Appropriation Bill 2016: hearing with Minister of Small Business Development

Standing Committee on Appropriations

13 May 2016
Chairperson: Ms Y Phosa (ANC)
Share this page:

Meeting Summary

The Department of Small Business Development (DSBD) briefed the Committee on how it was planning to spend its allocated budget, in the presence of its Minister, Ms Lindiwe Zulu. The Minister highlighted that the Department had now appointed a permanent Director-General, which was a step in the right direction to ensure stability in the Department. The DSBD had also signed a Memorandum of Understanding (MoU) with the Department of Trade and Industry (dti) in order to get assistance with administration and management, and to make sure that all the systems were in place. It had now completely moved out of the dti in order to be recognised as a fully-fledged department.

The role of the DSBD was extensively set out, with the emphasis on its mandate to jump-start the economy to ensure that small businesses reached their maximum potential to develop and assist in the priorities of job creation, poverty reduction and inequality. The Department aimed to target small businesses in townships and rural areas since they required the most help due to their lack of capacity and knowledge. Particular targets would include assisting small businesses owned by women and by youths. The Department recognised its constraints as a new department which had no baselines to follow. It had a small team but a huge mandate and was faced with budget constraints. Setting up new programmes was expensive and would require a lot of money, but would be necessary to get the Department off the ground and functioning on its own. The importance of stakeholder engagement and partnerships was stressed.

It was emphasised that SMMEs were key drivers of growth and job creation in better performing and more stable economies. Small businesses currently represented 98% of the total number of businesses and employed 47% of the workforce, although they did have greater potential. The Goldman Sachs report had said South Africa was projected to achieve 5% growth over the next five years if the government and the private sector together invested R12 billion in 300 000 new small businesses every year for the next five years.

The DSBD was working on mobilising all spheres of government and the private sector in order to redefine the policy and regulatory environment. Legislative reform would include the revising of the Small Business Act and the Preferential Procurement Policy Framework Act (PPPFA). The point was made that even a portion of construction and procurement being redirected to SMMEs would have made a significant contribution to the sustainability and growth of SMMEs.

The DSBD presented a self-analysis of strengths, weaknesses, opportunities and threats. The Committee was then taken through the outcomes-orientated goals and objectives under the four strategic goals. Goal 1 had to do with sound administration and R118 million (9%) of the budget received would 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. The DSBD 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). In the 2015/2016 financial year there had been an adjustment in the budget of the DSBD, and this was an increase that had assisted in getting the Department off the ground and ready for the 2016/2017 financial year. There would be a steady increase right through to the 2018/2019 financial year.

Members wanted to know how it was possible to reach the DSBD at the provincial level. How many employees were currently employed by the Department? It was unclear as to whether the employees of the Department, particularly those in senior management positions, had signed performance agreements to ensure that their performance was carefully monitored. How was the Department aiming to increase the participation of SMMEs in the mainstream economy? How was it planning to strengthen the coordination of private public partnerships in order to benefit the SMMEs? They asked also how it was possible for the budget for enterprise development to be almost twice as high as that for development finance. The assumption had been that more funds would be directed to the SMMEs than to enterprise development.

The DSBD was asked which stakeholders would be involved in the implementation of projects in the current financial year, including the location where these projects would be undertaken. Which province was to get the largest share of these projects? The Department should provide detailed information as to how the money was being spent by the receiving agencies. What had been the biggest contributor to the overall under-expenditure of R29.5 million by the Department? How many jobs had been created by the reported 18 000 registered SMMEs? How big was contribution by these SMMEs to the gross domestic product (GDP) of the country?  What was the attitude of the DSBD towards the idea of providing start-up capital for potential entrepreneurs? How would the Department ensure that the start-up capital would be used effectively and for what it was intended? 

Meeting report

Chairperson’s opening remarks

The Chairperson welcomed everyone to the meeting and said that in the process of the dealing with the 2016 Appropriations Bill, the Money Bills Act required the Committee to hold hearings on the Appropriations Bill in order to assess the readiness of government departments to spend their proposed budgets. There was also a warm welcome for the Minister of Small Business Development, Ms Lindiwe Zulu, and the Chairperson of the Portfolio Committee on Small Business Development, Ms N Bhengu (ANC).

Minister’s opening remarks

Ms Zulu indicated that the Department of Small Business Development (DSBD) was aware of its constitutional and executive responsibility to ensure accountability to the people of South Africa. The Department had now appointed a permanent Director General and this was a step in the right direction in ensuring stability in the Department. The DSBD had signed a Memorandum of Understanding (MoU) with the Department of Trade and Industry (dti) in order to get assistance with administration and management and to make sure that all the systems were in place. The DSBD had also now completely moved out of the dti in order to be recognised as a fully-fledged department. The ANC government had established the Department to have a specific focus on Small, Medium and Micro-sized Enterprises (SMMEs) and cooperatives, so as to revitalise the economy. It was pleasing to see that all government departments now understood and appreciated the potential role that could be played by SMMEs and cooperatives in the fight against unemployment, poverty and inequality.

The existence of the DSBD was to deal with challenges that were affecting SMMEs and cooperatives, particularly the issue of funding. The mandate of the Department was to develop programmes and effective mechanisms that would assist SMMEs to grow. It aimed to create a conducive environment for the SMMEs and cooperatives to be able to deal with triple challenges and ensure that there were coordinated efforts between local and provincial governments to assist SMMEs and cooperatives. The Department needed to enhance the support which was given to SMMEs and cooperatives, not forgetting informal businesses. It was clear that the informal sector was struggling terribly and it needed to be given proper infrastructure in areas where they were operating. It was often difficult for them to even get into the local or provincial economic structures that were assisting in securing funding, not to mention the Department.

The Minister added that the Department felt that the budget that had been allocated was not enough to cover the challenges that were faced by SMMEs, particularly when it came to finance. It was pleasing to see that all the budget allocations of the various government departments had indicated the existing opportunities that were available to SMMEs through the Supply Chain Management (SCM) process.  Number seven of the Nine-Point Plan focused on how the DSBD could unlock the opportunities for SMMEs and cooperatives in townships to achieve the overall 2030 vision of National Development Plan (NDP).

The Department also existed to review the existing legislation and this was not to only focus on legislation at the national level, but also locally. The main challenge seemed to be a lack of legislative coordination between local, provincial and national governments. There were regulations that were passed by local structures that were not enforced. It was the responsibility of the Department to ensure that regulations were enforced and this had its complications when considering the number of local structures throughout the country. There was a need to be cognisant of the fact that the DSBD had just been created and the main concern at the moment was the lack of regular meetings. The Department would need to arrange meetings with other structures to ensure that its mandate was well understood.

The Minister stressed that the programmes that were being implemented by the Department had been inherited from dti.  The DSBD was continuing with those programmes, and there were many people from SMMEs and cooperatives that were already in the pipeline of support -- some were in the beginning, and others towards the end. However, the Department needed to review those programmes, as the dti had already indicated that some of the programmes were ineffective and the Committee, different entities, the private sector and relevant bodies would all be invited in the process of a revaluation of these programmes. There was a lot that had been done by the private sector to assistSMMEs and cooperatives, especially on enterprise development. The view of the Department was that the private sector also needed to look at its own enterprise development, as there was a lot of the money that was being spent without any significant impact in terms of contributing to the Gross Domestic Product (GDP), the generation of employment opportunities and poverty reduction.

The Minister pointed out that the Department remained with an inadequate budget of R4.3 billion for the three-year Medium Term Strategic Framework (MTSF), and this was approximately R1.4 billion per year. It would continue advocating for additional funds so as to effectively assist in the creation of jobs. The DSBD would like to welcome the special fund that had been announced by President Zuma, as well as well as the announcement that had made by the private sector. The private sector had announced a fund of R1.3 billion would be allocated to the Department, and there was a general feeling that the money was very little considering that the private sector was sitting with a lot of money. The private sector should be contributing more to the development of SMMEs and cooperatives, especially when one considered that the majority of black enterprises had been in existence for only 22 years in a democratic South Africa. The Department was planning to work together with the private sector, as there was still a deficit of trust between government and the private sector.

In conclusion, the Department was cognisant of the fact that most of the SMMEs and cooperatives were still struggling and there was still a lot of work that needed to be done, whether this was related to legislation or the regulatory environment on the ground. The DSBD was also quite encouraged by some cooperatives that were able to stand on their own and survive, and understood that there was a need to work extremely hard in order to survive in the sector. The SMMEs and cooperatives would need to use whatever support that was offered by government in order to be able to be self-sustainable.

The Department has decided to look at the amount of money that had been spent by the government on SMMEs and cooperatives for the past 10 to 15 years. There was a general feeling from the Department that there had been no value from the money that had been spent on SMMEs and cooperatives. This was not done to punish the SMMEs, but to develop interventions that would ensure that there was value for money spent. It was encouraging to hear that the South African Revenue Service (SARS) had crossed the trillion rand threshold for revenue collection, as about 18 000 registered SMMEs were contributing to paying tax. The Department was planning to do a lot of work in ensuring that the SMMEs and informal sector were able to contribute more to paying tax and creating job opportunities. 

Briefing by Department of Small Business Development  

Prof Edith Vries, Director-General: DSBD, 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 recognised 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 prioritised the highest impact opportunities. Prof Vries acknowledged that all big industries had started off as small businesses, 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 the growth of small businesses 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) stated that by 2030, South Africa should have an economy that was more inclusive, more dynamic, and in which the fruits of growth were 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 could happen only through a new economic growth path founded on restructuring the South African economy, improving its absorption of labour and composition, and its rate of growth.

The Medium Term Strategic Framework (MTSF) 2014-19 was the first five-year implementation plan of the NDP. The DSBD was tasked to contribute towards decent employment through inclusive growth and rural development. In the 2014-15 State of the Nation Address (SONA), the President had emphasised the role that the DSBD could play in jump-starting the economy, emphasising the need  to prioritise support for small businesses, cooperatives, and informal businesses. In the 2015 SONA, the President had announced that government would set aside 30% of appropriate categories of the state procurement budget for purchasing from SMMEs and 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 indicated whether there were 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 were key drivers of growth and job creation in better performing and more stable economies. Small businesses represented over 95% of total businesses and employed 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 was way below what its assumed potential could be. Small businesses currently represented 98% of the businesses, and employed 47% of the total workforce.

Current research provided by the Goldman Sachs report said South Africa was projected to achieve 5% growth over the next five years if government and the private sector together invested R12 billion in 300 000 new small businesses every year for the next five years. The DSBD was 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 was committed to providing greater opportunities for SMMEs to access the public procurement system through legislative reform, which included the revising of the Small Business Act and the Preferential Procurement Policy Framework Act (PPPFA) which was linked to the 305 procurement targets the President had referred to in the 2015 SONA.

In the 2013/14 financial year, the government had 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 had 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 was achieved. The DSBD was 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 the DSBD.

Weaknesses included financial constraints, HR constraints with vacant posts, and integrated planning with provinces. She explained that the role of the DSBD was that of coordination with provinces, and not running the provinces. The 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 the economic slowdown, the rising fiscal debt burden of 9.9% debt service, limited private sector investment, 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 macro-economic 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 would 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 to achieve this goal. Strategic Goal 3 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 responsible for 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 formation of the Department. Policy and research, as well as the 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 a 5% deviance against budget, payment of all creditors within 30 days, and tabling its first service delivery improvement plan (SDIP) for approval. 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 the senior management service (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 the compensation of employees and goods and services. Staff numbers were expected to rise in the medium term. This Department would see steady increases in the 2015 to 2019 financial years. '

In the 2015/2016 financial year there had been an adjustment in the budget of the Department, and this had been an increase that had 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 had been taken from the dti and from the year 2015/2016, when the Department had been 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 to 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 the 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.

The quarterly targets for programme 3 were that informal businesses would be supported through the Informal Micro Enterprises Development Programme (IMEDP), and the DSBD was hoping to have over 7 000 informal businesses supported through the IMEDP. The Department had not achieved 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 had been developed as part of the Nine-Point plan for small businesses and cooperatives, in consultation with other stakeholders. 

The DSBD was committed to establishing a Cooperative Development Agency (CDA) and had taken initiatives to raise their revenues to fund this process. This agency would provide support to small businesses to make sure that they were also competitive in the market. For the number of cooperatives supported through the Cooperative Incentive Scheme (CIS), the baseline for 2015/2016 was 350 and the Department aimed to increase the target to 370 cooperatives supported through the 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 improvement in their business processes. The DSBD aimed to support 600.

National Treasury had advised that the Department should come up with a programme to target cooperative and rural enterprises, and there was now the Enterprise Incubation Programme, to which a budget had been allocated. Partnerships would be needed with stakeholders in the private sector, tertiary institutions and state owned enterprises if the Department was to achieve all it set out to achieve, and it was thus aiming to set up ten 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 ten, 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. The allocation to this programme was R3.88 billion, with 94.2% allocated to transfers and subsidies to the Department’s entities that provided financial and non-financial small business support services. This included monies that went towards incentives within the Department.

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

Discussion

Mr A McLoughlin (ANC) indicated that he was in full support of the mandate of the Department, as it was well-known that small business was the backbone of any economy. The country was way behind in terms of developing SMMEs and cooperatives and there was a lot that still needed to be done. It would be important to know how it was possible to reach the Department at the provincial and municipal level. How many employees were currently employed by the Department? It was unclear as to whether the employees of the Department had signed performance agreements to ensure that their performance was carefully monitored. How was the Department aiming to increase the participation of SMMEs in the mainstream economy? What were the initiatives that were in place to facilitate this process? It would be interesting to hear how the Department was planning to strengthen the coordination of private public partnerships in order to benefit the SMMEs.

Mr McLouglin wanted to know how it was possible that the budget for enterprise development was almost twice as high as that for development finance. The assumption was that more funds would be directed to the SMMEs than to enterprise development. He requested more information on whoever was involved in conducting research into the existing inhibitive legislative and regulatory protocols for SMMEs and cooperatives. Was this research being conducted internally or through consultants? It would be important for the Department to have a relationship with other government departments, like the Department of International Relations and Cooperation (DIRCO) and the Department of Public Works (DPW). The Department could use the DPW’s unoccupied buildings for the development of SMMEs and cooperatives. What was the non-functional support that was given by the Department to SMMEs and cooperatives?

Ms M Manana (ANC) asked about the various projects that were geared towards assisting SMMEs and cooperatives. It would be important for the Committee to be briefed on the number of reports and strategies that the Department was aiming to produce during the course of the current financial year. What was the budget allocation that had been set aside for the completion of the various reports and strategies to be produced in the current financial year? It would also be important to get the names of the stakeholders involved in the implementation of projects in the current financial year, including the location where these projects would be undertaken. Which province was to get the largest share of these projects? It was commendable that the Department had been able to transfer about 99.9% of the budget to all receiving agencies. However, the Department should provide detailed information as to how this money had been spent by the receiving agencies. She asked about the biggest contributor to the overall under-expenditure of R29.5 million by the Department. The Committee should also get more information on the registered over-expenditure in capital assets. Was the DSBD able to fill all the critical vacant posts? How many of the funded positions were still vacant?

Mr N Gcwabaza (ANC) said there was a need for a focused approach to facilitating economic growth and an inclusive economy. There were other countries which had a ministry that was focused on the development of SMMEs and cooperatives. The Committee should appreciate the fact that the DSBC was in the hands of a dedicated and energetic Minister and this once again showed the important role that was played by women in the country. It was already stated that there were now 18 000 registered SMMEs which were fully operational. How many jobs had been created by these SMMEs? What contribution had been made by these SMMEs to the gross domestic product (GDP) of the country?  What was the attitude of the Department towards the idea of providing start-up capital to the potential entrepreneurs? How would the DSBD ensure that this start-up capital was being used effectively and for what it was intended?

Mr Gcwabaza pointed out that state-owned entities (SOEs) should be playing a role in supporting the development of SMMEs and cooperatives. It was pleasing to hear that the Passenger Railway Agency of South Africa (PRASA) had allocated a budget towards the development of SMMEs and cooperatives. It was also heartening that the DSBD had created a very important financial management structure. The Committee would like to know if there were plans in place from the internal management structures of the Department to deal with the problem of under-spending in Quarter 4 of the 2014/15 financial year. What capacity was in place to ensure that the Department was able to reach remote areas like townships and rural areas? The area research was critically important for the ability of the Department to operate effectively and efficiently. Was the Department building internal capacity in this regard? It was also commendable to see that the Department had an international relations strategy in place, as this could be a way of tapping into the external markets for exports and be beneficial of SMMEs and cooperatives. Was the Department collaborating with any other government departments in this regard? The Committee should get more information on the fund of over R200 million that had been established three years ago for local suppliers so as to expand relationships with the private sector.           

Ms D Senokoanyane (ANC) said that the establishment of the Department was one of the best initiatives undertaken by the government, as this had the potential to address the country’s triple challenges. It must be commended that the Department was facilitating the process of forming a relationship with the private sector and the provincial government department. There were a number of agencies that were located around the country. However, most community members were still complaining that these agencies were not adequately marketed and were mostly unknown to the general public. What legislation was inhibiting the effectiveness of the Department?

Ms N Bhengu (ANC), Chairperson of the Portfolio Committee on Small Business Development, appreciated the invitation to attend the meeting, and hoped that this would ensure that the Department was better understood and better resourced in order to achieve its legislative mandate. The Portfolio Committee on Small Development was fully supportive of the work that was being done by the Department. There was a general awareness that the Department would have more challenges in pursuit of establishing itself, especially when one considered that the DSBD had inherited programmes from another Department. The Minister should be commended for the ability to ensure that the DSBD had been able to manoeuvre from the dti to becoming a building block of a new department. It was unclear as to how the Department was accessible to the general public, especially at the provincial and municipal level.

Ms Bhengu said that there were a number of government policies that were likely to be beneficial to the SMMEs, and these included the introduction of the policy of 70% replacement of imported goods with locally made goods. This was a policy that could immediately open the market for SMMEs and cooperatives. There should be punitive action undertaken against those sectors not complying with this 70% replacement of imported goods with locally made goods. The President had also announced during 2016 State of the Nation Address (SONA) that 30% of the goods to be procured would be from SMMEs and cooperatives. There should be a department that would ensure that these policies were enforced and that there were punitive measures for non-compliance. It would be important for the DSBD to build infrastructure in underdeveloped areas, as SMMEs and cooperatives needed a favourable environment in order to flourish. The Portfolio Committee had already engaged with retail companies like Pick n Pay and Woolworths, and they had all indicated that there was a willingness to buy from SMMEs in order to reduce the triple challenges and the number of people who were dependent on social grants. The Department should be commended for the amount of work that had already been done within a very short period of time.

Ms S Shope-Sithole (ANC) said that she was excited that the government was able to establish a Department that was solely focused on the development of SMMEs and cooperatives. It was also impressive to hear that the government had introduced a policy of 70% replacement of imported goods with locally made goods -- this policy was indeed aimed at the development of SMMEs and cooperatives. The Department would need to ensure that the payment of service providers was done within the stipulated 30 days. She wanted to know if the internal audit committee of the DSBD was sufficiently independent. It would be useful for the Department to forward to the Committee some of the reports that had been produced by the internal audit committee.

Department’s response

Prof Vries responded that the DSBD did not have a transversal mandate and therefore had an office only in Pretoria. There were a number of existing implementing agencies, like the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA). The role of the Department was more about coordinating and enabling, and part of the work was to enter into agreements not only with national departments, but also provinces and municipalities. There was a fund called the Shared Economic Infrastructure Facility and this was focused on developing small infrastructure for informal traders.

The Department had a total of 150 employees, which was a very small team, and 135 had come from the dti. The services of the DSBD could be accessed through its website and through the outreach programmes and municipalities. The Department did not have the capacity and adequate budget to reach out to all the provinces around the country. There was a task team on small businesses that was aimed at ensuring that the service of the Department was able to be reached by the general public.

All the employees of the Department had signed performance agreements, and this was done on 31 May each year. The Department did not have a functional research unit because of the fact that the bulk of the DSBD’s employees had expertise in the fields of trade and industry, rather than on the development of SMMEs and cooperatives. There was an interim organisational structure that the Department was negotiating with the Department of Public Service and Administration (DPSA), which was an attempt to ensure that the DSBD was configured differently. The Department was planning to enter into agreements with various institutions of higher learning in order to offer research opportunities to young people in the field of small business development. The Department was terribly resourced in the area of inter-governmental relations (IGR) and this was especially the case in the core business unit and the people who were driving the transversal unit.

Because the Department did not have a functional research unit, there were no reports and strategies that the Department was aiming to produce during the course of the current financial year. The Department would continue to conduct research on the regulatory environment, with the main focus on red tape reduction. The Committee should anticipate the tabling of the Small Business Act, which would require some form of research on definitions of the types of small businesses in the Bill and other topical matters.

The spending in the fourth quarter had been commendable, but the delay in spending in the quarter had been because the approved projects had not provided the information required for dispersing the funds.  The under-spending by the Department was caused by technological migration and the fact that the Department had moved to a new building away from the dti.

Prof Vries said that the DSBD was developing an international relations strategy, as the dti had not transferred any international relations strategy to it. This did not mean the Department was not doing any work that was related to international relations. The Minister had signed an agreement with the government of the Netherlands and SMMEs -- cooperatives in the Netherlands were actually very strong and were therefore able to provide technical support in various projects. There was also a collaborative agreement with China and a strategic cooperation agreement on economic development within BRICS (Brazil, Russia, India, China, South Africa). The Department had been invited to participate in the China International SMMEs Annual Fair in October 2016.

The fund of over R200 million that had been established three years ago for local suppliers was currently sitting within the Department of Economic Development and the DSBD was aiming to unlock this particular fund. There was also a fund of R10 billion that would become available to the DSBD, and this would be running for over a number of years. 

Minister Zulu said that the Department was aiming to connect SMMEs and cooperatives to the African continent. The economy of the continent was largely based on SMMEs and cooperatives and therefore it would be important for the Department to connect and coordinate South Africa to what was happening on the continent at large. The DSBD was of the view that most black-owned SMMEs and cooperatives, and particularly those owned by women, should be able to access the market outside the country.

The Department would be looking at various bilateral agreements, and this was an attempt to ensure that these agreements were able to benefit SMMEs and cooperatives. There was cognisance of the fact that this would be an enormous task but the fact that dti and Department of Economic Development were already doing work in this area would be beneficial to the Department. The Department did not need to have a huge international relations unit, but a unit that would review these bilateral agreements and represent the interests of SMMEs and cooperatives. It was unfortunate that the Department had not been invited to any of the meetings of BRICS.

The Minister stressed that black SMMEs and cooperatives still needed exposure, and this could happen through their being invited to participate in the delegations of the dti and at other important meetings that were aimed at empowering SMMEs and cooperatives. The responsibility of the Department was to ensure that SMMEs and cooperatives were also able to benefit in the Oceans Economy. The DSBD was in discussion with the Department of Defence so that SMMEs and cooperatives could also benefit from a number of military bases in the country, and this could be done through supplying things like uniforms, food and protective clothes for soldiers.

Prof Vries said the research that would be conducted internally would be focused on the integrated strategy for enterprise development and entrepreneurship, and this would be in collaboration with the master plan to assist SMMEs and cooperatives in the townships and rural areas. The Department would be implementing the monitoring and evaluation of some programmes for the first time, and therefore some money would be spent on developing those systems. The Department would identify two areas that would be important for conducting research, and this was to be done throughout the current financial year. There was a programme in place where Germany was willing to assist the DSBD with youth development.

Mr Thembani Mabandla, Special Advisor to the DSBD, said that the bulk of the budget for enterprise development would be directed to SEDA, and this was one of the reasons the budget for enterprise development was bigger than for the financing of SMMEs. The non-financial support to SMMEs was basically related to business support, starting from business plan development and product testing, mentorship programmes and supplier development programmes. SMMEs and cooperatives were also assisted with incubation, where the main focus was on assisting the SMMEs to become viable big businesses. The Department had already noticed that most of the inherited programmes from the dti were focused on the established SMMEs and cooperatives, rather than the start-ups, and this was a gap that had already been identified. There was an additional programme that was focused on the start-ups and this programme had already been budgeted for in the current financial year.

The DSBD had developed a National Informal Business Upliftment Strategy that would be used to assist township enterprises, and it was planning to work with the provinces and municipalities in this regard because of the lack of capacity. Gauteng had already developed the Gauteng Informal Business Upliftment Strategy which was talking to those enterprises that were located in the townships. The Department was urging the municipalities to become part and parcel of this strategy, as it would assist in the development of township enterprises.

Mr Mabandla added that the DSBD was looking at the service delivery model between the Department, SEDA and SEFA, which was once again aimed to ensure that there was an improvement of service delivery to the SMMEs and cooperatives.

The Chief Financial Officer (CFO) indicated that the DSBD had been allocated R1.1 billion in the 2015/16 financial year and had spent more than R1 billion, with a saving of R28 million. The Department had under-spent on goods and services and capital items. The Department would be spending more to ensure that everyone was settled into the new office in Pretoria. The Department had already put all the resources in place to deal with the problem of under-spending. It had ensured that each chief director had been provided with a spending plan that would be aligned to when the payments to the service providers would be done. The Department would also try to resubmit the cash flow projection to the National Treasury, as this would assist in comparing whether the spending of the Department was in line with the cash flow projection that had been submitted in February 2016. It would also be putting in resources to review all the programmes in the first quarter period, and this was likely to result in the readjustment of funds for various programmes.

Prof Vries said there were more than 18 000 SMMEs that were registered as taxpayers and had already submitted tax returns. It was difficult to find reliable data on SMMEs and cooperatives. This had been caused by the previous challenge of a lack of central leadership in small business development. There were also new SMMEs and cooperatives that had already been registered and the 18 000 were only those SMMEs that were registered in the preceding tax year.

The Department did not have a direct partnership with provincial departments -- it was only the entities that had a relationship with provincial departments. It was already noticed that most SMMEs and cooperatives were reluctant to register their businesses, because this exercise could be onerous, arduous and time consuming at the same time. The Department would be conducting research on red tape reduction in order to make it easy for SMMEs and cooperatives to be registered businesses.

Ms Bhengu added that the DSBD would need to participate in the Integrated Development Planning Forum, as this was government policy that was aimed at the realignment of resources. The coordination between various government departments was critically important in the development of SMMEs and cooperatives.

Prof Vries said that the DSBD was proud of leading by example in the payment of invoices within the stipulated 30 days. The internal audit committee was sufficiently independent and was working very closely with the Auditor-General (AG).  The National Treasury had provided assistance to the Department on the potential risks that were faced by any new department.

The DSBD had welcomed the introduction of the policy of 70% replacement of imported goods with locally made goods, as this would be beneficial to the SMMEs and cooperatives. It was good to hear from the African Union (AU) that South Africa would be leading in the building of locomotives that would be aimed at connecting the entire African continent. There was a total of 1 500 jobs that had been created under the Cooperative Incentive Scheme, and 11 217 under the Black Business Supplier Development Programme. SEDA had created a total of 2 696 jobs for 2015/16, and 2 331 permanent jobs and 1 155 temporary jobs for Incubation Programme. SEFA had created a total of 157 217 jobs.

Ms Shope-Sithole indicated that she was happy about the independence of the DSBD’s internal audit committee, and reiterated that the Committee should be provided with reports it had produced. The Committee should also be provided with the financial statements of the implementing agencies, like SEDA and SEFA, as this would allow it to follow the money that had been allocated to these entities.

The Chairperson wanted to know if the Department was planning to partner with the Chief Procurement Officer (CPO), as this would ensure that the state’s procurement budget of R500 billion was able to benefit SMMEs and cooperatives. It was unclear as to whether the Department was planning to form a working relationship with the Department of Public Works to ensure that entrepreneurs were able to enter the construction and property sector. She also asked if there was a strategy in place from the DSBD to ensure that small entrepreneurs were supported to service the government’s large property portfolio. Was there any effort to form partnerships with banking and financial institutions? Was there any framework within which the Department could facilitate partnerships with the banking and financial institutions? The Department should be forming a partnership with information and communication technology (ICT) companies, particularly in regard to the building of set-top boxes (STBs).

Prof Vries responded that all government departments had a relationship with the Chief Procurement Officer, and the DSBD was no exception. The Department was required to provide demand plans and the procurement plans for a specific financial year. The DSBD was represented in the task team on the 30% procurement policy that had been introduced by the government. The Department had only a draft agreement with DPW and therefore this relationship had not been formalised. It was planning to work with DPW on the new project that was aimed at training young black property managers.

The Chairperson indicated that the DSBD should by now know what was expected by the Committee, and highlighted that this engagement had been worthwhile.

The Minister said that the Department of Science and Technology (DST) and the Department of Telecommunications and Postal Services (DTPS) were the main focus for forming partnerships with ICT companies. The DSBD was of the view that the transformation of the banking sector in the country was very slow and most of the banking institutions did not even look at the developmental agenda of government. The banking sector should be developing the SMMEs and cooperatives, as they could be their potential clients. The country should perhaps have a black bank that would be able to respond to the needs of black people. The Department had already had a conversation with the Minister of Communications around the issue of STBs and how SMMEs and cooperatives could benefit from the project. The STBs should be manufactured in the country in order to benefit local people. There was a framework that had been developed by National Treasury for the public private partnerships (PPPs).

The Department felt that the mushrooming of malls in around the country was likely to be detrimental to SMMEs and cooperatives, particularly spaza shops. Coordination within the three spheres of government was of paramount importance and provinces should be encouraged to develop their own development plans. The DSBD should have a strong inter-governmental unit that would compensate for its lack of resources and having offices in every province. The Department was just two years old, and there was a lot that had already been done and that still needed to be done.

The Chairperson said that the Committee was proud of the amount of work that had been done by the DSBD within a very short period of time. It was also pleasing to see that the private sector and other government departments were coming on board to assist it to achieve its legislative mandate. The Committee was pleased to hear about the filling of the critical vacant posts, including the appointment of the Director-General on a permanent basis. The Committee should also welcome the Minister’s pledge to ensure that the public’s funds were spent efficiently and effectively. The DSBD should be linking with SOEs in order to benefit from procurement, and it should be bold in ensuring that SMMEs and cooperatives were able to benefit from the localisation process.        

The meeting was adjourned.

Share this page: