Small Business Development Budget Review and Recommendations Report

Meeting report

Committee's Budgetary Review and Recommendations Report (BRRR): Consideration of second draft 

Mr H Kruger (DA) stated that the review of the regulatory environment needed to be mentioned as one of the short term priorities for the Medium Term Expenditure Framework (MTEF) as it was critical  to make it easier for small businesses to become successful.  

Mr X Mabasa (ANC) pointed out that the review of the regulatory environment is supposed to be an on-going process and therefore was suitable for mention under both medium term and short term priorities.

Mr Kruger agreed that it was indeed suitable for it to be mentioned in both, as long as it was emphasised.

Mr T Muluadzi (EFF) suggested, referring to the last bullet of the short term priorities, the Committee must add “review existing policies in their recent environment”.

The Committee agreed.

Mr Mabasa told the Members that it was it important to clearly distinguish between short term and long term priorities and see if the short term priorities did not fit in the medium and long term priorities.     

Mr Kruger said that there was a need to add a reference to "the establishment of a red tape unit” on page 14, under Programme 1: Administration. It would also be necessary to take the budget for this into consideration, as the red tape was affecting the operation of small businesses in the country.

Mr Mabasa agreed with the message, but questioned the need for a separate unit, considering the limited , instead suggested that the Department of Small Business Development (the Department) should perhaps rather be assisted by the Department of Performance Monitoring and Evaluation (DPME) in reducing red tape.

Rev K Meshoe (ACDP) agreed with Mr Mabasa, and added that even the establishment of a red tape unit did not bring a guarantee to eliminate red tape, and this was also likely to stretch the resources.

Mr Kruger said 2004 was the last time when the country assessed the impact of red tape. The Western Cape Provincial Government had a red tape unit and it was very successful, as it had managed to save millions of rands, especially for small businesses, and each of the relevant laws needed to be reviewed to determine their impact on the people.    

Mr R Chance (DA) suggested that any red tape unit needed to be addressed in the amendment to the Small Business Act, or in a separate Bill, to make it absolute clear that regulation and red tape would not be tolerated in any piece of legislation or in the policies of government departments.

Mr Mabasa recommended that Department should utilise whatever services were on offer from the DPME, since its own budget was already stretched, and, most importantly, the DPME was also mandated to monitor all the departments. The proposal to establish a separate red tape unit could be construed as a duplication of the functions of the DPME. The Committee could invite the DPME to explain to the Members the extent to which it already did monitor and evaluate small businesses. 

Mr T Ramokhoase (ANC) agreed with Mr Mabasa, pointing out that the Department had been newly established in this current financial year, and therefore had limited resources to establish and budget for a red tape unit. He opined that the departments were monitored on a continuous basis by DPME, but the problem was with the strategy of monitoring and evaluating these departments to deliver positive results.

Mr S Mncwabe (NFP) supported the suggestion to invite the DPME to pay particular attention to the Department and the challenges faced by the small, medium and micro enterprises (SMMEs). The establishment of a red tape unit could result in irregular and fruitless expenditure, especially on a newly established Department.

Mr Kruger said that he respected all the opinions of the Members but simply wanted to emphasise that one of the key challenges of the Department and the development of small businesses lay with the existence of so much red tape.

The Chairperson agreed that this was a huge problem and for this reason, in principle, Mr Kruger's suggestion to establish a red tape unit was appropriate, considering the impact of the red tape on small businesses in particular; however, the Committee obviously also needed to take the budget constraints into account. She pointed out that  Programme 4 already dealt with evaluation of existing policies enshrined in legislation affecting national small business, cooperatives, youth enterprise development, women empowerment and national informal strategies, with a view to enhance policies in line with the mandate of the Department. 

Mr Kruger agreed with all the suggestions put forward by the Members and proposed that the least the Committee could do was to add a reference then to red tape under Programme 4, so that it was noted as a key challenge.

The Committee agreed.

Mr Mabasa suggested that “compared to its potential” needed to be inserted before "little to country’s wealth" on page 2, paragraph 2. The word “panacea” on page 2, could be replaced, in the last paragraph by “essential tools”. The word “Department” must be consistently capitalised throughout the Report. The Department should also consider adding a reference to the Industrial Development Policy (IDP) as a guiding principle of Government.

Mr Mabasa indicated that, on the mandates, it should be spelt out that the Department needed  “to assist small businesses and cooperatives to become big businesses”. This was to give an explicit message that small businesses needed to grow into big business. He also proposed that the word “forward” on page 4, in paragraph 3 should be replaced by “planned”.

Mr Mabasa said that the Department should not lose sight of the Department of Economic Development (EDD) as it too was a custodian of the small businesses and cooperatives. It was important to explore the potential to establish a Cooperative Academy, as this was also articulated in the amendment to the Cooperatives Act. The Report should highlight the challenge of the database of the informal businesses (survivalists), as they were often neglected when it came to providing assistance to grow their businesses. The small businesses and cooperatives needed to utilise inexpensive technology to capture the information as this was likely to be more efficient to store the database.

He proposed that “companies” on page 6, bullet point number 11 should be replaced by “businesses” as this word included sole traders, Cooperatives and other forms of business. The Department should also address the challenge of traditional chiefs and municipalities frustrating the development of SMMEs in terms of access to adequate land. He suggested that the Department should have South African Bureau of Standards (SABS) as a partner to the SMMEs, cooperatives and survivalists, as this was a structure that was designed by Government but invariably it related only to big companies and was  perhaps insensitive to those needing the most assistance.

Mr Mabasa said that the references to important policies should include the President's State of the Nation Address (SONA).         

The Chairperson suggested that the bullet points should be replaced by numerical figures, so as to make the Report easier to read.

Mr Chance, addressing an earlier point by Mr Mabasa, indicated that the IDP had been superseded by the National Development Plan (NDP) and therefore should not be included, as there was already an overarching guideline for Government policy.

Mr Chance suggested that there was no need for “the Co-operative Development Agency” and “the Co-operative Tribunal” to be in bold italics.

Mr Chance recommended that the Committee should also add challenges like lack of entrepreneurial culture and the closure of the supply chains for small businesses. The Report needed to make it clear that the NDP estimated that 90% of the 11 million jobs required by 2030 would come from SMMEs. He recommended that the Committee request sight of transversal agreements that had already been signed as a strategy to execute some of its tasks, in order to achieve its overarching ultimate goals of job creation, poverty reduction and fairer distribution of income.

The Chairperson responded that at the moment there were no transversal agreements that had been signed but agreed that indeed all the transversal agreements that would be signed between the DSBD, Government departments, education institutions and the private sector should be as specific as possible and most importantly, brought to the Portfolio Committee for monitoring purposes. In the 2013/14 financial year, the dti was expected to spend R700 million on administration, but the DSBD’s projected budget salary bill for 2014/15 is R260 million and the Members should be given an explanation for the allocation of such a huge amount money for salaries. It was recommended that the Minister come to the Portfolio Committee to explain to the Members about the missing programmes like the Incubator Support Programme and the Enterprise Development Fund. The past measures of performance for the dti were inadequate as they measured activities instead of outcomes and impacts like job creation, increase turnover, profit and repayment of loans. 

Mr Mulaudzi stated that the Department needed to review the procurement policy that was based on low price, as this was creating barriers for the SMMEs and cooperatives to enter the market. He pointed out that the total allocated budget for the Department was R743 million. not billion as was indicated in the Report.

The Chairperson agreed that indeed the procurement policy that was based on low price was creating barriers for the SMMEs and cooperatives to enter the market and required a shared percentage of at least 75% for local procurement policy.

Mr Chance agreed with the sentiment but remarked that it was extremely difficult to put a percentage for local procurement policy without considering distortion in the supply chain, and this required proper research in order to determine the current procurement percentage.

The Chairperson agreed with that suggestion but added that the principle still stood that there should be a market share for SMMEs and cooperatives.      

The Chairperson highlighted that South Africans needed to realise that cooperatives were dedicated to the values of openness, social responsibility and caring for others and such legal entities had a range of social characteristics. Economic benefits needed to be distributed proportionally to each member’s level of participation in the cooperative. The success of SMMEs would play a fundamental role in the reduction of poverty, inequality and youth unemployment as these were challenges that had been identified by the Government in the NDP and SONA.

The Chairperson requested that Members adopt the second draft of BRRR, with the amendments suggested. This was done by the Committee.

The meeting was adjourned.