Legislation supporting small medium and micro enterprises & cooperatives: Department and Minister of Small Business Development briefings

Small Business Development

20 August 2014
Chairperson: Mr X Mabasa (ANC)
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Meeting Summary

The Department of Small Business Development (DSBD), in the presence of the Minister, described its mandate and presented on the legislative framework that guided its work, touching on the salient elements of each Act, administration and oversight. A second presentation highlighted supporting structures for SMMEs and cooperatives, their challenges and some proposed solutions.

It was noted that the National Small Business (NSB) Act provided guidelines for organs of state to promote small businesses, authorised the establishment of the National Small Business Advisory Council (NSBAC) and Small Enterprise Development Agency (SEDA), which, respectively, promoted the interests of small businesses, and advanced policies and supportive mechanisms. This Act defined small enterprises, although a Member later suggested that this definition was in need of updating.  The Cooperatives Act allowed for the establishment of primary, secondary and tertiary cooperatives. There were currently 26 tertiary cooperatives, and a Cooperatives Development Agency and Tribunal should be established in 2015/16. The Financial Advisory and Intermediary Services Act regulated financial and intermediary service providers and service, and provided for remedies, through the Registrar, Advisory Committee, Ombud and an informal dispute resolution programme. The position of the SA Micro-Finance Apex Fund and Small Enterprise Development Agency were outlined, with the former concentrating on wholesale funding, and the latter offering wholesale and direct lending. The essence of both was to bring the services close to the people. The changes to the Companies Act were significant in bringing all bodies under one piece of legislation. The Industrial Development Corporation aimed to promote establishment and development of new industries.

The supporting structures for small, medium and micro enterprises and cooperatives were outlined. These included the Small Enterprise Development Agency, which provided non-financial Support Services through its own offices and strategic partnerships. The SA Women Entrepreneurship Network provided a national vehicle for individuals and groups of women to address their entrepreneurial challenges, and also acted as an advocacy group. The SA National Apex Cooperatives was one of the tertiary cooperatives, but aspired to become a fourth-tier body, as the national apex cooperative. However, it was currently under investigation following allegations of misuse of funding provided by the Department of Cooperative Governance and Traditional Affairs. The National Advisory Forum of Chambers of Commerce, and its counterpart Federation of African Business Chambers of Commerce were both important lobbying groups for their members, but the former was beset with a division of leadership, and the Department was attempting to negotiate with both sides at present. Training and capacity building was being provided by Small Enterprise Development Agency. The Black Business Council had worked with the Department of Trade and Industry, and would continue to work with the new Department as it took over the projects. There was currently no working relationship with the Afrikaanse Handels Instituut, but discussions were under way. The Minister stated that she had become acutely aware of and would try to address the challenges facing the business chambers.

Members wanted to know if the Department had interventions in place for the disabled who were running their own businesses, raised concerns about factions in Nafcoc, asked if there was any need to amend the existing legislation and wanted more detail on the allegations of missing funds. They enquired if the legislation took hawkers into consideration. They asked about he status and functioning of the current Board, asked if the bodies had succeeded in reducing poverty, thought some business mandates perhaps needed review, and asked if they received sufficient publicity. Members thought that strategies to accelerate the growth of small to larger industries should be discussed in the upcoming workshop. Members briefly debated extending invitations and changing the date for the upcoming strategic workshop.

Meeting report

Ministry of Small Business Development (SBD) briefing on Cooperatives Act; Apex Act; Intermediaries Act; and existing structures supporting Small, Medium and Micro Enterprises (SMMEs) and cooperatives, especially SANACO and NAFCOC
Ms Pumla Ncaphayi, Acting Director-General, Department of Small Business Development, took the Committee through the Acts of Parliament that governed the work of the new Department (the Department or DSBD.

Small Business Development Act
Ms Ncaphayi noted that the National Small Business (NSB) Act of 1996 was promulgated as a replacement to the (now-repealed) Small Business Act of 1981. It provides a guideline for organs of State to promote small businesses, and for measures on related matters. This Act provides for the establishment of the National Small Business Advisory Council (NSBAC) and Small Enterprise Development Agency (SEDA).

The core business of NSBAC is to represent and promote the interests of small business in South Africa, as envisaged in the National Strategy for the Development and Promotion of small, medium and micro enterprises (SMMEs).

The SEDA is responsible for advancing the policies in support of small business to sustain and enhance competitiveness, and for designing and implementing development support projects that enhanced job creation, entrepreneurship and economic growth.

A particularly salient feature of this Act is that it provides a definition of a small enterprise organisation, as follows:

“Small enterprise organisation means any entity, whether or not incorporated or registered under any law, consisting mainly of persons carrying on small enterprise concerns in any economic sector and established for the purpose of promoting the interests of or representing the small enterprise concerns and includes any federation consisting wholly or partly of such associations and any branch of such organisation

Another definition is provided for a small enterprise, reading:

“Small enterprise means a separate and distinct business entity , together with its branches or subsidiaries, if any, including cooperative enterprises managed by the owner or more predominantly carried on in any sector or sub-sector of the economy (as per schedule) classified as a micro, a very small or a medium enterprise by satisfying the criteria as per the schedule”

In terms of administration and oversight, the Board ensures the implementation of the functions of SEDA, through the Public Finance Management Act (PFMA).

Cooperatives Act
Ms Ncaphayi said that the Cooperatives Act allowed for the establishment of:

- A Primary Cooperative, which is aimed at providing employment and services to enhance community development
- A Secondary Cooperative, which is formed by two or more primary cooperatives to provide sectoral services
- A Tertiary Cooperative, which is formed by multi-sectoral cooperatives whose members are secondary cooperatives, and which is aimed at policy advocacy with government and the private sector

Worker Cooperatives consist of primary cooperatives in pursuit of the collective objectives of labour with regard to self managed enterprises.

The Cooperatives Amendment Act, No 6 of 2013, called for the establishment of a single National Apex Cooperative to lobby government and the private sector on policy recommendations that may improve and grow cooperatives in the economy. The National Apex Body could be formed by a minimum of three operational tertiary cooperatives at national level, and a minimum of five operational multi-sectoral cooperatives at the provincial or district or local level.

With regard to administration and oversight, it is envisaged that a Cooperatives Development Agency and Tribunal would be established in the financial period of 2015/2016.

Intermediaries Act

The Financial Advisory and Intermediary Services Act (No 37 of 2002), in tandem with the National Credit Act, regulates financial advisory and intermediary providers of services offered by any means or medium to a group or client. It also regulates the conduct of a Financial Service Provider (FSP) and provides guidance to consumers in their daily dealings with the considered product provider. The Act provides for remedies such as Ombud and “Hello Peter”, an informal platform for resolving disputes.

Primary administration is handled through the Registrar and Deputy Registrar, on the basis of written practice notes and codes of conduct. Secondary administration is done through the Advisory Committee which can advise, investigate and report on matters relating to financial service providers. The Board will grant final approval for implementation by the Registrar.

Apex Fund

The South African Micro-Finance Apex Fund (SAMAF) was a wholesale funding institution formally established in April 2006. Its primary purpose was to reduce poverty and unemployment and to extend financial services to reach people in rural and peri-urban areas.

One of the mandates of SAMAF was to build capacity amongst its clients and to train intermediaries who were considered as partners for the success of the SAMAF model, because they were close to communities where micro and survivalist businesses were located.

Small Enterprise Finance Agency

The Small Enterprise Finance Agency (Sefa) provides financial support using both Wholesale and direct lending as channels. The utilisation of intermediaries by Sefa such as the Micro Financial Institutions started during the time when Khula was still operating, before the merger between SAMAF and Khula, and this principle was then carried over.

Companies Act

Ms Ncaphayi noted that the revised Companies Act provides a new legislative framework for the incorporation, registration and management of companies. It established the Companies and Intellectual Property Commission (CIPC) and Companies Tribunal. The current legislation treats all businesses as companies.

Industrial Development Corporation Act

The Industrial Development Corporation (IDC) aims, through its overarching legislation, to promote the establishment of new industries and industrial undertakings, and to develop existing industries and industrial undertakings. This Act allowed for the establishment of Sefa to advance the objectives of SMMEs and cooperatives.

Mr Mojalifa Mohoto, Acting Deputy Director General, Department of Small Business Development, briefed the Committee on the supporting structures for SMMEs and cooperatives.

Small Enterprise Development Agency (SEDA)

He noted that the mandate of the Small Enterprise Development Agency is to provide non-financial Support Services. It currently provides these services through a number of delivery points across the country and is supported by the national office located in Tshwane. At the moment, SEDA offered a network of 43 branches, 18 mobile units, 48 electronic information kiosk (self service information points) 3 enterprise information centres (EICs), 42 incubation centres and 47 access points where Seda had co-located with other institutions.

SEDA also provides services through strategic partnerships, for instance with State Owned Companies (SOCs) such as Transnet, and with private sector organisations such as Vodacom. The utilisation of other business associations over time would be able to provide for an extension of support services.

South African Women Entrepreneurship Network (SAWEN)

Mr Mohoto noted that SAWEN is a non-profit organisation that was registered in 2004 by the Department of Trade and Industry (dti), to provide a national vehicle for individuals and groups of women to address their entrepreneurial challenges. It is a membership-based organisation and is allowed to receive subscription fees, seek and accept donations, grants or funds from a variety of sources. SAWEN acts as an advocacy group on the interests of women enterprises.

South African National APEX Co-operative (SANACO)
SANACO was formed as a result of a conference hosted by dti in 2008 that focussed on co-operatives. It was formed as a tertiary co-operative, representing the interests of primary and secondary co-operative members, and was registered as such in terms of the Cooperatives Act 2005.

SANACO provides advocacy services to its members and assists co-operatives with capacity building. Currently, there are 26 tertiary co-operatives in South Africa, including SANACO. The Co-operatives Act of 2005 enables tertiary co-operatives to have the word “apex” as part of their name. SANACO has a provincial representation in at least five of the nine provinces, is a member of the International Co-operative Alliance (ICA) and represents co-operatives at international forums such as ICA Africa and BRICS Co-operatives.

SANACO aspires to become the fourth tier of the co-operative movement, namely, a national apex body in terms of the 2013 Co-Operatives Act.

The Special Investigation Unit (SIU), through a President Proclamation, had been given powers to investigate allegations of misuse of funding offered by the Department of Cooperative Governance and Traditional Affairs (COGTA) to SANACO. The funding of SANACO had now been suspended by the Department pending the outcome of the investigation.

National Advisory Forum of Chambers of Commerce (Nafcoc)
Mr Mohoto explained that the DSBD had a working relationship with Nafcoc because business chambers were seen as vital for lobbying on behalf of their members, capacity building and networking.

Various partnerships had been established with Nafcoc in the past, with the aim of supporting its members who happened to be SMMEs. One recent project was a request to SEDA to provide business skills to Nafcoc members. Seda had trained about 1 283 Nafcoc and the Foundation for African Business and Consumer Services (Fabcos) members. The programme also provided capacity building to the leadership of both bodies. However, Mr Mohoto regretted that Nafcoc was split into two factions, but said that the Department had taken a decision to work with both factions, to fulfil the objective of providing support to the members, who are SMMEs. There was also a pending MOU with the current Nafcoc, which was negotiated and drafted with the dti.

There has been a good working relationship with Fabcos and its members were trained through the Seda programme.

Black Business Council (BBC)

In the past various business units within the dti had worked with the Black Business Council (BBC) on a range of projects such as the Black Industrialists (driven by the Black Economic Empowerment (BEE) Unit of the dti) and Growth Spark (Accelerator programme) for high-impact businesses (a project now run by the Department of Small Business Development).

The objective of the Growth Spark programme was to accelerate 250 small and medium businesses to become high impact businesses with employment potential and high turnover.

Afrikaanse Handels Instituut) AHI

Mr Mohoto noted that there were currently no working relations with the AHI, but the organisation has recently approached the DSBD for a working relationship to support SMMEs with business development support services. Discussions were on-going to assess what type of relationship would be established. A Chamber Support programme is currently being developed to support, mainly, the local and affiliate chambers, but also to deal with pertinent issues challenging the Chamber movement.

Ms Lindiwe Zulu, Minister of Small Business Development, noted that she had become acutely aware of the challenges facing these chambers, because they were so strongly divided, and suggested the Committee needed to investigate how these chambers could work together instead of competing and fighting, which only compromised their beneficiaries. She stated that her Department was willing to work with organisations that had good intentions.

Rev K Meshoe (ACDP) wanted to know if SAMAF had succeeded in its effort of reducing poverty. He wanted to know more about the 18 mobile units of Seda, including the frequency of the visits and how people were informed about them. He also wanted to know how SAWEN was being popularised.

Ms Pumla Ncaphayi responded that the Department would send the Committee detailed presentations about the support the two organisations SAMAF and Seda had provided to their beneficiaries. She said she could not provide all the answers today, because the Department came with a specific agenda and the information on those points.

Mr Mohoto added that SAWEN had offices in three cities (Cape Town, Durban and Johannesburg) and that various platforms were utilized to ensure the organisation would become better known, For example, there were awards for women who were making strides in their businesses.

Mr R Chance (DA) commented that the definition of small businesses should be reviewed, because both definitions are outdated. He also said the business mandate of Sefa should be reviewed because Sefa had been making many micro loans but that it was unknown if that effort had been producing results. Lastly, he asked about interventions taken to address the issue and allegations of missing funds between COGTA and SANACO.

Ms Ncaphayi explained, in regard to the definitions, that the intention was to make sure that the definitions fitted well with the present day dynamics, and any corrections would have to be done by way of a consultative process. In relation to Sefa, she indicated that the DSBD was of the view that the Sefa should migrate from the Department of Economic Development to DSBD, so that it would be able to address its core mandate. She asked the Committee to support it in its views and help to ensure that migration happened. In relation to the dispute between SANACO and COGTA, she stated that the Department would look into the nature of the investigation, at an appropriate point, and would engage with COGTA in terms of disclosures.

Mr T Ramakhoase (ANC) wanted to find out if how many of the Acts needed amendments, to assist the new DSBD with its work, or if it was sufficient that they remain as presently worded.

The Minister explained that the Ministry needed time to look at all the existing legislation closely to see if it was currently assisting people. It would be necessary to do at the least technical amendments, because the legislation still referred to the Department of Trade and industry. In order to deal with the matter holistically, the Department would have a discussion with Stats SA about the figures for small and informal businesses.

Ms N November (ANC) asked what interventions the Department was intending to take for the disabled people who were already in business, and those who intended to start businesses. She further wanted an explanation on the standpoint of the Department concerning the Nafcoc saga.

The Minister elaborated that the mandate of the Department was to collect data on the disabled who were running their own businesses, and further effort would be expended on those who were starting businesses. At this stage the Department needed data before it could develop the much-needed strategies.

The Minister noted that the situation with Nafcoc was difficult, because the Department had to understand what went wrong in the first place. She cautioned that the Department would not put itself into the situation where it stood in the middle and would try to address the problem. When the Department first attempted to engage with Nafcoc, one faction did cooperate while the other did not. The Department would continue to engage with Nafcoc about the MOU. The courts were already looking at the matter of the two factions.

Mr T Mulaudzi (EFF) asked if the legislation was planning to take the position of hawkers into account.

Ms Ncaphayi answered that the dti had launched a strategy early in 2014, and four pilot projects were under way to look at the informal economy of the country.

Ms T Mahambehlala (ANC) wanted to find out if the existing Boards that governed these chambers were still to continue. She also asked if the Seda networks had replaced the Red Doors.

Ms Ncaphayi stated that the Boards would continue to run until they lapsed. She indicated that the Red Doors were still in existence, but were now under the Seda networks.

Mr Chance commented that the Department should closely look at the Labour Relations Act of 1995 so as to balance matters, because it was negotiated between big businesses and trade unions. He also suggested that small businesses should have a representation on Nedlac, because at this stage they had no voice.

Mr Ramakhoane noted that models for accelerating the growth of small businesses to big ones should be discussed in the upcoming strategic workshop.

Committee programme
Members briefly debated the suggestion for a change of date for the strategic workshop.

Mr H Kruger (DA) suggested that the Committee should consider inviting the Afrikaanse Handels Instituut (AHI) and South African Chamber of Commerce to the workshop and not only focus on the South African National Apex Cooperative (SANACO) and NAFCOC.

Mr R Chance (DA) requested the Ministry to forward its programme for the strategic workshop. He  suggested that practitioners in this field and other organisations be invited to present their views and suggestions, as this would help the Department in its mandate.

Minister Zulu agreed with Mr Chance, and said it would be useful to have contributions from practitioners as they worked “in the field” every day. She also suggested that an invitation be extended to Stats SA and National Treasury, and this be done through the Committee and Management Committee.

The Chairperson suggested 10 September 2014 as a possible date, but noted that it was still subject to confirmation later.

Members adopted the changes to the programme.

The meeting was adjourned.


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