Local Procurement: Department of Defence plans; Departments of Transport, Energy & Telecommunications progress on transversal agreements

Small Business Development

12 August 2015
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Department of Defence (DoD), the Department of Energy (DoE) and the Department of Telecommunications and Postal Services (DTPS) met with the Committee to discuss and report back on progress with their plans for local procurement from Small, Medium and Micro Enterprises (SMMEs) and cooperatives.

The Department of Defence stated that consultation between the DoD and the Department of Small Business and Cooperative Development (DSBCD) was ongoing and would culminate in the signing of an MOU between the two departments. It was procuring goods and services from SMMEs and had not yet procured services from cooperatives, but it was in the process of doing that. The only focus of the Department had been the cooperatives of Military Veterans.

The Department of Energy stated that the process of the MOU had been started. It had forwarded the MOU to the DSBCD in order to give its inputs and also give them further recommendations that they thought the DoE could explore, so the discussions regarding the MOU were still ongoing. In terms of progress on the role that the DoE would play in the implementation of the targeted 30% procurement, it had identified big opportunities in its Solar Water Heating (SWH) programme. It planned to spend 70% of the budget of buying solar water heaters from SMME manufacturers. In addition, the installation and maintenance of the solar heaters would come from SMMEs.

The Department of Telecommunications and Postal Services said that it had had an interaction with the DSBCD on 5 August 2015, and the two Departments had set a deadline to sign the agreement on 21 August 2015. Among the activities that the DTPS had planned for the development of SMMEs and cooperatives was putting together an information communication technology (ICT) Ministerial Advisory Panel to address cross-cutting challenges facing the ICT SMME sector, and to report to the Minister/Department regularly. It was planning capacity building workshops in selected provinces -- Limpopo, Eastern Cape, KZN and Free State -- on the ICT SMME response to bidding, and showcasing ICT SMME opportunities within public entities. 

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed the officials from the four departments that were attending the meeting -- the Department of Small Business and Cooperatives Development (DSBCD), led by the Acting Director General, the Department of Defence, the Department of Energy and the Department of Telecommunications and Postal Services.

The purpose of the meeting was to discuss access to markets by small businesses and cooperatives. It was also in relation to the pronouncement that had been made by President Zuma during the State of the Nation Address, where he had said that 30% of goods and services would be procured by the public and private sectors from small businesses and cooperatives. Further, the meeting was also informed by the mandate given to the DSBCD -- a mandate of developing cooperatives and small businesses, but also ensuring that the process of developing cooperatives and small, medium and micro enterprises (SMMEs) happened in a coordinated fashion. This would be led by the DSBCD

One of the key tasks that the Department had been charged with was to sign transversal agreements with various departments. The transversal agreements were aimed at ensuring that there was access to the market for small businesses and cooperatives. Secondly, it had to ensure that there was coordination instead of duplication, that there was a complementary approach between departments, and that if there were activities or programmes that were carried out between the four departments to develop SMMEs and cooperatives, they should be done in a coordinated fashion in consultation with the Department. In essence, the DSBCD was trying to emulate what South Africa had done when it was bidding to host the 2010 Soccer World Cup, by ensuring that within a space of years after the pronouncement by FIFA that the World Cup would be hosted by South Africa. South Africa had put together a team that involved a number of government departments and role players within the private sector to make the country ready for the event. The government had decided that it should use the lessons learnt from successfully hosting the World Cup to continue developing the country. This meant moving away from working in silos and instead working as teams towards the attainment of particular goals. In this instance, it was the development of SMMEs and cooperatives for the purpose of creating 90% of the 11 million jobs by the year 2030. In doing this, poverty would be reduced to 0% in 2030 while creating 9.9 million jobs though SMMEs and cooperatives.

The questions that the Committee had sent out and was expecting the presentations to respond to were:

  1. Had there been any interaction between the departments that were attending the meeting and the DSBCD to plan on how they could work together to develop SMMEs and cooperatives, with the aim of reducing poverty and inequalities in creating the 9.9million jobs. If that number could be turned into yearly targets, 9.9 million was divided by 13 years, and the yearly target would be 761 000 jobs per annum
  2. What market and skills development opportunities existed in the departments for SMMEs and cooperatives, and what was the total expenditure on goods and services? What steps had been taken for the departments to achieve 70% local procurement? Parallel to the 30% designated for SMMEs and cooperatives was the 70% which replaced imported goods ensure that the 70% was locally produced goods, and only 30% was imported goods. What steps had the departments taken to achieve the total target 30% procurement from SMMEs and cooperatives? The Chairperson asked to see the plans that the departments had developed in order to see whether they understood what was expected from them, and also to see the processes that would lead to the attainment of the target set.
  3. What roles were played by the departments to influence big companies -- companies that were benefiting from state tenders -- to use their corporate social responsibility budgets in a developmental manner, to assist with the development of SMMEs and cooperatives? Was there a system in place for the department to encourage investment by suppliers in underdeveloped areas?
  4. Did the department adhere to the 30-days payment policy for small businesses and cooperatives?
  5. Was there a person in the procurement unit of the department with understanding of the concepts and benefits of supporting cooperatives in the process of helping communities to become self-sufficient and self-reliant?
  6. How aligned was the strategic plan of the department to the strategic plan of the DSBCD in order to achieve the national development goals of reducing poverty to 0% by 2030 and creating 9.9 million jobs by 2030?

The Chairperson said the Committee was expecting the Department of Defence to answer all the questions, as it was meeting the Committee for the first time. The Department of Energy and the Department of Telecommunications and Postal Services would report on the progress that they had made since their last meeting with the Committee. Thus, their presentations should be more about:

  1. The progress they had made in engaging the DSBCD in signing the transversal agreements.
  2. The progress in identifying the exact goods and services that could be supplied by SMMEs and cooperatives so as to enable the DSBCD to align its development process of SMMEs and cooperatives with the market opportunities. This meant that the creation of a balance between demand and supply had to be looked at. The Department had to know the size of the market that existed in each of the departments so that their support instruments would then speak to the market in order to create a balance.

The Chairperson said she would ask the Department of Defence to present first, and then the other departments would follow. She would need to leave at a certain time as she would be attending a meeting for Chairpersons, and she would delegate the meeting to one of the Members.

Mr R Chance (DA) asked to be excused at 13h30. His colleague, Mr H Kruger (DA), would be available for the question and answer sessions.

The Secretary of the Committee gave apologies from the Minister of Small Business Development, Minister Lindiwe Zulu, the Deputy Minister, Elizabeth Thabethe, and Mr S Mncwabe (NFP). The Chairperson gave an apology for Mr S Bekwa (ANC). In addition, Mr T Ramokhoase (ANC) said he would be leaving at 1pm for an appointment and Rev K Meshoe (ACDP) said he would have to leave at 12pm for another meeting.

Department of Defence Presentation

Dr Sam Gulube, Secretary for the Department of Defence, introduced his delegation. They were the Deputy Director General of the Department of Defence in charge of Defence Materials and Procurement, Mr Mthobisi Zondi, the Director of Defence Material, Ms Fikile Khumalo, and Mr Reginald Marlimi, the Parliamentary Liaison Officer.


Dr Gulube said there has been an interaction between the Department of Defence and the Department of Small Business Development, and consultation was ongoing. This would culminate in the signing of a Memorandum of Understanding (MOU) between the two departments.

The market and related skills development opportunities in the Department of Defence were:

  • Logistics – the Department was big in logistics, through the way it executed its functions and duties in terms of the deployment and training of the Defence Force. The Department believed that they could make a big contribution in this sector. It was already interacting with a number of universities in terms of its participation in exchanging information and experience when it came to logistics. The Department was involved in moving cargo and people, and that was the backbone of the South African economy.
  • The retail, motor trade, maintenance and repairs.
  • Wholesale trade.
  • Catering, accommodation and travel. When there was a need for training and deployment of troops inside and outside South Africa, it was the responsibility of the Department to provide catering, accommodation and fuel required as the troops executed their duties.
  • Transport, storage and communication. The Department was also good in the field of information communications technology (ICT). It spends a lot of money on research and development working with Council for Scientific and Industrial Research (CSIR), the South African Medical Research Council (SAMRC) and other universities. It spends about R600 million purely on research.
  • Furniture manufacturing, maintenance, repairs and recycling. The Department had also established a Defence Works Formation that arose out of the frustration that they were having with the Department of Public Works over the maintenance of the Department`s facilities. The Department of Defence had decided that it would start building internal capability to maintain its facilities in terms of repairs, refurbishments and ongoing maintenance. The National Treasury had allowed it to use R300 million to maintain its facilities itself, and not give it to the Department of Public Works. The Department of Defence’s approach was that as it did not have the skills and expertise required for the design and installation of the facilities, it would use inside and outside capacities, doing so in the hope that they would be developing small and medium enterprises.
  • Printing. The Department’s expenditure on goods and services for the past financial year was recorded as R11.337bn for procurement and defence material acquisitions. The amount spent on procurement that was more relevant to small businesses was R2.8bn. The other R11bn was for maintaining systems that the Department has already acquired, such as fighter jets, submarines, armoured vehicles and so forth.

Dr Gulube pointed out that the Department also spent its goods and services in areas such as business and advisory services, infrastructure and planning, laboratory services, and legal costs. Another area was contractors. The Department outsourced professional services that the Department did not have in some of their facilities, such as health care professionals and lawyers, maintaining aircrafts, vehicles, ships etc. This was where the Departments got to interact with small and medium enterprises.

He said the Department had taken steps to ensure that 70% of its procurement was local procurement. The requirement to adhere to 70% local procurement was incorporated in all applicable terms of reference of the advertised bids. For instance, for this financial year, the Department`s major procurement would focus on procuring three in-shore patrol boats, hydrographic vessels, etc, and their procurement states clearly that they want them to be manufactured in South Africa. For the patrol boats, at least 90-95% would be local, but maybe for hydrographic vessels it would amount to 35% locally simply because of the complexity of the engineering in building such big hydrographic research vessels.

In order to achieve the target of 30% procurement from SMMEs and cooperatives, the Department had taken the following approaches:

  • A local foot print (provincial and local foot print) was prioritised when awarding bids.
  • Procurement centres procured from suppliers that were nearest to the procuring unit. The Department at the major fighting aircraft base in Makhado in Limpopo got their fruit and vegetables in Gauteng, whereas they could get them from Limpopo, but because of the difficulty of local SMMEs to organise themselves for sustainable and constant supplies, they could get only get them from the big businesses in Gauteng. The Department had realised that for them to engage with small businesses, they first needed to engage in empowerment for them to be able to supply to them without any breaks.
  • For the financial year 2014/15, the Central Procurement Service Centre (CPSC) had spent R2.8bn on procurement of goods and services from SMMEs, which represented 35% of the total.

In terms of Corporate Social Responsibility, the Department was mostly focusing on empowerment, training and on the development of skills. It was interested to know how much big companies spent on the development of their suppliers. The Department had asked the South Africa Defence Industry (SADI) to explain how they were constituted in terms of developing their suppliers. SADI has 77 members in their industry, and 62% of them are SMMEs. Moreover, SADI’s total turnover was about R15.8bn, and 3% of that amount was contributed by SMMEs. There were 15 000 employees in SADI and 13% of them were employed by SMMEs.

Dr Gulube also talked about Denel, the state-owned arms manufacturing company that has reported that their spending on black-owned companies constituted 22% of the total spent, of which 8.1% went to women-owned companies, and 1% to youths. Denel, together with the Department, had established the Enterprise Supplier Development initiative, with this initiative they were developing suppliers to supply whatever equipment Denel needed to manufacture their products and services in order to develop local SMMEs and Cooperatives. So far, R17.3m had been spent just on developing 25 SMME suppliers.

A system had been put in place in the Department to encourage investment by suppliers in underdeveloped areas. The Chief of the South African Defence Force had initiated a programme whereby those who were retiring from the force to take up other opportunities could be coordinated and organised in the defence reserve force. The Department was tapping into the skills of the reserve force, especially those who had agricultural skills. The first pilot project was to be implemented in the North West in 2016/17. Amongst the aspects to be covered by this project were the industrial and services sectors, human resources and infrastructure development.

The Department had been working on improving its 30-days payment policy for SMMEs and cooperatives. Last year the target for the payment of suppliers within 30 days was 65%, and this year they had targeted 75%. For the first quarter of this financial year, 72 % had been achieved. The Department had finalised an investigation to trace the root causes of delays in payments. An action plan had been formulated to improve performance and solve the issues identified. A process to electronically track invoices from receipt to payment had been developed and the Financial Management System (FMS) had been enhanced to cater for this process and to include additional controls in the monitoring process. Improved and integrated training between Supply Chain Management and Finance was being developed.

On the question of whether there was a person in the procurement unit of the Department who had knowledge and understanding of the cooperatives concept and the benefits of supporting cooperatives in the process of developing communities to become self- sufficient and self-reliant, Dr Gulube said an initiative to register the Military Veterans’ cooperatives was in process. The Department was now tracking registrations of these cooperatives and working on how to assist them. The Department would like to train them specifically in the disposal of ammunition and weapons of obsolete defence equipment. That could make a start for them, but they needed skills training and proper licences. The Department had started working with the DSBCD in this regard.

The Department has made sure that youth empowerment initiatives were at an advanced stage to ensure that youth were a key target group for economic opportunities. The Department had established a Youth Leadership Development Programme (YLDP). The youth empowerment initiatives had been established in order to align the strategic plan of the Department with the strategic plan of the DSBCD in order to achieve the National Development Plan goals of reducing poverty to 0% by 2030 and 11 million more jobs by 2030.The following modules were covered in the Youth Leadership Development Programme:

  • Discipline and drill
  • Physical training
  • Leadership
  • Civic education
  • Life skills
  • Youth regeneration
  • Diversity management
  • Environmental management
  • Public Service induction
  • Communication and social responsibility

The Department was aligned with various government strategic priorities. Parliament had passed the Defence Review 2015 that addressed the developmental tasks of the Department in order to contribute towards not just the security of the country, but also towards its development agenda. Further, the Department had other accelerated programmes that ensured that it was aligned with the Government’s developmental priorities, which were:

  • Accelerate supplier targeting for women and youth;
  • Increased oversight on big companies’ Corporate Social Responsibility;
  • Increased oversight on supplier investment in underdeveloped areas;
  • Compliance to applicable legislation, i.e. the Preferential Procurement Policy Framework Act (PPPFA);
  • Utilisation of a comprehensive supplier database;
  • Marketing opportunities to suppliers through the annual Suppliers Day and Industry Day.

Dr Gulube ended his presentation by saying that the Department of Defence was committed to advancing the development of SMMEs and cooperatives through collaboration with other relevant stakeholders, and efforts were in progress to ensure full alignment with the government’s intention to accelerate economic transformation and alleviate poverty, inequality and unemployment.


The Chairperson commented that the manner in which the presentation had been conducted showed that the Department of Defence had followed the orders, and not need a further interpretation of what had been asked of them.


Mr H Kruger (DA) referred to the Department’s statement that they were big on skills, but the problem in South Africa at the moment was that the targeted businesses did not have the skills. For instance, some did not have the skill to fill in invoices correctly. What was the Department doing to reduce the amount of red tape which targeted small businesses had to deal with?

He had made an observation that there was a lack of complete understanding of what type of services small businesses and cooperatives could render to departments. He proposed that there should be a workshop for all procurement departments about the real potential, and where small businesses could be helped as well

Mr Meshoe, said that Dr Gulube mentioned that the contractors that the Department uses for repairs and maintenance work to sub-contractors, he would like to know what the impact on the prices is. Does that not inflate the profit as both the main contractor and the sub-contractor have to make profit.

The Rev K Meshoe (ACDP) said that soldiers in Makhado had to get their fruit and vegetables from Gauteng. He wanted to know why the Department was not helping the SMMEs in Makhado because if the Department trained and skilled them, they would save a lot of money.

He would like to get idea of why was it difficult to verify an invoice within 24 days. What was the average time required for the Department to validate invoices that were submitted to them.

Mr Meshoe asked a question on the training of Youth, Dr Gulube mentioned that it was the Department that refers the youth that needs to be trained, so he would like to know whether the training offered was different to meet different needs or was it the same kind of training for all the Youth regardless of which department they come from. He also asked how the selection of youth that has to be trained was done.

Mr T Ramokhoase (ANC) referred to the investment in suppliers from underdeveloped areas. There were industrial and services sectors. Was the Department looking at the issue of space, or land, if they were dealing with issues of manufacturing, because most targeted SMMEs had a problem of securing space to work. He asked if the Department could expand on how they dealt with such issues.

The Department had shown it was spending a huge amount both directly and indirectly with SMMEs, and that was a good thing. However, the impact of skills transfer had not been indicated. How did the Department deal with the issue of skills transfer?

The Department had explained its role in influencing big companies who were suppliers to use their Corporate Social Responsibility budgets in a developmental manner. Because social responsibilities were so broad, what was the Department focusing on to make sure that the training that it offered was relevant to the future?

He also asked how the Department dealt with the issue of fronting.

Mr Chance asked if enterprise development was a professional competency within the Department of Defence. How did the Department classify and define SMMEs, bearing in mind that they were talking about three classes of businesses. In terms of their distinctions between of goods and services and the acquisition of arms, was the Department growing their SMMEs or suppliers into its core business or were they looking to develop small businesses to become big businesses, and supply their core requirements to the Defence Force?

If the Department looked at their small business suppliers, had it looked at what proportion of their turnover was bought by the Defence Force? Was the Department working with other large organisations that also procured their goods and services from the SMMEs, in order to develop a supply programme which was more comprehensive?

He asked where the 25% black-owned businesses instruction had come from a couple of years ago. There had never been legislation or regulations that had stipulated that the 25% of procurement must be from black-owned businesses. It had always, in fact, been the 80/20 or the 90/10 rule according to contracts of above half a million rand. Why had the Department adopted such a policy if they knew they were going to be told off by the Auditor General?

Lastly, he asked how the Department audited to check that their suppliers were sub-contracting a certain percentage of their business to small businesses. What steps were taken by the Department to ensure that their large suppliers were telling the truth?

Mr T Khoza (ANC) asked whether the Department, in their agenda, considered being biased towards the rural areas in terms of SMME development and for them to benefit from the social responsibility budgets of large companies. He also wanted to check whether the in-house capacity that Dr Gulube had referred to, were the reserves that they would occasionally get, or were they focused on certain people that had skills? Did the Department have incentives such as certificates for the people that had participated in their development activities? How adequately were the Department`s health facilities equipped, and did they take anyone or were they only for members of the Defence Force? When was the Department planning to improve and integrate the training between Supply Chain Management (SCM) and finance?

Mr T Mulaudzi (EFF) said he would like some clarity on how many people the big companies developed, and he supported Mr Khoza`s question about whether the Department was biased towards developing only in the rural communities. He said the percentages that had been given about black-owned companies were still very low. What was the Department’s strategy to uplift the percentages? Could the Department specify how they were going to go about verifying their invoices.

Mr X Mabasa (ANC) asked whether the Department related to higher education in addressing the challenges, so that their training of learners related to their industry. Did the Department visit schools to motivate young people to join the Defence Force? What percentage of spending had gone to cooperatives compared to what had gone to SMMEs? Regarding procurement, did the Department not face the threat of skilled senior officials rushing to take early retirement so that they could service the Department with the aim of earning a profit?

Dr Gulube started his response by replying to the question of training and skills development in general. He said that the Department was not interacting with the Department of Higher Education, but did interact with the various institutions he had mentioned previously, such as the CSIR, Denel, Further Education and Training (FET) colleges, and so forth.

In terms of the red tape reduction, the Department had a division of logistics that ran what was called Supplier Days, where they get to invite all suppliers for a day or two to go through a workshop of how the procurement processes were done in the Department. Once the Department had decided to take contracts with certain suppliers, it would go through a process of training them on how to do their invoices.

He understood the kinds of services that could be provided by SMMEs, but it was the responsibility of the Department of Small Business Development to organise the SMMEs, together with the different departments, to conduct the workshops that Mr Kruger had suggested.

The issue of Makhado was being addressed through the Department’s procurement processes. The Department`s next contracts for fruits and vegetables should be awarded locally. He was just worried about whether the small businesses could supply enough fruit and vegetables for the Department, as it needed large orders.

The Chairperson interjected and said that that was where the role of the Department of Small Business and Cooperative Development cames in. It could bring all the small businesses that sell fruit and vegetable in Makhado, organise them and form them into cooperatives, get a strategic partner that has intellectual property, technology and the skill to make it possible to match the supply with the demand. That would be enough to ensure supply, as well as quality control.

On the verification of invoices, Dr Gulube said that verification became difficult when invoices came without evidence of goods and services being delivered to the client, As a result, the Department would need to track down the proof, and that caused the delays in verifying the invoices. He said that the Department would address the issue.

The Chairperson wanted clarity on what the 30 days for verifying invoices was for?

Mr Mthobisi Zondi, Director of Defence Material, replied that the problem of verifying invoices was multi-faceted. Firstly, the Department had 510 accounting units across the country, but it had a centralised way of contracting. Verification first needed to take place at the unit level, then it went to the national level, where the payments actually took place. Also, items that needed to be recorded had to be physically communicated, as the technology used did not allow the information recorded at the unit level to be communicated at the national level.

The Chairperson commented and said that there was technology available and the system of verifying invoices could be corrected. The Department needed to meet with the relevant people and find out what they needed to do to correct the system.

Mr Zondi said that the Department wanted to switch to an Integrated Financial Management System (IFMS) that the National Treasury had approved for them to move to.

Dr Gulube replied on the issue of land. He said the Department did things internally -- it accommodated the members of the Defence Force and utilized its facilities when working with small businesses. The Department was not competent to give people land or facilities to operate in. That was the responsibility of other departments.

Dr Gulube agreed with Mr Ramokhoase that social responsibility was a broad term, and said the Department would be focusing on developing the members of the Defence Force and their families. Their main focus would be on opening education trusts and looking after the retired members of the Defence Force.

Fronting had not been a major issue with the Department. There had been strong relationships between the Department and its suppliers.

He said that the 25% BEE requirement could be found in the Public Finance Management Act (PFMA), as well the AMSCOR Act.

In terms of auditing its suppliers, the Department monitored the suppliers through their annual reports, and the financial reports that the suppliers produced.

He agreed that the Department was biased towards developing the rural areas. The Department was mostly focused on Makhado, Mtubatuba, and North West province, while the Youth Leadership Programme was focusing only on the youth from rural areas.

Regarding the health facilities of the Department, Dr Gulube said the facilities were well equipped and were only for members of the Defence Force and members that had retired. The Department had also entered into an MOU to take care of Military Veterans that were registered with the Department.

He said the training for SCM was taking place right now, and it was ongoing.

He pointed out that the Department had not yet procured services from cooperatives, but it was in the process of doing so. The only focus of the Department had been the cooperatives of Military Veterans.

The Chairperson interjected and said the cooperatives of Military Veterans had not done well for some time. The Department therefore needed to partner with them in order to reduce unemployment and poverty.

Mr Zondi replied to the issue of sub-contracting, and said that the Defence system was multi-tiered. Thus sub-contracting does not mean that it was duplicating costs. The companies that it worked with were complementary, and there were no negative impacts on the costs.

He said that the definition of SMMEs came from the National Small Business Act, which defined them in terms of size, turnover and number of employees.

Mr Zondi replied to the issue of Defence Force personnel retiring early to start small businesses in the defence industry. He said it was a good thing, as they would be able to interact with the clients and make sure the requirements were met.

The chairperson thanked the Department of Defence for their presentation and asked if they could continually relate, as it could mutually benefit them.


Department of Energy Presentation

Ms Nonhlahla Tshabalala, Director: Financial Planning and Management, Department of Energy (DoE), briefed the Committee on the main projects that the Department had identified as opportunities, and also explained what had been done so far in terms of the MOU that had to be signed with the Department of Small Businesses and Cooperative Development.

The DoE had identified the following projects for cooperation and collaboration with the DSBCD:

  • Integrated Energy Centres (IECs);
  • Independent Power Producers;
  • Solar Water Heaters;
  • Electrical programme – grid projects and solar home systems;
  • Biofuels;
  • Payment of invoices to SMMEs and cooperatives within 30 days;
  • Public awareness of business opportunities within the energy sector.


An MOU had been forwarded to the DSBCD in order to give its inputs, and also to give them further recommendations which the Department of Energy could explore. The discussions regarding the MOU were still ongoing.

Ms Tshabalala said that the current procurement process followed by the Department was done through inviting suppliers to register their details on its database. The invitations were sent through the Government Bulletin and other big media platforms. Service providers were captured on the database according to the commodities that they could provide. There was currently a list of 100 commodities that could be supplied and each service provider could be listed for a maximum of only five commodities. The database was updated regularly.

The Department’s tender bidding process was applicable to goods and services above R500 000. Adverts for bids were placed for 21 days or less, if the accounting officer gave approval. For procurement of below R1 million the Department used the 80/20 principle, and the 90/10 formula was used for procurement above R1 million.

Mr Mthokosizi Mpofu, DoE, added that the Department was constantly constrained by the Preferential Procurement Policy Framework Act (PPPFA) policy, and asked if the Committee could facilitate a discussion on the constraints that departments faced when they had to do procurement with respect to the 80/20 or the 90/10 principles.

Mr Khanyiso Zihlangu, Project Manager, DoE, expanded on the opportunities that existed within the upcoming programmes of the Department, and the role that the Department envisaged playing in the implementation of the targeted 30% procurement. The programmes that the Department had initiated had not been rolled out yet, as there were changes that it had to make first before it could proceed.

The Department had budgeted to spend R398 million on the programmes, as advised by the Treasury. It would spend 70% of the budget to buy solar water heaters (SWHs), and they intended to buy them from small and medium enterprise manufacturers. In addition, the companies that would install the heaters would come from the SMMEs. In parallel to the solar heaters that would be installed, the Department would also maintain and repair the ones that were already installed. The maintenance services would also be coming from SMMEs. This was where the Department had identified the big opportunities lay. Regarding the MOU, the Department would be looking to sign all the programmes that had been stated in one single agreement.

Mr Mpofu said that the programmes were geared towards working with SMMEs. There were opportunities for cooperatives, but the DoE did not know how to involve them because there were many complex legal arrangements involved.

The National Electrification Programme had been running for over 10 years, and it was employing and procuring from local suppliers.


Mr Kruger pointed out again that the Departments needed to attend workshops in order for the Committee to gain more benefit out of them. He asked in which municipalities had 20 000 jobs been created. What was the DoE’s strategy to deal with “red tape.”


Mr Mulaudzi said he would like to know about the relationship between the Department and the local economic development departments of the municipalities, as this could be of assistance in reaching the people on the ground. What had the DSBCD communicated to the DoE with regard to their MOU? He also asked for statistics on the SWH programme.

Ms N November (ANC) commented that the Department had to meet and sit down with the DSBCD to finalize the MOU.

Mr Ramokhoase said there are a lot of uncertainties in the presentation which could lead to failures. The timelines in the presentation were unrealistic. Would the eight cooperatives currently being trained be ready for the roll out of the programme, as it would be rolled out next month?

The Chairperson asked the DoE to respond to the questions asked by Members in writing and direct them to the Secretary of the Committee. He thanked the Department for their presentation and said he wished them well.


Department of Telecommunications and Postal Services Presentation

Dr Mashilo Boloka, Director: Enterprise Development, Department of Telecommunications and Postal Services (DTPS) described the progress the Department had made since they met the Committee in March, and the progress made with the DSBCD.

Following on the data that the Department had collected on SMMEs, the Department had developed a draft support programme which it was intending to gazette for public comments in order to solicit public inputs into the programme. The Department had committed to publishing the programme by the end of the month so that the public could comment on whether it was adequate or not.

The other issue that the Department was addressing was that at the moment it was dealing with large enterprises, and it was putting together an ICT Ministerial Advisory Panel to address cross-cutting challenges facing the ICT SMME sector, to report to the Minister/Department regularly.

The Department was planning capacity building workshops in selected provinces -- Limpopo, Eastern Cape, KZN and Free State -- on ICT SMME response to bidding and showcasing of ICT SMME opportunities within public entities. This was to equip ICT SMMEs with the technical know-how to read and appropriately respond to ICT Bids while familiarising them with the opportunities within the Department`s entities. The Department was aiming to see an improved and increased response by ICT SMMEs to bids, shown by the number of SMMEs getting bids within public entities. A total of 70 ICT SMMEs were targeted for this programme.

On the progress in the signing the transversal agreement with the Department of Small Business and Cooperative Development with the Department of Telecommunications and Postal Services, the two departments had met on 5 August 2015 and agreed on the scope, covering the following areas:

  • Capacity-building programme
  • Incubator model to accelerate ICT SMME development
  • Access to funding by ICT SMMEs
  • Addressing the SMME bottlenecks in the public sector (legislations, payments, administrative)


The agreements the Department made with the Department of Small Business and Cooperative Development were:

1. The DTPS would develop a sector specific programme as guided by the DSBD’s overarching policy and guidelines.

2. The departments would continuously work together, and where possible synchronize programmes.

3. The DTPS would not initially implement financial support, but tap into the DSBCD’s supplier development fund located at the Small Enterprise Finance Agency

4. Given the peculiar challenges in the ICT environment, normal procurement may not yield results as an ICT SMME development vehicle, so an ICT specific incubator model had to be developed as per DSBCD guidelines.

The two departments had set a timeline to sign the agreement for 21 August 2015.


Mr Kruger said that the Committee must book a day for the Department for another meeting so that it could hear the role the Department was going to play in SMME development, because it was one of the most important departments where development of SMMEs and cooperatives was concerned.


Mr Mulaudzi wanted to know about the recent programme in South African Post Offices (SAPOs). There was a problem in the Post Offices, and the vehicles in Soweto were not working at the moment, and people were being sent home. He also wanted to know whether the Department has paid South African Airways the money it owed them, as it also transported material for small businesses.

Mr Ramokhoase commented that the presentation did not need any further comments, as he could see it was a good work in progress.

Mr Khoza wanted to know when the draft support programme would be aligned to the 30% procurement policy.

The Chairperson said that the Department’s task was to create jobs. but it seemed like they were doing very well at retrenching. He also asked the Department about its plans for cellphone services, as they had an impact on job creation.

Mr Boloko replied to the question around the services. One of the challenges that most of the ICT SMMEs faced, other than regular energy supply, was the cost of having their own telecom services, and it affected the way that they worked. That was the main reason why the Department was working on creating a Ministerial Advisory Panel to address the cross-cutting issues and that would include the regulator, which was the Independent Communications Authority of SA (ICASA), because it had to perform the task to ensure that the costs were brought down.

On the question of retrenchments, he said the big companies were responsible for that, and it had a ripple effect on the ICT SMMEs. That issue required the interaction of all the relevant companies in the industry.

On the SAPO issues, he asked whether he could respond in writing, as he would have to investigate what the causes were of what was currently happening in Soweto.

Mr Boloko answered Mr Khoza`s question, and said that the draft support programme was aligned to the 30% procurement policy.

The Department was prepared to come back and meet the Committee again to discuss the role it was going to play in SMME development, especially after it had published its framework on how to support ICT SMMEs.

The Chairperson asked the Department to respond to the questions it had not fully answered in writing, especially the question about the ICT sector retrenching people.

The Chairperson thanked the Department for its presentation and thanked the Members staying for the whole duration of the meeting.

The meeting was adjourned.


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