Small Business Development BRRR; DSBD remedial plans & 400 cooperatives status report, with Deputy Minister

Small Business Development

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

The Committee considered and adopted the Small Business Development Budgetary Review Recommendations Report.

Members agreed to add the following in the report:

  • A strategy for rural areas needs to be developed and there was a need to meet the portfolio committee in charge of that domain.
  • There is a need to consult National Treasury (NT) about resources to support rural development and township economy and developing a master plan for rural areas.
  • The policy of 30% of government services being provided by SMME’s needs to be implemented and the private sector must also get heavily involved.
  • The Co-operatives Act needed to be reviewed.

A Member briefed the Committee on the IKAT proposal, which was a private initiative meant to provide infrastructure, training, skills development and other services to SMME’s in rural areas and felt it should be provided with more support.

The Department of Small Business Development presented on the status of 400 cooperatives. 116 of the funded cooperatives were not functioning because of lack of infrastructure and skills, among other factors. The DSBD lost money as a result and 62% of cooperatives funded did not provide their members with sufficient income in the form of salaries. The Department promised to address these issues by establishing partnerships with institutions at the local and national level as well as seeking assistance from the Department of Cooperative Governance and Traditional Affairs. Members were concerned about corruption in relation to service providers as well as 116 cooperatives being funded without being active. 

Meeting report

Opening remarks
The meeting started at 9:52, the Chairperson apologised for the late start. She explained that after discussing with the Director General, the recommendations for the Remedial Action Plan could only be provided after the Budget Review Report had been approved. She suggested that the recommendations be done at a later stage.

Mr X Mabasa (ANC) agreed to accept this proposal in order to ensure a quality report.

Mr H Kruger (DA) asked for a timeline regarding when the Department would carry out the briefing.

The Chairperson said she would engage with the DG in that regard.

Mr R Chance (DA) reminded the Chairperson about the composition of the Committee and that one of the smaller parties would have to remove a Member since Ms N Dlamini-Zuma (ANC) had joined the Committee.

Ms Dlamini-Zuma said she will leave at noon but return.

The Chairperson stated the ANC Study Group position regarding the addition of a Member to the Committee and said they made a mistake replacing a permanent Member with an alternate Member and this would be rectified.

Mr Chance was satisfied with the response and acknowledged that only six out of the seven members could vote for the budget.

The Deputy Minister noted the Minister might be late because of a Cabinet meeting.

Budget Review and Recommendation Report (BRRR)
The Chairperson tabled the document for consideration, adding that Members had an opportunity to discuss with their  parties if there was anything missing or worth discussing.

Mr Kruger said he had three recommendations which were accepted during the first draft but which he had not seen in the second version.

The Chairperson said she would remind the Content Advisor to rectify the issue.

Mr Kruger said the revisiting of the Cooperatives Act and the migration of rural development to the Department of Small Business Development (DSBD) should be included as in the case of the latter proposal, it is the job of the DSBD to develop rural areas.

Ms Dlamini-Zuma asked Mr Kruger to expand on his point about the migration of rural development to the DSBD.

Mr Kruger said rural development portfolio is the step-child of that Department because land reform is such a big issue and if DSBD took control, it would help to address problems in these areas.

The Chairperson said the responsibility of the DSBD is to champion and coordinate functions in other departments in order to help small businesses. She provided an example of what the Department of Sports and Recreation did during the World Cup 2010 preparations. It would not be possible that all the components of small business migrate or else DSBD would be overwhelmed, which was why an Integrated Development Plan (IDP) and cooperation between different department’ was necessary.

Mr Kruger agreed about the mandate of coordination but felt there was a need to develop rural areas because people are suffering there and the migration would fast-track efforts to improve rural development.

Mr Mabasa thought migration was a strong word to use and the approach needed was greater cooperation with the other departments. Migration would be going beyond the DSBD mandate and one should not believe that only rural development was related to the Department and that all relevant departments should be embraced and not a select component.

Mr S Mncwabe (NFP) thought Mr Kruger’s proposal was a good idea but was concerned that capacity to undertake such responsibilities was not available and not within the mandate of the DSBD. Rural development was important but could be addressed through transversal agreements to help achieve the mandate.

Ms N Mthembu (ANC) thought it was a noble idea as SMME’s are at the centre of rural development but they should work with the Department of Cooperative Governance and Traditional Affairs (COGTA) and use IDP’s as a way to address these challenges.

Ms Dlamini-Zuma said while rural development was very important it needs more than department migration to help solve its’ issues. She thought that would be beyond their mandate and believed working with local government and other departments would address the issue better.

Mr Kruger proposed the DSBD develop a strategy on how to make rural areas sustainable in the area of development.

The Chairperson agreed there as a lack of focus on rural development especially from the Small Enterprise Finance Agency (SEFA), Small Enterprise Development Agency (SEDA) and the Department of Trade and Industry (dti).

Mr Chance said it was important to note 40% of the population lived in rural areas and poverty would be alleviated through business development and emphasis should be made on ensuring more focus will be put on rural areas.

Mr S Bekwa (ANC) understood the mandate of the DSBD is to create a favourable environment and therefore work needs to be done with all departments and not just rural development, and transversal agreements need to be signed.

Ms Dlamini-Zuma was in agreement that a strategy for rural areas needs to be developed and there was a need to meet the portfolio committee in charge of that domain.

The Chairperson said the Committee was in agreement with the importance of rural development and believed inter-governmental cooperation would help to address this issue.

Mr Kruger said the plans in place were not new and there was a need to ensure greater focus on the tools available so that 40% of time and effort from the DSBD could be dedicated towards the rural areas. These strategies must also allow for monitoring and oversight.

Mr Mabasa said rural development was important and the DSBD must work with a bias towards rural areas.

Ms Dlamini-Zuma said they needed to recommend a strategy towards prioritising rural areas, otherwise the problem will be one not related to their mandate.

Rev K Meshoe (ACDP) said the DSBD must remember their mandate and a problem of capacity might aright and traversal agreements must be used as a way of prioritising rural development.

The Chairperson said there was a need to develop SMME’s in rural areas as well as in townships because these areas are important for transformation.

According to Mr Kruger, the budget could not allow them to prioritise these areas and so they have to contact National Treasury to obtain the necessary resources.

The Chairperson said the recommendations were important and would be added.

Mr Sibusiso Gumede, Committee Content Advisor, outlined some of the corrections to the Budget Review and Recommendation Report, including the need to consult National Treasury (NT) about resources to support rural development and township economy and developing a master plan for rural areas.

Ms Dlamini-Zuma said Mr Gumede should start from where their discussion ended, that is concerning rural development and township economies. She also warned the DSBD about being passive and that they must develop strategies which will attract resources.

On migration, Mr Mabasa said the DSBD should not act like other departments and act like they cannot help SMME’s and co-operatives and need to find a way to attract resources which will remedy these.

The Chairperson said the coordination aspect of the DSBD and traversal agreements would help ensure the activities of SMME development are not done in isolation because the DSBD did not have a lot of resources.

Mr Kruger wanted to see a Master Plan in place which would show how they prioritise rural development.

The Chairperson wanted a National Strategy for Cooperatives and SMME’s to include township and rural economies.

Mr Kruger suggested informal street vendors should be included and the Chairperson agreed to this assertion.

Ms Mthembu, who had experience in dealing with street vendors, stated that these are neglected actors in the local economy who need support.

Mr Mabasa wanted a paragraph to include infrastructure development

Mr Kruger said the red tape issue had not been properly addressed and should be discussed with the Department of Planning, Monitoring and Evaluation (DPME).

Ms Dlamini-Zuma thought the issue of high interest rates should be emphasised because this is impoverishing rather than helping SMME’s and not allowing them to fulfil their objectives. Government cannot be giving money for people to go bankrupt.

Mr M Dirks (ANC) said the DSBD needed to explore alternative ways of getting funding to SMME’s like using stokvels. And there must be a way to amend the Intermediaries Act because interest rates are too.

Mr Kruger said the Minister should look into the interest rates matter.

Mr Dirks hoped the DSBD was capturing the points being made.

The Chairperson said the Cooperatives Bank Development Agency existed and was an institution which could help to make co-operatives self-reliant.

Mr Chance gave the example of the Small Enterprise Foundation at Tzaneen which is SEFA supported and is run by women as an example of how local cooperation can help in the area of rural and SMME development. He suggested the Cooperatives Bank Development Agency be invited to provide and account of their activities.

The Chairperson outlined how they had received a negative response from the Department of Finance under the reign of Minister Nene when they wanted to summon the aforementioned institution, as he told the Committee they had no right to hold them to account.

Mr Chance thought that was a disgraceful decision and suggested they address this matter with the current Minister of Finance.

Ms Edith Vries, Director General, DSBD, said the Financial Services Commission now regulates the Co-operatives Bank Development Agency and the latter does not have a regulatory function anymore and only does capacity building. Her department would support an invitation by the Committee, and agreed that rural development was one of the areas the bank should focus on.

The Chairperson said SMME’s should not be restricted and if they are not assisted, how will they meet the targets of the National Development Plan (NDP) in relation to job creation? The policy of 30% of government services being provided by SMME’s needs to be implemented and the private sector must also get heavily involved.

Mr Kruger said there was a need to create an Ombudsman to look at when small companies are being bullied by big firms.

Mr N Capa (ANC) thought that the recommendations should be more detailed.

Mr Gumede stated the revised recommendations which included the revision of the Co-operatives Act, the application of 85% procurement from SMME’s for 10 products and the expansion of the 30% government procurement from SMME’s to the private sector.

The report was adopted.

Briefing on IKAT
The Chairperson decided that the Committee should be briefed on the proposal.

Mr Kruger said IKAT was a private initiative meant to provide infrastructure, training, skills development and other services to SMME’s in rural areas and felt it should be provided with more support.

Mr Chance said IKAT should be a programme of reference in project management and capacity building, especially in the area of rural development.

Mr Capa warned that the Committee should not overstep its’ role because their mandate is to ensure oversight and so they should tread carefully here.

Mr Kruger said his proposal was to ensure the IKAT project is used by the DSBD on how to implement project management.

Mr Mncwabe saw no problem with big companies trying to assist smaller one’s as it was a form of reinvesting in the communities and also a form of radical economic transformation.

Ms Nomathemba November, Deputy Minister, said she had no issues but thought it was important to engage with other departments on this matter.

Mr Capa supported the idea but it must be done in a way to avoid conflict of interest.

Ms Dlamini-Zuma suggested the project should also be discussed with the relevant departments

The Chairperson said no one believed there was anything wrong with the project and any other initiative meant to create jobs and improve service delivery, but a line should be drawn between what the Committee and DSBD can as well as cannot do so there was a need to engage with the other departments directly concerned.

Mr Capa said there was a need to establish a timeline to engage with all the parties concerned.

The Chairperson suggested a date be set in order to assess the Remedial Action Plan during the first quarter because there was a lot of work in that case.

The Chairperson excused herself to attend a Chairperson’s meeting and delegated the ANC Chief Whip Mr Mabasa to chair the session for the rest of the day.

Mr Mabasa politely requested that Ms Vries conduct the presentation within 20 minutes as Members had another session to attend.

Briefingby Department of Small Business Development
Ms Vries provided the background in context of DSBD support to cooperatives and said until 1 April 2017, such interventions were disconnected, however, from 1 April 2017, the Integrated Cooperatives Development branch was established to coordinate such activities. She outlined how the assessment of the 400 cooperatives was done by DSBD, SEFA and SEDA officials but some of the challenges fieldworkers faced included not having previous skills in the domain of conducting interviews, so they did not know how to ask follow-up questions for example, and the questionnaire also lacked some basic questions.

Ms Vries provided a map showing the provincial distribution of cooperatives which had been funded through DSBD and Limpopo, Eastern Cape and Gauteng had the highest support. However, 29% (116) of the cooperatives funded were not operational due to a multitude of factors such as lack of skills or poor infrastructure. She noted that the need for cooperatives to be sources of employment because many were not providing sufficient job opportunities, for example, in KwaZulu-Natal. 206 cooperatives had members who were not earning a salary, which was also a major concern and many cooperatives were not operating because of lack of access to basic services and also did not practice proper accountability methods.

Ms Vries concluded that a further assessment needs to be conducted and due to the 116 non-functioning cooperatives, the DSBD lost money. Also, despite the large number of operational cooperatives many of them were hampered by challenges like lack of skills and access and to basic services. Moreover 62% did not make enough money to provide their members with a decent income. The DSBD intends to host a summit in collaboration with COGTA to address these issues and will help to strengthen the value chain of cooperatives by building partnerships at different levels.

Discussion

Mr Mabasa thanked Ms Vries for the presentation and apologised for putting her under pressure.

Mr Capa was happy with the report and suggested that raw data should be provided in future to support such a good report.

Mr Chance said the report provided useful data but noted there was not enough longitudinal information to allow Members to assess the survival rate of cooperatives. It would be interesting to see the results of a follow up report. He asked if there were a plan to address the lack of market growth for cooperatives.

Mr T Mulaudzi (EFF) was concerned about corruption in relation to service providers for cooperatives as well as 116 cooperatives being funded without being active. He also expressed concerns about the amount of money lost.

Mr Mncwabe appreciated the report and asked what the role of SEDA was in helping cooperatives, but he also acknowledged the listing of some of the practical achievements attained.

Mr Bekwa wanted the DSBD to assess their overall impact rather than solely looking at numbers.

Ms Vries said there has been suspension of officials, as a result of the oversight report provided by the Committee and she would provide further details as investigations resulting from the report continued. It was important to provide SMME’s with exposure to global markets because limited access to markets was an issue. She noted that those applying for CIS support form a small percentage of those asking for DSBD cooperative support.

Mr Mabasa thanked the DG for the report and all those present for their attendance.

The meeting was adjourned. 

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