R1,5 billion private sector support of small businesses: Department on its involvement

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Meeting Summary

The Department of Small Business Development (DSBD) met with the Portfolio Committee on Small Business Development to give a briefing on its involvement in R1.5 billion private sector initiatives in support of small businesses as per resolution 68. Resolution 68 stated that the Department should use its transversal mandate agreement to access to complimentary funding and support services for Small Medium and Micro- sized Enterprises (SMMEs) and co-operatives located in both the private and public sector.

The Committee discussed a forensic audit they wanted to undertake on the DSBD, but was unable to secure funding. It was announced that since the Department did not have the capacity for a forensic audit, the Auditor-General would assist, at a cost of R1 million.

The Committee emphasised the lack of initiative taken by the Department to address allegations. Concerns were raised about the time the report would be completed and the end of the Director-General’s contract which were both in five months and the need for coordination.

In its briefing, DSBD said the private sector established the fund with the aim of creating a substantial fund that co-invests with fund and investment managers that are accredited by them.

The fund will seek to grow the private sector’s initial R1.5 billion investment, with the aim that over time the public sector will contribute matching funds. This was the initial understanding between National Treasury and the CEO initiative – as the SA-SME Fund was initially called but due to a number of reasons (which amongst others include fiscal constraints and exclusivity of the mandate of the SA-SME fund) government decided not to co-fund with the SA-SME fund. The DG of National Treasury served on the board of the SA-SME fund.

The Department has begun to engage with both SEFA and SEDA on reviewing their business models in order to arrive at a model which was more cost effective, efficient and more responsive to the needs of SMMEs and cooperatives. SEFA in particular has had its critical issues tabled.

SEFA was also facing an ongoing concern - it needed to be recapitalised as was the case for other Development Funding Institutions (DFIs). The Department has mobilised just over €52 million from the European Union (EU) facility for the programme called the Employment Promotion through Support Programme for the Republic of South Africa. Out of the €52million, €30million will go to SEFA. In addition to this the Department has positioned SEFA as one of two implementing partners for the Small Business and Innovation Fund that has been allocated R2.1 billion for the next two financial years. This funding will be managed differently and a separate account will be opened which will have a different dispensation and reporting protocol.

The Committee asked questions about the exclusivity of the mandate, which would be the second implementer, why gazelles were not included, and why the wholesale channel was chosen over the direct channel.

Members wanted clarification on whether the €52 million from the EU was a grant or a loan; what have been the outputs and outcomes of the hosting of the World Bank Mission on 7 August 2017; and agreed somewhat that SEFA has to be revised due to the category it was meant to serve.

The Chairperson asked what programmes were in place to support “survivalists” and if the Department was thinking of innovative measures to assist small businesses which would acknowledge and develop their potential for growth, as well as to reduce their high business costs to allow for a higher income which increased self-sufficiency and promoted less dependence on the State.

Meeting report

The Chairperson gave thanks to all who had sent her well wishes and supported her when she was not well. The meeting had been called to receive a briefing by the Department of Small Business Development (DSBD) on its involvement in the R1.5 billion private sector initiative to support small businesses as per resolution 68.

Apologies were received for the Minister and Deputy Minister.

Mr R Chance (DA) asked if the Chairperson would update the Committee on discussions with the House Chair about the availability of budget for the forensic investigation.

The Chairperson replied that the forensic audit the Committee wanted to undertake has been approved in principle, but she had been told there was not funding at that time. She will be informed once funding was available. She was planning to follow up because a new financial year has been entered. Additionally, she stated she thought besides a forensic audit, other measures could be applied as with the case of the Portfolio Committee on Public Enterprises who called on people. The issue is with the Small Enterprise Finance Agency (SEFA) and its lack of impact on the ground in terms of money deployed and a prioritisation of service providers as opposed to those who need it. She questioned whether it was correct to pay service providers before the service was provided without checks and balances. The Department said this occurred because of lack of capacity but this is not adequate because capacity can be built. A meeting in the first week was suggested of the second term to discuss the impact of investment being made, what service providers would provide, the Department’s focus on service providers (the middle man) and not the people and inadequate remedial action presented by the Department. Evidence of the Department’s underperformance was building and a point will arise where they will be put under the spotlight.

Mr Chance said session to measure the impact was a good idea but that an audit was required as the Committee internally could not uncover what a forensic audit could do due to different skill sets and capacity. A joint effort would have to occur which would allow the Committee to report back to the Executive and call for action. Deadlines need to be set despite budgetary constraints.

The Chairperson responded that she agreed with a two-point approach. One would be a forensic audit and the other would be following the impact of the investment made. The Department’s behavior was inadequate as they were not pro-active about report findings.

Mr N Capa (ANC) said the long process of forensic investigation was not the solution. Evidence would have to be provided to the Department and they would have to be told to take action.  He doubted the proposed processes will be resolved before the end of this term and without insistence actions will not be taken by the Department.

Ms Edith Vries, DG, DSBD, said the Department did not have forensic capacity to carry out investigations therefore the Auditor-General (AG) was asked to help. The AG outlined the audit that will be carried out and that it would cost them R1 million. She would be happy to share the scope of the audit with the Committee.

The Chairperson responded that mentioning the amount was questionable when millions had been lost with no impact. There was an 88% failure rate with all investments. It was money that would not have to be spent if the Department fulfilled its role and allowed people to be self-sufficient through their businesses. The Department was forgetting their important role in poverty eradication and the impact they are meant to make. Poverty would not be non-existent but would not be as bad as it currently was if the Department fulfilled its role. She asked when people would de-register from social grant and indigent lists as well as when the revenue base of municipalities would be broadened if the impact of the investment was not followed, R1 million is not worth mentioning when millions get wasted due to misalignment, lack of coordination and the Department being guided by service providers instead of government and ruling party policies.

Mr Chance asked if the reports needed to be done by the Committee and the Department or if one report could rather be done under the Committee’s supervision. Two reports would be a waste of money. It was important that the Committee has oversight over the terms of reference and has to make sure questions asked by the AG are comprehensive. He asked when the report will be completed by the AG.

Mr X Mabasa (ANC) said that he agreed with Mr Chance’s opinion that two reports are unnecessary.

Ms Vries said that she only received the document yesterday (6 March 2018) and would meet the AG as soon as possible. According to the AG, the investigation will be completed 5 months after commencement.

The Chairperson asked when the contract of the DD expired.

Ms Vries replied that it expired in five months.

The Chairperson asked if the report would come out before the DG leaves. The report would have to be released while the accounting officer was still in office because accountability would be undermined if the DG left before its release.  

Mr Mabasa said the Committee should meet with the AG to discuss if the process can be completed in less than five months, but if not, and it took five months or longer, the DG will still be in the Department.

Mr Chance agreed with Mr Mabasa’s suggestion, but urged the Department not to delay the AG investigation.

Rev K Meshoe (ACDP) said that the Committee should make sure what the Department asked the AG to cover the concerns of the Committee as well prevent delays.

The Chairperson responded that a meeting was scheduled with the House Chair so that the process can be tightened and that there was coordination as well as a shortened process for the report.  

Mr Capa said there was enough evidence of fraud and corruption in the report presented to the Committee.

Mr Mabasa said the Committee wanted appropriate action to be taken in response to what has been discovered.

Rev Meshoe asked why the Department, once informed about concerns in the DSBD did not take initiative to address the concerns.  DSBD should not have to be told to investigate allegations but should take initiative to investigate allegations made.

Mr H Kruger (DA) stated that it was his legal duty to tax payers as an elected public representative to report suspected illegality. It would be wrong of him to suspect and see tax payer money being wasted and not expect the Department to take action to rectify their wasteful behavior. A person’s dignity costs more than R1 million.

The Chairperson said she wanted to respond to the issue raised by Mr Capa. The Department did not take initiative to investigate allegations and find ways to address these allegations. She gave an example of SEFA and the case of the chickens. The SEFA board took the initiative to investigate and present findings with resolutions and offered to present the findings. Yet, the Department read the report and did nothing. The Committee produced reports but the Department did not produce a report in response, but waited for meetings. All chicken projects had one-day old chicken which arrived on the day.  The cost of chicken was different in areas. Most of the projects were hidden from the municipality and the money was given to service provider and not the cooperative. The accounting officer did not see the need to change these practices and put new systems in place that will be in line with the Public Finance Management Act (PMFA) - such as not paying when the service has not been received. The system directed money to service providers instead of beneficiaries. A forensic audit was not necessary to see this system does not work and it was against PMFA guidelines to pay before services are received.

Mr Mabasa recommended that the Committee look at terms of reference while the Department looked at it terms of reference to shorten the audit process and to make sure the Committee’s terms of references are covered.

Mr Kruger asked when the Committee would summon Vodacom on the case of Mobile Diesel as it has been more than 6 months since the issue has been addressed.

The Committee Secretary, Mr King Kunene, responded that due to changes in the parliamentary calendar an opening arose and therefore a meeting on the 28th of March was scheduled with Vodacom.

The Chairperson said that the Committee spent the first quarter following up on the tracking tool and one of the issues that followed was the work done by the access to market unit of the Department. The unit was dismissed because what they presented was not in line with what they were supposed to do as a unit. The Chairperson issued a statement yesterday (6 March) calling all CFIs to demand a 30% share of redistribution of social grants because it was a government policy and there was no reason for only the private sector to dominate grant distribution. Public institutions should not be forgotten because the money they earn allowed them to finance projects at community level. Private companies, such as Cash Pay Master Services (CPS) did not create community based development. The welfare intervention should be used in a developmental manner. CPS’s contract was declared illegal but they were still allowed to dominate the space. Instead of allowing CFIs to fund themselves through social grant redistribution revenue the Department was sitting back. The CFIs announced that they might have a banking platform but instead of helping them the Department competed with them by saying they can create a new banking platform for them. The Department has become a pothole to CFI initiative and development. The Committee should engage the Minister of Social Development and support the CFIs to get their share of distribution of social grants. The CFIs will be invited to say if they have capacity and if not, say whose responsibility it was to help them build capacity. Lack of capacity cannot be continually used as an excuse as if capacity was inherent and cannot be built.

Mr Chance said a constraint for the CFIs was that they are not connected to the national pay list. The constraint needed to be addressed preempting what they might tell the Committee. He agreed that CFIs should be used and that they could generate flow through.

Mr Mabasa asked they should not work in conjunction with the Committee on Social Development.

The Chairperson replied that they would work with the Committee on Social Development so that they can move from a welfare mentality to a developmental mentality.

Department of Small Business Development (DSBD) presentation

Mr Lindokuhle Mkhumane, Deputy Director-General (DDG), said the purpose of the presentation was to provide the Committee with a report on the involvement of DSBD in the R 1.5 billion private sector initiatives in support of small businesses as per resolution 68. Resolution 68: The Department should use its transversal agreement mandate to assist SEFA to gain access to complimentary funding and support services for SMMEs and Co-operatives located in both the private and public sector

SA-SME fund background

In February 2016, the former President convened a meeting of CEOs of major companies and captains of industry to discuss ways in which the public and private sector can work together to reignite economic growth and create jobs. He then mandated the Minister of Finance to lead the process of engaging with the private sector in particular to map out a strategy to the goal of growing the economy.

The private sector established the fund with the aim of creating a substantial fund that co-invests with fund and investment managers that are accredited by them.

The fund will seek to grow the private sectors initial R1.5 billion investment, with the aim that over time the public sector will contribute matching funds. This was the initial understanding between National Treasury and the CEO initiative – as the SA-SME Fund was initially called but due to a number of reasons (which amongst others include fiscal constraints and exclusivity of the mandate of the SA-SME fund) government decided not to co-fund with the SA-SME fund. The DG of National Treasury served on the board of the SA-SME fund.

Mandate of the SA-SME fund

Based on research the fund will have an impact on four areas:

-Investment impact: R1.3 billion will be provided to 13 funds to support investment into 113 high-growth business and creation of 31 000-51 000 jobs

-Fund manager development: scale and support promising new managers who are struggling to become viable. The SME fund is targeting 15%+ for SME funds and 20%+ for Internal Rate of Returns for mid-market funds.

-Scale and professionalise business development services: scale, support and professionalise business development services that focus on the SME sector through rigorous accreditation and ongoing measurement of outcomes to drive the transition to a quality-driven industry.

-Broader ecosystem support: increase broader SME ecosystem initiatives and high impact programmes to which the fund can lend technical, reputational and appropriate financial support.

Possible Areas of Cooperation

The first fund meeting as requested by the Minister took place on the 5th of October 2017 and was followed by a workshop on the 4th of November 2017 which included SEFA and SEDA to explore areas of cooperation. The fund was targeting a particular segment of small businesses which are expected to achieve a commercial rate of return of 15%+. Maybe further into the future some of the Gazelles will quality for funding under the SA-SME Fund but the category of the businesses that are supported by the DSBD portfolio currently did not qualify.

It was also agreed that there are other areas within the ecosystem that could hold serious possibilities of cooperation and they are as follows:

-Mentorship: through the National Mentorship Movement the fund will provide R5 million and will partner with SEFA to train small businesses to grow and become sustainable.

-GIBS training programme on financial management: the fund will partner with SEFA to train small businesses funded by SEFA in financial management with emphasis on cash flow management.

-Research: the fund will share its research with the Department with the first research on the ecosystem shared with the portfolio on the 7th of November 2017

The fund is currently finalising research on which will provide information on lenders per province and sector, categorising funding per sector, etc.

Efforts to obtain funding for SEFA

The Department has begun to engage with both SEFA and SEDA on reviewing their business models in order to arrive at a model which was more cost effective, efficient and more responsive to the needs of SMMEs and cooperatives. SEFA in particular has had its critical issues tabled.

SEFA was also facing an ongoing concern - it needed to be recapitalised as was the case for other Development Funding Institutions (DFIs). The executive authority and the accounting authority have been in discussion and the board was engaging this challenge directly, but it appeared that for the first time SEFA will be required to draw down the Industrial Development Corporation (IDC) loan.

The Department has mobilised just over €52 million from the European Union (EU) facility for the programme called the Employment Promotion through Support Programme for the Republic of South Africa. Out of the €52million, €30million will go to SEFA to spend on the following:

-Wholesale lending initiatives between SEFA and other financial institutions with a specific focus on increasing access to finance for SMMEs, notably those with potential as suppliers in corporate or government value chains.

-Business development support services to SMMEs that are being financed and support to SEFA and partners to build internal capacity in order to assist in the implementation of the programme and to enhance further lending.

In addition to this the Department has positioned SEFA as one of two implementing partners for the Small Business and Innovation Fund that has been allocated R2.1 billion for the next two financial years. This funding will be managed differently and a separate account will be opened which will have a different dispensation and reporting protocol.

These initiatives are aimed at improving the capacity of SEFA positioning it as a DFI for SMMEs and cooperatives.

Efforts to Strengthen SEFA Capacity

The Department was engaging with National Treasury on the issue of cession of contracts to be implemented at a national level because even though some state institutions agreed on cession of contracts, they did not honour the agreements. A response from the national DG about this issue is expected by the end of March 2018.

The Minister hosted the World Bank mission in August 2017 subsequently the International Finance Corporation (IFC) had an engagement with SMMEs to discuss the opportunities offered by the Bank and how to exploit these opportunities. SEFA further engaged with the IFC to explore opportunities for collaboration.

Emanating from the engagements with SEFA, the IFC undertook to perform a diagnostic assessment on SEFA. The IFC advisory team then conducted a two day diagnostic assessment of SEFA, aimed at addressing market failures. The diagnostic included an overview of SEFA operations and how to improve and implement appropriate remedial actions. Findings from the diagnostic were shared with SEFA management and there are ongoing engagements to facilitate partnership with the IFC

The IFC has committed to conduct three workshops on collections, data analytics and talent management. In addition, SEFA will, with the support of the IFC and the EU Technical Assistance, undergo a process to review the business strategy and lending model.

Partnership for Enterprise & Supplier Development (ESD)

ESD aimed to create business linkages between small and large businesses in South Africa. SEFA, in partnership with the big corporates (in specific industries), has a development strategy for empowering suppliers by offering business skills, technical skills, funding and access to markets. Plans to partner with technical experts, strategic industry bodies and sister DFIs for provision of non-financial support to SMMEs. SEFA partnered with SOEs and corporates who fund SMEs to leverage and pool existing financial and non-financial resources.

Conclusion

SEFA impairments have improved on an annual basis. These improvements emanated from the write-offs as well as the concerted efforts in collections of amounts due and those in arrears.  The restructuring of qualifying accounts was also done. Qualifying accounts referred to the accounts of SEFA clients who are making an effort to repay loans, but are struggling to meet the specified amount. SEFA would then restructure their repayment terms for a particular period.

Ms Vries in conclusion said slide 13 and 14 linked to the presentation that SEFA made on the 14th of February on the Enterprise and Development Fund. DSBD reported at the time that the process was being delayed by BEE facilitator status. The Department was waiting for the Department of Trade and Industry (DTI) to put something in writing and after this they would respond to the Committee in writing. DTI said it was in process of considering SEFA applications, but the only the Minister can award BEE facilitator status. Before this can occur, it has to be out for public comment for 30 days. Once the facilitator status was awarded SEFA will be able to come and present to the Committee. On the issue of cession, she said that the Deputy Minister met with the organised business sector on Friday and at this meeting SEFA said that they had research done by Transnational Credit. The findings were that 87% of SEFA clients who were defaulting were honouring other commitments such as mortgage or card payments. This information armed the Department with information for conversation with Treasury and to investigate a measure that enforced payment is.

Discussion

Mr Kruger said the Committee often received refreshments late which in turn made the meetings run late and that this must be addressed.

Mr Chance asked what was meant by the exclusivity of mandate of the SME Fund and why this supposed exclusivity meant the Department cannot participate. What would happen to the 2.5 billion which will not be invested in the fund? Why gazelles are not regarded as fundable by the SME fund?  Does this mean that gazelles are not considered as high growth potential because they are too small or too risky? What would this mean for the Department’s selection criteria for gazelles in future?  He said once the Department received information from the fund they should make the information available to the Committee. It was obvious that SEFA was not a going concerning for long because it’s chewing cash at an impairment rate of 67%. This high rate meant it will run out of cash soon. What was SEFA’s strategy? It appearred SEFA has an identity crisis. Is it a financial developmental institution that has a capacity loss making or are they meant to be returning income to shareholders through returning loans? The EU was directing its funding through wholesale channel and not the direct channel of SEFA - this could be because the wholesale channel performed better and the direct channel was not performing well. This highlighted the need for analysis about why the direct channel was performing so badly. On the statement that 87% of people are paying their other commitments, Mr Chance asked if this was an indication that SEFA was not taken seriously by clients and funding is seen as a government handout and that investigation was needed to understand  their clients perceptions. He asked who the second partner for the Small Business and Innovation fund would be. He questioned the use of “market failure” and asked if it should not be down to risk analysis. He added that he would like the Committee to be party to IFC diagnostic assessment and it would be important for the Committee to be presented with the findings of the diagnostic assessment.  The fundamental problem was a “chicken and egg” situation, because high risk required high interest rates, but high interests made it difficult for small businesses to repay the loan.. Financial institutions have to charge high interest rates to recoup the non-repayment of loans which made it difficult for businesses to pay the loan and it creates a vicious cycle of non-paying loans and high interest rates. Government has to make money available as first loss and reduce the risk of the fund manager so that a lower interest rate can be given to businesses. SEFA has to rethink its business model concerning high interest rates. A R1.5 billion fund with Services SETA was mentioned last week could clarity be given about this funding as well as the R2.1 billion fund. He asked the Department to explain where the plethora of funds, not just in the Department, but also the DFI landscape fits into the life cycle model and if the funding strategy was aligned to the life cycle.

Mr Mabasa asked if someone would clarify resolution 68.  On government’s decision to not co-fund the SME fund, is this an advantage for constituency or does it exclude them unconsciously or would this be preferred by them?  He asked who GIBS would train because the target group was higher placed than SMME’s and co-operatives. He asked for clarification on the statement that SEFA would for the first time draw down on the IDC loan. Is the €52 million from EU a grant or a loan? Who would the two implementing partners of the fund be? On the issue of cession of contracts, he asked what essentials constituted a contract. What have been the outputs and outcomes of the hosting of the World Bank Mission on 7 August 2017? He asked if the IFC should not have a workshop on capacity as well. On the wholesale versus direct channel in relation to what Mr Chance said, he asked if a challenge was being faced where the intermediaries were benefiting so that end users lose in the process. He agreed with Mr Chance that the business model of SEFA has to be revised due to the category it was meant to serve. Does the IDC appreciate SMME’s and co-operatives?

Ms N November (ANC) gave thanks to the Department and said they should not lose track of the date for the research and that they should stick to the deadline. On the issue of departments not honouring contracts, she asked whether this behaviour was an indication that integration would not occur. Integration was very important and she asked if the departments are interested in integration.

Ms Vries replied to the question on exclusivity and said that from onset the private sector said it was their money and they would determine the conditions of what they would and would not fund. They will fund businesses on possibility of growth and terms such as 15% plus commercial returns and 20% plus internal return on mid- market. The Department did not set these conditions - the fund determined its own conditions and made their own decisions and therefore it would be best for the Committee to ask the fund directly. On the gazelles, she responded that she cannot answer on behalf of the fund. Cohort one as a collective has shown growth in value generated and impairment and are therefore considered high growth entities by the Department. The Fund determined their own criteria therefore even if the gazelles are considered high growth by the Department; it would still ultimately be the fund’s decision. When the research was finalised and it has been interrogated, the Department would like to present it. The Department would keep track of dates as asked by Ms November and the end date for the second bit of research would be the end of March.  

On the question of SEFA being an ongoing concern, she said the general approach for funding developmental institutions has been that a fund was established and given an investment amount and then are required to ‘almost go away and never come back to Treasury’. It was then assumed that these funds will last forever while they are pursuing their mandate. She said she was in essence saying the on-going concern was an on-going challenge for most DFIs and that is why in the presentation the Department said they were engaging SEFA and SEDA on their business models. A possible suggestion for another resolution on the tracking tool could be one about how they could make their models cost efficient and more effective. It was agreed that the business model needed to be changed and there was engagement happening on this. SEFA said that they would need to be recapitalised and the amount they will possibly draw down would be R640 million. The Department was exploring the idea of cost sharing services to save money.  The EU Fund on the 27th had their inception meeting. Ms Vries said she co-chaired with Treasury on the project steering committee. The Technical Assistance Unit started work on Thursday. the 1st  of  March.

In response to Mr Mabasa, Ms Vries replied that the amount was a grant which would run for five years, effective from the 24th of July 2017 when the Minister of Finance signed the agreement. After it was signed the advertisement for the Technical Assistance Unit was released. The fund will decide who the second implementer will be.

Ms Vries said she cannot say whether the decision to invest in wholesale versus direct channel was because of a better impairment ratio, but what the Department did know was that it would be a completely different fund which will not function in SEFA business as per usual and will not have the higher interest rates, etc. There was a huge EU team which has been appointed and they are in consultation with SEFA to help and oversee the Fund. The SME Fund will be launched on the 6th of April and after a few months more clarity can be provided. On the SMME and Innovation Fund, the Minister of Finance announced the fund will be effective on 1st April 2019. Questions concerning the modality of the fund cannot be answered because the work has not been done yet. What has been decided so far was the way in which the facility was managed. Should a new entity be created or should existing entities be used? Research was still being done and once a formal decision was taken it would be announced. The Jobs Fund has been rejected as an option, but for the Department, a combination of SEDA and SEFA would be the ideal facility.

In response to the question on market failure Ms Vries replied that market failure might not be the correct word choice, however, the decision to have a diagnostic test was made by IFC emanating from discussions with SEFA.

On the outcome of the World Bank meeting, she said because the IFC understood and had experience on the Departments mandate, there was a decision that there should be a workshop  and therefore the direct outcome was the engagement between SEFA and the IFC (a part of the World Bank).

In response to the question about why capacity was not included in the workshop programme, Ms Vries said that talent management did address capacity issues. On the R1.5 billion from Services SETA, she said last November there was a multi-partner party agreement, i.e. a MOU between the Department, SEFA, Services SETA and SEDA. The Services SETA launched the Entrepreneurship and Cooperative Development Institute and has allocated R1.5 billion over a two-year period for it. They are recruiting someone to lead the project and getting additional capacity.

On the SMME Fund and ecosystem question, Ms Vries referred to previous research done which referred to the life cycle of business and how the Department was directing their small business support to that. The Department initially put forward a SMME Fund, which after September became the SMME and Innovation Fund. The Department has looked at prioritising start-ups. Ms Vries asked for more time before the Department could answer on the SMME and Innovation Fund as it was a working process. Matters concerning this fund will be more final by October/September.

Ms Vries,in response to Mr Mabasa clarified that Resolution 68 was depicted in full on the presentation slides. Government’s decision not to co-fund the SME fund was their own decision.

She said as far as she knew, open to correction, when SEFA was established it was a merger of other organisations and which had funding available thus they used inherited capital from previous institutions. The idea of cession was if a business got a contract and that it was ceded such that the payment goes to the creditor. There are drawbacks with this therefore a discussion was needed. In response to the question if the IDC appreciated SMMEs, Ms Vries said she cannot answer on the behalf of the IDC.  

Mr Mkhumane in response to Mr Mabasa said the SMME Fund agreed it will assist SEFA clients on cash flow management training to deal with the issue of funded clients not making payments to SEFA.

The Chairperson asked how SEFA related to more “unbankable” businesses that are operating at “survivalist” level. Who funds and looks after this level of survivalists? Do we only look at them as hairdressers or do we look at them growing and expanding for example going into property? Where is their support? For example, properties for mobile salons where as a hairdresser you cannot exit the indigent and social grant register because you do not earn enough. What pull you down is that you are continuously paying rent and your income keeps you as indigent. If you were not paying rent the cost of business goes down you can deregister from needing from the State as indigent. Or if you used something innovative like solar energy your business costs would decrease. The Chairperson asked if the Department had packages that could assist and decrease business costs of survivalists and allow their income to increase. She asked if the Department had measures to assist and support “survivalists” to become self- reliant and if organisations like SEFA were positioned to think in this way.

Ms Vries responded that the model the Chairperson just put forward has not been part of the DSBD’s thinking. She said SEFA and SEDA and the Department were rethinking their business models. Survivalists and their potential as discussed by the Chairperson were not considered and merely funded applications. She said they were not there yet, but have made revisions to take on board innovative proposals that come it way. A collaborative approach was needed to address these issues such as implementing Local Economic Development (LED) conference outcomes and working with other departments. The welfarist approach was at the heart of the way the Department of Social Development approached their mandate and this needed to be discussed with them so they can also change their way of thinking as they have more reach and their cooperation was needed.

The Chairperson in response to the DG’s claim that DBSD had not thought in that manner, said that if the DG had read the Oversight Report of the Committee in Gauteng she would have been aware. The Committee had introduced the Department to a company called Vusisizwe. Vusisizwe in their presentation said they were a small business company and that their business concept was based on their own experience which was high costs for small business. From this experience the company decided it would enter the space and create products that responded to high costs for small business. The Department claimed to not know about Vusisizwe yet the Committee led them to you. Vusisizwe created mobile businesses such as internet cafés, pizza shop, butchery etc. They have a factory that creates solar panels and that mobile businesses use to lower business costs. The Chairperson said that the Department cannot deny they knew about Vusisizwe but rather the Department chose to ignore it. The Department did not view Vusisizwe as an idea worth supporting which would allow the income of small business holders to increase and allow the person to no longer be indigent. By allowing individuals to have a higher income through efforts to reduce business running costs, a shift in welfare budget can occur as well as restoring human dignity and building stronger family units. An intervention in poverty is necessary because constant government intervention to provide services in households is not sustainable and does not build society. She asked if the Department was thinking innovatively like this and if not why not. The Department has not mentioned an innovators fund to support innovative companies such as Vusisizwe and giving them space to test and pilot models to be innovative and assist the Department achieve its mandate.

Mr Capa remarked that such cases can make one sick.

The Chairperson said in response to Mr Capa that it was correct that these things made one sick. She disputed the DG’s claim that the information was not brought to her attention and added that the DG should go and read the Oversight Report.

The meeting was adjourned.

 

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