Department of Small Business Development on its 2014/15 Strategic Plan, 1st and 2nd quarter 2014 performance; Third Term Committee Programme

Small Business Development

15 October 2014
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Department of Small Business Development (DSBD) presented its Strategic Plan for 2014 to 2019, as well as the performance against the Annual Performance Plan for Quarters 1 and 2 of the 2014/15 Financial Year. It was noted that the DSBD was a new department that had taken over certain functions in relation to small businesses and cooperatives from the Department of Trade and Industry (dti), although there was no additional budget provided. The Chairperson said, in her opening remarks that the Committee would still need to reflect on the mandate, and would have to carefully evaluate each of the programmes taken over, assessing whether and how they were effective in reducing poverty and inequality and increasing job creation. It was crucial to sustain a proper balance between managing debt and ensuring productivity, particularly given the lack of additional budget, and she reminded the Committee that the legislation allowed Parliament to make revisions to the budget. Another Member commented that because funding would be needed for new premises and salaries, this implied that less would be available to render services to the beneficiaries, a particularly worrying point. The Department agreed that any programmes that did not align to the Strategic Plan would be reviewed. The strategic objectives were summarised in relation to small business and cooperatives, entrepreneurship and promotion of innovation, and it was noted that the medium term expenditure framework for 2015 to 2018 anticipated that R5.1 billion would be spent, but an additional R2.5 billion would be requested to cover the issue of financial inclusion of SMMEs and co-operatives, in line with the mandate of the cluster. Amounts would be transferred to cover the agencies and programmes now falling under the new Department, which were set out in more detail. The second presentation covered the performance, in the first two quarters of the financial year, on functions transferred from the dti. Challenges included the fact that programmes were still structured to meet the objectives of the dti, and the delay in transfer of functions from the dti to the new Department. The targets reached and not reached were summarised. A function deferred to the next financial year was the job specification (CDA and Tribunal) with Department of Public Service and Administration, and certain HR function approval. It was anticipated that there would be an R11 million shortfall.

The Committee Chairperson noted, with disappointment, that the presentation documents were not received in sufficient time for Members to study them in depth, and thus only questions of clarity could be asked. She added that the presentation also placed more emphasis on merely setting out figures than on explaining what the figures and targets actually meant in terms of upliftment and assistance to small enterprises, how enterprises were selected, and what targeted interventions were required. It was agreed that the Department would re-draw the documentation and amplify the presentation in another meeting, when more detailed questions could be answered. Members thought that without addressing the possible overlaps between the dti and the new Department, it would be difficult for the Committee to meet its mandate on ensuring job creation. The Chairperson stressed that a one-size-fits-all approach would not work, and suggested that public procurement and infrastructure spend were key drivers and several opportunities must be explored. Other Members asked about the delays in transfer of the functions, questioned whether the targets stated were the true figures, or benchmarks from a previous period, and where the budget emanated, and asked about programmes targeting the youth. ~

The Committee briefly discussed upcoming events, and debated but did not adopt the minutes of meetings on 10 and 17 September and the Third Term programme.

Meeting report

Chairperson's opening remarks and reflection on the task facing the Portfolio Committee
The Chairperson noted that, in the lead-up to the preparation of the Budgetary Review and Recommendations Report (BRR), each portfolio committee would follow a process of examining, and if necessary making changes and recommendations upon and reprioritising, if necessary, the budget of the department that it oversaw. This Portfolio Committee was overseeing a newly-created Department of Small Business Development (DSBD or the Department), but the fact that it was new did not suggest that there was not room for reflection on its mandate.

She reminded Members that the mandate of the Department of Small Business Development had formerly been handled as a programme of the Department of Trade and Industry (dti) for the last 20 years. Previously, the dti was tasked with developing Small, Medium and Micro Enterprises (SMMEs) and co-operatives. This was now the function and task of the new DSBD, and it must make changes where necessary. The Committee must evaluate the impact of programmes which the DSBD would take over from the dti, and in particular to assess their effectiveness in reducing poverty, reducing inequality and increasing job creation. There must be sufficient justification for continuing with those programmes.

She added that the fiscal policy of government was to create and sustain a proper balance between managing debt and ensuring productivity, through effective management of the budget. Revenue and expenditure needed to be managed carefully, as there was no additional funding for the new Department. Poverty reduction, job creation and the reduction of inequality would be used as a measurement tool for determining the effectiveness of a programme, and if a programme did not meet those criteria, the Department would have to justify why it should nonetheless be retained, and if it failed to demonstrate this, then the funding for the programme falling short would have to be re-prioritised. If the strategic plan did not address these criteria, it would have to be reviewed. She added again that the Constitution and legislation empowered portfolio committees to change the budget and focus of a Department. The Department and the Portfolio Committee had to agree on what needed to be achieved through the budget, how it would be achieved and who the beneficiaries of the budget would be.

It would not be possible to for the Portfolio Committee to interrogate the Department on its presentation on a high level at this meeting. She noted that the presentation was received only today and Members of the Committee had not yet assessed it in their study groups, so it would only be possible to ask questions of clarity. Once the study groups had dealt with the matter, and assessed the budget in line with the priorities of the country and the fiscal policy the Committee would engage with the Department on the issues in order to find a common understanding.

Mr H Kruger (DA) said that if the size of the budget remained the same despite the fact that there were now more departments, the only losers were likely to be the beneficiaries, meaning small business will be getting a smaller cut of the available funds, since more funding would be used up by the new departments on their new offices and salaries.

The Chairperson replied that such discussions should wait until the Department had completed its presentation on the strategic plan and budget allocation, and until that in turn had been assessed in the study groups.

Department of Small Business Development on its 2014/15 Strategic Plan and budget
Ms Pumla Ncapayi, Acting Director-General, Department of Small Business Development, explained that the presentation would be given in two parts; the first dealing with the Strategic Plan and Annual Performance Plan (APP), and the second outlining the performance during the first two quarters of the current financial year. She asked the Chairperson if she could give guidance on which area the Committee wanted her to focus on.

The Chairperson responded that it was difficult for her to answer that as she had only just seen the presentation.

Ms Ncapayi said she would start by presenting the Strategic Plan and then hand over to Mr Mojalefa Mohoto, Acting Deputy Director General, for the presentation of the APP. She noted that the Members needed to have some oversight of what had happened in the current financial year as this formed the basis of what was considered in the Strategic Plan.

The Chairperson noted that the Committee and Department would have to work closely together to achieve the mandate of the Department and it was important that deadlines had to be met. It was not fair that Members of the Committee receive documents relating to the Strategic Plan and APP, only when coming into the meeting room, and she noted that although this may be a new Department, she had expected the officials to remember how Parliament operated. The Department was well aware that a presentation would be given on this topic today, and should have ensured that documents were submitted on time. The Committee should not be held back by the Department’s late performance. She hoped that this would be the last time she would have to bring this to the attention of the officials, and cautioned that if there was a recurrence, she would have to bring the matter to the attention of the Speaker and the leader of Government Business. Documents needed to be provided in advance so that members of the Committee could go through them and discuss them in their study groups. 

Ms Ncapayi replied that the documents had not been provided on the morning only, but committed to meeting deadlines in the future.

The Chairperson said that the documents had been provided after 3:30pm the previous afternoon, and that was still too late. In addition, those documents had since been amended. She asked Ms Ncapayi to agree that a mistake had been made.

Ms Ncapayi noted this and committed herself again to providing documents on time in the future. She apologised for providing the documents late, due to the challenges the Department had with the documents.

Ms Ncapayi then moved into the presentation (see attached document for full details). She noted that the National Development Plan (NDP) was key in devising the Strategic Plan. Programmes to be put in place would address challenges of the economy today, specifically the need for poverty reduction, reducing inequalities and sustainable job creation. Programmes not meeting these objectives and the needs of the beneficiaries would be reviewed accordingly.

The strategic objectives of the new Department were key, with specific outcomes mentioned and targets for each financial year up to 2019. She summarised the strategic objectives as follows:
- Strategic objective 1: To facilitate the development and growth of small businesses and co-operatives to contribute to inclusive economic growth and job creation
- Strategic objective 2: To facilitate the transformation of the economy through entrepreneurship and innovation promotion
- Strategic objective 3: To encourage and advocate for small business and co-operatives conducive regulatory environment
- Strategic objective 4: To encourage partnerships with other role players to ensure mutual co-operation

The medium term expenditure framework (MTEF) for 2015 to 2018 made provision for R5.1 billion to be spent on compensation of employees, goods and services, transfer payments and payments for capital assets. An additional R2.5 billion will be requested to cover the issue of financial inclusion of SMMEs and co-operatives, in line with the mandate of the cluster.

The detailed allocation of the transfer payments included payments to the existing agencies of the dti which would be migrated to the DSBD, which included the Small Enterprise Development Agency (SEDA), South African Women Entrepreneur’s Network (SAWEN), Isivande and the Incubation Support Programme. Those remaining with the dti were also outlined. Amounts had been allocated for the Co-operatives, the Centres for Entrepreneurship and the future set up of the Co-operatives Development Agency (CDA).

The proposed allocation for the six departmental programme was described, as follows:

Programme 1: R52 million to be used for administration functions providing support services to the department such as for a Chief Information Officer, Human Resources, Legal Services, Corporate Governance and Ethics, Auxiliary Services, Marketing and Communications, IT, Finance and Audit Services.

Programme 2: R198 million to be used for customised intervention programmes with a key focus on striving to improve the quality of financial and non-financial support services to SMMEs and Co-ops. Specific programmes include the support of informal activities through the implementation of the National Informal Business Upliftment Strategy (NIBUS) and supporting market access initiatives.

Programme 3: R157 million to be used for implementing a new support model for co-operatives, including implementation of the Co-operatives Act and the establishment of the CDA and Tribunal, and developing and providing financial incentives.

Programme 4: R85.955 million to be used for research, policy and intergovernmental relations. Existing policies would be evaluated periodically to see if they can be enhanced in line with the mandate of the Department. Transversal agreements would be concluded with other government departments to enhance implementation of departmental strategies.

Programme 5: R81 million to be used for capturing innovation and managing intellectual property and indigenous knowledge systems, as well as for incubation technology for small business and co-operatives.

Programme 6: R175 million to be used on Enterprise Development and Entrepreneurship.

R 60 million was requested for unforeseen and unavoidable expenses, but R33.7 million was allocated for this.

Mr Mojalefa Mohoto, Acting Deputy Director-General, DSBD, introduced the next presentation on the APP, noting that the focus would be on the performance, in the first two quarters of the financial year, in the functions transferred to the new Department from the dti.

He noted that there were various challenges. The programmes taken over were still structured to meet the objectives of the dti, and therefore this report would be aligned more to what the dti strategic objectives on those activities were. There had been delays in the transfer of functions from the dti to the new DSBD.

He firstly dealt with the Incentive Schemes in quarter 1 and 2, outlining the following statistics:
- 92 Projects were supported under the Co-operative incentive Scheme (CIS)
- 80 Projects were supported under the Black Business Supplier Development Programme (BBSDP) incentive.

He then made mention of the Informal Sector Programmes under strategic goal 3, which were intended to facilitate broad-based economic participation through targeted interventions to achieve more inclusive growth.

He touched on the performance of other programmes, including the Small Enterprise Development (SEDA) Technology Programme (STP), the Action Plan for the Integrated SMMEs and Co-Operative Development , and noted that implementation of the Cooperatives Act (as amended) was an important goal. The Department was also focusing on the National Strategic Framework on Gender and Women Economic Empowerment, National Informal Business Upliftment Strategy and the Youth Enterprise Development Strategy

There were some milestones that were not achieved in the previous quarter, but the development on these so far was outlined. 43 established incubators were supported through STP. There had been 1 587 SMMEs created through STP.

SEDA had approved 2 400 SMMEs for assistance by SEDA.

One activity deferred to the next financial year was the job specification (CDA and Tribunal) with Department of Public Service and Administration, and certain HR function approval.

The goals and programmes that were achieved as anticipated in the quarter 1 and 2 included:
- Implementation of the Cooperatives Act
- National Strategic Framework on Gender and Women Economic Empowerment

- National Informal Business Upliftment Strategy (NIBUS)

- Youth Enterprise Development Strategy

- SEDA Technology Programme

- Centres of Entrepreneurship

- Integrated SMMEs and Cooperatives Development Framework

He then outlined the available budget as at September 2014 and projected expenditure at year end (by economic classification) as well as outlining the expenditure until 30 September 2014. He noted that the Department anticipated that there would be a shortfall of R11 million at year end.


Mr Kruger commented that it would be very difficult to meet the mandate of the Committee to develop small business and co-operatives with the primary goal of job creation, and it was also very hard to see the broader picture, because there still seemed to be a duplication of functions between the dti and the DSBD.

Ms Ncapayi replied that discussions about the migration plans were ongoing, between the dti and the DSBD. The DSBD had submitted a proposal to the National Macro Organisation of the State (NMOS) for the consideration of the structure of the new Department. The relevant Ministers were to have a workshop on the topic of the migration. The Department of Public Service and Administration (DPSA) had indicated what structure should be considered, but the Department had sent a letter to the DPSA objecting to that proposal as it would not assist the Department in executing its mandate. Discussions must also take place about the pending migration of the Small Enterprise Finance Agency (SEFA) to the DSBD, to support the Department’s work. The DPSA had said that the structure of the Department must first be finalised before such discussions would take place. The Department objected to this approach as it believed that all the elements to be migrated must take place at the same time. The DBSD was now awaiting a revised proposal from the DPSA.

The other element of the migration was that the dti managed the system and the DSBD also had a role to play. Discussions between these two departments needed to take place at the Bargaining Council to ensure that employees would not be worse off financially because of issues such as benefits that accrued under the dti.

The DSBD had completed the elements of the National Macro Organisation of the State and made presentations to that body on the medium term expenditure framework as it was shown in the presentation.

Mr R Chance (DA) said he was very concerned at what he had heard in the presentation and said that he and Mr Kruger needed time to study the presentation in detail, and thus wanted to reserve their comments for next week’s meeting. He was concerned about the implications the presentations had on the viability of the new department.

The Chairperson noted that, in a previous workshop, the Committee had asked for a change in reporting style from the Department. The performance indicators should not be stated merely as numbers of SMMEs and co-operatives. The starting point was not SMMEs and co-operatives themselves. The question why these needed to be developed had to be answered, and another was what economic challenges  they were addressing. The socio-economic status of cooperative members before intervention was not known. She wanted to emphasise that whilst numbers were important in their way, the Department had not altered the style of reporting to meet the Committee's greater focus on the results. The Members needed to know the socio-economic status of those assisted, which makes them worthy of government intervention. For instance, the Committee was interested in hearing whether the members of SMMEs that were assisted were drawn from the unemployable of society, and whether that had assisted those people to become economically active. The current situation, where such people relied on handouts from government, was not sustainable. Free houses, water and electricity given to such people by municipalities did not result in municipalities broadening their revenue base. Another point that she wanted to make was that it was possible that cooperatives or SMMEs that were reported upon as conglomerate numbers only might even belong to a Member of Parliament who was drawing a salary, so it was important to know whether it was specifically targeted because it spoke to socio-economic transformation.

The Chairperson noted that strategic goal 3 was to facilitate broad-based economic participation through targeted interventions to achieve more inclusive growth. This was a very broad and general statement, which could not be measured except by numbers. Strategic goals needed to be measurable but they also needed to show the problem that was being addressed, the nature of the intervention and support and the change that was effected - in other words, the social and economic change that occurred, and whether this had achieved a move from an undesirable to a desirable situation. Families had to become self-reliant and self-sufficient and able to pay for municipal services.

She added that the challenges of SMMEs and co-operatives should be understood. In particular, the questions must be answered what they were failing to do, which then required an intervention, whether the   intervention matched the problems that were faced, and what would be the expected end result after the intervention, as well as whether this result was achieved. These were the points that the Committee needed to hear.

Ms Ncapayi took note of the Committee's concerns and said the Department would table the APP report again. It would take into account the feedback received, giving more attention to how SMMEs and co-operatives were structured prior to an intervention, and the impact on society of an intervention. The Department would also review its Strategic Plan taking into the account the feedback received.

Ms Ncapayi said that she hoped to receive an indication from Mr Chance of his specific concerns so that these could also be taken into account when the Department reviewed its work, including the Strategic Plan.

Mr Chance replied that his feedback and detailed recommendations would be given next week, based on the presentation.

The Chairperson said that the Department and Committee needed to understand that this country had features of both a “First world” and a “Third world”, as evidenced by the inequalities. There were pockets of very poor communities that needed socio-economic intervention. There needed to be a specific focus on these communities that were affected by poverty. She asked what the resources were that were made available in such communities. She noted that the strategy of the Department could not be implemented evenly for the levels of development were not even, and the specific focus must lie in assessing how to pull those people presently sitting at the bottom of the poverty line higher? It was not sustainable to leave them dependent on government grants. A one-size-fits-all approach would not work. She said that it was necessary to map the country to clearly understand where the pockets of poverty and unemployment were, and what opportunities existed in those areas.

Public procurement and infrastructure spend was a key driver of SMME and co-operative development. She asked whether, for instance, the manufacturing of water storage tanks was seen as an opportunity? The human settlement roll-out programme said that water should be harvested. The manufacturing of window and door frames for RDP houses should also be seen as an opportunity for the development of small manufacturers.

The real issues, which were observable, should be taken into account. The Strategic Plan had to speak to the priorities in the NDP, such as poverty, unemployment and inequalities. This should be seen in the strategic plan and reporting system or it would be difficult for the Department and the Committee to stand on common ground.

Ms A Matshobeni (EFF) was concerned about the delays in transferring functions from the dti to the DSBD and the achievements of the new Department. She noted that, for the SEDA Technology programme, the annual target was to establish 48 incubators and the actual achievement in quarter one was 43, and she questioned whether this was the true figure, or whether that was a benchmark or baseline figure that derived from somewhere else. Similarly, for the SEDA Technology Programme, there was an annual target to have 962 SMMEs approved for assistance by SEDA, but the figures showed that 1 576 had been achieved in quarter 1 - and again she questioned if this was the real achievement. If the targets had already been exceeded, then she questioned what the implications were for the allocated budget for this programme?

Mr Mohoto replied that the 43 SEDA incubators already existed, and this was the baseline amount rather than the result for quarter one. The target was to add three incubators in quarter two, to reach the total of 48. This target was not met in that quarter, and now the matter would be fast tracked in the next quarter so the target could be reached. He agreed that the SMME achievement of 1 576 that was reported was also a cumulative one. This milestone target of 962 had been exceeded.

Mr Chance asked if the six programmes mentioned in the Strategic Plan were drawn from previous programmes mentioned in that presentation, or if they were additional programmes. He also needed to know from where the budget for those six programmes came, and whether this was part of the overall expenditure budget.

Ms Ncapayi replied that the budget for those programmes would come from the new budget, as proposed in the medium term expenditure framework. There was a baseline for some programmes, although this did not exist for others; she would make this clearer in the revised presentation.

Mr Chance replied that this would help as there were line item budgets and programme budgets. It would be helpful to know the relationship between the two.

Ms Ncapayi responded that the programmes, as reported in the APP, were budget lines and had been converted into the respective programmes. There would be a breakdown given, so the Members could have a clearer picture of what was allocated for co-operatives and enterprise development as a budget line item, but not per programme. The programme was focussed on broadening participation across the board including Black Economic Empowerment (BEE) issues. 

Ms Matshobeni asked what programmes were in place that targeted the youth. There were programmes specifically targeting women. The youth should be encouraged to be entrepreneurs instead of seeking employment. If government was serious about reducing inequalities it should seek to procure 70% of what it consumed from small business. Also, there was nothing mentioned in the APP about the specific challenges faced by the rural and peri-urban communities, where there were also entrepreneurs needing the support of the Department.

The Chairperson told Ms Matshobeni that those questions would be answered next week, once the presentations have been analysed in the study groups, as was said at the beginning of the meeting.

Ms Ncapayi responded that there were programmes aimed at enhancing the economic participation of the youth, including the Youth Enterprise Development Agency. The Department has also considered programmes that would amplify the initiatives in the presentation. There would be interventions benefiting all the target groups including co-operatives, youth, women and people with disabilities, and these would be elaborated upon in the next session.

Other Committee business
The Chairperson said that there had been an invitation to the Portfolio Committee from the Small Business Institute, which was having a Small Business Development Policy Colloquium from 21 to 23 October. However, seeing that the Committee had a meeting on 22 October, she said that if the Committee were to attend the colloquium, it could attend on 21 October only, and the attendance should be limited to two members from the ANC, and two from the minority parties. Those attending would need to leave very early on the morning of 22 October to attend the meeting.

Mr Chance replied that he agreed with the Chairperson. He had consulted with his Whip, as he was invited in his former capacity. He did believe it was important that members of the Committee attend the Colloquium, and he would be going on 21 October.

Mr Chance then raised the question of the Committee attending another event the following week, the Enterprise Development Conference taking place at Gallagher Estate and sponsored by Anglo American and others. The Minister and/or Acting Director General would be giving a keynote address. Since this was a Committee's business, he believed the Committee should allocate some budget for some Members to attend - the cost for each delegate was R5 500. The guest list also included several members of the DSBD< which was co-sponsoring the event. He asked whether the Committee had received an invitation and suggested that, if not, the Committee should write to the organisers of the event and request an invitation?

The Chairperson responded that it was the usual practice that the Committee use money from its budget to attend such an event. The Department was not co-sponsoring either of the events taking place, and had been invited to the colloquium as participants. The fact that the Committee had not received an invitation to the latter event, she believed it would not be proper for the Committee to attend, although she agreed that the conference was an important event, unless specifically invited.

Consideration of minutes of meetings held on 10 and 17 September
The Chairperson asked Members to consider the minutes of previous meetings.

Mr Kruger made the point that he had previously asked for  meeting minutes to be sent in advance to MPs so that they can go through them in their own time.

The Chairperson agreed on this point and asked if the Committee would prefer to defer this item, and, on getting an indication from Members that they should go through them, projected them and scrolled through page by page on the projector.

Members then indicated that they were not ready to adopt the minutes.

Mr Chance said that, in line with Mr Kruger's suggestion, perhaps the Chairperson should read them through to the Committee.

The Chairperson said that it would be better to defer the adoption to the following week, and the Committee agreed.

Consideration and adoption of Third Term Committee Programme

Mr Kruger suggested that, in line with a discussion between himself and the Chairperson prior to the meeting, another topic be added - visits to township spaza shops.

The Chairperson indicated that she would be in favour of this. She asked if other Members had other proposals.

Mr Kruger suggested adding a visit to the co-operative in the Bez Valley in Johannesburg in the week of the 25 October.

The Chairperson agreed and said also that a visit to co-operatives on train stations, which had been a PRASA programme, had also been omitted and should be added.

The programme was not yet adopted, and this would be done after adjustments were made.

The meeting was adjourned.


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