Access to Market by SMMEs & Cooperatives: briefing by BUSA & Retail Industry: Massmart; KOHWA; Woolworths

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed Members to the meeting, together with the representatives from the various players within the retail and food processing sector. She relayed apologies from the Minister and Deputy Minister, who had Cabinet commitments. Spar, Pick and Pay, Checkers, Nandos, Tiger Brands and Fruit and Veg City also submitted apologies for not attending the meeting.

She said the meeting had been called because the retail sector and the food processing sector were very important stakeholders who played a significant role in the development of small, micro and medium enterprises (SMMEs) and cooperatives. The meeting would place specific focus on SMMEs and cooperatives in the agricultural sector. During the Committee’s interaction with Pick and Pay last year, a number of issues had been raised and that had resulted in agreement that the sector as a whole needed to engage other players in the food processing and retail sector. The purpose of the meeting was to get an understanding of factors in the retail and food processing sectors which were hindering their efforts to open up a sustainable market for agricultural SMME’s and cooperatives.

She acknowledged that there was a need for government and the private sector to move from a common perspective to attain the common goal of creating more jobs, reducing poverty and inequalities. The Committee also had a role to play in ensuring that government policies were designed to enhance the development of SMME’s and cooperatives, and to ensure that government red tape was reduced. Some of the issues raised from interactions with various stakeholders in the sector had been: lack of access to the market, lack of adequate access to finance, lack of adequate infrastructure to operate from, lack of infrastructure support, neglect of rural areas with high rates of poverty and unemployment, non-payment of invoices, and a lack of a coordinated effort aimed at the development of SMMEs and cooperatives.

To date, some of the policy support initiatives which government had made available to SMME’s and cooperatives were:

• Establishment of the Department of Small Business and Cooperative Development;

• National Development Plan on poverty, unemployment and inequalities;

• NEDLAC accord on enterprise development and job creation;

• Rural development and land reform polices;

• 70% local procurement policy;

• 30 days payment on invoice;

• Agriculture was one of the nine priority points outlined by the President during his State of the Nation Address for 2015

Some of the outcomes expected from the meeting were that there would be agreement on how more support could be offered by the private sector to develop agricultural SMME’s and cooperatives, and that there would be an agreement on how skills could be transferred and how these could be coordinated and implemented for development. Areas in the Department of Small Business Development strategic plan needed to be identified for intervention from the sector. She said government was committed to the realisation of a developmental state.

Presentation: Massmart

Mr Brian Leroni, Group Corporate Affairs Executive, Massmart, said Massmart prioritised manufacturing from a small business perspective. It had also prioritised the development of small businesses in the agricultural sector, however. He indicated that the fresh food market, which included butchery, bakery and fresh produce, was worth approximately R77 billion per annum. Massmart’s share of this market was 1.2%, mostly because it was new in the fresh produce market. The size of the dry grocery and edible foods market was R93 billion, where Massmart was fifth in terms of market share against other retailers.

Massmart had established a small in-house supplier development unit, which was comprised of a team of nine professionals. The team was tasked with identifying and facilitating small and medium local supplier access to opportunities within the Massmart supply chain. Massmart’s overall focus was on assisting small and medium enterprises which had a maximum turnover of R50 million. Preference was given to women-owned and black-owned enterprises. The programme currently targeted small manufacturers and agricultural suppliers. To this end, Massmart was working with 24 manufacturers and 136 smallholder farms distributed across six provinces.

These enterprises manufactured or produced a diverse range of manufactured products, fresh produce and meat. Areas of involvement included bricks, steel doors and window frames, bathtubs, paint, cooler boxes, detergents, tea, lampshades, mosaic tiles, cosmetics, fruit juice, biscuits, clothing, maize meal, ceramic pots, insecticides, adhesives vegetables and beef. Development funding was provided by Massmart, sometimes in collaboration with financial institutions. Financial assistance took one of three forms -- non-recoverable grants, secured loans from commercial banks, and technical assistance and service support which covered production efficiencies and retail readiness. For the 15 months ending 28 December 2014, Massmart had disbursed more than R90 million in funding to SME suppliers. Altogether, approximately R60 million had been disbursed as grants and R11 million as loan guarantees.

He said Massmart had a budget in excess of R50 million for 2015 for continuing and new projects. Approximately two-thirds of the budget would be invested in manufacturing opportunities. The process of supplier development was an on-going process. The ideal approach would involve partnerships with commercial and development funders who undertook capital and working capital funding, with Massmart providing specialist retail readiness and post-listing take-up funding support.

Some of the businesses Massmart was working with were Rivoningo Steel Design, X-Chem Chemicals, Reapso, Kurhula Paints and Chemicals and Ikusasa Green

Presentation: KOHWA Holdings

Mr Trevor Tshuma, Executive Chairperson, KOHWA Holdings, said Khowa’s strategic intent was to revive rural development across Africa, beginning in South Africa, through unlocking real broad-based rural development and empowerment, creating jobs and feeding people, sharing know-how and experience and through underwriting economic advancement. Khowa had responded to an acute need by the South African government to drive economic transformation and creating work opportunities. The National Development Plan set steep targets for job creation, and agriculture was a sector which would absorb a number of people. Government’s land reform programme was intended to create a stable and a growing breed of farmers, but it had not yet delivered on its promises. What was missing was an implementation agency in the agriculture sector -- one which was able to provide a unique and integrated solution.

Khowa’s partners included an internationally renowned greenhouse partner which had over 50 years of experience in the industry, while other partners included local traditional leaders who provided direct access to municipalities, together with local municipalities who gave direction for infrastructure development. Kohwa’s key activities were to assist existing farms to scale up and expand, to help those needing to turnaround their operations, and to provide expertise for new farmers.

Kohwa was committed to:

• Providing technical management systems to clients and offering advice on crop variations, based on region and need;

• Setting up off-take agreement systems, where farmers simply plug into the system;

• Providing consolidated operations and administration support to farmers;

• Providing training, education and compliance for clients, so they would be able to look after their farms within five years;

• Assisting clients with leveraging funding through an investor education and mentorship programme

Mr Tshuma said that Khowa had spent the last two years implementing its business model and testing it for applicability in the South African environment. In addition, Khowa had built and operated a 1 000 square meter greenhouse at Vulamehlo local council. It had also ensured that local supply agreements with neighboring shops and clients had been put in place and that local chiefs were in agreement with the plans. The project at Vulamehlo had been built by the local people from start to finish, with support from Khowa’s strategic technical partners, thereby creating jobs in the area. Khowa had a strong and experienced management team in the agricultural sector. Some of its main accomplishments were that of real empowerment on the ground, a reduction in the number of people dependent on grants, increased use of under-utilized land, creating jobs and meeting both national and international demands for agricultural produce.

Presentation: Woolworths

Ms Zinzi Mgolodela, Head of Transformation, Woolworths, said “Woolies” was a fertile ground for enterprise and supplier development (ESD). The Woolies business model was that of making products in partnership with the supplier, and not to buy and sell from the supplier. Enterprise and supplier development contributed to a country’s socio-economic transformation vision, improved diversity of the company’s supplier base and contributed towards addressing the balance between South African imports and exports through localisation.

The key driver for ESD at Woolies were: innovation, savings, market share, brand building, greening, import replacement and empowerment. Some of Woolies’ interventions in ESD projects were:

• A memorandum of agreement in place for at least 3-5 years;

• A minimum three-year procurement contract;

• A minimum three-year development plan;

• Black ownership at 51%, with a focus on black women;

• Tailor-made financial and non-financial support.

Mr Litha Kutta, Enterprise and Supplier Development (ESD) Specialist, Woolworths, said that one of the projects Woolies had been involved with was the Gluten-Free Bakery Project, where Woolies had invested R2.2 million in the business. In its first year, the project had contributed R15 million in sales, and to date the project had created 13 new jobs. The project was 85% black owned. A second project was the pump shoes project, where Woolies had invested R1.9 into the business initially and R9.5 million had been received from the Industrial Development Corporation (IDC). To date, production volumes had increased from 7 200 to 500 000 units (pumps) per annum, and jobs had increased from 96 in 2012 to 260 in 2015. The third case was the Brassica Project, where Woolies had invested R4.9 million. The project was 51% owned by black women farmers, and had since been linked to a primary supplier. To date 83 new jobs had been created. The fourth case was the Indigenous Eggs Enterprise Development Project, where Woolies had invested R2.7 million and output had increased from 8 000 to 17 000. Five new jobs had been created.

Presentation: Business Unity South Africa (BUSA)

Mr Christo van der Rheede, BUSA board member, said that in most countries SMMEs contributed significantly to job creation and overall GDP. South African SMMEs contributed more than 40% to the total GDP and accounted for more than 60% of all employment. The 2013 Global Entrepreneurship Monitor report showed that South Africa performed poorly in creating new entrepreneurs. Total early-stage entrepreneurial activity rates in South Africa were about half of what they were in other developing countries. The FinScope Small Business Survey showed that there were 5.9 million small businesses in South Africa, of which 17% (1 million) were registered.

He indicated that according to the National Development Plan (NDP), the share of small-and-medium sized firms would have grown substantially by 2030. Regulatory reform and support would boost mass entrepreneurship. Export growth would also play a major role in boosting growth and employment, and public and private sector procurement would improve access to opportunities for small and medium enterprises.

Some of the key proposals to support small business development were to simplify the regulatory environment, implement commitments to 30-day payments to smaller suppliers, make government procurement opportunities more accessible to small businesses, streamline tender processes, improve transparency and get rid of corruption, simplify the regulatory environment and provide access to debt and equity finance. The skills gaps had to be addressed by:

• Providing skills development for students currently in school with a focus on grooming an entrepreneurial attitude;
• The government should incentivise the private sector through tax breaks to set up mentoring programmes;
• Established small enterprises should be offered wage subsidies to take on apprentices and to offer youth placements.

Mr Van der Rheede commended the government for the steps which had been taken since 2012 to reform the business sector in South Africa. However, challenges still remained. According to the headline report of SBP’s SME growth index, some of the remaining challenges were the regulatory burden which continued to distract SME’s from their business activities, lack of opportunities and assistance, labour legislation, lack of skills, delayed payment of suppliers, lack of synergy between local supplier and those who source from them, and price fixing. BUSA’s main funders were Trias -- a Belgian-based business chamber -- Toyota South Africa, ABSA, and local chambers. The main participants were 70% black, 30% white, and 70% female.

Discussion

The Chairperson thanked the representatives of the various players in the retail and food processing sectors for their presentations.

Mr H Kruger (DA) said he appreciated the efforts made by big businesses to support small business development. Government also needed to be more effective in its support for the small business sector. He asked Khowa to provide some examples of the red-tape which they had experienced from working with government.

Mr R Chance (DA) said the country had serious problems with unlocking entrepreneurial activity, and dependence on large companies needed to be reduced. He referred to the presentation the Committee had received from Pick and Pay, and said Pick and Pay had 1 682 small suppliers, who represented 78% of Pick and Pay’s total suppliers but contributed only 12% of total supplies. Against this, there were 55 multinationals and large South African companies supplying Pick and Pay who represented only 3% of suppliers but contributed 68% of total supplies. He proposed that the Committee set up a working group which would seek to understand the nature and the dynamics within the market place, to see if there was a way of working with the sector and fostering more transformation. The Committee needed to have a serious conversation with the retail and food processing industry. Another interesting statistic was that Massmart had indicated that they had set aside R50 million for the development of the small business sector, but this represented only 0.7% of Massmart’s turnover. Even though he agreed with the efforts made by the private sector, he said these were at a miniscule scale.

Ms N November (ANC) asked Woolworths why there were still some stores in areas such as Upington which did not have a Woolworths Foods. She suggested that Khowa needed to have more women representatives in its executive. What was the exact number of farms which Khowa had been able to help? She asked Massmart whether the nine professionals mentioned in the presentation were divided into the nine provinces.

Mr T Ramokhoase (ANC) said that according to the presentation, Massmart contributed R1.25 billion to the GDP. He supported the proposal made by Mr Chance that there should be a working group made up by the Committee and various players within the food and retail sector. The Department of Small Business Development was a new department, so continuous engagements with the sector were necessary to move the country and the sector forward.

Mr X Mabasa (ANC) asked about the recent outbreak of violence in townships involving small businesses and foreign residents. What role did big business play in helping small businesses and cooperatives to grow?

Rev K Meshoe (ACDP) referred to a comment by Kohwa about greenhouse farming versus open land farming, saying they were like chalk and cheese. What were businesses doing to try and increase knowledge about quality, and was the government being engaged in this regard? How far was the process of securing funding from government? He also spoke to the imports which Woolworths was sourcing from outside the country -- how did this impact on pricing on product quality?

Mr T Mulaudzi (EFF) said the presentation from Massmart had not been clear, and he had not received much of value from it. One of the presentations had indicated that there were 136 small holder farmers across six provinces; in which provinces were these? In the food processing sector, packaging was often seen as a challenge -- what were big businesses doing to assist small businesses and cooperative in this regard? He was very pleased with the work Khowa was doing -- did Khowa have any long term plans to expand its work outside of KwaZulu Natal? He thanked Woolworths for their efforts to try and reduce reliance on imports and asked the to share their views on the Israel-Palestine feud, and how this had affected business. He said recently there had been instances where food from Woolworths was considered to be unsafe -- was this still the case?

The Chairperson thanked Members for their engagements with the presentations. Woolworths did not need to respond to the question about Israel and Palestine, because this was a political issue and different political parties had different views. She replied to Mr Mulaudzi’s comment about the Massmart presentation, and disagreed with him, saying Massmart had in fact delivered a good presentation with plenty of content. She suggested that Mr Mulaudzi had probably not been in the room when Massmart were giving their presentation.

Radical economic and social transformation was a priority for South Africa. The issue of a task team was one where the Committee would need to sit down one its own to decide on its composition and how the Department of Small Business would be involved, together with the retail sector. Development finance institutions also played a crucial role and needed to be engaged as well.

Mr Van der Rheede indicated that it was his second appearance at a Committee meeting. He said there was a need for a unified and well resourced public-private partnership for entrepreneurship development in the country. The Committee could play a crucial role in bringing together various stakeholders. The state of entrepreneurship in townships could be turned around.

Mr Leroni responded to the questions raised on Massmart and clarified that the fresh produce, butchery and bakery sector was worth R77 billion and Massmart had 1.2% of this market, the bulk of which belonged to other retailers. The edible and dry groceries market was R99 billion, and Massmart’s total market share was about 12%. The 136 farmers were in KwaZulu Natal, the Eastern Cape, Gauteng, Mpumalanga and Limpopo. With regard to packaging, he said Massmart was working with packaging engineers, who were now working with small suppliers and providing value. The R200 million fund which had been set up would be dispersed over five years, ending in 2017. 37% of the fund had been used in the first two years.

Mr Tshuma responded to the question on red tape and agreed with Woolworths that this was a very serious hindrance in the sector. He indicated that last year Khowa had wanted to work with a small group in Ezingolweni near Matatiele, where a group of women had been offered a R5 million unsecured loan but had lost the funding because of having to wait too long for the Department of Rural Development and Land Reform to approve the lease application. Land tenure was a huge problem. Government had the tenure for farm land, and the process took too long and many businesses were losing opportunities. SMMEs were very frustrated, and in most cases the private sector went outside the country to secure funding. Khowa was not a KwaZulu Natal business only -- it was nationally based. Khowa was now looking at a ten-figure loan from an international company. He explained that the difference between organic produce and other produce. Organic meant one was not using fertilisers and enhancers in production, only natural compost. However, one could not achieve high production with this method. Genetically modified products were not promoted at all, however.

Ms Mgolodela said Woolworths would really welcome an opportunity to provide input on the proposed workshop between the Committee and the retail sector. Such intelligence would move the sector closer to solutions to current challenges. She said Woolworths’ technologists did a lot of research with their foods, but partnerships were still needed. Protective farming was very expensive, but Woolworths was committed to it. She assured Members that food from Woolworths was very healthy and safe to eat. Woolworths had been working to try and identify small businesses locally instead of importing, and progress in this regard had been made. For example, Woolworths used to import avocados from Spain because its customers wanted avocados throughout the year, but recently it had found a small avocado-producing farm in the Eastern Cape to move production locally.

The Chairperson thanked Members for their interactions with the presentations. The Committee would meet and decide on a date regarding the workshop. The Department of Small Business Development, together with various retailers and other relevant stakeholders, would be invited.

Adoption of Minutes: 18 February 2015

The Members considered the minutes of 18 February 2015.

Mr Chance said there were grammatical errors which he would be submitting to the Committee Secretary.  

Ms November moved the adoption of the minutes.

Mr Kruger seconded.

The minutes were adopted.

The meeting was adjourned.