Small Business Development Budget Review and Recommendations Report

Small Business Development

11 October 2017
Chairperson: Ms S Bhengu (ANC)
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Meeting Summary

During the budgetary review presentation, the Content Advisor pointed out that the Department of Small Business Development (DSBD) had under-spent by R23 million, despite previous complaints relating to the lack of funds available. The report referred to the failure of the Department to establish the Co-operatives Development Agency and the National Small Business Council, which had hindered the development of small, medium and micro enterprises (SMMEs) and co-operatives. The DSBD had achieved 71% of its performance targets, but it was recommended that they structure their Annual Performance Plan (APP) according to their mandate, reduce duplication the allocation of funds to co-operatives, increase their oversight, and work in partnership with other departments.

During their discussion, it was agreed that the lending policies of the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA) should be reviewed, as their interest rates were killing the supposed beneficiaries. In addition, they suggested that the senior management of the DSBD must review their objectives and mandates, because it appeared they were not aware of them and as a result they were not achieving their results.

In the absence of the Minister and Director General, the Chairperson conducted a question and answer session with the DSBD delegation, during which the challenges faced by SMMEs and co-operatives were discussed. 

Meeting report

Committee matters

Mr R Chance (DA) raised a point of order concerning the presence of 12 Members on the Portfolio Committee instead of 11, as stipulated by Parliamentary rules, and asked if the Rules Commission had taken a decision in this regard.

The Chairperson said she had not been informed about the process.

Mr Chance asked that the Committee Secretary to look into the matter.

Subsequently, apologies for absence were provided for Mr S Bekwa (ANC) (floods in KwaZulu Natal), and Mr X Mabasa (ANC) (study leave). Mr M Dirks (ANC) would arrive late, as he was attending a meeting with another committee, while Ms N Dlamini-Zuma (ANC) said she would have to leave the meeting early. The Minister and Director General of the DSBD were on mission to China, and had been joined by the Chief Executive Officer of the Small Enterprise Development Agency (SEDA), while the Deputy Minister of the DSBD would arrive later. Mr S Ncwabe (NFP) said he had to attend a governance cluster meeting, and would leave early.

The Chairperson intervened and talked about the prioritisation of meetings. The budget review process was important for Portfolio Committee oversight, as it was before the medium term expenditure framework (MTEF) and allowed Members of Parliament (MPs) to assess the Department’s performance and give an understanding of the mandate of the DSBD in relation to the National Development Plan (NDP).

Mr Ncwabe said he would stay for the remainder of the meeting.

Mr Chance said he and Mr H Kruger (DA) would not be available on Friday, and hoped the adoption of Friday’s agenda could be done during the current session.

Mr T Mulaudzi (EFF) agreed with that proposal, as well as Ms N Mthembu (ANC).

The Chairperson said the extra day was meant for each party to consolidate its position, and thus what was said was today would not be the consolidated position of the party.

Ms Dlamini-Zuma inquired if there would be a meeting the following week, so they could reschedule Friday’s session for that day.

The Chairperson agreed with Ms Dlamini-Zuma’s proposal, and pushed the Friday agenda for the following week.

Mr Chance proposed the Portfolio Committee attend a conference in Cape Town.

The Chairperson said they needed a formal costing, because such trips on their own were not budgeted for by the committee.

Mr Mulaudzi wanted an update on the SEDA forensic investigation from the Department before the recess.

Mr Kruger wanted to see the whole report from the State Enterprise Finance Agency (SEFA), and wanted to know if the IKAT project issue would be included in the agenda anytime soon, because the matter was always being postponed.

After a short deliberation, the Chairperson said that the relevant reports would be made available to prevent any misunderstandings concerning corruption.

Mr Kruger repeated that the IKAT issue should be added to the agenda.

Mr Ncwabe proposed the adoption of the amendments to the programme for the fourth quarter.

Budgetary Review and Recommendation Report: Overview

The Chairperson requested the Content Advisor, Mr Sibusiso Gumede, to go through the Budgetary Report and Recommendation Report (BRRR) so they could deliberate over the important points.

Mr Gumede provided an overview of the objectives of the document and outlined the mandate of the DSBD and the various strategy plans from 2015-2019, as well as those proposed for 2017-2019. Regarding finance, there was had underspending R122 million. Furthermore, there was material non-compliance, especially from the Enterprise Incubation Project and the Co-operatives Incentives Scheme. The Auditor General had suggested the DSBD must increase their oversight missions. In overall performance, the DSBD had achieved 71% of their targets.

Mr Gumede said the recommendations provided for in Section 7 included the establishment of the Co-operatives Development Agency and the National Small Business Council, which had been not created because of a lack of finance. This appeared contradictory because there was under-expenditure by the DSBD during this financial year. The DSBD had not been able to translate policy into performance indicators.

The Chairperson asked if the observations by the Committee could be read.

Mr Gumede noted duplication in the allocation of finances was a problem. Some of the recommendations from the Committee include increasing monitoring and evaluation, improving inter-governmental relations and ensuring the DSBD reported quarterly. There was a need to explore strategic partnerships, vacant positions had to be filled, and the National Small Business Act had to be finalised.

 

Discussion

Mr Chance thanked Mr Gumede, saying that the support staff had demonstrated a high degree of professionalism. He felt not enough attention was being paid to Section 2.3, and the responses from the Department needed to be more elaborate. Nothing needed to be changed fundamentally, but he suggested it should be reviewed with a tracking tool. Concerning Section 8, he wanted to add the Portfolio Committee’s report, and suggested it should replace the DSBD’s report because the Portfolio Committee was the oversight body, and this would prevent duplication. He added that the leader of Government Business needed to appear before the Committee, and subsequently the Minister.

Chairperson said that in the interest of the separation of powers, the Committee had to go to the House Speaker, so Mr Chance’s suggestion of bringing the head of Government Business to appear before the Committee could not work.

Mr Ncwabe said the legal actions taken by SEFA in the Free State province needed to be looked at because such actions negatively affected the development of small, medium and micro enterprises (SMMEs). It would be important to address the vacancies in the Department because these were crippling its mode of functioning. He insisted the DG was not helping the DSBD to achieve its mandate, as it appeared she had her own vision. He said he was not clear on the number of transversal agreements which had been signed and it appeared other departments were doing what the DSBD was supposed to, especially in the area of co-operatives. However, he did not think the DSDB had its priorities in order.

Mr Mulaudzi believed the issues from the State of the Nation Address (SONA) needed to be included, as well as an update on the support of smallholder black farmers. The DSDB needed to take charge and establish a measuring standard to assess their performanceThe continued bullying of small firms by big companies should also be included.

Mr Kruger was happy the issue of ‘red tape’ had been mentioned, and wanted to recommend a strategy should be established before the end of the fourth quarter for SMMEs and co-operatives, as the old one was certainly not working. He outlined the importance of land reform, but thought not enough attention was being given to rural development. He considered that domain should migrate to the DSBD, because there was a huge need to develop SMMEs in rural areas. He concluded by saying the Co-operatives Act had been amended in 2013 but was not yet 100% applicable to South Africa, and must be revisited so it was in line with the NDP.

Ms Mthembu said she had issues with Section 7, as a tracking tool needed to be in place in order to assess performance.

Ms Dlamini-Zuma said she did not know transversal agreements facilitated development of SMMEs in respect of how government could buy services from them.

Mr N Capa (ANC) said maybe the DSBD should address all previously untreated recommendations. The Department’s lending policies needed to revisited, because it seemed there was a situation of “lenders lending to lenders” (translated from Sotho) in reference to SEFA providing funds to intermediaries.

Mr Chance said there was nothing wrong with the idea of wholesale finance, referring to Mr Capa’s complaints, but the issue of interest needed to be checked by the Treasury and Financial Services Board, as well as the DSBD.

The Chairperson said that access to finance was a problem and solutions must be found. He suggested that everybody present should acknowledge there was a problem and that a lot needed to be done to remedy it, However, the issue of the lending environment existed before the DSBD was created.

Ms Dlamini-Zuma believed the interest rates did not allow the businesses to succeed, and rather made them worse off. She said SEFA should not allow intermediaries to use government money in such a way.

The Chairperson said the problem was not only the interest rates, but the whole lending environment needed to be reviewed, as well as the Intermediaries Act.

Mr Chance commented that SEFA was looking at targets and not at the impact or performance, and this had led to unproductive institutions and failing SMMEs.

Mr Capa asked how improving human capacity was being dealt with, and said the DSBD needed to take a leading role in the domain of co-operatives.

Ms Dlamini-Zuma sought clarification from Mr Chance about his expectations of SEFA concerning lending.

Mr Chance explained that development finance institutions were different from commercial banks, and the Department should have a more holistic approach which would provide assistance to SMMEs, especially since most businesses did not have collateral, and financial management was also absent due to a lack of available skills.

Ms Dlamini-Zuma said she did not believe it was totally an issue of poor financial management, and agreed some people needed to be given grants, but the interest rates were too high even for good managers. She reiterated that there was a need to train people, so it was important to introduce transversal agreements. The issue of high interest rates had to be dealt with, as it was unacceptable.

Mr Chance said the justification for why the interest rates were so high must be investigated, and said that this situation demonstrated how big businesses thrived over SMMEs.

The Chairperson commented that very important points had been raised by Mr Capa, Ms Dlamini-Zuma and Mr Chance. The issues of poverty, inequality and unemployment could be solved by supporting SMMEs and co-operatives, as they were supposed to provide 90% of jobs, which was spelt out in the 2014 MTEF. There was a need to shift from a consumption-based to a production-oriented economy, because there were few people being taxed and South Africa currently had a situation where it was a welfare state for many and a developmental state for few.

There was a need to capacitate the Department, and said the R50 billion allocated for child support grants in 2016 was not sustainable. Moreover, she complained that SEFA did not work with communities, and in regard to the litigation, she was not happy with the Minister’s refusal to grant a moratorium, because SEFA was not helping its clients to balance their books. The lending policies and the structures must be reviewed. The Portfolio Committee was not happy, as it seemed nothing was being done to reduce the 88% co-operative failure rate. She suggested SEFA go back to those co-operatives which had failed and look not only at new applicants, and should come up with a master plan to rescue failed co-operatives. The DSBD should also focus on growing SMMEs as a form of true black economic empowerment (BEE). She added that there was a problem, because the DSBD officials were not capacitated and the absence of the accounting officer (DG) and the political head (Minister) made it hard for those at the lower levels to be assisted, and made it seem as if no common vision for the Department existed.

Mr Kruger said that the issues at hand must be treated with urgency or else history would judge them negatively.

Mr Capa noticed there was a problem of capacity which needed to be addressed at the DSBD.

The Chairperson said both the Minister and DG should be mindful of the milestones set by Parliament, and complained that the DG had prioritised a trip to China over attending a budget review, which was behaviour she did not appreciate.

Mr M Dirks (DA) asked why there was such a large delegation, but no Minister or DG.

The Chairperson observed the DSBD was taking the Committee for granted, and said it needed to respect Parliament and the Committee, as well as its mandate.

Mr Lindokuhle Mkhumane, Acting Deputy Director General (DDG), DSBD, said Section 7.1 was incorrect and could be amended because the Annual Performance Plan (APP) had been presented. He said the DSBD took the Portfolio Committee very seriously in relation to working with municipalities and provinces, especially in relation to the integrated development plans (IDPs), and that there would be a local economic development summit held with the Department of Cooperative Governance and Traditional Affairs (COGTA).

The Chairperson said from 2016-17, the DSBD had not been to municipalities and asked what the DDG was going to say about what would be seen in 2017-18.

Mr Mkhumane understood the issues to be addressed emanated from 2016-17.

Mr Gumede said there was a typographical error, and it was supposed read “2018-19” instead of “2017-18”. He added that in terms of the APP, the first draft was supposed to be presented in August and the second draft in October, so there was very little time to present.

The Chairperson expressed her concern that the DSBD did not understand their mandate and this was reflected in how they had developed their APP. She thought they should discuss how the APP could be informed by their mandate.

Mr Mkhumane said strategic planning was conducted every year, but issues related to the mandate and strategy could be laid out only by the accounting officer.

Mr Chance said the SDBD needs to shed its image from its days as part of the Department of Trade and Industry, because its impact was not being felt, and it was referred to as the “invisible department”. He suggested there was a need for a change of mindset -- they needed to learn to think bigger because the Department was not taken seriously, and people did not think they were doing their job.

The Chairperson told the delegation and the Committee to forget about the budget review and list the following: finance, land, market, infrastructure, red tape and technical skills. She said these were the most urgent needs of co-operatives and SMMEs which had to be addressed. The Chairperson wanted them to write down what strategy would be used to address these issues.

Mr Mkhumane said the entire business cycle of co-operatives had to be looked at -- from the start-up stage, and not only when they were in danger. Regarding finance, grants, loans and guarantees needed to be issued in a way to support SMMEs, and partnerships from all levels of government had to be forged to ensure serious relations. He acknowledged finance needed to be linked with technical skills, and non-financial support had to be expanded by the DSBD.

The Chairperson said the issues listed were the one’s faced the most by SMMEs and co-operatives and asked what strategic objectives would be developed in relation to infrastructure.

The DDG said they had to mobilise other departments and enter into partnerships at the local and district levels.

The Chairperson said the APP did not mention the transversal agreements, and the DSBD needed to engage at the local level and remember their mandate when engaging with them.

The Chairperson thanked all for their cooperation.

The meeting was adjourned. 

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