Department of Small Business Development & SEFA on their 2015/16 Annual Reports, in presence of Deputy Minister

Small Business Development

12 October 2016
Chairperson: Mr X Mabasa (ANC)
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Meeting Summary

Annual Reports 2015/16 

The Department of Small Business Development (DSBD) , in the presence of the Deputy Minister, presented its Annual Report for 2015/16, followed by the Small Enterprise Finance Agency (sefa) which similarly presented its report. The Deputy Minister gave a very brief introduction. The Department noted that it aimed to align itself fully with National Development Plan objectives, and noted that small business is noted as a key enabler. In this year, the Department had achieved 41.9% of targets, partially achieved 25.8% and not achieved 32.3%. The Department spent 97.5% of its annual budget and therefore underspent by 2.5%, although it was stressed throughout that it had been under severe budgetary constraints. The main achievements were described, one of which was the attempt to link entrepreneurs to critical market value-chains, mostly in the agricultural sector, which was very important for the cooperatives in particular. There had been better outreach. Partnerships helped 227 people build their skills and the Cooperatives Incentives Scheme had funded 246 primary cooperatives. The Department had not managed to achieve the Incubation Support Programme but was implementing a new Enterprise Incubation Programme in the current year. The Informal Traders Upliftment Programme was also rolled out. The infrastructure development and upgrade pilot programme had not been successful and the guidelines and approach were being re-drawn. The Department achieved collaborations with TVET colleges and five Centres for  Entrepreneurship were established. There were now 29 co-location points established across the country.

The performance of the programmes was described. The Department had 16.3% vacancies although its staff turnover had been less than expected, and it had managed to employ more women in senior positions. Programme 2 had planned to have nine incubator programmes but because the incubation Support Programme was not put into place, none was achieved. The National Small Business Act amendments were yet to be brought to Parliament. The private sector was not persuaded to contribute to the Fund, which was now moved to Small Enterprise Finance Agency (sefa). The DSBS had obtained an unqualified audit opinion but there had been 35 findings, which the Department was attempting now to address.

Members asked for the purpose and rationale of areas chosen for the co-location. They were worried that the amendment Act had not yet been tabled and asked when the Department would be planning and implementing guidelines for the Emerging Enterprise Development Programme. One Member asked what exactly the Department was going to do about red tape. They asked about the difference between the support programmes, and how the consultations were chosen and held. One Member was very critical of the fact that the Department's informal business facility was targeting so few cooperatives, while another urged that better and more challenging targets needed to be set. Members asked about the reasons for underspending, whether follow ups on co-location sites were done, how liaison with the Department of Trade and Industry was happening, and the impact of the vacancy rate. The Acting Chairperson urged the Department to look carefully at that rate and address it now. Members also wanted to know why the change of name of the Department seemed to be difficult.

The Small Enterprise Finance Agency then presented its report. Its particular target groups were described and it was emphasised how important small businesses would be for the economy. Sefa had managed to obtain R1.1 billion in funding but had disbursed R1.2 billion to date, and tabled the figures for the level of support, as well as examples of some success stories. Detailed tables were then presented showing the targets and the extent to which they had been exceeded, achieved or not achieved, with explanations for the differences. The challenges were set out and explained, and it was recognised that sefa needed to maximise its development impact, reduce impairments and increase collections to achieve financial stability.

Members asked for more detail on the slides and asked what criteria were used when trying to identify offices, asked how much was spent on drought relief and commented that they would like to see the number of applications received, as well as those that were successful. They wanted to know how its models for assistance differed and were particularly interested to hear about youth and disability projects, how it would expand the spread of the boiler industry, and whether there was any likelihood of Seda and sefa in future. Some Members were critical that the offices were based in towns, and others were critical of the collection rates, and asked what percentage of the funding, exactly, was being spent on the poor.

Meeting report

Mr X Mabasa (ANC) was unanimously elected as Acting Chairperson.

Department of Small Business Development and entities: 2015/16 Annual Report briefings
Ms Elizabeth Thabethe, Deputy Minister of Small Business Development, was welcomed to the meeting. She tendered the apologies of the Minister of Small Business Development and the Director General of the Department of Small Business Development (DSBD or the Department), who were in India attending a BRICS summit.

The Deputy Minister said that the objective of the Department was to report on the spending of the budget that had been granted for 2015/16 and she hoped that there would be frank and fruitful deliberations.

Mrs Semphete Oosterwyk, Acting Director General, DSBD, briefly introduced the content of the presentation before stating that the overall objective of the Department in this year was to align itself with government priorities such as the National Development Plan (NDP), and Vision 2030 which speaks of establishing an economy that will create jobs for all. Small business is identified as a key enabler of growth in the NDP.

She described that the performance of the Department as measured against the Key Performance Indicators (KPIs) set at the beginning of the financial year, showed that 41.9% of targets had been achieved, 25.8% partially achieved and 32.3% of its performance indicators were not achieved. The Department spent 97.5% of its annual budget and therefore underspent by 2.5%.  She wanted to make it clear that overall the Department had been under severe budgetary constraints.

Some of the achievements in the year under review were described, and these had been that the DSBD launched National Gazelles, Finfind, Nibus, and New Generation Cooperative models. It had also undertaken a programme review, and had crafted a vision and service delivery model. The Minister had managed to conduct a number of outreach sessions, to the public and stakeholders and this had helped to create awareness on services and agencies. The DSBD was also managing to link entrepreneurs to critical market value-chains, mostly in the agricultural sector, which was very important for the cooperatives in particular.

She noted that 227 people had been assisted in building their skills through partnerships. 246 primary cooperatives had been funded through the Cooperative Incentives Scheme (CIS). Unfortunately the Department had not managed to achieve the targets under the Incubation Support Programme, but an Enterprise Incubation Programme was being implemented in the 2016/17 financial year. In relation to other targets, there had been a roll-out of the Informal Traders Upliftment Programme (ITUP), and the Department had managed to exceed the target for having businesses trained because 1037 were trained, as compared to the target of 1000.

It was noted that another area in which the Department had fallen short was the Infrastructure development and upgrade where the pilot programme had proved not successful. However, the Department then revised its guidelines and this had achieved a better alignment of the approach with development plans.

Support for entrepreneurship had been achieved with collaborations with Technical and Vocational Education and Training (TVET) colleges, and five Centres for Entrepreneurship were established. Each of these incubated 30 learners a year and this led to benefits to 150 graduates and their communities. Centres were situated in Durban, Vhembe in Limpopo, Upington in Northern Cape , North West and Eastern Cape. The Department had also tried to achieve complementary services with Small Enterprise Development Agency (Seda) and Small Enterprise Finance Agency (sefa) to increase business support services in townships and rural areas. There were now 29 co-location points established across the country.

Ms Oosterwyk then went through the performance of the individual programmes. Programme 1 showed some positive results but it was noted that the vacancies were at the level of 16.3% instead of 10%. Staff turnover was lower than expected, at 9% rather than the 12% anticipated. Employment of people with disabilities was at 2.7%, lower than the 3.2% target. More women were employed in senior positions, at 50.1%.

Programme 2 had been particularly constrained by budget. Nine incubator programmes were planned but none were achieved because the Incubation Support Programme (ISP) remained under the budget vote of the Department of Trade and Industry (dti). One of the matters falling under Programme 2 which had not been achieved was the amendment of the National Small Business Act, which had also not yet been tabled in Parliament, although the stakeholder consultations had been held. 

Under Programme 3 the Department trained 249 women as entrepreneurs, less than the proposed target of 300 women. There had been efforts to motivate the private sector to contribute to the Fund, but this did not happen and the fund was transferred to sefa which is awaiting Black Economic Empowerment facilitator status. The targets for identifying and packaging small firms as franchisees were not achieved. Positives under this programme were the co-location points as described earlier, and the Department revised the guidelines of the Shared Economic Infrastructure Facility in order to open up to more potential partners, and aligning to municipal development plans. Unfortunately the Department also fell short on youth and women targets, but it was noted that because the intended programmes could not take off, they were to be re-packaged in the next year.

Ms Oosterwyk concluded that the Department obtained an unqualified audit opinion, and the management report issued by the Auditor-General for the 2015/16 financial year reflected 35 findings. In the next year, the Department would be embarking on new objectives and programmes to implement those and it would be addressing and improving upon the matters identified by the Auditor-General.

Mr H Kruger (DA) asked what the purpose of the co-location was. He asked when exactly the Department was planning to table the National Business Development Act in Parliament. Mr Kruger also wanted to know when the Department planned to approve and implement the guidelines of the Emerging Enterprise Development Programme. Mr Kruger had not seen anything in the report that addressed the ongoing challenge of red tape and asked for clarity as to why it had not been mentioned.

Mr R Chance (DA) asked for clarity in relation to the Strategic Overview, saying that in the previous meeting the Department spoke about the reviews as either being partially achieved or not achieved; he wanted to know exactly what status they had reached. Mr Chance also wanted an explanation of the difference – if any – between the Incubation Support Programme (ISP) and the Enterprise Incubation Programme and asked if the Enterprise Incubation Programme was a substitute in the interim, for the Incubation Support Programme that had not managed to take off. He asked how the Department advertised the stakeholder consultations in relation to the amendments of the Act, and how many stakeholders had been present.

Mr Chance noted that the Department, through the Informal Business Facility had apparently targeted 1 000 cooperatives. He questioned this target, pointing out that since the country had about 3 million cooperatives, this meant that the Department was only concentrating its efforts on 0.3%. He felt that the Department needed to adopt a much broader strategic approach.

Mr N Capa (ANC) commented on slide 22, saying that there had been a low target set for 3 cooperatives to be assisted, and yet 37 were achieved. He cautioned that the Department should strive to set and reach higher targets, and he wondered if the high vacancy rate and the absence of skills were impacting upon its abilities.

Mr T Khoza (ANC) wanted to understand the meaning of the term “regular visits”. He also wanted further clarity on the figures for staff turnover on page 19 of the presentation.

Mr S Mncwabe (NFP) wanted to know the reason for under spending set out on slide 25.

Mr S Bekwa (ANC) asked if the Department was doing follow-ups on the co-location sites, to monitor if citizens are actually being assisted. Mr Bekwa wanted to know if the Department was doing anything to ensure that all the functionaries that are currently with the Department of Trade and Industry would be moved across to the Department of Small Business Development.

The Acting Chairperson said that in Programme 3 the KPIs and the budget expenditure did not seem to match, and asked the reasons for the discrepancy. He too was concerned whether the Department was able to function properly, in view of the high vacancy rate.

Deputy Minister Ms Thabethe said that it was hard to provide an exact answer to the Committee now on the extent to which the exhibitions were seen to be successful; the Department would have to assess who exactly had benefited and to what extent. The progress under the Incubation Programme is quite varied, across the different programmes. One person had been found to be very successful after attending the Smart Exchange Incubation Programme from Kwa Zulu Natal

Ms Oosterwyk said that one of the key positions not filled was that of Chief Director: Programme 3. The amount of R8 million mentioned in the slides was supposed to be for the personnel costs.

Mr Lindokuhle Mkhumane, Chief Director, DSBD, said that the basis of the co-location points was to ensure a strengthened relationship with the cooperatives. The Department had started to draw up guidelines for the Emerging Enterprise Development Programme but a decision was then taken to half that programme and re-draft the guidelines. It was hoped that these would be approved by the end of the current quarter. He noted that the Incubation Support Programme is still with the Department of Trade and Industry. For that reason the DSBD had created the Incubation Enterprise Programme which more relevant to the work and focus of the DSBD.

Mr Mkhumane said that in the last year, consultations had been done throughout the nine provinces. He concluded that the Department had been working towards a transversal agreement with the Department of Social Development and the Department of Agriculture, Forestry and Fisheries.

Mr Mojalafi Moholo, Chief Director: Enterprise Development, Department of Small Business Development, said that the Department was indeed looking at the reduction of red tape and will provide feedback during the quarter. He said that the reason for the DSBD not receiving funding from the private sector was due to not having the required BEE status, which would attract the private sector.

Mrs Bridgette Peterson, Chief Director: Corporate Services, DSBD, said that as at March 2016 there were seven key vacancies in the Department. The reason for the higher than expected vacancy rate was that the vacancies were only approved on 1 March 2016 and thus there had been minimal improvement on the vacancy rate in the financial year under review.

Mr Shumani Mathobo, Acting Chief Financial Officer, DSBD, spoke to the issues around irregular expenditure highlighted by the Auditor-General in his report. He noted that the main reason was that the Department had overpaid another company, which had then been requested to reimburse the Department. The Department had also sourced quotations for training providers and one service provider was successful in its bidding on three occasions – although this had been in different provinces and for different training. The Auditor-General saw this as an irregular expenditure. 

Mrs Mandisa Tshikwatamba, Chief Executive Officer, Small Enterprise Development Agency, said that the TVET new programme was launched in 2015 and that the Incubator Programmes within the TVET were in ICT, engineering, metal and renewable energy .The Small Enterprise Development Agency (Seda) was working with around 118 cooperatives in the country, and this included around 50-55 cooperatives specialising in Agriculture and Agri- processing. 

The Deputy Minister said that the question of SEDA and sefa possibly merging is an issue that is still under discussion.

Ms Oosterwyk noted that a full report on the amendment process of the Act would be given at the next meeting. She would also give written feedback on the number of stakeholders attending the consultations.

Mr Kruger returned to his question on the reduction of red tape and said that he needed clarity from the Department as to what exactly it meant by saying that rather than focusing on red tape reduction alone, it had a wider strategy. He asserted that red tape was the third biggest problem in the DSBD. He asked if there was any draft legislation yet available that the Committee might be able to see prior to the end of the term.

Mr Capa probed as to whether the Department could provide facts and figures on how the Department formulated its targets.

Mr Chance asked the Department if it was possible to inform the Portfolio Committee Members in advance, when it was planning the exhibitions. He asked whether the DSBD had approached Catalyst for Growth to assist the Department in relation to business expertise.

The Acting Chairperson cautioned that if the DSBD did not look properly at the vacancy rate, the Department might find it difficult to function, because of lack of staff.

Mr Bekwa asked the Department why there appeared to be a problem in changing the name of the Department so that it included a reference to cooperatives.

The Deputy Minister responded that the jurisdiction for name changes lies with the Presidency and a very rigorous process would have to be followed. Departments would select the partners with whom to work according to their mandate and whether the proposed partners were already aligned with the particular department's objectives. She assured Members that the issue of red tape is a priority for the Department.

Mr Mkhumane asserted that the lower target was due to the initial programme being a pilot project.

Mrs Peterson confirmed that the vacancy rate was indeed impacting on the ability of the Department to reach its targets.

The Acting Chairperson thought that the Department could be in denial over the full extent of the impact of those vacancies.

Ms Oosterwyk assured the Committee that the Department was indeed very concerned about the vacancy rate, but that  parliamentary processes have to take priority.

The Deputy Minister concluded that the Department had answered as best it could and had offered to provide full responses to the Committee on the remaining issues.

Small Enterprise Finance Agency (sefa) 2015/16  Annual Report briefing
Mr Thakani Makhuva, Chief Executive Officer, Small Enterprise Finance Agency, presented the Annual Report to the Portfolio Committee. He noted that the Agency (also referred to as sefa) targeted  small businesses and cooperatives who were black entrepreneurs, women, youth, people in rural communities and townships and people living with disabilities. Sefa concentrated upon the services, manufacturing, agriculture, construction, mining and green industries sectors of the economy. It provided diverse funding products of Direct Lending, Wholesale Lending and Non-Financial Support.

Mr Makhuva said that there were vital links between the economy and development of small businesses and cooperatives. The impact of the current economic climate upon cooperatives and small businesses was explained.  Sefa, by this financial year, had R1.1 billion funding approvals and had managed to disburse R1.2 billion. Disbursements specifically to the cooperatives increased from R2 million from 2014/15 to R37 million in 2015/16. in replicable projects. Tables showing the numbers of individuals supported, jobs created, breakdowns of the type of business were shown.

Some of the success stories were outlined. It specifically noted that it was expanding into Northern, Western and Eastern Cape where it had not had much of a footprint previously, and the value chain linkages were described. New approaches had been developed to facilitate the informal sector and the Siza Credit scheme was described. Sefa made use of different channels for lending, with direct lending amounting to around 36%. In this year, sefa had introduced the Credit Indemnity Scheme which is a new application of the Khula Credit Guarantee. This has created appetite for the scheme with non- banking financial institutions, which had included micro enterprise-funding companies and private corporates. It had developed partnerships with municipalities. It was facilitating increased growth of jobs.

Detailed tables were then presented showing the targets and the extent to which they had been exceeded, achieved or not achieved, with explanations for the differences. He asserted that the under achievement in approvals has been due to the economic environment and the slowdown in the Direct Lending book. One of the major risks for sefa related to collection and impairment, as well as high rates of business failure. It was, however, trying to address that risk through reducing impairment and increasing collections and improving client orientation.

The corporate structure, financial summary and property portfolio were described in some detail in the following slides.

The challenges were described as the need to:
- Maximise development impact, including people with disabilities
- Reduce impairments & increase collections
- Achieve financial sustainability
- Improve client orientation
- Optimise utilization of strategic intermediary partnerships
- Increase the uptake of Khula Credit Guarantee
- Improve returns on contract-based finance
- Turnaround of the property portfolio
- Developing internal human capacity

Focus areas for 2016/17 would include addressing the strategic risks, the corporate plan, expanding access to credit and finance to finance informal and micro-enterprise sector, consolidating direct lending, improving the portfolio quality and re-directing investment to proactively support policy initiatives. It would facilitate a programme of wholesale lending through strategic partnerships, and increase the use of the guarantee indemnity scheme. Overall, it aimed to stay financially sustainable and viable, with an excellent organisational culture, governance, and performance.

Mr Kruger asked for more detail on slide 4 and asked what criteria sefa had used to identify and locate offices. He wondered why there were no offices in Mahikeng.  He asked how much was spent on drought relief. He advised sefa to also include, in future presentations,  the number of applications in order to compare accurately with the number of approvals. Lastly he asked it to provide the location of the business mentioned on page 20.

Mr Mncwabe asked about the Property Portfolio and wanted to know how it practically speaking helped cooperatives. He also asked where the cooperatives who were assisted in KwaZulu Natal were located.

Mr Capa asked for clarity on how sefa was assisting businesses that were operating in different settings. He asked for more information on the sustainability of the Youth projects. He noted the customer service satisfaction target of 60% and asked sefa why it did not set a higher target. Lastly he wanted to know whether there were any efforts by sefa to ensure that people with disabilities could access finance.

Mr Khoza said that sefa should spread the boiler industry to other geographic areas. He wanted to know the relationship between sefa and the Small Enterprise Development Agency (Seda) and whether there was a likelihood of a merger in the future. He expressed concern as to the low percentage of people with disabilities and wondered why sefa could not meet what was already a low target.

Mr Bekwa said that the offices of sefa were based in towns and were far away from the poor communities. Mr Bekwa advised that it should look to restructure its office location and put offices in rural areas. He conceded that sefa had some good stories to tell but stressed that if the Committee was looking for them in the rural areas it would be unlikely to be able to find the same picture.

Mr Chance asserted that the collection rate was very low and therefore asked why sefa was giving funding to businesses who could not repay. Mr Chance said that this raised questions about the existence of sefa and suggested that perhaps it would do more good if it were more like the Department of Social Development, assisting people but not having its whole existence based upon being an entity lending money to business.

The Acting Chairperson asked as to the current status of the board, pointing out that the terms of office had ended in 2015. He wanted to know the exact percentage of the money that was being spent on the poor.

The Deputy Minister said that the appointment for the board had been finalised and an announcement on the composition of the board would be made very shortly.

Ms Oosterwyk also confirmed that the current board is still in place and will be active until the end of October 2016. The Department is just waiting on signatures to confirm the new board composition.

Mr Makhuva said that sefa has not spent any funding on drought although it did have clients who were affected by the drought. The Super Grand project is in Siyabuswa. He said that he would provide the  exact location of other projects, including the ones in Kwa Zulu Natal.

Mr Rian Coetzee, Executive Manager: Direct Lending  Small Enterprise Finance Agency, said that the objective of sefa was to have at least one access point per district across the country. He also responded to the question of the number of applications versus spending, saying that 625 applications had been received and 302 were approved.

Mr Coetzee said that the agency does not have a perfect business model yet. It must be remembered that sefa concentrates on assisting people who were unable to get funding anywhere else. The difference between sefa and other entities is that sefa's clients do not have equity, and that the contract with clients is purely relationship-based. Mr Coetzee said that sefa is developing its collections strategy; it would in future encourage mentoring, an sms system to remind clients to pay, and restructuring the loan in order that  the client can pay.

Ms Vuyelwa Matsiliza, Executive Manager: Wholesale lending, sefa, said that R247 million had been disbursed in the last financial year and that the Agency has supported secondary cooperatives. One of these was in Chris Hani District municipality.

Ms Reshoketswe Ralebepa, Chief Financial Officer, Small Enterprise Finance Agency said the Agency supports small business with reduced rentals, which are very low compared to the market.

Mr Makhuva noted that the rationale behind the 60% target for customer satisfaction was due to the institution being new. As the organistion matures, this target would be increased so that greater customer satisfaction will be sought. The Agency had also set a very low target in relation to people with disabilities. The approach of the agency will be to go to the major disability association to increase access to funding.

He noted that sefa and Seda are working together, and he is part of the board of SEDA.

The Deputy Minister said in conclusion that the issue of impairment needed to be seen as a priority and that another meeting was required to discuss the issue in depth. She said that Spain had a very good model on this and suggested that perhaps the Portfolio Committee should do a study tour and some oversight there in order to  formulate a better business model.

The meeting was adjourned.

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