Small Enterprise Development Agency (Seda) 2020/21 Annual Performance Plan

Meeting report

Small Business Development Agency: Annual Performance Plan

Ms Ntokozo Majola, Acting Chief Executive Officer (CEO) and Executive Manager: Enterprise Development Division, Small Business Development Agency (SEDA), said SEDA was an agency of government accountable to the Minister in the Department of Small Business Development (DSBD). Its mission was to promote entrepreneurship and facilitate the development of small enterprises by providing customised business support services that resulted in business growth and sustainability in collaboration with other role players in the ecosystem.

The reason for the change of SEDA’s vision and the inclusion of the element of an ecosystem facilitator was to align the entity with the District Development Model that had been adopted by the government as a way of delivering services to small business enterprise development. SEDA had noticed that in delivering services directly to small enterprises, it had some limitations in terms of human resources. This also made it unable to reach out to small business enterprises that were in rural areas throughout the country. Therefore, as an ecosystem facilitator, this would help SEDA to leverage both capacity and services from other role players in the ecosystem.

SEDA analysed the current state of the small, medium and micro enterprises’ (SMMEs’) ecosystem and the broader factors impacting their growth and development, including the key challenges facing them. The National Development Plan’s Vision 2030 ascribed a critical role to SMMEs in contributing to the growth of the South African economy and towards eliminating inequality and reducing poverty. It viewed them as economic empowerment vehicles for the historically disadvantaged. It also recognised that the small business sector had previously been neglected and that a more strategic and integrated approach was required to grow this sector to the extent envisaged.

Strategic outcome oriented goals included accelerated inclusive economic growth and more decent jobs created and sustained. Outcomes included improved service access for SMMEs, an increased turnover for SMMEs, more people employed in the small enterprise sector, and improved organisational excellence.

SEDA’s facilitation delivery model aimed at ensuring that there were focus areas for the effective delivery of small business development services nationally, based on a system to coordinate and facilitate the flow of resources within a district, the tracking and provision of information related to SMMEs’ development, and the creation of service access points for all small business development, and entrepreneurship promotion.

This model was informed by several reviews and evaluation studies of the SMME ecosystem in South Africa. The latest study had been funded by the European Union (EU) on the ecosystem for small business enterprise development. One of the things highlighted in the study was for an unfragmented and co-ordinated manner of service delivery to small businesses within and outside the government. One of the recommendations that came out of the study was for SEDA to elevate its role in the ecosystem concerning providers of other business development services to small businesses. SEDA was to play the role of a coordinator and facilitator.

SEDA was at the center of this model, and the four elements around it included facilitation of enterprise support development, facilitation of access of opportunities at the district level, program delivery, database management and systems, as well as building practitioner capacity and standards and the provision of frameworks and tools. The fourth one was for the facilitation of access to finance and markets.

SEDA’s facilitator delivery model was aimed at linking entrepreneurship and education. Its Global Entrepreneurship Monitor (GEM) report unpacked a long-term priority for increasing entrepreneurial activity as intertwined with the priority to improve access to and success in education. Looking at SEDA’s year-on-year frequently asked for services at an individual company level, the biggest concern for SMMEs was the lack of core skills among their companies to bridge requirements for financial literacy, record-keeping, marketing, human resources management, and the latest technical know-how.

Implications for SEDA for its facilitation on entrepreneurial and education included:

•    Refocusing on entrepreneurship in the tertiary institutions programme, implementing a district coordinated programme rather than a targeted schools programme;

•    Leveraging on the SEDA academy business plan to include mechanisms to facilitate internships;

•    Leveraging on work done with the sector education and training authorities (SETAs) for a structured program cutting across all the Setas – SEDA becoming a skills training facilitator in the SMME sector;

•    Leveraging on the incubation programme to drive linkages between the incubation ecosystem, industry bodies, technical and vocational education and training (TVET) colleges and technology universities.

Measuring of outcomes would be done through four outcomes: improved service access for SMMEs, an increased number of people employed in small enterprises; an increase in turnover of SMMEs; and improved operational excellence.

SEDA specifically prioritised assisting women, youth, and people with disabilities. Currently, women were about 40%, youth 30%, and people with disabilities were at 7% in line with government requirements in regard to the number of persons with disabilities accessing business development support(7%).

Institutional Performance Information

Ms Majola said SEDA’s performance monitoring and management took its cue from the organisation's strategic plan of 2020/21 to 2024/25. Its mandate was to increase economic growth thereby reducing unemployment and contributing to equitable growth.

Programme 1: Enterprise Development

The purpose was to support small businesses and cooperatives by providing them with needs-based and growth-oriented non-financial business development support, to ensure that their businesses were sustainable and contributed to the country’s developmental goals of decreasing unemployment and increasing the contribution to the gross domestic product (GDP).

Programme 2: SEDA Technology System

The purpose was to provide technology and innovation-oriented interventions, including quality and product improvement support to small enterprises and cooperatives, and to enable incubated clients to improve their survival rate beyond the first challenging two years of a business start-up by providing support to improve their product offering and other business development support.

Programme 3: Administration

The purpose was to provide strategic leadership and support to core delivery to ensure successful implementation of the organisational strategy. This included monitoring organisational performance, strategic alignment with the shareholder’s expectations, and capacitating the organization to achieve its set objectives.

Budget

Mr Elias Maabane, Acting Chief Financial Officer (CFO), SEDA, referred to Medium Term Expenditure Framework (MTEF), and said SEDA applied a zero-based budgeting approach which ensured that only value-added activities were included. Such activities were tested for value addition, as well as their contribution to the actual delivery of small-medium enterprises. It further allowed SEDA to manage the available budget effectively.

Seda’s MTEF baseline budget allocation had been reduced by R81 million over the MTEF period in 2019/20. National Treasury had approved R95.3 million from the cash surplus to be used for specific projects in 2019/20, which had been included under other income. The National Gazelles programme had been discontinued after 2019/20. The enterprise incubation programme, which was transferred from the Department in 2018/19, was part of the SEDA technology incubation programme. The MTEF budget allocations had been revised to accommodate the priorities of the sixth administration from 2019/20 onwards.

The overall overview was that SEDA was working on the ecosystem facilitation district model to meet the target, as per the APP.

Discussion

Mr H Kruger (DA) raised a concern that all the management positions for the DSBD, SEDA and the Small Enterprise Finance Agency (SEFA), were filled by acting personnel. He therefore suggested that the Committee needed to have some serious discussion on this matter.

He said the footprint of SEDA in the rural areas was not good enough. This was in consideration that there were so many businesses in the rural areas that needed its help.  There was a big problem of existing businesses that needed support from SEDA, and yet it seemed not to notice them. Several businesses had been financed by SEFA, the DSBD and SEDA that did not exist anymore because they had not received the required assistance from SEDA. He suggested that it should come up with a strategy for it to go back and help such businesses.

He was concerned about bylaws in light of the new district municipal strategy. Every municipality had bylaws, and most small businesses were very uncertain of what to do in regards to them. He proposed that SEDA should look into the bylaws of the municipalities, so it could make it easier for businesses to comply with them.

He asked what SEDA’s strategy was for after the post-Covid 19 pandemic. He suggested the Committee should invite the Department to give a presentation on their strategy on how they were going to assist businesses.

Lastly, he proposed that SEDA should come to Parliament at a later stage to present their strategy on how they were going to support the existing businesses that they had been funded and supported since 2014 by SEDA, the Department and SEFA, and to describe the present situation of those businesses.

Mr G Hendricks (Al Jama-ah) said that one of the challenges with small businesses was that they were sole proprietors, and as such they could not be registered for the certificate that was required for them to be in the system. He asked if the business database could be adapted to identify sole proprietors so that they could be given the required certificate for them to be in the system.

He was aware that SEDA’s footprint was a challenge in the rural areas. He therefore suggested to SEDA that there were at least 400 parliamentary constituencies throughout the country which were used as a link between the people and Parliament, and SEDA could take advantage of this opportunity to increase its footprint.

He asked what SEDA had done to help fulfill the President’s promise of the establishment of 1 000 businesses in 100 days, which he had promised in the State of the Nation Address (SONA), and about the 1 000 preferential items that only small businesses could supply.

He also raised a concern about what challenges SEDA had in assisting people with disabilities, considering that they had different talents. He did not understand why the government or SEDA could not access the huge pool of talent that was available among people with disabilities.

Referring to the district model, he asked if SEDA could give the Committee the districts that were on the radar for them to know and learn what they were doing for them to be successful. This would help the Committee Members to know exactly what to do when they did oversight visits.

He said small businesses needed blended finance did not seem to be coming their way. Was eliminating corruption on the radar of SEDA as well? He was happy about the zero-budgeting simply because this also meant that no percentage of inflation was added every year, but wanted to know why SEDA had so many liabilities.

Mr H April (ANC) said that in 2012, the document titled “The Analysis of Needs State and Performance of Small and Medium Businesses in Agriculture and Manufacturing, ICT, and Tourism Sectors in South Africa,” had been prepared by Mentoring Research and Consultancy Services for Seda. He asked what SEDA had done to improve the situation of the challenges that were identified in this document.

To what extent were SEDA’s small business targets going to be impacted by the Covid 19 pandemic?

Mr E Myeni (ANC) asked if SEDA had been able to finish giving funding to small businesses in their country-wide “Pitch for the Funding” campaign. Could it explain in detail its financial, human resource, and implementation capacity to make its model successful for the benefit of SMMEs? Did it have plans to help small businesses during the post-Covid 19 pandemic? What was SEDA’s view on introducing entrepreneurship in primary schools?

Ms M Lubengo (ANC) asked SEDA to explain what the situation regarding its strategic plan on monitoring and evaluation was like at present, and how it would be towards the end of the financial year. On improved services to SMMEs, she asked how the co-location plan was going to work out in five years.

Mr Z Mbhele (DA) asked what SEDA was doing to address market failure in various contexts. This was an important issue in situations where there was a market monopoly, as this affected supply and demand as well as pricing. There were also policy issues that SEDA should help small businesses to develop, such as those involving centralised wage bargaining agreements, and how these contribute to stagnant job creation in the economy. This was because businesses ended up hiring new unskilled and inexperienced young job seekers. There was therefore a need for SEDA to come up with a policy reform that involved a more decentralised model. This should also give an automatic exemption to SMMEs for them to have a more flexible and less burdensome labour and wage regime.

Another factor that weighed on the success and sustainability of small businesses and emerging businesses was the ease of how to do business, and how much they had to navigate. He finally asked if SEDA could indicate how it was working to improve its empowerment scorecard level. Was it true that it was failing to get scorecard level four skills development through leadership? Did this apply to leadership that was run internally in SEDA, or was it that the leaders facilitated by SEDA in their clients' enterprises were the ones who could not get scorecard points?

Mr F Jacobs (ANC) said the presentation had been very clear and detailed.  SEDA had increased the targeted number of people employed in small enterprises through ecosystem partner support, from 11 500 to 190 000, over a five-year period. He asked how the Covid 19 pandemic and the relief funds would affect their targets, and how confident SEDA was that it would achieve these targets. What was the remedial approach if these targets were not reached?

According to the GEM when consulting government initiatives, there was a marked decrease in awareness of SEDA in the 18-24 age ranges, from 17 percent in 2016, to 5.6 percent in 2017. There had also been a decline in the 25-34 age group in 2016, from 26 percent to 20 percent. However, there had been an increase in awareness in the 35-44 age group. These results indicated that marketing done by SEDA was not successfully targeting young people. He therefore asked SEDA, if it was struggling to attract young people, how it was going to market itself, considering the high unemployment statistics. The Committee always talked about rural youth and women’s empowerment -- was SEDA marketing itself to approach those sectors?

Finally, he said that it was encouraging that a lot of people use SEDA, with 22 percent finding it somehow effective, and 23 percent finding it to be effective. Nonetheless, SEDA needed to improve, as other organizations, such as the Industrial Development Corporation (IDC) and Department of Trade and Industry (DTI) were perceived to be more effective.

SEDA’s urban awareness level was at 72%, which was slightly down from 80 % in 2016. He therefore asked what challenges SEDA faced in getting awareness in rural areas. What would it do differently to improve its footprint in those areas?

Department’s response

Ms Majola asked the Committee to put in writing the question that referred to the study done in 2012 so they could go back and look at it before responding.

Regarding what SEDA was doing to assist existing businesses in light of the Covid 19 pandemic, she said its business advisors were checking if those clients were still operational and whether they would need extra interventions. SEDA promised to respond to this question comprehensively at a later stage.

The question of a sole proprietorship was one of the issues that was also on the table. SEDA was aware of the challenges that were faced when registering informal businesses, such as what was expected from them. The Department was also planning to have engagements with the Department of Trade, Industry and Competition (DTIC). SEDA also had an engagement with the Companies and Intellectual Properties Commission (CIPC) to raise these challenges to them. As a government agency, SEDA could only work within the legal framework that the government and the Department were expecting them to work in.

The initiative to create the 1 000 new enterprises in 100 days was a scheme that was mostly under the National Youth Development Agency (NYDA), and they were handling the funding element of it as well. They approached SEDA, who had agreed to assist with the mentorship element of this programme. This was because they could not cope with the number of people that needed to be assisted under this programme. The programme for entrepreneurship mainly targeted the youth.

In the North West province, SEDA was working with Liyema Technologies, an ICT company incubator that was being established. The bulk of the funding would be coming from the provincial Department of Economic Development, in partnership with the SEDA technology programme that focused specifically on the youth.

SEDA was also working with almost 400 young people in Cape Town on manufacturing projects. It worked with the councillors in identifying the youth that were to be involved in this programme.

Detailed information would be forwarded to the Department in writing about the districts where SEDA would be rolling out their District Ecosystem Facilitation model (DEFM). This was because SEDA had selected two districts from each province for this model rollout. Its main priorities in this area were the three districts that were used for launching the model by the President -- the OR Tambo district, Ethekwini and Waterberg districts. Currently, there was a lot of work already done on engagements in the OR Tambo district, whereby they had had engagements at the district, mayoral, official and local municipal levels. Before the Covid 19 Lockdown, SEDA was already making decisions with districts as one of the stakeholders of this DEFM programme. This engagement also included the Department of Agriculture and all other departments that played a role in youth business development. A list of all districts they were working with would be sent to the Committee.

Though she thought it was good to promote the introduction of entrepreneurship in primary schools at a seed level, it was not in their mandate to do so. Entrepreneurship needed to be integrated into the Department of Basic Education (DBE) curriculum. SEDA’s role and capacity were limited to all those programmes that were almost entirely at high schools. This included only grade 10s and grade 11s, where SEDA did awareness programmes for both learners and the business management educators as well. It had a competition that ended with a boot camp that was done in partnership with a stakeholder with whom it had been associated for the past three years.

Ms Majola said she had touched on the question regarding co-location a little bit when she was talking about the district participation model, because this model was going to help SEDA reach out to more people than co-location itself. This was because co-location was dependent on a SEDA staff member from the branch going out of the office to provide services at a co-location point. It was going to continue implementing that model, but the focus was on using the district facilitation model because it was helping to strengthen the relationship with the local municipalities, as well as private business development providers. SEDA was using them to provide services to the local areas where SEDA itself was not available.

On the question about the BEE scorecard, she said SEDA would need additional funding to employ people to assist with facilitation of the scorecard. SEDA had decided to identify savings that could be utilized for this purpose. It was also implementing an accredited skills development programme by using funding it got from the Services SETA. However, that programme would not help SEDA earn points for the scorecard, because it was not funded from their budget, even though it was an accredited programme.

She concluded that there were targets that were going to be impacted by the Covid 19 pandemic because it had to redirect its resources to cushion those areas and sectors that were vulnerable. This would be reflected clearly in the next report once the National Treasury had finalised the budget.

Ms Nosipho Khonkwane, Executive Manager: SEDA Technology Programme, said special programmes had been launched during the Covid 19 period. One was at the Vembe TVET college centre for the entrepreneurship rapid incubator, and another was at the Ekhululeni West college situated in Katlehong.

It had also launched a Drone Accelerator Programme that targeted interested entrepreneurs for use in the tourism, agriculture, and security sectors. This programme was also for those who had an interest in acquiring skills for drone pilots.

SEDA also supported a tech start-up programme for those interested in going into the gaming industry, so that South Africa did not become forever a consumer of games, but could produce its own local games. The market opportunities in this industry were huge.

The Smart Exchange Programme was one of the incubator programmes to encourage the youth to pitch ideas that aimed at solving Covid-19 pandemic challenges. There was a budget allocation of R500 000 for the support of each of these programmes to develop ideas in health tech, fintech, and virtual worker technology.

SEDA also had an incubator that was operating in the chemical space specifically for the Covid-19 pandemic. This was aimed at supporting SMMEs to scale-up their production and take advantage of opportunities, especially for the sanitisers for disinfection. Some of the entrepreneurs had been supplying disinfectants to government departments and various other entities in that area.

In Seda’s District Facilitation Model that it was embarking on in 2020, it was going to work with various identified partners, and would use the political party constituency offices as well. This would provide support for reaching out to all youth in every corner of the country through various partners for business development programmes among the youth. This also includes partnering with all local economic development (LED) initiatives in the local municipalities. Apart from this, SEDA would also be scaling the training of LED officers to be used for the extension of its support services in all remote areas.

Dr Joy Ndlovu, Acting Chairperson: SEDA, said that one of the things she had done in her role as acting chairperson was to place the CEO, Ms Mandisa Tshikwatamba, on precautionary suspension with immediate effect, pending an outcome of an investigation by an independent investigator. When the board took this resolution, it had to consider how this would look in the market, especially considering that all the top executives were acting in their positions. Once the investigation was over, SEDA would report back to the Committee on the situation.

It currently had executives whose contracts had come to an end, and also a merger which was gaining serious momentum. It did not want to extend the contracts while this merger was taking place, otherwise this might influence the restructuring, so it had decided to retain people in acting positions so that at a later stage it could appoint people on a full-time basis. What gave SEDA comfort with these acting positions was that in its succession policy, it had to appoint people who were ready and able to take up these positions. As had been noted, the acting CEO was well aware of what was happening in the organization, and no work had been affected because the CEO was on suspension.

The reason SEDA had adopted the District Facilitation Model was to make sure that its footprint was everywhere, especially in the rural areas, so it could deliver on its mandate. In the future presentations, SEDA would be able to show the Committee where exactly they were in each district and what they were doing.

In preparation for post-Covid 19, SEDA had been working in cooperation with SEFA and the Department on numerous programmes and schemes, such as the automotive after-market scheme and the textile scheme. It would send detailed information on this to the Committee so it would know exactly what they were doing in this regard.

Dr Ndlovu referred to the question about whether SEDA’s targets had a realistic chance of being achieved, and said that when they had strategic meetings at board, executive and all other levels, it was to make sure that the targets set were “SMART” (Specific, Measurable, Achievable, Relevant and Time-bound). SEDA was therefore comfortable that the targets would be met, but even if they were not, there were remedial plans in place. For example, there were mid-term reviews where it reviewed what was planned and where it was in terms of fulfilling those targets.

Mr Maabane said that SEDA’s liabilities were a combination of all the funds they received in advance from the Department and all other external funders. Some of these funds were invested because they were used only after a period of two to three years, in line with the contract. Also included was the payment of suppliers towards the end of the year. Most of these payments were short-term payments -- not older than 30 days. Because of this, SEDA accrued the invoices immediately after the financial year, but they were related to the just-ended financial year.

Mr Jeffrey Ndumo, Acting DDG, Department of Small Business Development, said the DSBD did intervene where red tape was hindering progress at a particular municipality, and after a certain period, they would go back to make an assessment of the outcome. The Department had also found out when it had interacted with the CIPC at some stage, and asked them about certain processes in their systems were causing a lot of extra work for the SMMEs, that they would say that was the way they made their money, and the Department was not to interfere. However, the DSBD was in the process having discussions with them at the departmental level, because they received their mandate from the Department of Trade and Industry. It was highlighting the issues that needed to be addressed so that the CIPC was not dependent on the money that comes from the registration of small businesses. These discussions were aimed at looking at ways of how they could have some sort of exclusions for informal businesses.

The District Development model was another way that was going to help the Department address the challenge of bylaws which were developed by municipalities. It had a good relationship with the South African Local Government Association (SALGA), which had helped the Department with the implementation of small business programmes, especially on how to make these businesses developmental in their approach.

Follow-up questions

Mr Hendricks asked if SEDA’s business advisors had ever run any small businesses such as spaza shops, or any other micro-business enterprises. He asked this question because it was not possible to give a business sound advice if one did not have any experience in that field.

Mr Jacobs asked if it was possible for the DSBD and SEDA to report to Parliament with an update on the integration framework and time schedule for their merger.

Responses

Mr Ndumo said that the issue about the qualification of the business advisors had been raised with the board by the Minister, who had said people with experience were needed, and the Department agreed that one could not just dump people who did not have any experience. Training was being provided. For example, there was a tool that had been introduced which business advisors were utilizing to assist SMMEs to grow their businesses and increase their turnover.

Ms Majola said the majority of their business advisors had never run a business, but SEDA ran programmes that aimed to empower its business advisors. For example, in the previous financial year, they had implemented business coaching and mentorship programmes for business advisors. These training programmes were provided by people who had experience in how to run a business. This year, SEDA was looking forward to having a partnership with its stakeholders that run such training in companies, such as Productivity SA, who would provide training for the business advisors on how to run a business on a day to day basis.

Chairperson’s overview

The Chairperson said that what she wanted to indicate to the DG was that the issue of outcomes should relate to the issues that were being addressed by the Department. If a plan was for five years, the baseline should be clear on targets. She also realised that as the presenters were making their presentations, there were new baselines that they could agree with, rather than for the Department just to come up with a figure for a five-year plan without indicating the target for each year. This would help the Committee to know whether there was movement in the Department or not. Therefore, the Committee would appreciate if the Department could go back and review that, so that it could do its oversight job properly.

She asked the Department to furnish the Committee with progress on the “100 000 projects” for all the provinces, as this would help them when doing oversight visits.

She also asked the DSBD to furnish the Committee with the list of field officials from all the provinces so that the Committee could link them to the LEDs, and also a programme that would highlight how SEDA and the Department were going to train them. This was because the LED officials in municipalities must know the duties they were supposed to perform as business managers in order to assist people properly.

She emphasised that the DSBD and SEDA should consider helping people with disabilities to grow and develop their businesses. The government policy required that at least 7% of people with disabilities should be in business, and SEDA should adhere to this.

The Committee would also appreciate seeing the turnaround strategy of the Department and all its entities when reviving the APPs to take into account the impact of Covid 19.

The meeting was adjourned.