Department of Small Business Development Quarter 4 performance: hearing, with Minister

Standing Committee on Appropriations

01 September 2017
Chairperson: Ms Y Phosa (ANC)
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Meeting Summary

The Department of Small Business Development (DSBD) briefed the Committee on its fourth quarter performance for 2016/17. The delegation was led by the Minister, whose introductory remarks provided a broad political outline of the Department, and highlights of its achievements and the challenges it faced.

The Director General’s report on the fourth quarter financial performance focused on the reasons for variations, progress in responding to the Auditor General’s findings, reports on the Cooperative Incentive Scheme (CIS) and the Black Business Supplier Development Programme (BBSDP), and updates on the DSBD’s entities – the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA). SEDA lobbied for more financial support for the entity in order to meet its mandates. SEFA described the mechanisms it was using to fund entrepreneurs, but indicated that impairments were a major threat to its sustainability.

The Committee engaged the DSBD in robust discussion, demanding explanations for why it had engaged in fiscal indiscipline resulting in over and under-expenditure in both 2015/16 and 2016/17. Why had the report presented only the numbers of people that had been assisted, but had not referred to the developmental status, as seen during the oversight visit of the Committee on Small Business Development? Why had it transferred funds meant for the National Informal Business Upliftment Scheme (NIBUS) to the National Gazelles programme?

The Committee acknowledged that the DSBD was a ‘baby department’ which needed baby-sitting, but advised the DSBD to work on the recommendations of its internal auditors, the Auditor-General and the Committee to ensure improvements were recorded before the end of October 2017. It asked the DSBD to come up with proposals for funds set aside for the development of women and youth empowerment. It supported SEDA’s appeal for financial support, pointing out that while big corporations were major contributors to the country’s gross domestic product, small businesses were actually bigger contributors to job creation and payment of income tax.  

The Committee asked the DSBD to share its progress on the Medium Term Strategic Framework (MTSF) goals, specifically in terms of promoting economic growth, job creation, improved public service and investor confidence. It wanted to know why it had achieved only 17 of its 31 targets, even though its spending outcome had been 99%. SEFA was taken to task for its failure to provide finance to small, medium and micro enterprises (SMMEs) owned by people living with disabilities. Had the DSBD motivated spaza shops, street hawkers and vendors in the same way that it had motivated the National Gazelles?  It was asked to provide the strategies it had used to ensure that women, youths and people living with disabilities received tenders; and to indicate the main issues, challenges and risks identified in the development forums established within its entities. 

Meeting report

The Chairperson welcomed the Chairperson of the Small Business Development Portfolio Committee who would be co-chairing the meeting. She welcomed the Minister, Ms Lindiwe Zulu and delegates from the Department of Small Business Development (DSBD). She said the role of the Minister was to account to the Committee while the Director General (DG) accounted to the Minister. However, the Minister could delegate the role to the DG. She appreciated the presence of the Minister at the meeting, as the Minister’s presence always added value to the work of the Committee.

Minister’s Overview

The Minister said that the DG would make the presentation because she had to catch a morning flight to China for a BRICS meeting. Her introductory remarks were a broad political outline of the DSBD, but the DG and her team would deal with the questions during the discussions.

The Department was tasked with programme implementation. The programmes had impacts on small, medium and micro-sized enterprises (SMMEs) and cooperatives. There were challenges although they were not insurmountable. The under-expenditure seemed to be growing, based on year on year comparisons. Another challenge involved transversal agreements. The private sector had trust deficit issues with the DSBD which affected partnerships that could lead to investments with SMMEs. The DSBD would ensure that the SMMEs -- especially the black owned women and youth SMMEs -- were aware of the opportunities, and would capacitate them to tap into the opportunities. The DSBD therefore needed to engage with the private sector to ensure that the trust issues were resolved.

Since the National Development Plan (NDP) was at the centre of DSBD’s core goal, it needed to ascertain if it was having the necessary impact and if it was approaching the work with the right attitude. In the three years of the DSBD, she had observed that better quality human resources were needed if the Department was to deliver on the NDP goals. The DSBD was aware of the deliverables for the 2030 NDP, hence the need for collaborations to have access to the markets. The DSBD also needed the assistance of Government and relevant stakeholders for the structure to achieve the NDP goals. A shift in the private sector to support SMMEs and cooperatives would also assist in meeting the NDP goals.

The DSBD had engaged with Statistics SA to receive statistics on informal trading, which would help it know its key focus areas for SMMEs and cooperatives in terms of sustainability. The statistics on the funding of SMMEs by developmental finance institutions (DFIs) were low. Support to SMMEs with turnaround times and the provision of an enabling environment was also low, so most start-up SMMEs turned to family and friends. This was a challenge, because the number of SMMEs that were funded by families had declined due to the economic recession in the country. The women and youth SMMEs relied on funds from families in rural areas who did not have the money. Although the SMMEs needed to understand that they should not depend on government for funding, government needed to deliver on promises it had made to the SMMEs.

The Minister said that these were some of the issues the DSBD was grappling with in order to deliver on its mandate. It had to unlock an entire ecosystem to lead to an improvement in funding SMMEs. Although people were aware that the DSBD was championing the development of small business in conjunction through the Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA), it required strong partnerships with the three tiers of Government. Without the support of these three spheres of Government, it became difficult for the DSBD to support small businesses. She appreciated the fact that other departments had started to come up with programmes to increase the growth of SMMEs without been policed by the DSBD, as had been the situation earlier, so it was vital for the DSBD to get the SMMEs ready to harness the opportunities from other departments.

The challenges had to be balanced with the fact that the Department started operating in 2014. Despite these challenges, during its first vote year in 2015/16, the DSBD had achieved a clean audit. In terms of its maiden Management Performance Assessment Tool (MPAT) rating, it was compliant and had achieved an overall score level of three. It had also exceeded the civil service equity targets for women and people living with disabilities. This was a commendable baseline which would be improved upon.

She reported on achievements in 2016/17 and outlined the achievements on youth and women employment. The DSBD had succeeded in securing a €52 million multi-year fund to create employment through SMMEs from the European Union. The multi-year fund had been secured in collaboration with the National Treasury and would become operational in the latter part of 2017. The DSBD had agreements with the government through the Government Enterprises Innovative Fund (GEIF) to assist SMMEs and cooperatives to set up businesses. A private partner, Siyaya Skills Institute, had donated business equipment valued at R500 000 to seven cooperatives in the Free State. The GEIF and private partnerships were geared to assist deserving SMMEs and cooperatives to distribute equipment. The DSBD also provided the Governance with assurance through the consistency between the Minister, Deputy Minister and the DG. In addition, she was committed to quarterly executive committee meetings to interrogate quarterly reports, and the Auditor General’s (AG’s) reports were taken seriously. The DSBD was working out ways to improve its systems and the manner in which it responds to the AG’s questions, as recommended by the Committee on Small Business Development.

Chairperson’s Comments

The Chairperson said she appreciated the Minister’s robust presentation. The Committee would focus on areas that would take the DSBD to greater heights.

The key area immediately after the recommendation for adopting the Appropriation Bill, was the Committee’s task to review how the money allocated to the DSBD was spent. The Committee scans the 40 government departments through the instrument of the National Treasury Quarterly Expenditure Report. Based on this, the Committee prioritises the departments that need to appear before it. During interrogations, if the Committee notices gaps, it recommends a turnaround strategy so that each Department assists government to ensure that the community trusts the manner in which it conducts itself. In essence, the Committee follows the money and ensures that value for money is achieved. In addition, it ascertains if the Department is able to pay its service providers within 30 days. It also checks if the departments engage in fruitless or irregular expenditure. In terms of the Public Finance Management Act (PFMA), over and under expenditures beyond 2% was an offence. The Committee therefore preferred that the accounting officer kept the Department in line with the law.

She excused the Minister from the meeting.

Department of Small Business Development: Briefing

Ms Edith Vries, DG: DSBD, introduced her team, which included the Acting Deputy DG, the CEO of SEDA, the Chairperson of SEDA, the Chairperson of SEDA’s audit and risk committee, the CEO of SEFA and the Chairperson of the DSBD’s audit and risk committee. The DSBD had confined itself to the questions asked by the Committee in its written presentation, but she and her team could answer any other questions.

During the fourth quarter, it had 38 performance indicators in its three programmes -- administration, policy and research, and programme design support. In the fourth quarter, it had recorded 29 achievements, two partial achievements and six non-achievements of its targets.

The DSBD had recorded 96% expenditure. The reasons for over-expenditure in administration were the unanticipated expenditure in filling more positions, payment for computer services due to late receipt of invoices, projected lower budgets for capital assets, leave discounting and payment for the ‘Techno Girls’ trip to Brazil in 2015. Under-expenditure in the policy and research programme was due to unfilled vacant positions and a delay in finalising some research projects, while over-expenditure was due to lower capital assets budgets in information communication technology (ICT).

Under-expenditure in the design support programme was due to vacant positions -- such as the DDG, data capturers and claim processors for the National Informal Business Upliftment Scheme (NIBUS) -- technical challenges that led to a delay in issuing letters of approval to successful applicants by the Development Finance Unit (DFI), and a reduction in claims processing for the fourth quarter in the Black Business Supplier Development sub-programme (BBSDP) due to the over-processing of claims in the third quarter and non-performance of NIBUS. Over-expenditure in the Design Support program was due to lower capital assets budgets in ICT, expenditure generated due to the Global Entrepreneurship Congress held in March, 2017, postponed payments of seven invoices in the Entrepreneurship Incubation sub-programme (EIP), and National Treasury (NT) redirection of funds from NIBUS to the SEDA National Gazelles.

She outlined the 14 findings from the Auditor General’s office and the status of each finding, and indicated the achievements made on the BBSDP and Cooperative Incentive Scheme (CIS) projects, including statistics on the number of women and youths supported. She gave an overview of the 20 performance indicators in the three SEDA programmes. SEDA had achieved 17 of its goals and recorded over-expenditure in enterprise development, but under-expenditure in its technology and administration programmes. It had created 2 282 jobs since its inception.

Ms Vries indicated the development impacts on enterprises owned by blacks, youths, women, people living with disabilities and enterprises in priority areas and towns. She gave a financial perspective on costs to income, the impairments and growth in interest. The impairments and the turnaround times on loans were of concern to the DSBD. Turnaround times on loans had improved in the fourth quarter, but the targets had not been achieved.

Small Business Development Agency (SEDA)

Ms Mandisa Tshikwatamba, CEO: SEDA, said the Agency was directly shaping up to service the upper end of the SMME market. It was presently taking its business advisers through different types of development programmes. However, it was losing its business advisers to the private sector. It was presently upgrading its ICT resources and strategies, but realised that they were not sustainable without more funds. SEDA also lacked the agility to respond to client needs and this had affected the residual turnaround times to entrepreneurs. It was therefore appealing for more funding to acquire more ICT infrastructure which could be used to achieve online interface and improve turnaround times.

The over-expenditure of about 1.5% had occurred because SEDA had been made to understand that it could access approved funds that it had not used from the previous year’s budget. The funds had been used for the entrepreneurs’ development fund programme. The SMMEs’ procurement and payment hotline support service was currently at risk because SEDA had been given the impression that the service had been taken over by the NT in the last financial year. SEDA had made budget adjustments in that regard, but the discussions had not materialised as communicated to SEDA, and this had resulted in it having to scale down on its programmes. It therefore needed support to ensure that it continued with this programme, otherwise it would negatively affect entrepreneurs.

Small Enterprise Finance Agency (SEFA)

Mr Thakhani Makhuvha, CEO: SEFA, gave more information on the development impact on enterprises in the township. SEFA had achieved only 48% of its target, but the sub-programme was in its first year. It had a reasonable pipeline to support township enterprises, particularly businesses like filling stations, and it hoped to improve on its performance in this regard. SEFA had challenges with funding people living with disabilities. An intervention fund had been launched by the Minister in Welkom to assist with funding for enterprises owned by people living with disabilities, but the take-up had been low.

The greatest challenge facing SEFA was its sustainability, as reflected by its impairments or non-performing loans. The cost-to-income ratio was still high, and it had affected the targets for growth on interest. The ideal was to encourage entrepreneurs to pay back loans, and SEFA was assisting with making conditions suitable for entrepreneurs to pay back. It continually engaged with its clients, particularly those that got contracts, to improve on turnaround times to get loans.

Discussion

Mr A McLoughlin (DA) asked for clarity on the presentations, because the DSBD had referred only to the fourth quarter in some parts of its presentation, and had then compared the other three quarters in other parts of its presentation. He asked the DSBD to explain why it had under-achievements in administration and the design support programme, but had over-expenditures in both programs. Why had there been non-performance in its NIBUS sub-programme? He asked SEFA to explain the discrepancy between the targeted disbursements of R176 million and achieved disbursements of R286 million -- where had the extra money come from?

Ms N Mthembu (ANC) asked the DSBD to give more information on the Cooperative Incentive Scheme (CIS), and to explain its intention for NIBUS, as it had transferred funds meant for NIBUS to the National Gazelles. Would the DSBD still address the needs of the informal business sector in future?

The Co-Chairperson (Small Business Development PC) followed up Ms Mthembu’s question by observing that even though NT had approved the transfer of the money earmarked for NIBUS to the National Gazelles programme, the challenge was that the money had been allocated to a programme that was already performing very well. This was unacceptable. She expressed concern that the report had presented only the number of people that were assisted, but had not referred to the developmental status as seen during the oversight visit of the Small Business Development PC.

Mr X Mabasa (ANC) asked the DSBD to account for why its unspent budget had increased from R28 million in 2015/16, to R120 million in 2016/17. He expressed concern over the under-expenditure of more than R10 Million in the fourth quarter. He asked for more of an explanation on the under-expenditure in the programme design support programme. Under-expenditure on people living with disabilities was unacceptable and the DSBD needed to address the issue. He remarked that the failure rates at SMMEs and cooperatives required the DSBD to support this category more. He asked the DSBD to confirm if indeed Gauteng’s SMMEs and cooperatives were successful. If they were not, then the other provincial SMMEs and cooperatives were obviously receiving less support from the DSBD. He recommended a need for more monitoring and evaluation of virements with regards to the loans received from SEFA, to ensure that SMMEs were successful. The restructuring that the SEFA CEO had proposed should be done before failure occurred.

Mr R Chance (DA) asked the DSBD to explain why the National Gazelles’ budget had been increased, and what the extra R15 million had been used for. He asked for an update on the 2015/16 intake of the National Gazelles. He expressed concern over the SEDA hotline payments to the SBDC, asking why it had not made the transfer to NT. How much had been budgeted for this programme, and what had been its impact? Had SEDA been able to track how many complaints that had not been addressed?  He asked SEFA to state why it was stalling on giving further loans to the Small Enterprise Foundation (SEF), and to  identify the success factors of SEF on loan servicing.

Ms D Senokoanyane (ANC) asked the DSBD whether the vacant positions filled in the fourth quarter were new, because of the over-expenditure recorded. She referred to the over-expenditure on the Global Enterprises Congress held in March, 2017, and queried whether the DSBD had a budget for it, or if the DSBD had too many congresses for the period. She asked if the statistics on projects in Gauteng included the projects that the province and local government had initiated. Why did the DSBD allocate so many projects to provinces and local government that had the resources to initiate their own projects?

Mr N Gcwabaza (ANC) observed that the over-expenditure of DSBD had been high in 2015/16, but had declined in 2016/17, while its under-expenditure had been low in 2015/16, but had increased in 2016/17. He asked the DSBD to comment on this observation. Why had it ended up paying R300 000 more on capital assets? He also asked the DSBD to explain the debts to the ‘Techno Girls.’ What was the status of the vacancies in the design and support programme, because the filling of the vacancies was linked to the success of the NIBUS programme?

Ms S Shope-Sithole (ANC) acknowledged that the DSBD was a ‘baby department’ that needed baby-sitting, but she advised it to work on the recommendations of the internal auditors, the Auditor General and the Committee to ensure improvements were recorded before the end of October 2017. She understood that the DSBD had recorded under-expenditure because it had been cautious. She asked the DSBD to come-up with proposals for funds set aside for the development of women and youth empowerment. She asked for a list of beneficiaries in Limpopo and Mpumalanga only. She supported the SEDA CEO who had lobbied for the support of the Committee for more funding. The President had spoken about radical economic transformation, so she wanted to see radicalism from the DSBD. She advised the DSBD that it needed to spend its money and implement its funding plan according to the PFMA and NT regulations.

The Chairperson asked the DSBD to share its progress on the Medium Term Strategic Framework (MTSF) goals, specifically in terms of promoting economic growth, job creation, improved public service and investor confidence. She had observed from the fourth quarter report that the vacancies exceeded the 10% recommended for the public service, so she asked if the DSBD had a recruitment committee that ensured compliance. The DSBD had additional employees in some programmes, so she wanted to know if the DSBD had an adopted organogram that was approved by the Department of Public Service and Administration (DPSA). She expressed concerns over the 2.5% under-expenditure, which was higher than the 2% threshold, and asked the DSBD to explain why this had occurred and what it was doing to address it because it violated PFMA. She also asked why it had recorded over-expenditure, and to provide responses on why it had 31 targets in 2015/16, but had achieved only 17 even though its spending outcome had been 99%.

Responses

Ms Vries said that the presentation had covered the fourth quarter, but the explanations were linked to other quarters. She had explained the huge discrepancy of budget left unspent, which had increased from R28 million in 2015/16, to R120 million in 2016/17, but the Chief Financial Officer (CFO) would give more information. The DSBD had had partial achievements on two targets, but money had been expended on the projects. However, more progress would be seen in the next quarter.

Ms S Osterwyk, CFO: DSBD, referred to the spending in quarter four, where the Department had had to take away some funds from the compensation of employees (CoE), which had impacted on projections originally submitted to NT. The DSBD had therefore had a revised cash flow on CoE. The expenditure had been a re-alignment of the cash flows in the period under review. The Global Enterprises Congress had not been funded, but approval was given by NT in the third quarter. The DSBD had received the invoice in the fourth quarter when the funds were approved, hence the over-expenditure.

The spikes in spending were due to new allocations received on the NIBUS and Enterprise Incubation Program (EIP). The DSBD had challenges with putting structures in place to spend the new allocations received. The EIP targets had been achieved and disbursements were made in the fourth quarter. Unfortunately, the DSBD had not disbursed any funds for procurements in the informal business scheme. Funds had been transferred to the National Gazelles -- a programme that had been approved by NT. The DSBD had had funds in the Paymaster-General (PMG) Account, so it had paid for the EIP in a quarter it had not anticipated. She accounted for why the DSBD’s unspent budget had increased in 2016/17, adding that the major under-performance had been recorded in the NIBUS and EIP because of the new funds received.

The DG said that the expenditures had been carried out when the funds were approved by Cabinet in February, 2017. She agreed that NIBUS and National Gazelles targeted two different groups. NIBUS had been started in collaboration with the Wholesale and Retail Sector Education and Training Authority (W&RSETA) in 2015/16. It had been allocated more funds in 2016/17 because of its success, but had been transferred to another department. The programme staff of NIBUS in W&RSETA could be transferred to DSBD only in August, 2017 and the DSBD had a huge backlog. The DSBD therefore asked NT for permission to transfer the funds to the National Gazelles programme. The DSBD took responsibility for the poor planning on NIBUS, because it had relied on W&RSETA to implement the programme.

The poor performance with respect to people living with disabilities was being addressed in collaboration with SEFA. The intervention had just started, and in time the impact would be seen. The DSBD had also engaged with entrepreneurs living with disabilities in KwaZulu-Natal to address the challenges it had with financing. She agreed with Mr Mabasa’s recommendation on boosting SMMEs’ training support. The Minister had stated that the DSBD needed to unlock an entire ecosystem around SMMEs and cooperatives. The DSBD had recently established an integrated Cooperative Development Unit, where the DSBD intended to match training and the funds disbursed. It was working on the standard operating procedures to boost training support for the Black Business Supplier Development Programme (BBSDP) and the CIS.

SEDA’s payment hotline for SMMEs had been successful, but the DSBD had pulled out due to duplication by another department. The DSBD had continued with the hotline, and new solutions had been proposed, so it was a work in progress. The vacant posts of DDG had been advertised in the last week of August and the DSBD hoped to fill the posts by the end of the first quarter. The vacancies for data capturers and claim processors were not completed in the fourth quarter, but the DSBD had employed people to perform the function at NIBUS.

Regarding the promotion of economic growth, the most reliable information was from StatsSA and quarterly reviews. Presently the economy was in a recession and this impacted on small business. It meant that the cost of capital was more expensive and the Minister had mentioned that the number of SMMEs had declined, which was due to the global recession and its impact on the economy. The DSBD was working on initiating a business rescue strategy for SMMEs in November 2017. This was a collaboration with the University of Pretoria.

With regard to job creation, the data DSBD relied on was from the SA Revenue Service (SARS) and more information would be given during the next briefing. The SARS data showed that small business contributed significantly higher to pay-as-you-earn (PAYE) tax and the skills development levy than contributions from large businesses. This showed that even though large businesses contributed about 50% of gross domestic product (GDP), small businesses actually created jobs.

The DSBD had put in place a service delivery improvement plan. As alluded to by the Minister, the DSBD had complied and received a score of three on the MPAT in its first year. The DSBD would continually improve in the area of service delivery. The Minister had spoken of gains received through engagements with the private sector and gaining investor confidence.

Ms Brigette Petersen, Head: Corporate Services, DSBD said that the vacancy rate had been reduced from 16.3% in 2015/16 to 9.8% in quarter four of 2016/17, which was below the national government average. The DSBD had a recruitment plan which had been used for two consecutive financial years and had led to the reduction. Two DDG posts had been advertised, in line with the approved start-up structure, which was under review in order to address the institutional requirements. She also gave details on the additional vacant posts which were not part of the start-up structure, which were being reviewed in conjunction with the DPSA. Some of the posts had not been part of the start-up of the DSBD. It had an organogram that had been approved in 2015 by the DPSA, which had been used in recruiting in 2016/17. The organogram was being re-designed to accommodate the additional posts.

The SEDA CEO confirmed that the Agency had received value from the National Gazelles programme. The value added included companies doing electrification work in the Republic of Benin and Swaziland. It also had proposals to work in Russia, and an arm had secured an industrial mine cleaning contract in Middleburg, Mpumalanga. A number of SEDA’s companies had also been engaged by the Department of Trade and Industry (DTI) because it had seen that the companies were potential feeders to the black industrialist programmes. The National Gazelles programme was therefore actually nurturing the intention of growing the pipeline of black industrialist SMMEs.

The SEFA CEO said that the targets set had been the bare minimum, and it had been encouraged to surpass the targets based on its mandates. It also had the funds to surpass its targets because it had a line of credit from its major shareholder, the Industrial Development Corporation (IDC) whenever it exceeded the target.

SEFA supported the development status of SMMEs through the Post Investment Monitoring Unit (PIMU). In the past, SEFA had provided loans through a ‘cradle to grave’ programme without necessarily supporting the SMMEs. The newly created PIMU supported SMMEs, so the agency was putting systems in place to give early warning signals to avoid impairments.

The SEF in Tzaneen had been given a R30 million revolving credit facility. SEF had accessed R20 million and it had R10 million that could still be accessed. The Agency was looking for more ways to give SEF access to credit facilities, because it believed in the successful model used by SEF. He also outlined the lessons SEFA had learnt from SEF on how it serviced its loans.

Follow-up discussion

The co-Chairperson commended SEFA on initiating the PIMU. She also commended the DG for reporting on the business rescue strategy. She agreed with Ms Shope-Sithole that the DSBD was a new department, but observed that the personnel and programmes were not new because they had been inherited from the DTI. However, the mandates of the DSBD had been expanded and it had been given a championing and coordinating role, which was not what it had been doing under the DTI. The programme had been running for many years, but the scope had been broadened to form a department. The DSBD was therefore supposed to champion and coordinate, to follow the Inter-Governmental Framework Act, and to do integrated development. If the DSBD had performed these roles, it would have been established already.

She asked the DSBD to state the cumulative number of beneficiaries of NIBUS from 2014/15 to 2016/17 who had been affected by the lack of leadership and poor planning. She also asked why it had relied on the W&RSETA to administer NIBUS from the beginning, since it was not an entity of the DSBD. She commented that a 57% performance on financing SMMEs owned by people living with disabilities was unacceptable. She asked for a progress report on solutions to the challenges faced by the Soweto Association for the Physically Disabled (SAPD) in securing finances for its SMMEs, as discovered by the Committee on Small Business Development during its study tour. She remarked that if the DSBD had addressed the recommendations of the Committee on Small Business on the SAPD, the target on the financing of SMMEs would have improved. This achievement would have led to job creation and inclusive economic growth.

Mr Gcwabaza asked the DSBD to describe what motivated the growth of the National Gazelles. Had the DSBD motivated spaza shops, street hawkers and vendors in the same way it had motivated the National Gazelles? Had it explored linkages with other training institutions in government, apart from SEDA, to aid the growth of SMMEs and the CIS.

Ms Mthembu observed that the Minister had said the DSBD had programmes to address poverty, equity and employment, as stated in the 2030 NDP, but the situation described was contrary. She advised the DSBD to shift its focus from empowering the National Gazelles, to street hawkers and vendors, as the government was passionate about this set of entrepreneurs. Empowering street hawkers and vendors would lead to higher productivity in the economy and address the injustices of the past. This would also lead to radical economic transformation, as stated by Ms Shope-Sithole.

Mr Chance observed that the EIP was designed from the incubation support programme, so he asked for feedback on the EIP. He asked the DSBD to explain the measures in place for the survival of the CIS. He observed that only cumulative reports should be used to access the impact of MTSF goals. He therefore asked the DSBD to state the strategies it would use to measure the impact of its programmes on MTSF goals to track statistics on the net growth of businesses that the DSBD supported. Regarding the DSBD’s research into the ecosystem, what was the extent of its collaboration with Aspen Development Network on entrepreneurial ecosystem mappings in South Africa? He also asked whether the DSBD was duplicating its ecosystem research maps.

Mr Mabasa asked for data on the minimum 30% set aside for the SMMEs and CIS with which the DSBD was doing business. He asked for the profiles of the women and youth entrepreneurs, people living with disabilities and the geographical spread of SMMEs and CIS it supported. What was the monetary value of assistance these entrepreneurs had received? He asked for data on the jobs created and the sustainability profile of the entrepreneurs empowered by the DSBD. He asked it to track the effect of SMMEs and CIS that were doing business with the private sector. He mandated it to examine how the private sector transferred skills to SMMEs and CIS. He also asked for clarity on the BBSDF and CIS statistics presented by the DSBD in its brief.

Ms Senokoanyane asked the DSBD to explain why it had had a delay in issuing letters, from December 2016 to February 2017, for the CIS. What progress had been made on the Auditor General’s (AG’s) findings?

Ms Shope-Sithole appreciated the co-Chairperson’s explanation on the operations of DSBD. She remarked that it was vital for the DSBD to make corrections based on the observations and recommendations of the Committee and the AG before the end of October 2016. She added that everyone should be involved in building investor confidence.

Mr McLoughlin asked the DSBD to explain discrepancies in figures, because the amounts stated in the over-expenditure did not add up. Where had it received the funding to re-advertise posts? Was there any consequence management for personnel involved in non-compliance, as indicated in the AG’s findings?

The Chairperson said that the Committee wanted compliance from the CFO, not explanations for why it had not complied. She advised the CFO to seek approvals for virements from Parliament. She also informed the CFO that financial indiscipline such as over-expenditure was not acceptable. The CFO had to correct financial indiscipline, because deviations and irregular expenditures were interpreted as corruption. The DSBD needed to comply with the rules to assist Government to regain the trust of citizens.

She told the DG that fiscal indiscipline, such as R1.8 million in irregular expenditure for non-compliance with regulated practices was unacceptable and should be corrected. She outlined the roles of the DG, which included preventing irregular expenditure, waste among workers and deviations from the law. She emphasised that the DG had to employ a culture of innovation and incentives where incentives were deserved. In addition, the DG had to embark on consequence management, because the risk of not doing so was that the DG would bear the consequences herself.

The excuse of a new department was unacceptable, since it had been established in 2014. She advised the DG to always find ways to promote Inclusive economic growth, job creation and investor confidence.

She said that the DG had not answered the question that Ms Shope-Sithole had asked about the strategies the DSBD had used to ensure that women, youths and people living with disabilities received tenders. Government was passionate about such strategies. If the DSBD successfully implemented such strategies it would promote economic inclusive growth, lead to increased tax payment, assist in paying salaries and generate employment.

She commended the DSBD for establishing development forums which included its entities, to identify risks within its departments. She asked it to indicate the main issues, challenges and risks identified in the development forums established within its entities. She asked the internal auditor to explain if she had developed strategies to manage the identified risks. Did the DSBD have a risk manager? Did it have oversight strategies to ensure that its entities did not return allocated funds?

She observed that SEFA had a history of impairments which had continually increased in the past four years and could affect the sustainability of the entity. She therefore asked SEFA to state its turnaround strategy for identifying impairments. She also asked it to outline the key challenges and opportunities in the strategic partnerships with intermediaries for financing SMMEs and the CIS. She asked SEDA to state the strategies it had used to assist rural and under-served communities.

Responses

The CFO said that the DSBD had stated only the amount of the over-expenditure, and not the total amount expended. She explained that the over-expenditure of over R3 million for goods and services had occurred due to the National Evaluation Plan in 2017/18, executed by the DPME, with Cabinet approval for the roll-out. She said that the DSBD took the Auditor General’s findings seriously. She admitted that additional funds had been expended to re-advertise the posts. The findings from the AG had occurred due to a systems failure, not as a result of a personnel error. She explained the status of the AG’s finding on finance, but said that it was only the payroll certification findings that had not been resolved.

She noted the Chairpersons comments, and said that the DSBD was stabilising its structures and accepted full responsibility for financial indiscipline. Statistics on empowering small business through procurements services were being collated, but the impacts could not be provided presently. The ICT research team had impact reports on its programmes, and these would be submitted later.

Ms Vries said that the comments on financial indiscipline were well taken, and the DSBD accepted full responsibility. The R1.8 million irregular expenditure was one of the transactions inherited from the DTI, and the officials had been held accountable. The DSBD had agreements with the Department of Higher Education and Training (DHET), and this informed many of its agreements. Most of the challenges that it had with informal trading were in the retail sector, hence the decision to involve the W&RSETA and use its network to assist the spaza shops and street traders with financing and training. The DSBD had used collaborations with the W&RSETA and other SETAs for its training programmes.

The SEFA CEO said that the Agency had not been able to extend appreciable financial support to people living with physical disabilities. It had experienced some challenges with the Soweto Association for the Physically Disabled, but it would follow-up and send reports to the Committee.

The co-Chairperson advised SEFA and the DSBD to admit it had not initiated any interventions on the SAPD because if the recommendations of the Committee on Small Business Development had been followed, SEFA would not have needed to respond. The approach to addressing the issues of the SAPD did not require any action by SEFA, but required engagements by the DSBD, the Department of Human Settlements and the Department of Social Development. The approach also required action by the marketing unit of the DSBD. The SAPD project did not require funding from SEFA -- it required a complete holistic strategy to address all the challenges. It was better for the DSBD to admit that it had not put forward any interventions yet.

Dr Jeffery Ndumo, Acting DDG: DSBD, stated that the DSBD had engaged with COWAL Agriculture to provide support, but the project for the SAPD had not been implemented. The access to market had not been implemented yet. Provision of procurement opportunities for the products of SAPD had also not been implemented. The DSBD would follow-up to make sure that the project was implemented and completed.

The co-Chairperson remarked that the Southern African Association for Pastoral Work (SAAP) did not have any issues with COWAL Agriculture, and it was not in the agricultural space. SAPD’s issues were around marketing, assisting with raw material, and the residential area that they lived in. It was producing protective wear for all municipalities, PRASA and TRANSNET. In addition, there was a 30% minimum procurement buy that could be accessed for SAPD, and it does not concern COWAL in any way.

Mr Gcwabaza remarked that the DSBD and its entities did not need to waste peoples’ time. It was unusual to find organisations of people living with disabilities, such as SAPD, that did not ask for money. He expressed disappointment that the DSBD did not support the SAPD, which was an organisation that was worthy of emulation.

The DG said that the reprimand was accepted.

Mr Mojalefa Moloto, Acting DDG: DSBD, explained why NIBUS had not been implemented by SEDA initially. The DSBD had taken the initiative to collaborate with W&RSETA because it already had knowledge of informal traders, and it delivered. The under-expenditure on EIP had occurred when the DSBD had tried to spend R20 million. It had tested the system and was in the process of packaging the system for SEDA without losing the impact of market access. The difference between the incubation support program of the DTI and the DSBD’s EIP was that the latter incorporated market access.

Mr Lindokuhle Mkhumane, Acting DDG: DSBD said that NIBUS hoped to develop informal businesses in the provinces. The Vuvuzela Graduation Model had been used to graduate informal businesses to viable enterprises and farmers. He admitted that the report on the BBSDP and CIS did not show the percentage targets desired, but only the numbers of women and youth entrepreneurs. He gave more information on the report on the BBSDP and CIS. He accepted that the achievement on BBSDP in the rural areas was inadequate.

The Chairperson remarked that DSBD could state ‘yes’ if it had any achievements, but if there was no progress, it should indicate its turnaround strategies.

The DG said that the impact of research could be measured only through the years, but the Department had started only in 2015.

Ms Elize Koekemoer, Director: Research, said that the DSBD was doing specific research from the supply and demand sides to identify the gaps. It was collaborating with DPME to identify the gap in longitudinal studies.

The Chairperson asked the DSBD to submit reports on its strategies for improvements plans and turnaround strategies for where it had been found wanting.

The DG asked for permission to allow internal audit to give assurance on audit matters.

The Chairperson said that the assurance should be provided in writing.

Mr Gcwabaza requested DSBD to give specific details in written answers to questions.

The Chairperson asked the DG to indicate where the DSBD would commit itself, and requested that it provide answers to the Secretaries of both Committees in writing. The answers should include where feasible support was provided, and showed that 30% of tenders was given to entrepreneurs who needed to be assisted, as stated by NT. She also asked for reports on successes in supporting the procurement of locally manufactured goods. She mandated the DSBD to submit reports on the successes of its monitoring unit, and its inspections of service delivery sites. She invited NT to comment and give recommendations on the expenditure of the DSBD.

A representative from NT said that Treasury agreed with the Committee’s concerns, especially with regard to under-expenditure. It constantly engages with the DSBD on its area of under-expenditure, especially on NIBUS and EIP, to ensurethat there was an improvement on expenditure and its impact.

The Chairperson asked the DSBD to submit quarterly reports to NT, in conjunction with SEDA and SEFA. These reports would alert the Committee on areas where the DSBD was found wanting. The reports should indicate consequence management.

The DG said she appreciated the comments and questions from both Committees. She would liaise with the Committee Secretaries to confirm questions and comments to be addressed.

The co-Chairperson appreciated the engagement, because it added value to the work of the Committee. She encouraged the DSBD to focus on providing adequate services to a few SMMEs and CIS, rather that to a lot that would not be viable. The DSBD, SEDA and SEFA needed to have a mind shift to focus on providing adequate services to ensure that the desired impact was achieved. It was in the interests of NT to shift the economy from consumption conduits such as social grants, RDP houses and free things, to production. Success should not be measured on the number of SMMEs and CIS funded, but should be on the ability of people to stop depending on social grants, building houses and paying for services. Welfare services were not sustainable, because the government could not pay for water and electricity and still pay social grants. She said that the budget allocated to the DSBD was not adequate for it to achieve its mandates. NT needed to understand the role of the DSBD, because it could achieve inclusive economic growth and job creation. NT should have a paradigm shift to increase the allocation to the DSBD, instead of allocating huge funds for welfare purposes.

Mr A Wakunda, Chairperson: Audit Committee, DSBD stated that the committee had been with the DSBD for 18 months. Development objectives could be achieved with only good governance. He agreed with the Committee’s observation that the DSBD should focus on development aspects. He observed that it had taken bold steps in building its foundation. The role of the audit committee was focused on assisting to develop the structures of the DBSD. It had made some improvements. The structures were not perfect but the audit committee hoped to shift its focus to developmental issues, because the foundations had been laid.

The Chairperson asked if the audit committee had an audit charter.

Mr Wakunda replied that it had an audit charter, and gave an assurance regarding its service to the DSBD.

The Chairperson said that he should understand that the audit committee was not in the DSBD to defend it, but its role was to ensure that fruitless and irregular expenditure did not occur. She congratulated the DSBD on its clean audit, and excused the Department.

Adoption of Minutes

She asked Members to consider and adopt its draft minutes. She asked Members of the Committee on Small Business Development to join the Standing Committee on Appropriations to ensure that a quorum was formed.

The Committee considered and adopted the Minutes of 1, 2, 3, 15, 22, 23 and 25 August. Ms Shope-Sithole remarked that that although she had been absent from the meeting of 18 August, she had sent an apology. The records were amended, and the minutes were adopted as amended.

The meeting was adjourned.

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