Department of Small Business Development Quarter 1 & 2 performance

Meeting report

The Chairperson announced the Portfolio Committee had received two invitations for Members to attend the national Local Economic Development Conference and the Small Business Development Institute Conference, both to take place in November. She had accepted the invitations on behalf of the Committee.

Mr R Chance (DA) asked that the outcomes of these events be reported to the Committee.

The Chairperson said there was a need to establish a quorum, or the meeting would have to be adjourned.

Mr X Mabasa (ANC) said he would look for some MPs to fill in for the absent Members.

Department of Small Business Development (DSBD): Performance report

Ms Edith Vries, Director General: DSBD, outlined the Department’s strategic objectives and mandate, and reported on the overall achievements of the DSBD during the first quarter. It had achieved 75.50% of its targets during the first quarter of 2016/17, compared to 51.6% in 2015/16. The areas of under-performance were mainly the result of a lack of personnel, as some employees were being moved from different units, and she believed this under-performance would not occur in future.  Some of the performance highlights included maintaining 53.7% of women in at senior management service (SMS) level, and 2.6% of people with disabilities. The DSBD was now pursuing a research agenda and due to their small budget, it had started consulting with big corporations in order to help achieve its mandate.

Through the Black Business Supplier Development Programme (BBSDP), 136 black small, medium and micro enterprises (SMMEs) were supported, compared to the target of 100, and 46 of these were female owned, while 31 were owned by youths. The DG said efforts had been made to engage with rural municipalities, and five districts had been earmarked to pilot this engagement.

With regard to under-performance, only 31 co-operatives were supported through the Cooperative Incentive Scheme (CIS) out of the targeted 70. The DG attributed the blame to the fact that most of the CIS team had been taken to the field to do fieldwork on monitoring and evaluation, and this had affected work and training programmes. The DSBD was lagging in its support of informal businesses, because only 140 were supported out of a slated 300, and no informal business infrastructure partnerships had been secured to date. There was under-expenditure to the tune of 15.5%, and the vacancy rate was 12.7% against the target of 10%. Concerning skills development, one of the corrective actions the Department would undertake was to host an international conference on Business Development Services so this sector’s operations could be standardised.

In Quarter Two, some of the performance highlights included concluding a partnership with the Departments of Economic Development and Tourism in the Northern Cape, and hosting an International Cooperatives Day in Bloemfontein, as well as hosting eight “red tape reduction” workshops across the country. In the area of support for cooperatives, the DSBD had recovered its first quarter shortfall and provided training for 178 cooperatives against a target of 90. Four incubators were supported through the Enterprise Incubation Programme (EIP), while the vacancy rate dropped to 9.8% against the planned 10% rate. Moreover, it had maintained the number of women at the SMS level at 53.7% (50% target) and people with disabilities at 2.9% (target 2%).

Ms Vries said there were aspects of under-achievement which needed to be rectified. For example, 57 out of a planned 70 cooperatives were supported through the CIS, and 362 informal businesses were supported out of a desired 470. In addition, no informal business infrastructure partnership agreements were secured. This performance was due to administrative challenges and capacity constraints in the DSBD.  The under-expenditure rate had dropped from 15.5% to 8%, but was still below the target of 5%. Overall expenditure was R371.4 million, against the planned spending of R372.3 million.

Discussion

Mr Chance asked about the “economic diplomacy agenda” which was referred to in the presentation, and questioned whether the comparative analysis of SMMEs was being done with respect to other countries. When could they expect to receive the amended Small Business Act? Was the DG was aware of claims of corruption relating to the BBSDP programme? Concerning informal business support, what had been done to replace the Wholesale and Retail Sector Education and Training Authority (W&RSETA)?

Mr Mabasa wanted to know about the status of the National Small Business Council. He asked for further elaboration on the issues of under-expenditure, especially since the DSBD always claimed to lack resources. Were adequate steps being taken to assist the people of the Northern Cape? What was the status of the incubation of the Cooperative Development Agency (CDA) into the Small Enterprise Development Agency (SEDA)?

Ms Vries referred to the CIS expenditure, and explained there was a cumbersome process of assessing applications which entailed providing three quotes, and most applications were inadequate, especially when it came to providing different quotes. The guidelines had been amended to streamline procedures, and this would allow the DSBD to meet its targets and improve its expenditure. Furthermore, to reduce time, the managers would replace the adjudication committee.

She said the incubation of the CDA within SEDA was on track, and all parties had been engaged. A budget now needed to be secured from National Treasury, otherwise the process would have been completed.

Mr Lindokuhle Mkhumane, Acting Deputy Director General (DDG): DSBD said improvements in infrastructure had been achieved, but delays might emerge when working with partners. He believed targets would be met, but delays had arisen in negotiation and co-funding. The Enterprise Incubation Programme (EIP) had started slowly, but was now working well in terms of expenditure. The W&RSETA had not been replaced, but agreements with SETAs which worked with informal businesses, like the Services SETA, had been concluded. Nonetheless, the DSBD did not have this capacity and had reached out to the SEDA for assistance.

Ms Vries said that “economic diplomacy” was in relation to the Department of International Relations and Cooperation’s (DIRCO’s) mission to familiarise the diplomatic corps on the need to promote South Africa as an investment destination, and the DSBD needed to play a part in that regard. The Department would be undertaking comparative analyses with Kenya, Nigeria, Malaysia, Singapore, Taiwan, Brazil and the European Union SMME environments and policies in place.

The Small Business Act was expected to be available by June.

The DG said she was aware of allegations of corruption and mismanagement. The accused official had been suspended and the DSBD was trying to commission a forensic audit to see what had transpired.

The Minister had decided to hold off on the creation of the Small Business Council, and with regard to the provinces which were lagging behind others, the DSBD had engaged with the regional DG’s of the Northern Cape and North West to address their challenges. Moreover, the Department would directly involve the Deputy Minister in the Northern Cape, because it was her home province.

Mr Chance was concerned about the focus on the expenditure, rather than on its impact, because people wanted to know the impact on the broader economy. He also wanted to know how the key performance indicators (KPIs) would be reflected.

Mr N Capa (ANC) asked whether the Western Cape had been totally left off the “red tape reduction” process, and suggested that the DSBD work with the South African Local Government Association (SALGA) to identify municipalities which could be supported.

The DG agreed with Mr Chance, and said the Department would do more to highlight the impact of the expenditure.

Small Enterprise Finance Agency (SEFA): Organisational performance

CEO Mr Thakhani Makhuvha, Chief Executive Officer (CEO): SEFA, said that total approvals had amounted to R32 million, or only 13% of the quarterly targeted amount, and attributed this under-performance to the sluggish economic performance of South Africa and the consequent subdued demand for SEFA loans. He said 38 of the 62 loan applications were approved (61%). SEFA was far behind its annual target for loan approvals, but most activity in this domain occurred during the third and fourth quarters. Direct lending had led to the support of 34 SMMEs, and funding allocations to productive sectors had amounted to 47%, against the targeted 60%, and had led to 647 jobs being created.

No approvals for wholesale lending were made during the second quarter, but SEFA’s total disbursements had been R481 million, representing 70% of the annual target, which the CEO regarded as positive. In the area of job facilitation, SEFA assistance had led to 6 675 jobs against a target of 17 700, and it had supported 5 436 co-operatives and SMMEs out of a targeted 11 400. Priority provinces – which excluded the Western Cape, KwaZulu-Natal (KZN) and Gauteng -- had claimed R65.6 million in total disbursements. 84 township-based enterprises had received R14.3 million. A R30 million fund had been launched to help disabled persons, and R3.8 million was disbursed, compared to only R1 million during the first quarter, but there had been challenges in this domain.

Mr Makhuvha said the portfolio risk had decreased to 11% during 2017, and SEFA had launched two fresh produce markets in Durban and Mangaung, which had facilitated 314 jobs.

Discussion

Mr Chance commented that the trend line seemed to be improving, although a legacy of impairmenta was impeding optimal achievement. He asked why there was a decrease in the number of loan approvals, as it was no good having money which was not being used to grant loans. Did SEFA have arrangements with commercial banks which turned away loan applications? What funds were being used to support township businesses, and what were profiles of the township businesses which were supported? He suggested that full repayment before the loan period elapsed might be negative, and asked if there were red flags to note when this happened. He noted that while jobs had been created, he was interested in the growth impact of these businesses.

Mr S Bekwa (ANC) believed most of the rejected applications came from rural areas, and wanted to know what was being done to assist them. What was being done to assist disabled people, because they were not getting enough support?

Mr Capa asked what the cause for the drop in the number of applications was, and if there was a way to ensure applicants got adequate information in respect of obtaining quotes. Regarding the increase in jobs, he wanted to know if there was a database to track jobs, and what efforts were being taken to reduce red tape. Had there been complaints about high interest rates?

The Chairperson thanked SEFA for the presentation and the pilot projects in place, because they helped to assess firsthand the problems of entrepreneurs. He suggested that SEFA should help hawkers and rural entrepreneurs more often.

Mr Makhuvha said that funding was based in the quality of the applications received, and stringent measures had been imposed by SEFA to obtain loans in order to mitigate the risk of loan defaults.

Mr Bekwa said it seemed SEFA was operating as a commercial bank, and asked what was being done to help rejected applicants.

Mr Makhuvha said rejected applicants might be sent to SEDA or provided with mentors so they could produce better applications, and rejected applicants could obtain information at the regional office for loan assistance.

The Chairperson said he would provide a list of disabled people with whom the CEO could engage.

Mr Makhuvha said SEFA used the demarcation database in order to classify which businesses were actually in townships, and the categories of township businesses supported included survival and lifestyle businesses. The distribution of jobs created could be found on the data base.

Net interest rates ranged from 13% to 15%. Most of the applicants had a risk margin which was too high for bank loans. SEFA had also started to fund taxis in the townships.

Small Enterprise Development Agency: Performance report

Ms Mandisa Tshikwatamba, CEO: SEDA provided an outline of the strategic goals and objectives of SEDA, which included improving strategic alignment, improving knowledge and skills as well as improving system integration. For the first quarter, SEDA had an overall performance of 89%, achieving 16 of the 18 indicators which were considered for review. Some of the performance highlights were the creation of 638 new jobs by incubators supported by SEDA, as well as the creation of 143 new enterprises through the incubator programme. An additional 77 cooperatives were supported under an agreement with the Economic Development, Tourism and Environmental Affairs (EDTEA) Department.

The CEO said 92% of SEDA’s clients were black-owned businesses, 49% were female-owned, while only 1% of the clients were disabled business owners. In terms of the client sectoral background, 58% were involved in the service industry, while 16% and 12% were involved in manufacturing and agriculture respectively. A total of 240 cooperatives were supported, while 104 SMMEs were also created by SEDA. Overall, 1 270 clients were supported, but some of the challenges faced by SEDA included lack of project management skills, failure to attract and retain skills, and inadequate funding to support SMME’s. She added that SEDA had not been able to provide equal access to its buildings for disabled persons. In the area of expenditure, there had been a 9.81% under-expenditure rate.

Discussion

Mr Chance asked which services were the most supported by SEDA’s portfolio

Mr Bekwa said that SEDA should do more to help people who had disabilities, and inquired how they would access buildings which did not cater for their disabilities.

Mr Capa wanted to know what happened after training, and whether there was some sort of follow up.

Ms Tshikwatamba responded that SEDA always tried to make its offices accessible, and sent experts to assess if all the necessary requirements had been met. Regarding the disparity between provinces, she said SEDA would increase its branch networks to remedy this situation. People sought support in the service sector because it was the easiest to get involved in, and the SEDA Technology Programme (STP) provided greater all round support compared to the Economic Development Department (EDD). However, it was more costly because of the need for office space and equipment.

The CEO said there was a working relationship; between SEDA and SEFA in the provinces, with a referral system in place after discussions between the two entities, and vice versa. She acknowledged that SEDA was trying to increase its outreach mechanism by working more with municipalities.

The meeting was adjourned.