Department of Small Business Development on 2nd quarter 2016 performance of Department, Sefa and Seda; KZN Cooperatives implementation plans; iCat briefing on cooperative road models

Small Business Development

07 December 2016
Chairperson: Ms R Bhengu (ANC)
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Meeting Summary

The Department of Small Business Development presented its Q2 performance report to the Committee and it was highlighted that with regards to overall Q2 performance, Programme 1: Administration and Executive Support functions achieved 64.3% or 9 of its 14 planned quarterly targets, and spent 37.2% of its budget by 30 September 2016. Programme 2: Policy and Research Branch achieved 100% of its 11 quarterly targets and was by far the best performing branch in the Department to-date, although it had actually only spent 23.6% of its budget to date as a result of the delay in finalising research studies and because two of the studies are being funded by DPME. Programme 3 achieved 64.3% or 9 of its 14 quarterly milestones, and spent 48.1% of its budget to-date. The Department was still engaging with the Department of Public Service on a new organisational structure, and until that time it was unable to make permanent Deputy Director General appointments. The Risk Management Committee had not met as it was unable to achieve a quorum. The Department under-spent by R37.7 million (10.7%) of the overall expenditure. Despite the increased vacancy rate, new appointments had been concluded in the period under review. The Department was committed to addressing areas of under-achievement.

The Small Enterprise Development Agency (Seda) report on Q2 performance said that it had performed exceptionally well in respect of clients supported through trade facilitation, primary cooperatives established, clients supported through the BESD programme, partnerships for small business development and clients supported with systems implementation. It had a good satisfaction survey result of 98%, whilst 73% of clients surveyed had increased turnover, and about half had managed to employ more people. Overall the Seda Technology Programme had created 389 jobs. However, it had fallen short in some respects, including numbers of clients supported through the supplier development programme, supported through the BESD programme and through the Gazelles programme. There were shortcomings in the development of a branch resourcing framework and value of service delivery costs by partners. The Technology programme did not achieve targets on numbers of clients incubated, those supported through conformity assessment and product testing and those supported through technology transfer. Seda’s budget was R750.9 million and to end September it had spent R359.05, with an underspend of 2.45%.

The Small Enterprise Finance Agency (Sefa) noted that SMMEs and cooperatives were particularly suffering from deteriorating financial conditions in South Africa. Total loan book approvals were at 38% of target, and disbursements were at 62% of target, with loan approvals in the second quarter being at 69% of the quarterly target. The Sefa internal control environment remained stable, with management focussing on combating fraud activities, strengthening and expanding organisational human resources and pro-actively managing risk and compliance. The reasons for under-performance on the loan book were summarised, which included on overall economic slowdown, and the total loan portfolio at risk was about 48%. In September the cumulative under-performance in the loan book approvals resulted from slowdown in the direct lending loan book (focus collection rate was 3%, current-on-current collection rate 24%, and the all-in collection rate 43%. There were attempts to improve this.

The Department then briefed the Committee on items raised in the previous week to do with Kohwa, with whom the Department had a Memorandum of Understanding to clarify the roles that parties were to play. This was a three-year contract. One of the 12 cooperatives in KwaZulu Natal was very successful but others had challenges, including failures of crops, inadequate funding and poor management of the contract and the partnership between the stakeholders. The DSBD had developed an implementation plan to address the challenges, particularly the identification of lack of coordinated governance, and failure to identify and tap into other resources. Funding was available but had not been reviewed. One of the problems was that, in the absence of stipends, cooperative members had to keep seeking paid employment elsewhere and consequently did not have sufficient time to devote to their business. The Department would now be focusing on realistic implementation planning. It was also trying to ensure better local government support. It would be partnering with others on delivery. DSBD could not establish the Steering Committee on its own, but would partner with other departments and municipalities. Since lack of funding is the biggest issue, the Department would seek approval from the National Treasury to make use of the money that is available from the Cooperatives Incentive Scheme to fund the project, although this may result in less cooperatives being funded.

Members were critical of the admission that some targets had not been reached through poor planning, particularly in relation to street vendors, and questioned why the Department had not thought to offer training outside of business hours and at a venue more easily reached. They were also critical that 43% of the Seda budget was spent on its core business, and questioned the disparity in the numbers reached across the quarters, by Sefa. Members wondered if the Department had capacity to respond to a tender due to be reported on in the following year and said that they did not think that the impact and outcomes were being properly assessed before trying to implement. They questioned the under-budgeting for the Gazelles programme. Members also queried the under-performance on numbers of jobs created and were disappointed at the collection rate, asking if the Department was funding the correct businesses. They were also critical of the vacancies and asked how these would be addressed. There were reports that some cooperatives had not received the resources that were apparently directed to them. They were also disappointed to hear that the Risk Assessment and Management Committee had not met and extensively debated the reasons and the importance of this committee. They also asked about the plans to put two branches under one Deputy Director General, commenting that different approaches were needed for the SMMEs and Cooperatives. They also questioned the difficulties and future plans for the way in which the Department would deal with the Retail Sector Education and Training Authority.

iCAT attended to brief the Committee on its proposal and model for rural road development and maintenance. iCAT had its own technology and was proposing to train cooperatives on this technology so that they could then, in Dr JS Moroka Municipality as a starting-point, take over road maintenance. The model will greatly benefit these communities and will create jobs while also boosting the access to rural areas and helping municipalities to have quality roads. It was proposed that each cooperative could service 40 km of GreenBit constructed road each month, and would build jobs in the process. Members interrogated the business plan and model, noted that the short term costs were high but were assured that the long –term savings to municipalities were substantial, asked whether the model was directed to making profits for the company, who would identify the cooperatives and how salaries of cooperative members would be paid. Members were generally supportive of the idea and heard that iCAT had asked to brief the Committee partially to let Members be aware of the possibilities and partially because it needed overall government buy-in although it would take the idea to individual municipalities. It was suggested that the Department should take note of the opportunities and try to partner with companies who showed similar initiatives.

Meeting report

Department of Small Business Development 2nd quarter 2016/17 Performance Report

Prof Edith Vries, Director-General, Department of Small Business Development, took Members through the 2nd quarter (Q2) performance of the Department (DSBD), and outlined that it was in line with Treasury requirements and the 2016/7 Annual Performance Plan (APP).

She advised the Risk Committee did not meet, due to the fact that it did not reach a quorum so the meeting was postponed. With regards to overall Q2 performance, Programme 1, which is comprised mainly of Administration and Executive Support functions, performed substantially, achieving 64.3% or 9 of its 14 planned quarterly targets; and has spent 37.2% of its budget by 30 September 2016. Programme 2 achieved 100% of its 11 quarterly targets. The Policy and Research Branch is by far the best performing branch in the Department to-date, and has spent 23.6% of its budget to-date, as result of the delay in finalising research studies (2016 Annual Review) and because two of the studies are being funded by Department of Planning, Performance Monitoring and Evaluation (DPME). During Q2, Programme 3 performed substantially achieving 64.3% or 9 of its 14 quarterly milestones, and spent 48.1% of its budget to-date.

The Internal Audit function has a full staff complement enabling the execution of all planned audits. The reports have been very instructive, pointing to faults that if undetected could result in material audit findings and which can be corrected. An invoice tracking template has been developed and the relevant team members had been trained on how to use and monitor it to ensure compliance. This should eliminate delays in processing payments. The Department corrected and aligned the anomalies between PERSAL and HR systems, by abolishing some posts and creating others. This would now reduce the vacancy rate. She was confident that the 10% could be reached by year-end.  Despite two Risk Management Training workshops in Q1 and enlisting professional support from, risk maturity remains very low and officials did not appreciate the importance of these meetings.

The DSBD had proposed a structure and that was in the process of being approved at the Department of Public Service and Administration (DPSA). DSBD had 2 vacant Deputy Director-General positions – with two members of senior management acting in the positions. The priority of the DSBD to finalise the approval of the permanent structure, and to prioritise the implementation of the human resources plan.

Prof Vries outlined the financial performance. The DSBD spent R313.15 million against the target of R351.2 million, which resulted in under-spending of R37.7 million (10.7%). Corrective action to address underspending had been taken, most of the vacant positions were triggered, and the Department was working diligently to fill the critical vacant posts. Managers were encouraged trigger the projected expenditure in line with their projections and the demand plan. The Service Level Agreement (SLA) between State Information Technology Agency (SITA) and DSBD is being finalised (R3.6m).

The Department started off on a good note with improved performance from the previous year. Despite the increased vacancy rate, new appointments had been concluded in the period under review. The Department was committed to addressing areas of under-achievement.

Small Enterprise Development Agency (Seda) Q2 performance
Prof Vries outlined how the Seda report was presented. She said that out of a total of 20 strategic indicators, 12 quarterly targets were achieved, or 60%. The year to date target was achieved on 14 of the targets. The performance against set strategic indicators and targets was tabulated in the  slides.

The organisation performed exceptionally well on the following indicators:

In Enterprise Development , in respect of the numbers of:

- clients supported through the trade facilitation
- primary cooperatives established
- clients supported through BESD programme
- partnerships sourced for small business development
- clients supported with systems implementation
- 98% indicated that they are satisfied with the quality of Seda services
- 73% of surveyed clients showed a 73% in their turnover
- 53% of those surveyed reflected an increase in the number of people employed,

The Seda Technology Programme had created 389 jobs.

The organisation performed below expectations on certain indicators. In Enterprise Development, it had fallen short on the numbers of clients supported through  the supplier development programme, clients supported through BESD programme, and supported through the Gazelles programme. There were shortcomings in the development of a branch resourcing framework and value of service delivery costs by partners.

The Seda Technology Programme fell short on the numbers of clients incubated, number of incubators supported through conformity assessment and product testing, and those supported through technology transfer.

The total revenue for Seda for the 2016/17 financial year was budgeted for R750.9 million and the expenditure budget was R750.89 million. The actual expenditure for the period 1 April to 30 September 2016 amounted to R359.05 million resulting in under spending of R 9.2 million (2.45%). Areas of under expenditure are advertising, internet charges, and some projects where payment would be made only on achievement of certain milestones.

Small Enterprise Finance Agency (Sefa) 2nd Quarter Performance Report

Prof Vries highlighted that the overall macro-economic environment is negatively impacting on the business performance of the small, medium and micro enterprises (SMMEs) and co-operative enterprise sector. The deteriorating financial conditions are putting a strain on South African business’ health, with small businesses in particular struggling to repay debt. She emphasised that the total loan book approvals and disbursement so far for the financial year represents 38% and 62% of the respective annual targets. However, a reassuring note was that the Sefa internal control environment remained stable, with management focussing on combating fraud activities, strengthening and expanding organisational human resources and pro-actively managing risk and compliance.

She noted that loan approvals in the second quarter amounted to R180 million.  This represented a 68% achievement against the quarterly target. Under-performance in the loan book approvals resulted from slowdown in the direct lending loan book (focus on improving the direct lending operating model); changes in the wholesale approval criteria (focus on transformation in financial intermediary market and the cost of Sefa’s wholesale loans for on-lending to intermediary institutions loans); and macro-economic factors (lower GDP; unemployment, etc) which influenced the investment activities and decisions of business. Disbursements in Q2 were R245 million, which was an over-achievement of 16% of the quarterly target. This is derived through the wholesale product channel (revolving loan facilities extended to intermediary institutions). The total loan portfolio at the end of the September 2016 was R1.3 billion comprising of R758 million direct lending loans and R630 million wholesale loan facilities to financial intermediaries. The total loan portfolio at risk is 48% (73% direct lending and 17% wholesale lending). Portfolio at Risk is influenced by the performance of the Direct Lending Book. In September the cumulative collection rate was 3%, current on current collection rate 24%, and the all-in collection rate 43%. Management is currently engaged with the implementation of turnaround to increase the collection rate and pro-actively support Sefa clients after loan disbursements.

Implementation plans for KZN Cooperatives: matters raised in previous week
Prof Vries then briefed the Committee on items raised in the previous week.

Responding to issues raised about Kohwa, she said that the DSBD had now entered an MOU with Kohwa to
clarify the role that each party has to play. In addition, various support services were provided, and DSBD provided the Cooperative Incentive Scheme (CIS) which was of advantage to the cooperatives. Out of the  12 agricultural cooperatives, one was very successful. Others experienced a fair degree of challenges including crop failure due to inadequate funding, and several constraints including the poor management of the contract and the partnership between the stakeholders. The DSBD then developed an implementation plan to address the challenges. In the short term there had been a failure to effectively coordinate governance. It was also identified that there was untapped support from other relevant departments and entities, and that DSBD failed to mobilise the transversal agreements. To mitigate some of the challenges, the KZN Department of Agriculture could have been mobilised to support the cooperatives. However, this was not done, with the provincial Department of Water and Sanitation not being involved.

Another problem was inadequate financial support, as the cooperatives were not treated as bodies that could become sustainable but simply as just cooperatives who had applied for a grant. The funds available for cooperatives are within the CIS, but it has not been reviewed yet and this is something that the Department plans to do, to ensure that relevant procedures and processes and structures are in place to ensure sustainable financial support. Cooperatives were not generating any income for their members, who would then take time away from the business to generate income. If the members were given a stipend it would have helped significantly to move the cooperative forward. This would be addressed. The DSBD will look into realistic implementation planning to ensure that the challenges that were encountered are not repeated.

Another challenge  was around the fact that the project was not receiving adequate support from the municipal and national government, and the DSBD would work on that. DSBD could not establish the Steering Committee on its own, but would partner with other departments and municipalities, and pull them in to be actively involved. It was also looking at establishing something similar in other provinces and ultimately to establish a national Steering Committee where the other Departments will play their role.  There will be an inter-departmental structure to look into the steering committee, by March next year, and DSBD will put together a document that will guide the Steering Committee. The transversal agreements that will be signed will be approved in that structure, and there would then be improvements in managing the partnership with Kohwa. The contract with Kohwa is a three year agreement. By the end of the period the DSBD will conclude an implementation agreement. Lack of funding is the biggest issue. The Department will seek approval from National Treasury to make use of the money that is available from the CIS to fund the project, which may result in less cooperatives that will be funded, because the resources are inadequate.


Mr H Kruger (DA) noted the comment on slide 16 that  the informal street traders target was not reached. He put this down to poor planning. The country cannot afford for the DSBD to report that only half of the informal traders were trained, and  poor planning cannot be accepted as a legitimate reason for failure to reach the target.

Mr Kruger then noted, on page 66, that Seda spent only 43% of its budget on its core business. He asked whether it is fair that there were 9 million people without a job in the country, and Seda was only spending only 43% of its budget.

Mr Kruger then turned to the Sefa presentation. In the second quarter, R255 million was spent and only 3 186 SMMEs were supported/ In the previous quarter the target was 14 000. He questioned why there was such a wide disparity in the numbers between the quarters.

Mr T Chance (DA) referred to slide 13, noting that there was a tender for the Integrated Strategy on Entrepreneurship and Enterprise Development, which was supposed to be reported on in the following year. He asked how the DSBD would respond to a strategy that will, presumably, impact on what has been done so far. He wondered if the DSBD had it in its capacity to respond to the tender request.

Mr Chance commented that there was too much focus on implementation, rather than on policy and strategy. He asked Prof Vries if she believed the resources were sufficient to make a serious impact.

Mr Chance referred to slide 54, and said that the performance indicators are focusing on numbers of businesses supported rather than impact and outcomes. At one meeting it was suggested that DSBD needed to develop an econometric model for a broad micro economic impact. He asked if the DSBD had considered adopting such a model, in partnership with National Treasury.

Mr Chance referred to slide 72. He asked where the branches in the township for Sefa and Seda would be piloted. Commenting on slide 73, the funding of the national gazelles, he asked why there was under-budgeting and asked what the impact of the extra money would be, and the outcomes.

Mr Chance referred to page 4 of the Sefa presentation. There was significant under-performance on the number of jobs created in relation to the number of enterprises funded, and he asked why this was so, seeing that the average loan size was different to what was anticipated.

Mr Chance noted that on slide 6, the collection rate of 3% was “dismal”. He wondered if the correct businesses were being funded, asked if the funding was misdirected and how much attention has been paid to the loans team to make sure that loans are given to the right businesses. Property expenses had doubled in the township parks properties, relative to their rental income, and he asked why this was so and how far the negotiations were to acquire the properties.

Rev K Meshoe (ACDP) referred to slide 16, with regard to the targeted beneficiaries, and asked how poor planning was causing the beneficiaries not to reach training facilities. He asked for details on any other problems, and how they might have been resolved. In relation to slide 21, he said there are too many vacant positions when there are so many unemployed graduates in the country, and asked why the vacancies were not filled.

Rev Meshoe pointed out that in the Implementation Plan for 12 Cooperatives, there were resources that were provided to the cooperatives., yet some disputed this, saying they had not received the resources. He asked what DSBD had done to find out what happened to the resources.

Mr T Mulaudzi (EFF) asked why the Risk Assessment and Management Committee had not reached a quorum. This was a very important committee and he was sorry it had not met for a whole year. He noted the 37% achievement of targets on slide 11 and asked when and how it was likely to reach 100%.

He also asked how many transversal agreements were signed in Q2 and the number of jobs created. He suggested that the DSBD needs to apply the concept of radical economic transformation, because its trend in creating jobs was very low. If the current officials are failing to implement the targets, he would like to see them replaced now, not in five years time. Improvement in the Department was needed urgently. In relation to slide 19 he pointed out that nothing is being said about the appointment of Deputy Directors General, and why the DSBD was seemingly waiting when there already appeared to be candidates for the job.

He then referred to slide 21, and the underspending, commenting that the Committee was always trying to push for more budget for this Department but when it under-spent what it had, and therefore under-performed, this was a very difficult request. He emphasised that if the Department wanted more money, it would have to perform better.

Mr N Capa (ANC) also expressed his concerns that the Risk Committee had not met and asked if this happened subsequently. He asked if there were targets set for the filling of posts. He questioned whether the reference to 64% performance was annual or quarterly performance and would be worried if the Department was trying to imply that it felt that 64% performance for the year was satisfactory.

The Chairperson asked Prof Vries to unpack what she had meant by poor planning. She asked how far the training venue was from the street vendors. She asked for more detail on slide 11, which said that under expenditure had resulted from the structure not approved, and what was meant by the suggestion to put the SMMEs and Cooperatives under one Deputy Director General. She said that they were fundamentally different in principle and bottom line and there was bound to be difference in scope and complexity. For this reason she would have thought it more appropriate to have one DDG for Cooperatives and one for SMMEs. She asked about who was on the Adjudication Committee, and why it had not met when it was supposed to.

The Chairperson asked if Sefa had made any linkages between inadequate support given to SMMEs and cooperatives, and their inability to repay their loans. She suggested that lack of support meant lack of effectiveness and adequate business and technical support and post-investment monitoring would all be vital.

Mr Thulani Makhuvha, Chief Executive Officer, Sefa, stated that Sefa provides funding up to a maximum of R5 million, whereas other funders tended to concentrate on funding at a larger scale. He conceded that the level of support to SMMEs is a bit low, and the numbers should be higher, particularly for support given to SMMEs. A significant and long-standing partner  - the Small Enterprise Foundation, based in Tzaneen – provided funding to the informal sector on Sefa’s behalf. At the end of March 2016 it had  repaid the loan facility of R30 million. It had recently asked for a revolving credit facility and the only draw on the facility, could be seen in see in Q3 and Q4.

In regard to the collection rate, Mr Makhuvha said that of the collection rate overall, 43% is on the active book, but 3% is significantly low. Sefa and the DSBS had put in place quite a number of interventions, including restructuring the loans, but cash flows of clients may not be allow them to pay up the higher instalments, for a number of reasons. Some of the clients have rendered services and were not able to pay back, so the restructuring means that if the client asks for R100 000 and we are able to see that they cannot pay back the loan, we plan on negotiating with the to at least pay back R50 000 in order to increase Sefa’s collection rate.

He said that some of the properties are very old. Sefa was hoping to receive support from Gauteng government to refurbish most of the properties, which will help, because the maintenance costs are higher than the rental income. With regard to the Retail Parks, most of the rental negotiated over the years with the bigger tenants had been much lower than the cost of the maintenance needed and Sefa is busy negotiating for better rental income. Negotiations were taking place around sale of properties since the Board of Directors had agreed to acquire the properties, and Sefa will provide for vendor funding for the acquisition. Amicable arrangements with the tenants have been reached, that they need to pay for services in the properties they have been occupying because they had not been paying rent for a number of years.

The Chairperson asked whether it would be in the interest of Sefa to fund the establishment of secondary cooperatives (specifically CIS-type cooperatives) with a view to gradually moving away from making use of the intermediaries, which are not cooperatives themselves, who charge higher interest rates when providing loans to cooperatives.

Mr Chance asked if Sefa has looked into providing funding for the 12 Cooperatives pilot project in KwaZulu-Natal.

Mr Makhuvha said there are a number of value chain activities that have been identified in Dr Kenneth Kaunda Municipality around recycling area. It had funded the acquisition of a bailing plant by the secondary cooperative, for processing waste. Sefa partnered with the Municipality on this project. Waste disposal is situated closer to the plant, which makes it easier for production activities to take place, and achieves more sustainability. Value chains result from these activities for cooperatives, and Sefa would like the Committee to pay a visit to see that. In a chicken venture, Sefa spent R20 million to support black owned cooperatives to manage chicken ‘houses’. Each chicken house cost around R5 million and had 40 000 chickens.  Sefa sees both primary and secondary cooperatives as an opportunity to replicate some of these projects in other places in the country. It believed that if cooperatives can be structured well, then they will be most likely be sustainable. Sefa had also been involved in the Kohwa project but it had not yet participated from a funding point of view.

Ms Mandisa Tshikwatamba, Chief Executive Officer, Seda, spoke to the township programmes. Seda had done a study which provided direction on which programmes would receive attention. Seda is working now in Polokwane, Uitenhage and other townships across the country, to test the feasibility of the programmes and whether they will be lucrative. Speaking to the vacancy rate, she said that it was mostly the business advisers and specialists who were leaving the organisation, and this was as a scarce skill area. Even if there are graduates, they are not ready to provide the sort of services that Seda needs. However, Seda has set up an in-house training programme and has partnered with various organisation such GIZ and National Skills Fund to train practitioners and putting them with groups of entrepreneurs, so that they can all benefit concurrently. Seda is rolling out the BSD programme across the country.

Mr Lindokuhle Mkhumane, Chief Director, DSBD, asserted that in regard to the informal sector training, the DSBD could only train about 1 500 people.

Mr Kruger displeased abruptly interrupted to say that the DSBD cannot come to the Committee and present incorrect information; this was the second time that a speaker from the DSBD confirmed that the information presented was incorrect. He said the DSBD needs to ensure that information is 100% correct, because it is a crime to mislead Parliament.

Mr Mkhumane apologised and stated that the reason was that there had been challenges with the retail Sector Education and Training Authority (SETA), which had not achieved the services needed for the training. Informal traders had a problem with the fact that training was taking place during working hours. There were also transport issues so that they were not taken to the venues, and communication challenges.

The Chairperson asked why these problems had not been foreseen and worked around.

Mr Mkhumane said this year the DSBD had to do everything all by itself and so capacity was a big issue, because the Retail SETA did not partner with it. Also, the numbers were higher and the responsibility was greater.

The Chairperson asked if this programme had been the one run by the Department of Trade and Industry (dti) for the previous two years.

Mr Mkhumane responded that the informal sector training is a new programme, which started in 2013.

The Chairperson said if the DSBD does not learn the skills from other organisations with whom it had partnered, it would continue to be dependent on others. If it cannot even learn how to train others successfully, then there is a serious problem.

Mr Kruger said that there was money spent, even though there was a capacity problem.

Mr Meshoe asked whether the DSBD did not consult the participants who were going to be part of the training, to find out the appropriate times to conduct that training.

The Chairperson added that any planning seemed to be based on perceived needs rather than actually consulting people.

Prof Vries said that in the initial report, the branch had pointed out difficulties with transport and with people getting to the venue in time. The root cause of the problem had to be known, in order to take corrective DSBD takes responsibility for poor performance, and it would now work towards correcting it rather than blaming the external forces. That was why it had referred to “poor planning” but it would be corrected.

Mr Chance asked why the relationship between the DSBD and the Retail SETA had run into difficulties.

Prof Vries said this was a complex point but in short, there were administrative issues, such as problems with Acting positions in the SETA without continuity and poor communications with the Board and top management. DSBD then decided to move the project back and run it itself, because essentially it is providing the funding.

The Chairperson said that the DSBD needs to get itself in order.

Prof Vries said that people who were charged with the programme did not have adequate experience. Now, capacity was to be increased, and more money has been allocated to ensure that better capacity and administration is in shape. This will ensure better oversight.

The Chairperson said that DSBD was actually charged with implementation and development of SMMEs and cooperatives. That was not an oversight function – the DSBD was responsible for  planning and implementing correctly. The branch that is responsible for that training needs to get its house in order. It was the Committee who provided the oversight, and she hoped that this would be the last time the Committee would hear that DSBD was not able to achieve a target because of poor planning.

Mr Mkhumane spoke to the Gazelles project. DSBD allocated R40 million in the current financial year and so far it received 23 applications to access the funding, 14 were presented to the adjudication committee and had been approved. Some of the former gazelle recipients had not applied; they might be waiting to see how  DSBD will handle the first batch. The DSBD had to provide some workshops to educate people on the Gazelles programme.


The Adjudication Committee included external members from Industrial Development Corporation, and BDSA, which is assisting with the infrastructure programmes, and the external members posed a bit of a logistical challenge. DSBD had now asked that if the external members were not present, alternates could represent them to mitigate the problem of not meeting the quorum. DSBD has also made it compulsory for the internal staff to attend the meetings as part of their annual performance duties and agreements.

The Chairperson asked whether this comment meant that sometimes the internal staff were not available to attend the meeting.

Mr Mkhumane said this had happened in the past.

The Chairperson asked how that was handled.

Mr Mkhumane said that letters were written to those staff although at the time this was not part of their performance agreements.

The Chairperson thought it unacceptable that no consequences followed.

Mr Mkhumane said the internal people came from different units, and their excuse had been that they were trying to reach their own APP targets.

The Chairperson said that the adjudication committee is vitally important, because it is responsible for the disbursement of money to the people for whom the Department was responsible. This should be a priority tasks. Failure of that committee to meet meant that the people who were supposed to get funding would not, and they would thus remain poor. That showed how important this committee was, and why it must meet. The Committee did not think that this should be simply regarded as a failure to meet targets, and those not attending must get warning letters or punitive action. They were actually preventing sustainable SMMEs and cooperatives.

Ms Bridget Petersen, Head: Corporate Services, DSBD, answered questions on the vacancy rate, saying that there were two funded DDG posts in the start up structure and interim structure. At the moment, there were two acting appointees in those positions.  The structure needs to be finalised for those posts to be filled permanently, and in that regard, the DSBD was engaging with DPSA. This was a long-winded and piecemeal exercise, with a motivation required for every post, and the DDG posts were the first ones under consideration, others flowing on from those. As at 30 September the vacancy rate was 17.2%, there were 179 filled posts and 39 vacant posts. The DSBD is moving in the right direction because to date the vacancy rate was 9.5%, filled posts were 181 and vacant posts were 19. The DDG posts referred to were now funded.
Prof Vries reiterated that the new structure had not yet been finalised and approved. The programme review would help decide the structure. There had been delays and DSBD was anxious to get this completed.

Mr Chance asked how the DDG posts would be allocated.

Prof Vries said that the structure had not been finalised yet, but so far one DDG would handle two programmes.

The Chairperson asked the DSBD to prioritise appointing the DDG who would deal with the  core business of the Department. The Committee had already explained why this was important.

Prof Vries said that was why the DSBD was waiting on the approval of the DPSA for the structure and it, but it seemed this would take longer. In the new structure, the DSBD is working on revising the description. However, it would be a waste of resources to appoint people before the structure had been approved.

Prof Vries apologised for the typographic errors on slide 59 and confirmed the correct figure was in slide 39 The DSBD was not surprised with the Request for Proposal. Slide 30 has an indicator to review the integrated strategy on entrepreneurship and enterprise development. The DSBD introduced the Policy and Research branch less than a year ago, so that it was not possible by now to have econometric models, although the DSBD is moving towards that. In the APP this was reflected as one of the deliverables.

She confirmed that she herself had prepared the risk management report, had asked why certain things did not happen and accepted her responsibility to produce corrective action. The first meeting was organised on 29 August, when she could not attend due to a family tragedy. RMC meetings are scheduled for the whole year, and colleagues do not have any excuse. There is a risk immaturity in the DSBD, although it has been emphasised that risk is very important. DSBD has benefited from the internal audit report and it provided some clear direction on what needs to happen moving forward.

The Chairperson asked if Prof Vries had the sense that there was a culture of moving slowly and not meeting deadlines, from subordinate staff. The Committee had previously had to meet specially, to deal with particular issues not finalised due to the slow pace.

Mr Capa said it was not enough to know where there was a problem. The Department must be seen to take corrective action and the Committee must be convinced that the bad situation is going to change.

Prof Vries said she could provide a presentation on corrective action. DSBD had identified the root causes and set up corrective action measures. In the past she conceded that the Department had not shown a healthy respect for deadlines or come unprepared before the Committee. Now, however, the Department was moving in the right direction and had improved on this. Some staff certainly did perform and deliver to deadlines on time. The Department does take disciplinary action against officials who do not perform, and warning letters have been issued.

The DSBD was obviously aspiring to reach 100% performance, but unfortunately she could not be certain on when this might happen because some of the things are not within the control of the Department  and may affect its performance. The main reason for under-achievement was linked to under-expenditure, vacancy rate, and invoices that were still outstanding, so that the DSBD would not achieve everything it planned by the end of the year.

Mr Chance said that the DSBD needs to alter the way in which the information is presented. Currently it is presenting yearly, but should be presented quarterly.

Prof Vries noted that the transversal agreements signed were on slide 38. Some were still at the stage of implementation plans. Although the culture in government was to get things signed, and then step back, the DSBD was aiming to ensure that the agreements actually would result in the intended impact and jobs. With regard to the KwaZulu-Natal 12 Cooperatives, the DSBD has openly admitted that there were a lot of loopholes in administration of the 12 cooperatives.

iCAT Environmental Solutions: Cooperative Model for municipal roads

The Chairperson explained that she had wanted the DSBD to sit in on the briefing by iCAT, in order to establish connections between projects and link the Cooperatives Project to service delivery on the ground. This was where the transversal agreements were important; the DSBD could look at the interests of other departments and decide how they might be brought on board. Cooperatives have raised infrastructure as one of their main challenges in making their businesses sustainable. Kohwa said that dust raised from rural roads in rural areas was a major problem that affected the grading of its products and then the consumption of them. She thought that the DSBD project could get involved in ensuring proper infrastructure was developed.

Mr James Van Reenen, Chief Executive Officer,  iCAT, highlighted that I-CAT has developed a model for the development and the projects will have a positive impact on health and safety as well as infrastructure development. I-CAT proposed a cooperatives model where people from the rural community will take responsibility for maintaining 40 km of gravel roads. This will greatly improve living conditions of the people in these communities, while advancing the asset bases of the municipalities where such project are deployed.

I-CAT envisaged setting up a number of sustainable cooperatives in a rural community, for the maintenance of road infrastructure. These will have strong structure and the skills needed to deliver good quality work to the benefit of the entire community. A standard cooperative will consist of 6 members. I-CAT will commit to a system of skills transfer to the members of every cooperative that is established. These skills will be developed during the establishment phase of the first part of the roads that will be maintained by the cooperatives. At least one member will need to have a valid South African drivers license, Code 8 EB. The subsequent “on-the-job-training” or skills transfer will then take place. Each cooperative will be capable of servicing 40 km of GreenBit constructed road each month. Cleaning and maintenance of roadsides can be added to the scope.

He explained that construction of 1km of GreenBit road takes three days. The time needed to construct 10 km of GreenBit road is around 6 weeks. One cooperatives unit can service 40 km monthly .

The social impact of the “per cooperative” will result in  one cooperative creating six new jobs. That would impact on six families. The monthly salaries for the cooperative would be R26 000.

iCAT believed that this would be a viable project, and the perfect opportunity to develop new small business owners from the community. The viability calculations are based on a minimum of product per month at a set price to ensure at least break-even figures for the cooperative, while earning a liveable income. The profitability of the venture will become increasingly higher based on the volume of product used.


Mr Chance asked what experience  iCAT had on the formation and management of the cooperatives. He took issue with slide 8, saying that what was reflected in the presentation is in contradiction to what the Committee believes the cooperatives are aimed at – namely community development and a socialist mandate. He asked why this project felt that cooperatives were the ideal delivery mechanism. He hopes that iCAT is not coming to the Committee to try to persuade the Committee that it is pushing for a radical development for cooperatives, or sees this as an opportunity to make money.

Mr Chance pointed out that every kilometre of road surfaced costs about R154 800 in product and iCAT suggested 480 km of roads, which meant a cost of R73 920 000. This meant that the cost of job creation would be around R1 million per job. He commented that for SMMEs, the cost of job was very important and he wondered if this was a lucrative business model for government, and whether this was a proposal about community development, or more about making profits for iCAT.

Mr Manas Mabitsela, Project Manager at iCAT, advised that iCAT had come up with this idea based on its observation of practicalities in municipalities. He cited the situation in the Dr JS Moroka Municipality, which has 207 unpaved roads, and where it would take the municipality two years to re-gravel one road, and then would return to the same road again with the IDP budget. iCAT noted that there were youth and other unemployed members of the community, and if they could be assisted to form cooperatives and actually do the road works, iCAT will provide its services to teach them, so that they would acquire skills and the municipality would get its roads, which, thanks to iCAT technology, would also be of high quality.

Mr van Reenen stated that the cost of jobs created model is workable in a manufacturing environment that was looking to returns on investment. However, this was a different model focusing on skills development. The wealth being created was for the community and government at large.

Mr Mncwabe commented that the product presented will address the issues around gravel roads and employment, and touched on issues that the Committee had observed when doing oversight in Limpopo. He asked who would cover the cost of training and who would identify the cooperatives.

Mr Mabitsela said that iCAT’s abilities are technical, and it would capacitate people with skills. Seda and other structures would be better placed to come in and assist in other important areas such as the formation of the cooperatives, business skills and management and that was why it needed assistance in those areas.

Mr Chance asked if iCAT knew what the roads budget for the Dr JS Moroka Municipality is.

Mr Mabitsela replied that it is about R15 million.

Mr Chance pointed out that then iCAT would expect it to spend five times that, and this had to be related to the resources available.

Mr Van Reenen said that Mr Chance’s calculations may be incorrect, pointing out that the long term savings to the Municipality may be greater.

Mr Chance then asked why iCAT came to Parliament instead of approaching the municipalities directly. The proposal seemed to be convincingly made and to have cost benefits. Each municipality has its own budget and procurement processes.

Mr Van Reenen said that iCAT needed the buy in from government. 

Mr Kruger said this would bolster rural development, which is essential for the infrastructure to change in order to uplift communities. In addition, this project will help create jobs in those areas, which is also very essential for community development.

Mr Mulaudzi said this seemed a profitable project, but sustainability and thus the transfer of skills would be crucial. Cooperatives could be established but they must be in a position to sustain themselves in about 20 years time

Mr Mthembu asked how the salaries of the members of the cooperatives will be paid, and by whom – the Municipality, out of the IDP budget, or iCAT.

Mr Kruger said the Committee can drive the process as well as the DSBD, so all the other difficulties must be sorted out by other relevant stakeholders. The municipality could be assisted by Department of Cooperative Governance, and Sefa could assist in the finances, and it would be ideal if several government institutions can work together to achieve this.

The Chairperson said that this is not the first time a company has presented to the Committee in the presence of the DSBD. It was a positive move that more businesses are in the process of aligning themselves with government policies. iCAT was seeking to give opportunities to cooperatives instead of telling the municipality that it could do the work itself, and both the Committee and DSBD should see it as a valuable partner in developing communities. She thanked Mr Kruger for highlighting this project and the delegation for presenting.

The meeting was adjourned.


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