DSBD 2019/10 Quarter 2 Performance & Action Plan on Auditor-General’s Findings and Recommendations

Meeting report

Small Enterprise Development Agency (SEDA): Quarterly report

Ms Nosipho Khonkwane, Acting Chief Executive Officer (CEO), SEDA, said the entity had performed reasonably well against its approved performance plan, exceeding its targets and indicators in many areas. It had achieved 28 of its 31 indicators, representing an 88% performance.  There had been improvements in the enterprise development programme, the SEDA development programme and administration. They had also done well in achieving 11 769 learners participating in entrepreneurship in schools compared to the annual target of 12 000 learners. SEDA had reached 80 co-location points, 20 more than targeted, to make sure that they were located in every district.

Among areas where targets were not achieved were:

• The number of interventions implemented at small, medium and micro enterprises (SMMEs), as staff were focused on all outstanding assessments which were in the pipeline for interventions. The difference should be made up in the next quarter.
• Lack of staff had resulted in insufficient assessments being conducted to identify export ready clients to attend export training and other exhibitions.
• Delayed contracting with the retail motor industry (RMI) haf resulted in the low performance in the supplier development programme. However, a contract was to be signed between RMI and SEDA in October 2019 to support 200 enterprises that had already been identified

Small Enterprise Finance Agency (SEFA): Quarterly report

Ms Tumi Sefolo, Executive Manager: Direct Lending, SEFA, said that a total of R187 million in loan facilities were approved, representing 67% of the quarterly target. Total disbursements had been R187 million, representing 79% of the quarterly target and 54% of the annual target year to date. A total of 16 109 SMMEs had received financial support via SEFA loan programs, resulting in the creation and maintenance of 18 877 jobs. R156 million had been disbursed to black-owned SMMEs, R12 million to township-based SMMEs, R65 million to women-owned SMMEs, and R37 million to youth and women-owned enterprises. The target for support to youth-owned businesses had been under-achieved.

Regarding developmental achievements, SEFA had facilitated enterprises that were based in rural provinces to receive R90 million in the second quarter. Those in the townships had received R12 million; women-owned businesses had received R65 million; and black-owned businesses had received R156 million. Overall, 16 048 small loans had been issued in the quarter.

Discussion

Mr T Langa (EFF) asked why there had been no approval so far for the commercial credit capital scheme. Was this because SEFA was not receiving eligible applicants, or was it because of bottlenecks in the commercial banking sector? 

Mr V Zungula (ATM) asked SEDA to provide more information to schools regarding the entrepreneurship curriculum, to encourage students to open businesses. However, it should focus not only on schools, but also on other community groupings such as stokvels, churches and community-based organisations that had a lot of people in need of assistance. On the issue of disbursements, what were its plans for getting to the rural areas where the poorest of the poor lived, such as the Northern Cape?

Ms K Tlhomelang (ANC) asked if there any sustainable programmes for learners that were participating in the entrepreneurship programmes in schools? She asked this question, because these programmes started at school and yet the following year, nothing happened. She wanted a breakdown of the 105 cooperatives that had received skills training, and the targeted support for three provinces -- Mpumalanga, Limpopo and Northern Cape. Could the 268 external stakeholders that had been trained on SEDA tools train other SMMEs, or was it training just for their own use? 

Mr H Kruger (DA) asked SEDA why they did not have offices in every district, considering the geographical distance between one office and another. On the expansion of incubation footprint, he asked how many of the eight established incubators were in rural areas. He also asked SEDA to give the Committee a financial breakdown of the previous years, for them to make a comparison.

Mr H April (ANC) asked why it took a month or two before an actual disbursement happened after the approvals were already done. On the issue of entrepreneurship training in schools, what was the amount of start-up capital that was given to learners, and what follow-up and mentoring programmes came after that? Were all schools, and not only those in the metros, receiving this form of training? What was the target for this from the provinces, and what were the feedback reports on this programme? What measures had been put in place to ensure that the entrepreneurship programme would be a success?

Mr F Jacobs (ANC) said that the Department had done well, but there was more they could do to improve the lives of the poor. He asked what the modalities on the integration between CEDA and CEFA were. Was there some collaboration between these two organization? How much collaboration was there with cooperatives, considering that the DSBD, SEDA, and SEFA spend lots of money on capacity building, but not on the actual task of providing resources to the poor for them to start their businesses? He wanted to know about cooperation between the Department and other cooperatives, considering that the registration of small businesses was done by other departments, He suggested that an independent audit should be done before the report was presented in Parliament to ensure it was clear exactly where these small businesses were located, and how they were doing. He also asked whether the incubators were in the right poverty ‘hot spot’ places, either in the rural district areas, or the poorest of the poor townships.

SEDA’s response

Mr Norman Mzizi, CFO: SEDA, said he agreed with the proposal of Mr Zungula that SEDA should focus on other community-based organisations, apart from school learners.

On the issue raised by Mr Kruger about SEDA offices, he said that the offices for 44 districts and eight metros were the suggested numbers, and not the ultimate. Whenever there was scope to include more offices, they would do so. So far, they had access to eight core bridging points in local municipalities. Apart from this, they had mobile services that focused on other areas and constituencies.

Financial reporting was carried out by following the reporting guidance they were given.

He asked the Committee to package questions about the number and location of SMMEs and send them to SEDA so that they could properly work on that and give a clear presentation at their next meeting in Parliament.

The SEDA and SEFA collaboration was in an advanced stage. What now remained was the adoption of the collaboration before the end of this year, and the putting in place of institutional mechanisms to drive the collaboration. There was also a need to link with the ministry, and go through the extent that the collaboration was going to work. They would keep on updating the Committee about the progress on this matter.

Ms Khonkwane said that they had a partnership with Primedia to turn some of the programmes into movie settings and motivate the young business entrepreneurs to go to particular cinemas to learn about entrepreneurship. The programmes also include boot camps, where the learners are taken to pitch their projects by competing with other learners. All these things were done to motivate these learners about entrepreneurship.

On the question of incubation, she said only about 14% of the incubations were in rural areas. Therefore, they had set a network target of 270 to expand into rural areas and townships by 2024. She added that they had worked with several communities in rural areas such as in the North West, the Free State and in Mpumalanga, including Vembe and the Dr. Kenneth Kaunda areas.

Ms Ntokoza Majola, Executive Manager: Enterprise Development Division, SEDA, said that the training of Local Economic Development (LED) officers was focused on areas where the developmental model had been launched. By the end of the third quarter, they would be done with Waterberg and would scale up the O R Tambo district. They had developed the National Qualifications Framework (NQF) business model, where community members from Nkangala District and other municipalities in the Free State had been trained.

SEFA’s response

Mr Martin Mahosi, Chairperson: SEFA, said that they were a new entity and that they had an intervention that was taking place in the North West which would be replicated elsewhere.

On the financial reporting, he said they were guided by the Committee, and were ready for them to be told what to do.

The integration of SEDA and SEFA should not just be a phase only, but should include mapping and deciding what was needed so that they reached a point of dealing with issues in a logical way, making an impact on what they were doing without compromising the work that they had already done. The minister had said that they should devote one phase to the integration between SEDA, SEFA and the SMMEs. For this to happen, there was a need to come up with one template, and the rest would be dealing with issues about branding and promoting the work that they were already doing. They were anticipating that before the end of the year, everything would be signed up. There was also a need for the mapping of SMMEs so that it would be easy to track where exactly they were located. On the question about auditing, SEFA was audited by SMG auditors. From now on, they would take advice from the Committee on achieving quality financial records and reporting.

Mr Justice Kganyago, Board Member: SEFA, said that the delay in the integration between SEDA and SEFA was because they were dealing with two entities that received huge amounts of funds, and this affected the management and disbursement process, because there was a need for its approval. Long term funding took longer to process that midterm funding before the funding was disbursed. The other thing was about the project time and the conditions that should be made before disbursement was made. This could take one to two months before approval. The amount that was disbursed could range between R100 000 and R15 million. This could be for a petrol station franchise, or for a stand-alone business person. The waiting period would rarely go beyond three months unless it was for a construction project.

Mr Mahosi added that there could be issues that were under their control that they could easily identify and deal with. However, sometimes the delays were caused by an applicant's inability to respond in time to the demands and the conditions before disbursement of the money. These conditions were made so that SEFA was sure that the person was going to use it for business, and not for other things like buying a Ferrari.

SEDA’s response

Mr M Songoni, Chairperson: SEDA Board, said the collection target had been R97.7 million, and they had been able to collect R97.6 million (99%).

The Small Business and Innovation Fund which SEFA was implementing was targeting businesses and SMMES that were in the earliest stages of their development. So far, they had implemented five incubators that were operating in the early stages of their cycle, with a total of R100 million already disbursed. On the Khula Credit Scheme, there was no specific approval for each quarter, but they had approved an amount of R60 million in the first quarter for black panel beaters in townships so that they could access the insurance market for their businesses. Another important issue in this scheme was that they approve the facility, and make sure that the insurance company takes up that facility as well. There had been a good uptake of the product, as indicated by the various responses from the institutions that had raised an amount of R330 million for this scheme.

SEFA strongly supports cooperatives, one of which was a cotton farmers’ coop that had received an award in Mpumalanga. In future presentations, SEFA would highlight such schemes separately. Black-owned, woman-owned businesses were not a repetition of the same constituency or person. What it simply meant was that a person may be a young black woman who happened to own a business, and SEFA could not separate these entities.


Department of Small Business Development: Quarterly report

Mr Lindokuhle Mkhumane, Acting Director-General, DSBD, said the Department had made a slight improvement in performance, with an 85% achievement compared to last year's 83%. An area where they were struggling was the payment of invoices within 14 days, and not the 30-day turnaround time. The Minister had launched a project of having one database for all SMMEs in the country, and they were currently working towards achieving that objective. This would help all SMMEs that were in this project to access financial support. On the awareness campaign for the SMMEs, there had been had 25 engagements instead of the12 that were targeted. This was because there had been a lot of stakeholders who had invited them to talk about what they did.

They had 54.3% of women occupying senior management positions in the Department. People with disabilities occupied 2.4%, which was above the 2% target. The vacancy rate stood at 9.6%, which was a bit up from the previous 7.7%.

Another target was to develop a national SMME index, and several consultations had taken place because everyone wanted to know how they were doing. They were also coming up with a blueprint for SMMEs and contractors to help those who run small businesses understand the issues and how to go about it.

Ms Semphete Oosterwyk, CFO: DSBD, said the Department’s target had been to spend R568 million, but they had managed to spend only R519, so they had underperformed by 3.6%. This was because they had lagged behind on the Cooperative Incentive Scheme (CIS) and the spending plan. The enterprise and entrepreneurial programme had been underspent by R25 million. There was a vacant post that was being held open until the structure has been finalised. They had changed their money projections, especially within the programmes that were not moving, and had asked the National Treasury to transfer the funds to SEFA. Plans for a catch-up included asking the State Law Advisor on how to deal with non-compliant claims.

Discussion

Ms M Lubengo (ANC) wanted clarity on the Product Market and Development Programme. Had the R200 million transfer already been made, considering the finalisation was done in September and now it was November? Had the program started already?

Mr Kruger asked what the DSBD was going to ensure that when the next report came up, South Africa’s position would be ahead of other countries? When were they going to make an appointment of a Director General (DG), considering that currently there was an Acting DG? What was the Department doing to control ‘double-dipping,’ where small businesses went to different departments for financial support?  When was it going to make a full presentation on how they were dealing with corruption in their Department? When were the personnel going to start doing what they were required to do, instead of going around consulting as they were currently doing? 
 
Mr Langa asked why the Department had spent less than 50% on all its projects. Would it not be problematic trying to make up the backlogs in the last six months? The Minister’s previous presentation to the Committee had indicated that the Department was going to fund 100 000 young entrepreneurs through the Small Business Innovation Fund (SBIF). How many had been funded so far? Did the Department have a database indicating how many coops there were in the country? Which industries were they engaged in? How far were they with the 2020 incubation project?
 
Mr April asked the Department to come up with ways to achieve their targets.

Mr Z Mbhele (DA) asked the CFO for details on the R700 million that had been approved by National Treasury.

Ms Tlhomelang asked for explanations for the Department’s under achievements.

Mr Jacobs wanted to know why there had been so much under-expenditure. He also encouraged the Department to fill the vacant positions, to ensure the process involved no corruption. He asked why it was not developing generic by-laws, especially on the cost of tender documents and on the tabling of the Ombudsman Bill. The Minister made a budget announcement about the funding of 100 000 entrepreneurs in the townships by 2021 -- how far was that project, and where was the mapping of those townships? How about the digital hubs -- had there been an improvement there? How far was the Department with the business plan template? What were the time frames for all these commitments?

DSBD’s response
 
Mr Mkhumane said that the R200 million has been transferred to SEFA to start the Small Business Innovation Fund, and they had already approved R100 million of that amount.

On the national database question, he said they were almost in the final stages of establishing one where each enterprise would have specific numbers to make sure that the double-dipping issue was dealt with. The common template situation had been already been handled -- they had already started implementing it among SEDA, SEFA, and the Industrial Development Corporation IDC.

Regarding the forensic report, this was an on-going process, and they would provide a proper report upon completion.

He also said that they were consulting instead of doing the job because if they just did that, people would become skeptical and distance themselves from such dealings. They therefore consult before they finalise a project.

Ms Oosterwyk referred to the underspending and need to catch up, and said the Department would not spend for the sake of spending. If the applications were not meeting the minimum requirements, they would not spend for the sake of spending. On the question about the 100 000 young entrepreneurs, the DSBD would not be transferring the funds from their account -- it would come from SEFA. The vacant post will be filled up once a relevant candidate was found. They were in the process of placing a job advertisement.

Follow up questions

Mr Zungula wanted answers on the database for the cooperatives and the Small Business Innovation Fund.

Mr Mkhumane answered that SEFA had approved R100 million for the Fund, but what they had not done was to break it down to indicate how many young entrepreneurs had received that funding. They would provide that information in writing.

Regarding the database, they had a new database because it was the Companies and Intellectual Property Commission (CIPC) that registered over 100 000 cooperatives, and some of them were not functional at all. The reason was that most of those cooperatives were not registered for entrepreneur purposes, but just for other social needed to be met by the government, and this made it difficult to come up with an accurate database.

On the question of the Minister’s commitment to support 100 000 entrepreneurs, he said that they were making progress and would provide written information on all the commitments that were made by the Minister during the Budget Speech.

In her closing remarks, the Chairperson said that SEDA had to consider introducing entrepreneurship at the primary school level. She wanted how any applications for support it had received so far. She said consulting was important, and they were encouraged to do that, but it had to be done in cooperation with the Committee. What was critical to reduce the 29% joblessness level, was to liaise with other departments, such as the Department of Agriculture. All of this must be done within a specified time frame.

The DSBD had to make sure it was not just creating awareness among a lot of people without actually helping them to get their businesses established. Job creation was critical, and SEDA should be at the centre. All the efforts the Department was making, such as consulting with the government’s legal team were appreciated, but this should not delay the process. If anything, there were legal advisors in the Departments that could get the job done.

The meeting was adjourned.