Small Business Development BRRR; with Deputy Minister

Small Business Development

24 November 2021
Chairperson: Ms V Siwela (ANC)
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Meeting Summary

2021 Budget Review & Recommendations Reports – BRRR

In a virtual meeting, the Committee considered and adopted its Budgetary Review and Recommendation Report (BRRR) for 2020/21 on the Department of Small Business Development (DSBD) and its entities, Small Enterprise Finance Agency (SEFA) and Small Enterprise Development Agency (SEDA). The BRRR contained 10 observations and 10 recommendations.

The discussion by Members on the observations and recommendations included: filling of vacant posts; merger of SEDA and SEFA; extending the SEDA footprint by using parliamentary constituency offices; access to funding and developing a funding strategy; provision of two-day workshops so people could apply and meet requirements for funding; cooperating with SEDA to empower people to apply for funding; use of public-private partnerships to enable access to funding; action plan for BRRR recommendations; underspending of R200 million; Black Business Supplier Development Programme (BBSDP) and Cooperative Incentive Scheme (CIS); developing progressive legislation to take the economy into townships and rural areas; plan for outstanding Bills; evaluation and monitoring; slow turnaround of successful applications; use of innovative technology for easier application process; post-site visits and feedback; DSBD audit report.

The Committee requested a detailed plan and timeframe for the SEDA/SEFA merger plus timeframe for implementation of the BRRR recommendations.

Meeting report

The Chairperson said the Committee would consider and adopt the 2020/21 Budgetary Review and Recommendation Report on the Department of Small Business Development and its entities.

The Committee Secretary noted an apology from the Minister although he had indicated that it was necessary for her to attend as the Committee was considering its BRRR.

Budgetary Review and Recommendation Report on Small Business Development
Mr Sibusiso Gumede, Committee Content Advisor, presented the BRRR on the Department and its entities, SEFA and SEDA, for 2020/21. He focused on the Observations and Recommendations. Having reflected on the 2020/21 Annual Reports of the Department, SEFA and SEDA, the Committee registered 10 observations for consideration by the Department.

Observations included the pandemic is causing huge damage to the small business sector. The Committee is mindful of the difficult conditions within which DSBD must discharge its responsibility. It is cognisant of the interruptions the pandemic has had on the targets and budgets of DSBD and its entities. There is a noticeable pattern of underspending across all programmes attributed to many vacant posts. Despite budget constraints, DSBD continues to underspend on important services and surrenders funds to the National Revenue Fund with SEDA underspending by R218 million. Due to an imminent merger between SEFA and SEDA, there is a moratorium on filling vacant posts yet the Committee is unaware of progress on the merger. The Committee has observed a pattern of deferring the tabling of Bills to Parliament. The Committee is concerned with this perpetual postponement. The Committee is pleased with the overall audit performance but notes there is still room for improvement. SEDA backsliding from a clean to unqualified audit opinion with findings requires urgent attention. DSBD audit opinion has remained unchanged for five financial years. The main obstacle to obtaining a clean audit is the quality of the annual performance reports. The Committee is concerned that audit findings keep resurfacing. The Auditor-General notes slow response by management in addressing these, particularly DSBD compliance monitoring.

The Committee had developed 10 recommendations for consideration by the Minister:
- DSBD must act swiftly in implementing the Auditor-General recommendations. There should be urgency by management to address identified risks and improve internal controls.
- There should be regular and timely reviews of performance information by senior management to ensure accurate and complete reporting to minimise reporting errors.
- DSBD should take appropriate steps to ensure deficiencies in internal controls are addressed by management.
- Management should develop an audit action plan to address the audit findings
- Non-compliance with legislation leading to irregular and fruitless and wasteful expenditure must be addressed.
- Effective monitoring and oversight by the Accounting Officer, Internal Audit and Audit Committee must be adhered to.
- Filling of vacant posts must be fast-tracked and finalised before 31 March 2022.
- The Accounting Officer, Exco, Management and responsible officials are to adhere to their obligation that site visits are conducted for all beneficiaries through pre-and post-site visits.
- DSBD looks at efficient spending of its funds and promptly identify idling reserves to avoid future undesirable virements and suspensions.
- All outstanding Bills are accelerated and tabled to Parliament before 31 March 2022. Mention was made about clarifying DSBD's position on Co-operatives Act (as amended), Business Act (1991), Cooperative Banks Act (2007).

The Chairperson thanked Mr Gumede for the clear presentation. She was happy as the recommendations were in line with the observations. She invited Members to comment, asking them to identify both the observation and its recommendation so it became easier for the support staff to amend the report.

The Committee Secretary acknowledged the presence of Deputy Minister Sidumo Dlamini on the digital platform and apologised for not having done so.

The Chairperson welcomed the Deputy Minister. The BRRR was the Committee’s report and it was for the Deputy Minister to note, as the political head. Its concerns needed to be taken into cognisance so that the Deputy Minister as the political head and the Director-General “could drive the vehicle properly”. The Committee saluted the Deputy Minister’s commitment as political head. Once the Deputy Minister was present, the Minister was also present as he was from the Ministry.

Mr M Hendricks (Al Jama-ah) agreed and appreciated the Deputy Minister representing the Minister and being present. Lessons to be learned were not for the Members as they did not learn lessons. He thanked the Chairperson for her leadership, and the support staff for helping the Committee take SEDA to the next level. That was the lesson to be learned – when a parliamentary committee is vigilant, it can take departments to the next level. He congratulated the Committee, its support staff and DSBD for turning SEDA around. His party had been critical of SEDA but they have now started applauding SEDA. He agreed that the Committee needed to ensure that all critical posts are filled by the end of March 2022. This was very important because DSBD needed a full team – especially as the merger of SEDA and SEFA was on the radar. Perhaps this was a task that the Deputy Minister should take up – to ensure a smooth but urgent transition. The Committee was nearly halfway through the Sixth Parliament and could not wait until the Seventh Parliament. For the Committee to be effective, the merger had to be completed and a full staff complement exist. The Committee could not be a lame duck due to these two matters.

Mr Hendricks said it was a good idea to extend the footprint of SEDA by using the parliamentary constituency offices (PCOs). There were 400 MPs, so one could imagine another 400 offices. SEDA had gone on a go-slow, there was Covid-19 lockdown, and there was the July looting. He was very disappointed as the Committee had visited a lot of villages such Harding, Mapuma village near Mthatha, and Mtubatuba, but they did not know about the DSBD structures. Going forward, the first important step was to have a two-day workshop so that people in one's constituency could know how to apply and meet the requirements for funding. Without the workshop nothing could happen because people applied and then complained that nothing happened. As a Member of Parliament, he had taken it upon himself to assist SEDA, who provided and paid for a trainer while the Committee had paid for the venue, catering and certification. That was the type of cooperation that he hoped other political parties would also give to SEDA, because they needed to start empowering people on how to apply for funding as there were more funding opportunities coming. The 10 million jobs were needed, which had to be created by DSBD. The Committee could not sit with uncertainty and DSBD not being at full strength.

Mr Hendricks was very happy with the BRRR and the wisdom of the report writer, as well as the support staff – it was really appreciated.

The Chairperson believed that the comments by Mr Hendricks would assist the support staff in adding certain points. The parliamentary constituency offices was a song that the Committee had been singing, and Mr Hendricks had been consistent in doing so. She fully agreed with him because if DSBD was not visible, then they should allow those offices to assist with capacity in terms of visibility and information. The inputs of Mr Hendricks needed to be taken forward.

Mr J De Villiers (DA) commended the support staff on the BRRR. It was truthful and really reflected the criticisms, recommendations and observations that the Committee had made during the course of their meetings. It was an honest report, which gave the Committee a lot to think about. He certainly would not claim that he could not learn lessons anymore. He wished to learn lessons not only in the Committee but for the rest of his life. He thought that there were a lot of lessons to be learned in the BRRR for everyone and as a Committee, they should really take the BRRR, read through it properly, study it, and form their plan around its recommendations that had been so well put together. It was an excellent and very truthful report.

The Chairperson said that Mr De Villiers’ inputs were of great importance as it was how everyone built each other. She believed that the Deputy Minister was listening to the Committee . Even the Committee’s criticisms were constructive so as to build the Department. The Committee was playing the ball and not the man.

Mr F Jacobs (ANC) supported the BRRR. The report was accurate and true and had detailed reflections. He endorsed the 10 observations and recommendations. DSBD was a functional department but there was room for improvement. The big issues were flagged and he wanted to emphasize those. Access to funding remained the biggest challenge in the sector. While the budget sounded big, it was not a lot because there were hundreds and thousands of small businesses and informal traders that wanted to do business and make a living for themselves and employees. Access to finance remained a problem. He did not know how DSBD was pulling together public-private partnerships for access to funding. The funding strategy was something that DSBD, Ministry and Committee need to look at. There were different funding pots in the private sector so they could lend and have a public-private partnership, in the spirit of how President Ramaphosa of the Republic of South Africa wanted things done. This was key.

The R200 million underspending was unacceptable. The Auditor-General had told them the reasons for this. However, R200 million could provide opportunities for many small businesses. This was something that needed to be done, but how to improve the capacity of DSBD to actually deliver? The BBSDP and CIS were something that required urgent attention. The previous Minister had spoken about 1 000 local products in local shops. It was now standing at almost 300 local products, which was a great improvement. This needed to be commended. The DSBD had failed on cooperatives development and it acknowledged that there would be a merger in the following year. The date for the start of the merger was 1 April 2022. The Committee wanted to have a detailed conceptual plan and timeframe of how the merger would take place. One could not have the bus not working while trying to fix the bus. In 2022 it would be crucial that DSBD come to give the Committee a sense of the strategic and operational approach for the SEDA / SEFA merger, and the seamless integration of the cooperative bank and the different entities. The Committee agreed on the logic and rationale for integration but needed the detail on how this was to be done and the timeframes.

DSBD had to acknowledge that it had not done enough about drafting legislation. The Committee could therefore not wait for DSBD. This was something that the Committee had to accept. Two Gauteng province had developed the Small Business Bill and KwaZulu-Natal had the Township Enterprise Bill. Those Bills were very good and progressive in taking the economy back to the townships and rural areas. The Bills were an attempt to create a more inclusive and shared economy and deal with the apartheid legacy of taking business away from the townships. He thought that small business was an important cog to that.

Indeed, the amendments to the National Small Enterprise Act and the Promotion of Cooperatives Development Bill were still outstanding. The Committee had to make a judgment call whether to wait for these Bills from DSBD, or commission the legal drafters in Parliament and present these proposals for public comment. The Committee needed to decide. It could not just blame DSBD without acting itself. This was an indictment on both the Administration and the Committee.

Mr Jacobs referred to monitoring and evaluation. The feedback that the Committee was getting from townships was that DSBD came to the townships, made presentations on their laptops and left. The turnaround for successful applications was very slow. For example, if 1 000 people from Khayelitsha or Mitchell’s Plain came to listen to the presentation, the throughput of applications from those townships was less than five. The challenge, from DSBD presenting and everybody being interested in getting government work to actually getting a successful application, was a big dropout rate. The Committee needed to find mechanisms where DSBD could help small businesses through making it easier to fill in the form or using technology. If a portfolio of evidence was needed, why not allow applicants to take a photo of their business, ID and signature? Why not use technology? DSBD had to get compliance with regulations right but one could use innovative technology. Being online during the pandemic had helped push that. The Department was lagging with its turnaround time. The problem was applicants were saying that SEFA was useless because they applied but it did not even acknowledge if their proposal was accepted. A tracking mechanism was needed to inform the applicant if successful or not. And if not successful then to provide the areas of challenge.

Mr Jacobs admitted that this required a lot of administrative technology capacity and he thought that this had to be a key feature for the new year. Is the Department using technology and getting the private sector to help it? If there is not this capability in government, it had to get the best brains in South Africa to develop a system to deal with this.

The Department gave a lot of money to people and it was thus important for it to tell those success stories. The Committee had been pleased when nine sets of people from different provinces came to the Committee virtually and told their stories of how they struggled and how they survived – as told by themselves – and not as told by politicians or government officials. The Committee needed to get that feedback. Monitoring and evaluation was crucial. He knew it was Covid-19, but the Committee had done one site visit. For three days they had gone to three major metros – Durban, Ekurhuleni, Johannesburg, and Tswane and looked at the unrest situation. The Committee had to have a schedule of where DSBD went on road shows to involve the Committee.

The Chairperson said that the involvement of PCOs was critical to back up DSBD. The Committee was not supposed to criticise but should be seen as coming up with solutions – so she liked that.

Ms K Tlhomelang (ANC) said that the BRRR recommendations had to be implemented. Thus the Committee needed timelines for when they would be implemented. About 80% of the recommendations could easily and timeously be implemented but there were those that needed time such as finding funding for small businesses. Overall, the BRRR was very impressive. She supported the BRRR with all the recommendations made by Members.

The Chairperson asked the Director-General to comment on the BRRR. It was the Committee’s report and could not be changed. However, they would be happy if he could comment on the report itself as the head of DSBD.

DSBD Director-General response
Mr Lindokuhle Mkhumane, DSBD Director-General, said that he was not expecting an opportunity to speak as it was the Committee’s report. The Department had listened to the BRRR and would respond. There were some areas they accepted they needed to improve on, which was the findings of the Auditor-General. DSBD had also shared their own report the previous week. There were thus areas that it knew it had to continually improve. DSBD would provide a comprehensive BRRR response to the Committee through the Office of the Speaker as was the normal process. Some of the observations would not be agreed with as the Department believed that there was some information they did not really cover comprehensively from the audit report.

DSBD would respond to the Committee and they were really working on improving their processes. They were also concerned with the under-expenditure and were coming through to the Committee the following week to report on that. DSBD would also highlight the challenges they faced because sometimes one had to strike a balance between spending the money but at the same time ensuring that compliance is addressed as raised by the Auditor-General. It would be easy to distribute money as everyone needed money, but DSBD did not really want to go to jail in the process of ensuring that all the money went out. It was the responsibility of officials to ensure that they did not waste taxpayers' money or give money to people that could not be accounted for. DSBD would continually improve, ensure they moved in the right direction, and spent taxpayers' money responsibly.

Deputy Minister’s response
Deputy Minister Sidumo Dlamini said the Committee had commented and made very constructive comments. DSBD appreciated when they were encouraged to do the work that they had to do. He had observed that all political parties were talking with one voice to DSBD, and this was appreciated. He promised that DSBD would look into the BRRR and go on working correctly.

The Chairperson said that what the Deputy Minister needed to understand as the political head, and the Minister, was that their victory was the Committee’s victory. This was why her humble appeal to Members at all times was to come up with constructive criticism so that the Committee and Department build each other. She thus said that he should indeed go and put those issues at length. The Content Advisor’s worry was that DSBD was staying in one position with an unqualified report that had minor issues that could be corrected. She said that she would like the Minister and Deputy Minister to stick onto those issues so that DSBD could move to a clean audit. The Committee would appreciate that, as well as with SEDA. When it was said that SEDA had regressed, the Committee was saying that they had moved from a clean audit to an unqualified audit. The Committee did not want to see SEDA moving back to a qualified audit. These were the issues which the Committee would have liked the Deputy Minister as the political head to pay attention to. Some of the issues were in relation to the vacancies but she believed that it would not be long before it was resolved.

A primary responsibility of the Committee was legislation and the Bills would be taken into cognisance. Without those Bills, the Committee would not be able to unlock the stumbling blocks of red tape. The Committee agreed that the Department needed to adhere to the regulations and laws but the Committee's main worry was not have the Bills to assist the Department. The Committee’s primary mandate was to ensure service delivery and they did not need underspending – there were so many applications for funding but few had been approved. The Committee and Department had to join hands and ensure that they dealt with theae challenges. The Committee was really proud of DSBD and its entities. It seemed as if the Department was there for the people, but the critical issue was to ensure people got what they wanted because failing to create jobs was not getting DSBD anywhere. She thanked Members for the deliberations on the BRRR and for appreciating the report as crafted by the support staff.

Mr Gumede said that he had recorded the contributions that would be included in the BRRR, especially about the PCOs which would be included next to SEDA. On the contribution about the merger, he had spoken to the Chairperson to suggest that DSBD meet with the Committee and take it through in detail what was being done about the merger. This included timelines of when the merger was likely to be finalised so that the Committee was in the know. He asked that the Committee adopt the BRRR with the minor amendments suggested by Members as it needed to be adopted and go to the House.

The Chairperson asked that the BRRR be formally accepted.

The Committee adopted the BRRR.

The Committee adopted the minutes of 10 and 17 November 2021.

The Chairperson thanked everyone for a fruitful meeting and asked them to continue doing the Committee proud. DSBD would appear before the Committee in the following week. The Committee was ready to build DSBD moving forward.

The meeting was adjourned.


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