In a virtual meeting, the Committee was briefed on strategies and policy options to ensure Supported Employment Enterprises (SEEs) are financially viable & realise objectives. Members were pleased to receive a commendation from the Minister for its role in seeing the potential for SEEs in expanding their current activities to ensure financial viability.
The Committee received briefings from Productivity South Africa, the Department of Small Business Development (DSBD), the Small Enterprise Finance Agency (SEFA), the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF).The Department of Small Business Development provides particular support to entrepreneurs with disabilities. The SEFA finances SMMEs and cooperatives with a particular focus on those who came from historically disadvantaged backgrounds. The IDC explores overcoming the obstacles that are faced by people living with disabilities ensuring the move from social exclusion to self-reliance. The NEF is an entity of the Department of Trade and Industry and is the only DFI exclusively mandated to grow B-BBEE by providing financial and non-financial support. It explores ways to provide financial and non-financial backing to the SEEs and help them become financially viable to provide sustainable employment to people with disabilities. All entities provided support to SEEs entrepreneurial, financial or strategically.
Members asked what the Department is doing to provide SEEs with finance and development without requiring surety from disadvantaged individuals and youth who do not own anything; how many small businesses have now gone under due to COVID-19; what role can be played by the institutions to ensure that the SEEs are able to meet their policy mandate and continue to provide sustainable employment to people with disabilities; and how much money the Department would not be able to recoup. The Committee said that SEEs need both financial and non-financial options from the stakeholders which was critical for SEEs to be financially viable. They therefore called for clarity of thought within the Department with regard to what it was that could be contributed by government to ensure SEEs are able to help with job creation and employment initiatives. Members needed to know what role could be played by the institutions to ensure that the SEEs were able to meet their policy mandate and continue to provide sustainable employment to people with disabilities. It was critical to ensure the participation of people with disabilities in the South African economy and affirm that there cannot be any meaningful participation in the mainstream economy if there is no targeted approach.
Members expressed concern about whether the entities were encouraging the creation of cooperatives to take advantage of the export market. However the concern highlighted was expressed because lessons learnt in the past was that cooperatives have a high failure rate because of differing principles. The approach the Department has adopted is to encourage various small businesses to form clusters. Members encouraged inter-departmental engagement to get as broad a spread of skills as possible to assist entities. Members heard that the Department encouraged engagement with the National Treasury particularly with National Credit schemes as it was aware that there were financial challenges in government. It presented a proposal asking for the integration of a ‘cooler’ credit guarantee scheme and was waiting for an outcome from the Treasury and the South African Reserve Bank.
There was a strong focus on disability in all areas of business and the Committee asked whether NGOs dealing with disabled people were encouraged to go forward and look at whether they cannot get them employed in their own organisations through both grant funding and loan funding. They asked further how do they ‘sweeten’ the risks for commercial banks to take an interest in whether they are looking at group lending processes for the disabled community. The Committee also asked if entities were encouraging NGOs that to deal with people with disabilities.
Members asked whether the SEFA would be able to take the SEEs on board given the targets that have been set by the Department. The Department informed Members that they would be happy to support enterprises subject to normal conditions of processing applications as the SEFA board has been frustrated by the low uptake and it was doing whatever it could to increase the uptake. Regarding access to and working with rural communities the NEF informed Members that it was already working with rural communities and broad-based rural communities so it would be easier for it to initiate similar initiative for SEEs. Its national office network was the reason why the NEF has also increased its invested presence in localities that commercial funders and banks are reluctant to reach. The NEF has an online business plan toolkit which allows black owned enterprises to make business plans online and was available across all provinces.
The Committee highlighted the opportunity for the collaboration of entities. The key issue was that the Department of Labour was expected to take a leadership role in funding over the medium-term. There was therefore a need to formulate the funding instrument to ensure that although there was not enough financial room to manoeuvre around, innovative financing instruments were needed and non-financial support for SEEs had to be crafted and a policy guide had to be developed. Members emphasised that people with disabilities should be supported. What was most critical was an integrated approach to improve performance of SEEs to ensure the maximisation of opportunities to allow people with disabilities to participate in the economy.
Briefing by Productivity South Africa
Mr Justice Tshifularo, Executive Manager Turnaround Solutions and Acting Executive of Value Chain Competitiveness, told the Committee that Productivity SA is an entity of the Department of Employment and Labour and is a Schedule A public entity with a mandate to promote employment and growth. He added that herein lays the linkage with the Supported Employment Enterprises (SEEs). Together with the SEEs it contributes to South Africa’s socio-economic development and competitiveness. He took the Committee through the organisation’s vision, mission, value propositions, functions and the strategic focus of Productivity SA. The work of Productivity SA is categorised at three levels, with their own work -country, industry and at enterprise level. Productivity provides help for enterprises from the beginning stages for those who are more established and it brings about interventions to improve their competitiveness. When businesses are at the risk of failure, Productivity SA introduces the Business Turnaround and Recovery Programme to prevent job losses. Through their research, the entity conducts competitiveness studies as well as sector studies and economic research.
When the entity has intervened, some of the results are the improvement of productivity, profitability and operational efficiency through ensuring resource utilisation, reducing costs, improving quality and decreasing waste. Time is also spent building capacity within the enterprises to continue with the work that Productivity SA has done and to assist in building collaborative structures between management and workers and ensure proper communication. Early warning systems are also left behind to identify the key indicators that businesses should always look out for. There is also the creation and sustenance of decent jobs.
The SEEs provide employment to persons with disabilities who cannot hold jobs in the open labour market. The SEEs have social impact; they have 1150 people employed and thirteen factories that are major suppliers of school furniture, linen and garments to public hospitals.
Members were taken through the vision, mission and values of the SEEs. Mr Tshifularo identified the following challenges: profitability; factories that have the potential to become financially viable, but have lost their preferential procurement status which has negatively impacted on their access to markets, productivity and employment creation.
The proposed productivity improvement approach is a six-step plan including engaging the factories and understanding the actual problem to customise interventions to ensure the long-term sustainability of this entity. The integrated enterprise development ecosystem involves business support, financial support, government support, and productivity implementation models to develop the SEEs while bringing different stakeholders who will bring different instruments to support SEEs.
Briefing by the Department of Small Business Development (DSBD)
Mr Lindokuhle Mkhumane, Acting Director-General, spoke to the support of the Department when it comes to entrepreneurs with disabilities. Mr Mkhumane said one of the interventions of the Department is that at least 7% must be allocated to support designated groups - in this case, persons with disabilities. The Department also administers a number of incentive programmes. The Department is expected to report on small business from designated groups that are supported and it collaborates with the Department of Women, Youth and Children in the Presidency. It has engaged with the Department of Labour because the Department has been failing to meet employment targets. The Department discovered that there is a need for intervention because it should be there to ensure that these businesses do not fail. The Department has the following priorities: The Township and Rural Area Programme which is aimed at strengthening informal and micro-businesses; The Small Enterprise Manufacturing Programmes which seeks to explore the Business Viability of Enterprises assisting small businesses with new ways of doing business especially after COVID-19; and Economic Transformation for an Inclusive Economy. Financially, the Department provides R15 million worth of support that comes from loans and grants.
There are 76 SMMEs which are linked to wholesalers and are on the database. There is a target of 7% which is being monitored as the minimum set aside for people with disabilities
Ms B Mathevula (EFF, Limpopo) asked what the Department is doing to provide SEEs with finance and development without requiring surety from disadvantaged individuals and youth who do not own anything as surety but have workable and bright ideas and innovation that can make business sense.
Mr J Londt (DA, Western Cape) wanted to know how many small businesses have now gone under due to COVID-19, how much money the Department would not be able to recoup, and with the difficult economic environment in the country, what the projection is over the medium and long-term and what the Department would need to continually support the businesses.
The Chairperson said that SEEs need both financial and non-financing options from the stakeholders which is critical for SEEs to be financially viable. He said it is important that there is clarity of thought within the Department with regard to what it is that could be contributed by government to ensure SEEs are able to help with job creation and employment initiatives. He asked what role can be played by the institutions to ensure that the SEEs are able to meet their policy mandate and continue to provide sustainable employment to people with disabilities. He said it is critical to ensure the participation of people with disabilities in the South African economy and affirm that there cannot be any meaningful participation in the mainstream economy if there is no targeted approach. It is important that there is more commitment to ensure SEEs are competitive and participate in the procurement activities.
Mr Mkhumane said that the Department working together with the Small Enterprise Finance Agency (SEFA) does not have all these requirements especially when it comes to small businesses unlike commercial banks. The Department ensures that there is some sort of insurance by ensuring that the SEFA provides business development support so that businesses have a bigger chance of succeeding. The SEFA has a post-investment on monitoring division that makes sure enterprises do not fail.
He also said that under debt relief the requirement of financial support came to R4.4 billion when the Department only had R500 million to support SMMEs, but under business viability, 2285 SMMEs were surveyed, 1400 required a total of R1,6 billion in terms of what they needed immediately
Mr Martin Mahosi, Chairperson of the SEFA Board, said that SEFA has not yet quantified the fall out, but it understood that there would be an increase of the payment rate. The performance for the previous financial year had been improved in terms of payments. Simulations were done to monitor COVID-19 impact, but SEFA could not say for sure as yet. SEFA has tried to be prudent with the disbursement of funds. A number of incentives were provided to cushion the blow for small businesses. SEFA should know towards the end of the financial year what the trend looks like.
Mr M Dangor (ANC, Gauteng) asked whether the entities were encouraging the creation of cooperatives to take advantage of the export market that could be available there so that they could move from a small base to the export market through a cooperative.
Mr Londt said it is not ideal to look at repayments at the end of the financial year because the lockdown only took effect at the end of a real impact which was felt from April onwards. He said that it is concerning that there are no real numbers they could talk to at this stage. He asked that simulations could be given to the Committee. Small businesses form the backbone of most economies and he wanted to know how the Department and the NDPs present their case to the National Treasury as money is being spent on other entities that fail continuously.
Ms Mathevula asked whether the Department has one small business that is owned by people with a disability which is given a chance to sell in big malls.
The Chairperson emphasised the question by Mr Londt on engagements with other Departments.
Mr Mkhumane said that the Department had engaged with National Treasury particularly with National Credit schemes as it is aware that there are financial challenges in government. It presented a proposal asking for the integration of a cooler credit guarantee scheme and was waiting for an outcome from Treasury and the South African Reserve Bank.
He said that one of the lessons learnt in the past is that cooperatives have a high failure rate because of differing principles. The approach the Department has adopted is to encourage various small businesses to form clusters.
He also said that the Department had not been performing well in terms of people with disabilities and their enterprises, but it was committed to support, together with Department of Labour, as many entrepreneurs from that designated group.
Mr Mkhumane said that the commitment made by the Department is that it knows that at a particular stage, employed people in the factories leave, so they try to support those people financially and non-financially.
Briefing by the Small Enterprise Finance Agency (SEFA)
Mr Mahosi said that SEFA has the mandate to finance SMMEs and cooperatives and to give particular focus on those who came from historically disadvantaged backgrounds. SEFA has been faced with the challenge of not meeting its targets in many years where people with disabilities are concerned. Every year funding is allocated for enterprises owned by people with disabilities, but uptake turns out to be lower than what is allocated due to a number of factors some understood and some not. The key issue has been the fact that there continues to be a deficiency in the broad visibility of SEFA and that the entity has not done enough work to popularise itself over the years but marketing and brand promotion interventions had been done and in the coming few months SEFA would have better visibility. SEFA established Amavulandlela Disability Scheme designated specifically for people with disabilities, but the uptake has not been encouraging. To deal with the challenge of lack of access to SEFA, a programme called ‘Pitch for Funding’ was jointly initiated to give people with business ideas, not necessarily a complete proposal, an opportunity to present their ideas and be assisted to compile a package for support. The programme was disrupted by the pandemic.
Ms Tumi Sefolo, Executive ManagerL Direct Lending, SEFA, gave the presentation. She said SEFA’s mandate of financial inclusivity, particularly to historically disadvantaged and discriminated and targeted groups is the core of what SEFA does by providing access to finance and targeting the small businesses of these designated groups. She took the Committee through the specifics of the Amavulandlela scheme -the eligibility criteria, the types of support provided under the scheme and the support to entrepreneurs with disabilities over the past three financial years. SEFA appoints investment officers to promote financing and partners with institutions that represent the interests of people with disabilities. Case studies of SEFA-funded clients were provided e.g. Linked Thoughts Consulting CC, Mahlaku a Mosebo Contractors CC, Mvudi Valley Trading 5 CC, and EZY MOK General Trading (Pty) Ltd among others.
Ms Mathevula asked whether the Department has done outreach in provinces and municipalities to encourage people with disabilities to apply for funding.
Mr Dangor said that there is a mix of grant funding and loan funding and asked if they are encouraging NGOs that are dealing with people with disabilities to go forward and look at whether they cannot get them employed in their own organisations through both grant funding and loan funding. He asked how they sweeten the risks for commercial banks to take an interest, whether they are looking at group lending and processes.
The Chairperson asked whether the SEFA would be able to take the SEEs on board given the targets that have been set by the Department.
Mr Mahosi said that the Department would be happy to support enterprises subject to normal conditions of processing applications. He said that the SEFA board has been frustrated by the low uptake and it is doing whatever it can to increase the uptake.
He admitted that the SEFA had not necessarily gone out to mobilise NGOs and would be happy if the NGOs would be referred to them. He said that the SEFA does try to sweeten the risk for commercial banks and it does provide blended funding in order to ‘de-risk’ the transaction.
Mr Mahosi said that SEFA should look at what it should do where cooperatives are concerned and what they could mirror, perhaps from other countries. The SEFA has been looking at increasing the capacity of SEFA to manage the micro lending space including the area of cooperatives and it recognises, despite the fact that it is looking at an integration project, the need for SEFA to begin to complement the existing capacity that it has by increasing the numbers and skills.
He reiterated the efforts of the SEFA through the “Pitch for Funding” initiative and said that the SEFA is in fact increasing outreach programmes.
Ms Mathevula asked whether the Department had partnered with special schools and NGOs as they have said that there are challenges.
Mr Mahosi said that the SEFA had not, but it would take that as a suggestion
Briefing by the Industrial Development Corporation (IDC)
Ms Joanne Bate, IDC COO, gave the presentation. The IDC looked at how it can overcome the obstacles that are faced by people living with disabilities ensuring the move from social exclusion to self-reliance. Talking to education, creation of opportunities, ensuring there are equal opportunities for all, not just opportunities but the right to work in a safe and equitable workspace.
The IDC believes that there is a need to both re-energise the funding and support of SEEs and look at alternative strategies for employment opportunities for people with disabilities.
The SEEs have pros such as a safer environment; they are less demanding and stressful etcetera. They also have cons, such as the perpetuation of the narrative that says that people with disabilities cannot advance into traditional employment.
Ms Bates presented other strategies for supported employment -pen employment and individual job placement, cluster/enclave, mobile crew, entrepreneurial approach micro-enterprise and self-employment and social enterprises (social economy) which all come with their challenges and require interventions.
The IDC plans for a way forward are new technologies and IT, white paper process on social economy, establishment of social partnership arrangements, blended finance opportunities and other creative social finance mechanisms, and social procurement by government.
There are also support options to SEEs -leveraging philanthropy and CSI, leveraging statutory obligations supporting strategic partnerships for social impact and inclusion, and conventional finance.
The potential areas of IDC support to SEEs are direct support to SEEs, indirect support, ‘arms-length support, and commercial partnerships.
Ms Bate identified the following outcomes amongst many others to be achieved in respect of participants specifically people living with disabilities -self-esteem and personal satisfaction, improvement in quality of life, economic and social inclusion and a sustainable future.
The IDC has also made policy and support recommendations.
The Chairperson said that the Committee had realised that discrimination against people with disabilities persists after they had had experience with SEEs in Cape Town and had received the Annual Performance Plans (APPs) and gave recommendations. He said that the Committee identified that this is a matter of priority for its work and then resolved that partnership with development agencies, the private sector and development must be canvassed to ensure that the issues are carried forward. He said the purpose of the meeting was to mobilise a number of key stakeholders.
Briefing by the National Empowerment Fund (NEF)
Ms Philisiwe Mthethwa, NEF CEO, briefed the Committee on ways to provide financial and non-financial backing to the SEEs and help them become financially viable to provide sustainable employment to people with disabilities. She said that understanding how the NEF is structured would make it easy for the entity to incorporate the SEEs into its current structure. There is no dedicated fund for the empowerment of the SEEs, but it has catered for them. The NEF is an entity of the Department of Trade and Industry and is the only DFI exclusively mandated to grow B-BBEE by providing financial and non-financial support.
Since the entity was already working with rural communities and broad-based rural communities, it would be easier for it to initiate a similar initiative for SEEs. Its national office network is the reason why the NEF has also increased its invested presence in localities that commercial funders and banks are reluctant to reach.
The entity has an online business plan toolkit which allows black owned enterprises to make business plans online and is available across all provinces. It can also be made to the SEEs across the country.
The sectors that the NEF focuses on mirroring the sectors identified for the SEEs making it easy to partner with them. Committee Members were taken through the performance milestones of the entity to date. The NEF has established a very unique project development capability. In order for entities to access these options, there has to be the capability to develop the project. The NEF could also assist the SEEs with their capability.
The entity has investment funds dedicated to black SMMEs as it upholds the right for black owned SMMEs to participate in all spheres of the South African economy.
The Committee was taken through the types of non-financial support provided by the NEF, its performance and investment criteria, and all the sectors funded by the NEF illustrating over R1. 6 billion for black owned SMMEs. The total value of investment was over R300 million for the implementation of agro-processing.
The NEF has developed partnerships with various third-party funders to mitigate other risks the enterprises are faced with. It has leveraged R782 million for the 2018/19 financial year. It has leveraged third-party funding amounting to R8.8 billion.
Ms Mthethwa said that the NEF would be very excited about the opportunity to partner with the Department to come up with a dedicated fund to provide similar support to all the SEEs.
Input by Deputy Minister
The Deputy Minister of Trade, Industry and Competition, Mr Fikile Majola, said that everyone recognises that the country finds itself in a very difficult position, referring to the COVID-19 pandemic. The country has been called upon to ensure that it continues to save lives and respond to the challenge of protecting livelihoods and rebuilding the economy.
Rebuilding the economy is relevant to the subject of the SEEs. The President has called everyone to respond to the challenge of building a transformed, inclusive and new economy. This means that the Department would have to look at other sectors that were not looked at in the past, specifically the social economy. The Department was currently in discussions with provinces about this economy and that is important to ensure that the majority of people can be brought into economic activity.
Deputy Minister Majola said that he was pleased that departments were called on to speak on the matter so that there is collaboration. The DTIC no longer wants to act alone in responding to the challenges in the economy but rather wants to respond as a part of an integrated government. The innovation of the District Development Model helps to respond to that challenge. As the Department responds and does work, it should focus on the establishment of the SEEs together with other entities from other departments to ensure that it is impactful in its efforts.
He emphasised that the Departments should keep in mind that they are working together as an integrated government so that interventions can be more impactful in addressing the challenges of the SEEs as part of building a new inclusive economy.
The Chairperson said that the involvement of people with disabilities in the SEEs has resulted in some people no longer receiving social grants because of the job opportunities that were created. While there are about 4, 7 Million people with disabilities in South Africa, only 10-15% work within the SEEs. The Department plays a critical role in supporting SEEs.
Input by Deputy Minister
The Deputy Minister of Employment and Labour, Ms Boitumelo Moloi, said that the presentations are good because they give proof of what is happening in the departments and empowers in terms of information about what is taking place and provides oversight. The work that departments do needs to be synchronised as most of the presentations talk to each other but Departments do not do that. She said that the measures in place are stringent and difficult to comply with for small a business which is why people are unable to receive the necessary benefits. Regulations of the various departments should communicate and synchronise all their systems.
It is also important to follow-up and ensure that there is compliance in these businesses that are supported by government departments. The quotas of disability employment should also be monitored.
The Committee has a duty to engage the Treasury to try for special dispensation so that people with disabilities are not required to compete with those who do not have disabilities as that is unfair.
Ms Mathevula said that most workplaces in South Africa do not accommodate people with disabilities. What is the Department doing to address these challenges? She asked what methods were being used to ensure employers give full support to people with disabilities. She also wanted to know which villages had been visited by the NEF in Limpopo. She asked how many women in Limpopo have received assistance from the NEF especially those coming from rural areas. ‘Out of 130 filling stations owned by women, are there any in Limpopo’?
Mr Setlakalane Molepo said that it is important to mention that on annual basis, how the entity trains people varies. He mentioned that in the past financial year, the NEF visited Mokopane, Burgersfort Jane Furse, Modemolle and others. These were visited to carry out investor education. There are also a number of businesses that have been supported through broad-based structures, such as a hotel in Limpopo. In terms of retail, there are some sites in a lot of areas in Limpopo which are valued at more than R60 million.
The Chairperson expressed appreciation on behalf of the Select Committee on the engagement around the support of the SEEs to ensure that they are re-energised. He also thanked the presenting entities and highlighted the opportunity for collaboration of entities. The key issues he highlighted was that the Department of Labour is expected to take a leadership role in funding over the medium-term, there is a need to formulate the funding instrument to ensure that although there is not enough financial room to manoeuvre around, innovative financing instruments are needed and non-financial support for SEEs has to be crafted and a policy guide should be developed. There should also be a review of the procurement process to support textile SEEs. All departments and entities should support this. People with disabilities should be supported. What was most critical was an integrated approach to improve performance of SEEs to ensure the maximisation of opportunities as SEEs should continue to operate allowing people with disabilities to participate in the economy. A policy strategy should be developed by all departments and entities to explore budget and funding to strengthen SEEs. The Chairperson expressed gratitude to all the entities present.
The meeting was adjourned.
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