DSBD, SEDA & SEFA 2020/21 Special Adjustments Budget; with the Minister

Small Business Development

15 July 2020
Chairperson: Ms V Siwela (ANC); Mr M Rayi (ANC, Eastern Cape).
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Meeting Summary

Video: JM:SC on Trade &Industry,Economic Development,SBD,Tourism,Employment &Labour &PC on SBD(NCOP & NA)
Audio: DSBD, SEDA & SEFA  2020/21 Special Adjustments Budget 

The Committees met to receive the revised performance and budget plans from the Department of Small Business Development (DSBD), the Small Enterprise Development Agency (SEDA), and Small Enterprise Finance Agency (SEFA). The Department and its entities explained where their targets had been reprioritised and budgets reallocated to mitigate the impact of the Covid-19 pandemic on their operations.

SEDA said its aim was to strengthen clients through their collaboration with the Small Enterprise Finance Agency (SEFA). It would be utilising broad-based black economic empowerment (BBBEE) accreditation to leverage private sector enterprise development funding. In response to the external environment and the challenges posed by COVID-19, it had also aligned with the expectations and programmes that were mandated by the DSBD. The impact of digital technology on SEDA’s operations and delivery strategy could not be under-estimated. It was exploring how digital technology could improve and transform various aspects of its operations, from e-learning for practitioners to client on-boarding, referrals, communication and promotion, and the marketing of the small businesses and their products or services.

SEFA said that to mitigate the impact of COVID-19 on small, medium and micro enterprises (SMMEs) and co-operatives, SEFA and SEDA would implement programmes to the value of R733.6 million through the SMME Relief Fund, the Business Growth/Resilience Facility, and a payment holiday for SEFA-funded clients. It would also roll out interventions amounting to R1.23 billion to stimulate rural and township entrepreneurship.

After the DSBD had indicated where it had had to make budget cuts and reduce targets, the Minister said that the presence of Covid19 had fast-tracked the Department's ability to introduce technology as a means to support small businesses. The ministry used the small business database so that small businesses could apply online. They had also extended the footprint of SEDA, which was embedded in the country's district municipalities to ensure that in those areas where they did not have the technology, people could still apply.

The major issue of concern to the Members was the impact of Covid-19 on transformation targets. Other aspects of the entities’ operations which came under scrutiny were challenges involving interest rates and access to their facilities. It was also asserted that many small enterprises were excluded from the mainstream economy because of the mandatory licence fees which they could not afford.

Meeting report

Co-Chairperson Siwela welcomed the departments, who were being led by the Ms Khumbudzo Ntshavheni, Minister of Small Business Development. She thanked the President for the ban on alcohol, and suggested that the ban should extend for two years, as people were dying from COVID-19. She urged Members to be safe and abide by the health regulations in place.

Minister’s opening remarks

Minister Ntshavheni thanked the Committee for inviting the Department, and said they appreciated the opportunity and the good cooperation that existed between the Committee and the Ministry. The issue of the funding of small businesses by banks was a problem, and she requested that the Committee should also assist and invite the Reserve Bank so that it could explain the National Guarantee Scheme. She added that the process to fill of the Director-General post had commenced, and she would inform them of who had been appointed.

SEDA: Revised 2020/21 Annual Performance Plan and Budget

Dr Joy Ndhlovu, Chairperson: Small Enterprise Development Agency (SEDA) said the Covid-19 pandemic had serious implications for the global and South African economies. In the first quarter of 2020, the global economy had gone over a cliff with a contracting output level. Locally, the gross domestic product (GDP) had contracted by 2%, whilst unemployment levels had worsened to 30.1%. The low growth would result in low job creation and translate to further unemployment. The South African economy had entered a technical recession in mid-2019, and Covid-19 had significantly affected the already weak economic landscape.

The Rand Merchant Bank (RMB) Bureau for Economic Research (BER) business confidence index (BCI) was at its lowest level (5 points) for Quarter 2, 2020, from 18 points in Quarter 1, due to the uncertainty that came with the pandemic. This had had a serious impact on the provision of business development support services to small, medium and micro enterprises (SMMEs), since business growth was sensitive to the BCI. The majority of SEDA clients were in tourism and hospitality, retail and manufacturing, all of which had been negatively affected by the pandemic. The government had responded with unprecedented economic stimulus measures. 

SEDA had embedded collaborative partnerships with other role players in the small business development ecosystem in its strategy, finding partners to work with locally and internationally. There were service points where the Agency was co-locating with other organisations on programmes it jointly implemented, or as a way of bringing more services to its clients. Partners were from both the public and the private sector. Through this work, SEDA stood out as a big data source for small enterprise information in the country. Lessons learned over the past 15 years had been crafted into a delivery model aligned to the role of a lead facilitator in each district, enabling SMME support to be effectively and efficiently coordinated and delivered, using an ecosystem partnerships approach to maximise business development standard (BDS) visibility, accessibility, quality and impact.  This would also improve coordination amongst the three spheres of government.

SEDA’s aim was to strengthen clients through their collaboration with the Small Enterprise Finance Agency (SEFA). It would be utilizing broad-based black economic empowerment (BBBEE) accreditation to leverage private sector enterprise development funding. In response to the external environment and the challenges posed by COVID-19, SEDA had also aligned with expectations and programmes that were mandated by the DSBD.

The impact of digital technology on every facet of the economy, as well as on SEDA’s operations and delivery strategy, could not be under-estimated. With virtually every current and the potential client having at least one mobile digital device, and with the rapid growth of app-based engagement between organisations and customers, SEDA was exploring how digital technology could improve and transform various aspects of its operations, from e-learning for practitioners to client on-boarding, referrals, communication and promotion and marketing of the small businesses and their products or services. The organisation continues to expand its support for 76 independent incubation centres and the Centre of Entrepreneurship, through leadership in the incubation ecosystem in South Africa with the establishment and support of national and regional knowledge platforms. It would continue to build a strong South African incubation and accelerator entrepreneurship ecosystem.

SEDA’s strategic interventions over five years would now aim to:

  • Improve service access for SMMEs to a target of 124 000, from 120 000 pre-COVID;
  • Increase in turnover for SMMEs to a target of 45 460, from 20 000 pre-COVID;
  • Revise the number of people employed in the small enterprise sector to a target of 40 300 from 96 000 pre-COVID;
  • Reduce the mortality rate of assisted small enterprises; and
  • Improve organisational excellence.

An overview of the 2019/20 to 23/24 medium term expenditure framework (MTEF) showed that SEDA had applied a zero-based budgeting approach, which ensured that only value-added activities were included. Such activities had been tested for value addition, as well as their contribution to the actual delivery of small-medium enterprises. It also allowed SEDA to manage its available budget effectively.

The expenditure estimates on the 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 would be discontinued after 2019/20. The Enterprise Incubation programme, which was transferred from the Department in 2018/19, was part of the SEDA Technology Programme (STP) incubation. The MTEF budget allocations had been revised to accommodate the priorities of the Sixth Administration from 2019/20 onwards. SEDA’s budget for 2020/21 was R928.9 million, which was less than the R1.029 billion of 2019/20. An amount of R80.6 million had been transferred from the incubators budget to the Enterprise Development Division for the Informal Business Support programme.

SEFA: Revised 2020/21 Annual Performance Plan and Budget

Mr Setlakalane Molepo, Acting Chief Executive Officer: Small Enterprise Finance Agency (SEFA), said that to mitigate the impact of COVID-19 on SMMEs and co-operatives, SEFA and SEDA would implement the following programmes to the value of R733.6 million:

  • SMME Relief Fund -- To provide cashflow support (salaries, rent, and utilities) to enterprises that were negatively impacted during the lockdown period;
  • Business Growth/Resilience Facility -- To provide support to enterprises that would produce and provide services to fight and contain the spread of COVID-19;
  • Payment Holiday for SEFA-funded clients -- The rescheduling of SEFA clients’ loan obligations whose businesses had been adversely impacted by COVID-19. SEFA would forgo these cash installments.

SEFA would roll out the following interventions, amounting to R1.23 billion, to stimulate rural and township entrepreneurship:

  • Spaza shops support programme
  • Small scale manufacturing
  • Informal clothing and textiles
  • Bakeries and confectionaries
  • Autobody repairers and mechanics
  • Fruit and vegetable hawkers
  • Hairdressers and personal care
  • Tshisanyama and cooked food vendors

On financial projections, SEFA was forecast to maintain a100% cost to income ratio over the budget period, thus generating adequate income to cover costs, except for the 2021 financial year, where the cost to income ratio would exceed 100%. The revised budget projection was that interest income would drop next year from R106.7 million to R50 million, and that over the next five years, it would reach R485.8 million compared to the previous forecast of R766.3 million.

Interest rates were affected by:

  • COVID-19 attracting concessionary rates (SMME debt relief was prime less 5%, while others were at fixed rates of 5%);
  • Payment holidays being given to clients;
  • Delays in the disbursement of Small Business Innovation Fund (SBIF) and European Union (EU) loans, compared to the original budget;
  • A reduction in the repo rate on the linked-rate portfolios;
  • An increase in the impairment rate, thereby increasing suspended interest; and
  • Township Entrepreneurship Fund (TEF) funds of R4.6 billion being re-channeled into post economic recovery funds, but unfortunately attracting concessionary interest rates and mostly 50% grant income

DSBD: Revised Strategic Plan, Annual Performance Plan and Budget.

The Committee was briefed on the changes to the performance plan of the Department of Small Business Development (DSBD). The 3 000 designated products sourced from and produced locally by SMMEs and co-operatives had been revised downwards to 1 000. The target of 300 private companies complying with the BBBEE codes of good practice and sector codes --procurement and enterprise and supplier development (ESD) components – had been removed pending deliberations with the Department of Trade, Industry and Competition”s BBBEE Commission. The number of SMMEs and co-operatives exposed to international market opportunities through the e-commerce platform had been revised from 2 500 to 1 500, and those for women-owned businesses registered on an international platform from 250 000 to 50 000.

The increase in value-added growth of the creative industries sector had been reduced from 5.11% to 4.11%. The increase in creative industries exports had been revised from 5.07% to 4.07%, and the increase in creative industries employment from 5.08% to 4.08%. The business turnaround and retention programmes’ target had been removed and incorporated into the business viability programme to be implemented through SEFA. The targeted number of competitive small businesses and co-operatives supported had been revised from 200 000 to 100 000, and the target for township and rural enterprises supported, from 500 000 to 100 000.

The 23 district municipality initiatives to launch and implement programmes of the DSBD and its agencies had been deferred to the2021/22 financial year due to COVID-19 restrictions, as well as the annual trend analysis report on the minimum of 30% public procurement spend directive on SMMEs and co-operatives.

Discussion

Mr H Kruger (DA) argued that when one looked at the ease of doing business, South Africa was doing badly. Covid-19 had shown that getting government assistance or relief was difficult. He asked what the three departments were doing to help communities to get better access to their programmes. He also commented that some time back he had asked about the District Ecosystem Model (DEM), and the Department had said they would come and give a presentation, but they were yet to do so. He asked the department how much the DEM would cost to implement.

Minister Ntshavheni responded that the presence of Covid19 had fast-tracked the Department's ability to introduce technology as a means to support small businesses. The ministry used the small business database so that small businesses could apply online. They had also extended the footprint of SEDA, which was embedded in the country's district municipalities to ensure that those areas where they did not have the technology, people could still apply. The country now had 34 million smart phones, which showed that the majority had access to them, and could use them to apply for funding or any other form of support.

Part of the reason why the DSBD was pushing for the merger of SEDA and SEFA was to also push for the integration of their technologies, so that there was a seamless application to deal with red tape. The biggest red tape was the exorbitant business licence fee that was being charged, and this made businesses in townships and rural areas fail to participate in the economy.

She said the DEM did not add any additional cost to the government, but would improve its ability to plan and improved accountability. The DEM would enhance the equitable distribution of resources in the country, and avoid concentrating development in towns only. The model would allow the government to have a dedicated approach in areas that were currently lacking resources.

Mr M Dangor (ANC, Gauteng) stressed the importance of the DEM, and said the model would make it possible to dislodge barriers created by apartheid, as the local businesses could not survive on their own without government support. He asked what mitigating factors had been put in place to look at the risks during the medium-term expenditure framework (MTEF) period in all three entities. He also suggested it would be wise to have a special focus on cooperatives.

The Minister the Department had put mitigating measures in place to deal with the risks they had experienced. The ministry was lucky that even when it was implementing relief mechanisms, it was aware that the risk of abuse was high, which was why it had brought in the banks, as their systems were better in terms of integrating with the ministry. They were trying as much as possible to move away from dealing with partners directly. The reason they were dealing with banks was that they wanted their clients to be able to have their credit profiles created by these banks, and make it possible for those excluded by these banks to be included as a result of these partnerships with the banks.  

The Minister said they did have dedicated programmes for cooperatives, but the Committee should be aware that cooperatives participated mainly in the clothing, confectionary and agro-processing businesses, and had a targeted programme which was led by the DEM.

Mr T Apleni (EFF, Eastern Limpopo) said he was happy to see SEDA acknowledging that there was still a problem with access, and said they should do more and not run the agency as an elite entity. SEDA should provide the Committee with a list of the people they supported, because they might be providing support to a few “connected” people. He also requested the Department to provide a list of those companies that had been given payment holidays.

The Minister agreed that the issue of access was still a problem, which was why the ministry was focusing on SEDA's footprint, as it touched more of the country's provinces. The footprint did not cover all of the areas, but SEDA was continuing to work with municipalities to make sure everyone could easily access its services. The Department wanted municipalities to become the centre of accessing services.

She promised to provide lists of those given payment holidays, and those who had benefited, so that the Committee could conduct oversight.

Mr M Mmoiemang (ANC, Northern Cape) referred to transformation, commenting that the Department had removed several targets, such as the one for young people in a business. This was contrary to the broad approach of government to ensure that young people were involved in everything that was done. Regarding the SEFA programme for cooperatives owned by the disabled, he said the Department of Labour had a similar programme which was also specifically focused on disabled enterprises. He asked SEFA if there was a convergence of programmes to maximize the opportunities for the disabled. He also asked SEDA to let the Committee know about the reallocation and readjustment of the budget, as the presentation had been silent in that area. He had been surprised to see the business growth resilience programme in SEFA's presentation, as the Committee was under the impression that this had been suspended -- was the programme continuing or not?

The Minister replied that the Department was not suspending the business growth resilience programme, but was stopping it. However, SEFA had to continue to report on it for this financial year as that money had been expended and had to be accounted for.

The transformation targets had not been removed, and in fact the ministry was cognisant of their importance. The Ministry was working with the DTIC on improving how jointly they could make sure that large corporations were held to account on the transformation agenda of the country. The ministry was targeting to support across all schemes 30% of the youth, 40% women and 7% of the disabled. The courts had advised them to also include race, and they would do that.

On the issue of cooperatives owned by the disabled, the DSBD was also dealing with the Ministry of Labour on the support for them, but was also focusing on employee support at companies to ensure retrenched workers did not go and join the ranks of the unemployed, but went and created businesses, as they had a wealth of skills and experience.

Mr Elias Maabane, Acting Chief Financial Officer (CFO): SEDA, responded on the agency’s budget, and said R116 million had been reprioritised for Covid19 relief. R4 million intended for small business incubation conferences which would no longer take place this year, would be allocated to technology transformation, and R17 million for spaza shop support would be distributed via SEFA.

The Director-General said the SEFA budget had also been cut, and money which was meant for travel was the one which had been mostly cut, as there would be no travel this year. The huge spike in expenses was for data, as the entity had to support its staff with connectivity to allow the smooth remote working of staff members

Mr J Londt (DA, Western Cape), supported by Mr T Brauteseth (DA, KZN), raised concern over the statement made by Co-Chairperson Siwela on the ban on alcohol. The two argued that it was very reckless for the Chairperson to make such a statement, and indicated that she did not know how the wheels of the economy functioned. They stressed that it was the role of the Committee to find ways to make sure that the alcohol industry was not closed, and to find ways to keep it open in a responsible manner that curbed the spread of the virus.

Mr Londt also commented that there was now an opportunity to speed up the merger of SEFA and SEDA, and he hoped that in future the Committee would receive a feedback on how this process was progressing.

The Minister responded that the impact study the medical team had given to the Cabinet on alcohol was on the trauma centres in the Western Cape, and it was not true to say the province had been spared. The Western Cape trauma centres were full, and that was where the data was coming from. The problem was that South Africa had an alcohol abuse problem and as leadership, there was a need to educate communities on this issue. The Minister also said the ban was on sale of alcohol locally, but not on exporting, so the ban did not affect the industry as had been alluded by the Members.

Ms B Mathevula (EFF, Limpopo) asked the DSBD on progress regarding the distribution of Covid19 relief funds. The follow up she had done at municipalities in OR Tambo indicated that businesses had not received any of the funds, and they were all saying they were being referred to different managers when they asked about the relief fund.  

The Minister responded they would provide a list of those approved for relief funding, but said they had never gone into the communities to get people to apply for funding. People who applied for relief funds did this via the website. She asked Ms Mathevula to provide her with further details so that she could do a follow-up.

Mr G Hendricks (Al Jama-ah,) wanted to hear from the three entities what their contribution had been in implementing the assistance that the President had referred to in the State of the Nation Address (SONA). Members were still waiting to hear about the 1 000 products that would be in the exclusive domain of small business. He was disappointed by the high-interest rates of SEFA. He argued that low-interest rates were key for small businesses, and there was a need to have a mind shift that altered the dependence on high interest rates. If SEFA and SEDA were relying on high interest rates for survival, that was counter-revolutionary.

The Minister responded that she shared the same sentiments, and was shocked to hear about the interest rates in the presentation. She would take the matter up with the board of SEFA. They should not be charging higher interest rates than banks.

The Department was still talking about the products, and to date 35 products had been listed which were now being produced by small businesses. They had achieved success when the Cabinet agreed that face masks and sanitisers be made the preserve of small businesses.

Mr F Jacobs (ANC) commended the entities for their work and presentations. He emphasised the need to ensure that their budgets were maximized, even though they knew that the money was not enough. He was also concerned that banks were not making it easy for people have access to funding. He supported the President on the alcohol ban and for putting health first. He also encouraged the department to improve its communication strategy so that people could use the relevant technology.

The Minister thanked Mr Jacobs for his comments, and responded that they were working to improve their communication strategy and were thinking of retraining their staff so that they could improve on their work pace, so that targets could be achieved on time.

The meeting was adjourned.

                               

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