Committee Report on Department of Small Business Development Budget; Red Tape Impact Assessment Bill: consideration

Meeting report

Department of Small Business Development Budget Vote: Committee Report

The Chairperson inquired whether the Members had read the Committee report and allocated them an hour to personally read through it.

Ms T Mahambehlala (ANC) proposed that the Committee proceeds with the meeting.

Mr T Khoza (ANC) seconded the motion

Ms T Mahambehlala (ANC) said that the report was quite old, but the Department needed to move quickly in response to the identified problems and address the challenges that were critical towards achieving its mandate. The Department needed come up with new creative and innovative ways to source funds for the programmes listed in the budget.

Mr R Chance (DA) commented that the report was generally balanced and accurate. However, on the details of paragraph 3.2 of the Report, the number of businesses supported per year had been reduced. He was concerned that there appeared to be a duplication of duties in the Department of Small Business Development’s (DSBD’s) Enterprise Incubation programme and the Department of Trade and Industry’s (DTI’s) Incubation Support Programme. Regarding the high-impact programmes mentioned in the report, he said that the Committee could not tell which programmes qualified as ‘high-impact,’ as there was no existing measure of impact, which the Department had already admitted. Some of the programmes’ impacts could not be evaluated until they had run their course. This would, in effect, leave the Committee not knowing of the programmes’ performance until after their projected conclusion. The Committee, in its findings and recommendations, should emphasise the need for measurement of impact of these programmes according to international accepted metrics.

Mr X Mabasa (ANC) inquired whether the Committee could give comments on the typographical errors in the report.

The Chairperson advised that the Committee should focus on the substantive content of the report and then later they could consider the form of the report.

Mr N Capa (ANC) agreed with the positive sentiments attributed to the quality of the report, but said that, on the recommendations of the report, the Department should be leading on the issues of the cooperatives. However, this was not prominently clear in the report. He asked for clarification regarding this.

The Chairperson said that the report needed to highlight that the high rate of failure of cooperatives, currently estimated at 88%, did not match the amount of resources spent by the various departments on cooperatives. As much as there was duplication of efforts by each of the departments, there were a lot of resources being dedicated to cooperatives in the absence of a national strategy. If there was a master plan, each Department would know their individual roles in the process of developing cooperatives and there would not be duplication.

Even though various departments would claim that they were supporting cooperatives, there was no significant progress and results to show for it. In the APPs, there was no mention of the creation of critical agencies required for the development of cooperatives. The Cooperative Development Agency, the Cooperatives Academy and the review of the Cooperative Development Bank would enable it to not only focus on regulation, but also on the development of cooperative banks in the country. It was therefore an observation that these critical elements did not appear in the report, and there was also no strategic master plan, resulting in a lot of duplication and too many resources spent on cooperative development with very poor results of progress -- standing only at a 12% success rate.

Mr Capa said that the 88% failure rate was not specifically the DSBD’s failure rate, but it was the failure rate of all departments handling the issues of cooperatives. The DSBD should therefore study the cause of these failures and follow up on the way forward.

Mr Chance agreed that without the Cooperative Development Agency, the Cooperatives Academy and the Cooperative Development Bank, it was not surprising that the failure rate was so high. The Department needed to engage with Treasury to do a cost-benefit analysis and see how much it would cost to set up these institutions, and by how much would it impact on the failure rate.

The Chairperson said that the Department had been formed with the expectation that it would address all the challenges identified in the development and sustainability of cooperatives. A report by the DTI had indicated that there was an 88% failure rate. This report had been drafted before the DSBD had been formed. It would therefore be an incorrect perception to conclude that the failure rate was caused by the DSBD. It was the Department’s responsibility to correct the failure rate. The Department had been formed to address the issue and reverse the high failure rate. However, the Department needed to be cautious when inheriting the projects initiated from the DTI, and employing the methods used by the other departments which had led to the 88% failure rate. The DSBD should find new interventions that would reverse the previous results and not repeat the same mistakes.

Mr Capa asked whether there were issues the Department could forward to the Committee so that the Committee could supplement their efforts and take them up with Treasury.

The Chairperson said, regarding the Integrated Development Plan, that the Committee had noticed a commendable shift in the thinking of the Department in its interaction with local government, to understand the value of the Intergovernmental Relations Framework Act No 13 of 2005. However, she observed that there was a misalignment in the strategic plan of the Department with the local government development plan. The strategic plan of the Department was supposed to have been adopted in 2015. There should have been interaction with the municipalities to sensitise them to the details of the Department’s plan.

She recommended that the Department should take into consideration the municipalities when developing their integrated development plans, so as to ensure effective implementation of the proposed programmes.

Amendments to the report

Mr Mabasa proposed some grammatical corrections in paragraph 1.2, paragraph 2.1, paragraph 3.1, paragraph 4.1, paragraph 4.3.2, paragraph 4.3.1, paragraph 4.4 and paragraph 5 of the report.

The Chairperson proposed grammatical corrections in paragraph 10.7 to facilitate the better reading of the paragraph.

Mr Mabasa inquired whether the Committee could suggest to the Department to add on the proposed departmental value attributes that suggested sensitivity to the public’s needs.

Mr H Kruger (DA) said that he did not think the Committee could change the values proposed in the strategic plan.

The Chairperson proposed that since such values had been adopted by other departments, the Committee could make it as a recommendation that the Department incorporate them as well.

Mr Sibusiso Gumede, Content Advisor, said that he still needed to do a quality check on the report, as he had concentrated on capturing only the substantive issues at the time of drafting the report.

The Chairperson asked whether the Committee would be able to adopt the report today, or if it would have to adopt it next week, considering that the report would be debated upon on 18 May 2017.

Mr Capa suggested that the Committee could still adopt the report the following week on 17 May and debate on it the following day, 18 May.

Mr Mabasa was of the opinion that the amendments made to the report were well captured and proposed that the report be adopted at the meeting, together with the amendments made, and circulated to the Members.

Mr S Mncwabe (NFP) agreed that the report was up to an acceptable standard and proposed that the report be adopted today. Any further delay would be unnecessary.

The Chairperson inquired if there was a mover for the motion to adopt the report.

Ms Mahambehlala moved that the report be adopted.

Mr T Mulaudzi (EFF) seconded the motion.

The Chairperson inquired if there was an opposing view.

Mr Chance said that the DA reserved its rights on the report.

The Chairperson clarified that what was being adopted was the report, as presented to the Committee, and not the budget vote. Therefore, any other issues regarding the different parties’ view of the performance would be another issue.

Mr Chance said that, in light of the clarification, the DA would be supporting the adoption of the report.

The Chairperson declared the report adopted, with amendments.

The Rev K Meshoe (ACDP) inquired when the Mpumalanga report would be ready and when it could be discussed by the Committee.

The Chairperson clarified that the Mpumalanga report would be discussed on 7 June, according to the adopted programme of the Committee.

Red Tape Impact Assessment Bill: Second Consideration

The Chairperson said that at the last meeting, the Committee had been looking at what had been submitted, and had asked the legal team and the content advisor to work together to assess the recommendations. The Committee could now discuss their views on whether the Bill addressed the issues of red tape.

Mr Gumede said that at the meeting on 23 April, there had been three critical resolutions that the Committee had decided on. One was to review all the public submissions received by the secretariat, and to try to synthesize them into a singular document, and thereafter to develop a brief note which would form a baseline for discussion by Members. There had also been a decision to engage the National Treasury, since even though there were financial implications, these had not been as detailed as required. There had been ongoing efforts to consolidate the six reports received from SASOL, the Business Unity South Africa (BUSA), the Chemical and Allied Industry Association (CAIA), the Johannesburg Stock Exchange, the Department of Economic Development in the Western Cape and the South African Development Foundation. Despite the difficulty in compiling these submissions, Committee members who were yet to go through them may find it convenient, since they highlight the issues raised by each respondent. More inputs from Treasury on the financial breakdown were needed.

Due to the diverse understanding of each institution expressed in the submissions, a discussion document had been prepared for the convenience of the Committee Members, which summarised the issues raised. The discussion document had been tailored to inform the Members on whether they would like to go on with the Bill, reject it or amend it further.

Mr Kruger said that red tape for big business was a non-issue, since they could afford it. They accepted the existing red tape in government, as it created an unfair advantage over small businesses. He implored the Committee to consider the tabled submissions with some degree of caution, since big businesses may not be reliable in the fight against red tape.

Mr Gumede said that on compiling the discussion document for the Committee, he had concentrated only on the issues raised and not necessarily on the various interests of the drafters. The discussion document had been drafted in order to inform the Committee.

The discussion document took an analytical view by contracting the Department’s mandate and the scope of the bill. Regarding the mandate, even though the Committee Members may agree with the bill in principle, they may decide that its placement would be better off in another department, such as the Economic Development Department or the Department of Trade and Industry.

The Members may need to debate whether there was a duplication of duties in the Bill. On the separation of powers, there may be a view that, upon introduction of the Bill, it should go through the Screening Identification Assessment & Support (SIAS) process of the executive. This may cloud the concept of the separation of powers. He therefore invited the Members to consider it as an issue of interest.

On the financial implications, the Parliamentary rules required that the sponsor of the Bill supply the specific financial implications of the Bill for the provinces, local government or the department. The National Treasury had been engaged to provide a financial assessment report, but it had advised that it was the sponsor of the bill’s responsibility to conduct the financial implication assessments.

Ms Charmaine van der Merwe, Senior Legal Advisor, said that in the public submissions, the JSE and SASOL had expressed concerns on the inclusion of self-regulatory bodies in the bill, and that they may have an adverse impact, cause an administrative burden on them, or create conflict of their laws, among others. However, these comments did not affect the Committee’s way forward on deciding on the desirability of the Bill. The comments expressed in the submissions would be of relevance only if it found the Bill desirable.

On the scope and placement of the Bill, BUSA, the CAIA and the Department of Economic Development in the Western Cape had raised concerns and inquired whether the bill’s scope exceeded the DSBD’s mandate and therefore should be placed elsewhere or if its scope could be limited so as to accommodate it in the DSBD’s mandate.

On the social economic impact assessment and the red tape impact assessment, it had been suggested that the SIAS process be incorporated into the bill. This in turn broadens the scope of the bill. Regarding the potential duplication, the social economic impact assessment was a different test, aside from red tape.

On the issue of cost, under the new Parliamentary Rules, Rule 279 (1)(c)(iii) did not require specific financial analysis. The Committee would have the authority to call on Treasury to perform the financial impact assessment.

In respect of the classification of the bill, it had been classified as a section 75. It dealt with the legislative process, so it could not be classified as a section 76. However, this classification would not affect the Committee’s voting. There would have to be consultation in the Committee and in Parliament with the provinces.

On the separation of powers, it did not mean there could not be cooperation. There may be some form of SIAS process in Parliament for Committee bills and private Members’ bills. Parliament would then have to decide if it would establish a unit in parliament or ask the DPME to use the expertise that they had. This would only help the decision makers arrive at an informed decision. The rationale of having a Committee bill or private Member’s bill scrutinised by a department was in order to save on costs and utilise the available expert resources already at their disposal.

Discussions

Mr Kruger said that big business stood to benefit, regardless of whatever the Red Tape Bill would address. The DSBD had identified finance, skills, markets and red tape as challenges for small businesses and cooperatives. The first three issues had been resolved, leaving the Committee with just the red tape issue. Therefore, the DSBD was the right department to tackle the issue of red tape.

It was very difficult to understand and reduce red tape, but if the Committee could ensure that it made an impact on small businesses, it would have made an impact on the DSBD’s right to existence. Red tape cost small businesses billions of rands, just in operations. The DSBD was a consolidation of all small businesses’ experts, and therefore it was the most qualified to tackle the issue of red tape due to its significance to small businesses.

Mr Mncwabe sought clarification about when consultations should be done with the provinces -- whether they should be done before the bill was adopted, or after. The Committee operated at the national level, yet there were similar entities at the provincial and municipal level doing the same thing.

Ms Van der Merwe that at this time, the way forward for the Committee was to make a decision on the desirability of the bill. In the event that it considered it undesirable, the Committee should draft a report to be tabled to Parliament, whereby Parliament would decide on whether it agreed with the Committee’s finding or referred it back to the Committee. If it was found desirable, the provincial departments would be asked to provide their inputs to the Committee.

Mr Kruger inquired, if the Committee found the bill desirable, there would be a process to address the concerns of the Committee concerning the bill before it was sent out to the provinces for comments.

Ms Van der Merwe said if the bill was found desirable, the Committee would have discretion on how to deliberate and fine tune it and make it better.

Mr T Khoza (ANC) asked whether the Western Cape had been the only province to make a submission, or if the same opportunity had been extended to the other provinces.

Mr Kruger responded that the Bill had been published in the Gazette, and therefore everybody in SA had had access to it. It had also been sent to all the provinces.

Mr Mulaudzi commented on the financial implications, saying that unless additional allocations were approved, the formation of the supporting units for the bill could not be financed under the current budget. On the consultation with the provinces, he inquired whether the provinces were to be invited formally to comment on the bill, or whether they were to infer the invitation to comment from the gazetting of the Bill.

On the Chapter Four of the Small Business Act, he was of the opinion that there had not been enough consultation in checking whether there was any potential duplication. He also inquired how the Parliamentary SIAS would be conducted.

Mr Mncwabe commented on the placement of the bill, saying that if the bill was within one unit such as the DSBD, it would be limiting the bill’s scope. This was because the issues brought about by red tape were broad and cut across all levels of industry. He proposed that the DPME be called upon to provide advice on the way forward.

Mr Chance was of the opinion that the Bill fell within the scope of the mandate of the Department. He suggested that the Committee may declare the bill desirable in principle, or desirable subject to evaluation through SIAS, or that more guidance was needed on potential amendments, or the bill would be better placed in another department, or it should be incorporated as part of the National Small Business Act, or reject the bill. However, rejecting the bill may send out a message that the Committee did not think the elimination of red tape was a worthy pursuit for the country. He moved for a motion to declare the bill desirable and require further guidance on the bill through a SIAS process and through Treasury on how to make the bill better.

Mr Mabasa proposed that the Committee should isolate one option aside from the others. It should consider all the options presented as a package and not go for one option before considering the other options.

Mr Khoza said the sponsor of the bill had highlighted that the issue of the red tape was a complex and broad matter. He was of the opinion that the bill could not be placed in the DSBD, since the Department would not be capable of overseeing all of its issues. There was therefore a need to take the DPME on board to assist the Committee in reaching the same understanding of the underlying issues. The bill was not adequately accommodated in the existing budget, as the bill looked at issues that were beyond the mandate and capacity of the DSBD. Red tape happened at all levels of government and therefore before the Committee debated on its desirability, it should include all the other structures.

Mr Kruger said that in the Committee’s strategic plan, it had decided to eradicate red tape.

Mr Capa was of the opinion that in the light of the facts presented before the Committee, the elimination or reduction of red tape could not be a responsibility limited to a single department. However, the eradication of red tape remained an important objective. The Committee needed to come to a decision on the bill. The arguments presented that the Bill was desirable in the Committee and in the Department, were not convincing enough.

Mr Mabasa said that the more the Committee discussed the bill, the more it was clear that it did not qualify to be located in the Department. In the event the bill was tailored to be absorbed into the DSBD, then other departments may as well have theirs. This would inevitably lead to a duplication of expenditure. However, the substantive issues addressed by bill had merit.

The Chairperson informed the Committee that, in light of the comments presented, there were two motions tabled for the committee’s consideration, The first motion from Mr Chance, and the second from Mr Capa.

Mr Capa said that while the concept of the eradication of red tape remained desirable, the placement of the bill in the Department was what remained an issue. The target remained the eradication of red tape and not necessarily the making of the bill.

Ms Mahambehlala agreed with the sentiments expressed by the other Committee Members, and added that the Committee should look at the existing obstacles in the Department that caused red tape and begin with the eradication of those obstacles.

The Chairperson agreed with the comments expressed by the Members and said that the issues of red tape extended beyond the mandate of the DSBD. Therefore, the DSBD could not be left with the sole responsibility for oversight on the impact assessment of the bill. The DPME was the relevant department that was charged with the mandate of evaluating the impact assessment of such legislation.

Mr Capa asked what happened in the event the bill was rejected.

Ms Van der Merwe said the rules provided only for a report to be forwarded to Parliament. In the event, that the Committee saw the need to refer the Bill to another better-placed committee, this issue would have to researched further on the procedure to achieve it.

Mr Chance said that there were now three motions for the Committee to consider. There was nothing wrong in having the three motions -- the only issue was where the Committee would like to take the bill.

Mr Gumede proposed that the Committee should refrain from the use of the word ‘reject’ and use the word ‘undesirable,’ as it would give the content and legal advisor room to manoeuvre regarding the next home for the bill.

The Chairperson said that the Committee had not been given any evidence in support of the significance of the red tape in order to assess its broadness. Therefore, at this time, there was a need to relook at where the bill should be placed.

Mr Capa said that there were only two motions before the Committee -- on the whether the bill was desirable or whether it was not.

The Chairperson asked the Committee to vote on the two motions. She clarified that the undesirability of the bill relates only to the capacity of the Committee to look at the bill any further. The issue on the placement of the bill would be an issue that would be assessed by Parliament.

Mr Chance and Mr H Kruger voted in favour of the bill being desirable. Mr Mncwabe abstained. The other seven Members, including the Chairperson, voted in favour of the undesirability of the bill.

The Bill was found undesirable.

The Chairperson said that a report to that effect would be drafted to be tabled in Parliament for debate.

The meeting was adjourned.