The Department of Small Business Development (the Department) was expected to present a review of its programmes and to give proposals to the Committee. The Chairperson expressed extreme concern when it became apparent that the final internal review was not ready and that instead the consultancy firm had been asked to present its findings. This meant that the Committee was not able to take account of the review findings in its own work. The consultancy firm did, however, proceed to give its report. In South Africa, there were 2.15 million Small or Medium Enterprises (SMEs), and around 250 000 start ups were expected, with about 7.3 million employed through these SMEs. The SME contribution to employment was around 47% and accounted for 42% of the GDP. 90% of the 11 million jobs required by the NDP would need to come from the SMEs. The consultancy firm had looked at each of the Department's programmes, assigning a scorecard, and had recommended the discontinuation of various programmes: SA lifestyle hub, SA Women’s Entrepreneurs Network, Bavumile, Technogirls and Mass Youth Enterprise Creation programme. It recommended the transfer of the Film and Television CSP, Centres for Entrepreneurship, Micro financing and the Isivande Women’s Fund to the Department of Trade and Industry (dti), freeing up 25% of the budget to higher impact activities and allowing for resources to be more focused. It suggested that the Department move away from implementation, into broad monitoring and evaluation, and that instead Small Enterprise Finance Agency and Small Enterprise Development Agency be used to implement. It recommended the creation of a Cooperatives Development Agency. New targets were suggested closely aligned to impact and capacity. It was suggested that there be a single point of entry for SMEs. The amounts spent on corporate social investment and enterprise development were currently around R36.2 billion, and the consultancy recommended that the Department should work to improve the actual return from these, as much was wasted through duplication or lack of coordination, and a better way found to persuade the private sector to increase contributions to social development.
Members asked about the scope of the study, whether infrastructure had been taken into account and whether the consultancy had looked into the position of small enterprises operating in other sectors, and the departments who coordinated those sectors. They asked why the women's programmes were recommended for discontinuation, given that they were still undermined by the system and how craft work would be dealt with. They asked about the sources of information and how change management would be handled. They asked how to improve the contribution of the private sector, how the the vision and mandate were being tightened up within the Department and commented that enterprise development oversight be improved. They asked what was recommended to take away impediments to small businesses. Members asked to what extent stakeholders had been consulted, and if there were successful examples of the recommendations being implemented elsewhere. The Department's new Director General responded that she shared the views that the vision and mission had not been correctly formulated and change management from the Department of Trade and Enterprise to this new Department had not been as good as it might have been, so that the Department was now looking at a broader scope.
The Committee then went through the oversight and workshop reports, looking to approve changes made and raising some further comments. There were a number of minor technical amendments suggested. There was fairly substantial discussion around spaza shops, particularly those owned by foreign nationals. One Member suggested that when South Africa opened up its economy, many of the local firms were simply not ready for the competition, and suggested that the main point for discussion was whether the small business owners should be supported, perhaps at the expense of consumers, or whether low prices to consumers was the goal. Other Members pointed out that foreign nationals were able to import goods from countries where subsidisation was offered, and thus to undercut the local suppliers, and also pointed out that some were wholesalers selling directly to the public. The main concern was that many did not have trade licences, were not paying taxes and were flouting health and safety regulations by sleeping in the stores. The report was amended by additional recommendations that regulation should be extended to this sector, as well as recommending health and safety inspections.
Department of Small Business Development programme review and proposals: Departmental briefing
The Chairperson acknowledged the presence of the Deputy Minister of Small Business Development, Ms Elizabeth Thabethe.
Professor Edith Vries, Director General, Department of Small Business Development, presented on the draft findings of the programme review of the Department (or DSBD) and its programmes. Consultants Siswe Ntsaluba Gobodo had been mandated to conduct the review. The budget for the DSBD needed to be structured through these findings. Slides 21 and 22 were particularly important as they talked to the criteria and prioritisation of scorecards. There were 26 programmes reviewed, of which many had come to the DSBD from the Department of Trade and Industry (dti).
The Chairperson stated that the DSBD was supposed to give this report by 30 October 2015, as an internal report on internal findings in regard to those programmes. The Department had already had a two-week grace period. This report was very important for the budget review and allocation procedures, on which the Committee was already working and it seemed that the Committee would now have to proceed with the strategic planning without the information that it in fact needed. She asked what caused the delay in this final report from the DSBD, why it was a report from the consultants being presented, rather than the DSBD's own report, and why it was not a final report. Furthermore, she asked why the Committee had been notified only this morning, and not at an earlier stage that this was not a final report.
Prof Vries stated that there were delays in procuring a consultant. She was not in the Department at the time and could not explain the delay. She apologised that the Department had not met deadlines, or pre-warned the Committee on the status of this report. The new and final DSBD report would be presented in the new year.
Mr R Chance (DA) asked whether the Committee would be able to shape this final report at that stage, and wanted to know exactly when it would be delivered to the Committee? He asked if the Members would be allowed to send in written comments and recommendations to the DSBD.
The Chairperson stated that the Committee would go through the consultant’s report quickly and then briefly discuss it. The Committee would do as much as it could in the time available.
Mr Michael Harris, Strategic Policy Consultant , Siswe Ntsaluba Gobodo, stated that in the country presently, there were 2.15 million Small Medium Enterprises (SMEs), and it was anticipated that there were about 250 000 start ups, with about 7.3 million people employed through these SMEs. The SME contribution to employment was around 47%, and accounted for 42% of the GDP. Entrepreneurial activity was relatively low compared to other developing countries. The target of the National Development Plan (NDP) was that 90% of the 11 million jobs to be created would be via SMEs. This had been highlighted by the President, and it fell directly under the DSBD mandate.
He explained that the consultants used a diagnostic and design phase approach to analyse the DSBD. The methodology used an opportunity analysis, looking at the extent of the social problem and impact required to alleviate it. The firm looked at the strategic relevance and alignment mandate, programme design and efficiency, level of impact and opportunity cost. Each programme would then receive a scorecard on these criteria. Programme recommendations would follow the scorecard, and lead to up-scaling, restructuring, transferring or discontinuing.
In summary, the firm recommended the discontinuation of the following programmes: - SA lifestyle hub - SA Women’s Entrepreneurs Network - Bavumile -Technogirls
- Mass Youth Enterprise Creation programme.
The firm recommended transferring Film and Television CSP, Centres for Entrepreneurship, Micro financing and the Isivande Women’s Fund to the Department of Trade and Industry (dti). This would free up 25% of the budget to higher impact activities and allow resources to be more focused. The transfer of implementation functions should be to the Small Enterprise Finance Agency (SEFA) and Small Enterprise Development Agency (SEDA), whilst the policy and monitoring & evaluation (M&E) functions should go to the DSBD.
Rather than creating stand-alone 'silo' activities, the consultants recommended mainstreaming activities. The DSBD needed to focus on the macro level work, and the agencies should focus on implementation and micro work. An incubation and partnership approach was key to up-scaling the DSBD, along with an M&E team. Measurement of inputs and outcomes, rather than impact and under-capacity, was required. There was a weak scope to drive improvement. Targets of start-up dynamism, contribution to employment and GDP could be used to demonstrate impact and capacity to the public. For example, by 2020, the target could be to achieve a 16% start up rate, 45% contribution to GDP and 50% contribution to employment. There should be a single point of entry to SMEs, therefore a different kind of packaging of DSBD, SEDA and SEFA was required.
The firm had included the recommendations from the Committee from the last Budgetary Review and Recommendation Report.
R36.2 billion was spent annually on Corporate Social Investment (CSI) and Enterprise Development (ED). DSBD should work to improve the social return of these investments. Much of this funding was wasted through co-ordination failures and general wastage. It was recommended that the DSBD should not continue with a 1:1 matching funding rule for economic development with the private sector, as the private sector had a much larger budget. Companies wanted recognition and visibility.
The consultants also recommended that a Cooperatives Development Agency should be established and the Cooperatives Amendment Act be finalised.
Finally, the DSBD needed to bed down a structure and conduct a proper change management process.
Mr Chance asked whether the vision and mandate were being tightened up within DSBD. He asked to what extent the consultants had looked at starting up new programmes. He commented that DSBD should become the broad oversight body. He also said that much of the money spent on ED was “thrown against the wall and did not stick”. The DSBD should offer better ways of monitoring and targeting the ED. He agreed that leveraging of contributions should be up-scaled from 1:1 to higher levels. There should be a focus on a more conducive environment, especially around incubators. He asked what was needed, to take away the impediments to small business. He commented that moving the National Empowerment Fund to the IDC was under discussion, and asked whether this was thought to be a good idea.
Mr X Mabasa (ANC) asked to what extent the stakeholders of this report were consulted, being the workers within DSBD. He wondered if there were successful examples of this report’s mandate that had been seen in other countries.
Rev K Meshoe (ACDP) was of the view that working with corporates was not a good idea, as they did not co-operate well, and asked if this was what this report was also saying. He also asked for further clarity on the “working for recognition” and what that would mean for corporates. He wondered if there was any way of organising cooperatives better.
The Chairperson repeated that this report was just a consultant’s report, not the DSBD's own report. She asked whether the assessment also included services that were designed for SME development, and whether it had covered cooperatives that were sitting in other sectors, covered by, for example, the Department of Higher Education and dti, and whether the consultants had then also looked at these other departments? She stated that women were still being undermined by the system, and small sectors like craft markets were being hampered from growth. She asked why these should not be 'siloed' so that they could be prioritised? She wanted to know more about the suggestion that the women’s programmes should be discontinued, and who were the target markets of these programmes. She thought that what was missing here was the infrastructure component. On page 43, provision of infrastructure was omitted.
Prof Vries said that she shared the view of the consultants that the vision and mission was not crisp currently within the DSBD. The change management process from the dti to the DSBD was not done correctly. The DSBD may look at change management consultants to assist in moving and changing, following the recommendations from the consultants. The DSBD believed the change must happen to leverage the R36 billion CSI amount, and to increase the budget for key areas by 25%. The DSBD was looking at a broader scope. The DSBD would also include the targets mentioned, such as GDP contribution, employment contribution and entrepreneurial dynamism.
Mr Harris explained that the consultant firm had looked at the mandates, functions and services within the DSBD only, and had not extended its study to other departments. He believed that cooperatives should be housed within DSBD and centralised, instead of residing in a number of departments. It would be imperative to work with corporates. Corporates looked at profit first and then development second. The consultants did have detailed discussions with team members, workers and employees within the Department. There were examples of similar plans working in the USA. Within these sectors, there should be a refinement of programmes, before adding any new programmes. The firm had given the DSBD a direction, but the final deliverable would be an implementation plan.
He commented on the Chairperson's questions, commenting that in respect of craft work it was suggested that the DSBD should transfer the objectives but it was looking to discontinue the women’s programmes, based on the scorecards. Infrastructure support and services would be worked into a needs analysis.
Ms Elizabeth Thabethe, Deputy Minister of Small Business Development, stated that some of the matters covered in this report were already being implemented, and this should be taken into account.
Committee Oversight reports: discussion and adoption
The Committee went through the oversight and workshop reports.
Mr R Chance (DA) and Rev K Meshoe (ACDP) asked that the Chairperson point out where the changes had been made, instead of reading through the whole report again, as this would be very time consuming. The areas where changes had been made were highlighted in red.
Mr Chance referred to page 32, point 188.8.131.52. in the Recommendations section. The bracketing of the words “to adopt” needed to be amended. He also pointed to an incorrect spelling of “Marine culture” on page 44.
Ms N November referred to page 47 and asked for a superfluous word to be removed, and also pointed out a technical amendment in point 11.6 on page 78.
Mr X Mabasa (ANC) questioned why page 48/49 referred to “any competition” for spaza shops in the townships. This had been changed to “any assistance or competition from the government”, and an “and” was replaced with “or”. He pointed out that historically, there had never been cartels in spazas. He also pointed to a missing figure on page 59 paragraph 8.8.1.
Mr Chase commented that the spaza shops were actually acting in a cartel format and were not ready for competition, which was why the influx of foreign nationals gave them such a shock. When South Africa's closed economy had opened up, many companies had been forced to close as they were not ready for competition. The influx of foreign traders and malls brought competition to spaza shops. He said that the question was whether South Africa should protect the spaza owners, which would mean higher prices for consumers, or protect the consumer by more competition and lower prices. Subsidies were coming through cheaper networks, not from taxpayers. The Committee should look at making the spaza shops more competitive, not adding red tape and regulation.
Rev Meshoe said that the cartel issue was important, as the foreign nationals were getting cheap goods from a connection in countries that subsidised, and wholesalers were selling direct to consumers. Rev Meshoe suggested that the recommendations should be worded that regulation “should” take place, not “could” take place. Rev Meshoe said there were no cartels in the township amongst the local spazas. The foreign owners were sleeping in the shops and getting the goods delivered cheaply to the shops. Rev Meshoe stated that workers were sleeping on vegetables and this certainly needed to be regulated. There was “a cabal” of Pakistanis and Somalians operating in South Africa that needed to be addressed. Finally, he pointed to a technical change needed in point 8.14.1 on page 72.
Mr S Mncwabe (NFP) stated that the food from many spazas was of poor quality. Consumers were actually losing out. In terms of health standards, the spazas needed to be regulated.
The Chairperson suggested that “the total collapse of” should be deleted from page 33. On page 38, Zindela was spelt incorrectly. A technical amendment was pointed out in point 10.11 on page 77.
The Chairperson noted that in fact many foreign wholesalers were trading as retailers, so this was unfair competition. The playing field was not level. The Chairperson pointed out that the Committee’s mandate was to protect small businesses in South Africa, and not to address the perceived threat to consumers over prices. The DSBD needed to regulate the illegal traders. The Chairperson said that poor people did not have a choice and were being exploited by these foreign spazas. The poor were forced, by poverty, to buy items such as expired goods and cheap sanitary pads. It was the job of the government to protect these citizens.
She suggested that “Regulation of the sector should occur” must be added into the recommendations. In addition “health inspection of spaza shops should be conducted as owners were sleeping on the floors and selling expired goods” should be added in.
Mr T Khoza (ANC) agreed that the foreign nationals needed to be regulated. He pointed out that in addition to the health risks from them sleeping in premises from which food was kept and being sold, they were not banking with South African banks nor paying taxes.
The Committee adopted the report, with amendments.
Mr Chase asked what the DSBD was going to do about this report, now that it had been adopted. He wanted to point out that SEFA had a developmental agenda, and the Committee had visited a site twice for a greenhouse that would benefit the community, which was still battling to get off the ground. Mr Chase wanted feedback on this greenhouse project.
The Chairperson said the process was set for the report now to go to Parliament and then to the Minister and then to the Director General, so it would be premature for the Director General to respond on its now, or to give reports now on the greenhouse project.
The meeting was adjourned.
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