National Treasury, Afrikaanse Handelsinstituut, Pick n Pay & Small Enterprise Development Agency on their support to SMMEs and co-operatives

Meeting report

Adoption of Minutes

The Chairperson tabled the minutes for the 20 August 2014 meeting.  Mr R Chance (DA) moved their adoption.  The Rev K Meshoe (ACDP) seconded.   The minutes were adopted.

The Chairperson tabled the minutes of 27 August 2014.  Mr X Mabasa (ANC) proposed several changes in wording, after which Ms N November (ANC) moved their adoption, which Mr S Bekwa (ANC) seconded.   The minutes were adopted.

Afrikaanse Handelsinstituut Presentation

Mr Christo van der Rheede, Chief Executive Officer: Afrikaanse Handelsinstituut (AHI), informed the Committee the strategy guiding of his organisation was aimed at unlocking expertise, products, services and funding among the members of the organisation via the structures of the organization, and to transfer these benefits to affiliated business chambers, which in turn would channel them to their members and other beneficiaries in their service areas.

The focus was on mobilising business people at the local level and establishing business chambers at local level. It also extended its focus to developing entrepreneurship and supporting existing entrepreneurs, and to spearhead local economic development in collaboration with municipalities.

The AHI had stated its commitment to the National Development Plan (NDP) during its conference in 2012. Through its membership and collaboration with the state, it focused on a multi-disciplinary approach to bring about stronger and sustainable economic growth in South Africa.

The organisation would assist in the strengthening of the following core elements identified in the National Development Plan:

• housing, water, electricity and sanitation
• safe and reliable public transport
• quality education and skills development
• employment
• quality health care
• social protection
• safety and security
• recreation and leisure
• clean environment
• adequate nutrition

He pointed out his organisation had a working relationship with the Department of Cooperative Governance and Traditional Affairs (COGTA). The aim was to foster co-operation between municipalities and local chambers; assist municipalities with expertise in local economic development, financial management, infrastructure development, sound governance, service delivery and anti-corruption mechanisms; and to launch other activities related to economic empowerment and development in partnership with municipalities.

With regard to entrepreneurial training, local chambers could apply for funding to host a competition of entrepreneurs and a market day, in collaboration with local primary or high schools, or to train young adults who were interested in starting their own businesses.  Advanced and accredited training for aspiring entrepreneurs was also provided, in collaboration with the North West University’s Small Business Advisory Bureau (SBAB) programme.

The membership of the organisation consisted of direct and indirect membership. Direct membership comprised corporate and multinational companies, medium and small businesses, and companies that can apply for direct membership to access a range of products and services provided by the AHI and to become part of the organisation’s referral network.

On the other hand, indirect membership was made up of business chambers -- more than 100 local business chambers with a combined membership of more or less 9 000 businesses – and organisations of employers of the AHI, comprising more than 200 labour specialists with a combined membership of more than 10 500 businesses.

Lastly, the organisation consisted of experts and representatives of interest groups to serve as an expert forum on topical subjects; to study and comment on legislation and special projects; to give expert input to Council; and to give advice to members to proactively liaise with relevant decision makers.

Discussion

Mr Chance asked what the AHI was doing in the townships or black residential areas with regard to business.

Mr Van der Rheede said that local chambers had been instructed to identify young entrepreneurs in townships to be mentored in their efforts to start their own businesses. A monitoring and evaluation process was in place to link the young to the Small Enterprise Development Agency (SEDA) and commercial banks. Then they would be integrated into the local chambers. This process had started two years ago. He further said he had published articles in media urging individual chambers to help train previously disadvantaged individuals.  It had been discovered that some of these chambers were still struggling to recruit youngsters from previously disadvantaged communities. He stressed he was against recruitment for token purposes.

The Rev Meshoe wanted to know what the AHI was doing to help make people see there were opportunities, because the Somalis and Pakistanis were exploiting the very same opportunities and this was continuing to lead to xenophobic tensions.

Mr Van der Rheede said interventions had been made to eliminate the xenophobic tensions. In Oudtshoorn, there had been a recent attack on Somalis. The major problem identified was that the locals lacked the competitive advantages of the Somalis and did not have a structure to operate, whereas the Somalis were organised when dealing with suppliers. Consequently, the local Spar in Oudtshoorn had stepped in and developed a course to empower the locals with the basic skills of business in order to change their mindset.

Mr T Mulaudzi (EFF) commented that he had never heard of a relationship between the AHI and local government, though he had been working for the local government in Limpopo. He asked the organisation to spread its wings to the many disadvantaged areas.

Mr S Bekwa (ANC) enquired about the success rate in municipalities where the AHI had done work.

Mr Van der Rheede said his organisation had signed agreements with the South African Local Government Association and Department of Cooperative Governance and Traditional Affairs, to assist municipalities. They had supported municipalities like Clanwilliam, Graaff Reinet, Kirkwood, Aliwal North, Eersterust, Bothaville, Lydenburg and many others, in order to strengthen the objectives of the National Development Plan by creating jobs and alleviating poverty.

Ms N November (ANC) wanted to find out why the organisation was clinging to its Afrikaans name and not considering a name change.

Mr Van der Rheede said his organisation was using the acronym, AHI, which was also applicable in English.

The Chairperson commented she was very sensitive to structures that were racially based. The answer was still based on the applicability of Afrikaans and English.  The name of the organisation said a lot about its identity. Even if the organisation was created along racial lines, its name still said a lot of what it was and perpetuated its radial identity.

Mr H Kruger (DA) asked the Chairperson if it was wrong for an organisation to have an Afrikaans name.  He hoped that the Chairperson was not implying that the language speakers of such an organisation that had an Afrikaans name, were racists.

The Rev Meshoe suggested the issue should be discussed outside of the meeting.

Mr Van der Rheede told the Members his organisation was currently in the process of transformation. Already, it had had talks with the National African Federated Chamber of Commerce (NAFCOC), the SA Chamber of Business (SACCOB) and other organisations on the possibility of having a unified structure which would be in the hands of the private sector and work closely with the Ministry of Small Business Development.  Lastly, he emphasised the importance of fusing indigenous languages, multi-lingualism and cultural practises into commercial ventures.  He pointed out that Afrikaans had been born in a kitchen but was now a commercial product used in the media, academia, science etc.  Intellectual resources needed to be put into our languages.   He agreed that one could not continue with race-based organisations.

Pick n Pay Presentation

Ms Suzanne Ackerman-Berman, Director of Transformation: Pick n Pay (PnP), said the plans of her organisation were to contribute resources towards community development and welfare; to promote healthy and sustainable living; and to develop diverse and ethical suppliers.

In their efforts to develop small enterprises, the first thing PnP did was to identify the industry, source a supplier, assess needs and apply mentorship. The second step involved financing and providing access to markets.

The idea behind its Small Business Incubator programme was to facilitate the introduction of small, medium and micro enterprises (SMMEs) to retail through mentorship, guidance, support and providing access to markets. Already, through projects initiated, this had created jobs, empowered individuals and alleviated poverty in areas where Pick n Pay stores were located. For instance, they had a honey project at eChwebeni Village in the Eastern Cape, a charcoal supplier in Kwazulu-Natal, fresh produce suppliers in Limpopo and many others in different provinces.

The enterprise development programme of Pick n Pay had three tiers of support: “Baby,” which makes a profit of less than R5m; “Toddler,” which makes between R5m and R8m; and “Teen,” which makes over R8m.

Challenges to accessing funding were described. These included:

• complicated application process;
• lack of flexible funding: there were strict and rigid rules for accessing funds;
• the call centre system for advice and guidance takes a long time;
• small businesses find it hard to navigate through the red tape;
• the role of conduit organisations or agencies was not clear;
• insufficient communication between market players.

She also highlighted that the funding options of the Department of Trade and Industry did not benefit small business, and that government contracts did not have favourable payment terms.

Pick n Pay was of the view that public-private partnerships (PPPs) was the way to go in helping small businesses to grow.  In this kind of arrangement, for example, Pick n Pay would provide access to markets, provide business management skills and operational services.  In turn, the government would need to provide infrastructure, working capital and a regulatory environment in terms of compliance.

She concluded by proposing solutions. The industry needed to use different models for different categories; engage with all market players for a comprehensive solution; design flexible solutions which were driven by business needs; and limit media exposure until the agreed size had been achieved or sustainability guaranteed.

Discussion

Mr Chance commented he would like more details on the success rate of Pick n Pay’s incubators.

Ms Ackerman-Berman said their success rate was indicated by the turnover growth, resilience in retail, how the incubators coped with business management skills, and how long they had been working with Pick n Pay.

The Rev Meshoe asked how Pick n Pay ensured quality from the small supplying businesses in order to protect its reputation.

Ms Ackerman-Berman indicated that quality assurance was something that was looked at all the time. Small businesses were taught how to look at quality and sustain it.

Mr Mulaudzi commended Pick n Pay for procuring from small businesses in order to give them confidence and an opportunity to grow. He asked if Pick n Pay worked with co-operatives.

Ms Ackerman-Berman explained they engaged with many co-operatives which had over 95 members, who supplied Pick n Pay stores.  In each community where they operated, they made sure the locals supplied the local store with fresh produce, especially with their Boxer stores in the rural areas of KwaZulu-Natal and the Eastern Cape.

Small Enterprise Development Agency Presentation

Mr Sipho Zikode, Acting Chief Executive Officer: Small Enterprise Development Agency (SEDA), told the Committee that the strategic objectives of his organisation were to look at enhancing the competitiveness and capabilities of small enterprises through coordinated services, programmes and projects; ensuring equitable access to business support services; and strengthening the organisation in order to deliver on its mission.

Its offerings were aimed at supporting survivalist and micro-enterprises, small and medium enterprises, collectively owned enterprises and people with disabilities. It targeted and serviced small enterprises as defined by the National Small Business Amendment Act, 29 of 2004.

For the past three years, the entity had facilitated the operation of over 100 primary co-operatives and over 30 secondary co-operatives.  Approximately 36% of surveyed small enterprises reported an increase in the number of people employed, and about 66% reported an increase in turn-over as a result of the yearly interventions of the organisation over the past three years.

The organisation had 43 operational partnerships across all three tiers of government, the private sector, public sector and international organisations.  The SMME Payment Assistance Hotline had facilitated over R380 million in payments since its inception.  The SEDA Technology Programme had created in excess of 10 300 direct jobs over the past six years.

Its budget allocation for financial year 2014/15 was around R624 million.  Graphs and tables were shown to illustrate the staff complement, revenue and expenditure, budget per economic classification, and performance on strategic indicators.

Discussion

Mr Chance wanted to know what the organisation needed in order to have a larger impact.

Mr Zikode said they needed more resources. They would like the Committee to assist the Ministry of Small Business Development to look closely at SEDA’s resources, because their core function was to provide business advice, and that was why they spent money on training business advisors. As a result, their infrastructure was not enough to cover certain areas.

The Rev Meshoe asked if most small businesses were aware of the hotline, so that they could be assisted.

Mr Zikode said they were trying their best to publicise the hotline in magazines whenever there was an opportunity.

The Chairperson asked the organisation to forward reasons given by the departments they had phoned regarding late payments, and explain what they had done about that. She wanted to know about the kind of assistance given to small businesses experiencing delayed payments, especially when they had to fulfill a contract.

Mr Zikode said most of the time late payments were a result of inconsistencies on the part of the small businesses. For instance, there was incongruence between the tendered quotation and the invoice. The quotation would have no VAT in its cost estimate, but the invoice will have it. Another problem related to valid tax clearances, where one would find that small businesses had invalid ones or none at all.  His organisation helped only with tender advice and costing.

Ms November enquired about measures in place in order to retain good staff.  She commented that the organisation was like a station waiting room, where people come and go.

Mr Zikode admitted they did train people, but at a certain level they were taken away by other companies that offered them higher salaries. A retention policy was being developed, because many of them earned less than those in senior government posts.

Mr Mulaudzi commented that the presentation said nothing about co-operatives, and that SEDA’s activities were not aligned or linked to NDP objectives.  He suggested that the next time they came to the Committee, they should bring more details about their involvement with co-operatives.

Mr Kruger said that the organisation did not seem effective when it came to delivering on co-operatives.  It was hard to understand why SEDA was spending R221 000 to create one job per annum.

National Treasury Presentation

Mr Matthew Simmonds, Deputy Director-General: National Treasury, informed Members that SMME’s share of employment was high, but was declining.   In 2008, 75% of employment was in firms smaller than 50 employees, but this had fallen to 65% in 2013.  This had resulted in the loss of 1.4 million jobs. The rate of growth in the SMME sector was low, and turn-over had increased by only 13% in 2103, moderately above inflation.  In 2013, 29% of SMMEs had faced a threat to their survival when compared to the 35% that had faced a threat to their survival in 2012.

In the annual survey of 500 SMMEs, 71% had said it had become harder to operate a business in South Africa in 2013. Chief obstacles to growth were a lack of skilled staff, regulations, local economic conditions, access to finance and the cost of labour.  Lack of skilled staff and regulations were the worst obstacles for the fastest-growing SMMEs.  Companies spent an average of 75 hours a month in dealing with red tape.

A number of initiatives had been centralised in the Small Enterprise Finance Agency (SEFA), which was an amalgamation of the South African Micro Apex Fund, Khula Enterprise Finance and the small business lending division of the IDC.  SEFA was a subsidiary of the IDC, and received an allocation of R861m over the 2014 Medium Term Expenditure Framework (MTEF) from the Department of Economic Development, which included allocations from the Economic Competitiveness and Support Package.

SEFA had two main lending products.  These were direct lending – loans from R50 000 to R 5m – and wholesale financing, which involved lending via private sector parties, joint ventures and a credit guarantee scheme (risk-sharing with private banks).

Government was a small part of a much broader financing framework for small businesses. The Small Enterprise Development Agency was providing non-financial support to SMMEs.  It had allocated over R1.5 billion over the 2014 MTEF.  The SEDA Technology Programme provided support to technology-based SMMEs through incubators.  It had allocated R397m over the 2014 MTEF.

Incentives were in place to support SMMEs and co-operatives aimed at broadening participation and improving competitiveness and sustainability.

The government had the following funds to support SMMEs:

• The iMbewu Fund – an SMME Fund run by the National Empowerment Fund;
• Tourism Enterprise Partnership – which provides support to SMMEs in the tourism sector, in collaboration with the private sector;
• Strategic Partners in Tourism – allocates procurement to SMMEs;
• Socio-economic Transfers – provides technological support to SMMEs;
• The Idea Development Fund – the Technology Innovation Agency provides small amounts to SMMEs to patent their internet protocol (IP);
• IDC runs a small-scale mining project for the Department of Mineral Resources (DMR);
• Provinces and cities run their own incubators and provide funding.

The National Treasury, in conclusion, stated it viewed SMME development as a crucial element of our economic strategy. The necessary first step was to get the strategic intent right, prioritise the activities that would service the intention, coordinate different government initiatives and provide products the market required.

Discussion

Mr Chance asked the Treasury to elaborate on how the two goals of the economy – growing the economy and transforming the economy – were going to be achieved. Secondly, he enquired what the Treasury was doing to ensure disbursements were used correctly.

Mr Simmonds said the objectives of transforming the economy and growing it were very important to the society. He was not in a position to pronounce how these objectives were going to be prioritised. Concerning disbursements, he said small business development has been a major issue for the government for a long time. He said there was a need to look at the modalities of delivery.

Mr Mulaudzi felt the National Treasury presentation was irrelevant and had not helped the Committee in any way.

Mr Mabasa indicated that structures like the South African National Apex Tertiary Co-operative (SANACO) were of the view that the supply chain policies of the National Treasury needed serious amendment.

Mr Simmonds said that supply chain and procurement policies would be looked into, although the policies had been designed to protect the integrity of procurement. He cautioned it would be difficult to make concessions for different businesses.

Mr Kruger, on the issue of the role of the government in funding SMMEs and co-operatives, commented that the private sector should be allowed to do what it did best, and the government should only provide funds and stand security for the loans.

The Chairperson indicated that the National Treasury presentation was important, though it had not talked about financial intermediaries. All the presentations had indicated a need to review funding models and service packages because it had become clear co-operatives and SMMEs were being developed without taking into account the challenges facing the country. Through SMMEs and co-operatives, South Africa would be able to lessen the dependency of people on social grants, but first the red tape for SMMEs and co-operatives would need to be reduced.

The meeting was adjourned.