The Committee was told that the major challenges faced by small businesses in accessing affordable business premises and infrastructure were the high initial costs incurred in securing services, such as electricity installation, the time taken for applications to be approved, and the maintenance and expansion of infrastructure to rural and peri-urban communities.
Although South Africa had a relatively good infrastructure network -- electricity, water, communications, roads and public transport -- which foster business growth, small businesses experienced many uphill battles. At the micro level, the main stumbling blocks were poor, or lack of, supporting and enabling economic infrastructure, such as access roads, agri-logistics, greenhouses, pack-houses, processing facilities and fresh produce markets. In addition, the lack of ownership of property by South Africans in general and blacks in particular was a barrier used by property owners and estate agencies to sideline small enterprises.
One of the ways in which the Government could step in and assist was through establishing industrial parks, special economic zones and agri parks for the food and agro production sector.
The recommendations made included the need for the Department of Small Business Development (DSBD) to ensure the accessibility of adequate space for business premises which were well equipped with electricity, water and information communication technology (ICT) services. The Department should forge partnerships with the public and private sector -- for example, Transnet had created more than ten mega hubs in key areas where they operate. It should also engage with the Department of Public Works and Infrastructure, which had indicated its readiness to convert some of the properties in its possession into small business premises. The DSBD should incorporate the recommendations in the comprehensive report on the market retail grocery inquiry issued by the Competition Commission, including its findings on restrictive lease agreements and burdensome regulatory processes for small traders,
Members were in agreement that the briefing was eye-opening, and that the DSBD should fast track its strategic planning workshop to enable them to be aware of the progress made by the Department, and the implementation of the recommendations.
The Chairperson thanked the Department of Small Business Development (DSBD) for the induction and training on small businesses which had equipped the Members with in-depth knowledge on the sector. The induction would enable them to fulfil the resolution in the manifesto, the budget speech by the Minister of Finance and the State of the Nation Address (SONA) by the President. She acknowledged the value of the small business sector in job creation and growth of the country’s economy.
Access to affordable business premises and infrastructure
Mr Subisiso Gumede, Committee Content Adviser, said the presentation was a continuation of the series of briefings on the sector specific challenges which small businesses faced. The focus would be on the agro processing and food processing sector. The presentation would prepare the Members for the forthcoming strategic planning sessions with the DSBD to ensure uniformity and/or alignment on matters.
Mr Gumede said that at the macro level, South Africa had a relatively good core network of national economic infrastructure -- electricity, water, communication services, roads and public transport -- which were important for fostering business growth. Some of the primary challenges were related to the cost incurred in providing these services, such as electricity installation, the time taken to install the services, and the maintenance and expansion of infrastructure to rural and peri-urban communities. The application procedures for the installation of electricity and water, and for the approval of building plans, were attached to the applications. For example, the application period to ESKOM was about 30 days, and ESKOM took about five months for the installation.
At the micro level, the main stumbling blocks were poor, or lack of, supporting and enabling economic infrastructure, such as access roads, agri-logistics, greenhouses, pack-houses, processing facilities and fresh produce markets. Lack of ownership of property by South Africans in general and blacks in particular was a barrier used by property owners and estate agencies to sideline small enterprises. Start-up costs were very high and included deposits, rentals, levies and electricity connections. People in the rural areas, and mostly women, had experienced these constraints. Because of South Africa’s rural character, a considerable number of township, rural enterprises and smallholder farmers would naturally be drawn or attracted to the agricultural sector, and the government’s response should be to tackle these impediments.
Some of the food and agro processing enterprises require fully automated equipment and machinery, infrastructure and premises that comply with commercialisation and licensing. Access to space to operate was a major problem. Major economic hubs were not designed to accommodate substantial informal and micro business trade. Therefore, not only were vulnerable South Africans spatially separated from areas of high economic activity, these areas were yet to undergo the radical spatial transformation required to accommodate large-scale entrepreneurship
Economic growth had been constrained by the lack of fully serviced premises, while infrastructure and property in some areas had deteriorated into a state of disrepair due to inadequate investment in maintenance. For example, some of the strategic immovable assets from the former Transkei, Bophuthatswana, Venda and Ciskei (TBVC) states, such as land, building and facilities, had been depreciated through misuse or neglect.
Mr Gumede echoed the President’s commitment made in the State of the Nation Address that spatial interventions would be undertaken, like special economic zones, reviving local industrial parks, business centres, digital hubs and township and village enterprises, to promote economic development in local areas.
He said the most common form of business spaces required were office space, retail space, market stalls, mobile vans, pop-up shops and industrial space. A number of entrepreneurs were struggling to access office space that was not expensive. There was a huge demand for retail space, internet cafes, hair and beauty salon premises -- businesses which appealed to women and the youth. The sector was currently being dominated by foreign nationals. Market stalls had become increasingly popular, particularly for food and retail businesses. It was cheaper to run a market stall, as the trader did not enter into a commercial lease but had to obtain licences and market permits from the municipality. Food stall operators were required to be registered as a food business with the local municipality, and the traders should disclose that they intended to sell food at temporary locations. Mobile food and coffee vans were an alternative option to renting business premises, and the traders were expected to obtain licences from the local municipality. A pop-up shop was a store that was set up quickly and was open for only a short period, which was ideal for traders before obtaining a long term lease.
There was a huge shortage of serviced industrial properties in the country. Those available were usually very expensive and the government had since decided to prioritise revitalising township and rural industrial parks. For the agro/food processing sector, the relevant – and mandatory -- building infrastructure was refrigeration, for example.
The difference between an industrial park and a special economic zone (SEZ) was that an industrial park was an area zoned and planned for the purpose of industrial development, while SEZs were geographically designated areas of a country set aside for specifically targeted economic activities supported through special systems that were often different from those that applied in the rest of the country.
The presentation highlighted the case study of agri-parks which had been launched in 2015, and indicated that an agri-park was a networked innovation system of agro-production, processing, logistics, marketing, training and extension services located in a district municipality. It was comprised of the farmer production support unit (FPSU), the Agri-hub (AH) and the Rural Urban Market Centre (RUMC). The presentation also described the strategic objectives and guiding principles of Agri-parks.
Mr Gumede concluded the presentation by putting forward a number of recommendations. These included:
- The DSBD had to ensure accessibility of adequate space for business premises which were well equipped with electricity, water and information communication technology (ICT) services.
- The Department should forge partnerships with the public and private sector to overcome the shortage of affordable business premises -- for example, Transnet had created more than ten (10) mega hubs in key areas where they operate.
- The DSBD should engage with the Department of Public Works and Infrastructure (DPWI), which had indicated its readiness to convert some of the properties in its possession into small business premises.
- Instead of selling its property portfolio, maybe the Small Enterprise Finance Agency (SEFA) should cede it over to the DPWI. Other state-owned entities (SOEs) like iThala, with extensive property portfolios in their possession, should be engaged in order to identify synergies.
- The DSBD should incorporate the recommendations in the comprehensive report on the market retail grocery inquiry issued by the Competition Commission, including its findings on restrictive lease agreements and burdensome regulatory processes for small traders, and the Porfolio Committee should consider the report as well.
Mr H Kruger (DA) thanked the content adviser for the insightful presentation, and asked him to attend a briefing by the Department of Agriculture on agri-parks, and thereafter to advise the Portfolio Committee on the matter.
Prof C Mismang (IFP) commented that the presentation had been both eye-opening and scary. He asked the content adviser to comment on the funding for small businesses, and when it became payable. If an application for electricity could take six to twelve months to be acted on, the repayments of the loan should become payable only after the business was running, otherwise the businesses were being set up for failure.
Mr E Myeni (ANC) asked which tool the Committee was using to check if the recommendations given were being implemented.
Mr M Hendricks (Al Jama-ah) said there was a project on the Cape Flats known as the Philippi Economic Development Initiative (PEDI), which was funded by the government and the City of CapeTown. The project enabled the residents to develop first class infrastructure for businesses to run. He requested the content adviser to look into the PEDI initiative and update the Portfolio Committee.
Mr T Langa (EFF) echoed the comment by Prof. Msimang on the funding of the businesses. He asked the content adviser to comment on the scope of businesses that the Department sponsored, and supported the recommendation to invite the Competition Commission to make the presentation on market retail grocery inquiry report.
Mr F Jacobs (ANC) commented that it was important for the recommendations given by the current and previous Committees to be implemented by the DSBD. The Committee should invite the Department to respond to the issues raised.
The Chairperson said that in order for the DSBD to carry out its mandate, there was need for synergy with other departments, which ought to be specified -- for example the DPWI, local government and the traditional authorities. It had been a positive initiative for the President to appoint an official in charge of infrastructure. She added that the Small Enterprise Development Agency (SEDA) and (SEFA) were important role players whose mandate should be considered and incorporated.
Content advisor’s response
Mr Gumede said the presentation had been a preparation of the strategic planning session at which the Committee would be briefed by the DSBD on their strategic plan.
On the question concerning grants and loans, he said there was blended finance model that the government was considering in order to do away with the grants, and convert them to part loans and part grant. He commented that the shared economic infrastructure facility could be adopted by municipalities to support local businesses.
There was also need for Members to be briefed by an expert on the compliances required to operate in the various sectors. He pointed out that the National Small Business Act defined small enterprises as a business that generated up to R50 million, but there was a regulation that had now reviewed the cap and had extended it to R200 million. The Committee should deliberate on this change, as on face value, a business of up to R200 million did not constitute a small business.
The Chairperson said the presentation had been thought provoking, and asked the Members to identify other stake holders involved.
Prof Msimang added that the DSBD should fast track the strategic planning workshop, to enable the Members to know what progress the Department was making.
Mr Langa commented that the Members had not been aware of the amendment to the cap, and agreed that the briefing by the Department should be fast tracked.
The meeting was adjourned.