Department of Small Business Development on its Quarter 4 performance

Small Business Development

25 May 2016
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Department of Small Business Development (DSBD) briefed the Portfolio Committee on its fourth quarter Performance Report 2015/16.A summary of the entire year was shown on a bar graph, which showed that quarter 1 was better than subsequent years. The DG highlighted its 50% female representation achievement at senior management level during quarter 4, exceeding the national target. The DSBD had exceeded targets for training women enterprises, training informal traders, funding the Black Business Supplier Development Programme  and social enterprise grant consultations. Consultations were attended on the National Minimum Wage but legislation was not tabled, the National Gazelles Programme was introduced, and extensive engagements by the Minister were held. It had not achieved against its targets for the 8% vacancy rates, nor for the target for employment of persons with disabilities, although at 2.72% it was better than the national target. The targets for programmes, and the achievements, were described for each of the programmes. The study on Red Tape Reduction was withdrawn and the report and guidelines were not produced. Although there had been over expenditure in the quarter, this balanced out the under-expenditure in the previous quarters.

Members asked what impact the NEDLAC minimum wage negotiations had had, and whether the MOUs were available. They felt that although the Minister had only been a witness to spaza shop signatures, the Department should have been alive to the disputes and done something proactive about them. They wanted a breakdown on costs, and asked about the  accessibility of the 25 co-location points, expressing concern that they were not accessible enough to those in the townships, and emphasised that street vendors needed to be included. They felt that the DSBD must give consideration on how to reduce the cost of small business if the minimum wage was introduced. Some Members asked for measurements on impact, and emphasised that it could be measured in different ways, including the numbers of people employed in set up stages, but the Chairperson and Department pointed out that it was early days because the Department had not long been operating on its own. Having said that, Members also emphasised that the Department needed to develop its own brand. Members discussed the relationships with municipalities, and fresh produce markets, and what was being done with the Department of Cooperative Governance and Traditional Affairs (COGTA) and how the Department was intending to translate recommendations of the Committee into strategic plans. They asked about progress on the Gazelles Programme, and about the Global Entrepreneurship Congress (GEC) as it was a very important event. They asked about research, and the programmes and wanted more of a breakdown per province, and also commented on lack of engagement with direct target markets. The Committee commented that it would have been useful to coordinate reports.

Meeting report

Department of Small Business Development Quarter 4 2015 performance report
Ms Edith Vries, Director General, Department of Small Business Development, presented the quarter 4 performance report for the Department of Small Business Development (DSBD). A summary of the entire year was shown on a bar graph, which showed that quarter 1 was better than subsequent years.

The Department did not reach two milestones in Programme 1: Administration, which were linked to filling the vacancies. The programme on Co-operative Development did not reach one milestone, which was based on the assumption that funding will be obtained. The programme on Enterprise development did very poorly and only achieved 50% of its targets. She presented a summary of the entire year on a bar graph, which showed that quarter 1 was better than subsequent years. The DG highlighted its 50% female representation achievement at senior management level during quarter 4. This exceeded the national target.

Ms Vries then presented the Quarter 4 highlights. These included:
- a sustained record of payment of all eligible invoices
- the target for training women enterprises through the Bavumile Skills Development Programme was exceeded (118 instead of 75)
- 1 037 informal traders, more than the target of 1 000 were trained through ITUP
- the Black Business Supplier Development Programme was funded instead of showing under expenditure
- targets for social enterprise grant consultations were exceeded as well.

The consultations on the National Minimum Wage were attended that highlighted the impact it would have on SMMEs. However, the legislation was not tabled as had been originally envisaged. Finally, the National Gazelles Programme was introduced and a selection of 40 enterprises were finalised.

The Minister had extensive engagements, which included:
- Witnessing the signing of the MOU between the South African Spaza and Tuck-shop association (SATA) and the Township Business Development South Africa (TBDSA)
- Consistent visiting of SMMEs and cooperatives across the country to determine their challenges and provide possible support from the Department
- This has created a presence and voice for small business in government.

She highlighted the matters in which there had been under-achievement:

Ambitious targets of 8% were set for the vacancy rate, however the DSBD did not reach it. Instead this was at 16.3%. The DSBS was unable to employ Deputy Director Generals (DDGs) for branches;

The target for employment of persons with disabilities target was 3% but only 2.72% was reached, although this is higher than the national target of 2%.

In programme 3, Shared Economic Infrastructure Facility (SEIF) was a challenge as none of the municipalities took up this offer until later in the year.

There were delays in the drafting of the amendments to the National Small Business Act. 

The launch of the Enterprise Development Act did not take place. A letter from Minister of Trade and Industry, Dr Rob Davies, was sent to the Minister of SBD.

The Women business development scheme was not approved and was not part of the annual performance plans for the DSBD, as it was not funded, but the objective for empowering women was reached.

The study for Red Tape Reduction was withdrawn and the report and guidelines were not produced. 

Ms Semphete Oosterwyk, Chief Financial Officer, DSBD, proceeded to briefly table the expenditure report. She noted that the over expenditure in this quarter balanced out the under expenditure in the previous quarters.

The Department under-spent R8.8 million on employee compensation.

The Department spending on capital assets was outlined, with the note that this included printers, laptops and desktops for new officials in preparation for the move to DSBD new office space.

The line item expenditure was then explained (see attached presentation) with a notes that there was underspending on compensation of employees, and overspend on goods and services, capital and transfers.

The detailed performance report was then presented.

Programme 1: Administration
Ms Vries repeated that the vacancy rate had not met the targets but the Department was in the process of filling the 28 vacancies. Nine were filled by 1 April. Staff turnover rate is low as people were not exiting the Department. On the multi-media campaigns, targets were exceeded

Programme 2: Co-Operatives Development
There was an increase in the establishment of co-operatives linked to market value chains. The target was exceeded.

Programme 3: Launch of Enterprise Development & Entrepreneurship
The launch of the Enterprise Development Fund enables the Department to seek funding with the private sector – and it was presently awaiting BEE status. 

The youth programme was not implemented as result of lack of funding.

Ms Vries concluded that the Department had improved its performance in the 4th quarter and is committed to addressing areas of under-achievement.

Rev Kenneth Meshoe (ACDP) referred to pages 15 of the presentation and asked what impact NEDLAC minimum wage negotiations had on the SMMEs. Further, he asked whether the MOU signed between the spaza shops, tuck shop associations and the Department could be made available to Members.

Mr Mojalefa Mohoto, Chief Director, DSBD, replied that the minimum wage consultations were held during January and February 2016, and included small businesses, SMMEs, and co-operatives across the nine provinces. The general view had been that they were not excited nor were they against the minimum wage, and it was seen to balance the issues of poverty and exploitation. They requested that different programmes be introduced if the minimum wage was introduced. These programmes would assist with implementation and competitiveness of businesses in order to continue running at a profit. The Department noted that negotiations were still taking place between business and labour, and did not have an opinion as yet. The Deputy President was leading these negotiations as a mediator between the community, business and labour.  The current suggestions from business for a minimum wage had created a deadlock, with business suggesting R1 200 and labour suggesting R4 000 as minimum wage. The government position has not yet been published.

Ms Vries noted that the DSBD did not have a copy of the MOU. The Minister of Small Business Development only witnessed the signing of the MOU.

The Chairperson added that during this time, the Minister had also witnessed squabbling between spaza shops. She noted that there should have been an engagement with the Department at this point regarding how they should intervene in that particular situation. The witnessing should actually have led to future interventions, which could be informed by the report of the Portfolio Committee. The Department had been charged with developing co-operatives and SMMEs and should be engaging and interacting, rather than merely being a witness. She requested the Department to answer questions fully, in order to demonstrate an understanding of the challenges faced in the sector.

Rev Meshoe asked for a breakdown of the cost of capital assets, namely, printers, laptops and desk tops. He specifically asked what quantities of each were purchased, along with the costing per item.

Ms Oosterwyk gave the figures as follows:
- One software package purchased at R16    000
- 3 printers at R1.6 million
- 22 notebooks at R535    000
- Two Ipads at R27    000
- 17 desktops at R55    000
- 8 monitors at R24    000. The total cost for the capital assets was R2.5million.

Ms Vries added that the expenditure was justified by the move into its own premises, and the acquisition of extra staff.

Rev Meshoe expressed concerns about the accessibility of the 25 co-location points that had been established.

Mr Lindokuhle Mkhumane, previously Acting Director General, DSBD, responded that most co-location points were around Pretoria, in townships, and included Tshwane municipality, Magubane, Attridgeville, Hamanskraal, Mamelodi and Bronkhorstspruit.

The Chairperson asked why the co-location points mentioned were all around Pretoria, which was already close to the DSBD offices. They were not accessible to those in townships located further away. She asked that the Department write down all questions raised and answer them sequentially.

Ms Vries noted that the Department could provide Members with the 25 co-location points, which had been set out in a previous presentation. The DSBD was concerned with the services offered at these co-location points.

Rev Meshoe asked what the selection criteria were for the 1 000 selected business owners who received training from the Department, and the duration of the training programme. He asked if these business owners included street vendors.

Mr Mkhumane replied that the selection criteria for business owners were those registered with the municipality’s database as traders. The training does include street vendors. 

Ms Vries said that she did not have the details currently on the duration of the training programme but was committed to making it available to Members at a later stage. She explained the different programmes and how it had empowered the traders.

Mr H Kruger (DA) commented that informal traders were excellent business people and probably did not need training. He did feel that the municipalities needed training to reduce red tape, in order for the informal traders to conduct their business.

The Chairperson felt that the training was needed for both informal traders and municipalities. She explained how informal traders sometimes confused their capital and their profit, and said that training would be useful on issues of hygiene and sanitation.

The Chairperson noted that the NEDLAC response was satisfactory, although the DSBD must give consideration to how to reduce the cost of small business if the minimum wage was introduced. This would help the small businesses to make a profit despite the introduction of the minimum wage, which would be likely to increase costs of the small business. There was a need for the re-assessment of infrastructure as certain small business owners were being exploited. She cited an example seen on a recent visit to Midrand, where a hairdresser was renting a chair and mirror for R3 500 from the salon.

Mr Kruger said that the presentation had been informative. He enquired about the transversal agreements and how many had been signed by the different departments.

Ms Vries responded that the Department had signed agreements in the 4th quarter with the Departments of Tourism, Public Enterprises and Social Development. Since the start of the financial year, it had signed others with the Department of Defence and Rural Development and Land Reform, and was waiting to sign another with the Department of Labour.

Mr Kruger asked what the impact of the red tape reduction work shops were. He commented that government and business were still haggling about issues of red tape. 

Ms Vries explained that the Department's Annual Performance Plans must set out SMART targets that are measurable. She acknowledged that impact is important, but felt that the question was unfair since the Department had been operating on its own only since April 2015, so that it would be expected to have a limited footprint. The impact will only be measurable in three to five years time.

Mr Mbasa asked for clarification on this last time frame, and suggested that a re-think might be needed as it could hamper progress if the DSBD were to wait that long.

Mr Kruger did not think his question on the impact of red tape was unfair. He cited the example of a municipality that had managed to cut down 350 bylaws and thus reducing its red tape, in three weeks, making a noticeable impact. This showed that it was something that could be done.

Mr R Chance (DA) added that he understood that developments would take time, but would not take that long. He asked whether the Department had interacted with Catalyst for Growth, an NGO that had been set up two years ago to investigate the impact of business development support services. A number of companies had engaged with it, and it was due to report its results in July 2016. This NGO had mentioned difficulty in interacting meaningfully with the Department. He noted that it could be useful to outsource monitoring and evaluation to this NGO, as it was already producing this kind research.

Ms Vries responded that the Department was being asked to report on what was on the APP, so guidance would be needed on this matter. She also said that instantaneous results could not always be expected: she cited the example of planting macadamia nuts, where one would only see the harvest after seven years. 

The Chairperson commented that other impact could be measured even in the example given by Ms Vries; although the crop may not be measured for that period, there were other measurables, such as the number of people employed to plant. The country is addressing unemployment and poverty, so employment would make an impact.

Mr Kruger explained that he had visited the Fresh Produce Market in Johannesburg. He noted that between 35% and 45% of the agent’s clients were informal street traders. He noted that there was R5 billion turnover in Johannesburg and that 5% of this went to the municipality. He asked why the Department only identified five municipalities. Secondly, he asked what was being done with negotiations with the Department of Cooperative Governance and Traditional Affairs (COGTA) in regard to service delivery and the upgrade of facilities to this market. He asked how the Department was going to ensure that there was a fresh produce market in every municipality in the country that was accessible to informal street traders.

Ms Vries responded that the Department was in negotiations with COGTA. Further, although the Department did not use this service, its clients do.

Mr Chance asked how the Department responded to the advice during the strategic review that the Department y should focus more on broad facilitation as opposed to implementation. He noted that most of the activities that the DG had reported on were implementation programmes. Furthermore, he noted that there was no report on research, monitoring and evaluation, except for a note that the budget had been diverted. He expressed concern that the Department was operating in a manner detached from the real economy, and said this was illustrated by the fact that its performance measures were internally focussed, rather than a focus on impact. He asked if the training of the informal street traders was making an impact, and noted that it had to be strategic. Rather, it had to consider how it could get the country involved as a whole as he had also mentioned this in his budget speech.

The Chairperson responded that some of the questions Hon Chance asked were related to the new strategy plan and thus the Department was unable to answer these questions. Some other questions were related to the APP of the 2015/16 financial year. She noted that it was important to make this distinction. The current report related to the fourth quarter of that year, and she reiterated that in this financial year, the DSBD was still working on matters inherited from the Department of Trade and Industry (dti). The issues and questions raised now would be reported on during the first quarter report of the 2016/17 financial year. She emphasised that changes and recommendations made in the strategic review could not be reported on in this report.

Mr Chance thanked the Chairperson for her response but commented that some points were still relevant to the current report. He was expressing frustration at the slow pace of change. He noted that the Department had not made any reference to the speech made by the president on 9 May, regarding the formation of the new enterprise that had R1.5 billion in it.

Ms Vries responded that the reporting period was until March 2016, hence the lack of reference to the President’s new enterprise.

Mr Chance asked what was delaying the Gazelles Programme.

Ms Vries responded that the DSBD had considered that the best time to do this would be during Youth Month.

Mr Chance asked for a briefing on the Global Entrepreneurship Congress (GEC) as it was a very important event.

Mr Mkhumane responded that the GEC was being led by the City of Johannesburg. In addition, there is a Local Steering Committee (LOC) and the DSBD received regular updates on the planning and progress of the event.

Mr Chance suggested that the City of Johannesburg be invited to present to the Committee on the GEC

The Chairperson agreed.

Mr Kruger asked if the Department had done a paradigm shift to the new programme yet, as the influence of and mention of dti was still apparent in some programmes.

Ms Vries responded that this was relative. The DSBD had inherited 120 colleagues from the dti. The Department was still dealing with the change.

The Chairperson repeated her previous lengthy explanation to Members that they could not expect an answer today on all matters, as the Department was still in a transition stage. The current presentation did not show the paradigm shift and it will be seen in the first quarter report. The change will take time. There had not been an exit of staff which means that the Department was adapting.

Mr Chance asked what the concrete view of the Department was on the National Minimum Wage and if it thought there should be some flexibility for smaller businesses. He asked why constant reference was made to the dti campus, when three different departments operated there. He asked if it could be renamed to something more generic.

Ms Vries responded that the naming of the campus was a political issue. She explained that the DSBD was a tenant there, and was building on establishing a brand and presence there. 

Mr Chance asked why Monitoring, Research and Evaluation were turned into a programme and asked for clarity on how that fitted into the broader organisational unit of the Department.

Ms Vries said that there had not really been a research focus until 1 April, as the design and development of the new agenda was under way.

Mr T Khoza (ANC) asked how the Department dealt with over-expenditure.

Ms Oosterwyk replied that overspending was seen mainly in the goods and capital line items. The reasons for this were due to relocation from one point to another. She explained that spending plans had been put together, in consultation between members of the Department, during the month of April. There may still be misalignment in the first quarter, but hopefully this will be remedied in the second quarter.

Mr X Mbasa (ANC, thanked the Department for a clear presentation, but thought the graphs could have been clearer. He referred to slide 4 and asked if those units or organisations depicted six or eight co-operatives. R29.6 million was disbursed through the co-operatives incentive scheme. He asked for a breakdown per province, specifically the Northern Cape. He asked if the grant facilitated from ITC was national in character or specific.

Mr Mkhumane replied that the grant was for a youth owned co-operative in recycling based in the North West Province. It was a once off grant from the ITC.

Mr Mbasa asked if the Minister’s site visits to assess challenges could include informal traders and spaza shops. He asked what would be the follow-up to the events that were attended by the Deputy President in Soweto and the British Prime Minister's trade envoy. He noted that there was a danger in solely focusing on events with no outcome.

Ms Vries replied that she could not answer for the Deputy President, but the Department was hosting a small informal business summit with small businesses in June.

The Chairperson rephrased the question and asked what the value was to small business of the attendance of the Minister and Deputy President. Further she explained that she had been invited to an exposition in China, which tried to find a link between small businesses in South Africa and small businesses in China, to establish trade agreements. Thus the question was to clarify what value was derived for small businesses from the Ministers’ attendance at these events. The converse of this is whether the events itself are the end products or whether ideas and opportunities are generated.

Ms Vries responded that the DSBD would amend their future reports accordingly.

The Chairperson reiterated that the Committee was dealing now with the previous financial year 2015/16, and this included recommendations. She reminded the Department that when working with co-operatives and SMMEs, the feedback was that these required technical skills, business management skills and adequate infrastructure. The infrastructure needed was operational and support, including electricity, sanitation, water, transport and telecommunications, and other requests had been for access to finance, such as soft loans and a conducive environment, access to markets and red tape, such as being paid on time. She asked how training for technical skills and tools were going to be done since Bavumile was going to be discontinued.

Ms Vries responded that Bavumile will not be discontinued but will continue to support and empower women. The issue is to mainstream the programme.

The Chairperson responded that programmes had names that did not help their marketing. The Committee had raised this issue previously. The programme should have a name that shows the skills it is providing.

The Chairperson noted that there were many issues of infrastructure challenges within various municipalities. Some conditions were so appalling that mothers working as informal traders were feeding, cleaning and raising their babies on the pavement. She asked why municipalities did not have any appetite to team up with the Department for shared infrastructure development.

Ms Vries responded that there was a great need for infrastructure but that she could not speak for municipalities. She could only speak to how the Department presented the offering to them. She added that the DSBD could amend guidelines and that if there was another source for co-funding the Department would pursue it. South African Local Government Association (SALGA) discussions had been initiated to isolate some of the issues.

The Chairperson could see how the appetite from the municipality for partnership infrastructure would be weak, since they are not the target market. She was worried about the lack of engagement with the direct target markets, such as the Hawkers Association, the co-operatives and others who are in dire need of the service. The municipal staff did not need the service, therefore they would not respond. Neither the staff nor their children needed the sanitation. She encouraged the DSBD to take advantage of the integrated development forum.

The Chairperson mentioned that she had met with the Auditor General (AG) and the Department had underperformed. However, in terms of the budget, the expenditure exceeded the set targets. The Chairperson asked why there was over expenditure whilst the targets were not achieved. She asked what the funds were spent on if not on achieving the targets. Further, the Chairperson noted that the Department had underperformed for three consecutive quarters but performed well in the fourth quarter. She asked why they were unable to spend in three quarters, but managed to overspend in the last quarter. She noted that this was equivalent to fiscal dumping.

Ms Oosterwyk replied that the under spending was mainly with regards to personnel, in addition the over spend was just for the fourth quarter.

Ms Vries commented that in order to manage the process, monthly meetings were dedicated to performance, where the CFO would present the budget against the performance, and this gave a good indication of where the challenges were. The Department was reading the Committee reports, but had to integrate the comments into the Department's work.

The Chairperson replied that the Committee goes out on oversight visits according to the Parliamentary calendar. The Committee report is available on the ATC, and is then a public document. There is already a mechanism to deal with the Committee reports, which can be addressed in the Department's strategic plan and budgets. The information contained in these reports is important as it collected directly from the communities.

The Chairperson asked how the Department marketed itself since different communities on oversight visits were still of the impression that the projects were under the dti still. She asked how the Department was dealing with the oversight reports of the Portfolio Committee since they were meant to respond to the challenges presented in the reports.

Ms Vries responded that she was not surprised that communities were still only recognising the projects as dti projects. The Department did not have a budget for communications, and had only one overstretched staff member. However, this year more staff were brought in to deal with communications and marketing.

The Chairperson replied that this was indeed a serious problem, since establishing own separate identities was important and the Department's brand as looking after small business was important. She suggested that advertisements through the South African Broadcasting Corporation (SABC) should be run, to market to the public. The government of the ANC must be seen to be delivering to communities.

The Chairperson noted that co-ordination of accountability was important. The Department sent through three reports, 1 on the Sector Education and Training Authority and one on the Small Enterprise Development Agency. However, only the Department's report had been presented. The Chairperson replied that the Committee would engage on those issues later, although the three reports should ideally have been consolidated,

The meeting was adjourned. 

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