Committee Report on Mpumalanga Oversight

Small Business Development

17 May 2017
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Committee commended the drafting of the report by the Content Advisor in terms of its details. The report called upon the Director-General to report to the Committee by the end of May on the status of the cooperatives and that this was imperative since the Director-General had declined to provide the required information for over two months.

There was consensus among Members that there was a glaring difference between the work done by the cooperatives and the money disbursed as it did not align with the projected results. There was a need for an expedited investigation into the Co-operative Incentive Scheme model. The Department could not continue throwing money at the cooperatives. Allowing further funding under the ‘broken’ system was condoning its dysfunctionality. There should be a feasibility study of the cooperatives to diagnose the situation instead of just processing applications. An addition to the recommendations should be added to encapsulate the need for review of the funding model for cooperatives to align support services, access to adequate finance, infrastructure, market, technical and business management skills and red tape reduction which were agreed by the Committee.

The report was adopted with amendments.

Meeting report

Committee Report on the oversight visit to Mpumalanga Province from 27 - 31 March 2017

The Chairperson tabled the Mpumalanga oversight visit report for consideration and indicated that the Committee would go through it page by page and give input or commentary.

Mr R Chance (DA) started off by commending the Content Advisor, Mr Sibusiso Gumede, for an excellent job in drafting the report comprehensively. He was however curious about how and where the content advisor came across all the information reflected in the report as some of it was not availed to the Committee on sight during their visit.

Mr X Mabasa (ANC) said “Bakhuluma isiZulu” meant that some of the locals were speaking in Zulu and as such Mr Chance could have missed some of the information being relayed due to the language barrier.

Mr Gumede further added that when information was received from the cooperatives on the ground, the truthfulness or lack thereof was investigated. For instance, institutions such as the Companies and Intellectual Property Commission (CIPC) had readily and comprehensive information available on these cooperatives.

Mr Chance then pointed out that the report called upon the Director-General to report to the Committee by the end of May on the status of the cooperatives and that this was imperative since the Director-General had declined to provide the required information for over two months. The DA found it unacceptable that up to R120 million has been wasted since the Department has been established. There was a need to talk to the Auditor-General about this since both money and resources are not entirely accounted for. The Department has not has not achieved its objectives and the Committee should call for a fundamental review of the way the Co-operative Incentive Scheme (CIS) operated in as much as most of these businesses are run without regard for economies of scale and as such are not producing incomes for the members of the cooperative societies to attain the proposed minimum wage. The whole concept of the CIS needs to be completely rethought through. The lack of a cooperative development agency and bank and the lack of a full suite of tools and resources that are necessary to develop cooperative societies in this country was a recipe for failure. The Department and government must fulfill their respective mandates with funding the sector in order for it to succeed.

Mr S Mncwambe (NFP) also commended the Content Advisor and said there should be a change of dates on which the Director-General must report. He cautioned the Department from using letter heads with the Department of Trade and Industry (DTI) since there was the likelihood of people to believe that DTI was funding the initiatives. He was concerned and wished to visit all the remaining cooperative societies that had not been visited. There was a glaring difference between the work done by the cooperatives and the money disbursed as it did not align with the projected results.

Rev K Meshoe (ACDP) said there was a need for an inquiry into what is really transpiring in as much as there was prima facie evidence of corruption by some officials who wish to defeat the goals and objectives of the National Development Plan (NDP). Clarity was needed on what process the Small Enterprise Funding Agency (SEFA) took before funding cooperative societies. There should be an inquiry into why the Annual Report spoke about a partnership between SEFA and the nonexistent Super Grand Property (Pty) Ltd. It is worrying that there officials sabotaging progress and there was a need for serious intervention. Sending this matter back to the Director-General will not help because all these things are happening ‘under her nose’ and there should be a forensic investigation. There are cooperatives owing millions with no certainty how it will be recovered. Before granting the R3 million there should be an assessment of the cooperatives or its representative on their capacity to use such resources.

Mr N Capa (ANC) referred to page 4 on the objective of the visit and said it was important that the report stated whether or not the objective has been achieved.

Mr T Khoza (ANC) emphasised the fact that the money never reached the cooperatives themselves whereas they now owing nonetheless. The resistance of the Department in engaging the Committee prior to the visit raised some eyebrows. There was a lot not going the way they were supposed to be, for instance the structures erected by the cooperatives was not worth the money that had been granted to them. There was an undertaking between SEFA and Super Grand Property (Pty) Ltd that by the 31 March 2017 they shall have paid the outstanding amounts that was owed to the cooperative. Why did they not they honour their obligation? There was a need for an expedited investigation and five years might go by without even a single objective of the initiative being achieved

Mr S Bekwa (ANC) said the investigation proposed by the Members of the Committee was of utmost urgency. There are many officials in the Department who are fraudulent and should be investigated as soon as practical.

The Chairperson said the investigation should not be delegated to the Director-General. It was a continuation of the Committee’s oversight duty to investigate to finality the probable corruption of officers in the Department and some of the service providers. The Department should not investigate itself. If there was delay in taking investigative action, there was a likelihood that half a decade may pass by without action. Since the Committee was in possession of the DTI report of 2009 that indicated the failure rate of cooperatives, with proposals to rectify the causes of such failure. These corrective measures were never implemented. This perpetuated the problems and that even in the Program Review Process the report was not taken into consideration despite showing that in some areas the failure rate was as high as 97%. Instead of spending money on funding further new applications, that money should be re-directed to making the already funded cooperatives that are not viable, viable. There should be a moratorium on further funding of the cooperatives in the current form of the CIS and rather divert funds to the already funded but inoperable cooperatives to revitalise them.

Mr Chance however replied that the danger with such a proposal was that it assumed that the already funded cooperatives are themselves viable. Just throwing money at the cooperatives to force them to succeed was not ideal if its fundamentals are dysfunctional. Before funding such cooperatives, there should be an ‘Economic Viability Analysis’ of the cooperatives to ensure that their prospects of success are proper and thus worth investing money into. The Department should be ruthless in selection, pick the cooperatives that are likely to grow and forego the ones with low prospects. Maybe amalgamate and restructure the weak but promising ones that are in the same geographical proximity. All this can be achieved through a fundamental review of the CIS. The Department cannot continue throwing money at the cooperatives. The suspension of the CIS would send a wrong message but rather there should be a plan to make it work starting with an analysis of its strengths and weaknesses and what needed to be done to make it functional. The Committee did not have investigative capacity to investigate and there should be a neutral person to do so to remove any suspicion of collusion.

Mr Capa recommended that some officers should be suspended pending investigation. There are pertinent aspects of the investigation that may be sabotaged by an officer under investigation if such officer was in office. The proposed investigation should not only span to 2014 but beyond to discover any rot. He expressed reservations on the proposal of a moratorium on further funding of cooperatives and revitalising the already funded ones. There should be an expedient structure of proper funding different in style from the current one. There should be prudential analysis of cooperatives before disbursement. Good cooperatives properly using resources should not be punished at the expense of the reckless ones with a moratorium.

Mr Mncwambe supported the Chairperson’s proposal. The current system was not meeting the objectives.

The Chairperson posited that her proposal should be linked to Mr Chance’s proposal and there should be an expedition of the review of the whole process. Allowing further funding under the ‘broken’ system was condoning its dysfunctionality. There should be a feasibility study of the cooperatives to diagnose the situation instead of just processing applications. The whole funding approach and approval of application did not factor in consideration that there are other needs beyond the R350 000 which have to come from other departments such as bridges, roads, water use licenses. There should be interactions between departments and municipalities. There should not be further funding of the cooperatives under the current CIS mode of operation but rather after a review of the system. There is need to monitor all cooperatives funded and the DTI’s excuse of not having capacity should not prevail as there are other offices of government that can complement in support.

Mr Capa inquired on how soon the Committee can meet with the Department over the report and the Chairperson recommended that this should be very soon. Before the Department came for a meeting, the Committee should have adopted a new model under which the CIS should operate. The Department should furnish the Committee with technical support and incubator program information including the criteria for funding an incubator and a company that provided technical support to cooperatives. That information should also include the impact assessment and an evaluation tool or mechanism used by the Department to assess the effectiveness.

In conclusion, the Chairperson proposed that as recommendation 22.2.11 should be an addition to recommendations to encapsulate the need for review of the funding model for cooperatives to align support services, access to adequate finance, infrastructure, market, technical and business management skills and red tape reduction which were agreed by the Committee.

Mr Mncwambe moved to adopt the report. This was seconded by Mr Khoza and the report was then adopted with amendments.

Adoption of Minutes

Meetings dated 8 March, 23 March and 2 May was adopted. Minutes dated 22 March, 3 May and 10 May was adopted with amendments.

The meeting was adjourned.

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