Department of Small Business Development Quarter 3 performance; with Deputy Minister

Meeting report

The Chairperson apologised for arriving late. She welcomed two new members to the Portfolio Committee, Mr Nhlanhla Xaba (ANC) from the Free State and Advocate Bongani Thomas Bongo (ANC) who is from Mpumalanga. The Chairperson also welcomed the Deputy Minister for Small Business Development who was appearing before the Portfolio Committee for the first time. An apology was rendered for the Minister who was unable to attend the meeting. She then invited the Department to present the report.  

Ms Edith Vries Director General (DG), DSBD, said the report represents an overview of the activities of the Department in line with the Public Finance Framework Act, Treasury Regulations 5.3 and 30.3, and the Framework for Strategic Plans and Annual Performance Plans (APPs). The performance report reflects progress made on the implementation of performance indicators and targets set in respect of Quarter Three (Q3) in the 2017/18 APP; variances and reasons for variance; key challenges faced by the Department in implementing the mandate and planned actions to mitigate implementation challenges.

The Department is mandated to lead an integrated approach to the promotion and the development of small business and cooperatives through a focus on the economic and legislative drivers that stipulate entrepreneurship to contribute to radical economic transformation.

On governance and compliance, the Department complied with all the relevant provisions of the Public Finance Management Act (PFMA), Treasury Regulations and the National Treasury Framework for Annual Performance Reporting. The Minister and Executive Committee (MinEXCO) meeting was held on 5 December 2017. The Department submitted the 2017/18 Quarter 2 performance report to the Department of Planning, Monitoring and Evaluation (DPME) on 31 October 2017. The Department submitted the 2nd Draft 2018/19 APP and revised 2015-2019 Strategic plan to DPME on November 2017. The Department lodged the 2nd draft 2018/19 APP and the revised 2015-2019 Strategic Plan with the AGSA on 20 November 2017. The Department lodged the 2nd Draft 2018/19 APP and the revised 2015-2019 Strategic Plan with the Executive Authority on 20 November 2017.

Highlights of the 3rd Quarter include:

-Inaugural National Local Economic Development (LED) conference co-hosted with the Department of Cooperative Governance and Traditional Affairs (COGTA) on 9-10 November 2017. The key resolutions from that conference were that LED will be placed at the centre of the Back to Basics Campaign and the Integrated Urban Development Framework (IUDF) and that is being implemented in various ways.  

-Showcasing the talents of the ICT SMMEs through partnerships with and co-hosting Demo Africa, which is one of the important innovation pitching platforms in the continent for start-up entrepreneurs held on 23-24 November 2017. 30 ICT SMMEs participated in an 8-week boot camp to refine their products after which they competed for the grand prize that was an internship for five of the contestants in Silicon Valley. One of the winners was a South African entrepreneur.

-The Department co-hosted the International Business Advising Conference 21-23 November 2017 at which the various bodies representing business advisors in South Africa requested the Department to assist and lead the process of regulating the industry. A follow-up meeting was held on 5 March 2017 between the DG and the 9 bodies representing the advisors and mentors.

-Minister Zulu hosted a roundtable with the academic community on 20 October 2017 which was well attended. The key discussion point was the depth of entrepreneurship and the need to strengthen entrepreneurship education in the country. Collaboration, integration and coordination of all stakeholder efforts will be crucial for entrepreneurship education.

-In quarter 3, the Department sustained its year to date achievement of paying 100% of valid invoices within 30 days. The Department also maintained its 2 year record of exceeding 50% of women in Senior Management Staff (SMS).DSBD maintained its record of exceeding the target for the employment of persons with disabilities; 32% of DSBD staff is under the age of 35 of which two are SMS members.

The Department has 54 performance indicators, 54 annual targets and is reporting against 47 quarterly targets - 68.1% of the targets were achieved, 12.8% were partially achieved and 19.1% of the targets were not achieved. There are several areas of underachievement, the targets not achieved include:  

-Research report on Provincial legislative and regulatory protocols impeding SMMEs and Co-ops produced. The reason for underachievement is delays experienced due to internal supply chain management challenges.

-National business processes and procedures analysed and redesigned per annum. The target was deferred to 2018. After engagement with National Treasury, South African Revenue Services (SARS) and CIPC, it became apparent that this target could not be achieved as redesign falls outside the mandate of the Department.

-National Small Business Amendment Bill developed and submitted to Minister for approval. The Bill was not presented to EXCO for approval by end of December 2017. The drafting of the Bill could not be completed in 2017 as consultations with the office of the State Law Advisor took longer than anticipated.

-Outcome Report on Midterm Review of the Co-operatives Strategy, articulating findings and recommendations for revision in 2018/19. Draft report on Midterm review outcomes was not prepared due to delays in the internal procurement process.

-Research reports on SMMEs and Co-operatives key areas of support approved. Target was not achieved due to challenges in SCM processes - the Department was not able to finalise the appointment of service providers.

-Development of monitoring framework with reporting templates. The target was not achieved because of the lack of capacity in the Department to deliver on this target as well poor planning in the Department.

-Analysis criteria on SMMEs and cooperatives sector support interventions and effects on growth and sustainability of beneficiaries. Target was not achieved due to lack of capacity for Department to deliver on this annual target and poor planning around the target.

-1696 informal businesses supported through the IMEDP - 249 beneficiaries were trained in business skills. Delivery is lagging behind mainly due to supply chain processes.

The Department’s Q3 2017/18 actual expenditure was R403.4 million (116.7%) against the planned spending of R345.8 million resulting in an over expenditure of R57.6 million (16.7%). The year to date projections amounted to R1.106 billion whilst actual expenditure amounted to R1.103 billion resulting in a variance of R3.4 million.  The over-expenditure was offset by the opening cash balance of R61 million at the beginning of Q3.

The overall reasons for the variance:

-Compensation of employees. The Department under spent by R1.5 million due to vacant posts. Vacant posts percentage as at 31 December 2017 was 9.8%.

-Goods and services. The Department overspent by R1.3 million mainly as a result invoices from the State Information Technology Agency (SITA) in the amount of R 2.4 million for the desktop support services rendered from April 2017. Travel also over performed by R1.8 million as outstanding invoices from Q2 were submitted and processed in Q3. Projections for the first six months stood at R1.954 million whilst expenditure was R31.5 million, resulting in a lag of R13.9 million which offsets the R13.8 million.

-Capital assets overspent by R3.2 million due to vehicles projected for Q4 but were delivered and paid in December 2017. Laptops amounting to R857 000 ordered in Q2 were delivered and paid in Q3. Projections for the first six months stood at R1.9 million whilst expenditure was R4.2 million, resulting in a overshooting of R2.3 million.

-Transfer payments overspent by R42.1 million as Black Business Supply Development Programme (BBSDP) processed and disbursed more claims than anticipated. The over expenditure will be clawed back through revised cash flow projections. Projections for the first six months stood at R948.3 million whilst expenditure was R944.7 million, resulting in a lag of R3.6 million. In the National Informal Business Upliftment Strategy (NIBUS), there has been chronic under expenditure of R29.6 million. NIBUS spent R8 million on beneficiaries and R21.6 million transferred to SEDA for the Gazelles and Centres for Entrepreneurship programmes as approved by National Treasury. NIBUS had an opening cash balance of R33 million (Q3) of which R21.6 million was approved to be transferred to SEDA to fund Gazelles (R15 million) and Centres for Entrepreneurship (R16.6 million) programmes. The remaining cumulative cash in bank was R11.5 million of which R8 million was expensed on the Shared Economic Infrastructure Facilities and NIBUS beneficiaries.

Discussion

Mr R Chance (DA) asked does the roundtable with the academic community has any connection to the work being done on the entrepreneurship subcommittee of the Human Resources Development Council (HRDC) because the incorporation of work or entrepreneurship on schools and further education Institutions is likely going to spread the culture of entrepreneurship in the country. He asked for further detail on the interaction between the Department and the academic community and any documentation recorded from the interaction.

It seems as if some of the underperformed strategic objectives can be attributed to substantial supply chain management challenges and he asked why that was the case. Is the problem experienced within the Department or do other Departments experience it as well or is it the suppliers? What is being done to resolve the issue?

Does the DBSD believe that the organogram of the Department is correctly and sufficiently aligned to the achievement of the objectives because there is often a reference of under capacity? If you do not have the capacity to do something, why do you plan to do it at all?

The numbers in the report are frankly capacity-related. The numbers of small businesses and informal businesses assisted which probably amount to at least a million or two in South Africa has virtually no impact. Is that not something that municipalities and the Local Economic Development (LED) should have mostly been working on? He said it comes back to the point that he made at the budget speech in 2017 where he referred to the Minister as an invisible Minister and the Department being an invisible Department because it just does not have the capacity to do what is needed to be done and that will never happen unless its budget is multiplied by 10. Why some of the Black Business Suppliers failing and what can be done to curb the failure?

Mr H Kruger (DA) said he is disappointed by the fact that the Department is not performing on informal businesses because that is the only business that exists in the country’s rural areas. Nowadays informal business is not as big as businesses in shopping malls and if the Department does not perform in the rural areas based on the fact that they failed to reach their targets, it will be a problem.

Part of the Small Business Act is to give a definition of small businesses or small farmers. There is a lot of other legislation that is waiting for this Act to give this definition. If minimum wages go through there will be a question of what about small business. The Department of Labour will ask what about small business and at the moment there is no definition of what a small business is.

Adv B Bongo (ANC) (started off by saying that he is attending the Portfolio Committee for the first time and the first question that he has asked himself is what did the government want to achieve by starting DSBD. What has the DSBD achieved? What has been the progress of the idea of starting the Department from when the Department was initially implemented until now?

What appears from the presentation is that there may be glaring under performance and the spending, but much less on infrastructure and what is being reported on the 3rd Quarter when it comes to infrastructure. The 3rd quarter is very crucial because the last quarter is slow and performance needs to be boosted in the 3rd quarter.

Given that the country will be going to elections soon, it is important that small business development responds to the youth and has information for the youth because they are almost 60% of the country’s population and it is a problem if that third quarter report does not speak to that. The report was too big and some Committee Members sit on more than one committee and it is difficult to go through a thick report. What he is expecting from the Department is to provide a detailed report on what the Department has done on each province and not provide a report on how the Department is meeting with academia because small business development is about uplifting informal businesses in townships and growing township economy and that cannot be done in academia, but on the ground.

What is the collaboration with other sector Departments such as SASSA because that is what the Committee wants to oversight?  SASSA wants to promote small businesses in the sense that the beneficiaries from SASSA can be able to collect their grants from accredited tuck shops. What role has DSBD played on that front? It seems as if the focus is more on policy related issues and less work on the ground and going to communities to change people’s lives. Is there a need to keep the Department if DSBD is doing less practical work on the ground because that is what is important? If the Department does not drastically change people’s lives then why does that Department exist at all because it can be turned into a directorate in the Department of Economic Development and perhaps then the goals can be achieved?  

Mr Kruger said agriculture is also identified as the job creator of the future, one should think that small business and agriculture get together so that there can be a transversal agreement between agriculture and small business and that has not happened up to this day.  He added that he raises the same question when he sits in on the Agriculture Committee and in every meeting he is told no.

Mr N Capa (ANC) asked what the relationship is between over expenditure and underperformance. What does the Auditor General and Monitoring and Evaluation say about the process of offsetting expenditure from one period to another? On the transfers, he said he is worried about the transfers to Gazelles when they are used to cover non-expenditure because this cannot be used this raises suspicions. Has there been improvement since Q1 because surely something has been learned from the first two quarters. The vacancy rate is concerning because it contributes to under expenditure in programme 1. How can the Department improve the issue?

The Chairperson added to Mr Capa’s comments and asked that why can the funds from under expenditure not be used to buy gazebos and tables for street vendors instead of transferring the funds to Gazelles. That money could be used to reduce costs of businesses such as funding hairdressers and buying a property with assistance from the Department and form a cooperative instead of a lot of hairdressers renting mirrors.

Mr Xaba said it would have been good to have a few images of some of the achievements as evidence included in the presentation. On the issue of the inaugural LED Conference, the Department had said they are yet to finalise the Memorandum of Understanding (MOU) with COGTA. Could this mean that the rollout to access to local government municipalities is still held by the MOU, and did the Department not see this forthcoming during the establishment of the Department? The annual target of analysing criteria of SMMEs, cooperative sectors, board intervention and effects of growth sustainability of beneficiaries which the DG said they have been experiencing difficulty in implementing. The fact that the regulation of SMMEs is not included in the current legislation is a grey area and raises a question of what the Department’s next plan is because it means the mandate of the department is not clearly executed.

Mr X Mabasa (ANC) said given that shopping malls have invaded townships, to what degree has the Department supported SMMEs and Cooperatives so that they can be able to respond to the shopping mall threat that leads to most local shops being closed down. In the same breath there are foreign owned spaza shops that are replacing local owned spaza shops in rural areas as well as townships. What support is the Department giving to South African spaza shops to survive? How many cooperatives and SMMEs is the Department supporting in Soweto? He said he is raising the question so that the Committee could see whether the Department is able to follow up on its work and knows where their clients are.

There is another place in Limpopo called Zebediela which is about five cooperatives and five SMMEs supported by the Department and that the Department is aware of. This is an example of having a sense of being able to follow up on the performance of the Department because that goes with rural beneficiaries. When it comes to other spheres of government where provinces have hospitals and municipalities have clinics, can the report indicate that there are SMMEs that provide linen in hospitals, cooperatives and small businesses that repair and maintain furniture in schools as well as small businesses that cut the lawn for post offices for an example?

In terms of expenditure, he said he would have thought that the Department would become one of the Departments that over spend because of the need of the people being served by the Department. If there is under expenditure, how does that strengthen the argument for a higher budget? Is there any indication in the report where the Committee can see that there are cooperatives being owned by people living with disabilities?

The Chairperson said that it appears that the Department is looking inwardly as opposed to looking at the impact that the Department is making. If the taxi industry is known for causing more road accidents and is at the same time transporting 87% of commuters you find taxi associations that move from being an association to a cooperative who can come before the Committee to say that they want to open their own service station and tyre fitment centres and you find that the Department does not respond to them. The taxi association is structured in the same way that cooperatives are structured. In fact if the Department was to choose the taxi industry and develop it into a viable cooperative movement in the country, the country would have a taxi industry that is manufacturing their own cars, having its own insurance and having its own tyre fitment centres.

Deputy Minister Cassel Mathale said that he had been listening to everything that the Members were raising and has not heard a single Committee Member commending the presentation because huge effort go into producing the report and some of the issues presented are okay but there are shortcomings of not elaborating on some issues. The Department is committed to working with the Portfolio Committee so that the mandate bestowed can be achieved. He added that he understands that the working relationship the Department has with the Committee is dialectical with inherent contradictions from the fact that the Committee oversees what the Department does even when the Department thinks they are doing a good job. The Department will commit to working together with the Committee.

Ms Vries said many of the questions raised by the Committee pertain to improvement that can be made to both the content of the presentation and how it is presented, like the suggestion of adding evidence or the question of reporting on how many SMMEs in specific localities. She said she cannot provide that information because she does not have that information with her.

Mr Mabasa explained that his aim was not to get accurate numbers but for the Department to be able to say that they are supporting SMMEs and cooperatives in Soweto and provide a rough estimate.

Ms Vries said that previously the Department included a slide in their presentation that said that the provincial thread and the Department no longer does that.

The Chairperson said when the Committee asked for the Department to provide the developmental status of the 400 cooperatives the aim was to get an idea of the impact of the interventions as well as identify success stories and see which sectors are doing well because cooperatives are different. The question is not to only measure the Department but also the changes taking place at community level.

On underperformance of SMMEs Ms Vries said the Department had a supply chain that took on everything and assumed they were the only people in the Department that can do it whereas the Department had taken a decision that all procurement of goods under the of R500 000 can be done at Chief Director level, but the supply chain continued to centralise everything in their power. The key interventions to reduce the burden and focus the attention of the supply chain on other issues is to train all officials of the Department through the procedures and the decision was taken that procurement of goods under R 500 000 will be done at unit level. Other departments have been engaged about seconding staff and there is one department that agreed to second three staff members for a year.

The Department can only report in their APP about what they can do with the money that the Department has in their control. The mandate of the Department is around coordinating other departments, e.g. the Department has an interprovincial platform with provinces where they get information on the work that other provinces are doing. The Department is working with Treasury to get an integrated framework that everybody can report into.

BBSDP is a co-sharing grant and the business that is being funded has to do certain things at a certain time and if the businesses do not come to the party and perform in terms of the agreements made, the Department stops funding them. It would be irresponsible to continue funding businesses if they have not met the terms of agreement and that is why there was underperformance and under spending in the first two quarters in the BBSDP but the Department could compensate for that in subsequent quarters where the Department can fund a different pool of businesses that are in the database.  

In terms of the National Tools Business Act, the Department is well aware of the Act making provisions for definitions of SMMEs and the Department has indicated that they will look at the definitions and have the definitions issues as regulations even before the new Act is promulgated. The Department is mindful of the fact that there are other departments waiting on the definitions and DSBD has done some of the conceptual as well as theoretical work on the definition, but the Department does not have the technical capacity to work out the schedule.

The Committee needs to advise the Department on what the expectations of how the presentation should be structured.

The Department has a bilateral agreement with the Department of Social Development that lends itself to an agreement with SASSA, but DSBD is unable to answer the question of how DBSD has made the kind of impact suggested.

On the question of whether the Department is fit for purpose, she said the Department is not fit for purpose - 80% of people in the Department are generalists and in instances where the Department is able to recruit, for example, the vacancy for the Director: Market Access and Strategic Partnership, the Department is now able to recruit a specialist.

The Chairperson interrupted and asked for clarity on the statement made by the DG because it means that the people recruited did not have skills to perform the duties. How did it happen that people in the DSBD did not have the requisite skills yet the understanding was that those were people who were responsible for development of SMMEs and cooperatives in the Department of Trade and Industry (DTI).

Mr Xaba asked what the general idea of the department’s staff is according to the DG.

Ms Vries said that it is her understanding that DSBD did not inherit a mandate from the DTI, what the Department inherited was a Black Business Supply Development Programme, people from the cooperative unit and people issuing various grants. The Portfolio Committee has been quite clear in saying the mandate of coordinating and advocacy for sustainable small businesses that will be at the centre of the economy is greater than the programme that came from the DTI; 80% of the people who came were officials who accepted applications for those grants. People submitted applications and there was an adjudicating committee some officials have to go out to see if applications were viable.

The Department did have over expenditure in the third quarter based on their projection of what the Department would be spending, but the Department underperformed in many of the targets in the previous quarter. The majority of the targets not achieved actually pertain to instruments that the Department has to do such as trend analysis and research reports and the Department does not have the expertise.

The Department had the Gazelles programme and the entrepreneurship programme that was underfunded and the Department made submissions to Treasury around June/July for funding for the programmes and it was during the time that NIBUS was under spending and it was clear that there was no new money and Treasury made the decision of shifting money to Gazelles and centres for entrepreneurship because of underperformance. The reason why the funding did not go to support small businesses by buying gazebos is because the Department did not have the capacity to pull together the project of supporting 7 000 informal businesses in the previous year and finding out what it was they needed.

Mr Mojalefa Mohoto Acting Deputy Director General; Enterprise and Entrepreneurship said there are challenges that the Department experiences with municipalities. An example is with Tshakuma and the bottleneck issue in Limpopo where the Department has transferred money and has been visiting Tshakuma. The Department is working very closely with Dr Terry Blatcher and the considered view is to strengthen the ecosystem, especially the entrepreneurship ecosystem and agree on the role of each member and organisation within the ecosystem and have a full understanding of how to divide responsibilities.

On the question around the non-performance in the informal sector in the main townships and rural enterprises, the Department is aware of the non-performance and most of the enterprises that the Department is assisting are township and rural enterprises. The Department is challenged by supply chain processes and not necessarily the capacity of the Department; the issue also touches on matters of compliance for instance registration. An example, if you are a supplier in the rural township and you are supposed to supply equipment to particular enterprises and there is no CSB and no tax compliance, it is very difficult for the Department for the Department to engage and work with the enterprises and you find that it is only the major retains that are benefiting. There are major challenges within the system which prove to be systematic in nature that the Department still needs to deal with.

The R1.5 million under expenditure was related to the vacant DDG posts which have been advertised and two candidates have been interviewed.

Mr Jeffery Ndumo Acting DDG: Cooperatives, said last year the Department presented to the Committee a study that shows that shows a distribution of cooperatives that have been funded by CIS and have evaluated all those cooperatives and they found that there is a sizeable amount of cooperatives that came from the Gauteng Province and the report showed the demarcation of cooperatives in the province.  The bulk of the cooperatives funded by the Department speak to rural development mandate except for Johannesburg which has a majority of township cooperatives. This year alone the Department has trained 218 cooperatives on governance, how to establish a cooperative and provide management. In Kwa­Zulu-Natal in Bergville 37 cooperatives were train; Kwa Dukuza 55 cooperatives were trained; in Lusikisiki Eatsern Cape, 37 cooperatives were trained, Eastern Cape;15; in Durban, 22 in Klerksdorp North West, 13 cooperatives in Taung North West, and 9 in Mahikeng North West.

Mr Kruger said he wonders if the Department has calculated whether how many cooperatives need to be established in order to create 5 million jobs because if the Department carries on at this rate his grandchildren will die before poverty is alleviated in the country.

The Chairperson said the DG spoke of lack of capacity when the Committee Members raised concerns and then handed over to Mr Mojalefa who gave the Portfolio Committee a different picture and the told the Committee about the problem that the Department is experiencing with Tshakuma and Tshakuma was not mentioned in the presentation and a proposed intervention was not mentioned. The Department must have the same tool of analysis and it should be aware of what it is capable of achieving and what they are incapable of achieving and it is important for the Department to be aware of where it requires capacity. She said if she was not trained in cooperatives and community development she would be commending the Department on a job well done. There needs to be further information on the content of the training processes that took place with the cooperatives, being given a number of cooperatives trained is not enough. The training needs to provide the impact that will result in alleviating poverty.

The Chairperson suggested that the meeting should end there and not jump to the next part of the agenda so that the work done could be thorough given that there is a new dawn and there will be a reconfiguration of Departments. There is a need to spend time to analyse the situation and engage on issue so that the Committee can make proper recommendations.  The meetings can be emotionally and psychologically draining and that is why Committee members need to take a break. The Portfolio Committee will schedule another meeting with SEDA and SEFA as there will not be enough time to engage with the entities.

The meeting was adjourned.