Small Enterprise Development Agency (SEDA) 2018/19 Annual Report

Meeting report

After introductions, the Chairperson had expressed his concern that SEDA did not have its board chairperson or CEO present as the Committee may have chased the delegation out. He asked if Dr Ndlovu is the acting chairperson and if Mr Songoni is no longer board chairperson.

Dr Joy Ndlovu, SEDA Acting Board Chairperson, confirmed that this is the correct.

Mr T Brauteseth (DA, KwaZulu-Natal) said he is sure the Chairperson is painfully aware that there is no political leadership present at the meeting. He did not know how this will affect their committee resolution.

The Chairperson explained the procedure agreed on: Department entities require the Board Chairperson and the CEO to be present, as well as the person responsible for entities in the department. In this case, all these people are present. However, when it comes to oversight of Department annual performance plans (APPs) and annual reports, the Committee expects the Ministry as well as the Director-General to be present. This requirement is limited to the Department and not to its entities. If the Ministry wishes to attend, they may attend, but there is no obligation when it comes to entities.

Mr Brauteseth asked if there is a Department of Trade and Industry (DTI) delegate present.

The Chairperson clarified that there is a representative from the Department of Small Business Development (DSBD).

Small Enterprise Development Agency (SEDA) 2018/19 Annual Report
Dr Joy Ndlovu, SEDA Acting Board Chairperson, said she was honoured to be presenting as the newly appointed Acting Chairperson of SEDA, replacing Mr Songoni. Her team is ready to report on their progress and challenges for 2018/19. They would be touching on matters brought up in the State of the Nation Address as well as in the Budget Speech.

Ms Mandisa Tshikwatamba, SEDA CEO, spoke to the indicators of its Annual Performance Plan and targets achieved and unachieved and the reasons for that. These included:
- Some clients have indicated that the ten-month programme is a bit long. The coaching interventions that were taking place in the incubators raised a number of governance concerns, hence they conducted a governance review. Further, some partners made commitments but did not sign off on their financial commitments.
- Diagnostics assessments are where SEDA makes contact with clients directly to assist. They usually like to do their diagnostics internally, rather than outsourcing them. However it sometimes takes longer depending on the ratio of available business advisors. Accordingly, everyone who has not yet been assisted will be carried forward into this year.
- Budgetary demand was also a challenge as they had to wait for National Treasury to approve the use of funds carried over from the previous year.
- Finally, they had more programmes to implement after the Department had initiated them on a pilot scale, but sometimes the roll-out takes longer than anticipated.

Performance Highlights
Outreach
Young people are coached to initiate enterprises and they are pleased with what the young people are doing to address challenges in their communities. This was seen in the applications that the winners of some of the programmes developed to address needs in the community. She highlights statistics on slide eight of the presentation.

Impact
The CEO spoke about the technology transfer programme which has funds to assist companies to ensure the products of entrepreneurs are able to get into the markets in line with industry standards. They have assisted companies that would have gone under without SEDA. They saw the financial turnover of companies they have assisted grow, unlike other reports where companies formed grow in number but the turnover decreases.

Special Projects aligned with SONA and Budget Speech
SEDA needed to deepen its reach in the area of market access. As a result, they had to implement full roll-out of the Enterprise Incubation Programme—a programme to link those incubated to specific market opportunities that are created through partnerships with the private sector.

The Informal Micro Enterprise Development Programme is creating an environment to nurture entrepreneurs. SEDA is working in partnership with municipalities in township and rural areas to implement it. She noted that unfinished work has been carried over to this year and they have finalised their targets in terms of implementation.

Strengthening South Africa’s business incubation ecosystem
This is a key programme highlight that aims to strengthen partnerships within the incubation ecosystem as a whole. Accordingly, SEDA implemented a programme where corporates can create their own incubators through the Growth Garage Supplier Development model (see slide 12.)

Success in partnership with the University of Pretoria has encouraged it to look into partnering with other universities in implementing a Governance Management Development Programme.

SEDA hosted the South African Business Incubation Conference (SABIC) as a way of benchmarking growth against other countries and is particularly concerned with including young people in the incubation space.

Success Story Projects
There have been many across all the different sectors they assist in including in incubation across the country (see slide 17). They wish for their branches to be in every district municipality, failing which, they hope for partners whose infrastructure they may utilise in those areas. She reiterated that they are seeking more partners to go deeper in underserviced areas.

Key Partnerships
SEDA wanted to work closely with the Services Sector Education And Training Authorities (SSETA) and had achieved this and many other key partnerships, including business schools and provincial departments.

Human Resources
She provided figures and noted that their programme structure seems heavy at national level (see presentation). This is because programmes are implemented from the national office since the core support (learning academy and programme design) is located there. For example, the incubation programme is a centralised programme driven from the national office, though they liaise with provincial networks.

Financial Report
Mr Norman Mzizi, SEDA CFO, showed the R878 billion revenue for 2018/9 compared to the R800 billion for 2017/8. He indicated the amount SEDA spent on programmes, projects and grants and noted:
- R144 million for goods and services
- R340 million for personnel costs (this includes people used for service delivery).

They had a surplus of R45 million from the budget. Expenditure has been uniform throughout the last three years and 79% of what is spent goes towards core delivery to clients. He explained the source of the underspending was R11 million on vacant positions which were filled later; R24 million on National Gazelles project due to time taken to bring internalize the programme; R5 million on Capacity Building programme due to expired Memorandum of Agreements and National Treasury CSD non-compliance by clients. SEDA had received unqualified audits for the past three years.

Governance and Compliance
Ms Tshikwatamba said that the Board has been functional and met its obligations for scheduled meetings throughout the year. There were some special meetings such as when the board had to sign off the financial statement for the year or where a board committee is looking at a pertinent organisational matter, such as staff salaries.

Dr Ndlovu stated that they are a new Board that only started last October; therefore, part of the Annual Report includes work done by the previous board. She agreed with the CEO that the Board met regularly and that everyone appointed to the new board is fully qualified.

Discussion
The Chairperson says that even though they are a new board, he is surprised that they do not already have a permanent chairperson and asked that they kindly explain.

Dr Ndlovu replied that Mr Songoni was appointed as the Chairperson but there was a misunderstanding between him and the Minister and she was subsequently appointed as Acting Chairperson.

The Chairperson asked if he resigned and Dr Ndlovu confirmed this.

The Chairperson asked for clarity on the fruitless and wasteful expenditure on page 154 of the Annual Report.

Mr Mzizi replied that the first amount referred to interest incurred. The second amount referred to a client that wanted to use the grant amount that SEDA paid to a service provider directly for machinery, for renovations to the business. The client went to the service provider and requested the money to renovate his business, instead of buying machinery. SEDA has since stopped the funds and reported the matter to the police. The client has paid them back. The third amount of R286 000 refers to clients who were meant to travel overseas and exhibit their products. Due to challenges, they could not travel. SEDA has contractual agreements with these clients but they say they do not have the funds to pay for cancellation fees as they are small, medium and micro-enterprises (SMMEs). The fourth amount refers to funds which were not able to be cleared by clearance letter in China. SEDA is taking corrective action. Unfortunately, the person responsible at SEDA left their services and they are looking at ways to address the matter.

Mr Mzizi explained that in prior years, a proper documented process was not provided for the Gazelle programme which was created by the Department of Trade and Industry. When it came to SEDA, it came with a service provider. SEDA implemented it with that service provider until the Auditor General flagged the procurement process to get the provider had been irregular so the expenditure on the provider was irregular. However, they have indicated success stories from the programme and corrective actions have been taken. Additionally, all the irregular amounts were cleared in quarter three this year. They have cleared this with Treasury.

The Chairperson emphasised that the Committee is very interested in fruitless and wasteful and irregular expenditure, so the board must bear this in mind when presenting.

Mr J Londt (DA, Western Cape) asked on a point of clarity, that in the past, SEFA and SEDA said that they would be integrating and moving to work closer together. He asked how they are moving closer and collaborating.

Mr M Mmoiemang (ANC, Northern Cape) added that it was not only integrating with SEFA but also the National Empowerment Fund (NEF).

The Chairperson asked for clarity on these points.

Ms Tshikwatamba replied that collaboration with SEFA is a bottom-up collaboration even at provincial level and they are currently co-locating at about 27 sites.

The Chairperson asked if they are in the process of merging to become one organisation.

Ms Tshikwatamba says that in 2018/19 the agenda was not on the table, but in the current year it is now on the table and that SEFA and SEDA are currently located in the same building.

The Chairperson asked at what stage this process is.

Ms Tshikwatamba replied that the business case is still being developed, but beyond that, the Department is here.

The Chairperson asked the Department to clarify that aspect.

The Committee laughed and the Chairperson asked if the question is a hot potato.

Mr Mzoxolo Maki, DSBD Acting Deputy-Director General: Enterprise Development, replied that the process is in its infancy stage as the business case is still being developed. They have requested information from DTI, who has started some work on integrating the NEF into the Industrial Development Corporation (IDC). The Acting Director-General has written to his DTI counterpart. They will read the DTI information with the business case for integrating SEDA and SEFA so they can see how best to merge the three entities, but he did not have an available timeline.

Ms Tshikwatamba did not want to comment further on the merge. She continued with what they are currently doing as SEDA and SEFA. They are co-locating and have implemented a process of tracking deal-flow which involved preparing business plans and the referral of those to SEFA. They are looking to close the gap in return-cases where SEFA has not approved, where previously SEDA would just refer after doing its part. They are looking for common programmes for the development of their business advisors, in order to align the subject knowledge between SEDA and SEFA, so that their business plans are not deficient by not looking at the metrics which SEFA uses to assess the applications that go to it. Finally, they are looking at how to design a digital system to link SEDA and SEFA to enable quality assurance and track delivery to the clients between them.

They are working with NEF in the referral of business cases and tracking their progress. It is not as institutionalised as with SEFA, but rather it is client-led by those who come to the SEDA and ask for assistance to put together the documents which the NEF requires or with interpreting what the NEF requires. At NEF level, the size of the client influences the extent of relationship with SEDA since their clients are micro-enterprises and co-operatives. Medium-sized enterprises tend to approach the NEF on their own.

Dr Ndlovu apologised for not putting these details into the presentation because there are regular monthly meetings with SEFA. In respect to NEF, it is a work in progress as and when required.

Mr Londt said that it is unfortunate, due to the structure of the NCOP, they cannot go as in-depth as their colleagues in the National Assembly. He noted the comment about the bottom-up approach by SEDA because when he asked the same question of SEFA, it said it was a top-down approach. This was contradictory so he suggested they get together with Portfolio Committee so that they can hold both entities to account. His main concern is that the two are walking next to each other and duplicating work and that before filling vacancies, they should see whether there is expertise from the other entity. He thinks this would be a valuable suggestion going forward.

The Chairperson said that on 22 April there would be a joint meeting of the Portfolio and Select Committees with SEFA, SEDA and the Department of Small Business Development. The points raised on duplication are already covered in that agenda.

Mr Londt referred to slide 8 which stated that SEDA partners with the private sector in helping young entrepreneurs. He has been working on determining what the private sector does in helping young entrepreneurs. Some brilliant programmes have been rolled out by companies including bursaries given to under-privileged schools. He asked how SEDA partners with the private sector. Kids succeed and win prizes at school whether SEDA partners them with companies as they go forward, or leaves them to fend for themselves. He would leave many of his "doubling up" questions to the 22 April meeting. On page 154 of the Annual Report, he asked what SEDA is doing to flag employees like the one that left as well as companies that did not attend the overseas opportunities to ensure they are not re-circulated and funded by DSBD until they have cleared their debts.

Ms S Boshoff (DA, Mpumalanga) noted the compliance challenges and asked what they are and why they are struggling since SMMEs and co-operatives need the majority of assistance since they are the generators of our smaller workforce. SEDA spoke about its Fourth Industrial Revolution (4IR) round-table and she asked if SEDA thinks this was successful since many are not conversant on 4IR. She suggested it start with a bottom-up approach. She asked if SEDA engages with basic education and higher education so that they can see where they stand with this.

Ms Boshoff said SEDA spoke of Technical and Vocational Education Training (TVET) colleges with 3D equipment and robotics equipment. This sounds brilliant but she wonders if South Africa has sufficient educational personnel to allow students to utilise this equipment. In India, the robotics and3D classes are started in grade RR, and we are not at the same level as overseas. She thinks it would do SEDA good to engage with the Departments of Basic Education and Higher Education on this score to see if we are on par.

Ms Boshoff was disappointed with the low number of people with disabilities assisted, especially in the Free State and Limpopo. SEDA could engage with the Learners with Special Education Needs (LSEN) schools, since many of the learners could be reached to give them more opportunities once they leave school.

Ms B Mathevula (EFF, Limpopo) asked based on the success stories on page 17. She said that SEDA is not doing much in rural areas. She expected to see the total number of young women assisted in rural areas. Many people don’t know what SEDA is as they don’t have access to information, therefore, she asked SEDA what they are doing and what plans they have put in place to go to SMMEs in rural areas to find them, train them and give them more support. She noted that on page 28, she thinks the Technology transfer Fund is a problem in the rural areas. She gives an example of going door to door to ask what SMMEs are in the municipality, how they are surviving. She thinks that if SEDA could assist them, they would do much better.

Mr M Dangor (ANC, Gauteng) returned to page 154 and asked what corrective measures have been put in place to ensure that this did not happen again as it is important. Secondly, is there a relation between the amount of offices and the amount of activity, because he noted there are 14 offices and the activity scheduled there is quite high? Has SEDA developed a programme for clients and young people to take advantage of the Africa Free Trade Agreement to take exports to SADC and the rest of Africa?

Mr Mmoiemang expressed gratitude to the leadership of SEDA in honouring their invite. He asked about the contribution SEDA is making towards the target they have set for themselves as a country for small business to be one of the main job-creators. He raises the point against some reviews made by the International Financial Co-operation report about structural constraints that continue to prohibit the contribution that can be made by small firms. Certain areas are raised

He noted there continues to be fragmentation in terms of business support and SEDA was identified as one of the interventions. More than that, the linkage between large and small firms, and highlighting the potential for co-operation between large and small firms in terms of benefiting and highlighting the potential for growth of small business. He asked for them to shed light on that.

He said on slide 17 success stories and that one of the competitive advantages is horticulture in the Northern Cape. He asked how this success story was identified against the opportunities that are there when it is predominantly a mining area. He knows Kumba did well, but is this so at an SME level? He advised that the agencies walk hand in hand to maximise interventions that the department is making. More than that, he thinks slide 43 is critical, which refers to the fact that they are on waiting on Treasury to redirect funds of R45 million. What do they think will happen if Treasury re-direct the funds in the case of under-spending?

Mr Brauteseth said that there seems to be a fragmentation of the various role-players associated with SEDA. He would like an indication on what they are going to do to resolve the fragmentation that is stopping SEDA from fulfilling its core function. He thinks they need to explore this.

He spoke about the Prince's Trust established by Prince of Wales where young people apply with a business idea and they are given seed capital and a mentorship programme to get their business going and help them grow. When he hears about SEFA and the role it plays it seems there is fragmentation going on there.

Mr Brauteseth asked what amount is allocated to SEFA, what they use it for and how will they resolve the fragmentation? Is there any money allocated to SEDA or SEFA to give seed capital? Is there some way to start a fund for seed capital and not just rely on the private sector?

Mr Brauteseth referred to the R45 million underspending, although he understands it is not the fault of those sitting in front of the Committee. What was the business plan to get Treasury to roll over the funds? What plan does SEDA have to ensure it did not happen again this year?

Mr Brauteseth said he has received complaints that there is a lack of professionalism and excitement when people approach SEDA to start a business. What did the SEDA Acting Chair intend to do to raise the excitement and energy of the business advisors so that our people can become Asian Tigers.

Ms Mathevula referred to slide 30 that illustrated frequent client needs and asked why this did not include ICT assistance.

Mr Mmoiemang asked about the Incubation Partnership model. He would appreciate a presentation on what the model entails, and a report on private sector and state-owned enterprise involvement. Since the incubators are spread all over the country, lessons learnt in other provinces would be able to give guidance.

The Chairperson said the National Development Plan (NDP) stated that 11 million jobs need to be created by 2030 and that 90% need to come from small businesses. He thinks the Department should come and answer some questions because SEDA cannot fulfil the 90% alone. Throughout the next 10 years, each year they need to set a target out of that 11 million. There are other departments who have an element of small business such as the Departments of Agriculture and Rural Development and of Tourism. He asked what SEDA’s role is in co-ordinating and getting information on what all these departments are doing to keep themselves accountable for the 90% that they are responsible for.

The Chairperson asked for rural intervention figures and a break down in their report about in which rural areas and townships in all the provinces they have incubators. He asked about SEDA's marketing strategy. Many people listen to the radio. Are they using it so that people know about SEDA? Has there been any access by Small Business to the European Union funding? He asked if small businesses have accessed this funding

He was concerned about how they conducted the stakeholder satisfaction survey and if they conducted it themselves or an independent organisation conducted it to prevent bias. He expressed concern about the 34% not satisfied. This might relate to the comment by Mr Brauteseth about some clients being treated like children. He asked for clarity on the Gazelle project because a lot of money is going to it.

SEDA Board response
Dr Ndlovu replied that the target for 2020 is to create 7 000 jobs as approved by the board. This target is cascaded down to the executive team, and then to each programme, be it incubation or coaching, which will be responsible for a portion of the 7 000. Service providers, such as for the Incubation programme, are given funding linked to the number of jobs they have undertaken to create.

She had already spoken about the steps to merge with SEFA. If SEDA is training people, the next challenge is how to access funding. SEFA has access to funding and therefore they are working with them and various private partners to help clients access funding.

She agreed that the reporting strategy can be improved on the rural areas and they can do more. They are adopting the district municipality approach when it comes to reporting. For example, the reporting structure often just said ‘KZN.’ when in reality, they have touched on about four municipalities out of 10, the rest tend to be rural. It is not sufficient to just say 'eThekwini'. They have focussed in the past on urban areas and the easily accessible infrastructure there, but the model will be imported into rural areas now that they have sharpened their expertise. She will however ask Executives to go deeper into that and going forward they will have district-based reporting because it is a resolution they have adopted as a board.

Dr Ndlovu replied that they are in the business of getting a marketing team especially for the youth. There has been an increase in the use of radio. They have not gone door-to door, but have met with communities. She agreed that they can definitely do more.

Dr Ndlovu said the CEO will touch on the professionalisation of staff. Usually complaints are to do with the business advisers as they are the first port of call. There is a programme on how to do this better, but the CEO will discuss this because it is close to her heart as one of her legacy programmes.

CEO response
Ms Tshikwatamba replied about how success stories are obtained, saying that intervention per province is aligned with the business in that province. The integrated development programmes (IDPs) help to get a sense of what is happening in the province. When talking about success stories, they mention only a few of the stories. There is a quarterly check on the entrepreneurs assisted to see if SEDA is making an impact with that support. There is an annual check on the winners per province. They have what they call an ambassador club, which involves some entrepreneurs going and talk to other SMMEs and who are used by SEDA as their reference groups.

In the Northern Cape, with minerals beneficiation, there is a showstopper academy teaching young people diamond cutting and design. There is an incubating programme for entrepreneurial development which is linked with a school in China. These clients have recently started a brand: Diamonds of South Africa.

She asked the Committee not to read contradiction into the statements about bottom-up or top-down approach. These are points of emphasis in terms of where the CEOs have engaged with the process. The SEFA Acting CEO came when they were already engaging with the bottom-up approach discussed with the previous CEO. Now, however, they are trying to institutionalise collaboration and have proper design systems and a structure of committees chaired by board members to discuss what is being implemented between them. One of the methods they would like to implement involves asking themselves how they engage with development finance institutions (DFIs) in the provinces so that there can be a sharing of knowledge about what kind of entrepreneurs are passing through both bodies.

SEDA is focussing on local government and has identified certain tools being used for client assistance that can be shared with other role players. As it stands, they are dealing with how to manage the scale of what they are doing. This is why they are talking to the National School of Government since they are already training municipalities, and asking how SEDA can piggy-back on what they are already doing. They may ask how municipalities can contribute to SEDA’s work so that they have less of a financial burden.

On the professionalisation of SEDA staff, they have started a process of benchmarking their staff to industry standards, working with Institute of Business Advisors Southern Africa (IBASA). It also involves professionalisation of external practitioners as a means of contributing to the centre. They are working on design and development as well as accreditation of practitioners.

The national bursary programme is meant to be an accelerator programme by nature. It looks at growth programmes specifically using the value builder model which helps enterprises to work out their succession plan. The emphasis is working out how to enrich them. Interventions must be needs based, largely based on a value-builder score. There are success stories of companies like Flat Foot. SEDA has had failures because some companies could not cope with the pressure of the programme. SEDA cannot force them to stay, but they migrate them to their normal business development support services. Unfortunately, the programme is no longer continuing. However, they are coming up with a different model to model high-impact interventions for medium-sized businesses.

SEDA is receiving funding support in various forms, including technical support for programme design of models such as the district co-ordination model. Additionally, some of the SEDA digital incubators focussing on digital hubs are being assisted by the EU. SEDA is the receiving point in the implementation of those funds in terms of general deal-flow preparation.

The Chairperson asked if there is a specific amount allocated to South Africa and Ms Tshikwatamba replied that it was €52 million. In response to how much of that has been spent, Ms Tshikwatamba said she did not know and the Chair asked that SEDA provide the Committee with a written response on that.

Ms Tshikwatamba undertook to do so. She said that they are exploring how they can re-position themselves to be entrepreneurial centres for people to learn about entrepreneurship in general. They will be looking at partnering with some business schools to create enterprise development centres. However, since there used to be an SEDA Academy that focussed on training SEDA staff, they are looking at repositioning their academy to be a national centre for training and qualification on entrepreneurship rather than just in-service training. They wish to close the gap of between entrepreneurs who start businesses and the know-how they need to succeed.

Ms Tshikwatamba asked her colleague to talk to the complaints in the programmes discussed in their review and how they are addressing this as well as the 4IR and 3D developments which are in her portfolio.

Head of Technology Programme response
Ms Nosipho Khonkwane, Executive Manager: SEDA Technology Programme, spoke about the partnership with the Youth Employment Service. They have signed an agreement to establish township hubs. They have access to youth cohorts who are placed in SMMEs. They have partnerships with the private sector. Bosch is offering technical skills; Samsung and Ford are offering to assist with technical skills in the automotive industry in townships in Rustenburg. She added that she would appreciate Mr Londt’s private sector partnership contacts because they need more opportunities.

Ms Khonkwane spoke about compliance challenges. National Treasury introduced a Central Supplier Database which flags tax compliance real-time. It is no longer that your tax compliance is valid for a year. Whether incubators are tax compliant has a bearing on whether SEDA can pay. Additionally, they pay incubators on a performance basis, to encourage performance. This lack of tax compliance by clients is contributing to payment delays by SEDA to clients.

She considered the 4IR round table to have been a success because they were able to see the gap between SMMEs in the ICT space and those that are not. Some SMMEs are more concerned with bread and butter issues, so it was helpful for them to see that they may need to consider digitising as part of their strategy in order to thrive. The focus was more on cascading this to entrepreneurs and enterprise development, than to youth. SEDA does have a partnership arrangement with the Department of Higher Education and Training (DHET) which focuses on telecommunications and skills development.

Due to the Centres for Entrepreneurship / Rapid Incubator (CFE/RI) programme, SEDA has a good relationship with DHET. One of the objectives of starting the programme was to encourage students to be thinking about how they can become job creators through commercialising their knowledge and skills gained whilst studying and changing mindsets from being job-seekers once they finish. In order to improve the value proposition of these centres in TVET colleges, entrepreneurs must be able to produce first-stage prototyping. SEDA has required all the entrepreneurs to employ a qualified technical skills trainer who is able to use the equipment. The company MICAP has offered software and capacity building to be placed within those TVET colleges.

On its rural area support, SEDA did an ecosystem review, especially in the incubation space and noted that most of them have previously been in the urban areas. They are now prioritising township and rural areas. They have set a target of 44. At the close of 2019, they had placed 10, none in urban areas. SEDA is even going to be establishing a 4IR incubator in one of the former mining townships and this is the trend they will be following going forward.

They will be following a supplier development partnership model with Gibela. They have committed with the city of Ekurhuleni that SEDA will renovate the building, and Gibela will buy all the equipment for that incubator. The incubator will be developing suppliers to enter into Gibela’s supply chain, therefore Gibela has funded about R20 million for the next three years.

The reason for the round table with the private sector and the SOEs was because they are required to leverage partnerships. The round-table was to clarify to the private sector to know what SEDA did, and what support they can offer without them spending too much money on consultants taking them for a ride. The private sector may rather consider partnering with SEDA on their technology transfer, export and incubation programmes, or even on their quality standards. They believe that this round table is why they are seeing more partnering with the private sector.

CFO response
Mr Mzizi, SEDA CFO, replied that the EU funding is R50 billion over the next two-year period and they have started using this money. In response to the Chairperson asking if this is Rands or Euros, Mr Mzizi said Rands and the fund provides technical expertise from the EU to assist with consulting. About R4 million will be used for digital hubs. The bulk of the money goes to SEFA, which will be used for minute finance and will be managed by other funds that SEFA is using.

The Chairperson asked how much of the money goes to SEFA and Mr Mzizi replied that it might be €15 million to SEDA, and €32 million to SEFA. It was about R350 million to SEFA.

Mr Dangor asked if the money is linked to the EU Green Fund of the EU but Mr Mzizi replied that it was not.

Mr Mzizi replied that the R45 million underspending is about 3.8% of the budget. SEDA partners were faced with financial challenges; hence they could not meet the targets. However, at the end of the year they made a motivation to National Treasury to retain these accumulate funds as SEDA has had about R45 million unused funds every year since its establishment. Treasury approved R95 million from the unspent money based on a formula they use. SEDA has decided to use these funds on the new priorities indicated at SONA because they were not budgeted for.

On the fruitless and wasteful and irregular expenditure, SEDA has processes which they follow and have processes in place to discipline and prevent these things from happening again and to ensure a proper segregation of duties. Where money needs to be recovered, they do so. When there are criminal elements, they report it to the police and constantly follow up with the police on their investigations.

When money is forfeited from clients who say they can no longer go on overseas trips which SEDA has arranged, they are looking at implementing a security deposit to cover the cancellation fees when this happens.

Mr Mzizi replied that they did an investigative report on why there was no China clearance report and the evidence pointed heavily to the employee who left. However they have learnt from this event.

The Chairperson said that the Committee wanted specifics as to exactly what happened to cause the fruitless and wasteful and irregular expenditure.

The Chairperson requested a breakdown on what this has been spent on. He asked if the CEO wants to add anything.

Ms Tshikwatamba replied that she thinks everything has been covered but added that as long as there is no uniform approach on how to deal with problems, they will struggle. Therefore SEDA needs to be clear on their policies for dealing with discipline and labour law implications.

The Chairperson said he stopped the CFO because the Committee needs a detailed report on what policies they will implement for consequence management, to avoiding re-cycling what will happen about blacklisting staff and clients.

Mr Brauteseth noted that €32 million today translates to R575 million so it concerned him that the financial people are saying that it is R350 million.

The Chairperson reminded them about the stakeholder satisfaction question.

Ms Tshikwatamba referred to a graph on slide 30 saying that the customer service survey is based on the pool of companies under their care. They have been trying to establish how to represent it graphically, though there are companies in the ITC sector, in proportion to the rest of the sectors, where it appears to be negligible.

The Chairperson requested that they provide information on the survey form and if it covers the client’s experience from the moment they enter the SEDA branch.

Dr Ndlovu replied that the 66% satisfaction was a surprise as they expected a worse rating. The Board has taken steps to address the comments. She thanked the Committee for the recommendations and undertook to send the requested written report. She looked forward to meeting with the joint committees in April.

The Chairperson asked the Department to add its perspective.

Department of Small Business response
Mr Mzoxolo Maki, DSBD Acting Deputy-Director General: Enterprise Development, said that as part of the economic cluster, DSBD is targeting economic transformation and job creation. The Department has been charged with ensuring at least three things:
• The contributions of SMMEs increase from 25% to 50% by 2024.
• There is inclusive growth and representation of women, youth and people with disabilities in rural areas and townships.
• There must be job creation from the SMMEs and co-operatives that SEDA, SEFA and DSBD support.

He gave the example of the Blended Finance Programme that the Department is implementing with SEFA which has as a qualifying criterion that the SMME is able to create ten jobs. If they want to move the needle in the job-creation space, in supporting micro-enterprises, they must not neglect medium enterprises as together they will give the required job creation.

SEDA must put itself in a position to becoming the ecosystem facilitator so that the responsibility to ensure there is proper business development support in the SMME space did not fall squarely only on SEDA. In this way there will be others who know how to comply with SEDA standards to ensure that business development support is provided to all who need it. They think that the ecosystem will be filled with SMMEs and co-operatives run by people who know how to run their businesses and are therefore competitive, successful and contributing to job creation.

In the case of SEFA, the Executive Authority of Small Business Development has been very clear that SEFA must do everything possible to ensure that they support the Department’s achievement of their target of one million jobs by 2030. SEFA needs to be clear on what it will contribute towards the huge goal. There is agreement that as much as there has been support for micro-businesses, there needs to be a focus on small and medium-sized businesses.

As a Department, they are happy to provide some support. The Sixth Administration has said that they need to do away with grants and start implementing the blended finance model to provide access to finance for SMMEs. Once that is in place and there is access to cheap finance for SMMEs and there are stable SMMEs participating, they are confident that job creation will happen.

They have made a serious commitment to the industrial strategy adopted by Cabinet which enjoins all of them to support the seven national priority sectors. The Department has made it their business to look into each of the seven re-imagined and re-organised sectors, because if they do a proper value chain analysis, there will be serious opportunities for SMME participation.

Since 2011 DTI may designate sectors and products for local procurement and there are 23 designated sectors. DSBD has presented to Cabinet that it wants to adopt the same approach as there are serious opportunities for SMMEs to participate. Therefore, it is the responsibility of SEDA, SEFA and the SETAs to provide technical training to SMMEs in these spaces so that they can participate when this is linked to the 30% public procurement programme as captured in the 2017 Preferential Procurement (PPPFA) Regulations.

The Department needs to focus on ensuring there is a proper pipeline of SMMEs which are ready to take advantage of the localisation drive and the 30% public procurement programme. There are now a thousand designated products which the President has pronounced as local production. The Department will make it their business to ensure that their SMMEs have the potential and ability to participate since the market has been thrown wide open. They are very confident that SMMEs will be able to participate in the market and contribute to breaking down existing monopolies and that the numbers they get from the SMMEs will take the country close to the 11 million jobs that need to be created.

The Department participates in the COGTA-driven District Development Model. Efforts are made to deliberately address districts. As a department they have an assortment of programmes that can be used to meet some of the challenges in the different districts. He gave the example of how yesterday they were in a meeting involving preparations for the OR Tambo district, and today there is another meeting to see how colleagues bring their programmes to the fore so that they can assist SMMEs on the ground. In the next financial year, to ensure that they revitalise townships and rural economies, funds have been set aside to scale up what exists. However, they do not want to see lop-sided development in township and rural areas. Their approach is to empower sectors that are less developed in those areas so that they have diverse economic activity. DSBD believes that this spirit of entrepreneurship will help them meet the 11 million jobs target.

In conclusion, the Chairperson thanked the delegates. He reiterated that they will meet again on 22 April with the Department and its entities. The NCOP has adopted an approach that would give more time to the Committees to conduct oversight which was raised when the Minister attended the Committee meeting with SEFA. The result would be a reduction of plenaries so that afternoons can be used for Committees to conduct oversight. The reason for the joint meetings with the National Assembly on the APPs and the Annual Reports is to give them an opportunity to focus on other areas of work. Once they are done with the APPs, they can invite SEDA to discuss specific programmes and the actual work being done. They will do the same with the Department and they may invite DTI to speak about the seven priority sectors. This would be the approach of the Committee going forward. He requested that SEDA include the items on which Members asked for more details in their future presentations. Their reports must not be too flowery; they must report on challenges and especially on fruitless and wasteful and irregular expenditure.

Committee Report on oversight visit to Ndabeni Sheltered Employment Enterprise
The Chairperson noted it is a one-page report and asked the Committee if they adopt the report.

Mr Brauteseth remarked that there is nothing in the report about the actual facility they went to visit. He thought they all agreed on the day that Sheltered Employment Enterprises (SEEs) is something which the Committee should promote amongst all departments so that they actually support them and order their products and make them more sustainable since the SEEs were trying to become self-sustaining. He thought that something should be included in the report about the tour of the facility and their observations of the facility. The report is incomplete.

The Chairperson suggested that they not adopt the report. He asked that every Committee Member send their comments and suggestions to the Committee Secretary so that the report can be amended. He requested that the suggestions be sent today. The report could be adopted at the Select Committee on Public Service meeting tomorrow where they would have a ten-minute slot to adopt the report. His fear is that in the following weeks they will not have time with all the joint meetings coming up. He noted the 14 April joint meeting with the Portfolio Committee on the Annual Performance Plan of the Department of Trade and Industry.

The Committee agreed and the Chairperson thanked them for their understanding.

The Committee adopted the minutes of the previous meeting.
Meeting adjourned.