Committee Report on Oversight Visits to KwaZulu-Natal, Eastern Cape and Gauteng

Small Business Development

03 June 2015
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Committee discussed its draft Report on oversight visits to KwaZulu–Natal, Eastern Cape and Gauteng, from 25 to 26 November 2014 and 27 January to February 2015. Members made numerous alterations of a technical nature, or to improve wording, grammar or style, and asked that various figures in the presentation be checked.

Members made a few points as they were going through the Report. The set aside programmes were not competitive in nature and this perhaps needed to be explained by the drafter of the Report. The pilots and final numbers for railway stations needed to be clarified. In respect of Kohwa, it was finally decided that the sentence would be rephrased. Members noted that the development finance institutions were not in fact charging any lower rates of interest than commercial banks, and that they were largely not affordable for those at grass roots levels. Members queried where the figure of 9.9 million jobs was sourced, and it was explained that this was a calculation from the National Development Plan (NDP). There was discussion over the model of Kohwa that was creating new jobs, although it was not creating highly paid employment, and Members suggested that this may need to be further debated and the model for the farm was described. The point was made that Kohwa Holdings had been rejected on one occasion by the Industrial Development Corporation (IDC) because it had been in the primary business of growing but not processing vegetables. A Member suggested that one of the Committee recommendations should be that the IDC should look again at primary agriculture as a sector to support, rather than insisting on the next step of agro-processing. It was suggested that perhaps recommendations needed to be inserted for each of the sections of the Report. Some Members expressed concern that there were problems in relationships with municipalities and chiefs, although another Member noted that there were some municipalities where chiefs were represented on the structures. One Member said that he thought the emphasis in this document seemed to suggest that cooperatives were not the way to go, but another said that most Departments tended to emphasise small enterprises more than cooperatives, and whilst this Report was not pushing for there to be cooperatives only, other matters were listed.

Members discussed the import of this Report on the work of the Department and it was emphasised that the Committee would need to monitor how the Department responded to suggestions. It was vital for this Department, more than any other, to encourage small businesses to visit it and attend meetings.

The Chairperson decided that the amendments suggested here should be made before the Report was adopted in the next meeting. It would be used during the Budgetary Review and Recommendations Report process.

Meeting report

Draft Committee Reports:
Oversight Visits to KwaZulu-Natal, Eastern Cape and Gauteng 25 and 26 November, and January and February 2015

The Chairperson asked the Committee to submit comments on the draft Committee Oversight Report (the Report).

Mr X Mabasa (ANC) pointed that in point 2, page 3, under "Background" the correct abbreviation for the Department of Economic Development should be EDD and not DED. He noted that "programme" should be in the plural in the same paragraph.

Mr R Chance (DA) agreed with Mr Mabasa and pointed that in the previous line “s” should be added to “function” to “functions”.

Mr Mabasa corrected that surname of Mr Mojalefa on page 6, and Rev K Meshoe (ACDP) also pointed that his surname was written wrongly.

Mr T Khoza (ANC) made a grammatical correction on page 6.

Mr Mabasa asked whether it was possible to incorporate the Small Medium Micro Enterprises (SMMEs) on page 7 in the first paragraph, on the supply of school furniture.

The Chairperson disagreed with the suggestion of Mr Mabasa, and pointed out that the resolution was that for the National Communication Programme and School Furniture, there were difficulties with the focus on SMEs.

Members agreed with the suggestion of the Chairperson.

Mr Khoza stated that on page 7 in the last paragraph, the word “initiative” should be replaced by “initiatives”. 

The Chairperson questioned the order and phrasing of the penultimate paragraph of page 7, and said that the paragraph would need to be amended so that it made better sense.

Mr Chance pointed out that the set aside programmes were not competitive in nature and this perhaps needed to be explained by the drafter of the Report.

Members suggested that the acronym for the Department of Economic Development Tourism and Environmental Affairs (EDTEA) must be explained and written in capitals.

Mr Mabasa made grammatical and spelling corrections to page 9, paragraph 5.1.2.

Mr Chance noted that "State Owned Enterprises" needed to be added to a sentence on the same page.

Mr Mabasa commented on page 12, fourth paragraph and pointed out that railway stations needed to be introduced in respect of KwaZulu Natal (KZN).

Mr Khoza indicated that the sentence was not correlating referring to 18 stations that were intended for the programme, but 28 were participating”.

The Chairperson suggested that the intended number for the pilot was for 18 railway stations but the pilot project ended up with 28 railway stations. She suggested this be rephrased to read: “In KwaZulu-Natal the project was intended for 18 railway stations and it was then increased to 28 railway stations”. She said that KwaZulu-Natal was the only province with an increased number but the intention to increase here had resulted in fewer stations in other provinces.

Mr Khoza suggested wording that was accepted by other Members.

Mr Mabasa pointed out that on page 16, first paragraph, words would be need to be inserted in relation to the incubation programme.

Members suggested grammatical and wording changes to pages 15 and 18.

The Chairperson indicated that on page 18, in paragraph, a sentence needed to be rephrased on Kohwa and the current trend.

Mr Chance suggested that the reference to Kohwa be left out, but “which is a common trend in South Africa” left in.

Mr Mabasa asked for further explanation, and wondered if the common trend was to leave out supportive organisations like Kohwa, or if Kohwa was left out from various areas where it should have been included.
Mr Ramokhoase read out the following: “Kohwa does not finish its strategic plan with government officials due to lack of trust and fear of the strategy being hijacked and implemented by government official, leaving Kohwa out, which is a common trend in South Africa” Kohwa had observed that when it shared its strategies, the government officials would hijack them.

Mr Mabasa suggested that the statement should be rephrased, as it was too broad.

Mr Chance suggested that perhaps the Committee should refer to  “theft of intellectual property is a common trend in South Africa”

Mr Mabasa agreed with the first part of Mr Chance’s suggestion, but felt that the last part of the sentence should be deleted. One weakness of South Africa was a tendency to place too much blame on the country, and this was apparent when some business leaders and media did not show patriotism.

Members finally agreed that, for purposes of this report, only part of the sentence up to "by government officials" should remain.

Mr Mabasa referred to page 21, third bullet point, referring to “support of Small, Medium and Macro Enterprises (SMMEs)" and asked if “Cooperatives” could be added.

Mr Xolisile Gxaji, Committee Content Advisor, indicated that the strategy of the KZN Province was to take on new development in tourism and environmental affairs, expressed as such.

Mr Khoza said that in paragraph 3, the word "development" had been omitted from the IEDS description.

Typographical errors (requiring addition of words) were indicated on page 22, fourth bullet point, and page 29, point 8.1.

The Chairperson indicated that on page 30, second paragraph the word "that" should be "than", and "foreign" should be substituted for "foreigner" on the same page. The reference to Unilever Brothers had to be corrected.

Mr Chance pointed out some errors on page 1, the use of "macro" rather than "micro" must be corrected, and offered an edited version to the Committee. On page 2, he pointed out that (e) should refer to "intermediaries", and pointed out that it was the Micro Finance Intermediaries who charged the highest interest not the Development Finance Institutions (DFIs).

Mr Gxaji said that the high interest rate charged by DFI was still maintained. Even when using a model to award loans to potential SMMEs, the risk was calculated on commercial bank models, and did not capture development loans aspects.

Mr Chance said that the DFI was different from the commercial banks and was not very high in interest rates.

Mr Ramokhoase argued that the DFI interest rates were high, because they left out the element of development. They were not affordable and were unable to cater for the people on the grass roots level.

The Chairperson said that the information captured had been stated by the people who made the presentations, and were not findings by the Committee.

Mr Chance pointed out that on page 3, the first paragraph referred to 9.9 million jobs and wondered where that figure came from.

The Chairperson said that 9.9% was the 90% of the figure of 11 million which came from the National Development Plan, and that figure could not be questioned by the Committee, as it was stated, merely paraphrased.

The job description of Mr Mahote Mojafela was questioned by Members and confirmed by the Content Advisor.

Mr Chance pointed out that on page 8, in the third paragraph, the figure for the grant allocation was incorrect. He read in the corrected figures in billions. He further pointed to inconsistency in allocations per learner per day, as two figures were mentioned but three categories.  The inclusion of “respectively” was also questioned on the sentence since it was not clear.

Mr Gxaji replied that “respectively” referred to primary, special and secondary school

Mr Chance suggested that R2.16 would be for primary and R3.12 would be for special and secondary school “and thus the Committee could leave out “respectively”

Rev Meshoe indicated that on page 8 on the third paragraph the rands sign must be inserted.

Mr Chance pointed out that on page 12, paragraph 4, there was a reference to Passenger Rail Agency of SA (PRASA) creating jobs, and asked if those were employees or sub- contractors.

The Chairperson stated that the acronym should be written in capital letters.

Mr Mabasa asked if sub-contractors are meant to substitute employees. If so, then the figure must be checked. The sub-contractors seemed to be referring to enterprises, not individuals.

Mr Chance stated that an individual as a sole proprietor could sub-contract services to an employer or company.

Mr Mabasa agreed but said that generally a sub-contractor would be understood as an employer who employed three or four people, and sub contracting as an individual is rare.

The Chairperson stated that it was not the sub-contractor that earns the R2 500 per month but a member of the sub-contractor, which is a co- operative.

Members agreed to the suggestion of Mr Mabasa to rephrase with the addition of "with the payment of R2 500 per person monthly"

Mr Mabasa and Mr Chance suggested formatting amendments for the participating figures.

Mr Chance indicated that on page 15, paragraph 5.3, it was preferable to refer to Top Green Houses in Israel. and remove paragraph 6.2 which is repetitive in describing what Kohwa holding is.

Mr Ramokhoase had noted this repetition also and agreed.

Mr Chance noted the spelling error of "hector" for "hectare" on page 16, in two places and suggested that "farmers" be replaced with "workers on page 16, line 9, as farmers would not be paid a wage.

Mr Chance moved to page 17 and pointed out that the plural should be used in paragraph for "communities". The model of Kohwa was creating new businesses which were creating results and it may be an important distinction. He suggested that the sentence read: “In creating new businesses which are creating permanent jobs...”. It was mentioned that Kohwa was creating employment but not high paying employment.

Mr Mabasa said that was something to be debated.

Mr Chance said that the Kohwa jobs were extremely low-skill and low-paid, and wages were not creating much value.

The Chairperson noted that the Top Green House in Israel does not belong to the workers, which explained why the wages were less than if they had owned the company

Mr Mabasa stated that when Top Greenhouse was engaged they became very protective of the intellectual property and even doubted if any enterprise was to be open in the country again.

The Chairperson said that the experimental farm belonged to Kohwa. Those working there were employees. However, Kohwa was seeking to open business that would be owned by employees, so, for instance, the next farm might belong to the workers. That was why Mr Chance mentioned "creating new businesses". The technology would be transferred and 20% of the profit managed to guarantee quality.

Mr Chance accepted the Chairperson's interpretation and elaborated more on how the 20% share works. He stated that there was a five-year agreement whereby there would be a 20% share of each of the mother cooperatives which would be formed with the Chief as the main partner, to ensure the policy was followed. There was transfer of intellectual property. At that time the workers would be compensated with a 20% share of the business.

Mr Mabasa asked if the 20% was part of the deal even if the farm was opened by the community or the government.

The Chairperson replied that the 20% remained part of the partnership arrangements for five years.

The Chairperson requested Members to reconsider the issues of labour-intensive initiatives.

Mr Chance stated that it might be misleading to say farm workers were not labour intensive. He pointed out that it would have been interesting to compare the examples if he had the statistics in terms of number of employee and farmers per hectare or number of farm workers per output, and what Kohwa holdings is modeled in terms of generating labour, and comparing this to a large industrial farm growing the same crop. He suggested that the sentence which reads: “permanent jobs that are not necessarily labour intensive” be changed to “permanent jobs which are accessible with people with lower level of education”.

Members agreed with that suggestion

Mr Chance reminded the Chairperson that Kohwa Holdings had been rejected on one occasion by the Industrial Development Corporation (IDC) because it had been in the primary business of growing but not processing vegetables. He suggested that one of the Committee recommendations should be that the IDC should look again at primary agriculture as a sector to support, rather than insisting on the next step of agro-processing.

Mr Ramokhoase suggested that the transversal agreements that were supposed to be signed should go across other departments including those dealing with agriculture and land. Kohwa should be part of the transversal agreement from the land and agriculture production until the level where Kohwa will be playing the role for which it was set up. Elements of the Departmental mandate that would need to be addressed included jobs and poverty.

Mr Chance stated that he was not referring to transversal agreements, but to the point raised by Kohwa that it was unable to raise funding through IDC. That would be dealt with under recommendations.

The Chairperson asked Mr Chance about the role of Land Bank.

Mr Chance said that he was not sure but indicated that Kohwa knocked on a lot of doors and got no answers. Agriculture was also an industry.

The Chairperson pointed out the Committee could not be influencing IDC at this moment because there would be complications and that would cause confusion.

Mr Chance highlighted page 22, first bullet, and questioned whether the figure of R9 000 referred to each beneficiary? If so, then this should be made clear.

He added that on page 24, items 6.3.1 and 6.8 did not have any recommendations attached to them.

On page 28, paragraph 3 he suggested that it should be added that there was a problematic relationship between municipal structures and the chief because of power of authority that creates uncertainty.

Mr Gxaji asked if Mr Chance could elaborate on that. There was legislation to facilitate relationships between the local government and the chiefs. in the Municipal Structures Act.

Mr Chance agreed, but said that in practice there was a problematic relationship between municipal structures and the Chiefs, because of power of authority that creates uncertainty, and the legislation is not working.

Ms N November (ANC) stated that the relationship between the local government and the chiefs is very sour.

Mr Chance added that he believed that created blockages.

The Chairperson disagreed with Mr Chance and stated that at Bizana land is claimed by two chiefs, which means that either each will claim one part, or one might be compensated. It was stated that chief’s land claims would never lead to underdevelopment in the areas, because in many areas land used to belong to chiefs and they needed to be compensated for their land.

Mr S Bekwa (ANC) pointed out that Mr Chance had mentioned one rare incident. Presently, chiefs were sitting in municipality meetings and they had representatives.

Mr Chance asked for the figures to be checked pointed on page 42, at paragraph 8.3, as to the amounts contributed to the incubation.

Mr Gxaji replied that the figure was listed in the Incubation Hub brochures.

Mr Chance asked whether the amount was spent already or was expected to be spent once programmes were done.

Mr Gxaji stated that the question that was raised by the Committee members was how the 1 billion was established. It had been noted as a joint contribution of R1 billion each, by Century Property and The Jobs Fund.

Mr Chance stated that throughout the document there was an assumption the cooperatives were not the way to go, compared to privately owned businesses.

Mr Mabasa said that the position of the Committee, in relation to both SMMES and Cooperatives, was that the only factor making it sound as if more emphasis is on SMMES was that most departments mostly speak of SMMEs to the exclusion of cooperatives. Cooperatives are there to bring in more people but not replace SMMEs.

The Chairperson stated that the report was not pushing for cooperatives only. Spaza shops were also visited.

Mr Ramokhoase asked if the recommendations at the document were for the entire report and whether they were final recommendations.

The Chairperson replied that the recommendations at the back of the document were the summary of all the recommendations. However, Mr Chance had now recommended that recommendations be included in other sections, in respect of the separate visits. Items 6 and 7 would need to be amended.

Mr Ramokhoase asked the strategy to be used in order to monitor the departments.

The Chairperson stated that the Report will also affect how the Department of Small Business Development would respond, in terms of aligning programmes to what is needed on the ground. It seemed that these recommendations were not so much likely to be implemented in twelve months but over the longer term. It would give a basis to the Committee to ensure that strategies matched the realities.

Mr Ramokhoase stated that after the Committee met with the Department and made recommendations the Committee never received documents from the Department stating that they were attending to matters. It was vital that, as a new Department, it must create hope for people and change the approach.

The Chairperson replied that the Report of a Portfolio Committee gives a picture of what is happening, makes recommendations and the Committee must monitor if those recommendations are implemented.

Mr Ramokhoase asked if the Department could give reports other than the formal quarterly progress reports.

The Chairperson responded that in the Report there were recommendations to the Department, and the Committee would need to call the Department in due course to ask how far it was in responding. The end product would be how the Department was implementing. If the Department failed to do that, this Report could then be used for the Budgetary Review and Recommendation Report process.

Mr Mabasa highlighted that the Department of Small Business Development, more than any other, needed to form relationships with SMMEs and cooperatives, and when special meetings were called they did not tend yet to attend; an indication that the Department had not won their trust.

The Chairperson noted that the corrections would first be made before the Committee formally adopted the Report. It would have been useful had the Committee managed to use its information in the budget approval process, but it would ensure that it influenced the Budgetary Review and Recommendation Report process.

The meeting was adjourned. 


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