Department of Small Business Development programme review: briefing by Minister, Deputy Minister & Director General

Meeting report

The Chairperson briefed the meeting on the highlights of the previous meeting the Committee had with the Department. She said the Portfolio Committee felt that there was a need for doing a scientific assessment of the programmes inherited from the Department of Trade and Industry (DTI) and assessment of support services provided for those programmes. The Committee then allowed the Department to develop an approach on this and undertake this assignment. When the Department presented its Quarter Review and Strategic Plan and the Annual Performance Indicators of 2015/16, the Committee realised that the recommendations to the Department to undertake this scientific assessment had not been actualised, the Committee then gave the Department a deadline to finalise this exercise and bring it back to the Committee for it to look at the recommendations.  The understanding was that if the Department was going to do the assessment on its own, it would workshop that with its entities and come to the Committee to present the thinking of the Department and its entities. The Committee would also comment on the recommendations informed by what the Committee would have observed and identified through its engagement with the Small, Medium and Micro Enterprises (SMMEs) and cooperatives, attending conferences organised by structures representing cooperatives and through its oversight. DSBD could not meet the deadline and requested that it be allowed to bring in the consultants that have done the assessment to do a presentation. However the presentation would have to go back to DSBD for it to workshop and come up with the Department’s position.

She said at the meeting where the consultants presented, the Deputy Minister said the Department was already implementing the recommendations by the consultants. The views of the consultants are very dominant in government and in some situations they get implemented without being processed and in the end the people who get punished for programmes that are not in line with the felt need of the community are the politicians. Therefore there has been a concern around this, where Parliament had to establish a Budget Structure to assist members of Committees to look at the relevance of the programmes proposed by departments to ensure the felt needs on the ground. If these programmes are not addressing the felt needs of people within communities, the Committee would work a way to ensure that the programmes of the departments and the budget allocation are indeed addressing these needs.

Opening Remarks by Minister
Minister of Small Business Development, Lindiwe Zulu, said the processes outlined by the Chairperson are indeed the processes that it went through and the Department did have its two day workshop where all members of the executive of the Department participated. The workshop was attended by outside facilitator. She said on the Review that the Department is to present, there are still a few issues that need to be worked on, particularly on a way forward. The Department had an opportunity of engaging on the Review that was done by Sizwe Ntsaluba Gobodo (SNG). On issues that still need some discussion the Department will continue engaging with SNG because there needs to be programmes that will have an impact on SMMEs and cooperatives. This will also be for programmes that will make a deep dent on challenges faced by SMMEs and cooperatives. She said the current Review must not be seen as the final document, there will be changes made as the Department goes along because there might be tools that the Department can use to make an impact and also ensure that the mandate of the DSBD is fulfilled. She hopes the Review receives a vigorous engagement to deal with the Department’s personnel capacity to be able to implement what it has in the Review. The Department hopes the current financial situation will change from what the Department received last year because the Department needs the resources to be able to implement the programme. DSBD still needs to go out there to the communities and communicate what it has because this is something that it has not communicated much as this can only been done once it has been completed and adopted.

Presentation by Department of Small Business Development
Ms Edith Vries, Director General, DSBD, said she will be presenting the findings in terms of the review strategic themes. The Review was commissioned to look at the existing departmental programmes and provide advice on the alignment and up scaling of the current interventions to promote and develop small businesses and co-operatives. SNG was appointed meritoriously based on price and technical competency to undertake this Review.

Programme Review: Situational Analysis
She said the Preamble of the Constitution articulates the long-term development goals and has its foundation in the Freedom Charter. There are particular sections in the Constitution that speak to the Department’s mandate which the Department supports in its implementation:

- Section 22 “Every citizen has the right to choose their trade, occupation or profession freely. The practice of a trade, occupation or profession may be regulated by law”.
- Section 217(1) “When an organ of state contracts for goods and services, it must do so  in accordance with a system which is fair equitable, transparent, competitive and cost effective;
(2) It does not prevent the organs of state from implementing a procurement policy providing for the protection or advancement or persons or categories of persons disadvantaged by unfair discrimination.”

There are a set of national objectives that are very salient in the National Development Plan (NDP) that provides for growth and employment creation through SMME development and gives clear guidelines on the importance of an enabling environment for SMMEs and cooperatives. The objectives the Department has are that by 2030, the share of SMME output will have increased substantially and if the NDP has set a vision for creating of 11 million jobs, 90% of jobs will be created by small businesses. The NDP also alludes to supporting SMMEs through better coordination of activities in small business agencies, development finance institutions, and public and private incubators. Regulations need to be reformed to boost entrepreneurship, streamlining of tender processes and provide access to debt and equity finance.

She in the 2014 State of the Nation Address (SONA) heralding the inauguration of the 5th Democratic Administration, the President called for implementation of “radical socio-economic transformation policies and programmes over the next five years. This involves the prioritisation of small business, as well as township and informal sector businesses especially the SMME development programmes. There was a stronger statement in the 2015 announcement of the Nine Point-Plan that will focus on radical economic transformation, of which ‘Unlocking the potential of SMMEs, cooperatives, township and rural enterprises’ was one of the pillars of the Plan. She also referred to the 2015 National General Council document which considered where small businesses are located in the economy and how the “Unlocking the potential of SMMEs and cooperatives” be achieved:
“We must continue to encourage the creation of new businesses, cooperatives and the expansion of small business, by reducing the costs of compliance with government regulations, making it easier for companies to ‘do business’ with government, making sure that government pays its invoices on time and strengthening the role of our development finance institutions."
- Emphasis must be placed on easing regulatory burdens, support mechanisms which include: strengthening partnerships with stakeholders; access to finance, improving training and capacity building programmes, market access, and simplifying business registration processes.

She said there is a plethora of departments and agencies focused on some area of small business support. Their impact is hampered by overlapping mandates, an imbalance in approach between policy and execution, lack of skills and duplicate cost bases. There is the absence of a coordinating platform that enables efficient execution. And because of this the market response has been fragmented. It is a crowded space to navigate, let alone lead. The next points that were considered are the mandates, vision and the mission of the Department. The department will lead an integrated approach to the promotion and development of small businesses and cooperatives through a focus on the economic and legislative drivers.

Methodology
She said the diagnostic stage reviewed DSBD’s operating environment, internal structures and the programmes themselves. The design stage involves developing strategic recommendations on the optimal portfolio mix to deliver the department’s strategy. The diagnostic includes the external analysis which is policy, development and SMME needs, Internal Analysis which talks to current strategy and PM&E review; Project and Programme Review as well as Budget and Operations. The programme review methodology began with an opportunity analysis followed by a programme review of the current programmes and then an assessment of whether the current programme portfolio meets the required impact. Most importantly the Department wants to evaluate whether the planned programme activity aligns to the challenge set by the mandate and whether this programme execution is delivering the desired results.

On the Programme Evaluation Criteria, three main criteria were adopted to evaluate DSBD’s programmes: strategic relevance and alignment to mandate; programme design and efficiency; and the level of impact and opportunity cost.

Programme Review; Findings and Recommendations
She said having completed the programme and organisation diagnostic, the following Strategic Recommendations/Themes emerged:
- Rationalise and refocus programme activity on areas of highest impact
- Create a clear delineation of responsibility between DSBD and the agencies
- Invest in a robust policy, research, and monitoring and evaluation capability
- Package offerings DSBD, Small Enterprise Development Agency (SEDA) and SEFA (Small Enterprise Finance Agency) offerings to present a single point of entry to SMEs
- Strengthen points of interaction between other areas of government and with the private sector
- Consolidate the mandate for cooperatives to improve focus
- Bed down a structure and conduct proper change management.

In summary, SNG recommended that the department pursue significant changes to its programme activity, including the discontinuation or transfer of 10 programmes and the restructuring of a further 12. Acting in this way has the potential to free up 25% of the operating budget for allocation to higher impact programmes and for the capacitation of under resourced priority functions. Certain implementation functions should be transferred from DSBD to SEDA while at the same time functions focussed on legislation, policy and monitoring and evaluation are moved into the department. This may add as much as 20% to the department budget. While a sector-specific focus is desirable, DSBD needs to be pragmatic about the resources it has available and rather seek to work with the DTI, sector-focussed departments and private sector players if sector-customised interventions are required. Mainstreaming activity is the most efficient way to ensure that priority groups, women, youth and people with disabilities, receive the maximum support as this prioritises leveraged impact over silo-ed activity. To maximise efficiencies and focus activity it is critical to create a clear delineation of responsibility between DSBD and the agencies.

On the conceptual value chain, DSBD should consider organising itself along a small business development value chain. This approach is customer-centric, reduces complexity and allows simple yet powerful performance measures for each executive and each segment, creating individual accountability. Current focus is heavily weighted towards programme management and execution. While the other components of the value chain are present in the organisation, they need to be capacitated to provide an ‘end-to-end’ coordination and facilitation service. Thus adopting a value-chain based product and services architecture enables DSBD to address sector deficiencies, with it as the custodian of overall sector performance.

She said currently budget and human resources are heavily concentrated in implementation functions. To achieve the new strategic positioning, available funding as well as human resources will likely need to be redistributed to reflect new capacity requirements. Also fully capacitated policy, research, monitoring and evaluation capabilities are critical to creating a constructive feedback loop within the department. Most importantly, M&E must be capacitated to continually assess the impact of programmes and recommend changes to approach and budget allocation accordingly.

On measuring and communicating impact, to connect the mandate to the activities of the department, top-level macro-economic benchmarks for SMME performance in the economy are required to demonstrate DSBD’s overall impact. For instance, contribution to GDP, contribution to employment and sustainable livelihoods and SMME dynamism could be employed as highly visible targets. In the Nine-Point Plan, DSBD has targeted growth in the GDP contribution from SMMEs and cooperatives of 1.5 x the GDP forecast to 2019. This top-level objective could then inform targets on the contribution of SMMEs and cooperatives to employment and on SME dynamism. Packaging offerings along with SEDA and SEFA and presenting a single point of entry to SMEs is the first step in providing a genuine one-stop-shop experience for SMEs. In terms of Public Sector transformation, the approach must be citizen-led in both proposition design and operational alignment.

She said for small business needs analysis, to be successful, small businesses and cooperatives require an efficient operating environment to conduct their affairs as well as the ready availability of direct support interventions should these be required.Moreover, in an efficient operating environment, the rules of the game, in the form of the legislation and policies that govern the activity of companies, are perhaps the most powerful levers available to support small business. Direct support interventions focus on specific one-to-one mechanisms to stimulate the creation, sustainability and growth of small enterprise that may not have otherwise occurred. Thus interventions should also recognise the varying business needs that occur at different points of the business lifecycle. It need to strengthen points of interaction between other areas of government and with the private sector. In addition, the existing ecosystem of state entities (insofar as planning and local economic development is concerned) that provide services to SMMEs and cooperatives must be properly integrated. While the legal process of accomplishing this is the first order of business, DSBD will only be in a position to deliver incremental impact once a degree of strategic and operational integration is complete. The mandate for cooperatives is currently split over a number of directorates and across the agencies. Consolidating these functions into a business unit and creating the CDA and other support structures as allowed for in the Amendment Act will streamline both cooperative and SMME operations.

Way Forward
She said moving forward, adopting a value-chain based product and services architecture enables DSBD to address sector deficiencies, positioning the department as the custodian of overall sector performance. The implementation plan focuses on progressing each of the seven strategic themes by assigning major tasks and activities to each. The implementation plan sets up a work stream to correspond with each of the seven major themes. These work streams should be executed in parallel, but effectively represent a sequence of actions that must be taken in order to reposition the department.

Discussion
Mr H Kruger (DA) said it is the first time that he feels comfortable that seeds are landing in fertile grounds for the Department and congratulates it for this. He said from here on the Department can start moving.

Mr R Chance (DA) said the presentation is virtually a rehash of the Department’s presentation in November. The ability of the Department’s to play the role of broad facilitator does present some challenges. He suggested that the Department be placed at the Presidency as opposed to a department because the chances of success would be greater as it would come with a greater degree of authority. The brief of the consultant did not extend to a thorough evaluation of SEDA and SEFA and this is sad because the DG has indicated that 90% of the Department’s budget is transferred to these agencies. Therefore the competence of these agencies in delivering on their mandate is important in evaluating the performance of the Department. He said the Committee, the Department and Ministry ought to take stage 2 of this Strategic Review by looking very critically at deliverables and capacity to deliver on the mandate by SEDA and SEFA. In particular, in regard to SEFA, there is talk as referenced in the State of the Nation Address about creating a new entrepreneurial fund to stimulate growth and support to small businesses. SEFA’s performance is a source of serious concern in terms of its cost-income ratio for the 155% and the ratio is 58%, therefore with these basic statistics the performances of SEDA and SEFA need to be reviewed very urgently. In terms of the work implementation in the work streams, what is the timeline, what is the cost and how long is it going to take for the Department to get to grips with these recommendations, capacitate the new structure with competent people and persuade Treasury that it provides the means to develop the research policy monitoring and evaluation capacity.

He asked what the current contribution of cooperatives in the economy of South Africa is. What is the potential contribution that the cooperatives may make to the economy and if they are what is the Department doing to exploit this opportunity. Why is a separate directorate necessary if mainstreaming or gender, youth and people with disability are going to be part of each Department’s deliverable? Are there any recommendations that the Department did not agree with?

Mr T Mulaudzi (EFF), asked how much did the consultants charge the Department? He asked how far is the Department with the inclusion of Cooperatives in the name of the Department. He asked how it would be if the Department joined SEFA and SEDA together to save the state funds? The Department should clarify their strategy on how they will directly support small businesses and cooperative.

Rev K Meshoe (ACDP) asked how is the participation of SMMEs and cooperatives going to be measured, is the Department going to measure this numerically or otherwise? On the Department’s goals to reduce red tape, how is this going to be done and what is the target date for this to be done? For the creation of a single point of entry, how this is going to be done and when this is going to be done? What is the composition of SEDA and SEFA and is DSBD getting value for money from these entities. Is there any form of restructuring that will take place on these entities to ensure the Department gets value for money?

Mr X Mabasa (ANC) asked what is the Department expecting from the Portfolio Committee? In undertaking the exercise, to what degree have small businesses and cooperatives been interacted with? He wanted to know what the order, in which the businesses listed on page 39 of the presentation appear, is it in terms of size or importance. In undertaking the consultative exercise, has the South African National Apex Tertiary Co-operative (SANACO) been consulted?

Mr S Bekwa (ANC) asked how the Department is going to operate without a budget for communications.

Mr T Khoza (ANC) asked if there is a platform in the Department for coordinating other departments? Is the Department able to unpack the high impact programmes to be able to inform that certain programmes can be done away with?

Minister Zulu referred to the comment about moving the Department to the Presidency, saying the Department is currently situated in the correct position, from the point of view that SMMEs cross the spectrum of government. From what has happened since the Department's inception and decisions that have been taken at the highest level of government, it is in a good position. The challenge that the Department has had is the capacity of the Department itself to engage with what has been presented by all the other departments. The Department of Planning, Performance, Monitoring and Evaluation (DMPE) itself made a presentation to the Government Lekgothla on an evaluation of what the potential of the SMMEs and is and this is the same reason that the Department was started. The President emphasised that if the Department’s evaluation and monitoring is not strong enough, gauging the impact would not be as best as if there is a monitoring and evaluation. On the evaluation of SEDA and SEFA, this again was identified when DSBD started, that this is an area in which the Department will have to do a lot of work. These entities have started doing some of the review themselves, but the issue with that is that the work is going to be biased. Both entities however attended the workshop when SNG presented the work to the Department. She said the report is not necessarily a rehash of the one from November, because after the November presentation, the Department had an independent auditor it worked with for two days on the Report. She said the Department engaged with SANACO; however, there are internal issues the Department is currently dealing with, with them. Nonetheless, SANACO will not be ignored by the Department.

The Chairperson said she agrees with the Minister that the Report is not a rehash. On the Department’s moving to the Presidency, South Africa has demonstrated capability by successfully delivering in 2010. It learnt lessons on how a government can deliver a project in a short space of time when it moved away from silo mentality and work together and focused on a particular project. Then if the Department of Sports and Recreation was able to deliver this without being in the Presidency with the same budget allocation and mobilise the other departments, what then can stop DSBD from doing it? She said SEDA and SEFA will have to undergo the process that the Department has undergone to ensure the capacity of these entities is equal to the expectation and the role they have to play in the implementation process of a new programme.

Deputy Minister Elizabeth Thabethe replied to the question of whether it is not time now for SEDA and SEFA to come together with one Board, saying the Review Report is still being processed and therefore this is also under processing. There is no final decision on which recommendations are going to be done away with and which ones are to be restructured. She said as far as she knows about the issue of the red tape, this programme was started before the Department, therefore the manner in which DSBD wants to deal with this is with what is problematic to SMMEs and cooperatives in the regulatory framework, accessing the incentives available, including grants, to make it easy for cooperatives and SMMEs to access available resources.

Mr Kruger said he thinks it is going to take too long to wait for the report of the state enterprises, because there are nearly 750 enterprises in South Africa. Therefore it should be made a serious effort to get SEDA and SEFA sorted, this must be prioritised. He had tabled a Red Tape Bill last week in Parliament and is currently waiting for that process and would like the Committee to go through the Bill because he believes that if the Bill is accepted and becomes an Act in South Africa, it will reduce red tape in the next two years by 25%. The cost of red tape to businesses is in the vicinity of 1.7% of GDP.

The Chairperson acknowledged that she and the African National Congress (ANC) are aware of the Bill. She said taking what the Minister has said; the exercise is good because it is something that was completed a while ago. The Department must review the programme, specifically in Trade and Industry. She asked from the Department were there any recommendations from the consultant the Department did not agree with.

Mr Mojalefa Mohoto, DSBD Chief Director: Enterprise Development, said there are recommendations that the Department did not agree with. One example, is the arts and crafts component of this forms a very strong part of the business; the second one is technology for women in business; where the Department said it will restructure it instead of abolishing it completely.

The Chairperson asked what the recommendation for the craft sector was.

Mr Mohoto said the entire craft sector programme was a transfer.

The Chairpersons asked to where the transfer was suggested.

Mr Mohoto replied this programme was from the DTI, thus the question was, does DSBD have to keep it as a sector? In terms of the review outcome, the Department decided that this programme needs to be transferred back to the DTI. However it was felt it would be unjustified to take the craft component and transfer it because a chunk of this work is part of small business.

Ms Vries said that the example given by her colleague Mr Mojalefa was a bad one. This was completely different from what was in the presentation. The fact is the report that was presented to the Committee by the consultants was already the final report. They had presented a draft to the Department earlier and there was an interaction with this draft. Therefore if there are areas of overlap, it would have been strong because changes were already made in the final report.

The Chairperson said the Department is confusing the Committee. She said the DG wants to create confusion as if what is being said by Mr Mojalefa is not supposed to be said in the meeting.

Mr Mojalefa said the order in which the business segments are arranged is not about importance but rather about fragmentation, in terms of what are the appropriate interventions that can be put for these segments looking at the value chain that was presented.

Mr Chance said the question that Mr Mabasa asked was very important, the information presented on this on page 39 does not distinguish between medium, small, micro, start-up. This was the point Mr Mabasa was making. Therefore, one needs to look at the life cycle of cooperatives just as much as one needs to look at the life cycle of small businesses. The Department needs to consider the value chain approach to cooperatives as well as small businesses.

The Chairperson said the DSBD is not mandated to not only support small businesses, but also cooperatives and the understanding is that they are different although they operate in the economic space. The Committee would have liked it if the Department had a slide in the presentation that talked to the lifecycle of a cooperative.

Deputy Minister Thabethe said the initial proposal from the consultants was a discontinuation, but after engagement with officials, the craft component was said should go to DTI.

Mr Chance said that what is on page 59 is contradictory to what Ms Thabethe is saying.

Deputy Minister Thabethe said what Ms Vries had said was that the initial proposal from the consultants was to take all of it back to the DTI. However, after looking at the crafts component as Mr Mojalefa explained, these are small business people and it would not make sense to take it back to the DTI.

Mr Mojalefa asked to make an apology and withdraw the example he made about crafts because it slipped his mind that the decision was taken at a later stage for the crafts to be transferred.

Mr Chance said that this is a serious problem because what the Committee is hearing is a disagreement within the Department. He said he submits that if it were to be argued that the crafts were to be retained it would a unanimous situation. What make the crafts industry so special compared to other industries which has hundreds of thousands of small businesses? It points to continuity and agreement within the Department and this is something to be concerned about.

The Chairperson said the Department should thoroughly resolve issues before coming to the Committee and expecting the Committee to resolve these issues. When there are still disagreements they should consult with the people that are receiving these, because the Department is not responding to self-need and not the perceived needs. She said she picked up at the beginning of the meeting that there is a disjuncture between what the Minister and the Deputy Minister said in terms of the scientific assessment of the report.

Ms Vries said she apologises for the confusion but there is no difference of opinion in the Department. She said Mr Mojalefa was not part of the team that worked on the last touch ups of the presentation thus should have limited the responses to the team that worked on this to avoid confusion.

Mr Chance said he wants to get a clear answer on the point of whether the craft programme is being transferred back to DTI or not?

Ms Vries said the programme is being transferred.

Deputy Minister Thabethe said the way the Chairperson and Mr Chance summarised it was better, to go back as the Department. She said to her it is not right to pretend as if there are no disagreements and it is not fair to do this to the Committee.

Mr Chance interjected.

Deputy Minister Thabethe, however, said Mr Chance should not interrupt her while she speaks because she has never done that to him. She said the problem is that there are disagreements and they should go back as a Department and have a discussion regarding the disagreements before coming to the Committee.

The Chairperson asked for Ms Vries to respond to the question that, yes, implement on areas of agreement and defer on areas of disagreement in order to ascertain that the Committee and the Department are in agreement.  

Ms Vries said the Department cannot defer the implementation of the programme review, if there is not approval, the Department will not be able to conclude the Strategic Plan nor will the Portfolio Committee because its plan is dependent on the programme review. The Department will go back and discuss and reach consensus around the contention and will consult with affected parties. If consensus cannot be reached, implementation of these areas will be deferred. On the question of how long it will take implementation to build the new structure, she cannot respond to that at the moment. It is only in February when the Department had a change in budget structure for the coming financial year and the Department was given additional money. Thus the Department will only be able to fill the structure when there is funding available. Currently there are a significant number of posts that remain unfunded. In terms of performance, the Department will be able to address this when it gives its 4th Quarter Report. She said the consultant charged the Department R472 784. On the question of how many transversal agreements were signed, she has no answer on this at the moment. On the question about direct SMME support, the Department has work streams that are very hard at implementing but it has put in the presentation what the service delivery model is. The Department wants to move to mainstreaming and does not want a sector based approach. DBSD also depends on the budget that is available. She said there is no coordinating function at the moment.

The Chairperson said she is surprised that Ms Vries is saying that she does not know how the impact will be measured; however on slide 33 it stated how the contribution will be measured. She even added her own information to say it is the reduction of households on the indigent register because this information would be available at municipality level. It can also be the reduction of the number of children on child social grants; because empowering their parents will mean that there is no need for them to get grants from Social Development. She said the Department must not only look internally, but specifically on SEFA and SEDA.

Mr Mabasa said he would like SANACO to be included in the programmes.

Ms Vries said the programmes included in the presentation were programmes that were reviewed and SANACO is a not one of the programmes that were reviewed.

Mr Mabasa said SANACO was an existing programme under DTI and then the programmes came over to DSBD. He said what he would not want is for SANACO to not be thoroughly explored, he wants it to be given a good chance in the same way as the other programmes.

The Chairperson said the fact that SANACO has problems does not mean that it does not exist and it should be ignored, the same can be applied to South African Women Entrepreneurs Network (SAWEN).

The meeting was adjourned.