DSBD, SEDA, SEFA 2022/23 Quarter 1 Performance; with Deputy Minister

Small Business Development

21 September 2022
Chairperson: Ms V Siwela (ANC)
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Meeting Summary

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The Deputy Minister said in his opening remarks about Quarter 1 performance that there had been success stories as well as areas where targets were unmet due to challenges. Moving forward, the Department has plans to bridge the gaps that exist for Department of Small Business Development (DSBD), and its two entities, Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA).

For DSBD, 11 out of 20 targets were reached, which resulted in a 55% performance.
For SEFA, disbursements were 142% of the target and approvals were 79%.
For SEDA, 14 out of 16 were achieved (88%).

Members expressed concern about the strategy in responding to the July 2021 unrest and floods in KwaZulu-Natal and the Eastern Cape. They noted complaints from the field that SEFA does not provide clients with the reasons their applications are declined. SEFA was requested to provide a report on how many applications are received, how long it takes for applications to reach the decision stage and how many applications are declined. The complaint was also that SEFA took too long to assess an application. Members requested a breakdown of the SMMEs and cooperatives supported by DSBD; asked about the impact of load shedding on small business owners and asked for progress about the Amendment Bill dealing with the licensing of businesses.

Meeting report

Deputy Minister’s opening remarks
Deputy Minister Sidumo Dlamini said that the Minister was out of the country and noted her apologies. The purpose of the meeting was to present the Quarter 1 performance of the Department of SEDA and SEFA. He said that there are success stories which are detailed in the presentations. He acknowledged in advance that there are areas where targets were not met due to the challenges outlined in the presentations. These will be presented by the Director General and the teams. The Department has plans moving forward to bridge the gaps that may exist but that it is expecting constructive criticism and guidance from the Portfolio Committee.

DSBD Quarter 1 performance
Mr Lindokuhle Mkhumane, DSBD Director-General, Ms Semphete Oosterwyk, Chief Financial Officer, and Ms Mbatha, Director: Corporate Management, presented on Quarter 1 output indicators set in Annual Performance Plan (APP), actual output, reasons for deviations, corrective measures, financial report and the human resource report.

In the quarter there were 20 targets of which 11 were achieved (55% performance).

(See document for details)

SEFA Quarter 1 performance
Ms Simthandile Siwisa, SEFA Board Chairperson, introduced Ms Nokonwaba Shwala, SEFA Acting CEO gave the introduction.

Mr Alroy Dirks, SEFA Head of Business Strategy, presented the SEFA corporate performance and covered the balanced scorecard, loan book performance, development impact, post investment monitoring, financial performance, human capital management, marketing and communications and organisational governance.

As at 30 June 2022, the portfolio had a total balance of R3.6 billion, including investments in funds and joint ventures. Total approvals for Quarter 1 were R354 million, which represents 79% of the quarterly target. Total disbursements were R571 million, which is 142% of the quarterly target.

(See document for details).

Mr F Jacobs (ANC) was asked to take over as the Acting Chairperson as Ms Siwela had left the meeting due to technical issues. 



SEDA Quarter 1 performance
Ms Ntokozo Majola, SEDA Executive Manager: Enterprise Development, Mr Elias Maabane, SEDA Acting CFO and Ms Majola presented on performance information, performance comparison, human resources, financial report, governance and compliance, marketing and events and key projects. Of the 16 indicators for Quarter 1, 14 indicators were achieved (88%).

Two indicators were underachieved, one indicator achieved between 80% to 99% and one indicator achieved below the 50% category. Notably, 3270 jobs were created and sustained.

Overall total expenditure (YTD) at 30 June 2022 was R245.89 million (26.2%) which was above the quarter expectation of 25%.

(See document for details).

Discussion
Ms M Lubengo (ANC) said according to SEFA’s performance, the majority of SMMEs facilitated were in the micro enterprise sector, yet SEFA achieved 30% of its target and underperformed by 60% on disbursements in its wholesale micro-finance programme. She asked the reasons for the significant underperformance in micro-finance disbursements.

She asked how the implementation of the economic recovery programme affected SEFA’s regular operations and focus on its regular clients, both in the positive and negative sense.

Mr H April (ANC) asked how SEFA determines which deals are viable and which are not since the Committee is in the business of empowering and assisting African enterprise. He asked how one would make a determination about the viability of a business.

He said disbursements are usually less than approvals, however in Quarter 1 the disbursements exceeded the target and were more than the loan approvals. He asked what SEFA did differently to achieve this result in disbursements. While the Committee was looking at the numbers, a correlation of how SEFA achieved this was needed.

Mr April said SEFA’s operations had been impacted by the Covid-19 pandemic and by the July 2021 unrest and floods in KwaZulu-Natal and the Eastern Cape. He asked for SEFA’s strategy for balancing a rapid response and resilience to disasters which affect SMMEs and cooperatives without neglecting to provide services to its other clients. SEFA is a state entity and the Committee does not expect SEFA to operate how normal banks operate so he asked what mechanisms were in place. What steps has the Department taken to ensure that the missed target for supporting 500 women owned businesses to register on international platforms is achieved?

He asked if the Committee could be briefed by DSBD on the concept and content of the draft Business Amendment Bill and the outcome of the public consultation. He asked for this so that Committee members could assist SMMEs and cooperatives in their different constituencies.

Mr D Mthenjane (EFF) said that he was disappointed with the report. It appears that the Committee is repeating the same things continually from January to December. One of the reasons some of the Committee members state that DSBD should be merged back with Department of Trade and Industry is because the Committee cannot have a department which is always underperforming. The report continues to show the Committee that there is underperformance all the time while South Africa’s people are suffering. At least now the Committee knows part of the reason the Department is consistently underperforming.

The Committee was informed by SEDA that one of the problems is that their staff keeps changing from one place to another and from one province to the next. This shows that the only thing the staff are interested in are their ‘stomachs’. They do not care to assist South Africa’s people who own small businesses. The staff members’ only concern is about receiving their salaries.

Mr Mthenjane suggested that perhaps this department should implement a certain method where if it underperforms, then the staff underperforms in their salaries. The staff members must not obtain salaries or they must obtain half of their salaries so that they can start to take the matter seriously.

The underfunding of South Africa’s women is a ‘thorn in the flesh’ because women are at the receiving end in South Africa. South Africa’s youth as well as people with disabilities are not receiving funding and these groups are suffering.

Mr Mthenjane suggested that SEFA allocate the budget towards radio stations instead of road shows. Local radio stations are listened to by people in the rural areas. Therefore, radio stations cover a lot more people than a road show which covers a few people in a township. He suggested cancelling road shows and investing the allocated money into radio stations so that people can listen and understand that SEDA and SEFA are able to lend money to them.

The Department should go back to the drawing board to see if it can change the criteria which it is using to lend money to small business owners. This is because a lot of people do not qualify to receive funds. He asked the reason for having a Department of this nature if people cannot obtain help from it. The criteria especially affects owners of informal businesses. These people are at the receiving end because they do not get funding for their business. This is because the criteria in determining if an owner obtains funding is if the owner already has money.

Mr H Kruger (DA) said that the Committee obtains many requests and complaints from the field that SEFA does not return to its clients. They do not provide clients with reasons their applications are declined. He requested that SEFA provide a report on how many applications are received, how long it takes for applications to reach a decision stage and how many applications are declined. This will provide the Committee with an indication if SEFA is doing its job. It seems that it takes too long for SEFA to assess an application. While the assessment is being undertaken, a lot of promises are made by SEFA and then at the end of the day, that application is declined. He asked how this information would be provided – if in writing or by other means.

Mr April said that the Department has ‘dangled this stick’ of the POPI Act for a long time. He asked if DSBD could furnish the Committee with a breakdown of the 8 239 competitive SMMEs and cooperatives supported by them. The Department needed to take the Committee into its confidence.

He asked what led to the delays in the scheduling of meetings for the red tape reduction programme. He asked for the reason that this did not take place.

Mr April asked how the Department’s under expenditure fares when only the operational budget is taken into account as this cannot be correct.

He asked for the latest update on the flood relief programme. The Committee needed to know what was happening with the flood relief programme in KZN and the cause of the delays in the appointment of the service providers.

Mr Mthenjane agreed with Mr April that the Committee needed accountability. The Department should inform the Committee about a date and time when it would provide a database to the Committee of all the people who have already been helped by it. This includes those affected by the floods in KZN and Eastern Cape. He asked for the record that indicates who the people were that had been helped so the Committee could invite those people to attest to the fact that they had received such funding.

Ms Lubengo asked if the Department could brief the Committee on the Business Amendment Bill. She asked for elaboration on the content and the outcome of the public hearings.

Mr Kruger said that SEDA mentioned that most of their assistance was towards small businesses in the agriculture sector. He asked what its strategy is to avoid ‘double dipping.’

Mr Mthenjane said that the whole country is aware that there is a new pandemic called load shedding. Most small businesses rely on electricity to operate. He asked if the Department has an approach to extend help and meet these small businesses half way in the form of a moratorium or suspension of their payments. Some of these small businesses have taken out loans for money which needs to be paid back. However it is difficult for them to do so because of load shedding. Load shedding has resulted in people not working for half a day or a whole day at a time.

Ms Lubengo asked the Department what role cooperatives play in the economy. In the Department’s view, what needs to be done to encourage cooperatives to grow and be sustainable?

SEDA response
Ms Ntokozo Majola explained that the staff who are moving around are not full time employees. These are contract employees where turnover is very high. This is because as employee contracts end they begin looking for other opportunities which are more likely to afford them longer contracts.

SEDA had approved 140 applications for flood relief with a total value of R50.2 million. This means that the budget allocated for this programme had been fully committed. Of that total, R34.8 million of approvals was committed in KZN and R15.3 million in the Eastern Cape.

Procurement is done according to a province’s dominant sector. This is agriculture, followed by manufacturing, followed by the services sector, and the other sectors follow thereafter. Procurement is well underway. To date, 139 purchase orders have been issued. Sixty-eight of these have been paid. This means that equipment or what needs to be procured for the applicant has been done. This is a moving target. If 249 applications are approved and 139 purchase orders issued, this does not mean that purchase orders have been issued for each approval. For example, one applicant may apply for perhaps three items. A lot of progress is being made.

SEDA’s strategy to avoid ‘double dipping’ applies to the flood relief. SEDA continues with the approvals and shares the database with the IDC and the Department of Agriculture to ensure that there are no duplicates on SEDA’s list. One was picked up from the IDC and another one from the Department of Agriculture, and SEDA addressed the matter. As SEDA continues to approve clients, the information is shared with other organisations that are involved in flood relief schemes.

SEFA response
Mr Alroy Dirks replied about the viability of the business and the criteria SEFA uses. SEFA lends in the context of the National Credit Act which states that one must be a responsible lender. However, SEFA is essentially a cash flow lender where cash flow of the business and the ability of an applicant to honour and repay the payment obligations is paid attention to. Therefore, business viability is the core criteria that SEFA uses to assess an application. Linked to business viability is a model that makes use of the development impact which such an application will achieve in terms of redress, job creation, environment impact, geographic spread of where entrepreneurs are being funded and the aid demographic. These are criteria which are used in determining an application.

On the overachievement of disbursements, Mr Dirks recalled that in the 2021/22 Quarter 4 report, SEFA indicated the approval of R1 billion in loan facilities to SMMEs. Of this R1 billion, not all facilities were disbursed and therefore this disbursement was carried over to Quarter 1 this year. Hence, the overachievement of 142% in disbursements.

SEFA’s response in particular to the KZN and Gauteng riots was to introduce the business recovery programme in support of clients affected by these riots. SEFA made a R300 million budget available. 96 SMMEs were supported to the value of R94 million in KZN. SEFA supported 168 SMMEs to the value of R156 million in Gauteng. This totals R250 million disbursed. SEFA is still processing another R50 million in applications linked to this budget.

On the underperformance in the micro-finance disbursements, Mr Dirks replied that the micro-finance programme is cyclical in nature. Quarter 1 is typically low and then it picks up during Quarter 3 and 4 as the year ends. Another factor that needs to be taken into account is that during April the Moria Easter activities in Limpopo is a source of heightened activity for many micro-finance operators in Limpopo. The fact that the gathering did not take place in the past two years has impacted the micro-finance activity particularly in Limpopo. Thus also accounting for the underperformance in disbursements.

SEFA does do local radio station outreach. The presentation indicates that several outreach programmes via community radio stations have been used to reach SMMEs. This is what SEFA’s regional managers in the provinces do on a weekly basis to talk to its client base. SEFA has provided an analysis in the presentation on the radio stations that have been reached.

On turnaround times for application approvals, SEFA’s analysis in the presentation reflected that SEFA has underachieved. For direct lending, SEFA had set turnaround times for approvals. SEFA has two lending channels. The first channel being the direct lending channel and the second one being the wholesale lending channel. For the direct lending channel, the set target to approve a loan facility is within 40 days. For Quarter 1, a target of 53 days was achieved. This shows that SEFA underachieved that target by 13 days. The wholesale facility is dedicated to more complex applications which require more intense detail, and for this SEFA has underachieved. The target was set at 55 days from application to approval and SEFA achieved 70 days. This was 79% of the approval target.

Mr Dirks said that an important point must be recognised in processing of applications, is the supporting documentation required. SEFA relies on this as required by the legislation that SEFA is subject to so applications can be approved. Many times there is a waiting period while SEFA waits for applicants to provide this documentation to complete SEFA’s own due diligence.

However, to improve the application process, SEFA has introduced the loan origination system. This is an online portal which automates the SEFA application process and takes the entrepreneur through the different phases of the application process. At the end of the application process, there is a document set list that is required. Once the entrepreneur has completed the complete application, the entrepreneur obtains an application number that can be tracked for processing the application within SEFA. However, SEFA will be pleased to make a report available to the Committee about the applications received and the details on the amount of time taken to approve these applications. Where an application was declined, SEFA will provide the necessary reasons why that application was declined.

As stated earlier about the flood relief programme, he has provided the details of the clients that SEFA has supported. He drew the Committee’s attention to the fact that SEFA’s funding activities are audited in detail by external auditors as part of its performance audit report which gets submitted as part of the requirements of the Public Finance Management Act.

SEFA has done three things thus far about load shedding. It is conducting a research study including a research survey which asks the fundamental question on how load shedding impacts SEFA’s funded clients. This study and the analysis should be completed by the end of the month.

The second intervention being approved by SEFA as part of its funding facilities in addition to its due diligence, is to consider if their funded clients or applicants have access to alternative sources of energy. In this case, generators are being considered. As part of SEFA’s funding proposal, it has provided additional loan facilities to mitigate against the potential impact of load shedding.

The third intervention SEFA does for its clients who are struggling as a result of load shedding and the inability to honour loan repayments, is to engage in restructuring the client’s payment facilities by providing these clients with extended periods for payments as well as payment holidays. This forms part of SEFA’s post investment support to its funded clients who are struggling as a result of the impact of load shedding.

DSBD Response
Mr Jeffrey Ndumo, DSBD Acting Deputy Director-General, said that after the Department had received the Business Amendment Act from the Department of Trade and Industry, which was done in 2020 through proclamation of the President, the Bill was given to the Department of Small Business. The Department has gone through various phases to engage the provinces and municipalities on the Bill as it was received from the Department of Trade and Industry. After the Bill was submitted for the Socio Economic Impact Assessment System (SEIAS) process and to the State Law Advisor, the comment on the Bill was that it needs to be made a Bill that has dual powers. These are powers of the national government which is the Minister, and powers of municipalities and provinces. Initially, the Bill was drafted as a Bill with the sole jurisdiction of the Minister of Trade and Industry. This meant that the Department had go back to the drawing board and restructure the Bill to reflect the duality of powers. The Department has reformulated the Bill after receiving this input and is engaging on the Amendment Bill with the provinces.

This week, the Department is engaging with the province of KwaZulu-Natal including all stakeholders and municipalities in the province and its Department of Economic Development so it can receive input. The Department wants to visit all nine provinces and once this is completed, the Department will be able to publish the Bill for public comment via Cabinet. The Department anticipates that it will be able to bring the Bill to Parliament by January, February or March 2023. So the Bill is going through the consultation process and thereafter it will to Cabinet for approval for publishing for public comment for 60 or 90 days, and then sent to Parliament. The Department is working tirelessly to ensure that the Bill is brought to Parliament.

The Bill sets out a new licensing framework in the area of municipalities. The Bill provides municipalities with the power to issue how business licensing which is governed by norms and standards that municipalities will need to abide by as set out in the legislation. The Bill deals with acceptable charges for licensing fees by municipalities. The regulations will set out the benchmarks of what will be an acceptable fee so that red tape is not created in the process.

The Bill addresses red tape by making business licensing simpler and much easier to obtain. This is especially true for start-ups and the SMME sector. It outlines a clear process of regulation which governs certain areas which includes the issue of foreigners. This stipulates if foreigners should be given licensing in South Africa. It deals with the undesirable sectors stipulated by the Minister in the regulations. This is to protect the informal economy in particular, where foreigners should not be able to participate. The Department anticipates finalising the Bill by January or February 2023.

On the delay in the appointment of the service provider, this was due to the fact that the Department initially sought to use the Government Technical Advisory Centre (GTAC) as a service provider for assistance. The Department had sought to use a service provider to assist with the infrastructure, however it became clear that this was a single source and it was rejected by the National Treasury. Thus the process had to be newly started by going to the market. When going to the market, especially for a project which above R1 million, it requires a full competitive bid. This process takes a month or more, and thereafter it returns to the SCM process and a service provider is appointed.

On the Department’s under expenditure on its operational budget, Ms Oosterwyk replied that DSBD reported 89.6% for compensation for employees. On goods and services, it overshot to 103.3%. Capital expenditure underperformed at 70.5%. Overall, the expenditure is 94.2% with a variance of 5.8%. This excludes transfers and subsidies.

On the delay in the meetings with municipalities, Mr Mkhumane replied that that the meetings had now happened. DSBD targets the municipal manager and supply chain management. It also targets the people responsible for issuing licences and political staff. The workshops were all scheduled for June.

Mr Mkhumane began experiencing technical difficulties and was no longer audible.

Mr Mzoxolo Maki, Acting Deputy-Director, took over and explained that to ensure the availability of the category of managers mentioned by Mr Mkhumane, the meetings had to be rescheduled which resulted in the meetings taking place from 21 July which falls under Quarter 2. Therefore in Quarter 2, DSBD will be able to report on this progress as the meetings did take place.

On the breakdown of competitive businesses, the Department had an assortment of programmes responsible for the non-financial support for business development. It had 1 185 businesses which were supported by SEDA under its Business Development Service (BDS) programme and 3 865 businesses were supported under its Township and Rural Entrepreneurship (TREP) programme. SEDA supported 190 youth start-ups with non-financial support. Under SheTrades SA, the Department had 327 and it had 16 businesses on the listed products. Under financial support, the spaza shop facility had 200 businesses amounting to R2.1 million under TREP. This includes informal traders. The Department had 265 amounting to R102.4 million. Under SEFA Direct Lending intermediaries managed funds and Khula Credit Guarantee (KCG) had 539 businesses which amounted to R416 million. Under youth start-ups, the Department had 445 businesses which amounted to R34 million.

If a further breakdown is done according to targeted groups an impressive job was sustained. Of this amount, 709 were women operated businesses, 237 were youth-operated, five were operated by people with disabilities and 16 were cooperatives. The Department had a marked improvement on the cooperatives supported – 98 cooperatives were supported under TREP.

Therefore throughout the breakdown, the number of businesses owned and operated by women is the most that the Department supports as a portfolio, this is followed by youth-operated businesses and cooperatives, while the people with disabilities come in fourth place.

On the delays related to TREP, the Department had challenges in the submission of documents and the lack of proper documentation being submitted by beneficiaries. This caused a to-and-fro for the missing documents. The Department also had issues about quotations, some of which were broached sharply by the colleagues at SEFA.

One of the challenges faced by the Department is the number of applications received compared to the number of available personnel to process the applications. There is a serious misalignment with the personnel that is lacking which causes delays. Thus DSBD is attempting to see how the situation can be ameliorated so that the number of available personnel to consider and process the applications is commensurate with the number of applications received.

On cooperatives, Mr Lindokuhle Mkhumane replied that the Department believes that cooperatives have a strong role to play. This is especially for promoting inclusive economic growth so that these people, especially those based in rural areas, are able to participate in the economy. This is why DSBD never shies away from attempting to intervene in the space. The Department has not been successful; however it has adopted the approach of ensuring that primary cooperatives are the ones which will be focused on. There has been a lot of support at secondary and tertiary level which the DSBD believes is not sustainable. Therefore, its focus has turned towards those people at the primary level. These are people who are doing the actual work rather than supporting these supporting structures.

Mr Mkhumane noted that the Minister has directed the Department to review the support of cooperatives. The Department has had some engagements which it is considering. These engagements taking place with the cooperatives sector is to ensure that the Department does assist them or that it finds better ways of assisting them.

The Department has entered into a partnership agreement to assist in empowering cooperatives. SEDA plays a critical role to ensure that it prepares the cooperative for financial support. At an appropriate time, the Department will be able to brief the Committee about how it is going to support cooperatives going forward, however there are a number of initiatives that DSBD is working on. For example, SEFA is working on an aggregator model to ensure that it has access to markets as well as support from the other side to ensure that one produces goods which are good quality and acceptable in the market. 



Closing remarks by Deputy Minister
Deputy Minister Dlamini said that he appreciates the robustness of these meetings and that the Portfolio Committee is always assisting the Department. It has noted all the questions, comments and concerns raised by the Committee members and these will all be factored into its plans going forward. He made a promise that in future there will be great improvement in the performance of the Department.

The Committee adopted the previous minutes and the meeting was adjourned.
 

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