DSBD feedback on Committee BRRR observations and recommendations; with Deputy Minister

Small Business Development

01 June 2022
Chairperson: Ms V Siwela (ANC)
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Meeting Summary


The Department of Small Business Development briefed the Committee on progress in implementing the 13 observations and 12 recommendations contained in the Committee’s Budgetary Review and Recommendations Report (BRRR). Key areas it reported on were the project plan on rollout of the National Small Enterprise Amendment (NSEA) Bill; establishment of the Ombuds office and how interdependencies would be monitored for implementation; priority of graduates to strengthen the township and rural empowerment programmes' support to youth; outstanding tabling of the Auditor-General's report to the Portfolio Committee; ad hoc committee to monitor red tape reduction as recommended; outstanding lists of supported small, medium and micro enterprises (SMMEs), particularly of cooperatives and informal traders; business recovery and debt relief support by the Small Enterprise Finance Agency (SEFA); and strengthening of engagements and partnering with the private sector and institutions on SMME empowerment.

Members welcomed the Department’s report and said the Department had to focus on the township and rural areas because that was where most of the problems were, and the townships should be revived. They said that the District Development Model (DDM) was not functional, and the Small Enterprise Development Agency (SEDA) and SEFA were not visible in deep rural areas. Service delivery in the rural areas was a cumbersome process, and the implementation of plans was important, as it could affect people's lives.

Members questioned why the Minister did not make available starter grants, similar to the Minister of Agriculture, who made available seedlings and fertiliser. Why was the Department not assisting in this space? Members noted that funds were lacking for cooperatives, so the Department needed to find a way for funds to be given to cooperatives, as they were suffering. They reported that in Vhembe in Limpopo, seven small businesses had been applying for ten years for help from SEDA, and in the Eastern Cape, it was the same story. 

Meeting report

DSBD feedback on BRRR
Mr Lindokuhle Mkhumane, Director-General (DG), Department of Small Business Development (DSBD), gave feedback to the Committee on the observations and recommendations contained in the Budgetary Review and Recommendations Report (BRRR).

In the feedback, the Department said that the creative industries' masterplan had been handed over to the Department of Sports, Arts and Culture for onward handling and finalisation and that the masterplan had been presented to the DG and Ministers of the Social Protection, Community and Human Development (SPCHD) cluster, and DGs of the Economic, Investment, Employment and Infrastructure Development (EISIED) cluster where it had been recommended for presentation to Cabinet.

It said that public comments received on the National Small Enterprise Amendment Bill had been considered and incorporated into the Bill. The business case for the establishment of the Office of the Small Business Ombud had been revised. The full socio-economic impact assessment system (SEIAS) had been concluded and the Department was working with the Office of the Chief State Law Advisor (OCSLA) and the Office of the State Attorney to deal with Section 20(2), which had been declared as unconstitutional by these two offices. Treasury had allocated the Department R416m to establish a Small Enterprise Ombud Service, review the Business Act, review the definition of small, medium and micro enterprises (SMMEs), and finalise amendments to the National Small Enterprise Act (1996). However, for the record, the Department was not aware of the R416m to establish the Ombud Service.

He said the Department had begun reviewing the Businesses Act No 71 of 1991 and the Licensing of Business Bill gazetted in March 2013 for public comments. A preliminary review indicated that the Licensing Bill was tagged incorrectly as a Section 75 Bill, while regulation of trade needed to be tagged as a Section 76 Bill. The Department intended to finalise the review, revision, stakeholder consultations and other related processes on the Business Amendment Bill by 31 March 2023, and secure approval for the Bill to be introduced into Parliament in the 2023/24 financial year.

The Department said that Cabinet had approved the gazetting for public comments of the National Integrated Small Enterprise Development (NISED) masterplan as the national small business support strategy. NISED would replace the 1995 White Paper and strategy and the 2005 strategy and provide a new and updated policy and strategy document for enterprise development in the country, including provisions and measures for townships and rural areas. Local municipal policies and by-laws on business licensing and permits were guided by the Businesses Act No 71 of 1991 and provincial acts. These should be in line with national legislation. Otherwise, they might be challenged in the courts. The amendments and updating of the Businesses Act would ensure that new and pressing issues facing municipalities were appropriately provided for in the national legislation.

The DSBD said the Small Enterprise Finance Agency's (SEFA’s) balance sheet was limited and could not afford to offer 100% grants to SMMEs and cooperatives. SEFA had introduced blended finance, which comprised part loan and part grant. The grant portion was expected to accommodate small businesses working capital to contribute towards their sustainability. The Small Enterprise Development Agency (SEDA) worked closely with the SEFA to ensure that businesses were properly prepared and supported to receive funding and spend the funds accordingly. SEDA was prioritising support to cooperatives, to ensure the desired impact was realised and this would be reported during the 2022/23 financial year.

Mr Mkhumane said that in April, the Department had embarked on broader stakeholder consultations comprising various role players and development finance institutions (DFIs) to obtain inputs for inclusion into the SMMEs' and cooperatives' funding policy. After Cabinet approval, the policy would be gazetted for public comments in quarter three, and it was anticipated that the policy would be finalised in quarter four.

The Department said that SEDA’s negative budget growth was a real concern, especially in the current economic conditions. This meant that SEDA would be operating under a tight budget which may affect the delivery of certain services to SMMEs.

The DSBD strengthened its District Development Model (DDM) deployments and allocations and would consider the suggested additional resources as part of this process. It observed, however, that the Parliamentary Constituency Office (PCO) had not been utilised tactfully to promote government programmes.

On feedback on the Committee's recommendations regarding filling vacancies, the Department said the process was pending finalisation of the organisational structure. Sixteen of the vacancies were still under moratorium and the Department had developed a project plan to fill vacancies outside of the moratorium.

The Department said the NISED masterplan had been presented to Cabinet on 6 April 2022 to obtain approval for publication in the Gazette, to solicit public comment, and was published in the Gazette on 10 May. The public comments would be considered and thereafter follow the National Economic Development and Labour Council (NEDLAC) processes. The Department would then present the final masterplan to Cabinet for approval. The processes would occur in the second quarter of the current financial year.

On the Committee’s recommendation that the Department’s Co-operatives' Development Support Programme (CDSP) be reinvented to include a performance-linked incentive scheme, the Department found it challenging to introduce such a scheme for cooperatives as most were survivalist and micro in nature. Most of the support required was to kickstart operations and, in a few instances, for business expansion. Thus, it would be tricky to determine the stage of the business life cycle in which the incentive should be targeted. There were engagements to establish how best cooperatives could be capacitated to mitigate its high failure rate.

The Department said the forensic investigation into irregularities raised by the Auditor-General of South Africa (AGSA) regulatory audit of 2016/17, concerning non-compliance in incentive programmes such as the Co-operatives Incentive Scheme (CIS) and Black Business Development Programme (BBSDP), had been concluded by the AG on 5 April 2019. Stemming from this audit, nine Departmental employees were suspended for alleged fraud, and four had been cleared of the allegations against them. All disciplinary processes had since been finalised, with five employees dismissed on 13 May 2021.

The Department provided the list of cooperatives funded by SEFA between 1 April 2021 to 31 March 2022. These were: Rendzo Enterprise Support Institute (PTY) LTD; Madyondzi Trading and Projects cc; HNS Medical Suppliers cc; Tendaji Industries cc; Rebane Business Enterprise cc; Leago Trading and Projects 1; Striving Mind Trading; Morwamokuru Trading Enterprise; Thatoyabatho Security and Cleaning Services cc; Vexospex (Pty) Ltd; Azanlead Business Solutions (PTY) LTD; and Thekwane Logistics Holdings cc.

The Department wanted to deepen its oversight and impact on the informal sector and township and rural development, and had numerous interventions that impacted township economies. The Constitution empowered provinces to develop provincial legislation in matters that were a functional area of concurrent national and provincial legislative competence. ‘Trade’ and ‘Trading Regulations’ (Schedule 4 of the Constitution) were areas of concurrent competency; while ‘Street Trading’ (Schedule 5 of the Constitution) was an area of exclusive competency, as were informal trading policies and municipal by-laws. Currently, each municipality and provincial department is crafting its own laws. The fragmentation and lack of uniformity could be addressed by fast-tracking the Business Amendment Bill on which the Department was working.

The Department said some prescripts guided the amendment of a tabled annual performance plan (APP), and these prohibited an APP being amended on the basis of adding a target. Therefore, it would not be possible to report on parliamentary constituency offices quarterly, as it was not an APP target for the 2022/23 financial year. The Department, through SEDA, was expanding access by adding 80 access points which were not affiliated with political parties, and they would be open to assisting all members of the public

The Department said the recommendation of the Committee calling on the Department to actively pursue partnerships to fight the scourge of unemployment, inequity and poverty, was already being implemented, with a number of engagements led by the Minister and Deputy Minister being held regularly to forge a social compact, as called for by the President. Similarly, the entities were actively engaging and partnering with the private sector and other constituencies to advance the portfolio's mandate.

Mr Mkhumane also addressed the incorporation of entities and the funding policy of SMMEs and cooperatives.

Mr D Mthenjane (EFF) said the Department's report was "proper," It had to focus on the township and rural areas, because that was where most of the problems were, and the townships should be revived.

Mr E Myeni (ANC) said his concern was that he was from a deep rural area where the District Development Model (DDM) was not functional, and SEDA and SEFA were not visible in the district.

Mr H April (ANC) welcomed the recommendations made by the DG, and said that delivery in the rural areas was a cumbersome process and that however grand the plan, it was the implementation that was important so that it could affect the lives of people.

Mr M Hendricks (Al Jama-ah) said he supported the call to address rural area issues. He had been to Groutville, where peanuts were grown near the river. There was a tutor there who would teach locals how to make peanut butter, and similarly, there was a fishing initiative in Mpame village. He said that every third house in the Western Cape was sewing and making dresses, but the problem was sourcing material and he was looking at having a project to revive the garment making industry in that area. He questioned why the Minister did not make available starter grants similar to the Minister of Agriculture, who made available seedlings and fertiliser. Why was the Department not assisting in this space?

The Chairperson noted that funds were lacking for cooperatives, so the Department needed to find a way for funds to be given to cooperatives, as they were suffering.

Mr Mthenjane clarified that when he said the report of the Department was "proper," it had been in the context that they had accepted the advice of the Committee, but he was not approving the budget per se.

The Chairperson noted that the issue of timelines was lacking, and this was what Members were looking for.

Ms B Mathulelwa (EFF) said that in Vhembe in Limpopo, there were seven small businesses which had been applying for ten years for help from SEDA, and in the Eastern Cape it was the same story, so the Department had to reach SMMEs in the townships and rural areas.

The Chairperson said that the Department’s responses were in line with what had been recommended to them, and the Committee would be happy if implementation would now take place. The Department should speed up the process to support small businesses, as they could make a difference to unemployment. She supported Mr Mthenjane’s call to revitalise shops in the townships so communities were not reliant on malls, as they could not take on the agricultural products being produced. The Committee should assist the Department by liaising with other departments.

Mr Nkosikhona Mbatha, Acting Chief Executive Officer (CEO), SEDA, responded on the accessibility of SEDA. He said SEDA’s APP included creating access service points that would bring it closer to SMMEs and cooperatives in rural areas as part of its rollout, including access to local accountants as part of its extension service.

He said access to markets was a key issue, and SEDA would have to do more in this sphere and work with departments such as Agriculture.

On the Vhembe and the Eastern Cape clients, he said SEDA would make sure that they received assistance via the DG.

Mr Mkhumane said the Department was pushing for these access points so that rural and township areas could be covered. The Department was also working with technical and vocational education and training (TVET) colleges to train municipal officials there.

On Mr Hendricks's comments, he would ask that the details regarding Groutville be shared with the Department so that they could ask SEDA in KZN to follow up on that project.

He said the Department did have a scheme to assist the clothing and textile sector's micro-businesses. This was where the DSBD had to see how they could further support that sector and link them up with the Department of Trade, Industry and Competition.

He said the Department would follow up on Ms Mathulelwa’s comments on businesses in Vhembe and the Eastern Cape.

The Department would report on progress on the BRRR recommendations in the form of an annexure in its quarterly reports.

The Chairperson said that the issue of DDMs would be followed up with the Office of the President.

Committee matters
The minutes of 18 May 2022 were adopted.

The Committee Secretary read out an invitation from the Portfolio Committee on Higher Education, Science and Innovation, to participate in a virtual joint meeting on Friday, 3 June 2022, on the Science Technology and Innovation White Paper, and to look at opportunities for small businesses. The Chairperson said that if time permitted, Members should attend.


The meeting was adjourned.

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