The Committee received a briefing from the Department of Small Business Development (DSBD) on its 2019/20 fourth quarter performance report, which covered its operations in the areas of administration, sector policy and research, integrated cooperatives development, and enterprise development and entrepreneurship. It reported that it had achieved 22 of its 26 targets, but had been unable to meet some of them because of the time they had to spend in responding to COVID-19 interventions.
Members raised questions regarding the number of cooperatives being supported by the DSBD, and wanted to know what it was doing to provide support to under-performing provinces. What progress was it making in reducing “red tape” to make the registration of small businesses easier? What was the status of the Small Business Ombud Service Bill and the National Small Enterprise Bill? They also expressed interest in the Department’s plans to develop four product markets for cooperatives, and sought information about where these would be located.
Small Business Development: Fourth quarter report
Mr Lindokuhle Mkhumane, Acting Director-General, Department of Small Business Development (DSBD) said the Department had scheduled five meetings relating to governance and compliance, as well as Executive Committee meetings within the Department, but could have only three, as the last meetings that were supposed to happen in March had to be postponed due to COVID-19. In compliance with the requirements of the National Assembly, the National Council of Provinces (NCOP), the Public Finance Management Act (PFMA) and the National Treasury framework, the Department had submitted the third quarterly report on time to the Department of Performance Monitoring and Evaluation (DPME), and had been able to table its 2019/20 annual performance plan (APP) to the Portfolio Committee on 19 February.
In summary, the DSBD had achieved 22 of its 26 targets. Administration had achieved six out of seven, Sector Policy and Research had achieved five out of five, Integrated Co-operatives Development had achieved four out of five, and in Enterprise Development and Entrepreneurship, they had achieved seven out of nine. This had just been a comparative analysis over the year, and in the fourth quarter the Department had managed to improve its performance to an 85% level, which had caused some heartbreak, given that it was the last quarter and they had been unable to meet some of their targets because of the time they had to spend in responding to COVID-19 interventions.
Programme 1: Administration
The Department had set a target of less than 5% expenditure variance, and had come in well under that target, with 2.15%. The other target that it was always proud of was that it had been able to pay its creditors within 30 days. It had been able to come up with a system to register all small, medium and micro enterprises (SMMEs), which would enable them to acquire support from the Department through the system, even though they had been forced to speed up the process of creating it because of COVID-19. The Department had also been able to achieve targets through campaigns where they would go around and interact with various stakeholders to create awareness of its interventions.
What assisted the Department the most was that it was fully able to participate when the District Development Model was launched by the President, as it could have side events and interact with a number of people. The DSBD was also proud that it was always above the 50% target in terms of email and SMS representation, which kept on improving, as currently it was at 55.9%. The Department had also exceeded the employment target of 2% people living with disabilities. It had not achieved the targeted vacancy level of less than 10% as it did not make sense for them to do so as they were working on a revised structure that they needed to submit to the Department of Public Service and Administration (DPSA) for final approval.
Programme 2: Sector Policy and Research
Mr Mkhumane said the focus in 2019/20 was on the Northern Cape, because it was one of the provinces where the Department had been underperforming. It was able to cover a number of municipalities, as well as district municipalities, in the province. It had been able to service 33 municipalities – more than double the targeted 16 -- because it had adopted a district approach, enabling it to interact with a number of municipalities that fell under those particular districts.
The development of an SMME index had been one of the targets that the Department had set at the beginning of the year, with the aim of measuring the path of SMMEs over a period of time. This had been achieved, and the Department was continuing with it. It had also reviewed the cooperative registration process, because it realised that sometimes they allowed everyone to register and ended up finding those who just registered so that they could get money from particular government departments without understanding the principles of cooperatives. The Department was taking precautions against this behaviour and tightening up the registration process, but at the same time making the process easier for those who were joining cooperatives to register.
The DSBD was also looking at business turnaround and retention initiatives, because it realised that a number of government departments had invested money in SMMEs, and some of them were failing, although if a few things were fixed, they could turn around. The Department had decided to do this work and had put it in its targets for the current year, as well as for the 2020/21 plan, so that it could save the SMMEs that were failing, instead of focusing only on the registration of new SMMEs.
Programme 3: Integrated Cooperative Development
Mr Mkhumane said the DSBD had set a new target for product markets, as it had to identify the product markets that they wanted to work on in partnership with the provinces, districts and municipalities. It had worked with the North West province, and had a rural plan finalised which would be implemented in the 2020/21 year. In Mpumalanga, the Department had identified a product market that they wanted to work on with the province, alongside Limpopo, the Eastern Cape and the O.R. Tambo District Municipality, where they would be revitalising the product markets in Umtata.
A target had been set in the SMMEs and cooperatives for product quality, as investments had improved. This target had been set because some SMMEs did have good products, but if they were not quality assured and not tested, they were not marketable, because retailers were very strict when it came to product quality. The DSBD assisted SMMEs to achieve the required level of quality for their products and meet the requirements of the retailers. Through this target, the Department was also trying to come up with a blueprint to assist the SMMEs and cooperatives when it came to contracting so that they could follow a specific template when they entered into agreements. The document had been created and finalised, but had not been presented for approval because of the cancellation of some of the meetings, which meant that the target would not be met in the quarter.
He said the Department had been able to enter into partnerships with various industry bodies, because they were pushing for the integration of the SMMEs. It had formed partnerships with industry bodies so it could establish their requirements and have a sort of working arrangement so they could work together in ensuring that SMMEs were not excluded. The Department had a target of supporting cooperatives to the value of R22 million. It had exceeded that target because it was able to catch up with the work where it had not performed well earlier in the year. It was very careful when it came to expenditure because it was making sure that it was spending money on the entities that qualified for funding.
Programme 4: Enterprise Development and Entrepreneurship
The Department had a target to support SMMEs with blended finance to the value of R33 million. It was working with the Small Enterprise Finance Agency (Sefa), where they meet the loans as well as grant funding, in order to make it easier for the SMMEs to pay back their portion of the loans. The Department was very strict in this intervention because it was looking for a maximum number of jobs that could be created, and was incentivising those SMMEs that could create as many jobs as possible.
In the Black Business Supplier Development Programme (BBSDP), the Department was able to exceed its target by allocating more money, while some money had been diverted to certain COVID-19 interventions. It had a target of supporting 200 informal businesses, and had also diverted some of the resources that it knew it was not going to be able to spend by the end of the quarter. The Department had taken money from other interventions, such as the Shared Economic Infrastructure Facility, and spent it on supporting informal businesses.
The Craft Customised Sector Programme was one of the programmes that the Department was implementing in partnership with the provinces, and it had managed to support 395 crafters against a target of 200. In terms of the informal business infrastructure partnership agreements secured, the Department had set a target at the beginning of the financial year, but had diverted it in favour of the product marketing, prioritising the interventions of the Sixth Administration. Most of the money that was supposed to have been spent on the securement of partnerships had been spent on informal businesses as part of the Informal and Micro Enterprises Development Programme.
The Department had a target to create a draft of the small enterprise master plan by the end of the financial year. It had the draft, but it had been delayed by the COVID-19 interventions. Now it was also doing planning for SMMEs, and needed to incorporate those plans into the master plan. The draft would be completed in the current financial year.
The Digital Hub Framework and Model was work that the Department was doing through the Small Enterprise Development Agency (Seda). It had six digital hubs that had been established to target townships and rural areas. The DSBD wanted to improve its informal sector interventions while targeting to come up with a concept document in this area, and that had also been achieved.
Ms Semphete Oosterwyk, Chief Finance Officer: DSBD, said that in the fourth quarter, the Department had planned to spend R316.1 million, but had spent R358.6 million, exceeding the target by R42.5 million, or 13.4%. It had been allocated R2.268 billion for the full year, and R2.220 billion had been spent -- an under-spending of R48.7 million. Expenditure per programme for the quarter had been:
- Programme 1: Budget R33.8 million; spent R29.6 million;
- Programme 2: Budget R7.9 million; spent R5 million;
- Programme 3, Budget R35.2 million; spent R57.3 million;
- Programme 4, Budget R239.2 million; spent R266.7 million.
She said the targeted expenditure for the compensation of employees had been R37.5 million, and R34.8 million had been spent, which had resulted in an under-spending of 2.7 million for the quarter. The targeted expenditure for goods and services had been R29.7 million, and R15.3 million was spent -- an under-expenditure of R14.3 million. R306.4 million had been spent on transfers and subsidies, which was R58.4 million higher than the R247.9 million target. Payments for capital assets had amounted to R2 million – double the budgeted figure.
Ms Oosterwyk stated that the reason for the R58.4 million over-expenditure in transfers and subsidies had been explained by Mr Mkhumane, as the Department diverted some funds from programmes in order to support other interventions. Goods and services had been an area where the Department had requested assistance from the National Treasury in order to allow it to reprioritise its funding, and this had been granted. The under-expenditure of R14.3 million was also due to the fact that some projects had had to be cancelled, in compliance with the COVID-19 interventions. The over-spending of R976 000 on capital assets was due to the Department having to provide staff with emergency equipment including laptops for staff that would ordinarily work with the central processing unit (CPU) and desktop computers. It had provided up to 75 laptops for staff members who needed them in order to work remotely as part of the COVID-19 implications.
Referring to the DSBD’s progress on the audit findings for the 2018/19 financial year, she said it had a total of 26 Auditor-General (AG) audit findings that they had been monitoring and implementing controls on. To date the Department had addressed 18 of those findings, and seven had not been achieved yet. One of the seven findings was still in the process of implementation, as the Department was finalising the annual financial statements for the 2019/20 financial year.
Mr H Kruger (DA) asked where the product market in Mpumalanga was located. He also asked how many cooperatives the Department had supported. When would a draft of the revised Small Business Act be available?
Mr E Myeni (ANC) asked about the status of the Small Enterprise Ombud Service Bill, as well as the National Small Enterprise Bill, and when they would be tabled before Parliament.
Mr Z Mbhele (DA) asked for clarity on the reasons for variances in spending, and asked for an explanation of the R85.3 million over-expenditure by the Small Business Innovation Fund.
Ms M Lubengo (ANC) asked about the performance indicator on awareness campaigns and the red tape reduction awareness programmes -- what these campaigns and programmes entailed, and which municipalities were participating.
Ms K Tlhomelang (ANC) asked about the interventions being made by the Department to support underperforming provinces.
Mr F Jacobs (ANC) asked about the specific progress with regards to the Companies and Intellectual Properties Commission (CIPC) to improve from manual registration for cooperatives. Had there been discussions between the Department and the National Treasury regarding tax incentives for cooperatives? What options were available for cooperatives if the Cooperative Incentive Scheme was discontinued? He asked the Department to elaborate on the four product markets as to where they were, and to give examples of them. He asked about the 20 cooperatives that were supported by the Department, and where they were from. He wanted details of the informal micro enterprises and the exceeded targets, and about the six outlined digital hubs -- where they were located and the funding model that had been produced.
Mr Mkhumane replied that the product market in Mpumalanga was going to be in Middleburg.
The draft of the Small Business Act had been presented by the DSBD to all the structures within government and to the Cabinet. The Cabinet had sent it back because they needed clarity on some of the aspects of the bill. The Department had been supported by the office of the Chief State Law Advisor, which had been unable to finalise it and enable the Department to submit it back to the Cabinet speedily. It would continue to work with the office of the Chief State Law Advisor and hoped it would be able to finalise it next month so they could resubmit it to the Cabinet, so that it could be tabled in Parliament made available for public opinion.
The Ombud Service Bill was premised on the establishment of the Ombuds office, which they would submit after clarification of certain legal issues was concluded, as directed by the Cabinet.
He replied to the question about cooperatives by stating that the Cooperative Incentive Scheme (CIS) was not discontinued and that the political leadership in the Department had requested that they review its implementation. The Department was in the process of finding ways to implement it better, and also to ensure that they save as many cooperatives as possible, as requested by the Deputy Minister.
Mr Mkhumane said the Department had developed a draft organisation structure which still had to go to the political principals for approval. It had consulted with the Department of Public Service and Administration, as it did not help to run ahead and finalise the structure, as in terms of the Public Service Act, the structure was approved by the Minister in consultation with the Department and the Minister of Public Service and Administration. They needed to work together as officials and engage with the DPSA so that by the time the political principals considered the structure, it had already been approved by both Ministers.
He responded to Ms Lubengo’s question regarding red tape by stating that the Department was mostly focused on the Northern Cape and North West, and would submit a list with all the information to the Committee Secretary.
He responded to Ms Tlhomelang’s question regarding the Department’s interventions on underperforming provinces by stating that the DSBD was working on the provinces. It had had a meeting on 20 March with the provinces where they had looked at the challenges they faced. It had been specifically working closely with the Northern Cape and the North West, as they were the provinces that were lacking in terms of service provision. The provinces had assisted the Department with relief interventions during COVID-19 and he believed that the relationship that they were building with these provinces would assist them in the future. The Department had allocated senior managers in each province in order for them to get an understanding of the issues that affected each Province, and how they could support them. The officials in the Department were also responsible for making sure that there was an improvement in the performance of the various provinces.
Mr Mkhumane responded to Mr Jacobs’ question regarding registration, which affected both the registration of businesses as well as cooperatives, by stating that the challenge that the Department had was that the CIPC sat with a different department in government -- the Department of Trade and Industry and Competition (DTIC). The registration was a departmental issue that they would need to address with the DTIC. What the DSBD had suggested in order to ease the pressure on cooperatives, was that Seda should be involved in assisting with the registration of cooperatives. One of the targets that they had added in 2019/20 was the registration system, and that they would work with the DTIC. They would also submit the list of government departments that were supporting SMMEs.
He said that the budget that they had was just over R15 billion, and all government departments had money that was allocated for supporting enterprise development.
Responding to the question about the markets, he said that some of the markets would be located in Mpumalanga in Middleburg, and there would be another one in Umtata. Regarding what the product markets were, he said that through the product markets they aimed at reviving the already existing infrastructure in order to enable the SMMEs to have a space where they could take their product, and also engage with other SMMEs, as they had noticed that a number of the SMMEs had products but did not have the space in which they could display them. The product market aimed to provide the SMMEs a space where they could meet with their potential buyers -- more like a trade market. He explained that they were not planning to build new structures, but rather they were revitalising and reviving the spaces that already existed.
They would provid the documents that had been requested by the Portfolio Committee Members, as well as the master plan, which was currently a draft.
He replied to the question regarding the location of the digital hubs by stating that they were situated in the different provinces in the country.
Ms Oosterwyk replied to Mr Mbhele’s question regarding the spending on the Intervention Fund by stating that in order for the Department to allocate funds for COVID-19 relief, they had used funds that had initially been meant for different purposes.
Ms Rosemary Capa, Deputy Minister of Small Business Development, said the Legacy Report had stated that the SMME failure rate was 80% versus a 20% success rate, and in order to continue they needed to find out the main causes of the failures. The reason was that SMMEs and cooperatives were treated the same, without consideration of the level of support they each required. In most instances, cooperatives in rural areas depended on natural resources, and the Department had tried to review the guidelines. She had proposed that the Department should not sit and wait for people to apply, as some did not know such an opportunity existed.
She added that the issues of access to land and natural resources were a big problem, and these were the reasons why the Department had to go through all the requirements that were in the guidelines. She requested that the Department have a clear programme that stipulates which districts they go to within a province, and that they work in a bottom-up coordinated arrangement.
The Chairperson asked for a mover for the adoption of the 2019/20 fourth quarterly report.
Mr Kruger moved the adoption of the report, and Mr Myeni seconded.
The Meeting was adjourned.
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