Department of Small Business Development on its 2016 Strategic and Annual Performance Plan

Meeting report

Department of Small Business Development (DSBD or the Department): 2016/16 Strategic Plan and Annual Performance Plan
The Chairperson noted the apologies of the Minister and Deputy Minister of Small Business Development.

Prof Edith Vries, Director General, Department of Small Business Development, reiterated the Department's mandate to lead an integrated approach to the promotion and development of small businesses and cooperatives, through a focus on the economic and legislative drivers that stimulated entrepreneurship, to contribute to radical economic transformation. In implementing this mandate, the Department recognise, and emphasised the strategic focus between supporting dynamic established Small Medium and Micro Enterprises (SMMEs) with growth-focused efforts and poverty alleviation, which focused on the poorest of the poor. These were the two strategies that received the greatest focus. It would need to find a balance that prioritises the highest impact opportunities. Prof Vries acknowledged that all big industries had started off as small business, so the Department had a big task ahead.

The vision for the Department was to help bring about a radically transformed economy through effective development and increased participation of SMMEs and cooperatives in the mainstream economy. The mission/purpose was to create a conducive environment for growth of small business and cooperatives through the provision of enhanced financial and non-financial support services, and leveraging on public and private procurement. The Department's values were outlined, and these were reflected in its strategic goals and initiatives, individual performance, and organisational performance.

Prof Vries set out the legislative and policy mandates (see attached presentation for details). The Constitution, in sections 22 and 217, described principles that were relevant. The National Development Plan (NDP) said that by 2030 South Africa should have an economy that is more inclusive, more dynamic, and in which the fruits of growth are shared more equitably. The Department would play a major role in achieving this vision, particularly in implementing Chapter 3, dealing with the economy, and Chapter 6, dealing with rural growth. Job creation, poverty alleviation and reducing inequality can only happen through a new economic growth path founded on restructuring the South African economy, improving its absorption of labour and composition and rate of growth.

The Medium Term Strategic Framework (MTSF) 2014-19 is the first 5 year implementation plan of the NDP. The Department is tasked to contribute towards decent employment through inclusive growth, and rural development. In the 2014-15 State of the Nation Address (SONA), the President emphasised the role that the DSBD can play in jump-starting the economy, emphasising the need  to prioritise support to small businesses, cooperatives, and informal businesses. In the 2015 SONA, the President announced that government would set aside 30% of appropriate categories of the state procurement budget for purchasing SMMEs, co-operatives, as well as township and rural enterprises. In the 2016 SONA, the sentiments were much the same.

The framework for implementing the NDP indicates whether there are planned policy reviews. The DSBD was now revising its Integrated Strategy on the Promotion of Entrepreneurship and SMMEs, as well as amendments to the National Small Business Act, to be tabled in the fourth quarter of the following financial year.

Prof Vries described the situational analysis. Globally, SMMEs are key drivers of growth and job creation in better performing and more stable economies. Small businesses represents over 95% of total businesses and employs between 60% and 85% of the total workforce in countries such as Germany, China, India, Malaysia and Taiwan. In comparison to South Africa, the contribution and participation of small businesses is way below what its assumed potential could be. Small businesses currently represent 98% of the businesses, and employ 47% of the total workforce.

Current research provided by the Goldman Sachs report said South Africa is projected to achieve 5% growth over the next five years if government and the private sector together invest R12 billion in 300 000 new small businesses every year for the next five years. DSBD is working on mobilising all spheres of government and the private sector in order to redefine the policy and regulatory environments to capacitate small businesses to turn the economy around. Government is committed to provide greater opportunities for SMMEs to access the public procurement system through legislative reform, which includes the revising of the Small Business Act and the Preferential Procurement Policy Framework Act (PPPFA) which is linked to the 305 procurement targets the President referred to in the 2015 SONA.

In the 2013/14 financial year, government spent R500 billion on the procurement of goods and services, as well as construction works. This budget was large and if a portion were to be directed to SMMEs, it would have made a significant contribution to the sustainability and growth of SMMEs. Through the Nine-Point Plan, government has shown its commitment to “unlock the potential of SMMEs, cooperatives, townships, and rural enterprises” in an effort to ensure that the goal of radical economic transformation is achieved. The DSBD is currently at the forefront of leading and coordinating the concerted effort to advance the development of small businesses.

Prof Vries provided a self-analysis of the Department's strengths, weaknesses, opportunities and threats. Strengths included stable leadership within the Department, stable corporate governance, financial management, integrated strategic planning with various entities, change management, where staff from the Department of Trade and Industry (dti) had moved to the DSBD, and space for innovation within the mandate of DSBD.

Weaknesses include financial constraints, HR constraints with vacant posts, and integrated planning with provinces. She explained that the role of DSBD is that of coordination with provinces, and not running the provinces. DSBD was a small establishment of around 150 employees, but with a large mandate. Accommodation infrastructure and lack of identity were further hindrances.

Threats included economic slowdown, the rising fiscal debt burden of 9.9% debt service, limited private sector investment; and 25% unemployment, which led to people having to seek informal sector employment, and finally inflation.

Opportunities included supportive stakeholder networks, supportive national policies and plans, the  counter-cyclical monetary and fiscal macroeconomic policies, established entities and high demand for products and services from SMMEs/cooperatives.

Prof Vries took the Committee through the outcomes-orientated goals (see attached presentation). She also outlined each of the objectives under the four strategic goals. Goal 1 had to do with sound administration and R118 million (9%) of the budget received will go towards achieving this. Goal 2 was geared to a conducive legislative and policy environment for SMMEs and cooperatives, integrated planning and monitoring, a research agenda and international relations strategy, and would receive R26.1 million (2%) of the budget will be used to achieve this goal. Strategic Goal 2 aimed to design and implement targeted programmes to support new and existing small and medium enterprises in townships and rural towns, to increase participation of SMMEs and cooperatives in the mainstream economy, and to maximise their support, particularly through public/private partnerships (PPPs). It would take 89% of budget (R1.18 billion).

The organisational structure was outlined (see attached presentation) in two branches: Office of the Director General, and Internal Audit. There were three divisions, each headed by a Deputy Director General, respectively of Corporate Services, Policy and Research and Programme Design and Support (the core business area).

Prof Vries moved on to the budget. She tabled slides giving comparisons from 2012. Administration had the highest budget due to administrative costs at the formulation of the Department. Policy and research, as well as core business had always seen a steady increase due to demand.

The quarterly targets for each of the programmes were then outlined. Programme 1 had 14 performance indicators, including aspiring to a clean audit, no more than 5% deviance against budget, payment of all creditors within 30 days, and tabling its first service delivery improvement plan approved (SDIP). Although it had had difficulties in meeting deadlines, it was aiming to submit quarterly progress reports to the Department of Planning, Monitoring and Evaluation.  It aimed to have 50% women employed at SMS level, raising the current target of 45%, and to have 3.2% disabled employees. Other targets (see attached presentation) were briefly explained. This programme took up 40% of the budget, with the majority allocated to compensation of employees, and goods and services. Staff numbers were expected to rise in the medium term. This Department had seen steady increases in the 2015 to 2019 financial years. '

In the 2015/2016 financial year there was an adjustment in the budget of the Department and this was an increase that assisted in getting the Department off the ground and ready for the 2016/2017 financial year with a steady increase right through to the 2018/2019 financial year.

Expenditure estimates before the 2014/2015 financial year were taken from the dti and from the year 2015/2016 when the Department was formed and started to have its own budget. The figures for programme 1 were tabled. 

The quarterly targets for programme 2 were outlined. It was particularly highlighted that the DSBD would conduct stakeholder consultation and engagements on the amendments of the Small Business Act of 2004. The integrated strategy on entrepreneurship and promotion of small enterprises was to be reviewed and research would be done on legislative and regulatory protocols impeding SMMEs and cooperatives . A monitoring framework to monitor SMMEs and cooperatives was to be done to ensure that the public sector procurement policy was developed. Targets included that 50% of the total number enterprises supported must be women-owned, 30% youth-owned, 50% from townships and 30% from rural areas – a deliberate challenge in view of the difficulties in getting good strategies from rural businesses. Programme evaluation reports were needed to hopefully ramp up SMME programmes in the next year. This Department would also have its own branch to deal with international relations. The budget was R81.5 million for this programme.

In 2016/17 the Department would be spending around  planning with provinces and local government; and finally, developing the international relations strategy. The spending on this programme was summarised by sub-programme (see attached presentation)

The quarterly targets for programme 3 were that informal business would be supported through the Informal Micro Enterprises Development Programme (IMEDP), and the DSBD was hoping to have over 7000 informal businesses supported through the IMEDP. The Department did not achieve its previous target of five informal businesses assisted through the Shared Economic Infrastructure Facility (SEIF) but was pushing harder and aiming for six in the new year. A Rescue Strategy was developed as part of the Nine-Point plan for small businesses and cooperatives, by consultation with other stakeholders.  DSBD was committed to establishing the Cooperative Development Agency (CDA) and had taken initiatives to raise their revenues to fund this process. This agency will provide support to small business to make sure that they are also competitive in the market. For the numbers of cooperatives supported through Cooperative Incentives Scheme (CIS),  the baseline for 2015/2016 was 350 and the Department aimed to increase the target to 370 cooperatives supported through CIS. 250 would be supported through training. The main support to SMEs came through the Black Business Supply Development Programme (BBSDP), and the Department was now also including non-financial support through assistance on productivity and improvement in their business processes. DSBD aimed to support 600. National Treasury advised that the Department to come up with a programme to target cooperative and rural enterprises and there was now the Enterprise Incubation Programme, to which budget was now allocated. Partnerships would be needed with stakeholders in the private sector, tertiary institutions and state owned enterprises if the Department is to achieve all it sets out to achieve, and it was thus aiming to set up 10 partnerships. There had been a reduction in the targets for implementing the national co-location programme; the current baseline was 25 but this was to be dropped to 10, because there were many complexities and the aim should rather be to have meaningful programmes than focus simply on numbers.

Having a  functional international small business and cooperatives development coordinating committee was a new target, and here the DSBS was working with National Treasury. It would be working with national and provincial departments on a framework for integrated planning, and there would be integrated planning engagements with local government departments through Local Economic Development (LED) forums and reports, hopefully 15. The allocation to this programme was R3.88 billion.
94.2% of the budget is allocated to transfers and subsidies to the Department’s entities that provide financial and non-financial small business support services. This includes monies that go towards incentives within the Department.

In terms of the Nine-point plan, monitoring and evaluation will be done through;
-Signing of shareholder compacts, including those entities to assist and implement strategies.
-Assessment of performance against compact and corporate plans. This will be assessed on a quarterly basis
-Regular site visits as part of the monitoring the progress of what is received in reports.
-Quarterly meetings between the Department and its entities. This is critical in preparation with presentations of reports to the portfolio Committee.

Discussion
The Chairperson commented on the good quality of the presentation saying that it flowed very well, and that the combination of Prof Vries and Acting Deputy Director General Mr Lindokuhle Mkhumane during the presentation complemented each other very well.

Mr H Kruger (DA) also agreed with the Chairperson that the presentation was good and very informative. He asked the following:
Is there any strategy to help small businesses that might fail because of the coming drought?
How many municipalities are being targeted for the 2016/2017 financial year?
He then commented on the targets of 50% women and 30% youth owned businesses as targets and said this target was flawed, as it should be quantified.

Mr R Chance (DA) drew attention to the Goldman Sachs projections and said that if indeed this was reasonable (which was questionable) the Department should be asking what it was doing to support the 300 000 businesses target within the budget allocation. He also asked how the Department would achieve the highest impact with the minimal support it currently had, and wanted to know how interventions were contributing to indicators such as GDP growth. He asked the progress on the formation of the small business development council? How does the Department plan to go ahead with the 30% procurement programme targets? With regard to the SWOT analysis, he noted that the threats were external to the Department, but he wondered also if another threat was that the Department was trying to do too much with too little support. He questioned the organisational structure and the point of having some of the Acting Deputy Director General positions. He asked the difference between best practice and project evaluation. He asked how much was primary and how much was secondary research.

The Chairperson recognised that there were a few shortcomings preceding this meeting, namely that no strategic plan was presented to members, and said that the presentation should have looked at the key indicators of the Department and if these related to the NDP and issues highlighted in the SONA. She also asked when the strategic plan would be presented to members so that questions could be raised relating to policy implementation and relevance, and how the Committee would measure its relevance.

Mr X Mabasa (ANC) said that if shortcomings were noted, the Committee needed some room for adjustments.

The Chairperson also commented that the Committee was not so much interested in the number of businesses assisted, but rather, what the impact would be in relation to job creation, poverty reduction, and inequality.

Mr  Chance  required clarity on the strategic plan for the Committee, but the Chairperson stopped him at this point, and said that the strategic plan of the Committee was merely a measuring tool for assessing the Department and seeing whether it was addressing issues of job creation, poverty alleviation and inequality.

Prof Vries responded that there is no target or strategy to assist small businesses that will suffer from the drought. Small businesses and big businesses face different issues relating to survival.

Most of the research conducted will be primary because of the paucity of knowledge. The Department needs to be selective because most research was possibly done by academia, and was not geared to the perspective of small business.

The 50% women and 30% youth owned business targets respectively are set at this percentage because some businesses are funded by beneficiaries, so the Department had to be selective of those in need. She noted the Goldman Sachs projection, and said government only has to create the enabling environment for businesses to flourish, not to build them from the ground up.

The Chairperson interjected to say that the DG is using “tool of measurement as a strategic plan” of the Portfolio Committee with regard to intergovernmental relations with national, provincial, and local government.

The point was made, in relation to indicators, that the DSBD is a new and fairly small department and has no baseline to follow, so indicators have been set and arriving at these set baselines will require heavy research. She commented that on the incubation programme, DSBD would have to put in place the kind of programmes that the Department sees are needed by small businesses.

The Chairperson added that the incubation programme is a good initiative that will assist those small businesses that need their “hands to be held”. Mr Chance's question around the 30% procurement was essentially a political question as this was the view of the ANC is of that view and the Department cannot be asked to answer that question; it would be dealt with in the House.

Prof Vries said that items listed under “weaknesses” in the SWOT analysis implied that these were internal issues within the Department. “Threats” were those issues that are external and there is nothing the Department can do to remove them.

The Chairperson agreed with this answer and disagreed with Mr Chance.

Prof Vries said that structures are important, and had been set up with DDG positions so as not to flood the DG with so many people reporting directly to her.

The Chairperson interjected once again to say that the responsibility determines the position and not the size of the budget

Prof Vries said that South Africa is part of a global universe and is occasionally invited abroad or asked to accommodate delegates. The DSBD would look at what it wished to learn from other countries, and how they would want to impact the narrative of small businesses.

The Department was making quantified arguments about what seems achievable. There are no baselines to follow, so they are being set as the Department went along.

The Chairperson interjected that “townships” to her mind would be places such as Soweto, Kwamashu and Umlazi, which fall under metros. Small towns might not have the same focus/attention that townships receive from metros in big cities.

Prof Vries responded by saying that the Department they will look at the data. She cannot at this point have a dialogue without all the facts.

The Chairperson said that this issue will be revisited when the Committee had its strategic plan. She concluded that the statements in the SONA had to be implemented by relevant departments.

The meeting was adjourned.