Impact of SONA on SMMEs

Small Business Development

02 March 2022
Chairperson: Ms V Siwela (ANC)
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Meeting Summary

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President Cyril Ramaphosa: 2022 State of the Nation Address (SONA)

The Committee received an analysis of the President's State of the Nation Address 2022 by the Department of Small Business Development (DSBD). The implications for Small, Medium and Micro Enterprises (SMMEs) were discussed under the following headings:
• Enabling Environment & Employment
• Reducing Regulatory Burden
• Post Pandemic and Civic Unrest Support
• Youth Empowerment
• Women Empowerment
• Digital Economy
• Masterplans
• Agriculture Sector
• Green Economy
• District Development Model

Committee members asked about Red Tape Reduction; Business Recovery Support plans; finalisation of the Masterplan; loss of mandate by DSBD to Presidency; how DSBD plans to meet its targets and timeframes and be effective; and the need for amendments to the Small Enterprise Act.

Meeting report

The Chairperson stated that the Committee will deliberate on the President’s SONA for its implications for the Department of Small Business Development (DSBD).

Mr H Kruger (DA) stated that they need to discuss the absence of the Ministry because it is known that the Committee meets every Wednesday morning. The meetings are important because of the job creation problem in the country.

The Chairperson replied that the Ministry felt it had to be visible on the ground so it is attending a road show in the Free State. She committed to discuss the matter when the Ministry is present.

Department of Small Business Development analysis
DSBD Director-General, Mr Lindokuhle Mkhumane, gave an analysis of SONA and detailed how the Small, Medium & Micro Enterprises (SMMEs) issues are included and budgeted for in the DSBD Annual Performance Plan (APP) and the Operational Plans of the Small Enterprise Development Agency (SEFA) and Small Enterprise Finance Agency (SEFA).

Enabling Environment & Employment
DSBD is looking to create a Small Enterprise Ombuds Office through the amendment of the National Small Enterprise Act and reconfigure the Small Business Advisory Council.

Mr D Mthenjane (EFF) interjected saying that Mr Mkhumane and DSBD may be misinterpreting the President as the President said that the government will not create jobs.

Mr J de Villers (DA) raised a point of order that Mr Mthenjane should not interrupt the presentation but instead allow Mr Mkhumane to finish the presentation.

Mr Mkhumane clarified that DSBD is meant to create an enabling environment for small businesses and entrepreneurship. They would also like to ensure that products produced by SMMEs are linked to the domestic markets. DSBD will collaborate with the Department of Trade, Industry and Competition (DTIC) in introducing the Small Enterprise Manufacturing Programme. This programme will provide financial support for the various manufacturing sub-sectors.

Reducing Regulatory Burdens
DSBD has set a target to ensure that 100% of valid creditors are paid within 30 days to reduce the mortality rate of SMMEs. They will also embark on a review of the Business Act and Red Tape Reduction Programme. This is to ensure that the growth of SMMEs and cooperatives is not hindered by red tape in the system.

Post Pandemic and Civic Unrest Support
DSBD has commenced the Business Recovery Support Programme and reprioritized the Business Viability Scheme. As of January 2022, the Programme has already committed R192.6 million for 195 deals and disbursed R123.5 million for 114 deals. The challenges in processing applications highlighted the poor level of formalisation and compliance readiness of township and rural enterprises.

Youth Empowerment
DSBD will increase participation of youth, women and persons with disabilities in the domestic and international market by finalising the guidelines for mainstreaming them. It set out the targets in its Technical Indicator Descriptions (TIDs) (40% women, 30% youth and 7% persons with disabilities) for the APP targets for its programmes, projects and incentives. During 2022/23 it aims to provide financial and non-financial support to 10 000 start-up youth businesses.

Women Empowerment
DSBD with its entities aims to advance financial inclusion and business support. R802 million has been allocated for support of women-owned enterprises in 2022/23.

Refer to the presentation for more information

Digital Economy
DSBD will modernise its business processes by means of the SMME Database to ensure effective and efficient service provisioning. DSBD will continue to participate in the Digital Economy Masterplan development.

Masterplans
DSBD is in the process of finalising the National Integrated Small Enterprise Development (NISED) Masterplan and will focus on monitoring its implementation. The Masterplan will stipulate the measures to be taken to execute the Graduation Model from informal businesses to competitive, sustainable and growing small enterprises that will contribute meaningfully to GDP, job creation and inclusive growth.

Agriculture Sector
Through SEFA, DSBD will continue to provide financial support for the SMMEs and cooperatives in the Agricultural Sector and business development support services through SEDA.

Green Economy
DSBD aims to facilitate market opportunities for SMMEs and cooperatives in the clean energy space and encourage enterprises to participate in green hydrogen. DSBD together with its entities is engaging with the Department of Mineral Resources and Energy to identify opportunities for SMMEs and cooperatives and then develop appropriate interventions.

District Development Model
In 2022/23, DSBD and its entities aim to implement 50 public engagement programmes within District Municipalities. This is to support municipalities in developing implementable local economic development strategies and support projects that are in the Integrated Development Plans. DSBD will also support municipalities by enabling them to provide referral or business development support services to small businesses.

The Director-General asked SEDA and SEFA is they wished to add comments.

SEFA inputs
Mr Martin Mahosi, SEFA Board Chairperson, emphasised that SEFA is aligned with DSBD goals. He is projecting what will still come to the Committee through the APP that has already been submitted to DSBD.

On agriculture, SEFA continues to fund agricultural activities through all their learning channels and direct credit schemes. As they support agriculture, they need to be measured to ensure that they do not overlap with the Department of Agriculture and the Land Bank. They have not been active in the Green Economy because they have not attracted a substantial number of applications for that fund. SEFA has seen improvements in the Development Indicators and the Committee will see the improvements in general uptake in its next report it presents. To reiterate the Director-General, SEFA has launched a Youth Challenge Fund that has had a substantial number of applications. It hopes to be able to deal with the challenges that have to do with the responsiveness of the youth, together with other partners.

SEFA has to improve on the processing and uptake of its products. From a governance point, SEFA would like to revise its credit and investment policy that has just gone through the Board for approval. This will allow it to better manage risk and align with standards. SEFA intends to continue to build partnerships with SEDA through integrating programmes but also working with municipalities. At the request of the Minister, SEFA is also working with DSBD to look at the appointment of sector specialists to assist in opening up and mapping the value chains in the different sectors and open up market access to put them in a better position to be able to fund small businesses. Lastly, SEFA and SEDA run an outreach programme where they go out and pitch to enterprises on ways they can access funding and support.

SEDA inputs
Dr Joy Ndlovu, SEDA Board Chairperson, added that the sector specialists will assist in ensuring that some of the items mentioned by Mr Mkhumane do become a reality. She echoed that SEDA is prioritising youth, women and entrepreneurs in rural and township enterprises. SEDA is aligning its pre and post investment support with SEFA. In response to the low numbers of SEDA assisted entrepreneurs that have applied to SEFA and have not been assisted, they have reviewed the kind of programmes and support it can give to them to ensure that these numbers increase. Even post that care, they are ensuring that the entrepreneurs are able to pay back the loans and assist in targets that have been set for them. Lastly, SEDA will be increasing partnerships and creating conducive environments to enable the creation and maintenance of jobs.

Discussion
Mr Kruger stated that the South African government actually kills jobs. From a presentation given last week by the Committee researcher, there is more than R30 billion outstanding to businesses by government. The NISED Masterplan has been developing for the past seven years. He would like to know from DSBD when the Masterplan will be seen.

Mr Kruger had also not lost the implications of the SONA speech on the mandate of DSBD. It has four programmes: Administration, Ease of Doing Business, SEDA and SEFA. If Ease of Doing Business is moving to the Presidency to be handled by Mr Sipho Nkosi then DSBD is only left with Administration and SEDA and SEFA.

He proposed that the small business development be run from the Office of the President to see if something will happen. For the past 7.5 years, DSBD has struggled to create jobs and be effective. The last time Mr Kruger checked, only 6% of adults in South Africa wish to start a new business but it is over 50% in the rest of Africa. With a mere R4 million budget for Red Tape Reduction, DSBD will not make a dent in red tape.

Mr de Villiers asked the Director-General how the new Red Tape Reduction programme in DSBD and the one in the Presidency will work together. Is the work of the Minister and DSBD not now being done by the President's Office? Will there be attempts at synchronisation? This is a waste of resources. This work should be done by DSBD and the President ought not to centralise any more power.

On the Business Recovery Support Plan, Mr Kruger understood that it was to assist businesses that were uninsured during the riots. He asked how 194 deals were approved. How did DSBD manage to approve so many when it struggled with the Covid Relief Scheme? The reason for this was that businesses that applied rarely met the requirements. He asked what the requirements were for this scheme and why the sudden and quick uptake of this scheme. He requested the Director-General confirm and send the list of approved 194 uninsured businesses to the Committee to see.

Mr Mthenjane stated that the presentation sounds good but the problem is that it does not speak to the people on the ground. Since the inception of DSBD, it has never helped anyone and people are not aware of its programmes. It means that DSBD does not speak to people on the ground. The Committee cannot pretend that everything is business as usual but it is their job to speak when they see that things are not as they are supposed to be. It starts with the leadership in the form of the Ministry. No one takes DSBD seriously. The Department portfolio is to contribute about 90% of the job creation in the country. It is a very important portfolio that ought to be taken seriously and perhaps it needs to be taken back to the Department of Trade, Industry and Competition. Things will only get better if they start being honest about the realities of DSBD.

The Chairperson says that she believes that Mr Nkosi’s appointment will assist the Committee. In its last meeting the Committee indicated that he must come to the Portfolio Committee to describe his job creation plan and the relationship that will exist between the Office of the Presidency and DSBD. The Committee provides oversight but must also provide guidance on how to uplift employment. When Mr Nkosi appears before the Committee, the Ministers should also be present and she proposed a late-hour meeting to accommodate the Ministry. The Small Enterprise Act needs to be amended and this will assist.

Ms B Mathulelwa (EFF) said the problem and frustration starts when there is a contradiction of ideas. The DSBD presentation contradicts the SONA. The President was meant to meet with the Committee to find out what is happening within DSBD. The presentation was powerful and supports that the Department does create jobs which is a contradiction as the President said that government does not create jobs. DSBD plays a very big role in other departments. DSBD and the Portfolio Committee knows what needs to be done by the Small Business Development Department as they are the ones serving the people on the ground. The presentation reflects the true work of DSBD. She asked that the President, Minister and Deputy Minister come to the Portfolio Committee and account why Mr Nkosi was appointed to support the portfolio more but is not active in the Committee. She feels that the President has not taken the Committee seriously. The President did not come to the Committee to hear what it would recommend or to verify if there are problems.

The Chairperson said they will invite Mr Nkosi and the Ministry. In terms of the Rules, the Portfolio Committee cannot summon the President to come to a Committee meeting but it can register its concerns.

Mr F Jacobs (ANC) said the plans presented are good but there is room for improvement as job creation is everybody’s business. Small businesses create the greatest number of jobs. The private sector is in the business of making a profit and creating jobs but it is the responsibility of government to create an enabling environment. Does DSBD audit departments and name and shame those that do not pay creditors within 30 days? What is the status of cooperatives and how are they going to benefit from the SONA announcements? Where is government in meeting the 30% procurement set aside for SMMEs? What will the Competition Commission do to ensure localisation? How is DSBD helping small businesses access the opportunities of the spectrum auction process? How will we ensure that the Cannabis Economy does not go to the big corporates? When will the National Small Enterprise Act amendments be available for comment?

Mr Jacobs commented that the review of the Business Act will be controversial and there is a need for some legislative clarity on this. If that cannot be done now, perhaps the Minister can provide timeframes after consultations with other cabinet ministers. Gauteng and Kwazulu Natal are each working on a Township Economy Bill that is going well but Cape Town is still declaring war on informal traders. Yesterday the court ruled that the city needs to stop evicting informal traders that do not have permits. They need to ensure that cities like Cape Town and many of the DA “dorpies” that do not like black businesses must create opportunities.

Mr Jacobs asked what the terms of reference for the reconfigured Small Business advisory body will be. When are we going to see the Cooperatives Policy? Can we use smart technology for applications and quick responses? How is it going to roll out the Business Viability Scheme?

In the SONA on access to finance, the President spoke about a R15 billion loan guarantee or 'bounce back' scheme. In May 2020, the President announced the R200 billion Covid-19 loan guarantee scheme for small businesses but the banks did not make it easy for small businesses to access that. Only 9% of that money was used. What are the lessons learned to make access to finance easier? One needs interest-friendly loans. National Treasury must explain how loans will be made available for small businesses.

In closing, Mr Jacobs said that the targets are great but the Committee needs to see timeframes: how, when, by whom and progress to date. Even if we implement some of the plans, it would make a great improvement. If they implement this plan and what the President says, they will create jobs.

DSBD response
Mr Mkhumane indicated that there is confusion between the Masterplan and the National Small Enterprise Amendment Bill. The Masterplan came after the Department of Planning, Monitoring and Evaluation (DPME) had concluded the evaluation of the Integrated Strategy developed in 2010. The Masterplan being now finalised follows the masterplans by other departments as led by DTIC such as the Tourism Masterplan and the Digital Economy Masterplan. The National Integrated Small Enterprise Development (NISED) Masterplan cuts across all the others identifying the role of small business. It was taken to Cabinet in September 2021. After some revisions, it will be taken to Cabinet this month to be gazetted for public comments after Cabinet's approval. This Masterplan involves the roles of various sectors, not just the Department's small business portfolio. After public comment, it will be taken to Cabinet again for final approval.

On Red Tape reduction, Mr Mkhumane replied that the pronouncement was made by the President and it has not been fully engaged yet. However, it is critical that DSBD be supported by the Presidency to assist in persuading other departments to better support small businesses such as Treasury in terms of tax policy. Most red tape concerns are legislated. For example, DSBD could not get the Companies and Intellectual Property Commission (CIPC) to waive the R250 required from an SMME when submitting its annual return. This is costly for small businesses but CIPC would not commit to losing out on the annual return money. These are the kinds of instances where the Presidency would assist.

On the budget set aside for Red Tape reduction, he pointed out that red tape mostly has to do with policies and regulations that need amending. The budget is for the pilot that has been started for an IT system that will assist DSBD to move into the digital world in monitoring the handling of complaints and the time it takes for issuing of licences. If the pilot is successful, DSBD would be able to approach Treasury for more money to roll out this instrument.

Mr Mkhumane requested SEFA respond to Business Recovery Support questions and the list requested by Mr de Villers.

Mr Martin Mahosi, SEFA Board Chairperson, clarified that it never reported to the Committee that a lot of people that applied for the Covid Relief Scheme did not qualify. In fact, they received in excess of 3 500 applications and they approved about 1 400 because the budget was limited. Over R513 million was approved. The arrangement was for beneficiaries to receive the money in parts as a risk mitigation measure. The beneficiary would report on what they used the money on, then the next part would be released. In some cases they would find that some of the SMMEs could survive without the relief fund as lockdown restrictions had eased. As part of consolidation, some of the money was redirected to the Business Viability Scheme.

With the Covid Relief Fund, SEFA had the highest number of approvals within a given time period. The staff worked excessive hours to process the applications. A limitation is that its systems were not digitised enough which increased turnaround time. This has since been improved with the Youth Challenge Fund. He understands the frustration of the Committee but it is important that the facts are not distorted and it cannot be said that DSBD does not assist anyone. It is not correct.

The SEFA approvals of loans to SMMEs now stands at R1.5 billion. The loan book has grown. He agrees that they do need to look to improve. Given the nature of its work, sometimes it multi-messages and that causes confusion with the many existing ongoing programmes. They are looking to improve their communications, marketing and visibility. SEFA commits to give the Committee a report on the breakdown of applications to put the Committee at ease.

On cooperatives, the funding is done through the wholesale portfolio. Mr Mahosi personally believes that they should be about to improve on the Intermediaries Fund and give greater access to cooperatives. On the Youth Challenge Fund, they received an excess of 2500 applications but were only able to approve about 900 because people made very small mistakes like not attaching the right documents. These applications have since been referred to SEDA to deal with so that uptake could increase. He agrees that SEDA and SEFA need to work together seamlessly. He adds that they actually do give timeframes with the targets when reporting after every quarter.

Mr Mkhumane, in response to the 30 day payment question, says that the National Treasury does provide quarterly reports on which companies comply. They will share this report. On the issue of cannabis, DSBD has already entered into an Memorandum of Understanding with one of the entities in the Eastern Cape, the Eastern Cape Rural Development Agency and the Council for Scientific and Industrial Research (CSIR) on the medical cannabis side for the appropriate technology that will assist businesses in harvesting and processing the cannabis for the benefit of the country. He says that they are currently waiting on the Department of Health and the Department of Agriculture to resolve some of the regulatory issues. There are also issues around the licensing and the cost of getting the licence that will need advocacy. The DTIC has also been asked to come up with a strategy for the commercialisation of the cannabis sector. DSBD has been discussing that they need to set up a scheme or programme that will focus on this sector once the regulatory issues that pose a danger of excluding SMMEs are resolved.

In closing, Mr Mkhumane stated that they are finalising the policy for the funding of Cooperatives to be sent to cabinet then be gazetted and engaged upon by various stakeholders. DSBD is planning a 3-day session with other stakeholders and supported by the European Union Intervention in ensuring that they get the right people around the table. It is not just about the government providing the right support but also the private sector needs to recommit itself. Comparing the Bounce Back Scheme to the National Credit Guarantee Scheme which was not really that accessible to small businesses, the Banking Association of South Africa was honest in saying that they were targeting their clients and there was no requirement for them to be flexible in their requirements so they just continued supporting the same people. The only thing that was added was the protection for them that if money is lost, some of it can be recovered from the government

DSBD has written to Treasury about the Bounce Back Scheme to push for the inclusion of non-commercial banks like SEFA to be included because it helps to have an entity that is responsible for small business development. They would understand small businesses better than the banks which are focusing on recovering money that has been given to SMMEs. One of the challenges with the procurement pronouncement is that the pronouncements are made without enabling legislature to assist the officials to implement them. What makes it worse is the setting aside of the preferential procurement regulations. Mr Mkhumane says that they will be meeting with the Treasury on Monday (07 March 2022) to discuss this further. They hope that the Procurement Bill will assist in addressing the issue of public procurement. It is to be used as a tool to develop small businesses

Closing remarks
The Chairperson said that she will arrange the meeting with the Ministers. She worried about spending – the last time they struggled to spend the relief scheme money and now they are talking about R15 billion. We must not be impressed by the figure, we must be impressed by the outcomes. Such inputs must lead to good outcomes, that is when we can say we have achieved our targets. There is an unemployment crisis and there is a need to join hands. DSBD needs to pull up its socks so that the targets are seen in the APP and are actualized. Underspending is created by the delay in the approval of applications. DSBD needs to focus on this.

Mr Mthenjane asked for clarity on the road show that the Ministry is on. Both DSBD and the Committee are not aware of this road show.

The Chairperson clarified that the Committee did receive an invite to the road show and she had intended to announce it in this meeting.

Mr Kruger reiterated that the road show should not have taken place on a Wednesday as it is known that the Portfolio Committee meetings takes place on Wednesdays.

The meeting minutes of 23 February 2022 were adopted by the Committee.

Meeting adjourned.

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