The Select Committee was briefed by the Department of Small Business Development (DSBD) on its 2020-25 revised strategic plan and 2022/23 annual performance plan.
In the virtual meeting, Members asked about the delay in the merger of the Cooperative Banks Development Agency (CBDA), the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA), performance audits, and the support that the DBSD is offering SMMEs.
Committee members expressed concern about the lack of results particularly on job creation that was expected to be facilitated by the SMMEs. They asked why it took so long to process SMME funding applications and if DBSD was collaborating with the Red Tape Reduction team in improving the ease of doing business for SMMEs.
Members questioned the budget allocations for the programmes undertaken by the DSBD and its entities. They also asked about the possibility of getting bi-annual reports on DSBD beneficiaries receiving funding support; aid provided to informal businesses, and the impact of the budget reduction.
The Chairperson acknowledged the presence of the Minister and the Deputy Minister of Small Business Development.
Minister's opening remarks
Minister Stella Ndabeni-Abrahams said that DSBD will be presenting its Strategic Plan and the Annual Performance Plan for the financial year. If the department was properly capacitated while forging partnerships, it will be able to reach its set targets while minimising expenditure. She requested that the Committee, in reviewing DSBD work, look at it in a holistic manner by looking at what the department and its entities are doing. The department was a portfolio with implementing agencies. The work being done by the implementing agencies will help the Department get a better picture of how it is dealing with the plight of small, medium and micro enterprises (SMMEs).
The Department was forging ahead with the merger of the two entities, Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA) and the Cooperative Banks Development Agency (CBDA) which is under National Treasury. She reminded the Committee that DSBD had received approval to extend the merger period for an additional 20 months. This was because the Department needed to deal with the enabling legislative framework for the merger. There were also other critical elements of the merger to be considered such as infrastructure, integration and personnel.
The Minister stated that the Department was finalising the appointment of the Government Technical Advisory Centre (GTAC) to assist the department in some of its work. This was done in an effort to correct their former mistakes and ensure that the department is able to deliver on its promises.
The merger process had begun and so far they had set up a joint operation forum where the Department and the three entities meet to discuss reports from the various workstreams. The Ministry appointed interim CEOs for SEFA and SEDA from 1 May and she announced the names of the women that will head SEFA and SEDA. The Minister confirmed that they were well qualified.
Department of Small Business Development 2022/23 Annual Performance Plan
Mr Lindokuhle Mkhumane, Director-General, Department of Small Business Development (DSBD), presented the annual performance plan (APP) and strategic plan for 2022/23.
He said the Department’s 2020-25 revised strategic plan was informed by various relevant legislative and policy mandates. He highlighted the Businesses Act which he said was crucial as it revolved around the licenses and business permits. He believed that it will assist in reducing red tape.
Mr Mkhumane provided the economic environment context for small businesses globally, regionally and in South Africa. Projected economic growth for South Africa is 1.9% in 2022 compared to 3.7% in the sub-Saharan region, 4.8% in emerging market and developing economies and 3.9% in advanced economies. He believed that with the introduction of certain interventions in partnership with the private sector, the situation can be improved.
Key priorities for the Department included the Township and Rural Empowerment Programmes (TREP), Youth Challenge Fund (YCF) the small enterprise manufacturing programme, promoting the growth of SMMEs and cooperatives by implementing the localisation policy framework.
He explained the alignment of DSBD priorities for the economic recovery and reconstruction plan (ERRP), the NDP and the Department’s MTSF.
The Department’s five-year 2020-25 strategic plan included these performance outcomes:
• Increased participation of SMMEs/cooperatives in domestic and international markets;
• Increased contribution of SMMEs and cooperatives in priority sectors;
• Scaled up, coordinated support for SMMEs, cooperatives, village/township economies
• Expanded access to financial and non-financial support and implemented responsive programmes to new and existing SMMEs and cooperatives;
• Reduced regulatory burdens for small enterprises;
• Improved governance and compliance; and
• Improved, integrated and streamlined business processes and systems.
The Department’s 2022/23 APP consisted of four programmes -- Administration, Sector And Market Development, Development Finance And Enterprise Development.
DSBD CFO, Ms Semphete Oosterwyk, led the Committee through the Department’s MTEF budget. DSBD would receive R2.563 billion for 2022/23, R2.570 billion in 2023/24 and R2.685 billion in 2024/25. The Department had not expected a budget cut from Treasury for 2022/23. It was severely underfunded and had several budget shortfalls due to d National Treasury's reduction to the budget.
SEFA expected to finance about 84 831 SMMEs through programmes while facilitating creation of about 104 968 jobs.
SEDA would be disbursed R876 million by the Department. The township rural and informal businesses will get the largest chunk being 51% while the Business Competitiveness and Viability programme will get 27.9% and Administration 20.9%. Due to constrained financial resources, SEDA had to reprioritise certain targets.
Mr J Londt (DA, Western Cape) stated that when DSBD had been created concerns were raised by the Committee that this work was being duplicated by other Departments. DSBD justified why it was needed. The Committee responded that its necessity will be determined by its contribution to job creation in South Africa. He referred to the Director General’s comparison to other emerging economies where SMMEs played a huge role in economic activity and job creation. The Department needed to create a similar effect through facilitation of SMMEs.
Over the years, the Committee had raised how the department was addressing the increasing unemployment rate in the country. Mr Londt critiqued the Department for shying away from addressing that. Each year there seemed to be an increase in salaries in the department but the outcome is not evident. Despite the claims by DSBD that there has been job creation, it was more a matter of it stepping in to assist already existing businesses while claiming these as a success.
Mr Londt complained that transfers and subsidies totalled 90% of the budget while the remaining 10% is spent employing staff, and hiring offices to get ‘warm bodies’ in those offices. He expressed disappointment in the Department's failure in following up on how the money given out by it is being invested. His biggest gripe with the Department was that it wanted the Committee’s support but it is not working. For example, the 10,000 Youth Businesses being in need of support was a number that was “sucked out of the air”. He was of the opinion that DSBD’s allegation that they would be able to do more if it got more money. R24 000 per year for each youth business might work depending on the area of business but in most cases that will not be enough to maintain a sustainable business, particularly the 'Rolls Royce' campaign that the Department wanted to launch.
He was concerned that the Committee was not being a lot harsher on DSBD for its lack of results. He did not mind if the department did not show income because that was not the reason it was originally created for. He insisted that there should be an increase in the number of taxpayers entering the fold but the country is dealing with a decrease in the tax base. DSBD is supposed to facilitate the growth of the tax base but is failing ‘abysmally’.
Mr Londt said that constructive solutions had been proposed for the removal of Red Tape for small businesses but these were disregarded for political reasons. He criticised the department for the increasing wish list as well expenditure on their internal 'warm bodies' which do not translate into actual successes.
it was not his intention to minimise the achievements of DSBD but looking at the crises the country is facing shows that DSBD needed to change its approach to the challenges. He was concerned that if the department continues on with its path it is headed for a ‘cliff’. What was going on in the country was extremely concerning particularly with the increased unemployment rate and the department was not doing its best to help solve that. The Committee needed to ask if it was worthwhile to retain DSBD because the same work can be done by a subsection of another department. The Committee needed to step up and hold DSBD accountable by asking if the department is adding value or will it be questioning the need for the department every year.
Mr M Dangor (ANC, Gauteng) stated that his concern was directed at the Minister. The banks failed to advance much of the Covid-19 state funds which led to misrepresentation to the public that R500 billion was lost which was not correct. The bulk of that amount was in state guarantees that were not advanced by the bank. He suggested that there should be a campaign clarifying that so this misnomer is not used for political campaigning. Some people seemed to want to create insurrection within the country.
He asked what association DSBD has with the African Continental Free Trade Area (AfCFTA), particularly in the area of agriculture. He asked that DSBD forward the list of champions in the Gauteng province so that he could engage with them.
Mr Dangor stated that achieving an unqualified audit is important but having listened to Mr Londt he was of the opinion that the Committee's focus should be on the performance audit. Both were equally important in their own right. He asked if the Auditor General had already completed the performance audit which would enable the Committee to compare the facts and the figures.
On blended finance, he asked who the partners were that SEFA intended to blend with. He asked for a breakdown of the 89% transfers and subsidies.
The capital assets fell flat throughout the years and he asked for an explanation.
He asked if Industrial Development Corporation (IDC) was acting as wholesale funder. What was the interest/margin that IDC charges SEDA and others it advances money to?
Ms H Boshoff (DA, Mpumalanga) asked if it was possible for oversight to be done on the SMME beneficiaries so that the Committee is able to see how the funding is being utilised and if it has been beneficial. The Committee could get a six-monthly report from DSBD generated from the businesses that benefitted from money given to them by government.
Following the directive given by National Treasury to hold on the issuance of tenders, how has government been affected?
Ms Boshoff noted that informal traders have been left to their own devices. The environment that they work in is not conducive. People in these areas were living in hazardous conditions with no ablution facilities or running water.
She wanted to know what discussions had taken place between DSBD and the Red Tape Unit on addressing the legislation that impacts small businesses.
Mr M Mmoiemang (ANC, Northern Cape) was concerned that unless drastic action was taken to improve the support given to SMMEs, DSBD will not be able to meet its target. It was midway through the Medium Term Strategic Framework (MTSF) and 8 years away from the 2030 targets of the National Development Plan. What drastic measures were being taken to support the SMMEs to enable the situation to be turned around?
Mr Mmoiemang realised that there is a need to grow and expand SMMEs to be able to contribute to the Economic Reconstruction and Recovery Plan. A healthy small business sector was a prerequisite to having a growing economy and high employment opportunities [inaudible].
Programme 2 targets the reduction of the administrative and regulatory budget for doing business with SMMEs. The programme’s budget was decreased by 2.8 so was there enough budgetary allocation to support the Red Tape removal initiative. The President’s Red Tape directive was a key element in developing a better environment for SMMEs
In Programme 4: Enterprise Development, what role was DSBD playing in helping SEDA address the challenges it is facing. It was expected that SEDA tows the line on the policy direction that the department is providing. He asked if DSBD was implementing a targeted approach that could be designed to ensure the focus of the programmes moved to the other provinces.
Ms M Moshodi (ANC, Free State) welcomed the DSBD presentation. She asked what challenges had been presented by the lack of capacity of staff establishment under Programme 1 in increasing the footprint of the DSBD programme across all provinces? She asked what the arrangement was for the reduction of red tape by DSBD considering that the Red Tape reduction unit has been moved to the Department of Planning, Monitoring and Evaluation (DPME).
What is DSBD’s plan to ensure capacity is developed in rural and township entrepreneurs under the TREP programme to allow them to graduate from informal traders to medium size businesses? Lastly, she asked if DSBD was able to determine the contribution of SMMEs and cooperatives to decent employment numbers.
Mr T Apleni (EFF, Eastern Cape) said that his questions were already covered.
The Chairperson stated that the Committee had agreed that there had been a call for the establishment of a small business development department. Initially, it was just a programme in the Department of Trade and Industry but businesses complained because of the lack of focus on small business enterprises. It was that call for the formation of this department which the government responded to. The Committee did not have a problem with the establishment of DSBD and that the view held by Mr Londt was not a collective one.
The National Development Plan (NDP) identified that most jobs will be created by small businesses. The challenge the Committee is having with the strategic plan and the APP which should be addressed was the reduction by 6% over the MTEF period. This was a concern because most jobs will be created by small businesses therefore more money should be put into DSBD to assist and ensure small businesses create jobs.
He asked if an allocation has been budgeted for the Youth Challenge Fund (YCF) referred to in the report or are the funds in the process of being established.
In 2021 the Committee indicated that there were weaknesses in some of the Local Economic Development (LED) units in local governments which the Director-General confirmed. He intended to confirm with the Department of Trade Industry and Competition (DTIC) which also report to this Select Committee if it has also observed some weaknesses with the LEDs in the municipalities. DSBD was assisting in the red tape policy and he asked if it was also assisting in strengthening the LEDs which was in line with the District Development Model (DDM).
He expressed concern about the time it will take for the Businesses Amendment Bill to come to Parliament – only in 2024 or 2025. If the Bill is not passed before the end of the Sixth Term in 2024, the Bill lapses and it has to start from the beginning again in the next term. This was a worry because there were issues that the Bill is supposed to be addressing such as the issuance of licenses and permits. The Chairperson was concerned with the period it is going to have the bill brought to parliament. It would have been better if the bill would be presented so that by 2024 or 2025 the implementation would be starting. It was also not clear when the Small Enterprise Amendment Bill was going to be presented to Parliament.
The Chairperson sought clarity if the Ombuds should get a separate budget vote instead of getting money from DSBD for purposes of independence.
He asked for the timeframe DSBD had for finalisation of the organisational structure as the matter had been raised several times because there were many acting senior managers.
The Chairperson was impressed by TREP but wished that there was more money allocated to the programme. He also expressed delight with the roadshows that the Ministry was taking where they get to hear for themselves the challenges that the small businesses are facing and also the progress.
Ms Moshodi asked if there is a progress report by DSBD and its entitles on rolling out funding support to businesses that faced the July 2021 social unrest in KwaZulu Natal and Gauteng.
The Chairperson replied to Ms Moshodi that DSBD will just give an overview of this. However, if the Committee requires an in depth breakdown they will need to invite specific departments to address the Committee on that.
Mr Mxolisi Matshamba, SEFA CEO, replied that SEFA had been instructed that SEFA and SEDA would be given the opportunity to come and brief the Committee on all the interventions they are implementing on behalf of DSBD particularly due to the riots in Kwazulu Natal and Gauteng.
The Chairperson clarified that the meeting scheduled for this had been postponed due to the delay in tabling the APPs. The Select Committee was supposed to be briefed on the DSBD APP on 4 May 2022. He confirmed that the Committee would meet with SEFA and SEDA after the July constituency period to deal with these interventions.
Mr Matshamba gave a brief progress report that SEFA had received applications which they had processed and had so far approved about R237 million for applicants affected by the riots in both provinces. When they meet in August about these interventions, SEFA will be in a position to indicate how many in KZN and Gauteng had received support.
SEFA was contributing a lot towards the support of SMMEs and job creation in the economy. In the year ending in March 2021. SEFA on its own provided access to finance to over 74 000 SMMEs and it will report on that soon. The unaudited numbers indicate that SEFA has supported close to 84 000 SMMEs in the economy which may increase as they are still waiting for some of the intermediaries they collaborate with on funding to provide their final numbers.
He was confident that no bank in South Africa had provided the same kind of support to SMMEs which were not personal loans.
Mr Matshamba urged the Committee not to confuse the Treasury credit guarantee scheme driven by the banks and the one driven by SEFA through the Khula Credit Guarantee (KCG) scheme. The KCG Credit Guarantee will work with almost all the banks except Investec. The client base in Investec were not SEFA's target market. He confirmed that they are working with ABSA, FNB, Standard Bank, Nedbank and they were finalising a relationship with Bidvest Bank. SEFA was also in talks with Capitec Bank which through the acquisition of a smaller bank, Capitec was looking at entering the SMME funding space. He considered securing bank credit guarantees for SMMEs to be one of SEFA's more successful programmes as it speaks to the intervention government seeks to drive such as providing access to a bank balance sheet. SEFA provides guarantees to the banks which then extend credit/loans to SMMEs. The banks then use their own balance sheets to lend to the SMMEs..
For 2020/21 SEFA extended credit guarantees to banks to the tune of approximately R201 million. The banks in return extended credit to SMMEs totalling R1.3 billion which had a multiplier effect of 6.25. For 2021/22 SEFA anticipates a higher multiplier effect of 6.3 or 6.4 for this credit guarantee intervention based on the unaudited numbers. The programme they roll out relieves the fiscus because the banks use their own balance sheets to extend credit to the SMMEs.
The critical issue for credit guarantee that Treasury did not do is put terms on the banks. Failure to put up these terms will mean that the banks will continue supporting businesses that do not fall under the SMME bracket. SEFA's credit guarantee rules contain conditions put on the banks to extend credit to SMMEs which are predominantly black-owned businesses. Banks have not opposed these conditions so far. SEFA wants to upscale by roping in more banks into funding SMMEs.
On the Youth Challenge Fund, Mr Matshamba replied it was one of the interventions that they were rolling out which started slowly. This was because when they advertised the programme in 2021, it received about 2570 applications from youth-owned entities but only 98 of those applications were complete in providing basic information on the company registration and financial plans. SEFA is working with SEDA to assist these SMMEs in properly completing the basic information. In his opinion, the youth were not ready to be funded. Therefore they had discussions with the SEDA CEO and agreed on the need for some form of an academy where the youth are put through a three-month programme on business management. A basic understanding was that to be able to access the money, SMMEs ought to have their business registered with CIPC, have tax registration with SARS and have a company bank account. SEFA does not disburse funds to personal bank accounts because that would mean it has become a personal, not a business loan.
SEFA intends on putting in that intervention to assist SMMEs because a majority of them are just funding ready. The last time he checked SEFA was sitting on R38 million for approval in that space now. Since the end of the financial year in March, they have been chasing up the incomplete applications in the month of April and May. They have assisted those SMMEs that are at least 80 or 100% ready with the information to help them cross the line. A progress report will be made to the Committee on that. He emphasized the need for a short training course on business management for the businesses so they understand the need for setting up an entity and also to provide mentorship for those businesses that meet the mentorship requirements.
SEFA and not IDC was a wholesale funder. SEFA has three funding streams. The first is direct lending where SEFA funds SMMEs that apply directly to SEFA. The second is the credit guarantee done through commercial banks and other corporates. The third is wholesale funding, where SEFA works with SMMEs wholesale funders. These are the main entities that provide funding to SMMEs who get contracts in the mining houses to provide certain inputs or get a government contract to provide certain services or goods to the government. SEFA provides funding to the intermediaries who provide and extend credit to those SMMEs. There are also intermediaries who are predominantly women based. In the rural areas, these are the people that provide microfinance to whom these intermediaries will extend credit.
On blended finance, they are trying to change the manner in which they disburse funding mostly to those to whom they provide direct lending. This is because there is a challenge for working capital particularly for start-ups. If loans are just given to these start-ups they end up having a hard time meeting their financial obligations. So SEFA under the leadership of the Minister decided to blend the element of credit and the element of a grant. The grant portion reduces the gearing of the start-up and also gives it breathing space to pay some of the basic costs of the start-up. This has worked well in the small manufacturing programme which really speaks to government’s strategy of import replacement where they drive local manufacturing by supporting emerging manufacturers. SEFA provides a loan of up to R15 million and 20% of the loan is a grant which is equal to R3 million which makes a huge difference in assisting SMMEs. They are considering extending blended finance to programmes which target businesses owned by people with disabilities and also to microfinancing businesses run by rural women. They are able to spread their reach through microfinance to people who did not have access to finance. The reduction of the loan component has reduced the interest that the business will eventually payback as they can service the loan since the loan component is reduced by the grant component.
The Chairperson sought clarity on TREP in instances where the amount disbursed is less than the funding amount approved.
Mr Matshamba explained that they had restructured TREP for different subsectors within the economy which had different thresholds. SEFA will give a report when they return to the Committee.
The intention is to collapse all within TREP into one programme which will have a standard maximum cap with 10% of that amount being a grant. This will be implemented in the new financial year and they are going to be monitoring its performance. SEFA realised that when they designed programmes, it needed to understand the constraints of each sector and ensure there is a response to the needs of the people on the ground and not what government wanted.
On quick disbursement of monies, it depended on the business owner meeting the set conditions such as providing necessary documentation for the purpose claimed for obtaining the loan.
Mr Xolani Zwane, SEDA COO, said SEDA’s mandate under the Small Business Amendment Act is to be an ecosystem facilitator within the ecosystem. SEDA is trying to demystify competition by working with entities of the same mind as SEDA. It was looking to work with likeminded entities so the country achieves poverty alleviation as well as reducing unemployment.
Noting its Quarter 4 performance for 2021/22, SEDA plays a critical role in both the pre-investment as well as post-investment part of funding for TREP.
SEDA has assisted enterprises with CIPC registration of their business and SARS tax registration. They assist in opening a company bank account so that it is sure that when funding is disbursed it is to the business account.
SEDA was looking at assisting about eight programmes in TREP. They had supported 6 694 Spaza shops. It assisted 67 000 SMMEs throughout the country on entrepreneurship awareness sessions. It provided post investment support to about 2 638 personal care businesses once they were financed. SEDA had supported 3 425 informal businesses, micro restaurants and chisanyamas. He clarified that these numbers for 2021/22 are unaudited.
Mr Zwane gave a breakdown of the businesses supported:
- Fruit and vegetables vendors - 4 333.
- Panel beater mechanical and auto repair businesses - 62 305.
- Small scale bakeries and confectionaries -2 216.
- Leather/textile businesses - 531 while they had also supported 216.
The support he spoke of was non-financial support. Overall SEDA assisted in creating 4 865 jobs.
SEDA does not work alone so an assessment of SEDA while ignoring the whole ecosystem was something of the past especially through the District Development Model.
SMMEs and cooperatives assisted through the ecosystem were 62 240. Apart from the technical training, SEDA also considered how best to bring in aspects such as productivity improvement when needed. There are other interventions in the financial and legal sense that they do assist with. They even procured point of sale devices which are now being distributed to some of the Spaza shops assisted by SEDA and SEFA.
SEDA also deliberated on human resources development because staff training is important. In marketing interventions SEDA helped small businesses in rural and urban centres with packaging of their goods, marketing strategies and trade exhibitions. At these exhibitions, businesses are able to display their goods and services through which they are able to grow their business.
Mr Zwane said that SEDA is continually looking at how to improve the TREP programme. The goal is to ensure that every business within the township gets assisted by SEDA and SEFA so that each of them make a meaningful contribution to the economy.
Mr Mkhumane replied that there had been some traction in the last few weeks on the organisational restructure. The Committee can invite the Department of Public Service and Administration (DPSA) to make a presentation on this. DSBD engages weekly with DPSA. They also had an informal engagement at the ministerial level. DSBD was asked to finalise the restructuring as soon as possible. They had supplied DPSA with the requested information. DSBD shall be submitting to the DPSA within the next two weeks after the Minister’s approval. DSBD was therefore positive that the restructuring will be resolved.
On the amendment of the National Small Enterprise Act, it was advised by DPSA that DSBD should establish the entities first as juristic persons and thereafter as a public entity falling under Schedule 3A of the PFMA because it will depend on government funding. The start-up costs will be reprioritised from DSBD because as a juristic person it will have to be budgeted for separately like SEDA which is also a Schedule 3A entity. Thus there is the need to incubate the entity first before it can operate independently as an institution.
For the amendment of the Business Act, he admitted that DBSD had targets. It will have to really push to ensure that the Businesses Act comes to Parliament soonest. DSBD was cognizant that it was going to face a lot of challenges along the way. Mr Mkhumane was conscious that the revision of the Business Act was important in establishing uniformity across the SMME sector. They are therefore pushing that the Draft Bill gets finalised as soon as possible. There is a need for wide consultations because one of the structures affected by any changes are municipalities because they do generate income through the permits issued to SMMEs. The amount charged varies therefore they expect a lot of contestation around the Bill
DSBD was hoping for Parliament’s cooperation so that the Bill gets passed soon.
On red tape, Mr Mkhumane said that they are trying on their part to help minimise the same by putting up more access points. This is done with the intention to complement the work done SEDA and the municipalities. The Department was talking to municipalities in order to avail space to establish the service points for SEDA to be able to reach as many small businesses as possible. This will be equally beneficial to the municipalities who will get so that can get guidance from the civil officials located in those areas.
He said he knew that some areas will not be able to have SEDA officials because they can not expand the budget especially in terms of more employees so they will have to train local officials to assist them in providing support to small businesses and cooperatives.
In terms of the YCF, DSBD is taking 30% off the existing budget and reallocating it to the Youth Challenge Fund. They are implementing this reallocation strategy in all the programmes so as to fund the youth. The only money that was reprioritised was 2.9 million for the year ended 2022 and its increases over the MTEF period.
Mr Mkhumane indicated that Red Tape Reduction had not been moved to the Department of Planning, Monitoring and Evaluation (DPME). The Minister is working closely with the Presidency which championed the programme. They had introduced themselves as a department to the Presidency. The Presidency had also participated in the interprovincial red tape reduction task team meeting where they sat with DSBD and also engaged with the provinces to understand what was happening on the ground to identify five critical areas that the Department can deliver on.
He confirmed that there was an ongoing process with the provinces in submitting information on critical areas involving red tape as they are unable to confirm what is happening in the provinces from the Pretoria head office. He confirmed that there is a working relationship between DSBD and the Red Tape task force. He acknowledged that the placement of the Red Tape task team within government was important in implementing the recommendations and DSBD did not have leverage on the issue. Having someone in the Presidency’s Office assisting DSBD was a great asset for red tape reduction.
On SMME contribution to job creation and economic growth, DSBD has a target to present but this is limited to the company’s income tax, their contribution as well as turnover.
On the challenges due to Programme 1 capacity constraints, the DSBD view was that it did not matter how big a department was, they were still expected to comply with statutory provisions. Proper capacity is important because there is a challenge in the delegation of duties and separation of duties within those areas. In the revised structure review on which DSBD is engaging National Treasury, they are addressing capacity constraints. Some of their officials felt a lot was expected from them when DSBD could simply hire an additional person to assist. DSBD was aware that government does not have deep pockets therefore they needed to be very keen and efficient.
DSBD had learnt a number of lessons which the Minister would also cover. However the Department noticed an interesting thread mostly around capacity building and also accessibility. This was why they are responding through SEDA to establish more contact points because there were complaints about accessibility as access points are primarily located in urban areas. DSBD was therefore responding to the concerns raised by SMMEs in the interactions it has had with them.
The Department was also engaging with the private sector to ensure that SMMEs take advantage of the opportunities presented by the private sector in collaboration with government.
On the duplication of activities by other entities assuming the SEDA mandate, SEDA operates on a national level. At the start of the process for the SEDA- CBDA-SEFA merger, there was a debate if they should also incorporate the other entities at the provincial level as part of the process. DBSD decided to focus on the CBDA and SEFA incorporation first. They were hesitant to disrupt a well-working system.
There is a joint MinMEC that is led by the Departments of Tourism and Trade and Industry where they share their plans with various provinces. The Minister had met with all the MECs. The sharing of information enables them to align the national plan with the provincial plan.
On ease of doing business, DSBD was limited in its resources due to the budget allocation. The department is therefore unable to assist all the SMMEs at once. But when it comes to interventions the red tape reduction in the legislation, they have been able to impact a number of SMMEs even those that do not get direct support from DSBD which is they have elevated the work being done in that space. The departments focus on the review of legislation and the two Bills because it was of the strong belief that those legislations shall have an impact on the whole ecosystem and not only on businesses which are able to access financial and non-financial assistance from SEDA or SEFA.
DSBD was aware that 90% of the 11 million jobs to be created are supposed to come from SMMEs as well as expanding businesses as per the NDP target. Their interventions have been affected by Covid-19, economic challenges as well as the July 2021 disruptions. The crisis DSBD faces currently are the floods in KZN which urgently forced them to redirect interventions. Their plans have therefore been interrupted.
The National Planning Committee had made some recommendations on what needs to be done by DSBD in certain areas for the programmes introduced by government including the ERRP to ensure South Africa is able to recover as an economy.
Mr Mkhumane replied that DSBD has specific schemes that deal with informal business. When Covid-19 struck, it came up with a number of interventions to support informal businesses such as the suspension of licence fees. He indicated that some municipalities were ignoring compliance with this directive. The Department tried to engage with Cape Town which only implemented the directive in January 2022.
Aside from amendment of the Business Act, DSBD is setting up a programme that will target informal businesses by creating a conducive environment for them to operate within shared commercial capacity with the private sector as well as municipalities.
DSBD has been affected by National Treasury advisory to halt awarding new tenders from the 16 February 2022. They had to apply for an exemption to proceed with certain projects which took long but they recently received approval. The approval will help DSBD with the incorporation of SEFA and CBDA into SEDA. DSBD will be amending their own procurement policies so they are not found wanting due to the court judgment on the Preferential Procurement Regulations.
The Select Committee was well within its mandate to perform oversight over DSBD through biannual reports on the enterprises it has supported. However he lamented that six months was not enough time to be able to gauge if a business had had any improvements or made any investments considering the challenges already mentioned. He asked that the business be given at least two years from the date of the grant to allow them to start their business and generate income to be able to determine growth.
In reply to Mr Dangor he indicated that the Auditor General had started with the performance audit and DSBD will be dealing with that work and presenting it to Parliament.
DSBD was ready to share the details of the district champions. On AFCTA, the Minister was in the process of hosting an African SMMEs conference which is supported by the African Development Bank as DSBD was keen on looking at the opportunities across the continent.
Mr Mkhumane said that he was unable to respond to some of Mr Londt's questions as they were political in nature. He assured the Committee that the money being disbursed is being followed but not as efficiently as it could be done. He promised the Committee that DSBD will be keenly looking into following up on the monies disbursed to SMMEs and cooperatives going forward. a significant amount of the budgetary allocation goes into the SEDA incubation programme which they plan to expand to incubators across the country.
It was important that they invest in 'warm bodies' because DSBD is still expected to deliver so having very few staff does not help them as a department. This is because the demands placed on it are as high as those placed on bigger departments. They are planning on getting sector specialists who can assist to identify and scrutinize which interventions are necessary to ensure that all SMMEs benefit from their master plans.
Minister's closing remarks
The Minister noted that most of the questions had been handled by the team but she wanted to emphasize the need for support from the Select Committee in DSBD's request for funds. They were in agreement that the gap was too wide in SMME funding. At the same time, DSBD was appreciative of the internal capacity challenges in the portfolio which is why they make an effort to attend to those challenges and forge partnerships that can help DSBD deliver as per expectations whilst they are advocating for more funding.
The Minister stated that the intention of the portfolio was to shift away from interventions that do not consider both national and provincial economic development plans. Through this alignment, DSBD is trying to focus on impactful interventions. The engagements that DSBD is having throughout the country, help it align the resources and the plans. They are hoping that by collaborating with the provinces to come up with an equal standard minimum requirement for the financial support offered throughout the country. She emphasized that being at an advanced stage of development did not mean that an SMME stops being a small business.
To ensure maximum participation in the economy through job creation by small businesses, DSBD is having engagements with the private sector and sister departments to determine the gaps.
The Minister went to state that there had been too much focus on urban areas and there needed to be a shift towards small businesses located in rural provinces which is what informed the change in the amounts in rural enterprise programmes. She insisted that the focus was on changing these rural areas from consumers to entrepreneurs.
All of these efforts require the participation of the Ministry and the legislative environment. She admitted that she was concerned about the timelines for legislation. The Red Tape issue was a SONA commitment which means it is a commitment identified for the year. It would be good to get the Select Committee to agree on passing the legislation.
She emphasized that they are continually engaging with National Treasury to address the needs of DSBD while dealing with the gaps within DSBD. The Department will have to outsource some of the services due to capacity constraints on some skills.
She agreed with the Director-General that the Select Committee was allowed to oversee DSBD programmes. The Department will be considering the Protection of Personal Information Act (POPIA) on which they intend to address the Committee. The POPIA Act was the reason they had been unable to share more information on the SMMEs DSBD was supporting. This needed to be addressed considering that the money being utilised is public funds.
The Chairperson thanked everyone for participating in the meeting. He assured the Minister that the National Council of Provinces (NCOP) and the Select Committee prioritise legislation.
He reiterated that the Committee will meet with SEDA and SEFA in August for what it had initially intended on dealing with in today's meeting: progress and challenges in rolling out of finance and business support schemes.
The Chairperson thanked DSBD for its well-informed responses in providing clarity to Members on the delay of the merger.
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