Progress and challenges in rolling out finance and business support schemes towards SMMEs (including KZN following unrest); with Deputy Minister

Meeting report

The Chairperson opened the virtual meeting, welcoming Members and the guest delegations, led by the Deputy Minister and the Director-General. After Committee and opening remarks, he handed over to the entities for their presentations.

Sector Enterprise Finance Agency: Briefing on the Business Recovery Performance Report

This presentation addressed the context of the business recovery programme, focus areas, financial and non-financial support, criteria, and funding requirements. The presentation also covered updates on a variety of programmes and matters: implementation processes, budget implications, applications received, approved deals by province and disbursements by province; informal traders support programme; Informal Traders Support Programme; Small Enterprise Manufacturing Support Programme; Business Visibility Programme; Youth Challenge Fund (YCF), and the Township and Rural Enterprise Programme.  

Incomplete applications: this was identified as the key challenge. This is a challenge in the speedy implementation of the intervention/relief programme. This challenge has been experienced in both the Covid-19 SMME relief fund, between April-July 2020, and the Business Recovery Programme in December 2021.

The nature of incompleteness is as follows:

-No affidavit or police statement

-Inability to provide evidence of looting

-No financial statements

-No cash flow projections, amongst others.

The solution for incomplete applications: they are referred to SEDA for assistance. SEDA assists with preparation of financial statements and the preparation of necessary documents to be SARS-compliant. SEFA assists with packaging and finalisation of incomplete applications. A large number of approved applications under the Business Recovery Plan have been as a result of these efforts by SEFA.

See presentation document for more detail

SEFA’s Report: Progress and Challenges Faced in Rolling out Financial Support to SMMEs and Co-operations

The presentation discussed the current operating environment, challenges and solutions.

-Challenge one: quality of applications is a challenge in ensuring the speedy implementation of the YCF programme. The incompleteness includes no adequate business plan, no financial statements, no cash flow projections, no lease agreement, no bank statements, etc.

-Challenge two: applications that do not meet or fall outside SEFA funding criteria. The forecasted cash flow must show the ability to repay the facility. The owner must display sufficient entrepreneurial skills and experience directly related to the nature of the business. SEFA does not fund persons under debt review and does not fund speculative property developments.

-Challenge three: applications prepared by SEDA and presented to SEFA for funding. There is an expectation from applicants that, when a business plan is prepared by SEDA, that means the application will definitely be approved. This is not always the case, as the applications are considered at credit committees that focus on the viability of the application.

-Challenge four: applicants refusing to accept non-approval. Applicants tend to submit applications that are not viable. There may be issues with the loan agreement, market viability, etc. The rejection of funding tends to lead to an escalation of complaints outside SEFA complaints management process.

-Challenge five: implementation of unplanned Emergency loan programmes. These programmes were implemented without additional capacity having been provided for the implementation.

-Challenge six: general increase in the volume of applications & are annually processed vs stagnant staff numbers. The value of approvals and disbursements processed by SEFA regional offices has increased several folds, processed annually and without a proportional increase in the number of deal-making staff.

Solutions to the challenges: increased investment in pre-investment (application funding readiness), collaborating with eco-system partners, focused customer outreach, increased capacity of back office and loan organisation system.

[See presentation document for more details]

Briefing by the Small Enterprise Development Agency

This presentation addressed SEDA’s products and services, organisational performance, the entity’s challenges, and proposed solutions.

Challenges and proposed solutions:

-Business formalisation: the informal businesses that were targeted were not ready for formalisation and did not have the required documents. This caused delays in finalising their funding applications.

-Solution: proper advice should be given to business owners to understand cost implications and complications and compliance requirements that come with being a formal business.

-Cost of compliance: the cost of funding compliance is too high, given that only spaza shops were supported with business registration. The cost of obtaining operating permits from municipalities was exorbitant.

-Solution: SEDA has changed its process to provide free business registration to all TREP clients. DSBD is addressing this through the red-tape reduction project.

-Municipal bylaws: there were delays in acquiring permits due to municipal by-laws and zoning requirements.

-Solution: DSBD is addressing this through the red-tape reduction project.

-Funding applications submissions: SMMESA portal and email-based system of submitting applications proved challenging and led to the lack of interaction between e-services portal and existing SEFA and SEDA systems and processes.

-Solution- the email system was put in place as an alternative to avoid utilising e-services portal.

-Application feedback: there was lack of feedback, and there were delays. This created negative perceptions about entities and schemes.

-Solutions: SEDA and SEFA have assigned relevant executives to manage the collaboration between the two entities.

[See presentation document for more details]

Discussion

Mr K Mmoiemang (ANC, Northern Cape) extended his appreciation for the three presentations, and asked if the lessons learned for the Covid-19 Unemployment Insurance Fund (UIF) Intervention would not have helped hasten the response to the July civil unrest, considering that intervention needed in both situations have similarities.

On organisational performance, did the Department reach its targets in its medium-term strategic framework (MTSF)?

Ms B Mathevula (EFF, Limpopo) welcomed the presentations, and stated that one of the biggest challenges small businesses face is marketing their products. Ms Mathevula asked what role the Department plays in ensuring that small businesses, which it has funded, get opportunities to have access to a market where they can sell their products. Her second question was about the fact that big companies such as Shoprite are moving into rural areas and townships but they do not buy from small producers and businesses in those local areas. Therefore, what is the Department doing to ensure those big companies buy from local producers/farmers?

During an oversight visit in the Northern Cape, she was not pleased with SEDA’s performance because there were no co-operatives or a progress update on what the entity was doing. Majority of the people that owned small businesses were between the ages of 40-49. This indicated the lack of youth participation in small businesses in the area. What progress has been made to encourage youth and women to participate in the entrepreneurial field?

One of the challenges small businesses face is load shedding; what steps has SEDA taken to assist these small businesses? In the presentation, it was mentioned that over 2 000 women had been helped. What is the total breakdown for each province, so that it could be established how many women have been helped in each province?

Mr F Jacobs (ANC), Member of the Portfolio Committee on Small Business Development, said that it is important to acknowledge the progress made by the Department in dealing with the issues at hand. It is good that the Minister, along with SEDA and SEFA, are on the ground and crisscrossing the country with the outreach roadshows, promoting and encouraging South Africans to be entrepreneurial. One of the major challenges identified was funding readiness. He used an example of one of the Minister’s roadshows in Khayelitsha, where many people were in attendance, and hundreds applied. When officials were asked about the number of applicants that were funding ready and had succeeded to the funding stage, the numbers were very low. Mr Jacobs suggested that the Department set up advisory support to help applicants to be funding ready, where young graduates could come in and help applicants, especially the elderly, with their applications.

Mr M Dangor (ANC, Gauteng) asked how the Department could practically get localisation in the existing municipalities and within the new demarcations. Will there be harmonisation between programmes of SEFA and SEDA, with the existing government programmes at different levels of government, so that local people could participate in business, large business partnering, mentoring and training new entrepreneurs in the market?

The Chairperson made comments and asked questions before opening the floor for responses. He said that NCOP reports must show individual provinces to indicate the state of the small business sector in the provinces. To what extent are the challenges highlighted by SEFA finding expression in the provinces? The programme of the ecosystem facilitator: did it address the highlighted issues, particularly the cooperation between SEDA and SEFA to address those challenges? The Chairperson directed a question to SEFA about monitoring. Did the monitoring done for businesses supported by the business recovery programme yield success? How many did not, after receiving assistance?

The COVID-19 pandemic, the destruction from the civil unrest of July 2021, and the floods in the KwaZulu-Natal and other provinces indicated that small businesses are affected whenever disasters occur. What are the Department’s plans to address issues of raising capacity challenges and resources? A contingency relief fund must be set up to assist small businesses affected by disasters.

Responses

SEDA

Mr Nkosikhona Mbatha, Acting CEO of SEDA, explained that there needs to be coordinated effort to ensure that clients that produce products in local municipalities get opportunities to supply locally to their municipalities and the private sector. The Department is working on reducing the red tape.

The point raised by Ms Mathevula, about the dissatisfaction with SEDA’s performance in the Northern Cape, was noted, along with the steps to be taken to improve. Statistics of the cooperatives assisted in the various provinces will be brought to the next meeting. Loadshedding was a big problem that many small businesses were facing. SEDA funded this space with their Technology Transfer Programme. Numerous clients were assisted, but the budget was limited. Generators were provided with the loan from SEFA to their clients for them to keep their business going.

The entity took note of provincial breakdowns for sheet trades. The sheet trades had listed the entities, and are being assessed for their readiness so that interventions can be put in place. The idea of using graduates was explored, especially during the KZN floods disaster. Over 50 graduates were employed in the different departments of the municipalities to try and assist the applicants in filling in their forms.

On the Chairperson’s comments around the ecosystem facilitator model: SEDA has profiled partners, and it is currently working on value propositions for different partners in different spaces. Work has already begun at about 30-40% but moving with speed.

SEFA

Mr Mxolisi Matshamba, CEO of SEFA, confirmed that there were lessons learned from the challenges experienced by their colleagues in the UIF with the COVID-19 interventions. These lessons were taken forwards with the July 2021 unrest that affected informal traders. SEFA had to rely on police affidavits, South African IDs and permits from the municipality to prove that informal traders were indeed traders before the unrest. It is important that SEFA speeds up the process to find ways to formalise the informal businesses without criminalising them for not having a trading permit. This would help government to be judicious in dispersing funds to such businesses. The use of generators was not sustainable for SMMEs because of the cost of diesel. There is a need for broader sustainable and affordable interventions, such as gas and solar supported by batteries. The Energy Department and Treasury would have to come in and subsidise because such interventions are expensive. The small manufacturing programme drives localisation and is very popular. It is one of the programmes the Department has funded. Providing market access to SMMEs should be introduced via an aggregate model. The aggregator may be an economist that provides technical support on how to operate a farm, and provide governance structures to ensure that the cooperatives are run like businesses. The monitoring of these businesses was raised to between 6-12 months. With informal traders, they wanted to re-engage the associations whether they can have cooperatives for the informal traders so that they do not just rely on the associations.

Department of Small Business Development

Mr Lindokuhle Mkhumane, Director-General, Department of Small Business Development, said that local procurement is an issue that government must address. The Department has identified over a thousand products mostly procured by government, which can be procured from small businesses.

The DG said that the Minister, Ms Stella Ndabeni-Abrahams, has an engagement with the Minister of Basic Education to look into the opportunities that can come through the Department of Basic Education for SMMEs, including those in maintenance, construction, and school nutrition programmes, amongst others. The Department also engaged with the Department of Social Development.

Buying local products is important. The Department has a Memorandum of Understanding (MOU) with Proudly South African because the brand supports locally produced products. The geographics of the interventions can be provided to the Committee, as such information is reported quarterly to the Portfolio Committee. There is progress with funding readiness. Applications do not get rejected outrightly. When applications do not meet the requirements, SEFA refers them to SEDA so they can be assisted to be ready for funding. SMMEs must continue to be trained on how applications are submitted so they do not lose out on opportunities. Mr Mkhumane agreed with the CEOs of SEFA and SEDA that there needs to be a separate session for cooperatives. They started engagements with structures. But unfortunately, there is too much politics within the cooperatives space. The focus becomes about power structures and positions and not the work that needs to be done in supporting the primary cooperatives. The Department must always be ready to respond to disasters. It received a lot of criticism from other sectors, especially Treasury – which informed the Department that it was not pleased with the fact that the Department always comes to ask for adjustments on its budget.

Mr Sdumo Dlamini, Deputy Minister of Small Business Development, gave the concluding remarks of the meeting. He said that the meetings were an important process where the points made are taken. Lessons are drawn for guidance on the work that the Department has to do to improve. The meetings emphasise the important areas which the questions that have been raised touched on. The Department and the Ministry took responsibility and ensured that moving forward, government reaches the people who are supposed to get the benefits of the Department through the services provided.

The Chairperson thanked Members for their attendance and participation in the meeting. Due to the Minister being unwell, he requested that the Deputy Minister make the concluding remarks. The Chairperson requested that, in future, the presentations must be sent on time because, on the virtual platform, there are researchers and content advisors who must do an analysis of the presentations and summarise them. Due to the presentations being late, they could not do so.

Committee matters

The NCOP programme has scheduled a plenary session for next week Tuesday, 30 August 2022, at 10 am. This will affect the Committee because it normally convenes on Tuesday mornings, at 10 am. The Chairperson suggested a Committee meeting on Wednesday afternoon, at 2pm, to meet the Department of Employment and Labour.

The Committee Secretary reminded the Chairperson that there had been approached by the Minister of Trade that there should be a meeting in the morning at 9am, on 30 August 2022, before the ministerial briefing. The meeting will run for an hour, and it will be about the BBBEE Commissioner.

The Chairperson thanked the Members for their attendance and participation.

The meeting was adjourned.