Department of Small Business Development Quarter 1 Performance, with the Minister

Meeting report

Department of Small Business Development: Quarter One Performance

Mr Lindokuhle Mkhumane, Acting Director General (ADG): Department of Small Business Development (DSBD), presented the first quarter performance report of the Department. A comparative analysis over the past three years indicated a performance in a continuing decline, largely because of the transfer of some programmes to different entities, as well as a change in the structure of some of the entities.

Ms Semphete Oosterwyk, Chief Financial Officer: DSBD, said that the DSBD had expected to spend R421.3 million in the first quarter, but the actual expenditure had been R380.2 million. The DSBD had under-spent by 9.8%, the main reason being the non-processing of transfers amounting to R27.5 million. This included R9.7 million to the National Informal Business Upliftment Strategy (NIBUS), R6.3 million to the Co-Operative Incentive Scheme (CIS), and R13.5 million to the Enterprise Incubation Programme (EIP). Goods and services also under-spent by R8.1 million.

Mr Mkhumane said the Department’s red tape reduction (RTR) programme had been one of the quarter’s highlights. It was a comprehensive programme that had been developed successfully and piloted with the Gauteng Province in the Lesedi and Merafong municipalities.

The DSBD, with the guidance of the Government Technical Advisory Centre (GTAC) and funded by the European Union (EU), had commissioned the analysis and development of the amendments to Schedule 1 of the National Small Enterprises Act, which defines small, medium and micro enterprises (SMMEs).

The “Employment Promotion through SMMEs Support Programme” was formally launched on April 6, and was a €52 million commitment from the EU spanning around five years of assistance. In pursuit of ensuring that the international relations (IR) work-stream started its work in earnest, the DSBD, the Small Enterprise Finance Agency (Sefa) and the Small Enterprise Development Agency (Seda) team met on 16 May and 8 June to discuss areas for collaboration in the international relations space and to refine its programme for the 2018/19 financial year; in order to promote SMMEs globally. The target for the training of cooperatives in Quarter 1 was to train 30 cooperatives. However, 50 cooperatives were actually trained in both bookkeeping and governance.

The Department had supported the Nwanedi New Generation Cooperative to the tune of R8 million through its Enterprise Incubation Programme. A joint planning meeting was held with the Limpopo Department of Agriculture and Rural Development (LDARD). Preparations for the visit by the Deputy Minister, and political heads from Limpopo to visit three of the 15 farms supported was done. The visit took place on the 18 June 2018. A follow up visit would be conducted after the harvest. The Department had also met its target of conducting consultations with various stakeholders as part of the development of a national incubation policy. The engagements involved interviews with current incubators of which some were funded by the Department and others by the private sector.

The Department had met its target on developing a draft framework of standards for the professionalisation of business advisory services. This was strategic work that enabled the Department to lead in this sector and ensure that properly qualified people provided advisory services that lead to the development of sustainable and competitive small businesses. The Department had engaged with the key stakeholders in the sector, which included the Institute of Business Advisers of South Africa (IBASA), the South African Bureau of Standards (SABS) and the Services Sector Education and Training Authority (SETA) among others.

Through the Informal Micro Enterprises Development Programme (IMEDP), the Department had been able to approve and distribute equipment to 580 beneficiaries who had been trained in 2016/17. Payment was made to all eligible creditors within 30 days. The Department had received and processed 2 669 invoices amounting to R15 162 466 within an average of 19 days. Its target for women at the senior management service (SMS) level was above 50%, and people employed with a disability was above the 2% target.

Mr Mkhumane referred to the under-achievements, and said the DSBD budget was currently 9.8%, under-spent, which was above the 5% acceptable rate of the government. This was mainly due to under-spending on the cost of employment, due to vacant posts of 12%, outstanding invoices on travel, and the procurement of materials. There had also been under-expenditure on capital assets, mainly due to the delay in the purchase of laptops and computers.

The Department had been working hard to keep the vacancy rate at the targeted level of 10%.

The planning for the cooperative forums had not been done in previous quarters, therefore currently planning had been undertaken in order to meet the goal of four co-operative forums convened per annum.

Furthermore, consultative sessions were undertaken with various municipalities to integrate co-operative support into their integrated development plans (IDPs). Although plans of action had been developed for five districts, these had not been implemented and would be incorporated into the second quarter plans.

Mr Mkhumane said 34 co-operatives had been supported through the CIS against a target of 122. This was due to the Department experiencing ongoing challenges with the CIS information technology (IT) system, and general insufficient human resources. Targets had also not been achieved with the number of informal business infrastructure partnership agreements secured, and the number of SMMEs supported through the Enterprise Incubation Programme (EIP), as the process to transfer the EIP to Seda took longer than anticipated.

Reporting on the performance of each programme against the annual performance plan (APP), he said the Department had exceeded its targets for the number of ICT system projects defined in the DSBD ICT plan, facilitated interactions that delivered meaningful engagements with communities and the public, and the submission of the amendment of the National Small Business Bill into the legislative process. The assessment of municipal plans in Gauteng had provided great responses, which had helped to facilitate the rollout of the RTR programme. Other issues, besides the holding of workshops, were being developed and shared within the Department.

Two inter-governmental relations (IGR) forums had been conducted. These were an important element of the Enterprise Development and Entrepreneurship programme, where the DSBD engages with provinces and shares experiences. A report had been presented on the 30% procurement target from small businesses, which was a key item during the meetings, as some provinces had exceeded that percentage.

Minister Lindiwe Zulu said she would like to highlight the improvement in the first quarter performance compared to the previous first quarter report that had been presented.  She promised that as a Department and as the Ministry, they would try to reduce the areas where targets had not been achieved, particularly those which had a direct impact on support provided to SMMEs, as this was its key focus. She said the DSBD had to play a bigger role in addressing the challenge of unemployment. During the first quarter, the Department had been without the previous Director-General, and the process of finding a replacement was under way.

Discussion

Mr N Capa (ANC) asked why the transfer to Seda had to take such a long time. Would the targets carried forward to the next quarter be implemented, because there would be double the targets in the second quarter? He congratulated the DSBD on its 30-day payment record, and the percentage of women in the SMS ranks.

Mr H Kruger (DA) referred to the red tape reduction (RTR) strategy, and said he was confused as to why the DSBD was still rolling out strategies. There was a new strategy rolled out in Gauteng, and he would like to know how successful it had been. He commented that he could not see the footprint of the DSBD in the rural areas, and wanted to know why. He also wanted in indication of the DSBD’s success with the agreements finalised with other departments, as this was not apparent to him.

Mr N Xaba (ANC) said the underlying reasons for the non-processing of transfers had been associated with the leave credits given to the employees who had left the DSBD, but there had been no information of the number of employees who had left, or what further action had been taken. He asked for more information on the South African Business Incubation (SABI) conference, and for a more detailed breakdown of the Department’s employment equity statistics. He also wanted clarification on the service level agreement (SLA) challenges, the role of South African Local Government Association (SALGA), and the municipal manager’s forum.

Mr S Mncwabe (NFP) said the government should provide clarification on the 15 farms in Limpopo --specifically who owned them, whether it was co-operatives or the Department. The DSBD had stated that there would be follow up visits after the harvest, and he wanted details of its plans in this regard. Which were the five municipalities with which they had an agreement? He commented that there were 400 co-operative that could not be accounted for, and therefore needed an assurance that the 122 co-operatives being supported actually existed and were operating.

Mr R Chance (DA) said that the DSBD was expected, in terms of the rules, to present a report every 30 days, but currently it was 122 days after the end of the quarter. The DSBD was challenged by disruptions, so he urged that the secretary schedule meetings on a regular basis, in order to get to grips with the information soon after the period of review. He found it interesting that Programme 2 (Sector Policy and Research), which was the smallest, had a large number of targets. He regarded it as an important programme, felt it should be allocated sufficient resources. With reference to terminations, who were the persons whose contracts were terminated? Had there been resignations? The under-performance in support for the co-operatives was concerning, and he wanted clarification of the DSBD’s action plans to remedy this. Lastly, he asked whether the assessments of the co-operatives should not be done under the monitoring aspect of the programme.

Mr S Bekwa (ANC) said that more work should be performed with municipalities in the rural areas. The Department’s under-spending was a concern, but he was glad that it had been acknowledged up front, and he was therefore hoping for remedial action on the matter.

DSBD’s response

Mr Mzwanele Memani, Acting DDG: Cooperatives, DSBD responded on the question referring to the new generation cooperative based in Musina, Limpopo Province. He said there was a report which stated that on 18 June, the Deputy Minister, the Ambassador of Netherlands, the MEC of the Department of Agriculture, the DG and other officials, had visited the farmers in Musina. Each farmer owned a farm, and negotiations had taken place with the relevant chiefs for permission to occupy land that had varying agreement periods. The 16 members of the co-operative had made an agreement with All Joy Foods, when the harvest was produced it was supplied directly to All Joy. In the next report, profits, turnover and the number of jobs created would be presented.

The district municipalities supported were largely in KwaZulu-Natal -- the Abalimi 12 small-scale agricultural primary cooperatives – in  uMgungundlovu, Harry Gwala, eThekwini, iLembe and Ugu. There had been collaboration with the municipal managers and the district development agencies in order to get buy-in.

Minister Zulu acknowledged that the rural footprint was not where it was supposed to be. It was the Portfolio Committee that kept on reminding the DSBD that it could not be everywhere, but the existing structures were supposed to be used as a vehicle to ensure local structures were the DSBD’s ears. The DSBD accepted that this was one of the biggest concerns, as there could not be talks about unemployment, poverty and inequality without addressing the issue.

She agreed with Mr Chance that there should be separate classifications for resignation and termination.

With issues of corruption on the ground, the DSBD had stepped up its efforts to ensure that it had a strict hold over the issue.

She said the national accord served as a support mechanism for SMMEs, coming from the job summit and investment summit, and hopefully they would be finalised quickly.

Ms Bridgette Peterson, Chief Director: Corporate Services, DSBD, said the vacancy rate was at 12%, and there had been one termination and one resignation. The termination was at a senior level, which had gone through a disciplinary hearing, and had been due to under-performance.

Mr Memani confirmed that the 122 cooperatives could be found, as the area of monitoring and evaluation had been strengthened.

The Chairperson enquired as to which spheres of the provinces the co-operatives were allocated.

Mr Memani said that in the next report, a breakdown of the information requested would be provided.

Mr Mojalefa Mohoto, Acting DDG: Enterprise Development, DSBD, responded on the RTR programme, and said the DSBD had identified municipalities in which to promote the issue of the reduction of “red tape” and build awareness of it. Once it was accepted, capacity building of officials could take place, and comprehensive assessment would be done.

Mr Kruger asked whether the RTR plan was for 12 municipalities. How much was the rollout of the RTR strategy costing the DSBD, and why was there a move from the strategy? If there was already an understanding of the RTR strategy in government, why was research being performed by the DSBD?

Mr Mohoto responded that the new strategies were the buildups of the capacity and the assessment of the current programmes. The DSBD was drafting a national RTR strategy. There were various provinces that had taken strides in implementing RTR. The aim was to build a national programme, therefore the strategy was determined in parallel to the programme being applied.

Mr Mzoxolo Maki, Acting DDG, DSBD responded that the preparations for the South African Business Incubation (SABI) conference were in the developmental stage. The purpose of the conference was to bring together the incubators in the eco-system, and for the DSBD to discuss important policy matters about the national policy framework of incubation, describing the role players in the system. The DSBD wanted to determine the best policy to utilise in South Africa, and was therefore bringing forward the role players in order to obtain their input. The role of accelerators, and understanding their role in the ecosystem, would allow a strong incubation framework to be developed. The conference was expected to be held on 15 and 16 November at Emperor’s Palace.

Mr Mkhumane said a report would be submitted to the Committee on the issue of job creation, as the impact had been captured but was not submitted. The information would be included in the future quarterly reports.

One of the reasons the transfer of the EIP to Seda took longer than expected was because of discussions with National Treasury, as the Department sought to transfer a part of the budget so that it could continue monitoring and evaluating. The agreement between Seda and DSBD had to state the role of DSBD in the agreement, but the agreement had been declined due to the Department indicating the need to retain part of the budget for monitoring and evaluating of the EIP.

There was a total of 126 agreements with other government departments, and the national accord was something the DSBD looked to implement. The accord required the departments to commit to what they would do for SMMEs, and also to engage with the DSBD prior to implementing any interventions involving cooperatives and SMME support. The departments currently did not inform the DSBD about what they were doing, so the national accord would assist with having a clear line of communication.

Mr Kruger asked when the strategy was expected to be put into practice.

Mr Mkhumane responded that the finalisation of the national accord would determine when it would be put into practice, or approved by Cabinet, so a specific date could not be confirmed. The accord was expected to go to government in the next financial year.

He added that there were quite a number of core location agreements in the rural areas -- 64 core location points through Seda and 82 access points through Sefa around the country. As a Department, there were insufficient resources to set up offices in all areas, so it made use of other government programmes in order to communicate the support from government for entrepreneurs. 

The meeting was adjourned.