Department of Small Business 2018/19 Annual Performance Plan; with Minister & Deputy

NCOP Economic and Business Development

02 May 2018
Chairperson: Mr M Rayi (ANC, Eastern Cape)
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Meeting Summary

The Department of Small Business Development appeared before the Committee to present its 208/19 annual performance plan and budget.

In her preliminary remarks, the Minister said that the Department had been formed to encourage Small Medium and Micro Enterprises (SMMES) and cooperatives in SA. In 2014 government had placed small business at the forefront of SA’s economy. Small business was key to deal with SA’s triple challenge of poverty, unemployment and inequality. The policy on small business had found expression in the APP and the strategic plan of the DSBD. Government should be committed to paying its service providers within 30 days. There should also be adherence to the 30% procurement requirement of government departments from SMMEs.

The Department gave insight into what it meant to be a fairly young department. The DSBD still had some way to go to stabilise its organisational structure. The DSBD was established to achieve the goals as set out by the National Development Plan (NDP). Implementation was done through the DSBD’s entities ie the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA). The  Committee was given an overview of the plans of the DSBD in terms of its four programmes ie Administration, Sector Policy Research, Integrated Cooperatives Development and lastly Enterprise Development and Entrepreneurship. The DSBD for 2018/19 was allocated R1.448bn and members were given a breakdown of how the allocation was shared by the DSBD and its entities.

The DSBD was asked how many jobs it had created over the past four years of its existence. How many Full Time Equivalent (FTE) jobs had been created? Members noted that Stats SA figures had shown that there was a decrease in the number of jobs in small business. What was the reason for the decrease? Members were concerned about under spending by the DSBD. Close to 7% - 9% of the DSBD’s budget had been under spent. The DSBD was also asked why it had failed to implement 79% of the Portfolio Committee on Small Business Development’s recommendations made in 2017. On the monitoring of government expenditure on SMMEs members observed that from the briefing the impact made could not be seen. Members were concerned about five in seven small businesses failing. What was the cause? The DSBD was asked how it assisted SMMEs to get access to international markets. Members asked about the R1.5bn from private sector that had been earmarked for entrepreneurship How much of the funds had been mobilised? The DSBD was asked on youth employment schemes whether absorption of participants were taking place. Members commented that small businesses failed because of a lack of start up capital. Members felt it highly unlikely that youth would be financed by Development Finance Institutions (DFIs).The DSBD was asked how it was impacted upon by infrastructure development cuts in the budget of its sister department. What did this mean for the DSBD? It was a concern since how was the economy expected to grow without infrastructure. Even though the briefing had spoken about the 2017 Public Sector Supply Chain Review on the 30% procurement from SMMEs, members pointed out that the issue did not come out clearly in its APP. Did the Public Sector Supply Chain Review sit with National Treasury? How was the DSBD able to assess the extent to which provincial legislatures were committed to the 30% requirement? Members were aware that municipalities had local economic development initiatives but asked how local governments dealt with poverty, unemployment and inequality. The DSBD was commended for embracing the Fourth Industrial Revolution. The Chairperson was concerned about the organisational challenges that the DSBD was faced with. The Chairperson recommended that the DSBD have a reporting mechanism for the 30 day payment period. Each government department needed to account on the prescribed requirements of the 30 day payment period and the 30% procurement by government from SMMEs. Concern was raised that the National Small Business Bill had not yet been submitted to parliament.   

The Committee adopted its Report on Budget Vote 34: Department of Small Business Development Annual Performance Plan 2018/19.

Meeting report

Opening remarks by Minister of Small Business Development
Minister Lindiwe Zulu fully appreciated the importance of oversight to the Committee. To date, the political heads had not yet missed a meeting with the Committee. However; the only weakness was that there was no follow up after presentations by the Department of Small Business Development (DSBD). The DSBD had been formed to encourage Small Medium and Micro Enterprises (SMMEs) and cooperatives in SA. In 2014 government had placed small business at the forefront of SA’s economy. The Industrial Policy Action Plan (IPAP) was the centre of economic development in SA. Provinces too had a role to play in the IPAP. Industrial development was the future. When looking at the spend by government the question was how much of it went towards SMMEs, women and youth etc. How much jobs was being created? There needed to be a coordinated approach between the three spheres of government. Entrepreneurship and SMME business development had reached a higher focus worldwide. SA had to have strategies on small business development.

Over the past week the DSBD had hosted a delegation from India the aim of which was cooperation on small business development. Access by SMMEs was the main topic of discussion. The DSBD’s Annual Performance Plan (APP) and Strategic Plan were structured bearing this in mind. SMMEs and cooperatives were high on the agenda of SA. The DSBD had created a good base over the last four years of its existence. Stats SA figures showed that half of SA was chronically poor. Earnings were less than a R1000 per month. Unemployment sat at 26.7%. Of this unemployment figure 31.4% was blacks and 6.6% was whites. International research figures had shown that SA was perhaps one of the most unequal countries in the world. This meant that efforts in SA had to be redoubled. It was in this context that the DSBD was formed. Small business was key to deal with SA’s triple challenge of poverty, unemployment and inequality. It was clear that big business would not be able to create the number of jobs that were needed but their efforts would assist. A thriving small business sector would contribute towards meeting the objectives of the National Development Plan (NDP). The policy on small business had found expression in the APP and the strategic plan of the DSBD. There was a need for a robust partnership between government, business and academia. The higher education sector had to come on board to provide persons with basic knowledge about business. Alignment of efforts was needed between national, provincial and local. The NDP had set a target of creating 11m jobs by 2030. The focus was therefore to create 800 000 jobs per annum until 2030. The DSBD did realise that entrepreneurship required a person to have sophisticated skills. Persons had to be on the cutting edge of innovation and technology. The DSBD embraced the Fourth Industrial Revolution. SA needed to transform its economy to respond to the needs of the people. Radical economic transformation was high on the agenda of the DSBD. The focus was on youth, women and disabled persons but not to the exclusion of others. The NDP was the vehicle with which to eradicate poverty, unemployment and inequality. The DSBD had a daunting task but the staff was not deterred. The DSBD was committed to reducing red tape and over regulation in the small business sector. Legislation was also to be concluded. Government should be committed to paying its service providers within 30 days. There should also be adherence to the 30% procurement requirement of government departments from SMMEs. At present a great deal of goods and services procured by government were still from big companies. Access to finance also needed to be ensured. Inroads were being made in business skills development. Greater detail would be provided to the Committee on the spread of services across the provinces.

The Chairperson, on the shortcoming of follow ups, explained that the Committee clustered departments. The Committee did oversight over six departments and 31 entities. It was a difficult task to accommodate everyone. Due to the enormity of the oversight task and limited time for meetings the Committee asked departments to provide it with quarterly reports. In this way Members could track progress. 

Briefing by the Department of Small Business Development (DSBD) on its Annual Performance Plan (APP) and its budget for 2018/19
Ms Edith Vries, Director General, DSBD, undertook the briefing. The Committee was provided with background on the establishment of the DSBD. The complexity of establishing an effective and efficient department was often underestimated. One of the challenges faced by the DSBD was a lack of budget which did not allow for posts to be filled. In as much as the DSBD was faced with challenges of being a new department it had two successive unqualified audit reports with significantly less audit findings in 2016/17 as compared to 2015/16. It had reduced its vacancy rate of 23% as at 30 September 2015 to 11.9% as at 31 March 2018. It had also achieved 100% payment of valid invoices within 30 days. She conceded that the DSBD still had some way to go to stabilise. The DSBD had only been in existence for four years and was established to achieve the goals as set out by the NDP. SMMEs and cooperatives were seen to be the levers of dealing with unemployment, poverty and inequality. The DSBD followed a value chain approach. Implementation was done through the DSBD’s entities ie the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA). It would seem that registered small and medium enterprises made a significant contribution to the total turnover of the private sector. Small businesses even made a bigger contribution to tax and Pay as You Earn (PAYE). The number of SMMEs in SA continued to increase. SMMEs were strong in the service sector. The briefing document set out the plans for the DSBD in terms of its programmes.

Programme 1: Administration
On strengthening human resource capability and a having a high performing organisation the plan for 2018/19 was to have 50% women in Senior Management Service (SMS) positions, to have 2% persons with disabilities employed and to have a vacancy rate of 10%. On compliance and good governance, the intention was to have 100% payment of eligible creditors processed within 30 days.
Programme 2: Sector Policy and Research
On reducing regulatory burdens and a conducive legislative and policy environment for SMMEs and cooperatives, for 2018/19 the intention was to assist twelve municipalities with the rollout of SMMEs and cooperatives on the Red Tape Reduction Programme. The plan was also to have the National Small Business Bill ready to go through the required legislative process.
Programme 3: Integrated Cooperatives Development
With the intention of having an integrated approach to planning, monitoring and evaluation of the cooperatives sector and to inform policy making, for 2018/19 the plan was to have four cooperative forums convened per annum. The idea was also to have two provinces supported to develop aligned provincial cooperatives strategies.
Programme 4: Enterprise Development and Entrepreneurship
On having sustainable partnerships to support the SMME development agenda, for 2018/19 the plan was to have R5m worth of resources leveraged through partnerships with sector stakeholders. To have a coordinated development of the skills pool across the sector the idea was to have a draft framework of standards for the professionalisation of business advisory services developed.

On the financials of the DSBD the total allocation for 2018/19 was R1.448bn. The SEDA was allocated 51.7% of the total allocation amounting to R769.452m. The Industrial Development Corporation (IDC) was allocated 0.7% which amounted to R10m. The remaining 47.6% which amounted to R709.001m remained with the DSBD.

Discussion
The Chairperson stated that if responses to all the questions by members could not be given outstanding responses could be provided to the Committee in writing.

Mr W Faber (DA, Northern Cape) asked how many jobs the DSBD had created over the past four years of its existence. If the plan was to create 9.9m jobs by 2020 then the jobs created to date would be around 2.2m jobs. How many Full Time Equivalent (FTE) jobs were created? He noted that the contribution of small business cooperatives was 1.2% of the Gross Domestic Product (GDP) of SA. He asked what the position on it was. He highlighted figures of Stats SA which said that the number of jobs on small business had decreased from 707 000 to 670 000. What was the reason? He pointed out for 2016/17 the DSBD had under spent between R96m and R125m due to poor programme implementation and capacity constraints. This translated into 7%-9% of the DSBD’s budget being under spent. He added that the DSBD had also failed to implement 79% of the recommendations that had been made by the Portfolio Committee on Small Business Development in 2017. Why was it so? On the monitoring of government expenditure on Small Medium and Micro Enterprises (SMMEs) he said that from the briefing he could not see the impact being made.

Minister Zulu, on how many jobs were created, explained that the idea was for the DSBD to support SMMEs to be more sustainable. The DSBD tried to ensure that SMMEs did not collapse. In principle SMMEs had to create jobs with the support of the DSBD. She added that there was a huge strain on business advisers at both the Small Enterprise Finance Agency (SEFA) and the Small Enterprise Development Agency (SEDA). Business advisers had to teach small business the basics of business instead of looking at their business plans. She emphasised that business basics had to be taught at school.

Mr Jeffrey Ndumo, Deputy Director General: Cooperatives Development, DSBD, stated that the SEDA did play a role in cooperatives development. The SEDA had provincial offices where cooperatives were supported. The figures could be provided to the Committee. On the contribution of SMMEs on total turnover the figure was somewhere between 0.5% and 41% in Quarter 3 of 2017. This was in light of SA’s low economic growth.

Ms Vries stated that over the past 5 years SEFA had created 258 000 fulltime jobs. The SEDA had a target for the current year to create 3000 jobs and to sustain 1000 jobs. The SEFA’s projection for the coming year was to sustain 74 000 jobs. For the DSBD the issue was not about creating actual jobs but rather to create an environment where jobs could be created. She pointed out that the majority of the SEDA’s direct loans were for informal businesses and SMMEs that were not compliant for instance on being registered for tax etc. These were businesses that were statistically unknown to Stats SA. The DSBD had piloted an Enterprise Incubation Programme with Growthpoint Properties in 2017. From October to December 2017 the value of the contracts accessed was R17.8m for 16 businesses. This was only one example of initiatives. On the monitoring of government spending the DSBD had an agreement with National Treasury. Quarterly meetings were held with National Treasury wherein reporting was done. As at December 2017 the greatest spender was the Department of Heath: Gauteng Province. Information was available.

Minister Zulu, under monitoring and evaluation, stated that there was the naming and shaming of departments which did not abide to the 30% procurement requirement. Those departments and provinces that did not comply were known. The idea was to get SMMEs on board and for them to get paid when services or goods were provided. The DSBD monitored sectors where the economy was growing. These included agro-processing and agriculture. At local level there needed to be an understanding.

The Chairperson asked how the aforementioned figures/ information could be accessed. 

Ms Vries said that the information was with National Treasury. Contact should be made with the Office of the Chief Procurement Officer at National Treasury. She noted that everyone that did business with government had to be registered on the Central Supplier Database. She said that the DSBD had under spent in the previous financial year. At the end of the 2016/17 a total of R121m had been under spent which she conceded was a mortal sin. The DSBD however managed to get R54m to be rolled over. She explained that whenever one was involved in partnerships there would be under spending. This was something the DSBD was starting to understand.

Ms B Mathevula (EFF, Limpopo) noted that five out of seven small businesses were failing. What was the cause? On access to international markets the DSBD was asked how it assisted SMMEs to get access. She said her constituency was rural and small businesses often complained that they had to go through a big white concern to access international markets. 

Minister Zulu, on what was done to improve market access, said that the DSBD was working with the Department of Trade and Industry (DTI) and with the Department of Agriculture. The DSBD had taken 34 SMMEs to China to look for opportunities. The top performing SMMEs were singled out. In trade agreements the DTI made provision for SMMEs. On why 70% of SMMEs failed it was because they had good plans but lacked funding.

Ms Vries pointed out that the failure rate of SMMEs were no different to that of big business. 80% of businesses in Silicon Valley in the USA failed. The question should be asked what made it difficult for businesses to survive. Some of the SMMEs that the DSBD had taken to China could not fill the orders that were placed with them. They lacked the capacity and the finance to do so. In other instances small businesses were deliberately kept out of a sector by bigger players. These were some of the things that the DSBD learnt along the way.

Mr B Nthebe (ANC, North West) commented that there was R1.5bn from the private sector that was earmarked for entrepreneurship. How much of the funds had been mobilised? On the youth employment scheme, he asked what absorption of participants was taking place. He stated that 70% of small businesses collapsed because of a lack of start up capital. He observed that it was highly unlikely for youth to get financing from Development Finance Institutions (DFIs). He agreed that for small businesses to get market penetration they were forced to partner with established white businesses. He pointed out that the South African economy was dominated by services, logistics and insurance sectors. There was a need to diversify SA’s economy. He observed that the DSBD’s sister department had its budget on infrastructure development cut by R85.7bn. What did this mean for the DSBD? It essentially meant that infrastructure projects could not go ahead. How would one make the economy grow without infrastructure?

Minister Zulu stated that the DSBD was participating on youth programmes. The idea was to get the youth jobs or for them to become entrepreneurs. Big companies pointed out that they provided youth with skills and opportunities. The DSBD together with private sector looked for opportunities for SMMEs. On the R1.5bn matter she said it was difficult to have engagement with private sector over it. The DSBD felt that implementation should be in partnership with private sector. She had been disappointed to find that the private sector had even worse bureaucratic red tape to get through. She continuously engaged with private sector over the R1.5bn issue on where things were. The DSBD had decided to establish an R2bn start up fund because the R1.5bn was not forthcoming. She said that one of the reasons why intergovernmental relations and coordination was being pushed for was to ensure that the structures the DSBD put in place were actually needed by communities. Infrastructure development had to fit in with the bigger picture.  The DSBD assisted local government as the space was theirs. Local structures needed to come up with plans.

Ms Vries, on the cut in infrastructure budget, said that most of the infrastructure spend was done by State Owned Entities (SOEs). There was a need for SOEs to work with SMMEs.

Minister Zulu added that the DSBD pushed for transversal agreements with SOEs like Transnet. Ways needed to be found to get departments on board. SMMEs had to be a strategy of departments. 

Mr E Makue (ANC, Gauteng) emphasised that small business was vital for economic development. The briefing had spoken about the 2017 Public Sector Supply Chain Review on the 30% procurement from SMMEs by government. He observed that in the APP the issue did not come out clearly. How was the DSBD able to assess the extent to which provincial legislatures were committed to the 30% requirement? He pointed out that municipalities had local economic development initiatives. How did local government deal with poverty, unemployment and inequality? He said that if the briefing had spoken to the appetite of local government structures to come on board it would have been useful to members. He commended the DSBD for embracing the Fourth Industrial Revolution. He stated that there was a Brazil, Russia, India, China and SA (BRICS) Summit coming up in Sandton, Johannesburg during July 2018. The issue was about taking small business into the export sector. The DSBD was asked whether it would be a participant in the Summit.

Minister Zulu, on the BRICS Summit, said that she sat on the inter-ministerial. The DSBD was part of the planning and part of the SMME subject matter itself. The DSBD was therefore participating in the Summit. SMMEs had been placed on the agenda of the BRICS Bloc. SMMEs were high on the agenda of SA’s BRICS partners. It was necessary for SA to also prioritise SMMEs.

The Chairperson was concerned about the organisational challenges that the DSBD had. The DSBD was asked by when the challenges would be dealt with. He agreed that the Public Sector Supply Chain Review was not mentioned in the APP. He asked whether the Public Sector Supply Chain Review
sat with National Treasury. He recommended that the DSBD have a reporting mechanism for the 30-day payment period requirement. He stressed that each department needed to account on the 30-day payment period and the 30% procurement from SMMEs. He was concerned that the National Small Business Bill was not being before Parliament yet. By when would the Bill be submitted to Parliament? He asked the DSBD whether it was aware that May 2018 was the deadline set for bills coming to Parliament. 

Ms Vries, on the 30% procurement issue, said that the DSBD met quarterly with national departments and provincial departments. Departments were also expected to monthly report to National Treasury on the payment of service providers within 30 days. Due to reporting being done to National Treasury the 30 day payment and the 30% procurement issues were not covered in the APP of the DSBD. She added that previously there had been a helpline for SMMEs with the SEDA. It had been an unfunded mandate. Perhaps the helpline should be established again. She noted that private sector was also a bad payer. It was not only government that did not pay timeously. She responded that the Bill would not be submitted to parliament by May 2018. She was confident that the DSBD would get budgetary support from National Treasury and the Department of Public Service and Administration (DPSSA) for its organisational structure. The DSBD needed a new business case. The DSBD needed to show National Treasury that lack of capacity affected its performance. The DSBD needed resources to employ specialists.

The Chairperson undertook to raise the 30 days payment and the 30% procurement requirements with other departments as well.

Minister Zulu said that any unanswered questions or questions not fully answered would be responded to in writing by the DSBD.

Committee Report on DSBD Budget
The Committee adopted its Report on Budget Vote 34: Department of Small Business Development Annual Performance Plan 2018/19.

The meeting was adjourned.


 

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