Tourism Enterprise Partnership on support to Small, Micro and Medium Enterprises; Committee Oversight Report

Meeting report

Tourism Enterprise Partnership (TEP)
The Tourism Enterprise Partnership briefed the Committee on the support it provided to Small, Micro and Medium Enterprises (SMMEs). The delegation comprised of Dr Salifou Siddo, Chief Executive Officer and Ms Lisa Hosking, General Manager. Mr Siddo undertook most of the briefing with Ms Hosking coming in where necessary.

The TEP was a non profit company functioning on public private partnerships. Notable achievements were enterprise and supplier development programmes as well as having a well established practice of cost sharing partnerships with provincial tourism authorities. Five pillars formed the basis of TEP’s service offering ie access to information, business support, access to finance, skills development and access to markets. The impact of the TEP since its inception in 2000 was that it contributed to the generation of over R7bn, supported the creation of 80 000 jobs, trained over 25 000 SMME operators and employees and mentored over 450 small tourism businesses. The total size of the TEP database was 4100 establishments. It comprised of 58%-rural enterprises, 68%- historically disadvantaged enterprises (HDEs), 13%- youth owned enterprises and 47% - women owned enterprises. Breakdown in terms of small, micro and medium sized enterprises was 55%, 43% and 3% respectively. Some achievements of the TEP 2013-2014 were that 920 SMMEs had been registered and paid surpassing the target of 500. 3285 individuals were trained and 4040 jobs created by supported SMMEs. For the period 1 April to 31 March 2014 access to finance via the Business Development Fund (BDF) was that 469 enterprises had received BDF grants, of which 126 were rural enterprises and 339 were HDEs. The point was made that access to finance had been the missing link to TEP’s work. TEP had been looking for a way to address the challenge and the SEFA (Small Enterprise Finance Agency) on the other hand had been looking for ways to mitigate the inherent risk in providing financing to small businesses. The idea of a mutually beneficial partnership between SEFA and the TEP was thus born and conceptualised into the ikwezi Tourism Facility (ITF), a R50m revolving facility available exclusively to TEP registered clients. Ikwezi provided financing ranging from R10 000 to R5m and repayments ranged from 3 Months to 5 years. Interest rates charged ranged from 10.6% to 12.6%; substantially lower than commercial banks.

Ms Hosking stated that on skills development the TEP had mentorship programmes, training workshops and learnerships. The TEP commissioned the Small Business Project (SBP) to do a three year study on the TEP to measure the impact that it had on the tourism sector. The SBP study showed that the services that TEP offered that impacted most, in descending order, were training, marketing and market access support, funding, mentorship and networking. Feedback from the 130 SMMEs that had participated in the study noted certain barriers to employment. The most problematic barrier was the regulatory environment including labour law. Lacks of skills, and the seasonal nature of the tourism industry and staff turnover were other barriers identified. 

Mr Siddo reiterated that that the TEP’s 50/50 partnership with the NDT was to expire on the 31 March 2016 and would most probably not be renewed as the Tourism Incentive Programme (TIP) would be launched soon and SMME development may be done in-house by the NDT itself. The TEP was adjusting its business model in anticipation of the partnership ceasing. Total cash income from the NDT to the TEP in 2009/2010 had been R52m but the amount had drastically decreased to R13.5m in 2015/2016. The impact of TEP’S work was affected in that jobs created in 2009/2010 had decreased from 6527 to 3600 in 2014/2015.

In conclusion the major challenge for the TEP was resource mobilisation. 

Discussion
Mr G Krumbock (DA) asked for confirmation that the TEP received 50% of its funding from the Business Trust and 50% of its funding from the NDT. What the actual numbers that the TEP achieved and how many jobs had the TEP created? The TEP’s impact spoke about “contributing” to the generation of over R7bn. It “supported” the creation of over 80 000 jobs. It was quite difficult to determine what exactly TEP’s contribution was. Taking the R7bn contribution and dividing it into the 80 000 jobs gave one the cost of creating a job which came to R87 500. How did this cost compare to the cost of creating a job by other government initiatives such as the Expanded Public Works Programme? It was admirable that the TEP had done a survey of how it was performing. He asked whether the TEP had done international benchmarking. Given the SBF research showing the labour law regime in SA having a negative impact upon the creation of jobs, he asked whether the results could be quantified. On the financials of the TEP he said that it would seem that the main source of income for the TEP was interest on funds that it held in fixed deposits in financial institutions. What were the TEP’s payables? There was R5m on which interest was being earned. He asked what the genuine and designated revenue of the TEP was. The TEP was earning interest on funds that should have been used to create jobs.

Dr Siddo explained that putting a price on job creation depended upon the industry that one was in. In a manufacturing industry the cost was much higher than the cost in a service industry. The Jobs Fund did have a benchmark that could be used. R23 000 per job was the benchmark. It however depended upon the industry. One also had to consider the impact of inflation. The TEP had not used a benchmark and perhaps it could check on what the costs for enterprise support was for example in BRICS countries.

On the financial management of the TEP and the interest generated on monies held in a fund he explained that the funds were legacy funding that had been received from the Business Trust when it ceased to exist in 2011. It was TEP’s seed capital for its next bid. The fund in which the funds were held had been registered as a benefit to public organisation. It was correct that the NDT only provided 50% of the TEP’s funding. The TEP had to organise the remaining 50% themselves and it was not always in cash, sometimes it was in kind. It was a cost saving exercise for the TEP. Legacy funding from the Business Trust amounted to R35m but the TEP had to make the funds last. The TEP did its part on securing assistance by way of its partnerships. The TEP was for example partnered with a Swiss organisation name Swiss Import Promotion Programme (SIPPO) that promoted international trade.  They covered the costs of sending two TEP employees to international trade conventions.

Mr J Vos (DA) said that the Committee did support the efforts of the TEP but the Committee had to check on how public funds were spent. It was good that the TEP had partnership programmes in place but the Committee required the focus to be more on rural areas. A geographical spread across SA was needed. Did the mandate of the TEP include rural tourism providers? On the demand and supply side when the TEP provided training, mentorship and funding, were the TEP’s projects aligned with government’s National Tourism Sector Strategy (NTSS)? Was there perhaps duplication with the programmes of the NDT? On the services of the TEP, the audit assessment had shown that training scored high but mentoring and networking figures were not so good. Mentoring and networking figures should be higher. He thought it a good exercise with the imminent launch of the NDT’s Tourism Incentive Programme (TIP) to compare its role and impact with that of the TEP. It would be interesting to see the result given that the NDT perhaps intended to stop funding to the TEP. A check could be done to see whether the TIP would be doing things that the TEP did. The Committee would be receiving a briefing on the TIP on the 13 March 2015. 

Mr Siddo stated that NDT funding came along with its own targets. Funding was linked to specific targets that were aligned with the NTSS. The TEP supported the objectives of the NTSS. On duplication the targets of the NDT were ring-fenced. Public funding was tied to specific targets. The NDT informed the TEP what its funding should be used for. There were instances where the TEP negotiated with the NDT over what funds should be used for. He explained that figures were low on mentorship as mentorship programmes was expensive to run. Mentorship was reserved for companies that showed a certain level of growth. Of the 130 establishments not all formed part of the mentorship programme. He was aware that from a business point of view mentorship and networking was very important. It was a matter of strategic choice for the TEP as well as what its partners like the NDT had to say.  He did not believe that there was duplication with the work of the NDT as the TEP did have experience to run some of the NDT’s programmes ie Social Responsibility Implementation (SRI) projects.

Ms S Xego-Sovita (ANC) appreciated the presentation by the TEP given that tourism was a job creation driver. Where were the establishments that the TEP had assisted? Did the TEP’s efforts cover all nine provinces? She understood that most tourism activities took place at coastal cities and hence there could be clustering in the more inland provinces. She was however surprised that the Eastern Cape Province had been clustered with the North West and Gauteng Provinces. Did the TEP have fully fledged offices in the provinces that it operated? She asked why the TEP had a flat rate for its membership fees; what role the TEP played on small establishments, and whether it stood surety for small establishments? On mentoring and training, she asked whether the TEP did follow ups on establishments that it provided funding to. She furthermore asked why the Lilizela Awards were lily white. Where the TEP assisted establishments with funds to get graded, did these establishments remain graded? On the learnerships that the TEP provided for youth, were follow ups done to check whether they were placed in jobs.

Ms Hosking responded that the TEP did have physical offices in the provinces. Membership with the TEP was at a flat rate of R650, however provision was made for discounted rates. The TEP did do follow ups on its mentorship. There was graduation from mentorship to market access. The Committee would be provided with a breakdown of jobs created.

Mr Siddo added that there was a monitoring and evaluation of the process. Evidence sheets tracked targets. The evidence did show which establishments created which jobs. What the TEP did could be verified. The TEP used an evidence report for accountability purposes. The clustering of provinces were not clustering per se. The TEP’s head office indicated to each province how many enterprises they had to support. The latest allocation from the NDT of R13.5m had to be used for rural enterprises.

Before it became the Lilizela Awards the awards used to be run with the TEP. The TEP used to shortlist candidates. It had also assisted the candidates in the skills that they required. He had judged the awards from 2000 to 2007 and many of the SMMEs that the TEP had assisted had won the awards. So there were pockets of excellence.  Yes the TEP did assist establishments with support to get graded but it was up to the establishments whether they wished to remain graded. The TEP did however place a three-year cap on an establishment to remain graded. The TEP membership used to be free up until two years ago. The fee was introduced so that SMMEs could feel more accountable instead of having a free ride. In the past SMMEs, because they had nothing lose, often would not attend programmes they had committed themselves to. It meant a loss for the TEP. The admin fee was introduced to prevent the TEP from being abused.

Ms P Adams (ANC) asked what the TEP thought the reason to be why the NDT was perhaps considering ending its funding to them, especially since the TEP had over the past 15 years enjoyed successes on SMME development and job creation. Was the TEP engaging the NDT over the issue? Based on the NDT funding coming to an end, what was the TEP’s plan? Was the TEP engaging with the Department of Small Enterprises?
She asked when the TEP had started its efforts on Wiki (Ikwezi) tourism. Why were the TEP’s figures on networking low? What could be done to improve the figures? The TEP in the presentation had alluded to the fact that the labour law regime in SA had been identified as a challenge hampering job creation. She suggested that the TEP in its training provide insight into the labour regulatory environment so that when establishments entered the industry they knew what to expect. If there were 263 learnerships why were there only 156 successes? It was a 59% success rate. What happened to the remaining 49%? She pointed out that the Committee was interested in the TEP’s efforts in rural areas. A pie chart had shown the TEP had assisted 48% of businesses in rural areas and only 13% of youth businesses. Why were the youth figures so low and how could they be improved? What was being done to assist persons with disabilities? She asked whether there were exit strategies for small and micro businesses when they became medium sized businesses. She asked what the impact of SMMEs being incorporated into big companies was. Why did the TEP not use its partners to play a mentorship role to small businesses?

Mr Siddo stated that the problem was the TEP did not have sufficient resources. They had 15 years of experience though. The TEP was forced to reinvent its business model in the event that it no longer had a partnership with the NDT. The TEP had a partnership with the Rennies Group over the past 4 years. They wished to create opportunities for guesthouses through the TEP. He conceded that of the 263 Culture, Arts, Tourism, Hospitality, Sports, Sector Education and Training Authority (CATHSSETA) learners only 159 could handle the pace. He did not know whether all 263 learners would graduate. Learners had to do the work that was expected of them. The TEP had asked the CATHSSETA how it was performing in relation to other organisations and the reply was that the TEP was performing the same as other organisations.  On youth enterprises and youth employment, the first thing he did when he joined the TEP in 2011 was to have a meeting with the National Youth Development Agency. Partnership with the Agency fell flat when the person dealing with the project left its employment and the incumbent was not interested. The TEP did have the expertise and knowledge to set up programmes with the youth. He felt that the focus should be more on unemployed youth.
Ms Hosking pointed out that the CATHSSETA training was for employed learners. The problem was that employers did not always wish to release their employees for the training. The TEP had to incentivise employers with a R1 000 to release employees. The volume of work for some of the learners was also too great, as many of them had not studied in years.

Mr J Esterhuizen (IFP) asked how many key members of the TEP received salaries. Given that salaries amounted to R4m. There seemed to be annual bonuses amounting to R1.6bn. The total cost of employment was over R10m. He asked why four directors including the Chairperson of the TEP had resigned in 2012.

Mr A Whitfield (DA) stated that Committee be given the list of SMMEs that had been assisted by the TEP. He asked what efforts the TEP made to target specific youth. What was TEP’s coordinating role?

The Chairperson asked whether the TEP assisted cooperatives as well. She agreed that the TEP needed to do international benchmarking. There must be organisations abroad that did similar work as the TEP did. Were there other organisations in SA doing similar work and what had the TEP learnt from them? In the interests of time she suggested that outstanding responses to questions from the TEP be forwarded to the Committee in writing. She asked Mr Thabo Manetsi, NDT Director: West and Northern Cape – Leading in Heritage Development, if he wished to make an input.

Mr Manetsi stated that the NDT had supported the TEP for many years. Unfortunately the NDT had to make budget cuts to the funding of the TEP, hence there were minimal funds to work with and the focus now was on rural areas. Research had been done on the developmental needs of enterprises. There was also a new Small Business Ministry. Provinces also had programmes to support SMMEs. Rural development had many layers to it. All efforts of both the TEP and the NDT were about addressing national imperatives. There were many vehicles besides the TEP that could support SMMEs. The NDT also had the Tourism Incentive Programme (TIP). Duplication had to be prevented.

Mr Vos stated that there was uncertainty as to whether the TEP would continue or whether the TIP would replace it.

The Chairperson said that Mr Vos could ask them about that at the TIP briefing. She informed the Committee that Ms Thembi Kunene had resigned from the Tourism Grading Council of SA. She also said that it would be good if members could attend the upcoming local government conference on tourism.

Committee Minutes
The Committee adopted minutes dated the 20 February 2015 as amended.

Draft Oversight to Pretoria Report 2014/15
The Committee adopted the Report as amended.

The meeting was adjourned.