State of Nation Address impact on Department of Small Business Development; with Deputy Minister

Small Business Development

13 February 2019
Chairperson: Ms N Bhengu (ANC)
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Meeting Summary

The Department of Small Business Development (DSBD) presented a wide range of plans and initiatives in response to the commitments made by the President in his 2019 State of the Nation Address (SONA), which would have an impact on the Department’s future operations. It outlined its objectives in the areas of facilitating business opportunities for small, medium and micro enterprises (SMMEs) and cooperatives; getting communities involved in constructing their own houses; supporting emerging farmers; boosting tourism ventures and providing relevant training; ensuring optimum local use of social grants; stimulating innovation and entrepreneurship through incubation programmes; revamping industrial parks; promoting investment and involvement in the oceans economy; and stabilising local government in order to strengthen local economic development opportunities.

Members welcomed the presentation with a positive response, and expressed the hope that the success of the sector would determine how it would deal effectively with the issue of unemployment and poverty in the country. They agreed that SMMEs and cooperatives could be used as poverty-fighting instruments and transform the South African economy to reflect its demographics. Concern was expressed that small businesses had been excluded from the real economy of South Africa, and although this had been addressed by the government’s 30% procurement policy, it needed adjustment to reflect the goal of growing the economy. It was pointed out that South Africa did not have the purchasing power to lift the economy to the necessary growth levels, and this required a focus on exports and the incubation programmes.

Members asked why the Department had spent so long in coming up with an exciting programme, when there had already been the capacity to perform these tasks; how they would empower local communities to build their own structures so that money could be retained in the economy and skills developed; and how money could be put into the hands of small financial institutions that had the capacity, instead of large enterprises. They asked for updates on the Small Enterprise Finance and Development Agencies, and when the SME Innovation Fund would be implemented. When was the Auditor General’s forensic report into corruption by officials of the Department going to be released?

The meeting was advised by the Deputy Minister that the proposed departmental reorganisation by the government would not be implemented until after the General Election in May.

Meeting report

Department’s response to the State of the Nation Address

Mr Lindokuhle Mkhumane, Acting Director General, Department of Small Business Development (DSBD) said he would brief the Portfolio Committee on sectoral issues raised in the 2019 State of the Nation Address (SONA), and how the DSBD had budgeted for its focus on building a social economy and incorporated this into its 2019/20 annual performance plans.

He said that while there was a broad range of critical work being done across government, there was a need to address the five most urgent tasks at this moment in South Africa’s history. These tasks would underpin everything that had to be done this year:

  • Accelerate inclusive economic growth and create jobs;
  • Improve the education system and develop the skills that were needed now and into the future;
  • Improve the conditions of life for all South Africans, especially the poor;
  • Step up the fight against corruption and state capture;
  • Strengthen the capacity of the state to address the needs of the people.

Ease of doing business

The government had made a commitment to improve the ease of doing business in South Africa, which was essential to attracting investment. This team would report progress to Cabinet monthly. The World Bank’s annual “Doing Business” report currently ranked South Africa 82nd out of 190 countries tracked. It had set itself the target of being among the top 50 global performers within the next three years.

For its part, the DSBD had targeted eight red tape reduction procedures to be analysed in 2019/20, to assess four local municipal action plans on red tape reduction, and to develop a red tape reduction strategy and programme of action. A budget of R1 738 880 had been allocated for this purpose. A draft position paper on alternative dispute resolution had been finalised.

Human Settlements

On human settlements, the government had made a commitment that the Housing Development Agency would construct an additional 500 000 housing units in the next five years and an amount of R30 billion would be provided to the municipalities and provinces to enable them to fulfil their respective mandates. The DSBD would also be expanding the People’s Housing Programme, where households were allocated serviced stands to build their own houses, either individually or through community-led housing cooperatives.

The DSBD would conduct a feasibility study on the Reconstruction and Development Programme (RDP) housing project. This would involve engagement with the municipalities, and jointly identifying two pilot projects with municipalities, the Department of Human Settlements (DHS) and the Department of Rural Development and Land Reform (DRDLR). There would be an agreed approach to construction, identification of the capacity requirements of local cooperatives, and mobilisation of technical skills training through the construction Sector Education and Training Authority. 30% of the Cooperative Incentive Scheme (CIS) budget (R26 million) would be set aside for the pilot.

Emerging farmers

There were 250 000 emerging farmers who were working the land and needed support to fully develop their businesses. The government had committed itself to an accelerated programme of land reform in order to expand agricultural output and promote economic inclusion.

The DSBD would support this initiative by reviving capacity development through the Small Enterprise Development Agency (SEDA), and would work closely on European Union (EU) funding support allocated to the DAFF of €4 milllion. The Land Reform Empowerment Facility (LREF) provides loans on a wholesale basis to agricultural SMMEs through intermediary arrangements with commercial banks and non-bank agricultural financial intermediaries. This entity, which is capitalised by the DRDLR, has been housed and managed by the Small Enterprise Finance Agency (SEFA) on behalf of the DRDLR since 1999/ 2000. The current portfolio consists of 544 projects collectively adding up to a value of R283 558 869. Funds available for new investments equalled R120 192 753, after taking undrawn commitments into account.


In the past year, 10 million tourists had come to South Africa. The intention is to raise this to 21 million by 2030. For its part, the DSBD would strengthen collaboration with the Department of Tourism to support cooperatives and small, medium and micro enterprises (SMMEs) involved in this sector. It would also provide business development support services through SEDA to enable enterprises to access incentives offered by the Department of Tourism. This would enable the Department to focus on the productive sectors of the economy.

Social grants

Every month, 17.5 million social grants were provided to South Africans. The DSBD would engage with the South African Social Security Agency (SASSA) to encourage the distribution of social grants through Cooperative Financial Institutions (CFIs) to complement the South African Post Office network. It would also engage with the Department to localise the spending of the social grants within localities through:

  • Sourcing of nutritional schemes from local communities/cooperatives;
  • Strengthening textile cooperatives that supply school uniforms for children benefiting from Social Relief of Distress support;
  • Supporting cooperatives and SMMEs to supply perishable foods to provincial food distribution centres, community nutrition and development centres and luncheon clubs. Centres would be established to ensure a consistent supply of daily nutritious meals to vulnerable households and individuals in the community.

Incubation Programme

The incubation programme currently consists of a network of 51 technology business incubators, 10 enterprise supplier development incubators and 14 rapid youth incubators. As part of the expansion of this programme, township digital hubs would be established, initially in four provinces, with more to follow.

The DSBD would ensure that incubators featured in the 30% preferential procurement spend from the projected government spend of R1.2 trillion, and R2 trillion from state-owned enterprises (SOEs) over the medium term expenditure framework (MTEF) period.

The Fourth Industrial Revolution gives a name to a gathering of global trends that have been building toward a deep transformation of both business and technology in global terms. It is a technological revolution that will fundamentally alter the way we live, work and relate to one another. In its scale, scope, and complexity, the transformation would be unlike anything humankind has experienced before. Trending hype that surrounds major new technologies like the Internet of Things (IOT), Augmented Reality (AR), Additive Manufacturing (3D&4D), Big data, Block chain and cloud computing, had forced SEDA to look at how to scale it five technical hubs for the future. It had become important for SEDA to support SMMEs and cooperatives in embracing this radical reshaping of the relationship between technological capabilities and business opportunities.

The Fourth Industrial Revolution’s new technologies had creating a new type of opportunity where it was possible to reinvent entire industry ecosystems. In partnership with the DSBD and the Department of Telecommunication and Postal Services (DTPS), SEDA had started a conversation to develop the biggest Tech Hub in Africa -- a 1 000-seater incubation hub fully equipped with test laboratories, a coding and programming academy, and co-working and co-creation spaces. The Silicon Valley model hub, a first of its kind in Africa, would drive South Africa’s new economic vision, and was earmarked for completion in the next three years. The biggest technology incubation hub in Africa – the “Softstart 4th Industrial Revolution Hub” -- in Midrand, Gauteng, would be located in the biggest technology cluster in the country. There would be four new information communication tgechnology (ICT) hubs with coding laboratories in four provinces (North West, Eastern Cape, Limpopo and Free State). This was in order stimulate innovation and entrepreneurship, and bridge the digital divide that existed in these previously disadvantaged areas. The aim was to work and collaborate with local municipalities and institutions of higher learning, as these were critical in any innovation eco-system.

The DSBD, together with SEDA, had allocated a budget of R210.1 million.

Industrial Parks

The commitment to revamp industrial parks in townships and rural areas had brought about a discernible change, as industrial parks that had been lying idle were becoming productive again. So far, 10 out of 16 industrial parks had been completed. The majority of occupants of industrial parks were small businesses. The DSBD would collaborate with the Department of Trade and Industry (DTI) to provide the necessary financial and non-financial support to sustain the businesses. It would explore a shared services model to enhance the capabilities of the tenant enterprises and alleviate their overheads where possible.

Oceans Economy

Since the introduction of Operation Phakisa in the Oceans Economy in 2014, the Department had secured investments of nearly R30 billion and created over 7 000 direct jobs. The investments had been mainly in infrastructure development, marine manufacturing, aquaculture, and the oil and gas sector. Expected investment in the Oceans Economy over the next five years was estimated at R3.8 billion by the government, and R65 billion by the private sector.

The DSBD would ensure that SMMEs, cooperatives and informal businesses within the coastal areas were trained to participate in the marine safety, rescue and security programmes, and would facilitate market opportunities for SMMEs and cooperatives in the offshore mining, fishing value chains (fishing, fish processing, fish packaging and retail, shipping, ship building and maintenance), as well as coastal transportation. Enterprises would be encouraged to participate in the coastal tourism, waste management, and oil spillage cleaning in the harbours. Funding opportunities would be available for enterprises to participate in the small harbour programmes.

Local Government

Government had begun the process of stabilising and supporting 57 municipalities, where over 10 000 municipal infrastructure projects were being implemented. The DSBD’s involvement would be to support municipalities to develop implementable local economic development strategies, support projects that were in the integrated development plans (IDPs), provide support to municipalities to enable them to provide referral or business development support services to small businesses, and to strengthen local chambers through a chamber support programme so that they could strengthen local economic development initiatives and support their members.

Mr Mkhumane asked the Portfolio Committee to note the initiatives undertaken by the Department as a response to the commitments made by the President during the State of the Nation Address.


The Chairperson said she was shocked in a positive manner, which meant she was over-excited and happy. What had brought about the change, because what had been presented was what the Portfolio Committee had been looking for since the inception of the Department? If it was the same people who were there, then why had they needed to spend a whole term fighting each other when in fact there was capacity in the Department to actually do what they were saying the Department was supposed to be doing?

Deputy Minster Cassel Mathale commended the presentation, and responded with the saying that “the part was influenced by the whole, and the whole influences the part.” He thought that over the course of their interaction and discussion, the Committee and the Department had been able to talk in such a manner that they had ended up where they were now. The fact that they had talked past each other was a reality that had happened, but because of the interrelations that evolve over time as the body talks, interacts, shares ideas and talk past each other, the body talks past each other until such time that when they talk, they do not talk past each other. In this process, they evolve a common perspective, which was what he thought had happened, and they must be grateful that they were where they were now. He further thought that it was due to the leadership that the Chairperson had demonstrated at the meeting, together with her Committee, and the leadership from the Department. He regretted that they had been able to come closer to each other only at the time that they had to rise. He agreed with the Chairperson that there was capacity, and that when the Acting DG was presenting, he felt good as well, as they were talking about things that generally brought disagreement. At some point, he had thought that it was the Chairperson talking through the ADG, because things that were presented were things that the Chairperson had championed for quite some time.

He thought that they could only do better moving forward, and he hoped their successors would not struggle in terms of what needed to be done regarding small businesses and cooperatives, because the success of this sector would determine how they would deal effectively with the issue of unemployment and poverty in the country. One could say that small businesses and cooperatives were poverty-fighting instruments, but at the same time they were instruments that could contribute to transforming the South African economy in such a manner that it was reflective of demographics.

Mr R Chance (DA) said he also wished to express his shock and moderate happiness at the presentation. He was not going to say that he was 100% happy, but he was definitely a lot happier than he had been in quite a long time because he felt that the Department had shown responsiveness to the priorities that the country was facing and the role that the Department could play in addressing the issues.

In going back to the programme review of 2015, when the Department had had a good hard look at itself and taken the decision that it was going to adopt a horizontal approach, rather than a deep approach, and would focus on the issues that affected all small businesses in respective of the sector of the economy that they operated in. He took the point that the ADG had mentioned in relation to the tourism sector, which was to say that rather than overlapping in the programmes that were being conducted, they would work with the Department of Tourism and other tourism practitioners to combine their resources, rather than duplicating them. This made a lot of sense, because the Department of Tourism had the sector knowledge and the Department of Small Business Development had the segment knowledge. This was an important distinction, and he picked the Deputy Minister out on this by saying small business was not a sector, but that it was a segment and that there was terminological distinction between the two which he had referred to before and which may have ruffled a few feathers at the Department. However, he wasn’t the first person to mention that distinction as it was John Dludlu, in his article in Business Day, who had referred to the fact that small businesses were not a sector of the economy -- they were a segment of the broad economy that participated in each sector. A sector was essentially a vertical market, which was described by the Deputy Minister as tourism, housing and ocean’s economy in which businesses, large and small, play their part.

One of the problems that he thought the Department had been bedevilled by, was the concept that small businesses operate outside of the supply chain. In other words, small businesses were not an island on their own -- they operated in the economy. Thus, the problem in South Africa was that small businesses had been excluded from the real, formal or growing economy. One of the ways in which government had chosen to address this was through the 30% procurement policy which had certain strengths and certain weaknesses – the strength being that it provided market access. However, one of the weaknesses was that it focused on redistributing existing work from large businesses to small businesses, which then weakened the large businesses to the detriment of the small businesses, who may not even have the capacity to deliver on the projects. Conceptually, he suggested that the 30% procurement policy needed to be adjusted so that integration of procurement projects or supply chain projects could be achieved, with the objective of growing the economy and not just shifting contracts from one group of businesses to another.

He thought that the approach that the Department was adopting had the value of addressing the problems that small businesses encountered across the board, which included access to finance, access to markets, access to training and all those things. If the problems were related to the real economy, which the Department appeared to be doing, then all of it could be addressed. For example, he considered the housing issue and said that there was a huge housing backlog but that the government could not afford to pay and get everybody a house, as it was not possible. He asked, as the Chairperson had been asking for a long time, how one could empower local communities to build their own structures so that money could be retained in the economy and skills could be developed. He thought a lot more work was needed to be done in that area. He looked, for example, at new housing materials, building materials and building technologies that were more efficient than bricks and mortar which were expensive and environmentally dubious because of the huge amount of carbon dioxide and other gases that went into the atmosphere as a result of manufacturing concrete and cement. The possibility of using this opportunity to empower communities, train them and then use those skills to develop better quality products which could again be bought and sold within the community, had value.

As far as emerging farmers was concerned, it was a pity that that approach had not informed the issue of land reform many years ago, because one of the problems with land reform and restitution of land rights was that a lot of people were theoretically put into the farming sector without the skills to actually do the job. This meant that a lot of land was not being farmed properly and many small farmers were failing and going out of business, so this was a very important aspect to focus on.

Referring to the social grants issue, he recommended that everyone read G G Alcock’s book entitled ‘Kasinomic Revolution,’ which was published at the end of last year. He said that Alcock was an unusual person who had grown up in Msinga in rural KwaZulu-Natal as a white Zulu, had spent his career operating in the informal sector, and had a deep knowledge of the way they operated or did not operate. Alcock beat the drum about keeping money in the economy, and made a particular point about the fact that social grants were dished out by first world institutions that made money out of, and sucked money out of, the townships, as the money was immediately spent at Shoprite, USave or Pick n Pay, where the money was dispersed. Why did we not try to find ways of putting the money into the hands of spaza shops, or at least small financial institutions that had the capacity? In principle he supported the approach that they needed to be capacitated in order to make it possible.

He then commented on one area which the President had focused on, but had not been mentioned in the presentation, which was the issue of exports. This was a point which he said he had emphasised for a long time -- that from a macroeconomic perspective, this country did not have the purchasing power to lift the economy to the growth levels that it needed. Any student of economics and economic development would see that countries around the world had based their exponential growth on exports. He suggested that this was where the incubation programme should be focused. He had no problem with the way that the Department was doing things, but said that nationally there should be a greater effort placed upon building export capacity amongst small businesses through their relationships with big businesses, which could give them access to global markets.

On a particular incubator, he said that he would be interested to get the comments from the Department on the 22 on Sloane which, as could be recalled, was opened to great fanfare by the Minister and Richard Branson at the end of 2017. He had had a meeting with the CEO the other day, who had indicated that they were struggling. The Department had told him that it had given him R4 700 000. These figures were confirmed to be correct by the nodding of the CFO. He then said that 22 on Sloan was funded mainly through international agencies and donors, but it was having to review its business model because of the lack of income necessary to keep the business growing. It could not continually rely on grants. This raised the question of the business model of incubators in general – were they going to be purely dependent upon grants (in other words, that they were a drain on the economy) or were they going to be based on risk and return (in other words, a co-investment model)? This then led to two questions. What was the update on the Departments of the SEFA’s and SEDA’s black economic empowerment (BEE) status? How was the Department going to mobilise the R2.1 billion start-up fund that was not mentioned in the SONA or the presentation? What had happened to this fund that was supposed to be managed by the Department of Small Business Development and the Department of Science and Technology? He then asked if it would not be sensible to rethink the whole area of incubation, which was sucking in billions of private sector money, not to mention public sector money.

In getting back to the point discussed last year on blended finance, not just the cooperatives, he asked how to maximise grants, loans and equity to fast track start-ups and growing businesses? There was a lot going on in the private sector, as there were many new entities starting up which did not seem to have a lot of contact with the Department. This was a pity, because of the duplication of effort. He proposed that the Department needed to make more of an effort to have serious discussions. For example, he mentioned an organisation called Founder’s Factory, which was a UK-based organisation set up by Brent Hoberman. Hoberman was a South African who had relocated to England and started in the late 1990s – one of the very first e-commerce success stories. It had struggled initially, but had become a major business. Hoberman, along with some colleagues, had started Founder’s Factory and had just set up their South African operation. Their goal was to fund and develop 150 high growth companies within Africa within five years, of which their first had just been taken on. A significant number of these small businesses had been founded in South Africa, but currently they were finding more in Kenya, Ghana and Nigeria than they were here. He suggested that that type of collaborative effort, rather than the Department trying to do everything itself, was absolutely essential for this country’s growth, which needed to be realised.

Regarding industrial parks, he emphasised that it was important to remember that there were two categories. The one was under the DTI, which was set up in the former homelands and which he thought the President had been referring to mainly in his speech. Then there were the township industrial parks, which were the responsibility of the DSBD. He suggested that a conversation was needed between the DTI and the DSBD on the approach to both sorts of parks. Discussions were still ongoing with regards to the transfer of ownership of the industrial parks and the townships to the tenants. He was unsure of the situation here, but said that it seemed to have reached a deadlock, and he asked to be updated. The point about the parks was that they were potentially oceans of enterprise.

The Chairperson interrupted Mr Chance to allow other Members the opportunity to participate in the discussion as well, as there would be early departures.

Mr Chance apologised and said that he was nearly done. His final question was about local government -- had the Department of Public Service and Administration (DPSA) spoken to the Department about restructuring government and how that was going to achieve the overall objective and, in particular, how local government was going to be involved in the whole enterprise?

Rev K Meshoe (ACDP) mentioned the fact that assisting and developing SMMEs and cooperatives needed funding. He wanted to know when the Auditor General’s forensic report into corruption by officials of the Department was going to be released? As Members, there had been many complaints received from people on the ground who should have received equipment but had not. This matter necessitated asking for an investigation. It had taken a long time, and he wanted to know how far the investigation was and when the report would be released?

Secondly, he needed clarity on the feasibility study that would be conducted regarding the RDP housing project. The core mandate of the Department was developing and building capacity in small businesses, and thus he wanted to know whether the interest in RDP housing helped or assisted the mandate.

Thirdly, he referred to the identification of the capacity requirement of local cooperatives. He was sure that after five years they all knew what the capacity requirements were, so after all of the years that the Committee had been dealing with them, why had they failed to identify the capacity requirements? Regarding developing a red tape reduction strategy, he questioned whether the Department was going to reinvent the bill or if it was going to build on the private Member’s bill that had been proposed by Mr H Kruger? If it was not going to be considered, he needed to be enlightened because he believed that there were some issues that would greatly help to reduce red tape in the Department.

Lastly, he turned to the page which talked about strengthening local chambers through chamber support programmes, because the Department could not monitor all SMMEs. He thus wanted to know how many local chambers there already were and if there were not enough, how long it would take to monitor the money being spent on SMMEs and cooperatives.

Mr S Mncwabe (NFP) said that his questions had been covered by his colleagues. He commented that it had been a very exciting presentation, but emphasised the need for implementation by the Department, because they had received the document with a vision but no implementation. They should stand firm on the transversal agreements that they had been speaking about throughout the term with other departments because upon looking at what they would be doing, it needed the DAFF, the DRDLR and other special and critical departments for the implementation of the entire vision. They should therefore finalise whether there were any outstanding transversal agreements with any department so that there would be a smooth implementation of the vision. However, one really had nothing to criticise except to say, “let us implement to make sure that our people get this service”. He was impressed on how the issues of social grants had been approached to benefit the local people, and thought it to be important.

Mr X Mabasa (ANC) added a word of congratulation for the wonderful input. He commented on some areas that had been raised as areas of emphasis and said that it was important that the three spheres of government worked in unison at all times. With the three spheres working in unison, the question that should be asked and answered all the time was, ‘what is it in there for me?’. In other words, a sphere of government should say, “if I contribute this, I will in return receive this”, so that the sphere did not feel it was doing it for the other two spheres.

The next point concerned tourism. He thought that people in South Africa, especially in poor and developing areas, had not reached a point of embracing tourism to see it as a value to their communities. They were not jealously looking after tourists, be they local or overseas tourists. It was thus something that needed to be worked on further with the Portfolio Committee on Tourism. The training and entrepreneurship emphasised by the President was important for them to be alert, so that when that syllabus was established, it took into cognisance SMMEs and cooperatives. This was because it was very easy, when thinking of training, to think only of big economies when drawing up the syllabus.

Another challenge that he was merely touching on was that without infrastructure, they were not going to get most of the imminent successes, and that infrastructure should be thought of not only in terms of South Africa, but also concurrently from the point of view of Southern Africa and the continent. This was because the President had emphasised intra-continental trade, and for that to happen successfully there had to be a balancing infrastructure. The training was also going to help, because it was very important that the funds dispersed to small businesses and cooperatives were efficiently and well looked after. This point went hand in hand with making sure that corruption was fought with all the might the Portfolio Committee had.

Rev Meshoe proposed to the Chairperson that the Department answer the first round of questions, as some Members had asked to be excused.

The Chairperson allowed for responses to the questions that had been asked up until this point.

Department’s response

Mr Mkhumane said that he would answer a few questions and that his colleagues would answer the questions that were specific to them, which included his SEDA and SEFA colleagues.

In response to the issue on the forensic report, he thought that the Deputy Minister had indicated that the report had not come through from the Auditor General’s (AG’s) office. To provide more detail, the report had been due at the end of August, after which they had indicated that they were not ready to present the report as yet. They had then a meeting at the end of September and again, the report could not be presented. Whilst getting these responses, the Department was writing formal letters to them because they needed an audit trail, and if the AG was not performing, they needed evidence that could be provided if it was required. The report was then promised in November, but again it never came, and another letter was written in December. The Minister had now written to the AG’s office herself, because this issue was taken very seriously, and they were not happy with the kind of non-responsiveness on the part of the AG in terms of finalising the report. They were still waiting for the report to be finalised because, when speaking to them in December, they had said that the report would be presented in early January, but it had not yet come through. Thus the issue had been elevated to the Minister.

Mr Mkhumane referred to the question by Mr Chance on whether the DPSA had spoken to the Department about the restructuring of government. His answer to this was that they had not spoken to any government departments, and that he thought the indication they got last year was that the issue was being handled by two government departments – the DPSA and the President. He had been told that the Department would only know after the elections, if local government was going to be restructured, and how this was going to be done. The Department was thus not having any discussions with the DPSA on the issues around the restructuring of government.

Deputy Minister Mathale emphasised that the restructuring of government was a presidential matter, and that he thought that it had been said that it was going to be done, but that clearly it was not going to be done today. He was quite confident that after May there would be a new structure, but it was not necessary to consult them. If the favour was given to the Department to comment on it, the Department would make their own comment in terms of how they saw the process moving forward, but it was a matter that resided with the President.

Mr Mojalefa Mohoto, Acting Deputy Director General: Enterprise Development, DSBD responded to the question which asked whether the Department was reinventing the way to reduce red tape. He drew the distinction that the strategy that they were developing was not necessarily legislative in nature. However, the Department had taken stock of various things that they were getting out of the interested parties, including the Bill that had been presented. There may have been some principle issues that they could not pick up from the legislation itself, but they were mindful of the fact that some of the things were legislative in nature and were not necessarily found in their strategy. However, the Department had taken stock of everything. The strategy development process had included quite a protracted and intensive consultation process – they had consulted with all of the interested parties that would actually provide input. He was confident that the Department would draw from some of the lessons that were articulated in the bill itself.

Mr Mzoxolo Maki, Acting Deputy Director General, DSBD, responded regarding the SME Innovation Fund, and what had happened to it. Everything regarding the development and implementation of the plan was in place, and full implementation would start on 1 April this year. It would be administered by SEFA and the DSBD. National Treasury and the DST were also part of the structure that would oversee the implementation. It had always been planned for implementation in 2019/20 financial year.

On the important issue of how to maximise grants, loans and incentives, Mr Maki went back to the discussion that the Acting Deputy General had introduced a few months ago when reporting on Quarter One. The Department was working on a blanket finance model – a blended funding approach -- which was based on the important issue of maximising funding so that SMMEs and cooperatives were not burdened with loans. The Department should be able to provide and mix this nicely with grants and incentives, so the work was continuing. The Department, SEDA and SEFA were working towards this and would start piloting some of the projects that they had received to see how it panned out.

On the incubation front, he confirmed that the amount given to 22 on Sloane, as quoted by Mr Chance, was correct. When the Department had opened the applications for 2018/19, 22 on Sloane had informed them that they were withdrawing their application and were keen on a different funding model with SEDA, which suggested that they were not too keen to comply with all of the issues that came with participation in the European Investment Bank (EIB) programme. As the Acting Deputy General had said before, the implementation of the SBIF put a high premium on the participation of incubators. The reason for this was because the Department had said that they wanted the incubators to build the capacity of small businesses and cooperatives. The Department wanted the incubators to hold their hand and take them through a clear incubation model so that they could increase the pool of SMMEs and cooperatives, and so that they could have the capacity to participate in the 30% public procurement programme that government had introduced. The role of incubators was thus seen as exactly, that and a high premium was placed on access to the market so that when the SMMEs and cooperatives were given capacity, the Department was comfortable that they would be given access to the market.

Equally important was the issue of export development. In the portfolio, there was an estimate of 71 incubators, and it would never be sustainable for the incubators to rely solely on the funding of the government, so a funding model was needed where the private sector was invited to partake and throw in some funds. This had helped to improve the performance of incubators, because everyone who invested would want to ensure that they received a return on their investment. Some of the companies that had come on board had connections with the international platforms where some of the incubators had the opportunity to supply some of their products and services, which the Department was open to. The proposal that had been put forward in the SONA would propel the Department in that direction so that they could also play a pronounced role in incubation technology. This was to provide SMMEs and cooperatives with the information and technology to participate in the international forum.

Mr T Jaftha, in response to Mr Chance’s view on export growth, added that what the Department was trying to do was remodel the incubators to focus predominantly on trying to get entrepreneurial products into foreign markets. What the Department was doing was setting up “soft land” inland forms, so that all incubators were able to soft land products and services in different markets. For example, there were three new incubators that were set up which were now able to soft land new technologies and new innovations in France. Seven of the companies were now South African-based small, black-owned firms who were able to produce products that were now soft landing within the French market. The same was seen with the new tech hubs which the Department was trying to set up to soft land South African technologies and products in other foreign markets, especially African markets. He believed that their companies were able to produce the type of products required in other markets.

Mr Maki said that he had been reminded of the chamber support programme, and on the question as to how many chambers there were, he did not have the number at the top of his head but that there were a couple that they had started collaborations with in order to do exactly what the Acting Deputy General had said. They had started using them as an extension of their hand to help with the implementation of the Informal Micro Enterprises Development Programme (IMEDP). What the Department had found, interestingly, was that some chambers in the urban areas used the example of the Nelson Mandela Bay Business Chamber, which had a nice partnership with the Nelson Mandela University and Private Centre to provide enterprise development support to their members. In other chambers, such as the example in the Eastern Cape of the Eastern Cape Business Chamber in Umtata, as well as Langa Traders Association, the Department would like to do all of the nice things that were said about how the members could be supported. However, the reality was that the Department did not have the resources nor the capacity to help and had made the commitment to them, offering to provide one-day business workshops to the members and after that, provide them with the equipment and tools to run their informal and micro-businesses. Serious emphasis was put on the role of business chambers and, as the Deputy General had said, the Department thought it would play a huge role in terms of being their eyes and ears in the specific localities that they operated in. This was an important project and programme that the Department wanted to work on seriously.

Mr Mkhumane responded to the last question by the Rev Meshoe, who had asked why the Department wanted to do the capacity requirement assessment referred to on slide 6. He said that the main issues were that they would be adopting a different approach, where the Department wanted to utilise local cooperatives to assist with the construction of houses. Houses were not just about brick and mortar -- there were other things that needed to be supplied, such as the windows and roofing etc. Therefore, the Department needed to know how many local cooperatives there were, and in which sectors these local cooperatives were operating in. In his opinion, everything should operate within cooperatives, so where they were operating in different sectors, they should share the work instead of the Department having to bring in people from outside to come and work. He emphasised that it was critical to know the cooperatives in the country and their particular area and exactly what each dealt with. This was because, before starting a project, it was critical to know the available capacity within that particular area so that skills training could be brought in if the cooperatives needed to be trained, as one did not want to continue with the belief where people always think that the products which came from cooperatives were of inferior quality. They had to make sure that their capacity was built so that they were able to supply quality goods and services.

The Chairperson added to the response by saying that in the SONA, the President had said that the people’s housing programme would be expanding. The people’s housing programme was where people were encouraged to build their own houses. The President had gone on to say that in doing so, households would be encouraged to build their own houses. In addition, for community-led cooperatives, this opened an opportunity for a sector approach in terms of developing cooperatives, because cooperatives also had sectors. There was what was called housing cooperatives at an international level, which then talked to people building their own houses and manufacturing their own building materials as opposed to having the government build houses for them. In SONA, the President had said that households would be provided with serviced sites, meaning that even where there were no existing cooperatives, beneficiaries could be organised to form themselves into housing cooperatives and collectively pull their resources together for the purpose of building their own houses. This would then require a feasibility study to understand how many housing cooperatives there would be, how many houses were going to be built in a particular area, what the skills levels were, what natural resources existed within the communities and how the community could be organised to implement a people-centred and people-driven development approach. She thought the Department was headed in the right direction.

She answered the Rev Meshoe’s question directly, where he had asked whether the Department was within its mandate when considering the RDP housing. The Chairperson responded that the answer was yes -- the Department was within its mandate and was beginning to focus and identify sectors that related to the international standards to say that, in the space of the RDP and housing development, what type of cooperatives could then be developed. The type of cooperative that could be developed in that space, using a housing subsidy, was a housing cooperative.

The Chairperson then took the second round of questions and excused Rev Meshoe and Mr Mncwabe.

Further discussion

The Deputy Minister asked the Chairperson and Mr Chance about the interesting read that had been pieced together and mentioned by Mr Chance.

The Chairperson responded that she personally knew the author, G G Alcock, as the Portfolio Committee had worked with him at the Welgespruit Fellowship Centre in KwaZulu-Natal, and that she had his phone number.

The Deputy Minister thanked the Chairperson for her assistance, and asked for the name of the author and the book to be provided.

The Chairperson mentioned that G G Alcock was a product of the Welgespruit Fellowship Centre, just like she was.

Mr H Kruger (DA) referred to the SONA in which the President had made an announcement to “wake up and smell the coffee”, which he had used quite a lot. In Mr Kruger’s opinion, the Department had just woken up and smelled the coffee, so he was also very happy to smell the coffee with them. Of course, the red tape strategy was one of his questions and had been answered, but when talking about red tape, the answer from the Department was always ‘airy-fairy’ in saying, “there was a strategy; it’s coming; don’t worry, we’re busy working on it”, but nothing was seen. He asked the Department when they would see a draft of the strategy, and said that he would like to see this draft before 20 March. This was because, as the Deputy Minister had rightly said, they did not know what the structure of the departments would be after the election. Looking at the strategy followed by the rest of the world, it was not about reducing red tape any more, but about trying to quantify it in monetary value so that governments could realise not how much red tape costs, but how much it would cost if they did not introduce the so-called strategy of reducing red tape. It was thus very important that the Department look at the strategy of how to quantify red tape, especially administrative costs, the cost of compliance and the like.

Lastly, he commented that anybody who had studied business administration or read about business and how to be successful, would have read about “competitive advantage.” This says that if one had a competitive advantage, you would always be successful. However, in small business it was not about competitive advantage, it was about unfair advantages. He proposed that the Department should start investigating the unfair advantages that small businesses had over big businesses. If it was possible to explore the unfair advantages of small businesses over big businesses, this would automatically push the bullying tactics of big businesses out of the system and small businesses would have their rightful place within the economy.

Mr N Capa (ANC) said that unlike his colleagues, he was not shocked by what had been mentioned in the report. He was excited with the contents of the presentation because he had always known that there was capacity. He made a joke about the executive managers’ ambiguous answers to their questions, and the House responded with brief laughter. The fact that they had been able to respond to everything the President had mentioned in his SONA regarding the performance of the Department showed him that there actually was capacity within the DSBD.

He had a few issues that he would like to raise, and most of them were not questions. He said there were issues that had been raised in past SONAs but had never been attended to. He requested an explanation on what was happening with the unresolved issues and why the Department now believed these issues would be dealt with better this time around. The phrase ‘engaging with municipalities’ had been used, and he hoped that was could broadened to also mean that they would engage with the municipalities in a way that would influence them in a positive manner. He said the strengthening of collaborations was also very important, and should be accelerated. He was also concerned about how the issue mentioned in slide 9 about social grants would be achieved. There was some indication that SASSA and the Department had a mutually beneficial relationship, and the Department should be clear about its responsibilities in the relationship. It should always make sure that it honoured its part in the relationship.

He said slide 13 makes no mention off the DAFF, and that was worrisome for him. The DAFF was very active in the economy and in the cooperatives. This was important when it came to the fact that SMEs had to be protected against larger corporations. This could be achieved by offering firm support to small businesses. This was a challenge that the Department would face. The 85% failure rate of small businesses had not been mentioned in the presentation, and he hoped everything that had been mentioned would help reduce this number.

He spoke about red tape, which he said was worrying. The presentation had mentioned it as if nothing had been done about it. According to his knowledge, the government had put a lot of work into resolving this matter. It had even setup a team that would foresee and deal with red tape, and report its findings to the Cabinet monthly.

Mr N Xaba (ANC) said that they welcomed the advances in the response to small businesses in the country. The threat to small businesses would not increase, due to the plan outlined in the presentation. He said slide 6, which talked about human settlements and the RDP housing project, was not clear.

He said slide 7 mentioned funds that were available for new investments, estimated at R520 million. He asked whether these new investments had been identified.

Regarding slide 10, he wanted to know how the five technology hubs would be rolled out, what criteria would be used and who the beneficiaries would be. He wondered whether this would be a success or not, and if everything had been calculated properly to secure the necessary budget.

Mr Kruger said that in Mpumalanga, small business development was busy with red tape research. He wanted to know if the Department knew about this, or if it intended on using this research in any way.

Department’s response

Mr Jaftha said that they had noticed the challenge that they were facing when it came to their response to the 4th industrial revolution. They had modelled a programme to develop technology hubs, starting with the four under-serviced provinces that they had noted. This would expand to Mpumalanga and the Northern Cape. The hubs would be fully equipped with technology which would be used to commercialise innovation. They would also be equipped with code creation labs and co-working spaces. Coding labs would teach young people how to code and programme. Their aim would be focused on developing young people using technology. Expanding would be done jointly with external companies, which would also be responsible for a portion of the funding. 

Mr Maki responded to other questions by saying that because they were piloting their approach, they had to work with municipalities that would be receptive of the idea, and be able to work with them so as to attract other municipalities to also join in and work with them.

He said 250 farmers were already assisted by the DAFF, as indicated by the President, and they had already been identified. The DSBD would continue assisting them.

The Chairperson said the Department had highlighted five areas which the President had spoken about, where he had outlined the tasks that should be undertaken by the DSBD to function actively and efficiently. She did not share the same views as the Department, as there were more important issues that should have been on the list to achieve efficiency. She said that fighting corruption within the Department was very critical. Resources should not be seen as a cash cow by the Department and service providers, and if this was allowed to happen, then history would judge them harshly.

She also touched on the strengthening of the capacity to address the needs of the poor. Another important area to focus on should be quality rather than quantity. The Department focused more on quantity than quality. It had been asked to make a submission by means of a report to the Cabinet outlining the nature of work at they had done with the 400 businesses that they worked with, but had failed to make this submission. The Department was mandated to provide services which were provided by the DTI, but in a much broader perspective. The DTI already had a report pointing out the failure rate of small businesses as being at 80%. In 2009, this rate had been 88%. This clearly pointed to the five areas of focus which were needed to strengthen the capacity of the state to address the needs of the poor.

She said there was a high failure rate in small businesses and cooperatives, and that the Department needed to do a self-inspection to find the root causes for this. She focused mainly on the DSBD’s qualifications to carry out its mandate, saying this was necessary so that it could work on upskilling its employees in order to increase its capacity for service delivery. She asked if it had any means for internal skills development so as to make them better qualified do their jobs.

Mr Xaba sought clarity on how small businesses would be supported. Had the Department worked out a timeframe to achieve all of its goals? Were there any other businesses that it had consulted to obtain external funding, apart from Telkom?

Mr Jaftha responded that their target would be different types of young people from different walks of life who had a skill that could yield entrepreneurship. They would also target cooperatives that operated in the technology value chain, as well as students who wanted to be skilled in programming. The tech hubs would offer training, business development support, equipment, and access to markets.

Mr Xaba asked whether it would be small businesses or big businesses that would render those services.

Mr Jaftha said that duties would be divided among parties that could carry them out effectively and efficiently. The private sector would sponsor the hubs with funding, as the government would not be able to do this alone.

Mr Mojalefa said they agreed with the Chairperson on the issues that she had raised surrounding the five areas that the Department needed to work on.

The Chairperson said that the Fourth Industrial Revolution would affect every sector -- everyone would be affected in either a negative or a positive way.

She said the Department did think “out-of-the-box” when it came to its development programmes. It should also focus on agronomy. She advised the Department to look at a practical example, which was the daily functioning of Uber. She gave further examples of the types of technological advances that the Department could focus, on including soilless farming.

The meeting was adjourned.

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