Khula was to become a financing partner of first choice in SMMEs finance". He emphasised that Khula was not working directly with SMMEs but that it worked through intermediaries such as commercial banks. He also announced that since 1996 up to March 2002 Khula had managed to create an estimated 788,650 direct jobs. He added that the total number of jobs when adjusted by a multiplier effect was more than one million:
Total new jobs since 1996 (66% of total direct jobs) 521,307
Total direct jobs (new and sustained) 788,650
Indirect jobs created and sustained = 394,325
Assumed multiplier of 1.5 X 788,650
Total jobs direct and indirect = 1,182,975

Questions
Mr. S. Rasmeni (ANC) commented that even though there were challenges in SMMEs development, some temporary measures should be taken to help poor people across the country and urged Khula and Ntsika to think about his comment. He then asked about Ntsika's relationship with SETAs (Sector Education and Training Authorities).

Mr. Mallane replied that Ntsika has held some workshops with SETAs where Ntsika wanted to know if they could be of assistance to the twenty-five SETAs. He added that the relationship between Ntsika and the SETAs was still at an initial phase because SETAs were new establishments.

Prof. Ripinga (ANC) asked how strategic are the locations of Ntsika service centres.

Mr. Mallane explained that the strategic position of Ntsika service centres largely depended on the location of intermediaries through which Ntsika functioned.

Prof. Ripinga (ANC) asked if Ntsika and Khula had evaluative measures to test their progress against their vision and goals.

Ms L Houston (Khula) agreed that it was important to evaluate an organisations' progress, however, she added that Khula would still have to look at that soon after it completed the review and refocus of its functions. Mr. Mallane expressed similar statements by pointing out that Ntsika still had to undergo a refocus due to challenges it faced when performing its functions.

The Chairperson commented that the functions of Ntsika and Khula were passive rather than pro-active. He added that the attitudes of the banks were too risk-averse to be co-operative with Khula and he asked Khula to comment on bank's attitudes towards providing loans to SMMEs. He also asked if Ntsika had any comparative analysis of service centres such as the Irish model.

Mr. Mallane and Mr. Mbatha agreed that their functions were passive and that it was part of their refocus to eliminate passivity. Ms Houston agreed that banks were unco-operative and that Khula had a working team that was explaining and negotiating with bank executives about small business empowerment and the role of Khula. Mr. Mbatha noted that Khula had made a comparative analysis by visiting certain countries amongst which was Ireland.

Ms F Hajaij (ANC) asked if Ntsika was doing something for the crafts and tourism sector.

Mr. Mallane replied that Ntsika was undertaking a pilot project of servicing crafts and tourism in KZN and the progress of the pilot would determine how far the service would be rendered across the country.

Ms Hajaij also asked the kind of businesses that Ntsika was incubating and if the strategy had been successful.

Mr. Mallane explained that Ntsika was targeting technical colleges to link with technology industry to produce contemporary technology. He agreed that so far the progress was good.

Ms Hajaij asked Ntsika if they had interacted with the mining and farming industries.

Mr. Mallane said that Ntsika had some initiatives with MINTEC and the Farmers' Union regarding training.

Ms Ntuli asked Ntsika if they had a plan so that its team reaches out to people at grassroots level. She also asked if Khula had any plan to negotiate with banks about access to finance for poor communities wishing to start businesses. She argued that there was no business without access to finance.

Ntsika and Khula reiterated that they were still facing some challenges that would need them to review and refocus their functions. Khula added that it was a wholesale company working through intermediaries who also faced some challenges.

One member commented that there was too much duplication in SMMEs service provision and asked how that could be addressed.

Ms Houston replied that Khula was re-segmenting its functions to determine gaps and overlaps so that it could be able to solve the problem of duplication and start to look into co-ordination and fragmentation of roles by different players in SMMEs development.

Mr. Zita (ANC) asked if it would not be advisable for Ntsika and Khula to join the IDS 's strategy in forming development agencies. He also urged Ntsika and Khula to be proactive and reach communities so that they could be known to these communities.

Mr. Mallane replied that Ntsika had held discussions with the IDC because the IDC had funds from the European Union for business development. Khula added that they were running a mentorship programme with the IDC and that they met on a monthly basis. On the question of being proactive, Mr. Mbatha said that they were "moving away from supply side to demand side" and as an example, he noted that Khula had gone on a road show with the DTI to engage with provinces.

In answer to Ms Sono asking if their re-segmentation and refocusing was research-based, Ntsika said that it was.

Ms Sono also asked if Ntsika had access to development funds.

Ms Houston replied that they had no outside development funding.

Mr. Lockey (ANC) commented that he agreed with Ms Ntuli that there was no business without finance. He urged Ntsika and Khula to focus their strategies on how people could access finance.

Ms Ntuli (ANC) suggested that Khula and Ntsika should work with MP constituency offices because it was also the responsibility of the Committee to be directly involved in SMMEs empowerment.

The meeting was adjourned

Appendix
PRESENTATION TO THE PORTFOLIO COMMITTEE ON TRADE & INDUSTRY AND THE SELECT COMMITTEE ON ECONOMIC & FOREIGN AFFAIRS
22 MAY 2002

Held at DTI Committee Room V119, 5^TH Floor Old Assembly Wing,
Good Hope Chamber, Cape Town

1. INTRODUCTION
South Africa's economy has historically been dominated by large corporations and a big public sector. There was a conscious absence of small businesses in the dominant sectors of the Economy, and little attention paid to small enterprise promotion in public policy.

With the new democratic era, since 1994, political and economic liberalisation, the 1990's saw massive restructuring of the corporate sector, which is still underway. As a result, the corporate sector has shed numerous jobs. South Africa's unemployment and poverty levels are disproportionately high for a country of our per capita income.

Growth, job creation and poverty alleviation are pressing priorities, both economically and politically. In an attempt to address the challenge of integrating South Africa's economy into global markets as a competitive economy, and overcoming internal problems created that were continuously reinforced over many years, by the apartheid system. We all know that Black South Africans were prevented from owning businesses except in designated areas. Indeed, the history of total discrimination against black ownership of assets as a result of economic marginalisation goes back to the nineteenth century.

To realise the objectives of economic growth through competitiveness on the one hand, and employment creation, as well as wealth re-distribution on the other, small business has become the major challenge.

Thus, since the democratic era, awareness regarding the importance of Small, Medium and Micro Enterprises [SMMEs] for employment creation, economic growth and transformation of the economy has increased dramatically.

2. SEGMENTATION OF THE SMALL BUSINESS SECTOR
Given the existence of more than a million SMMEs and more than two million "survivalist entrepreneurs", it is essential for a realistic and systematic approach to small business support, to differentiate between strategies on the basis of broad target groups.

A meaningful differentiation has to distinguish between broad categories of small businesses and a refinement of support according to the uniqueness of the needs according to the target groups.

Small Business support has a three-fold differentiation of support strategies, seems both logical and necessary, viz.:

· Mainstream small and medium enterprises
· Small businesses in growth sectors
· Survivalised micro-enterprise

In addition to these three very basic categories, we also have to differentiate support efforts according to economic sectors as well as locational [urban / rural, CBD / periphery] characteristics.

Thus, appropriate differentiation of support strategies is not only essential, but has to be the foundation of an effective cost-efficient SMME support framework.

2.1. DEFINITION OF A SMME ACCORDING TO THE BANKING COUNCIL

For the sake of clarity, the Banking Council uses the categorisation in the below mentioned table to define what is an SMME. However, it must be highlighted that the different banks use different definitions, making it difficult to directly compare their statistics.