Committee Report on Small Business Development Budget

Small Business Development

20 April 2016
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

Documents handed out: 
Committee Report on Small Business Development Budget
[All Committee Reports available under Tabled Committee Reports once published on the ATC]

The Members of the Committee raised questions of clarity regarding the consistency, grammar, and targets set by the Department of Small Business Development (DSBD), and made some observations and recommendations in respect of both the budget vote and strategic plan documents.

The main discussion was focused on the issue of the name change of the DSBD, particularly the indicator referring to when the DSBD should report back to the Committee. The date considered appropriate for reporting back was August, after the local government elections.

Other issues raised were the Cooperative Incentive Scheme’s fund allocation of R350 000, which needed to be reviewed; the anomaly of the Craft Programme with regard to the allocation of funds; the ‘inadequate’ R8 million allocated for cooperatives’ development; and concerns over the Department’s apparent programme support for small, medium and micro enterprises (SMMEs) at the expense of cooperatives.

Meeting report

Opening Remarks

Mr X Mabasa (ANC) officially opened the meeting on behalf of the Chairperson of the Portfolio Committee because she was running late. The Committee focused on its Strategic Plan and considered the budget vote. The Budget Vote was adopted with amendments, and the Strategic Plan was considered and adopted with grammatical errors corrected.


Second consideration of the Budget Vote

Mr H Kruger (DA) directed the Committee to the strategic point 22 on page 40. He said the indicator, ‘immediate implementation,’ should be altered, because he was uncertain whether immediate was the proper word used there. He proposed rather to be more specific on the date.

Mr R Chance (DA) said that it was not within the Department’s powers to change the name of the Department, but the Committee needed to understand what the cost implications would be for the name change, particularly in terms of marketing and raising awareness of the new name. The whole process would require funds as well as dedicated efforts to promote and raise sufficient awareness of the new name.

Mr Xolisile Mgxaji, the Content Advisor, said instead of amending the indicator (number 22) itself at the present moment, a consultation with the Department was needed in order to come up with an exact indicator in terms of when the Committee wanted the amendment to be done. Basically, the Committee needed to engage with the Department to come up with a suitable indicator. He emphasised that, however, this process fell outside of the control of the DSBD. Therefore, there needed to be some consultation with the Department of Public Service and Administration.

Mr Kruger said he was surprised that the process of the name change had not been initiated yet because this issue had been raised a few times before -- in fact from the inception of the Portfolio Committee.

Mr Mabasa suggested that the Committee should instead come up with a reasonable time frame regarding the initiation of the process, and from there await a response from the DSBD, because ultimately it was the Minister who would lead that proposal up to the Cabinet

Mr Kruger proposed 30August, after the rise of Parliament, which was after the local elections. He believed that would be a fair date and it was reasonable enough for the Department to have started with the process of changing the name.

Rev K Meshoe (ACDP) robustly said it would be unfair to impose a date on the DSBD or any other entity which at this point was unknown, because apparently the process of the name change of the Department was outside its control.

Mr Kruger said the initiation process needed to have been started by the date that he had proposed earlier, not necessarily for the name to be changed by then. This process was supposed to have been initiated a long time ago and therefore it was unclear why the DSBD had not presented anything in light of what had been done to initiate the process.

Mr Mabasa, in the capacity of Acting Chairperson, concluded discussion on the matter by saying that the initiation process needed to have at least been initiated by the proposed date, which was August 30. This would put some pressure on the Department or the entity that would be handling the process.

Mr N Capa (ANC) referred to the document, and requested some consistency when mentioning small, medium and micro enterprises (SMMEs) and cooperatives, because in some parts of the document ‘cooperatives’ were left out, which sent an erroneous message that cooperatives were being deliberately left out when the message essentially addressed both SMMEs and cooperatives.

The Chairperson agreed with Mr Capa, except that when there was a particular programme mentioned in the strategic plan that was specifically designated for SMMEs or cooperatives. There the relevant name should be used alone without the other, because as much as they were part of the same mandate, the programme in question might not necessarily speak to both the SMME and cooperative.

He suggested that the indicator for the name change process should be reflected as the day that the Minister reported back to the Committee with regard to the progress that had been made in light of the initiation of the process to change the name of the Department.

Mr Kruger then proposed that the Committee adopt the strategic plan in the knowledge that it would be changed in the near future, pending the consultations of the DSBD and the Department of Public Service and Administration.

[Mr Mabasa handed over to the Chairperson of the Committee]

Consideration of the Draft Budget Vote Report

The Chairperson directed the Committee to the second paragraph on page four, on the line that started with ‘sanction,’ to insert ‘Government Departments, State-Owned Enterprises and Municipalities.’ She said the current reflection of the message communicated as though it was only the municipalities who did not pay within the designated 30-day period when in actual fact it was also other government spheres who defaulted in the 30-day payment period. She asked for that to be changed.

In the next paragraph, the Chairperson noted that agriculture was central to all other sectors in the economy. Therefore, ‘agri-processing’ neededto be replaced to by ‘agriculture,’ because that was essentially where the raw materials were derived.

Mr Mabasa suggested that all the listed sectors mentioned in the paragraph should be deleted and replaced by the plural ‘all.’

Mr Mgxaji, the Content Advisor, said that the listing of the sectors in the paragraph was essential because those were the same sectors that were listed in the DSBD’s strategic plan, so they were the primary focus. This did not necessarily mean that the other sectors that were not mentioned were not acknowledged as contributors into the economy and addressing unemployment and poverty. The listed sectors reflected the largest spending by the DSBD on those particular sectors.

Rev Meshoe suggested that the Committee accommodated both perspectives.

Mr Chance said the Committee must provide reference to all sectors with regards to this matter, because within the mandate of the DSBD there was no sectoral specificity per se, but the focus was on SMMEs and cooperatives. regardless of which sector a particular SMME or cooperative operated in. Therefore, the listing of the sectors should be taken out, and instead the plural ‘all’ should be used to address all sectors across the economy and business space.

The Chairperson said that the paragraph above the one in question spoke to the totality of the sectors within the business sector. However, the paragraph in question, which was the following one, spoke to specificity and the percentage allocation of the budget in relation to the mentioned sectors as the biggest contributors in the economy. As much as the DSBD would be servicing all the sectors, the mentioned sectors were part of the Nine-Point Plan. They were listed because there was a specific focus on those sectors -- they were covered in the National Development Plan (NDP) as sectors contributing the most into the economy to address issues of unemployment and poverty. Therefore, it did not mean all the other sectors were neglected.

The Chairperson suggested that the DSBD review the Cooperative Incentive Scheme allocation from the R350 000 in its recommendations to the Department, because this amount had been the same since 2007, when she had visited the Department of Trade and Industry. Prices had changed and inflation had risen since the time she had visited the DTI. Therefore, in light of the changes it should be recommended to the DSBD to change this amount. It was a bone of contention -- for someone who wanted to start a mining cooperative, this amount was way too meagre.

Mr Kruger said that it would not be fair to insert that comment in the document in question, because it was not the Committee’s document. It should be brought up in the debate on the budget vote with the DSBD present.

The Content Advisor said the comment would not be included in the body content of the actual document, but it would be inserted as a comment from the Committee to follow on the discussion

The Chairperson strongly disagreed, saying that it would be part of the document, but the review of the R350 000 amount would be a recommendation to the DSBD from Committee based on the observations that that amount had been the same for the past ten years, and inflation and prices had changed drastically since then.

The Committee recommended, based on its observations, that the DSBD needed to develop a Cooperative Development Master Plan that related to community development and implement the Community Development Plan of the Committee. The DSBD must then also adopt a community development model and begin to position cooperatives in relation to what they were supposed to do, and implement the Cooperative Development Plan that was aligned to poverty reduction and the creation of employment. Importantly, it should also establish cooperatives’ incubators and build the capacity of the Department to champion cooperatives’ development.

Mr Capa asked about the National Informal Business Upliftment Strategy (NIBUS).

The Chairperson said that it was a scheme that would be in the DSBD. It was being implemented by the DSBD to address the needs and the upliftment of informal businesses.

Mr Mgxaji added that NIBUS was a strategy which had schemes under its umbrella, such as the National Informal Business Scheme, which directly provided funding for informal businesses. NIBUS was not necessarily a scheme in itself, but entailed schemes aimed at developing informal businesses with funding allocated to those schemes.

Mr Chance said that some explanation and clarity about what NIBUS and the National Informal Business Scheme were would be appreciated. It seemed like there was a bit of confusion, and the juxtaposition was unclear.

The Chairperson said instead of looking at the number of projects that had been assisted and provided with funding, the Committee would rather look at the impact of the programmes in relation to the challenges that had been identified in the country, such as job creation and poverty reduction, as opposed to how many cooperatives and SMMEs had been assisted. The impact of the intervention was the paramount measure, rather than the number, and this should be included under the observation and recommendation by the Committee.

The DSBD had overlooked mentioning the implementation of existing policies that were in relation to marketing and market access for SMMEs and cooperatives, such as the school feeding programme as a set side programme for cooperatives, as well as the school furniture programme, which would required engagement between the DSBD and the Department of Basic Education. In relation to strengthening the Departmental capacity, there was a lack of capacity within the DSBD with regard to understanding the concept of cooperatives, and they were not looking at how they would build that capacity. For instance, Canada had a long distance learning programme for cooperatives in order to train their people to be more knowledgeable on the subject of cooperatives. This was the type of programme that the DSBD could look into in order to develop its capacity in relation to the concept of cooperatives. Also, there was no plan regarding career building within the DSBD -- if a well-trained employee were to leave, who would then competently replace that person?

She said that the language in the strategic plan needed to be simplified. Government would promote cooperatives as effective instruments for community development in order to facilitate the participation of households in the mainstream economy, but this was not currently happening. She emphasised that the programmes highlighted in the NDP focused narrowly on poverty reduction and the creation of employment, but they did not address the widening inequality gap persisting in the country. Therefore, the developmental programmes must also aim at addressing that inequality gap.

The R10 million adjustment in the strategic plan was raised.

Mr Mgxaji said that the R10 million that was reflected as an adjustment, was the money that had previously been allocated to the Isivande Programme under the Department of Trade and Industry (DTI), but now the programme no longer existed so it needed to be re-allocated to another programme migrated from the DTI to the DSBD.

The Craft Programme also came into question.

Mr Chance said that the programme was said to be transferred back to the DTI, but it was still within the DSBD. Under the budget analysis, the programme was an anomaly, as it appeared that the Deputy Minister was passionate about this particular programme and the money went on overseas trips to and fro.

Mr Mabasa said the money must be utilised to grow craft work in the country if that was its initial intention, in spite of the anomaly that had been said to exist. It was imperative that that programme was scrutinised, along with its allocated funds, to ensure that it was used to develop craft work in the country and particularly in the rural areas.

The Chairperson noted that when programmes were migrated to the DSBD, it had been emphasised that the support service and funding allocated to those particular programmes must be transferred with the programmes. When the Committee was presented by the DSBD with the recommendations, there were issues that had been deferred, and the DSBD had been instructed to implement those that had been agreed on and defer those disagreed on.

The Craft Programme was the one programme that the Committee and the DSBD had not agreed on in relation to its relocation back to the DTI. The Craft Programme was now with the DTI, where the focus was on bigger businesses, so it needed to be within the DSBD, because the DSBD essentially focused on SMMEs and cooperatives. The DSBD had to engage with the Department of Arts and Culture in order to form a working relationship with people who dealt with craft, and this was where the concept of transversal agreements came in -- the DSBD was mandated to sign transversal agreements with other key Departments.

The Chairperson said that it was  not sensible to have the budget of the DSBD decreasing when there were programmes that the DSBD was yet to implement, such as the Cooperative Development Agency (CDA) and the Academy, and there were many costs involved in the process of implementing these programmes. Therefore, how would all these new programmes be rolled out? This indicated that whatever had been presented to Treasury by the DSBD had not included the long term plan of the DSBD on SMME and cooperative programmes, as well as the long term projection to convince Treasury that there would be a need for a growing budget, instead of a declining one. She recommended the DSBD should to engage with Treasury in order to discuss the budget around that area.  

The Isivande Women’s Fund had been established to assist women in agricultural programmes, and with reference to the oversight visits, women were more involved in the agricultural sector, so it did not make any sense that the programme was going to be discontinued and had previously been allocated only R2 million in funds. This programme spoke to the development of women’s involvement in agriculture, yet this one programme was going to be discontinued by the DSBD.

The Auditor-General had highlighted that there was only one staff member in the internal audit unit within the DSBD and the office of the AG was raising that as a concern that the Committee needed to look at and engage the DSBD. Another issue was that the office of the AG was experiencing delays in receiving information required for audit purposes, and as of the end of February 2016 there had been a lot of information outstanding for the interim audit. If this pattern was not corrected it would have a huge impact on the DSBD. They had also highlighted that by February 2016 the DSBD had a vacancy rate of 15%, so it was recommended that all these discrepancies needed to be followed up on. In

The AG had observed that the CEO position at the Small Enterprise Development Agency (SEDA) had been vacant for two years, although there was an Acting CEO. On financial indicators, 88% of the budget was on transfer payments. The Chairperson said that this reflected trimming on the use of consultancy, co-location, etc. Lastly, the AG had reported that in terms of targets, money would be spent but the targets would not be met. Therefore, there was no balance in the DSBD’s budget.

The Chairperson asked for some clarity regarding the R8 million, or 0.7%, that had been allocated to the development of cooperatives.

Mr Mgxaji said the total R8 million that had been allocated for the development of cooperatives was merely for developmental purposes. It did not include all the incentives under cooperatives’ development.

Mr Chance alleged that the DSBD had admitted before to a lack of understanding or having a legitimate plan for the development of cooperatives. The CEO of SEDA had himself made an admission that they did not know where they were going with cooperatives, so there was still a long way to go as far as the DSBD and its agencies were concerned. The point to be made was that in view of this, the expenditure of the cooperative scheme funds was not transparent, and the Committee therefore should call an urgent meeting with the DSBD to account for the allocation of these funds.

The Chairperson said that the insufficient budget allocation of R8 million reflected a limited understanding of cooperatives as an instrument to develop communities in the DSBD, and it seemed as though all programmes that related to cooperatives happened in a vacuum. There was no Cooperative Development Master Plan in place to govern the allocation of funds, and to measure the impact of cooperatives. The DSBD needed to disintegrate the programme it had adopted, because it focused on the development of both SMMEs and cooperatives – they needed to be separated. All programmes that related to cooperatives had not been prioritised by the DSBD. The Cooperative Development Agency had not been implemented yet, the Cooperative Academy was under the Department of Higher Education, and the Cooperative Development Bank Agency was under the DTI or Treasury. Therefore, the agencies that seemed to aim at developing cooperatives were scattered -- they were not within the DSBD. They needed to build up their skills capacity level, otherwise they would always be dependent on consultation services, and spending more

The meeting was adjourned. 


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