Small Business Development Budget Review and Recommendations Report

Small Business Development

28 October 2015
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

BRRR 2015-2010: Budgetary Review & Recommendations Reports

The Committee commenced by going through the responses from Ms Lindiwe Zulu Minister of Small Business Development, to which Members did not comment. The Chairperson tabled the document and the Committee considered the report page by page.  Mr R Chance (DA) noted a few misprints, but the Committee did not agree with the suggestion of replacing ‘unfair’ in relation to unfair competition that existed within the Spaza shop space between local and foreign nationals’ Spaza shop businesses. The Committee refused to amend the term because it described the conditions and unfairness that persisted in that space of business. Mr Chance believed that fairness was achieved when everybody played on the same field where the rules applied to everyone. The foreign nationals employed tactics and business strategies, which were superior in many instances to the locals, and as a result of that were winning customers. Members agreed with other amendments and the report was the adopted with amendments. 

Meeting report

The Chairperson said she had submitted the BRRR to the Department of Small Business Development, and Ms Lindiwe Zulu, Minister of the Department of Small Business Development, had signed the BRRR.  It was vitally important that the Committee start with the responses from the Minister on page six of the document. Regarding the responses from the Minister Members submitted no comments.

Consideration of the Budget Review and Recommendations Report
The Chairperson commenced by giving the members of the Committee some time to go through the document thoroughly before commencing with the amendments and adoption of the BRRR.

Mr  Chance noted a few grammatical and spelling errors. He directed Members to page 12, alluding that it was incorrect to reflect that financial institutions were charging higher interest rates, it might be the intermediaries that were doing so. The error was considered. On page 15, the reflection of the unfair competition between local and foreign Spaza shop owners, was raised, that the word ‘unfair’ was not appropriate because it was quite vague, especially in the context in which it was used in the Report.

Reverend K Meshoe (ACDP) said that during the oversight visit the Committee was specifically told that unfair competition existed, which information came from the experience of the local aggrieved Spaza shops owners, therefore, it must be reflected according to the manner in which it was expressed by the people during the oversight visit.

Mr S Mncwabe (NFP) agreed with the previous speaker along with Ms NT November (ANC) and Mr T Khoza.

The Chairperson said the conditions that existed within the townships in the space of Spaza shops were that most foreign nationals were subsidised and continued to enjoy more fruits and exploit the poor people in the townships; because mostly the foreign Spaza shop owners slept in the Spaza shop room in which they operated, which cut down their costs because they did not pay rent. The local Spaza shop owners lived with their families. Also the foreign owners had access to buy their stock in bulk and, therefore, reaped the benefits of enormous discounts because they bought their stock collectively, and then exploited the poor people in the townships by selling them single items of products that were normally sold in a pack. It was a violation of by-laws by a well-orchestrated method of taking over the township economy and the rural economy, so the Department should continue fighting against this in order to level the ground so that there was fair competition.

Mr Chance argued that fairness was achieved when everybody played on the same playing field where the rules applied to everyone, so the foreign nationals employed tactics and business strategies that were superior in many instances to the locals, and as a result of that were winning customers.

The Chairperson abruptly interjected saying that the local Spaza shop owners could not compete with a wholesaler, it appeared that most of the foreign nationals had teamed up to form a wholesaler hence they received their stock in bulk and cheaper prices.

Mr Chance asked what stopped the local Spaza shop owners from teaming up and creating their own wholesale? The debate was complex and should not be narrowed down to just unfair competition, it was much more complicated than saying it was fair or unfair, because it was the way the industry operated that created a level of competitiveness for one group rather than another.

The Chairperson abruptly interjected again, saying that a wholesaler was not allowed to operate a Spaza shop, and was only licensed to supply the Spaza shop, but it now it moved to operate in the space of a Spaza shop and that was duly unfair competition. Nothing prevented the Spaza shops from being organised, and with the Department’s assistance establish their own wholesale, which would then be along the concept of cooperatives. The fact remained that Mayfair Wholesalers in Johannesburg was operating unfairly in the space of Spaza shops, which could not be fair competition.

Finally, the matter was resolved by majority vote that, the competition was indeed unfair.

Mr Chance continued to note grammatical errors, and the misprints of words reflected in the report. He directed the Committee to pages 30 and 31, concerning the figures reflected on the page, but did not specify which figures. Those figures were not budgeted for by the Department and appeared to be thumb sucked because they were round figures that were not deliberated thoroughly. A more detailed process should reflect how the Department arrived at those figures.

The Committee Content Advisor shared that National Treasury considered the figures as ‘witless thinking’ although the Department did not see it that way.

The Chairperson noted that the Committee was awaiting a review of all the programmes inherited from the Department of Trade and Industry. The process would be concluded on 30 October 2015 and a presentation made to the Committee on 18 November 2015, and, based on that assessment, only then could those figures be reflected down to their last detail in the following year’s report.

Mr Chance directed the Committee to section 3.2 and asked where the programmes reflected on that table were in the budget?

The Content Advisor responded that the programmes reflected on that page were sub-programs of bigger programmes already reflected in the budget.

Mr Chance did not agree with that method of budgeting; the programs should be reflected individually and in terms of how much was spent on a particular programme and what the budgeted amounts and the actual amounts on those programmes were, it was erroneous to not account for this. Therefore, it would be virtually impossible to judge impact and the outcome from those programmes.

The Content Advisor in responded that the method was used to only reflect the totality of the sub-programs, so the total figure of the programme was basically derived from the individual sub-programmes, but just that they were not reflected on a sub-programme level.

Mr Chance directed the Committee to section 4.1.2, which reflected that the increase in impairment by 20 percent as currently below the industry norm, where did that information come from and how could it be backed up?

The Content Advisor responded that the statement was communicated by the Small Enterprise Finance Agency (SEFA), although there was a high impairment, the industry norm was 22 percent so the increase in the impairment percentage was still below the industry norm.

Ms Edith Vries, Director Genera, Department of Small Business Development, said it was difficult to determine the industry norm because it differed for various sectors and, the target of SEFA was 20 percent, hence it was said to be below the industry norm.

The Chairperson asked Mr Chance what was the effect of the loan converted into equity by SEFA from the Industrial Development Corporation (IDC)?

Mr Chance replied that SEFA did not have to pay the money back, so the taxpayer actually funded the impairment. On page 39, why was the annual increase of salaries not reflected?

The Content Advisor responded that when the CEO from SEFA presented, and particularly on the effect of the salaries, there were still on-going negotiations with the union regarding the salary increase.

Mr Chance asked the Director General to furnish the Committee with a status update regarding those negotiations.

Ms Vries said that the information would only be provided retrospectively in the following financial year statements, because the report was accounting for the current financial year’s information.

The report was adopted with amendments.

The meeting is adjourned.


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