Small Business Development on its 2014 Strategic Plan, in presence of Minister & Deputy Minister

Small Business Development

22 October 2014
Chairperson: Hon NR Bhengu (ANC)
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Meeting Summary

The Department of Small Business Development outlined the state of Small Medium Enterprises (SMMEs) and cooperatives in South Africa under the mandate of Department of Trade and Industry which was characterized by a fragmented approach, misalignment with government resolutions and decisions on economic transformation, lack of specialised and focused support with limited resources. This led to the decision to establish a designated department to advance the development of SMMEs and cooperatives for job creation focusing on youth, women, rural communities and people with disabilities. The work of this department is anchored by the National Development Plan and the Medium Term Strategic Framework for its 2014-19 electoral term. Specific measures of the department supported by external departments include reduction of red tape around authorisation for investment in metros, enhance township economies and enhance support for township economies through improved transport and commuter costs. DSBD’s work is centered around legislation, regulations and policy measures. The department presented its key strategic objectives, long term and short term priorities and a proposed budget allocation for the MTEF period. DSBD had received R710 million and R33. 7 million from DTI and National Treasury.

Members asked if DSBD had signed transversal agreements with the relevant departments. What was the effect of not transferring funds to DSBD immediately since most of the funds were still with DTI? Members were concerned about the mode that would be used to develop township economies since most of them have businesses run by foreigners. They asked how the department was planning to implement sanctions for departmental non-compliance with the 30 day payment rule for invoices from SMMEs and coops. An example of what a ‘micro franchise’ was requested. A member was concerned about the increased salary bill from R40 million to R260 million and the increase from R6 million to R123 million for goods and services. They were pleased to hear about DSBD plans to amend the Small Business Act. Some Members could not understand the justification for DTI retaining the Incubator Support Programme (ISP). The competency of small business development has to stay within the DSBD, it cannot sit within multiple departments.

Meeting report

Briefing by Department of Small Business Development
The Chairperson gave a brief recap of the key issues that stood out in the last meeting they had with the department about unemployment and poverty among the population. The purpose of the meeting was to look at the strategic plan of the department to find ways of getting citizens to generate income on their own and encourage them to engage in income generating projects. The department presented its revised strategic plan after which the committee asked questions and gave their comments.

The Chairperson welcomed the Minister of Small Business Development, Ms Lindiwe Zulu, noting that their work as a committee is work in progress.

The Minister said that while the strategic plan is work in progress, she assured the Committee that it is not an excuse for the department not to do its work and meet set deadlines. She said her department was conscious of the fact that they have delayed the Committee in meeting the parliamentary deadline. She appreciated the support from the Committee. The Department understands that the Committee has a responsibility to be robust and ask questions. She reminded the meeting that it is unfortunate that the department was formed when the budget was shrinking, and yet people’s expectations were still very high about it. She acknowledged the good will of the people who have been in the field a long time and who have come to help it. As a department, they take the matter of what is available and possible within government very seriously especially as regards the regulatory environment for SMMEs and coops . Their discussion will be informed by the comments of the Committee from their last engagement with the department. The Minister invited the Acting Director General to present the amended draft strategic plan to the Committee.

Ms Pumla Ncapayi, Acting Director General, DSBD, presented the strategic plan for the year 2014-19. She listed the general characteristics of Small Medium Enterprises (SMMEs) and cooperatives in South Africa under the mandate of DTI between 1994-2009 and post 2009 which resulted in a fragmented approach, misalignment in relation to government resolutions and decisions on economic transformation, lack of specialised and focused support with limited resources, low survivalist and high failure rate, poor performance relative to peers as well as other developing countries, sectoral cohesion for advancing the objectives of SMMEs / coops and engagements with common stakeholder interests such as Black Business Council (BBC) and Nafcoc. This led to the decision to establish a designated department to advance SMME and coops development for job creation focusing on youth, women, rural communities and people with disabilities. The work of this department is anchored by policy instruments, key among which, is the National Development Plan which provides a framework for achieving radical economic transformation. It sets a vision for the economy that is inclusive, equitable and fast growing. To achieve that, the department points to the need to grow employment, support productivity and efficiency gains and move toward to greater equality. It proposes more affordable and efficient infrastructure linked to higher levels of investment, substantial improvements in basic and post-secondary education, responsive and efficient regulations and appropriate sector strategies. The key operational plan for implementing the National Development and Medium Term Strategic Framework (MTSF) include the New Growth Path and the industrial policy action plan (IPAP). The challenge is to ensure that these strategic plans are translated into action plans with well-defined iterations. Through IPAP, plans will focus on productive sectors including mining, agriculture and manufacturing.

Ms Ncapayi said the second policy instrument that anchors the work of the department is the MTSF which is a government strategic plan for its 2014-19 electoral term. It reflects on the commitments entailed in the ruling party’s manifesto including the commitment to implement the NDP. It sets out identified targets and provides for coherence amongst national, provincial and local government. As the department, it is the instrument that will be used to push forward our overarching theme which is radical socio-economic transformation as well as service delivery for the people. The expected outcomes include Outcome 4 which calls for decent employment through inclusive economic growth, with sub outcome 2: elimination of unnecessary regulatory burdens and lower price increases for key inputs. Other specific measures of the department include reduction of red tape around authorisation for investment in metros (DTI and SBD), enhance township economies by development finance institutions (DFIs) that are supported by EDD, enhance support for township economies through improved transport and commuter costs. Other measures include coaching and incubation programmes in support of SMMEs and coops (supported by EDD, DAFF and DTI), programmes to ensure increased access to employment and entrepreneurship for black women and youth (advancing support for emerging and smaller enterprise). The department was also called upon to develop appropriate sanctions with regard to departmental non-compliance with the 30 day payment of invoices. In addition to the policy instruments, the department’s work is centered around primary legislation (Small business Development Act as amended in 2004, Companies Act 2010, Cooperatives Act 2013 and Industrial Development Act 1940). It also included supplementary legislation and policy measures: BBBEE Act, National Empowerment Act, Preferential Procurement Policy Framework Act, Youth Enterprise Strategy, Women and Gender empowerment strategy, cooperatives strategy and innovation and technology strategy.

Taking into account all the elements, from the electoral mandate, the existing policies, the NDP as well as other measures, the department had to come up with a mandate to address the challenges alluded to, as well as other challenges facing the economy. In that regard, the department proposes to lead an integrated approach to the promotion and development of small businesses and cooperatives through a focus on the economic and legislative drivers that stimulate entrepreneurship to contribute to radical economic transformation (this will lead to increased employment, poverty reduction and reduced inequality). As a department, they envision a radically transformed economy through effective development and increased participation of SMMEs and cooperatives in the mainstream economy. As part of its mission, the department aims to create a conducive environment for the development and growth of small businesses and cooperatives through the provision of enhanced financial and non-financial support services, competitiveness, market access, promotion of entrepreneurship, advancing localisation and leveraging on public and private procurement.

In light of what had existed, the department laid down values by which they wish to be identified to include customer focus, integrity, honesty, efficiency, accessibility and commitment. Through that process, the department came up with the following key strategic objectives:
i) To facilitate development and growth of small businesses and co-operatives to contribute to inclusive and shared economic growth and job creation through public and private sector procurement.
ii) To facilitate radical transformation through increased participation of small businesses and cooperatives in the main stream economy.
iii) To advocate for a conducive regulatory environment for small businesses and cooperatives to enable access to finance, investment, trade and market access in an equitable and sustainable manner.
iv) To facilitate partnerships with all spheres of government as well as the private sector to ensure mutual cooperation that will benefit small businesses and cooperatives.

Ms Ncapayi emphasised that the proposed strategic plan would allow for long- and short-term priorities. Short-term priorities include: skills training and capacity building, business development support, technology transfer, innovation, entrepreneurship, access to finance, public and private sector procurement, review of existing policies, develop new policies and introduce strategies. The long-term priorities include national survey, design training programmes to address skills gaps, develop key domestic and international markets, decentralization of business development services to include economic profiling and market access and continuous review of the regulatory environment which will allow full implementation of measures.

DSBD proposed an allocation for the MTEF period of R5.1 billion to finance compensation of employees, goods and services, transfer payments, payments for capital and assets. The department also requested R534 million for Programme 1 Administration, R371 million for Programme 2 Customised Intervention Programmes, R366 for Programme 3 Cooperatives, R87 million for Programme 4 Research, Policy and Intergovernmental Relations, R3.8 billion for Programme 5 Enterprise Development and Entrepreneurship. Ms Ncapayi requested the endorsement of the strategic plan and proposed budget by the Committee.

Mr Lindokuhle Mkumane, Chief Director: Small Business Development, presented the Annual Performance Plan (APP) for quarter 1 and quarter 2 of 2014/15. He pointed out the major challenges are that the programmes are still structured as per DTI’s strategic objectives and the report is therefore aligned to the DTI’s strategic objectives, plus the delays in the transfer of functions from the DTI to Department of Small Business Development. In the first quarter, the Department supported 92 projects under the cooperative incentive scheme (CIS), supported 280 projects under the Black Business Supplier Development Programme (BBSDP), an action plan for the pilot roll-out of National Informal Business Upliftment Strategy (NIBUS) was developed, the project charter for the roll-out of the Informal Trader Upliftment Project (ITUP) pilot was developed and finalised, 30 pilot informal businesses from OR Tambo District in the Eastern Cape were approved for support, guidelines for implementation of the shared economic infrastructure facility (SEIF) was approved by the Minister, a Micro Franchising Symposium was held and 4 small enterprises were selected and show cased as ready to be packaged as potential micro franchisors. Other implemented programmes included the SEDA technology programme, the Cooperative Act as amended, the National Strategic Framework on Gender and Economic Empowerment, the National Informal Business Upliftment Strategy and the Youth Enterprise Development strategy. The second quarter carried on with the implementation of the programmes as listed in the first quarter. DSBD received R710 million and R33.7 million from DTI and National Treasury. He pointed out that the budget allocation of the 2014/15 financial year for the Cooperative Incentive Scheme, Incubation Support Programme and Black Business Supplier Development Programme is still with DTI.

Ms N November (ANC) asked if the department had signed transversal agreements with stakeholders and government departments.

Mr T Mulaudzi (EFF) asked about the effect of not transferring funds to DSBD immediately.

Rev K Meshoe (ACDP) referred to the primary policy instruments, and asked for more detail on how the department hoped to enhance township economies. What intervention will the department use in developing appropriate sanctions for non-compliance with the 30 day payment period for SMMEs and coops.

Mr X Mabasa (ANC) referred to page 15 of the presentation and asked for an explanation on why the department has to be specific in terms of departments that will support SBD.

Mr T Ramokhoase said there is need for the department to be clear when dealing with issues since provinces take their autonomy very seriously. Issues of land are handled sensitively by the locals and provinces therefore they have to be dealt with in such a way that the department does not meet resistance on the ground when it comes to implementation. He also wanted to know if APP has any form of testing programmes for example, does it have a piloting plan for its new programmes?

The Chairperson emphasized to the Committee that their assessment should be in their ability to look at the key strategic objectives in relation to the mandate, vision and mission of the department. All the questions asked relate to implementation and do not form key questions that need to be asked. Key questions are does the vision fit with the mandate of the department in relation to the problem faced by the department? Secondly does the department understand and can it explain how that vision will be achieved? Are the tools that are used by the department to execute these objectives in line with the mission? There is need to understand the target which is the people affected by poverty and unemployment. The accessibility talked about does not count at all because services are located in places where the target market does not reside. She asked Members to take that approach in asking questions.

Ms Ncapayi responded to the question on DTI functions and said that DTI has considered an exercise which is informed by the support the department had accorded to the SMMEs and coops over the years. As such they have identified what they call migrating functions which include cooperatives enterprise development, the youth, gender and women empowerment, strategic projects as well the incentive scheme and the black business supply development programme. This then informs the R700 million allocation from the financial resources. All these were within the same unit of DTI which had a budget of R1 billion for the current financial year.

Ms Ncapayi replied that it is part of the department’s plan to formulate the form of transversal agreement to be signed with various stakeholders and other government departments. The agreements are not yet in place.

The Minister added that transversal agreements are not something the department can do on its own. It has to go through the cluster and the department is working to ensure it also goes through Cabinet so that it is easier to chase.

The Minister spoke about the policy instruments, saying there was one on township economies. This area is embedded in the department’s medium strategy framework. The strategy was launched by DTI in March 2014 and allowed DTI to consider interventions for the informal sector. DSBD wants to consider full implementation of the strategy to enhance township economies. One of the areas the department has identified is the provision of requisite infrastructure for the township economy. It has also identified capacity building which will allow the respective informal sector to compete effectively. The DSBD wants to empower them to consider issues like bulk buying so that they can be competitive within these areas. One of the challenges of informal sector participation is that if the foreign entities are operating legally within the townships then DSBD has to abide by that otherwise the role of the DSBD is to come up with intervention measures to ensure competitiveness of the informal sector.

In addition, the Minister said the focus is on South African citizens whose economic situation is difficult. Foreigners is not an issue for the DSBD alone and the law must take its course against foreigners who are operating illegally. The DSBD needs to engage with the communities. Township economies is not a DSBD problem, it is a problem of the government who has not harnessed the potential of the townships after almost 20 years’ sending money to the townships and continually enriching people who do not give back to the townships.

On the development of sanctions to enforce compliance, Ms Ncapayi said DSBD through the cluster approach has been requested to enhance measures that have been put in place to ensure that there is compliance with the 30 day payment period for SMMEs and coops. In the performance agreements of HODs and DGs, they have it as a KPI under financial management that they shall ensure that SMMEs and coops are paid on time. The DSBD has been called upon to strengthen that and come up with appropriate sanctions that would expedite payment to SMMEs and coops.

Ms Ncapayi explained why the DSBD is specific about the departments which have to support or lead the SMMEs and coops via intervention measures. Government's MTSF is a cluster approach. Measures of intervention for the DSBD are embedded in Outcome 4 and they have considered a cluster approach in terms of support as well as the lead government entities. The NDP calls for the DSBD to specifically identify the measures for execution through the annual iteration and this is an element that is going to be applied across the identified outcomes from an MTSF perspective.

On whether they had considered piloting some of the interventions that the DSBD has identified, Ms Ncapayi said that upon the amendment of the Cooperatives Act, they had considered a business case which was engaged through National Treasury as well as DPSA for the implementation of the Cooperatives Development Agency (CDA). In another engagement, perhaps the DSBD can share those elements of that business case on how they could consider that implementation of the CDA. Going forward one of the elements that are critical to the success of the DSBD is the ability to do an impact assessment of the programmes that have been identified. The DSBD shall have a unit to consider relevant models for execution to ensure that by the end of the term, all impacts of the DSBD projects are assessed.

Mr R Chance (DA) commented on the presentation as a whole, and said that entrepreneurship is a very precious skill which the DSBD has to nurture. He emphasised the need to focus on those that have been affected in the past as well as those that have potential to create wealth. From the deliberations, focus is on division of the cake as it is today and yet there is need for a bigger cake. Support of new businesses has to be thought through in terms of growing business across the colour bar without separating black business from white business. The vision and mission of the DSBD has political connotations. This needs to be changed to reflect which specific NDP goals are being addressed. In terms of strategic objectives, he asked how the impact and output would be measured in terms of impact on the economy. He requested that DSBD look at that and not just numbers. He suggested that the DTI should come and justify why it is retaining the Incubator Support Programme (ISP) and not handing it over to the DSBD. He understands that DTI deals with big business and he cannot understand the justification for DTI retaining the ISP, let alone the justification for replicating this in the DSBD and having two ISPs. The competency of small business development has to stay within the DSBD, it cannot sit within multiple departments.

Mr Chance referred to moving employees from DTI to DSBD without reviewing their performance or performance of their departments. He said that the Committee would like to look at the transversal agreement. He requested an example of a ‘micro franchise’ in order for members to understand the term. He asked for an explanation for the increase in the salary bill from R40 million to R260 million, what will those jobs be doing? He also requested an explanation for the increase from R6 million to R123 million for goods and services. He applauded the DSBD for bringing the Small Business Act back to Parliament. He requested the Committee look at the Davis Tax Committee recommendations on turnover tax and profit tax.

The Chairperson said that Mr Chance had made important points taking into account the economy, inequality, poverty and unemployment. However, what will shape the approach to targeted areas of intervention is the debate on if these issues have colour or race. She pointed out that radical transformation is an ideological terminology that speaks to issues of people that voted the government into power. Economic transformation is what put the ANC government in power. People were denied opportunities for many years. If that vision cannot change, the problem will not be resolved.

Ms Elizabeth Thabethe, Deputy Minister, Department of Small Business Development, said the issues raised by Mr Chance are many and therefore DSBD will need another meeting to answer all of them. Broadly she commented on the radical economic transformation highlighted by Mr Chance and said that it is part of the ruling party’s manifesto and cannot be changed. The ruling party is not happy about the poverty, inequality and the income gap after almost 20 years of democracy. The ruling party cannot be apologetic about the terminology and the approach. She appealed to all Members to work towards the goals of the DSBD regardless of political affiliation. She requested the Committee accept the broad framework presented by the DSBD.

The Chairperson once again asked Members to reflect on the strategic plan presented by the DSBD in line with its mandate, mission and vision. The Committee agreed to meet on 24 October to consider the plan presented by DSBD.

Minutes of 10 and 17 September and 15 October were adopted with amendments.

The meeting was adjourned

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