DSBD and SEDA 2020/21 Quarter 4 performances; with Minister

Meeting report

The Chairperson welcomed everyone and expressed sincere condolences on the death of a colleague, whom she referred as "Sis Mpho," and Ms Nhlengethwa Dumisile, a former Member of Parliament from Mpumalanga. Referring to the COVID-19 regulations, she encouraged Members to be vigilant in their communities when they go for recess in June.

The purpose of the meeting was to receive reports from the entities of the Department of Small Business Development (DSBD) on its quarter four performance of the 2020/21 financial year. The Small Enterprise Finance Agency (Sefa) had requested to be excused from the meeting and the request was granted because valid reasons were provided, and another date would be scheduled for Sefa to brief the Committee.

She welcomed Ms Khumbudzo Ntshavheni, Minister of Small Business Development, and acknowledged apologies from the Deputy Minister, Ms Rosemary Capa, and Mr V Zungula (ATM).

Minister's opening remarks

The Minister said that there was a Cabinet meeting she needed to attend, and had requested the Chairperson to excuse her. She was present to lead the Department's delegation's presentation of the fourth quarter reports for the Small Enterprise Development Agency (SEDA) and the Department. The Committee would still have a second briefing, where the Department and its agencies would deal with the annual reports in the presence of the Minister or Deputy Minister.

There had been improvement from the Department and some challenges from SEDA, but the Board of SEDA had started to address them. Lessons had been learnt from the previous year, and measures were in place to intervene on the challenges experienced by the agencies and the Department. The DSBD's presentation would be led by the Director-General (DG), Mr Lindokuhle Mkhumane, who was no longer acting and was therefore fully accountable. The SEDA presentation would be led by the Chairperson of the Board, Dr Joy Ndlovu.

She asked to be excused, and asked the Director-General to lead the presentation.

The Chairperson congratulated Mr Mkhumane on his appointment.

The Minister introduced the Acting CEO of SEDA, Mr Nkosikhona Mbatha, who she said was very knowledgeable in the sector, and was also the executive responsible for post investments management at Sefa. This was because of the integration of the entities, and resources having to be shared. He was currently assisting SEDA as the Acting CEO until the rationalisation process was concluded. The Department was still waiting for the permission of the Cabinet to proceed with the merger.

The Chairperson said she hoped the Acting CEO would be able to assist the Committee to see progress, and was looking forward to the two entities collaborating and working together.

Fourth quarter performance reports

DSBD

Mr Mkhumane said he would try to be as efficient as possible. He presented the first 20 slides, and handed over to Ms Semphete Oosterwyk, Chief Financial Officer (CFO), who presented the financial report.

The presentation covered an overview of the activities of the Department over the quarter, progress made implementing indicators and targets, actual output, reasons for deviation and corrective measures.

In the quarter, there were 20 targets of which 16 were achieved resulting in 80% performance.  

(See attached document for details).

The Chairperson invited Dr Ndlovu, Chairperson of the SEDA Board to present.

SEDA

Dr Ndlovu introduced Mr Nkosikhona Mbatha, Acting Chief Executive Officer (CEO), Ms Ntokozo Majola, Executive Manager, Mr Elias Maabane, Acting Chief Financial Officer (CFO), Mr Tervern Jaftha, Acting Executive Manager, and Ms Dube, manager in the office of the CEO.

Dr Ndlovu gave an overview of the entity's performance on the three aspects she referred to as the good, bad and the ugly. The impact of the go slow that was reported to the Board on different occasions had been under-reported and underestimated. It had been clearly stated that the no work, no pay policy must consistently be applied, and performance was not affected. The go slow had had an impact, and the Board had requested the Acting CEO to investigate and ensure that consequence management was implemented.

Mr Mbatha presented the fourth quarter performance report, and emphasised the cyber-attacks which the entity was experiencing, which were causing delays. No accruals had been processed in the past two weeks, and divulging information would put the entity at risk. SEDA would provide a full report with all the required information once the matter had been dealt with, and it was safe to do so.

In terms of performance, the presentation highlighted the organisational performance during the fourth quarter of the 2020/21 financial year. A total number of 23 indicators under review in quarter four, the organisation performed well on 12 indicators, which represents an achievement of 52%. The organisation has adjusted to the new hybrid-working environment and efficiency in delivering services to clients is improving. Seda implemented Township and Rural Programme (TREP) successfully and lessons leant were documented.  The organisation piloted one  Pop-Up , which aimed  at assisting SMMEs to showcase their various products and services in line with the buy local product campaign. Seda has continued to be the leader in business incubation ecosystem, with an existing portfolio of 101 supported incubation centres.

(See attached document for details).

Discussion

Ms M Lubengo (ANC) said according to the report on the DSBD's performance, only 80% of the adjustments targets was achieved, which indicated a decline of 15% compared to the previous quarters. In programme one, the Department reported 10.7% over-expenditure in the period under review, where cash projections were R164.8 million and actual expenditure was R182.4 million. This implied budgeting and planning capacity challenges in the Department. She asked for an explanation of the over- spending and under-performance in the fourth quarter.

She experienced connection problems therefore could not finish her contribution.  

Mr M Hendricks (Al Jama-Ah) said Members highlighted under-performance and over-expenditure, but this was at a time when there was a go-slow, which played a very important role, and did have an impact on service delivery. There was an admission that there had been a major impact, and the entity was only introducing consequence management now. This meant that most senior officials of SEDA did not have the capacity to handle industrial relations. He had worked in the corporate world and had been in charge of industrial relations for a major Swiss company. There was a principle of no work, no pay, and contingency plans were in place. Whenever there was a go slow, a button would be immediately pushed from the beginning to make sure products were manufactured or delivered while trying to settle disputes.

Here, months after the event, the Committee was being taken into confidence. Consequence management should have been implemented from the beginning. The senior managers of SEDA were over 100 days late and were unable to handle industrial relations. Experts must be brought in to handle industrial relations. It was impossible to have an entity that was unable to handle industrial relations. Workers would always have issues, especially now with the pandemic, and there was no money for mass increases. In the beginning, SEDA should have announced the principle of no work, no pay, and taken steps to implement a contingency plan to make sure that the nation was served.

The creation of jobs was the responsibility of the Committee, and it was very important for Parliament to have oversight -- if that was ignored, it destroyed the nation. There had been a lot of improvements at SEDA, and he hoped that in future the situation would dramatically change. He had confidence in SEDA, but now that the report had been submitted, it triggered an obligation on his part. He did not know how other Members would respond to the matter, especially apologising to the nation because the job had not been done. Unfortunately, the Committee had been misled, otherwise it would have exercised serious oversight and stepped in to run SEDA if the executive could not run it.

The Chairperson confirmed that the Committee had been misled.

Mr D Mthenjane (EFF) agreed with Ms Lubengo that there had been a drop in the DSBD's performance compared to the previous quarter. It showed that the Department and its entities had challenges. This had been raised more than once, and made it look like the Committee was negative towards the Department. There was a need for accountability -- for example, the reason behind the slow finalisation in the procurement of capital assets. He asked how far the Department was with the formalisation of informal businesses such as spaza shops, and the measures SEDA was taking to prevent a repeat of cyber-attacks. A summary was needed on key ways in which the creative industry master plan would promote job creation and enhancement of its contribution to the economy’s gross domestic products.

As a Committee, he made it very clear that Members were not happy with the manner in which the Minister was handling the Department. It required an active Minister, not a person who was all over the place. She had turned the Department into a Holiday Inn. She came and went as she wished. As a Committee, that could not be allowed. She needed to attend meetings and deal with the problems at hand. It was clear the Department lacked capacity in certain areas, and her presence could assist. She was never present. She had been here in the morning and then told the Committee that she was excusing herself to attend a Cabinet meeting. She was not doing the Committee a favour. A Minister must always present be present. She was responsible and accountable for the Committee.

Mr H April (ANC) said he appreciated the work that had been done by the Department, and understood that the situation was not under normal, as COVID-19 had impacted on how things should have been. However, that was not an excuse for a change in environment and service delivery. He asked for the reason behind a 52% performance of SEDA, and practical examples of how the hybrid working environment had improved or decreased efficiency in service delivery to their clients. A practical explanation was needed from the entity on how the township and rural programme had been implemented, with examples of the areas where it had worked. He asked for reasons for the 75% performance on the programme for enterprise development and entrepreneurship, given that it should be the key driver of the economic reconstruction and recovery plan (ERRP).

Ms B Mathulelwa (EFF) said she agreed with the issues raised by Mr Mthenjane, and appreciated that the Department now had a Director General, not an acting DG. She hoped he would be able to solve some of the problems now that he was accountable.

She asked the Department to revisit the SEDA branches next to the townships or people in the rural areas so they could provide support. For example, in Mount Ayliff and KwaZulu-Natal (KZN), investigations were still being conducted because their principles were opposed to the mandate of the Department. There was a need for a revival or resurrection where branches were no longer available. The Department needed to physically establish branches, and hopefully things would be done differently.

Females in small businesses were usually bullied and robbed. Corruption was committed by capitalists. There must be a place in the Department where such matters were reported.

She said the Minister must clarify if she wanted to stay in the Department, or be the secretary in the Presidency. This was an important Department that covered all sectors, and her absence was destroying everything. Had she been present, the Committee would have not been misled.

Mr F Jacobs (ANC) said the Department had met 80% of its performance targets and must be commended, as last year had been a difficult one. He shared the concerns raised by other Members as well. The Department must provide reasons for its under-performance, as well as the measures taken to deal with its challenges. The Committee would not be exercising oversight without engaging with the Department.

There had been underachievement on the SheTrades platform, which was for women. Women and youth empowerment was a priority. The targets had not been met. Out of 51 376 township businesses, only 124 657 had been achieved. The ruling party policy stated the need for development of rural areas and townships. He asked if there were structures aligned to respond to the needs of the marginalised communities, and suggested that directors and senior officials should move out of their air-conditioned offices and have Zoom sessions in the rural areas and townships.

He said the district development model (DDM) was also a problem. SEDA did not meet the DDM target. There were 56 district municipalities across the country, and there was no need for reinvention. The President had emphasised the need for coordination. The previous year's target was 15 municipalities to be engaged with. It was unacceptable that only eight districts have been engaged with. All the targets on the youth, women and the disabled had not been met. There was a structural problem within SEDA. He asked if there was an orientation programme to make sure targets were met in the coming year --specifically a plan and dedicated approach. He asked if the Department was going to continue widening the gap between the rich and the poor by empowering already empowered people.

Mr Jacobs said South Africans should own the general dealer shops in their areas and contribute to the local economy. Black, coloured and Indian businesses should get local procurement from municipalities. Everything that had been discussed needed to be translated into reality. The target for spaza shops to be supported by the Department was 16 666, and only 5 100 had been achieved. Access to finance remained a problem, even though SEFA had not presented. SEDA had provided only 4 000 people with access to business plans and finance. That was a big challenge. SEDA would need to provide a better performance and pull up its socks.

He asked if SEDA had the capacity to drive the transformation agenda. If there was no plan and it was unable to deliver, the Committee must be informed to ensure accountability and oversight. He would like to commend the Department where there had been delivery. There should be an improvement on the need for economic inclusion and participation, especially for those that had been denied jobs from the formal sector. The informal sector was carrying a heavy burden, and the Department must work with the private sector to help create entrepreneurial opportunities everywhere, especially among the poor and marginalised.

The Chairperson supported Members on the issue of under-performance and over-spending. The go-slow matter needed to be investigated and dealt with accordingly. Currently, entrepreneurs were not getting assistance because of the long list of documents demanded. Some people in the rural areas about 50-100kms away from the municipality had to keep on going back, and if targets were not met, the funds allocated must not be spent. She asked for a clarification of the Ministers and Deputy Ministers deployed in certain areas for the DDM so the Committee could assist, because the Department could not do oversight on its own. The notion of economic growth and job creation which was required by the ERRP would not be achieved because the annual target had not been met. She appreciated the honest report from the Department, and said the Committee would assist going forward.

She requested Members to give the President time to decide who he would appoint in place of the late Minister Mthembu [as Minister Ntshavheni was also acting as Minister in the Presidency]. The President needed support to make sure his office was run smoothly. She asked if Members had followed the process of querying the Minister of the Department if there were complaints, and whether they had been assisted accordingly. She would have supported Members in blaming the Minister only if the President had appointed someone.

DSBD's response

Mr Mkhumane said there was usually no under-achievement in quarter one. Targets were not achieved because of the challenges that had been raised around the processing of certain invoices that had come in late. One of the reasons was the payment of pay progression. The Department had taken a decision that no payment would be processed, but had to seek advice from the Department of Public Service and Administration (DPSA), and had been advised to proceed with the payments. The DSBD had to make sure that the money budgeted for the previous year was spent in March. It was not a lack of planning, but a decision had to be executed based on the guidance of the DPSA.

There were businesses doing well in the townships and rural areas, but they were not recognised and therefore not getting the required support. It was critical for the Department to have the registered businesses known for them to receive financial support from government. Registration was imperative for accountability’s sake. That was non-negotiable -- the government could not spend taxpayers’ money on people who were not willing to be known. It was a project that the DSBD would continue. It also assisted the Department, because it was known that the government did not have unlimited resources and at some stage people needed to get access to finance through other structures. For example, the reason the Department implemented the blended finance model was to assist most of the SMMEs especially those at the lower end, to start getting credit records implemented through SEFA credit guarantees. It built a credit record that assisted when applying for funding from commercial banks, because records would be available to show that the debt would be paid.

Last year’s target was to start integrating the database with other government institutions. The Department was able to start the integration with the centralised supplier database (CSD), which assisted SMMEs when there was a need to check their status. SMMEs needed to be registered with the CSD in order to do business with the government, and if the status had changed, one was unable to get support. The information provided when registering was saved in the system, so when applying for different interventions there was no need to upload the information again to access the required support. The information was critical for the Department. The Department had also integrated with the Companies and Intellectual Property Commission (CIPC), which had engaged with the Unemployment Insurance Fund (UIF) last year, but could not achieve the target. The Department was working on a memorandum of understanding (MOU) with the UIF to integrate the system with the UIF database to assist SMMEs to register their employees easily with the UIF.

The creative industry master plan was done jointly with the Department of Sports, Arts and Culture (DSAC). There were certain sub-sectors of the master plan, so the DSBD was working jointly with the private sector. It was unfortunate that the Department was unable to do everything with the creative industries. The good thing for running with the master plan was that Department of Trade Industry and Competition (DTIC) coordinated the master plans. The DSAC was initially asked by DTIC to run it, but was reluctant, and the DSBD had decided to take it on because most the enterprises were SMMEs. The Department took on the task and was working closely with other departments to benefit the SMMEs. There were specific sectors that had been identified to work in partnership with the private sector. The Department would need to communicate so that a written commitment was provided.

The bullying of SMMEs was a serious issue, and the Department had received complaints. One of the interventions it was working on was legislation, such as revising the National Small Enterprise Act. It was also looking at establishing an ombudsman office that could quickly assist SMMEs, as they could not afford legal fees for court cases because big corporations easily accessed legal counsel. Cases that were reported to the Department were referred to the DTIC, and franchising conflicts were currently dealt with through the National Consumer Act. Broad-based black economic empowerment (BBBEE) conflicts were also referred to BBBEE Commission to investigate big corporate companies that were exploiting certain people to do dirty work on their behalf.

Ms Semphete Oosterwyk, DFO, DSBD, said it was not true that there was no plan, as the Department categorically planned. The quarterly services budget at the beginning of the financial year was R89million, and was currently sitting at around R45million. This was because it was planned and anticipated that it was an abnormal year and operations were not the same, so the Department could re-prioritise some of the funding towards critical programmes. The Department had contributed money to the incentive programme from goods and services. Over-expenditure meant an alignment between the cash flow projection and the actual amount spent. The projection meant the prediction was based on normal activities. If an order was placed in quarter three and delivery was expected in the same quarter, it would be clear, but if the service provider was unable to deliver on time, results would be in the next quarter. The allocated budget would not be exceeded, because the money would be available in the bank account. Money not spent was reprioritised towards other critical programmes in the Department. The Department had planned the pay progression for quarter three and transfer it in quarter four, because the Minister had said operations were facing difficult times, and there was no need to look at pay progression. The DPSA had advised that the money needed to be paid.

Capital expenditure was not under-spent, but had overrun in terms of cash alignment. The year-to- date expenditure of the Department would reflect that there was no overspending on the overall budget. It was an issue of misalignment of the cash flow against the actual cash available in the bank account for quarter four, against the cash that had to be paid in terms of invoices. The Department still had R29 million for the year, which was 1.3% underspending, and if it was viewed from a year to date perspective, the Department had achieved the target of not underspending by more than 5% .

Ms Dominique Vincent, Deputy Director-General (DDG): Legislation Development and Review, DSBD, said it was alluded to in the presentation that there had been a low uptake of its programmes because there were similar interventions implemented in various provinces where the allocations were in competition with what the Department was implementing. The DSBD was looking at the requirements of the spaza shop programme to increase the blended finance allocation for each programme to ensure the uptake was increased. It had decided not to decline any applications with no permits, and to make sure that programmes were approved jointly with the Department of Cooperative Governance and Traditional Affairs (COGTA). Municipalities had been engaged with to grant temporary permits to beneficiaries with approved applications.

The Chairperson asked Members for follow up questions. She was personally satisfied with the responses provided.

SEDA's response

Dr Ndlovu said the Department was looking at forming partnerships within the ecosystem as well as increasing core allocation points. EThekwini was an example where the provincial manager had been tasked with privatising the resumption of activities. SEDA received lots of complaints and was dealing with them.

When presenting to the Committee, the approach of SEDA was to be frank and take full ownership of any errors made. Under-performance was caused by many reasons, ranging from the impact of the lockdown to internal matters such as labour relations management. She found it prudent to highlight the impact of the factors that could have been avoided, and to explain that management had uncovered the real impact at a later stage. The Department could not have consequence management when the prior presentation had shown that all the work had been completed and targets met. The Board had an industrial relations specialist to deal with industrial relations issues, and a no work, no pay policy had been adopted. Minutes from conducted meeting reflected that there had been no impact, and if it had been known to be untrue from the beginning, the Board would have insisted on consequence management and provided assistance to the management where necessary. SEDA had reviewed its reporting structures, and committees have taken specific divisions, such as information technology (IT), to ensure that misinformation was uncovered early, rather than later. The new Acting CEO had been tasked to investigate on how much SEDA had been misled to ensure that the consequences for the entity were not dire.

She emphasised that informing the Committee did not mean that it was the only reason for under-performance, but SEDA had to be honest as to what had been uncovered. She did not want to sound defensive, but as evidenced from the presentation, there was no zero performance on any targets that had been set. It was previously discussed with the Committee that there was reluctance to finance cooperatives because of a lack of compliance. The Department had allocated additional funding, and SEDA would be involved in preparing the cooperatives to deal with compliance in order to receive funding.

The hybrid model had not been easy in the beginning for staff members to work productively off-site. The situation had since improved. People now understood how the model operated, and SEDA had insisted on a review of the performance management process, because it was difficult to monitor people's work when SMMEs struggled to get hold of them. Monitoring and control tools had been implemented and the CEO and his team would be able to elaborate on the exact interventions put in place. Unfortunately, the report that was sent to Members did not reflect the kind of reporting that had been implemented, as that would have answered all the questions raised. The CEO's report provides action plans for wherever a target was not achieved. The new Acting CEO understood what needed to be done, and the report would be sent to Members.

Mr Mbatha said the meeting was on a public platform, and for security reasons he asked to be allowed to provide a report to the Members when everything was back to normal. Divulging information would put the entity at risk, and it would be difficult to back up information.

He explained the correlation of the products offered by SEDA, the status of the economy, the rules of the entity, and what was happening in the provinces as well. The DG had highlighted the measures the Department was taking .The personnel of SEDA were geared to assist once the spaza programme took off, because it would show the channels to follow and the response needed, and spaza shops would be assisted to get funding. 85% of the target had been achieved, but this needed to be improved.

He said that it had been month since he had joined the entity, but from his assessment there were enough people on the ground. Even though SEDA had had to deal with cyber attacks, the commitment from the annual performance plan (APP) was to get more personnel on the ground for efficient service delivery in the rural areas, and that was non-negotiable. The conversation and the partnership with the Department was to go to the districts and speak with one voice, and coordination was important. There had been coordination difficulties in 2020 with meeting online, but SEDA would try to improve and work together. Resources were available, and the entity was working 24/7 to solve the issue of cyber attacks to make sure service was prioritised.

Ms Majola assured the Committee that her team engaged with all the districts. SEDA had conceptualised and developed a model based on COGTA’s district development programme model. The Eastern Cape, Free State, Limpopo and Northern Cape were following the COGTA’s DDM. Institutional structures that were put in place in the provinces were the hubs and the steering committees. MOUs had been sent to those provinces, and SEDA was waiting for signed copies. It was usually a challenge for municipalities to return the MOUs. However, Mpumalanga was handling it slightly differently, establishing a DDM council and work streams. This meant SEDA's work would need to align the SMME work steams into DDM work streams. It was waiting for Mpumalanga to finalise the structures. KZN wanted SEDA to sign MOUs with COGTA and not with the district, and that affected the number of MOUs that had been signed. The entity had learnt that its approach needed to be adjusted and be flexible to align with what was happening in the province or municipality, otherwise there would not be any results.

SEDA had assisted clients with bookkeeping, permit validation and registration on the SMME portal for CIPC registration. In addition to the reasons that were explained by the DDG, the validation of permits were not appealing to the intended beneficiaries. Some of the provinces had come up with programmes where registration requirements were more relaxed compared to those that had contributed to the low uptake of DSDB support programmes, so numbers had increased.

The validation of licences by municipalities had also contributed to under-performance, because that was a function that was not well coordinated across the country. Some of the municipalities were not issuing licences, which was one of the requirements for spaza shops to qualify for the DSDB programme. The rural township programme had been implemented countrywide, and if that information was required by the Committee, it would be provided at a later stage. SEDA had implemented a lot of e-mentorship and coaching programmes, productivity improvement webinars, export development seminars with other countries to explore opportunities, sector specific workshops and training -- which included clothing and textiles, bakeries and confectionaries, manufacturing, poultry, training on quality and standards, and especially the SEDA technology division. All these activities were done online. The unintended consequence was under-spending from less travelling and not booking accommodation. A lot of learning content was digitalised and uploaded. There had been 8 000 "likes" on the material uploaded on YouTube. The challenge was that the figure did not reflect in the reports because when the APP was developed, technical indicators were developed too. This was very clear for the auditors, when looking at the performance, to check whether what was reported corresponded with the targets mentioned at the beginning of the financial year. The figure was not even part of the 22 000 which were assisted by the DSDB, because it was not in line with the technical indicators of the Department.

There were many reasons that had contributed to the under-performance. Nothing had happened in quarter one because the APP had had to be revised to align with the COVID-19 response programmes. She assured the Committee that the Department had managed the go-slow. A lock-out had been implemented, and some of the SEDA personnel had written to the Secretariat of the Portfolio Committee. This was because in quarter four it had become apparent to the staff that management had no remuneration to offer. Certificates to strike had been awarded in quarter three. Where there was resistance or a refusal to do certain duties, the lockout was implemented.

Adoption of reports and minutes

The Chairperson invited Members to adopt the two reports, as recommended by the Department.

Mr E Myeni (ANC) moved the adoption of the report, and Mr B Luthuli (IFP) seconded.

The Chairperson thanked the Department for the true reflection of their quarterly performance report. She advised the DSBD to consider all the issues raised by the Members to ensure better service delivery.

Mr Mthenjane moved the adoption of minutes and Mr Hendricks seconded.

The minutes were adopted.

The Chairperson urged Members to be cautious and follow the guidelines to prevent the spread of the Covid-19 pandemic.

The meeting was adjourned.