The Committee met virtually to receive the annual performance plans presentations from the Department of Small Business Development (DSBD), the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA).
The Minister provided a political overview, highlighting the impact of the Covid-19 pandemic on the Department's efforts to stimulate business activity and enhance job creation. The DSBD's focus would be on supporting entrepreneurship in the townships and the rural areas, helping previously disadvantaged communities to escape from their previous barriers to enter the mainstream economy. The merger of the SEDA and SEFA would assist this process, and the DSBD was taking steps to ensure the transition was seamless.
SEDA advised the Committee that the Department would engage National Treasury to introduce regulations that set aside certain products to be sourced from small, medium and micro enterprises (SMMEs) and cooperatives. The Committee also learnt from SEFA that medium term expenditure framework (MTEF) funding was used to finance some of its operational expenditures, and could also be used to lend to clients, although the remaining funding sources were ring-fenced and may not be used for its operational expenditure.
Members generally commended the progress and work being done by the two agencies, but were critical of issues such as the lack of support for small businesses seeking assistance, delays caused by unnecessary red tape, and the fact that little was known about their policies and services in the rural areas, where they were needed most.
Ms Khumbudzo Ntshavheni, Minister of Small Business Development, gave the political overview and noted that as the Department of Small Business (DSBD), the Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA) tabled their annual performance plans (APPs), they were inspired and confident of their ability to achieve their targets better than last year. The Committee had just welcomed the newly appointed Director General (DG) of the Department, and had also started the process of appointing the Deputy Director General (DDG) positions that were vacant. This had finalised the work on the structure of the Department.
Last year, she had engaged with the Minister of Finance, who had agreed on how the funding would work, given the cuts in the budget. The cost of employment (CoE) had been cut across government, and they were discussing at Cabinet level on how small departments like the DSBD, which had a lot of responsibility, had to be supported to make sure it had the capacity to deliver. When that decision was finalised, the Department would get the full funding from the National Treasury. They had already started to work with the Treasury on mechanisms indicating the positions that needed to be funded and set up so that the Department could deliver. She assured the Portfolio Committee the DSBD was working to ensure they had a capable entity with capable people in place.
The Committee was fully aware of the merger of SEDA and SEFA, and that process was continuing. The Department was going to go to Cabinet to update it and get approval on the initial arrangements for the transitional mechanisms. It had started a process to make sure there was a seamless integration between the two entities. That seamless integration process had started with the management position. SEDA was predominantly responsible for pre-investment support, whereas SEFA provided post-investment support. The Department had therefore requested SEFA to second its acting chief executive officer to SEDA so that they could start to integrate the pre-investment and post-investment support between the agencies, and continue to have stability.
The Minister said the DSBD believed that in the next three to six months, it would gain significant traction from the merger. The integration would also ease the anxieties of staff, who had concerns over their job security. The merger was going to be seamless and would improve their capacity to deliver.
The Minister went on to advise the Committee that as they tabled this APP for the first time, they were confident of the integration of their work as a portfolio. They were not introducing new programmes in the APP, but were continuing with delivering on what they called the small, medium and micro enterprise (SMME) support plan, which was the DSBD's vision to support the NDP by 2030. This was anchored in township and rural entrepreneurship, in competitive businesses, in supporting informal businesses, and was effectively anchored in increasing access to finance from all the other financial institutions and providing improved access to markets. Where people had good products but did not have market access, they would not achieve anything, so they were continuing with that work.
The Department was also focused on fast-tracking the rollout of infrastructure like incubators and the digital hubs that were necessary to support small businesses as they started with their work. It was helping small businesses to have access to business infrastructure, because most of them were in townships and rural areas. Their major impediment to their businesses was the ability to access a business infrastructure where they could operate effectively, where they could produce quality products, and could obtain certification of their products, because where they were operating there were those facilities, but the DSBD also needed to give them access to technology.
The Department's targets may seem ambitious, but they were not. They had been inspired by the achievements of the past year. They would come back and table the provisional fourth quarter report -- it remained provisional because it still had to be audited. They had learnt from the work that was done last year, and had improved on it. They realised the pressure that was on the country could be resolved only if the Department improved its performance and delivered, because it was high time it did so. The pandemic had taught them that they could not afford to rely on jobs that were created by others. People must not become job seekers, they must be job creators, and they could only be job creators if this Department, supported by the rest of government, led the facilitation of entrepreneurship and made sure that access to opportunities for entrepreneurship was enabled.
In this regard, there had been an outcry over the business licenses that were issued by municipalities. There were several red tape issues that had to be resolved, which involved support for small businesses at the legislative level. The Department had managed in the preceding year to get the President to transfer the administration of the Businesses Act of 1991 from the Department of Trade, Industry and Competition (DTIC) to the DSBD. That on its own allows it to standardise the application and the management of the Act and its provisions. First and foremost was to put regulations in place to standardise the pricing across the different categories of municipalities. Of course, this had to be done in consultation with the South African Local Government Association (SALGA) and the Minister of Cooperative Governance and Traditional Affairs (COGTA), because it was not the sole mandate of the DSBD -- municipalities had remained the mandate of the Minister for COGTA.
Secondly, the Department wanted to make sure about how it defined micro-businesses, or informal businesses, as those described as informal precluded the participation of most people. There was a book she wished to share with members of the Committee, which showed how informalisation of businesses in Africa was used to exclude the black majority from participation in the economy. Examples were spaza shops, which generated revenue of more than R20 billion per annum, but they were "informal businesses." The DSBD was working on copying what was being done in Eastern Europe, to make sure that spaza shops could be absorbed into and contribute to the mainstream economy. It wanted to support these spaza shops in the same way it was working to support the taxi industry through its support to the Department of Transport. Black people contributed to the economy, but their contribution was discounted because they were in what was called the "second economy/informal economy," and therefore their contribution was minimised. If their contribution was considered, the country could equally appreciate the role of black people and township entrepreneurs.
In that regard, there had been requests to waive the requirement for business licences or payments. However, this could not be waived because it was a legislated requirement, and also allowed it to regulate the sector so that people who were illegally in the country, or who were doing nefarious things, did not participate, as licensing permitted the authorities to regulate their activities.
In 2018, there had been an issue that most start-up businesses in South Africa could not survive the first year. Through the Department's intervention and its partnership with the mining industry and private sector businesses, it had made sure that start-up businesses could survive the first year, even in the difficult COVID period when businesses had been decimated. The likelihood that they would survive the first 12 months had increased. The problem had now shifted, as it seemed that when one had been in business for three to five years, the likelihood of survival had diminished. This was the work that the DSBD had focused on doing, to make sure it walked the journey with the small businesses that were not only supported by the Department, but also by the private sector and other government departments. The goal was to ensure these businesses survived not only the first three or five years, but graduated from being micro to small, from small to medium, and from medium to large.
Minister Ntshavheni said that in their lifetime, they should be able to account for how many billionaires and multimillionaires this country had created without reliance on tenders or a political connection, but through the resilient entrepreneurial spirit of its people. As the DSBD table these APPs as a portfolio, it was confident of the work that lay ahead, and in the team that was in place to do it.
The Chairperson thanked the Minister for the political overview, which was very informative. It was trying to unlock many issues which the Committee had in mind, and she trusted was that the government would do its best to make sure that poverty alleviation and job creation was being tackled, as well as the welfare of the disability was being improved. The Committee would appreciate hearing more on the issue of licensing, because this was one of the red tape matters it would deliberate upon at the right time.
Department of Small Business Annual Performance Plan 2021/21
Mr Lindokuhle Mkhumane, Director-General (DG), DSBD, said the severe collapse in 2020 had had an acute adverse impact on women, youth, persons with disabilities, and especially those informally employed and those who worked in contract-intensive sectors. The strength of the recovery was projected to vary significantly across countries, depending on access to medical interventions (vaccine-powered economic strengthening) and effectiveness of policy support. New variants of the coronavirus posed concerns for the outlook. The pandemic was expected to reverse the progress made in poverty reduction in the past two decades in the emerging markets and developing economies.
All emerging markets and developing economy regions were expected to grow this year, and South Africa was expected to grow by 2.8%. The Economic Reconstruction and Recovery Plan (ERRP) had five objectives:
- To create jobs, primarily through aggressive infrastructure investment and mass employment programmes;
- To reindustrialise the economy, focusing on growing small businesses.
- To accelerate economic reforms, to unlock investment and growth;
- To fight crime and corruption; and
- To improve the capability of the State.
On performance related matters, the DSB would continue implementing the Township and Rural Entrepreneurship Programme (TREP), which was a dedicated programme to provide financial and/or non-financial support to township and rural enterprises with an emphasis on those owned and managed by the designated groups. It sought to create an enabling environment for SMMEs and Co-operatives within which to operate by:
- Finalising amendments to the National Small Enterprise Act through the National Small Enterprise Amendment Bill, 2020, that the Department had gazetted in December 2020,
- Providing for a simple and enabling framework for licensing application procedures for businesses by setting national norms and standards through amendment of the Businesses Act, 1991.
- Implementing the SMMEs and co-operatives funding policy to ensure improved access to affordable finance for SMMEs and co-operatives.
Mr Mkhumane said the Department would implement the localisation policy framework and implementation programme for SMMEs and co-operatives. In collaboration with the entities, it would continue to implement the Small Enterprise Manufacturing Programme. It would ensure further integration of the SMMEs and co-operatives database to ensure a reduction of red tape. It would also facilitate and ensure an increase in the number of competitive small businesses and cooperatives supported. It would promote the sustainability and growth of SMMEs and co-operatives through the implementation of a business viability facility. It would establish and report on the number and performance of incubation centres and digital hubs. In addition, it would sustain SMMEs and co-operatives by linking them to markets through an e-commerce platform. Measures would be introduced to support those SMMEs and co-operatives prioritising women, youths and persons with disabilities, with a minimum 40% target for women, 30% for youths, and 7% for persons with disabilities.
The Department provided small scale farmers with business development support and with access to markets by linking them with DSBD-supported enterprises. Through its coordination structure, it would revolutionise the way the Department and its entities interacted with local and provincial governments, and would act towards improving coherence, efficiency and effectiveness in the implementation of its programmes. The Department, through regulatory reforms and interventions, would implement a red-tape reduction programme at targeted local government authorities.
The Department had developed and implemented schemes dedicated to assisting informal and micro businesses. For public entities, it ensured that SEFA was a high impact, high performance development finance institution (DFI) that was responsive to the government’s macroeconomic policies, and specifically the DSBD's medium term strategic framework (MTSF) plan. They would align SEFA’s organisational structure, culture and innovative delivery model to be responsive to its mandate and strategy. They would develop its brand value proposition for the DSBD's target markets, improve distribution reach and establish winning collaborative models. The Department would improve SEFA’s sustainability, operational effectiveness, efficiencies and service delivery by streamlining business processes and deploying technology solutions.
The target for all government departments and entities to comply with the 30% procurement directive, of which the minimum targets were 40% women-owned businesses, 30% youth-owned and 7% for persons with disabilities, had been revised. The target had been removed from the strategic plan. However, the Department would engage National Treasury to introduce regulations that set aside certain products to be sourced from SMME s and co-operatives. Also, the five-year target had been revised in the strategic plan to read “SMMEs-focused Localisation Policy Framework and Implementation Programme approved, and implementation monitored in the five-year period.” The SMMEs-focused Localisation Policy Framework and Implementation Programme had been approved by Cabinet in 2020.
Small Enterprise Finance Agency Annual Performance Plan 2021/22
Mr Mxolisi Matshamba, Chairperson of SEFA, said the South African economy had entered a recession in 2019 following the persistent economic contraction experienced by struggling consumers and businesses. 2020 was equally tough due to the Covid-19 pandemic and the associated lockdowns. The COVID-19 pandemic had, and continued to have, a devastating impact on SMMEs. The government's policy response included three phases -- preserving the economy, recovery from the crisis, and positioning the economy for faster growth.
The country's gross domestic product (GDP) had contracted by 7% in 2020 and negatively impacted on the performance of the SMME sector. Access to finance remained one of the primary challenges for start-ups, micro, small and medium enterprises. Key contributing factors included the high failure rates, high transactional costs, and high risks associated with small businesses in the early stages of development.
SEFA, in conjunction with the DSBD and SEDA, had begun rolling out economic recovery programmes in support of SMME growth and development.
Its strategic initiatives include:
- Accessibility, simplicity, and automation;
- Investment management and business support;
- Policy support and strategic alliances;
- Building SEFA's brand visibility;
- Financial sustainability; and
- Execution driven by a high performance and governance culture.
He said interest from lending operations year-to-date in the current financial year showed interest at R40m, which was R10m below budget and lower than the previous year's R68m because of an interest moratorium that was applied in the first half of the financial year. Also, an increase in expected credit losses on loans and advances would see current impairment expenses of R138m lower than budgeted due to lower disbursements in the first half of the year than had been budgeted. There had been a headcount freeze in place since the second quarter, and R80.7m in savings on forecast YTD personnel expenses was expected. Personnel expenses were lower due to lower salary increases implemented than originally budgeted, vacancies not yet filled due to the current head-count freeze, and reversal of the incentive bonus accrual relating to FY20.
However, occupational health and safety costs had increased significantly by R1m in FY21. Operating expenses were lower than budget due to savings in consulting fees(R7.9m), travel expenses (R1.7m), office re-location costs (R0.6m), repairs and maintenance (R0.9m), training expenses (R2.3m) and lower technical reserves in Khula Credit Guarantee (KCG) (R14m).
The MTEF funding had been used by SEFA to fund some of the operational expenditures, and may also be used to lend to clients. The remaining funding sources were ring-fenced, and may not be used for its operational expenditure. However, the re-flows from these initiatives would flow to SEFA, and the budgets had been prepared on this basis.
Small Enterprise Development Agency Annual Performance Plan 2021/22
Dr Joy Ndlovu, SEDA Chairperson, said the South African economy, like many others, had been deeply affected by the Covid-19 pandemic. This was further exacerbated by various domestic challenges, which had resulted in a slow recovery and economic flat lining. Business confidence remained fragile domestically, and the country was well out of favour on the global investment-grade indices. The domestic challenges that plagued the economy included, amongst others, governmental overspending, rising government debt, poor state delivery capabilities, governance, and corruption challenges in both the public and private sectors, the unreliability and unpredictability of electricity supply, and extreme unemployment.
Although South Africa’s apartheid system ended in 1994, the effects of its segregationist policies could still be seen today. Today, more than 76 large townships, each containing township businesses, bordered several South African cities. Townships today contained about half of South Africa’s urban population and 38% of its working-age citizens, but as much as 60% of them were unemployed. These communities were intentionally developed on the periphery of larger cities, with the locations chosen to separate them from the economic bustle of city centres. This socio-economic isolation had resulted in the development of what was considered an “informal” economic sector containing nearly six million businesses across the country. SEDA had prepared itself to respond to the priorities of the sixth administration, and this included focusing on:
- Township and rural entrepreneurship;
- Strengthening informal businesses;
- Localisation through targeted import replacement and stimulation of local manufacturing;
- Business viability of small businesses.
Economic transformation for an inclusive economy by supporting:
- Black-owned enterprises -- 200,000 competitive enterprises;
- Youth-owned enterprises -- 100 000 young entrepreneurs;
- Women-owned enterprises -- 250, 000 women-owned enterprises;
- People with disabilities -- a major weakness in SEDA's support programmes currently.
Therefore, the service offerings and the programmes developed would be geared to respond to these priorities. The targeted small enterprises for township and rural support were in the following sectors:
- Panel beaters, motor mechanics, auto spares and auto-fitment;
- Small scale bakeries and confectionaries;
- Clothing, leather and textiles;
- Manufacturing support (part of localisation);
- Artisan businesses;
- Spaza shops and general dealers.
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 actual delivery of small enterprises. It further allowed SEDA to manage the available budget effectively. SEDA’s MTEF allocation had been cut by R284 million over the MTEF period from 2021/22 to 2023/24, which would have a huge impact on service delivery. Most of the fixed costs, like office rental, goods and services increased with rates that were mostly above the rate of inflation, while the allocated budget amounts were increasing at minimal rates that were below the rate of inflation. This resulted in the amount available for programmes and projects being reduced accordingly.
SEDA had also experienced reduced funding from partner organisations. The reduction in partnership initiatives had committed SEDA to seek alternative funding to continue with such initiatives. It often could not terminate these initiatives, which often included service centres. It was a service organisation, and as such needed to allocate adequate funds for the compensation of employees to combat staff losses due salaries seen to be uncompetitive. The current allocation to compensation of employees was below the industry benchmark, due to the available financial resources.
Mr G Hendricks (Al Jama-ah) said he was impressed that the SEDA had embraced zero-based budgeting, and at a meeting yesterday, there had been a lot of support for that. That meant there was a need to look at the programmes they were providing funding for, and to ensure staff was available to enable applicants to qualify for that funding. Those people who were involved in programmes for which there was no funding must be redeployed somewhere else. One could not have people preparing applicants for programmes for which there was no funding.
He said he wanted to use this opportunity to thank the Deputy Minister for bringing Parliament to Mitchell’s Plain and the constituency office. As a result of that meeting, they now had a very good working relationship with SEDA, and were assisting applicants to make their applications directly to SEDA.
Mr Hendricks said the Minister had also introduced people with disabilities to the Deputy Minister, and that had captured the imagination. He thought she was going to take that forward and get SEDA to prepare them to qualify for the necessary funding. The Committee had heard the CEO of SEDA being very bullish about reaching rural communities. Last week he had been in his family forests to introduce these available schemes, and had largely used the notes the Deputy Minister had shared with him to tell the royal family and others in the village about SEDA. They were looking forward to SEDA coming to Mpame village. It had an ocean economy. It had a large forest. It was a rural area that could be a smart city. SEDA could help by getting and finding the applicants for many of the schemes it had for rural areas. He had written to the Deputy Minister about their needs, and they have already formed a fishermen's cooperative. The women were very grateful for one of the schemes, and wanted to know how SEDA could assist them with agricultural opportunities. He hoped the new DG, in his first 100 days in that position, would consider assisting the Mpame rural village, because there was a sense of excitement now, and they were looking forward to becoming what he called "a smart village."
He was very concerned that SEFA, because of the lack of funding, had to downscale its activities. All that SEFA had to do was to look after the credit book and get the money, and it needed only a few individuals to do that. However, they obviously also had to have people to look at the applications that SEDA had recommended, but he did not know if they were going to go for zero-based budgeting.
Mr D Mthenjane (EFF) said the DSBD was expected to create jobs and to assist people on the ground. He urged SEDA to focus on townships in the rural areas with its entrepreneur programme, because that was precisely where it was needed. They were the ones who were very much sidelined by the apartheid system, and the suffering was still there. The DSBD and the government had to make sure that they interfered and went deeply into those rural areas and availed themselves to those people, and ensure that there was a system for considering the applications.
In the villages, most people did not know about the SEFA and SEDA programmes, but even those who did know they would tell one straight that it did not help. They would try to apply, and would provide the proof they were asked for, but the Department did not take them seriously, and rejected the applications. The Department does not now help the people they say they were helping -- only people in the urban areas. That was why there was this need to go deeply into the rural areas. He suggested the Committee should conduct oversight to confirm whether this would happen or not.
Ms B Mathulelwa (EFF) addressed the Committee in the vernacular. (This is captured in the recording of the proceedings).
Mr H Kruger (DA) said he understood that everybody had the right to speak in his/her mother tongue, but they also had the right to hear what this person or Member had to say. So, if there were no people who could translate the speakers, there was a need to have some sort of arrangement so that they could all understand the question and of course learn from of the process.
First, he wanted to ask a few questions of clarity, starting with a question to the Department about the ease of doing business. At the beginning, in 2014, they would talk about red tape, but had then extended the definition of red tape to "ease of doing business," because ease of doing business had a much broader meaning for small businesses than just red tape. Red tape was just a portion of the problems that small businesses had in South Africa to be successful. Now, they had changed it back to red tape, which was not the only hurdle for small businesses, and he would like to know the rationale for it. He had had a discussion with the DG, and apparently it was about trademarks, and people were claiming the term "ease of doing business” for themselves so that nobody else could claim it. He though they must fight for "ease of doing business" being for everybody to use.
When SEFA showed its financials, he had noted that for the coming year there would be loss of about R200 million. He wanted to know if the previous years had also shown a loss, how big the losses were, so that the Committee could get an indication of whether was this just suddenly something that had happened because of COVID, or if it was a management problem.
He commented that SEDA's expenses for its the SMME projects were only 36% of its budget, while the personnel costs were 44%, so it seems like SEDA was not too worried about small businesses creating jobs. It seemed like they created the jobs for themselves in the Department, and one needed to question the spending of more on staff members than the core business.
He said that in Emalahleni in Mpumalanga, he had sent a young lady to SEDA to help her with a business plan to buy a big guesthouse. SEDA never came back to her, and she was forced to go through one of those shacks which charged money for a business plan. This turned out to be a full-page profile of a business, which they had copied and pasted from the internet -- and they had charged her R860. If this happened to one young person, how many persons did it happen to in Emalahleni and all-over South Africa? SEDA was not interested in helping our youth, and people were looking for help for a business plan at its doorstep. Not every person could think up a business plan, so he wanted to hear from the CEO how it would deal with this matter. He added that he still considered the footprint of SEDA a big problem.
Mr F Jacobs (ANC) said the presentations were very comprehensive, and that he shared the sentiments of those who felt that if they implemented 50% of this plan, they would be in good stead. He also wanted to record his appreciation that they had a plan, they had a Department, and they had a team that knew what needed to be done. The challenge was to ensure that they did the work, and that the Committee helped them and kept them accountable.
He said the priority was the recovery from Covid. The people had suffered under COVID, and lives and livelihoods had been lost. Small businesses had been the worst affected, so it could not be business as usual, and he was appealing to all the staff and the officials in this Department to be a government that was responsive and caring for the communities and people. The township and rural entrepreneurship programme was going to be the flagship programme, and what was needed now was the capacity to implement it. When the officials go to a rural area, they do not need to be tourists, where they just make a presentation. There were 100 people in Vredendal that had come for the information, and the officials had made the presentation and then left. Not one of those communities had benefited from any products or services, or any finance. He had seen this happen in the past, and was going to ensure that whoever came into his areas, there was an improved turnaround that the officials really took notice, spoke to the people, and sat with them and helped them. The performance indicator must be how many youths, women, and people with disabilities had been assisted in the different areas, especially the rural and township areas.
The other issue he wanted to commend to the Department was the broad-based black economic empowerment (BBBEE) codes. Black people in the Western Cape, in Cape Town, were suffering. They were not implementing these codes, and it was important that the Department was alert to this. He had been approached in the rural environment where there had been BBBEE schemes, and now they were trying to reverse the transformation. He had also been told that black owner-drivers for Bokomo and Tiger brands that used to have their trucks, were now slowly being moved out. Black ownership and black participation in the economy was becoming non-existent, so the Department needed to intervene and assist. He did not want to be the person calling for a consumer boycott of Bokomo and Tiger brands, but if they were not coming to the party and did not see the economic imperative of ensuring that all of the people got opportunities, they might have to reconsider this. He had lamented quite hard that in the whole agro process, almost 80% of the value chain about food was still largely in the hands of white ownership. He did not have anything against white people, but he did have problems where one did not have opportunities, and people were still getting kicked out of economic opportunities, d, so this year was going to be a key year for the Committee to ensure that small businesses, especially black small businesses, got opportunities in both the private and the public sector.
The other key interest for him was the access to finance, and he was glad that SEFA had a broad strategic approach to this. He commended the leadership for its visionary approach.
He thought one had to accept that the commercial banks had failed them. They failed them on COVID, and they would fail them as black people, because small business was not getting the support that they needed from the commercial banks. They needed intermediary finance, and he like the models that SEFA was talking about. They were looking at microfinancing -- helping those small people that just needed a little push-up, and they did not need grants or handouts any more.
Lastly, there had been a comment that not all disabled people were entrepreneurs. He detected a bit of discrimination, and felt there should be an understanding of why they were referring to youths, women and the disabled. These targets were not there for paper exercises, but were there to deal with redress. If the officials could not find disabled people, women or youths, or if could not find a township, then it was going to be a problem, and would need to be monitored very carefully.
Mr Matshamba apologised to Ms Mathulelwa, as her question had been raised in the previous meeting and he thought they would have given a written response by now. He would make sure the matter was fully followed up by a written response.
He thanked Mr Jacobs for the words of commendation. They appreciated the pat on the back that Members were giving them, as it encouraged them. What he could say was that they were committed, as they had said before, to make sure that they stretched the targets. The issue about money reaching the previously disadvantaged was an issue that they took to heart very seriously, both within SEFA and the investment companies where they had a direct pool.
They were very conscious of the fact that they were always going to be challenged by those that were not willing, or that did not buy into the vision of the country as far as empowerment was concerned, as was the case with the AfriForum case. SEFA was a party to legal action that had been taken by Afri-forum, together with the Department of Tourism, over the tourism equity fund. They were very conscious that they always had detractors along the way. They were not about to relent, and were confident that they would overcome that challenge again, as the government had overcome others before, and that they would be able to run the programme in time to commit the money that had been allocated to it. They believed that it would result in a significant impact on the balance of equity ownership or participation in the tourism industry. What was encouraging was that in the tourism sector itself, several progressive people had come out to support the programme and had even indicated possibilities of collaboration to make sure that they could empower more people and open the space for black people and women and people with disabilities and youth to come into this space. They would update the Committee in the future on the matter.
There were also developments in other areas where SEFA had invested companies that have been engaged to stretch their commitment to black empowerment. They had a responsibility to champion BBBEE so that the transformation programme was on course.
As far as oversight was concerned, SEFA was happy to subject itself to oversight and to be monitored. Its first obligation was to deliver, and it regarded it SEFA's responsibility to call upon the Committee to assist it where people were looking for support.
Mr Matshamba referred to the issue raised concerning disabled people, and said they were not discriminating against disabled people, but were pointing out that the allocation of the budget was not small per se. They tried to correlate the budget to be proportional to the size of the population of disabled people in the country, and were going to mainstream this area of support by employing a programme manager to focus specifically on dealing with providing access to finance for people living with disabilities. As part of the new intermediaries that they wanted to introduce as one of their routes to access, they would want them to focus on also providing funding to people living with disabilities.
Responding to Mr Kruger’s question on loss, the CEO said that because of the nature of the business, they had loans that did not perform, and when they impaired these loans, they impacted directly on the profitability of the company. They had the old book that they were trying to deal with, and some of the write-offs that were going to flow through their finances were a result of the old book. In the short term one would see a very high cost to income ratio, and the losses that were reflected. However, as they now improved on the quality of the loan book, the borrowing and other revenue streams for SEFA, they would be able to improve their cost to income ratio, and one would see that in the following year, they were going to be looking at about R80 million, which was more like the break-even point, and the year after that one would start seeing profitability. They were moving from a low base of improving from the old book and eradicating all the other dead loans, and growing the book with good quality loans and closed revenue streams through the partnerships that were performing as an entity, so the losses were basically because of the historical operating activities of the entity.
Ms Ndhlovu referred to the zero-base budgeting, and said they had gone through a thorough process of looking at all the expenses, justifying each and building the budget around what was needed for the upcoming period.
She agreed that rural and township enterprises were indeed their core focus, and they had increased awareness using both traditional and digital platforms, with road shows as well, working with local municipalities to ensure that people who still did not know about SEDA and what it did, as well as their sister company and the DSBD, were fully informed. They had also refined their marketing strategy, and the acting CEO, as well as his team, would just expand on some of the things they had done to ensure that in the rural areas and townships they were accessible and people knew what they were doing and were planning to do in the upcoming year.
Responding to Mr Kruger, she said they recognised how badly spending money on themselves would be viewed, and thus they took care when they approved their budget. It was split between direct service delivery and the support function -- 77.2% on direct service delivery and only 22.8% on support. She would get the CFO to break it down further, to show that this was something they always had in their heads that they needed to address.
On the issue of not responding to clients, she extended humble apologies to the client. She would ask the CEO and his team to address these allegations and to put interventions in place to minimise these incidents, because it was not the first incident that they had heard of, and they had taken a zero-tolerance stance as a board on such matters. There had to be consequences for those who were still not addressing SMMEs the way they should be addressed. She would also ask the CEO, when he responds to some of the comments and questions, that he and his team also respond to Ms Mathulelwa with regard to services not given to the right people, or claims that state SEDA had given services, but the people had not received the service that SEDA claimed had been granted. She wanted to give comfort to the Members to say that this was something they we hear from time to time, and they had put interventions in place to ensure that there were zero recurrences of those incidents.
Mr Mbatha said that the village projects and the cooperatives needed to be packaged properly in Mpame. There were obviously agricultural opportunities there, and it would be in SEDA's interest to get its people to assist. Such projects should be key projects that they should look for -- and to look after.
He said the entity would look deeply into the issue raised by Ms Mathulelwa.
Regarding Mr Kruger's report about the young woman whose request for assistance with a business plan for a guesthouse, he hoped that the opportunity for the guesthouse was still there. He had asked those responsible to investigate. They needed to follow up and get the details, so they could then make sure that the business plan was done properly. It was one of those unfortunate events and should not happen.
Lastly, on the issue of the expenses, the delivery model of SEDA was simple. It had branches where there were business advisors who looked at their SMEs at large. Those were the people that the SME owners saw, who provided advice to the SMEs, and were the people that did the diagnostic assessments of SMEs' businesses. Only when there was technical work that needed a service provider, was this recommended. For SEDA to reach as many SMEs as possible in this country through its core locations, it needed have a first line group of people who could carry out that work. SEDA should not have vacancies in order to make sure that service delivery was on time and was of high quality.
Mr Elias Maabane, SEDA CFO, said in their business model they were paying advisors who were directly linked in the provinces to service delivery, providing training, advice and diagnostic tools for clients. So the budgeted 44% was mainly for the provinces and SEDA's network, and the people that were in their core locations. It was not people in the head office who were getting most of the funding, but the advisors in the provinces.
Director-General Mkhumane referred to the licensing issue, and explained that the business activity was transferred only on 30 October last year. They had started consultations with the key stakeholders, because the licensing was implemented at the local government level, while the DSBD, as the government, was more involved with the legislation. They needed to make sure that there was consistency that was applied throughout the country. As for the relevance of licensing, it was something that could not be debated -- it was essential, otherwise everything would just happen haphazardly all over the country and there would be a problem. The Department had started those consultations by reviewing the Act, because it was previously administered by the DTIC.
The question on the "ease of doing business" was a matter of terminologies. Previously, they used to just focus on red tape as a Department, and then National Treasury had been charged with the responsibility for driving "ease of doing business" across the country, as they were using those world bank ratings,and then there was an agreement between Treasury and an entity that was responsible for providing these ratings throughout the world. The relationship had been terminated, but even in the relationship, some questions had been asked, not just by South Africa but by all other countries because of the methodology that they were utilizing, where they would just select certain people and ask them their opinions. So there were questions around the credibility of the ratings that were done by the entities around the methodology in particular. Since that relationship was cancelled, they had to revert to using the terminology they had been using previously
One of the issues that had been addressed was the issue of a common business plan template. The Department had driven that process. There was a common template that was utilized by the entities, and they had the Industrial Development Corporation (IDC) and the National Empowerment Fund (NEF) on board so that it had become easier for SMEs. They were now ensuring that once an entity was registered the SME database, they could also register with the Companies and Intellectual Property Commission (CIPC), and could register on the centralised supplier database on the same platform, rather than having to go to different platforms or even to visit different government departments.
They had been some comments that the DSBD should become more responsive government, and this was something that they were working on continuously as a portfolio. SEFA had indicated that since the Department had started implementing interventions, they had gone back to the drawing board after extensive engagement using the district development model (DDM), where they had visited district municipalities, received feedback from potential SMME beneficiaries, and reviewed the threshold of our interventions. So the Department would try to always be responsible and made sure they followed up and support was provided. They had regular engagements with both SEDA and SEFA to make sure that they processed the applications, and people were not left waiting for too long.
They were engaging with the DTIC, and especially the Commission, to strengthen the DSBD's relationship with them. Their colleagues would be engaging them on all the things that they wanted to engage with them on, because they believed that the DSBD played a critical role in ensuring that there was proper transformation taking place. They did not want these big corporations to just tick boxes. Tiger Brands had approached the Department, and they were dealing with them, especially when it came to supplier development.
Ms Rosemary Capa, Deputy Minister, said that when the leaders were engaging in oversight, the matters that affect the service delivery of the DSBD were also matters that belonged to other departments. This meant that if a local municipality was not able to join the party by making the environment conducive for small businesses, not having a trading licence became critical. This was because most of these people did not get the business growth resilience facility or other similar funds because they were not compliant. It had now become the Department's priority to try and negotiate and convince its counterparts in other departments that the battlefield for small business was in the trading space of the local municipalities.
The Chairperson thanked everyone for attending the meeting. It was a journey they had needed to travel together. She was pleased that incubators were going to be extended all over, and that they were centralising this programme. She referred to the challenge of automation, and said that with the rural areas in mind, issues of technology were still a problem. However, they should try their best to make sure they liaised with the municipalities through the district development model, as this would assist them.
It was true that if they were unable to deal with the issue of licences, the programmes would be there on paper, but on the ground nothing would be happening. These matters needed to be addressed, because people had to be able to fight poverty and create jobs.
She was happy about the common business template which was going to be used, because another thorny issue of the business plan was the challenge of profiles. She was appealing to the DG to make sure that the leaders in those agencies assisted people to go to their offices. Awareness had to be created on the ground to assist those people, because they were so poor they did not even have money to travel to their offices.
All in all, it was a good presentation. A good plan would have to follow it up.
She commented that SEFA was also concerned about the very slow turnaround times. The Committee was happy about the way the entity was hands-on, and was pleased about the way it was reporting that it was being honest with the Members. Where they were stumbling blocks, it had mentioned them to the Committee.
She said the issue of people with disabilities had to be taken seriously, to ensure that they were considered part and parcel of their portfolio, because while not all of them could be business people, they could be beneficiaries of these programmes. Mr Jacobs had outlined this clearly, and she was just emphasising it so that in future care was taken over the issue of discrimination.
All in all, the Committee was happy about the plans, and would work hand in glove with the Department.
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