SEFA & SEDA Quarter 3 performance

Meeting report

Opening and welcome
The Chairperson welcomed the Minister and her delegation. She noted and accepted an apology from the Deputy Minister as well as from Mr S Bekwa (ANC) and Rev K Meshoe (ACDP). She further noted that the Director General of the Department of Small Business and Development, Mr S Mncwabe (NFP) and Mr T Mulaudzi (EFF) would be departing early.

Mr H Kruger (DA) remarked that Vodacom and Ericsson companies had promised Parliament that they would contribute to small businesses. They should come and explain why they had not dealt with the problem.
 
The Chairperson responded that those companies were amongst the big companies that bullied and marginalised small companies. At the outset, it had not been clear why those companies should be invited but as time progressed, it had become clear from the small business engagements that those companies should brief the Committee on the issues. After the budget Vote, the Committee would review its programme to see how the Committee could slot in those companies. She added that there was a forensic audit report that the Committee had to engage in with the National Treasury.

The Chairperson proceeded to welcome Lindiwe Zulu, Minister of Small Business and Development and her delegation.

Remarks by the Minister
The Minister remarked that the Department and entities had been working together and had been speaking to each other and, together, they had tried to identify challenges and address them. Because the meeting was for the purpose of oversight, she would allow the entities to make their presentations. She was happy to come back to speak about any issues that might arise from the presentations. She asked to be excused as she had to attend another meeting,

Briefing by the Small Enterprise Finance Agency (SEFA)
Ms Hlonela Lupuwana-Pemba, Chairperson of the SEFA Board, remarked that there had been challenges in terms of approvals. However, there had been an improvement. Late approvals had impacted on performance and financial sustainability. The focus was therefore on mitigation of risks.

Mr Thakhani Makhuvha, Chief Executive Officer: SEFA, took the Committee through the presentation. The presentation focussed on loan book performance, development impact, post-investment monitoring, and financial performance. He noted that the organisational performance during Quarter 3 was rather challenging, with overall approvals registering 46% of the targeted amount for the Quarter. That performance could be largely attributed to the sluggish economic activity and resultant subdued demand. Other contributing factors included the tightening of SEFA’s credit assessment and approval decisions, the lack of approval decisions, lack of cession payments, particularly for bridging loans, and poor business plans and cash floor projections. Consequently, jobs fell below the expected number over the same quarter. However, during the quarter, SEFA had managed to inject the same amount into the economy as had been budgeted for.

In terms of loan book performance, Mr Makhuvha stated that the approvals for Quarter 3 represented 46% of the quarterly target. The total SEFA loan approvals as at 31 December 2017 were at R202 million against the annual target of R770 million. The underperformance could be attributed to incomplete applications, inadequate balance sheets of Retail Financial Intermediaries (RFI) and the absence of larger facilities. On the direct lending loan book approvals, the Quarter 3 actual approvals outperformed the quarterly target, achieving 128% of the planned performance for the period. He further said that R62 million of loan facilities was approved to 29 SMMEs and cooperatives that helped to facilitate 477 jobs. In terms of the wholesale lending loan book approvals, Quarter 3 approvals of R30.2 million represented 23% of the quarterly target. In the year to date, approvals of R70 million represented 12% of the annual target. The third quarter disbursements represented 100% of the quarterly target. The total disbursement at 31 December 2017 was R655 million, which represented 102% of the annual target. Direct lending disbursement of R26.7 million represented 61% of the quarterly target. On a year-to-date basis, the amount disbursed accounted for 69% of the yearly target. Wholesale Lending disbursed R146 million in Quarter 3.

On development impact, Mr Makhuvha stated that SMMEs had been financed and, consequently, jobs were facilitated. Youth-owned and women-owned enterprises were targeted.

On the post investment management, he said that the Portfolio at Risk (PAR) represented outstanding loan balance accounts of 60 days plus in arrears. The total SEFA loan book was R1.6 billion. The total SEFA loan book was worth R1.6 billion, of which the balance at risk, was 54% or R880 million. The bridging loan book risk percentage was at 93% and worth about R116 million. Key contributors to the Quarter 3 Portfolio at Risk were bridging loans and revolving credit. In terms of total collections for Quarter three, there had been an improvement, with 99% of the target being achieved.

As at December 2017, the actual income was R155 069 000, compared to the previous actual income of R170 863 000. The total actual income represented 114% of the projected budgeted income.

In conclusion, Mr Makhuvha stated that the year-to-date had been very challenging with a number of target indicators falling behind target.

The Chairperson thanked the SEFA presenters and stated that Members would engage with the presentation after SEDA’s briefing.

Briefing by the Small Enterprise Development Agency (SEDA)
Ms Mandisa Tshikwatamba, CEO of SEDA, took the Committee through the presentation. The presentation focussed on governance and compliance, performance report, human resource report, financial information, audit report and action plan, and matters for the attention of the executive authority.

Ms Tshikwatamba stated that SEDA’s performance information was structured in line with SEDA’s approved Annual Performance Plan 2017/18 – 2019/20. It gave information on performance against 27 targeted indicators, both on outcome and output levels. From a total of 27 strategic indicators that were considered for the review, the organisation had performed well on 24 indicators. That reflected an organisational performance of 89%. The organisation did not achieve the following indicators: implementing activity-based costing, improving the recruitment of employees with disabilities, and the employee satisfaction index. The total number of SMMEs assessing SEDA services in Quarter 3 was 2 502, down from 3 919 in Quarter 2.

Ms Tshikwatamba highlighted other performances. She stated that the SEDA had collocated at 59 municipalities and partners: 35 partners were collocated at SEDA, 7 in mobile units and 17 at information kiosks. She announced that nine National Gazelles from the first cohort of National Gazelles had entered the FNB SMME Awards: two were awarded gold, two silver, four bronze and one received an excellence award. There were also on-going negotiations with Disability People South Africa to develop a structured programme to assist entrepreneurs with disabilities. Moreover, four export-orientation courses and four pre-exhibition training sessions were delivered. A post-exhibition workshop was held for the Gauteng SMMEs that had attended the China International SME Fair (CISMEF). She added that a successful SEDA Business Advisor Seminar had been held in October 2017. A precursor to the International Business Advisor Seminar (ICBA) was held in November 2017. Design clinics were held in Gauteng and Mpumalanga in collaboration with the SABS Design Institute.

Ms Tshikwatamba stated that, as part of a partnership with the Department of Telecommunication and Postal Services (DTPS), SEDA would be developing thirty new start-up enterprises as domain registrars. That would be done with Softstart BTI and ZEDNA (an agency of the DTPS). Approval for the establishment of a Centre for Entrepreneurship/Rapid Incubator in rail engineering and new technologies at the Tshwane University of Technology (TUT) had been received. The SAVANT incubator in Cape Town was launched by Minister Zulu in October 2017, and the Vaal University of Technology (VUT) CfE/Rapid Incubator in Upington was launched by the Deputy Minister in November 2017.

Ms Tshikwatamba highlighted areas of concern and corrective action. Her first concern was the percentage implementation of activity-based costing. In that respect, she stated that, after three unsuccessful attempts at sourcing a service provider, SEDA had decided to approach other institutions that had implemented activity-based costing and look at working with them on implementing it at SEDA. Her second concern was the percentage of persons with disabilities employed at SEDA. Assessment of the current offices had revealed challenges in accommodating people with disabilities. The terms of reference for the new offices were being revised to incorporate disability friendliness. The third concern was the employee satisfaction index. Areas of dissatisfaction were being analysed and actions would be taken to effect an improvement.

Ms Tshikwatamba stated that total number of staff as at end December 2017 was 673. Of that number, 194 were Business Advisors. The staff vacancy rate for Business Advisors was at 5%.

Reporting on financial performance, Ms Tshikwatamba stated that the total revised revenue budget for SEDA for the 2017/18 financial year amounted to R820.61 million, equalling the total expenditure budget of R820.61 million. The actual expenditure for the period 1 April to 31 December 2017 amounted to R 532.20 million, resulting in a pro rata under spending of R 28.85 million (5.14%), against the pro-rata budget of R 561.05 million. Commitments at the end of December 2017 were about R23.9 million.

Discussion
The Chairperson remarked that when the Chief Financial Officer (CFO) was left at the office when an organisation came to brief the Committee, it was an indication that the organisation was not transparent and that something fishy was going on as it was the CFO who knew how the money was managed and how money was shifted around.

Ms Lupuwana-Pemba responded that she had brought the Chief of Financial Officer. The problem was that she did not introduce members of her delegation.

Mr Kruger asked SEFA what they were doing to formalise informal business to be more successful and how informal businesses were identified because it was difficult to know who was running an informal business. He asked SEDA how many cooperatives and SMMEs they had helped to reach their targets. He remarked that if they did business as usual, nothing would be transformed. Referring to slide 7, he asked what SEDA was doing in the rural areas, especially in Mpumalanga. How many offices did SEDA have in rural areas?

Mr X Mabasa (ANC) welcomed both presentations. He asked questions of both SEDA and SEFA. He asked, noting that business in informal and rural area needed assistance, how the entities ensured that businesses in rural and informal areas were not unconsciously discriminated against. He asked SEDA who would look after people with disabilities if the Department did not. Which other Department did SEDA think would assume such responsibilities? If SEDA was struggling to reach them, who would do that on their behalf? Was SEDA saying that there were no people living with disabilities? He asked SEFA to elaborate on the statement that 45% of the approvals to date benefitted the productive sectors of the economy. What did SEFA mean?

Mr R Chance (DA) asked SEFA whether loans could be recovered. Did SEFA investigate why people were not paying? He said that he hoped the loan policy was changing and SEFA should be realistic about how much could be loaned and how much could be returned. He asked what SEFA was doing in townships. He was also concerned with the collaboration between SEFA and the National Treasury. What was the progress? He noted that there was correlation between approvals and investments. Was the SEFA pushing loans to its clients or were the clients approaching SEFA? Referring to the SEDA operation and performance, he asked how long it took to process an application? When was the assessment done? What was the measurement used to evaluate the core business? How was added value was measured?

Mr T Mulaudzi (EFF) asked SEFA what the challenges were that they had not achieved their targets in Quarter 3. He commented that in the Quarters 1 and 2, the development impact was very low and went up in the Quarter 3. He said that a different report was needed to elaborate on target achievements and how many youths were catered for per province and per district. Referring to the outstanding loan balance account, he sought clarity on those who had not paid for 151-180 days and, further, what the difference was between slide 16 and slide 18.

Mr G Skosana (ANC) asked SEFA to elaborate on the post-investment monitoring.

Mr Makhuvha responded that SEFA did not have a programme to take people to the next level. 90% of SEFA activities were carried out in informal or rural areas. SEFA focussed much more on rural areas than urban areas. On the question of people living with disability, he responded that the Department and its entities should come up with a number of ways and plans to support those people. SEFA had not done much in assisting them.

The Chairperson asked whether SEFA had read the Gauteng oversight report and remarked that nothing had been mentioned relating to the report. There were recommendations therein. When entities came to report to Parliament, they should take into consideration the fact that Members go out there, see things for themselves and make recommendations.

Mr Makhuvha responded in the negative. He said that the recommendations of the Committee would be taken into consideration. On the 45% approvals, he responded that every transaction followed procedures and that letters of demand were sent to those who defaulted. Last year, SEFA had written-off about R17 million. That was counted or recognised as a loss. The policy was that when funds were written-off, SEFA should try to recover the money. Regarding township business, SEFA supported taxi business. The problem was that most taxi business owners lived in urban areas. On the correlation of investments and approvals, he responded that approvals could be made directly or indirectly and SEFA had to operate in accordance with the country’s economic needs.

Mr B Bongo (ANC) said that he agreed with the presentations, but he was concerned about how the agencies worked with the rural areas. There was a need to reconsider the resolutions of the ruling party. One could see that people in rural areas or in townships were trying to run small businesses, but they did not know where to go in order to boost their own businesses. There was a need to assist the poor who were struggling to sustain their businesses. The focus should be on helping young people to support themselves economically. He was looking upon Chairpersons and CEOs to assist informal businesses as per their respective mandates. He had an interest in knowing the process the agencies followed to identify and assist small businesses.    

Ms Edith Vries, Director-General of the Department of Small Businesses stated that the entities worked with portfolios. She said that there was a policy of transforming informal businesses to formal businesses and that was done through trainings and developing infrastructures. The Department and entities had conducted workshops in which young and new entrepreneurs were taught how to start a business. The Department had discouraged working through intermediaries. Another problem was that officials were not equipped with the knowledge to advise clients on how to start and develop businesses. Her officials were asking for training on how to start a business.
 
Mr Bongo commented that the Director General (DG) and her entities should not be academic when developing the presentation and when briefing the Committee. They should not be academic when responding. They should focus on practical aspects. They should state who was benefitting, how many people had been served and in which areas they were working. They should focus on how the lives of the poor had been transformed.

Mr Mabaso seconded his comments.

The Chairperson said that the Committee had received a letter from the Department stating that staff was not capacitated. They were not up to the task. They did not have the required skills. She stressed that the Committee was not looking at staff but rather to the Department and its entities. The DG and the CEOs should stop complaining that so and so had no understanding or had no skills required to achieve the mandate. It was the duty of the Department to ensure that they employed the right people who understood the work, spirit and objective of the Department. The Committee conducted an oversight visit in Gauteng and had noted some challenges. The Committee had provided recommendations. Were they considered? She agreed with Mr Bongo. When questions were asked, the Committee did not want to hear academic views or about carrying out training, conferences and workshops and so on. They did not need want to hear about theories but practicality. People wanted services to be delivered. The Department should be practical and not academic.

Mr Alex Qunta, Provincial Manager: SEDA Western Cape, responded that in the Quarter 4 report, SEDA would provide statistics to show the Committee the work that they had done with respect to rural areas and people living with disabilities. SEDA was working with informal sectors. The report would show what was happening in each and every informal settlement and rural area. For example, ABSA had referred a person with a disability who owned a bakery to SEDA. They were trying to determine how other persons in the same circumstances could be assisted.

The Chairperson asked whether the entities were using consultants and asked why consultants were used. She stressed that the Department and its entities should be practical. They should focus on tangible practicalities. The Committee wanted to see a roadmap showing how 1.9 million new jobs would be practically created. The Committee wanted to hear about outcomes which were value for money and not about inputs. The Committee did not want to hear that the Department and entities had no capacity. She thanked both the Chairpersons and CEOs of entities and appreciated that they had brought the CFOs with them.

The meeting was adjourned