Small Business Development Budget Review and Recommendations Report

Meeting report

Mr Xolisile Mgxaji, Content Advisor to the Portfolio Committee, said the drafted Budget Review and Recommendation Report (BRRR) was compulsory and entailed all the issues discussed, deliberated and recommended by the Committee, most of which were about financing and working of administration. Last year, one of the proposals in the BRRR had been to allocate the funds proposed to the Department of Small Business Development (DSBD) and the Minister of Finance had approved this proposal. Another recommendation had been that there should be a stand-alone vote, and there had been interaction with the Minister of the DSBD. However, a response about this recommendation was still awaited.

One of the interactions the Committee had had with small, medium and micro enterprises (SMME’s) and cooperatives last year had been to find out the challenges faced by these entities. Such information had been gathered, and the main challenges that stakeholders had in common included lack of market access, lack of finance, very high interest charged by the development finance institutions (DFIs), poor infrastructure, lack of adequate support, electricity services and the high costs of fragmented services offered by government.

At the workshop held in August, where the Committee had assessed the relevance of the financial instruments that DFIs were using to service their clients, its findings had included that there was a mismatch of products they offered to clients, there was no clarity on the requirements, and the budget kept on decreasing. The assessment had been needed because the Committee had to argue these points in case of additional funding being required. To craft the report, the policy focus areas which were relevant to the Committee had been considered. These focus areas included the National Development Plan (NDP) in order to achieve 90% of the nine million jobs targeted for 2030, the Medium Term Strategic Framework (MTSF), where unemployment had to decrease by 14% by 2020, the eradication of poverty and another policies emanating from the State of the Nation Address (SONA), and for the 30% appropriated to state procurement being used for purchases from SMMEs and cooperatives.

The National Treasury was currently drafting the Procurement Bill, which would repeal the current Preferential Procurement Policy Framework Act (PPPFA) to be able to achieve the 30% which needed to be set aside for SMMEs and Cooperatives. The Bill would be completed by December. Another policy was the 75% local content policy, which was administered by the Department of Trade and Industry (DTI). The DSBD had started training SMMEs and cooperatives so that they could benefit from this kind of policy.

The aims going forward were therefore to achieve the policies emanating from the SONA, the NDP, the MSTF and also outcome 4 (decent employment through inclusive growth). In June last year, the Committee had adopted the final strategic plan of the Department. Its five strategic objectives had been highlighted and were currently being deliberated in the preparation of the BRRR. The Committee had raised concerns with the vision and mission.

Financial Performance Assessment and Service Delivery Performance

Mr Mgxaji said the Committee would assess of the Department for the year, and for the two quarters of the current financial year. The financial and non-financial performance had to be linked to determine whether the amount it had spent was commensurate with what had been achieved. The Department had spent 97% of its budget in the previous financial year, but it had recorded a lot of non-achievements, so there was a bit of anomaly in what it had spend and what had been achieved.

In the first and second quarter, the Department had cumulatively spent R547 million (46%) of its budget of R1.103 billion for the year. The Department had targeted to spend 54% by this stage. At the beginning of the financial year, according to Public Financial Management Act (PFMA), Departments were required to submit cash flow projections per quarter, which would be derived from the Department’s Annual Performance Plan (APP). Therefore so far the Department had an under spending of 5%, and the overarching reason for its under-spending was capacity, because a lot of critical positions within the Department had not been filled. The Department had had no CFO and executive management -- an important layer which drove the performance of the Department. The same thing had been echoed by the Director General, who had said that this might result in the Department’s regression in the audit outcomes at the end of the financial year.

Other reasons for under-spending had included the fact that a lot of money had been budgeted for the Cooperative Incentive Scheme (CIS), but there had been no spending on this because the adjudication committee that had been supposed to sit and approve the applications had been not established, and the appointments had been made only at the end of the first quarter.

Nonetheless, one of their achievements within the two quarters was the financial support they had provided to primary cooperatives, and the linking of the cooperatives in Limpopo with the markets. Another achievement was being invited by the other departments to market their purchasing requirements to SMMEs.

The DSBD had requested a budget amounting to R3.7 billion over the MTEF period, made up of R1.1 billion in 2015/16, R1.3 billion in 2016/17 and R1.3 billion in 2017/18. However, of the R1.1 billion requested for 2015/16, 85% would be transferred to Departmental entities -- the Small Enterprise Development Agency (SEDA) and the Black Business Supplier Development Programme (BBSDP). The Department had indicated that there was no budget for a review of the current legislation, and if this aspect continued not being budgeted for, it could pose a risk to the Department’s ability to achieve its objectives. He agreed with the Department on this point, because it had a new mandate but still operated on the old legislation. Additionally, there was the issue of people not knowing about the Department’s existence, and it had therefore requested funds to market itself to the public through broadcasts, billboards etc. There would also need to be a person to run these services. He agreed that if the target clients had no knowledge of the Department, how was it going to achieve its broad objectives?

The DSBD had also mentioned the lack of a credible data source containing details of cooperatives and SMMEs. Most sources of data were from private companies and there was not one that was actually controlled by the government. The only recognised or credible government data was from Statistics South Africa (StatsSA), and such data was not yet available from them.

At the programme level, the Department had Enterprise Development and Entrepreneurship, Administration and Cooperative Support and Development. In the last BRRR, the Department's proposal for a core function like Cooperative Support and Development had been a lower budget than that for Administration. The budget for Cooperative Support and Development had been 2% of the total budget, and in the current financial year it was even lower at 1.4%, even though the Committee had raised concerns about it in the previous year. The Department’s justification for an increased budget for Administration was that it currently did not have proper accommodation. It paid R390 000 monthly to the DTI for the space it was currently occupying in DTI premises. However, the DTI had promised the Department space to rent annually at a rate of R15 million for the 2015/16 financial year and R16 million for 2016/17.

Another reason the Department had out forward for an increased administration budget was so it could have its own information communication technology (ICT) because it was currently dependent on DTI’s network cables. The reason for this was that ICT was an area where corruption could take place, and this could pose a risk for the Department's receipt of qualified audits. In addition, some of the proposed administration amount would be spent on funding the post of the Chief Director of Marketing.

Some of the funds requested for Enterprise Development and Entrepreneurship would fund the National Information Upliftment Strategy and the creation of a Centre for Entrepreneurship. The Committee raised concerns about the amount of money being transferred to Departmental entities, because it lost its value through the chain system before reaching its target clients. The recommendation of a one-stop shop thus stemmed from this concern.

The committee had also raised concerns about the Department’s vision and mission, where it was said that the current wording distorted the content. The vision was supposed to reflect the objectives, and the mission should include what was going to be done to achieve this. The vision and mission of the Department did not comply with the SMART principle -- simple, measurable, accurate, reliable and time bound. Thus it had been recommended that the Department have a workshop with the Committee to deal with this issue. The Committee had also said the Department was very relaxed and had not shown any sense of urgency and did not seem to prioritize the review of legislation such as the National Business Act.

Another issue was the signing of the transversal agreement partnerships. The Committee maintained the view that when it entered into these transversal agreement partnerships, there should be a mutual benefit for both parties involved. Also, the current issue was that SEFA was using microfinance enterprises to lend to micro enterprises. Intermediaries that charged between 40% and 110% placed burdens on the poor faced by the challenges of social economic inclusion. Therefore this model was supposed to be reviewed so that it could be replaced by another model better than the current one. SEFA had reported that it was not able to find businesses owned by people living with disabilities. This had come as a surprise to the Committee because it had done an oversight visit in February, one of the sites had been SHARP in Soweto, which was owned by people living with disability.

The Department’s recommendations that would be going to the Minister of Finance were:

• A one-stop shop for the provision of SEDA and SEFA.
• A strategic workshop with all stakeholders in order to develop a sound vision and mission and strategic plan. This workshop should act as springboard to develop a master plan for the development of cooperatives and SMMEs that would be known and followed by all in government.
• A credible data source.
• A review of the current model of intermediaries using microfinance.
• To produce a commercial plan to deal with impediments to SMMEs’ development goals and promotion, including financial regulations.
• To conduct a government review of all business to assess whether special conditions were required.

Discussion

The Chairperson informed the Committee that a letter had been received from the House stating that there had been an extension for finalising the adoption of committee BRRRs. She recommended that the report be worked on at the next meeting on the following day and the adaptations be done on 28 October.

Mr R Chance (DA) said he agreed that deliberation should take place the next day and adaptation be on the 28th. He had another request -- that the first hour of the following meeting be set aside for party caucusing.

The Chairperson said that in the first part of the report, there were recommendations that had been made in the BRRR of the previous financial year, to which the Minister of Finance had responded. However, there had been no official response from the DSBD, and there was no representative present from it. There was also no submission for the Department that was similar to the one submitted by the Minister of Finance. There were areas highlighted in the report which required a response from the Minister of the DSBD.

Mr H Kruger (DA) asked if the Committee could deviate from the agenda. He suggested that it should adopt the first quarter of the committee's programme.

Ms N November (ANC) said the content advisor had kept referring to himself, so it seemed like they were not working as a team.

The Chairperson said this was what was supposed to happen -- he was the content advisor of the Portfolio Committee, not of the Department. When the content advisor refers to himself, it was because part of his job description was that when the report was drafted, he was the one that had to lead.

Mr Chance said the BRRR could not be adopted the following day, but rather on the following Wednesday.

The Chairperson said the Committee had received an invitation from the Small Business Development Institute (SBDI) to the National SMME Policy Colloquium 2015, which would be held from 30 to 31 October. A decision needed to be taken on how the Committee responded to the invitation.

Mr X Mabasa (ANC) said he recommended that the Committee accepted the invitation because it had been almost a year since it had last interacted with the SBDI. He said this could give the Committee a report on the Institution's progress.

Mr S Mncwabe (NFP) said he supported Mr Mabasa’s proposdal to accept the invitation because the previous year’s colloquium had been very informative.

The Chairperson said she has no contrary view except to make the observation that the Small Business Policy Colloquium was in partnership with the Department, and there had not been similar situation with the cooperatives. In her opinion, it would be good for the Department to also get an understanding of the structures that were representing cooperatives and those that were representing street vendors. It could not focus only on high level SMMEs. She was saying this to create a balance and not allow one voice to be dominated by the DSBD, as this could create a problem. The colloquium was aimed at developing a master plan for SMMEs, and the question one would ask was whether cooperatives were being taken through the same process. Were street vendors and spazas being taken through the same process, because this was the client base of the Department?

Mr Mabasa said he agreed with the Chairperson. The Committee needed to engage with the Minister on this, because whatever product had to be carried for the medium and long term must be inclusive of the stakeholders that the Department sought to represent.

Mr Chance said the Committee also needed to realise that the goals of the Colloquium were better organised, better connected and better funded SMMEs. They were part of the lobby group, whereas the others -- cooperatives, spazas and informal traders -- were not. This Colloquium was the initiative of the SBDI, so the Committee should prevail upon the Department that it should not be persuaded by one lobby group, but should take a proactive role in seeking representatives from other groupings and form another policy colloquium.

The chairperson said the Department had learnt a lot from the Committee. It would not be where it was today if the Committee had not been critical in engaging with it. It was important for the Department to be sensitive to the fact that the strength of the lobby groups out there was different. The Small Business Development initiative was a structure that had not existed when these functions were in the DTI. The DSBD had been established to simultaneously influence the thinking of the Department. If a structure was not powerful, it did not mean it should be ignored. This was actually a structure which the Department needed to pay attention to.

Mr Chance said he agreed with the Chairperson in principle, but this related to the blind spot which she had referred to. It had to be understood that there was a separation of powers and these had to be maintained between the executive and the legislature. If the Committee teamed up with the Department and the ministry, it would not be doing its duty, which was to do oversight. This meant that while it could guide and advise, criticise and reject, it could not be seen to be part of the Department’s own initiatives. The Department has to stand on its own, irrespective of what the Committee might do or say.

The Chairperson said this was the understanding -- that there would always be a blind spot and there would always be a need for the Committee to speak about what it knew at the community leve,l and it was not wrong in doing this. However, there could not be a situation which allowed the Department to say “no, stay there, only wait for us,” because this would mean that the Committee was not adding any value.

Mr Mabasa said when the Minister returned, the Committee needs to engage the Department before attending the Colloquium to establish a common understanding on the points raised today, so that the way the message was articulated by the Minister should be informed by amongst others, what had been discussed.

The Chairperson said it was very rare for a portfolio committee to go on an oversight visit and be joined by the Department. It benefited from this because it got exposure to what was happening out there. There was always the division of powers and functions, but there was nothing wrong with exposing one another to the sharing of information.

The meeting was adjourned.