DSBD & SEDA Annual Report 2021/22; with Minister and Deputy Minister
Small Business Development
12 October 2022
Chairperson: Ms V Siwela (ANC)
Small Enterprise Development Agency (SEDA)
Small Enterprise Finance Agency (SEFA)
The Department of Small Business Development (DSBD) and its two entities, the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA), presented their 2021/22 annual performance reports in a virtual meeting.
In her opening remarks, the Minister said there had been some successes in the previous year for the DSBD and its entities. The SEDA's performance had shown an improvement, having achieved 24 of their 30 set indicators, while SEFA had done well on their loan book. Some areas had underperformed, but the Department had strategies in place to address these issues going forward.
DSBD achieved 60% of targets for the year. This was a regression from 86% in the previous financial year. The Department achieved an unqualified audit outcome on non-financial performance information and Annual Financial Statements for the 2020/21 financial year.
SEFA obtained an unqualified audit opinion, in keeping with the trend for the past ten years.
SEDA achieved 24 of 30 targets which was a performance of 80%. 181 984 clients were supported and 31 457 clients were supported under the TREP.
In the year under review, Seda received an unqualified audit opinion, however, AGSA identified limitations in the management of the performance information, which requires management attention.
Members stressed the need to reduce "red tape" to make it easier for small businesses to access financial support. SEDA needed to be more proactive in informing the public about government's plans for small enterprises. Timeous payment of invoices was critical, as small, medium and micro enterprises (SMMEs) were vulnerable to cash flow problems. Why had disbursements to youth-owned businesses underperformed? Members expressed concern over the Department's high staff turnover, its effect on service delivery, and the delay in funds reaching small businesses affected by the floods in KwaZulu-Natal and the Eastern Cape. They also wanted to know how the spaza shop support programme could be improved.
Ms Stella Ndabeni-Abrahams, Minister of Small Business Development, provided an overview of the presentation. She highlighted the Department's administrative performance, specifically a 66.7% achievement of the nine transformation targets, and a 66% performance in the sector policy and research branch. However, there was an underperformance of 50% on integrated cooperatives development, and enterprise development and entrepreneurship.
DSBD Annual Report 2021/22
Mr Lindokuhle Mkhumane, Director-General, DSBD, Ms Semphete Oosterwyk, Chief Financial Officer, and Ms Mbatha, Director of Corporate Management, presented the annual report for the Department of Small Business Development.
The Department achieved 60% of targets for the year. This was a regression from 86% in the previous financial year.
Programme performance highlights
Programme 1: Administration
-Unqualified audit outcome on non-financial performance information and Annual Financial Statements for the 2020/21 financial year.
-0.9% variance on annual budget (Target: 5% variance on annual budget).
-3.8% representation of PWDs (Target: ≥3.2% representation of PWDs).
-82 DSBD and its agencies’ public engagement programmes implemented in district municipalities (Target: 24).
-Phase 3: SMME Database – Key Trade Exchange Platform integrated and enhanced reporting was implemented.
Programme 2: Sector And Market Development
-288 products produced and services rendered by SMMEs and cooperatives linked to market (Target: 250).
-242 SMMEs and Cooperatives exposed to international market opportunities (Target: 200).
-Annual Report on the contribution to jobs by SMMEs and cooperatives in economic sectors was approved by EXCO.
-SMMEs Development Index Survey report was approved by EXCO.
Programme 3: Development Finance
-953 Crafters supported through the Craft Customised Sector Programme (Target: 800).
-13 369 start-up youth businesses supported financially and non-financially (Target: 5 000).
-Consolidated report on the 70 384 competitive SMMEs and cooperatives supported approved by EXCO (Target: 25 000).
Programme 4: Enterprise Development
-National Integrated Small Enterprise Development Masterplan submitted to Minister for Cabinet approval.
Three districts assisted through the Red-Tape Reduction Action Plan:
Harry Gwala (Ubuhlebezwe local municipality),
King Cetshwayo (uMhlathuze local municipality) and
Ugu (Ray Nkonyeni local municipality).
The Department reported no unathorised expenditure and no new irregular expenditure for the year under review, cases incurred during the prior years were resolved during 2021/22. There is one claim under assessment as no payment has been made yet.
There were two cases of irregular expenditure worth R6 000 for an official missing a flight and interest charged on late pay-over of GEPF deductions.
(See document for details on areas of underperformance, strategies to overcome underachievement, response to covid19, and financial performance)
SEFA Annual Report 2021/22
Mr Mxolisi Matshamba, Chief Executive Officer (CEO), SEFA, presented the SEFA annual report. The presentation detailed the performance highlights for the financial year under review namely, loan book performance, disbursements, geographic spread of activities, funding activities and developmental impact – see presentation for details.
SEFA obtained an unqualified audit opinion, in keeping with the trend for the past ten years.
Sefa’s financial position showed an improvement which was supported by the increased size of the loan book and the increase in cash and cash equivalents. The net loans and advances have increased by R640 million to a carrying amount of R1.5 billion at year end. The improvement in the cost-to-income ratio was a result of:
-growth in revenue achieved of 43%
-interest earned on cash balances
-operational cost savings realised during the year when compared to budget.
Net profit after tax for the Group for the year was R98.3 million, showing a reduction of R454 million on the previous year’s losses. It is important to note however that the Group made a loss before tax of R171 million (2021: R283 million). A provision for tax was raised in the prior year for allocations received from DSBD and this provision was reversed in the current year after the relevant tax legislation was amended.
-Interest on loans and advances increased from the previous year by R65 million due to the increased loan book size in the current year and lower interest earned in the previous year as six months loan repayment moratoriums were provided to some clients.
-Rental income earned from the property portfolio increased by R7.1 million in the current year relative to the previous year. The prior year amount was lower due to the six months rental payment holidays provided to some tenants as part of COVID-19 relief.
-Interest on cash and cash equivalents has increased by R28 million from the previous year due to higher average cash balances held during the 2022 financial year.
This was driven mainly by the various funding allocations received under the economic recovery programmes from the Department of Small Business Development and Tourism Equity Funds (TEF) from the Department of Tourism.
-Sefa’s share of net profits from equity-accounted investments was slightly higher by R1.1 million in the current year compared to the previous year.
-Savings in operating costs when compared to budgets were realised during the year, with a bulk of the savings derived from lower technical reserves movement (R95 million) due to lower take-ups in KCG, lower consulting expenses (R7 million) and depreciation (R6 million).
-Operating expenditure (excluding grant expenses, impairments and bad debts written off) decreased by R61 million year on year.
A significant portion of the decrease was due to income taxation penalty provision (R27 million) raised in the prior year, which was reversed in the current financial year resulting in a R54 million positive movement.
-Overall impairments write-off and bad debt provisions on loans and advances have increased by a net amount of R339 million from the previous year due to the growth in the loan portfolio
-Low growth economic environment impacting the performance of SMME sector, in particular, sefa clients, leading to an increase in impairments and defaults.
-Sefa/Seda/CBDA merger – creating organisational uncertainty, increased resignation of key employees, which has adverse impact on organisational performance.
-Khula Credit Guarantee – owing to low uptake of the approved facilities, and delays in implementing the TREP.
-Application funding readiness of clients, impacting loan approvals turnaround times.
(See document for details on performance per programme)
SEDA Annual Report 2021/22
Mr Nkosinathi Mbatha, Acting CEO, SEDA, Mr Elias Maabane, SEDA Acting CFO, took Members through the presentation. SEDA achieved 24 of 30 targets which was a performance of 80%. 181 984 clients were supported and 31 457 clients were supported under the TREP.
In the year under review, Seda received an unqualified audit opinion, however, AGSA identified limitations in the management of the performance information, which requires management attention; key weaknesses emanate from various levels of data collection aggregation and validation. Seda is currently implementing a reporting system which is in final stages of development
Seda spent R1.185 billion, representing 99.6% of the available budget. Seda does not have any surplus funds to roll over for the first time in more than five years
(See document for performance per programme)
Mr H Kruger (DA) commented that to reduce the level of red tape, the DSBD had engaged with municipalities, and wanted to know to what extent this had influenced the level of engagement between municipalities and small, medium and micro enterprises (SMMEs).
He wanted an explanation of the under-performance in the development of cooperatives' programme. The Department had spent 98% of its budget but achieved only 14% of the desired outcomes for this programme. There must be a problem.
He asked about the percentage of disabled people assisted with opening businesses.
The Small Enterprise Amendment Bill was at a stage of development where it would not be ready in time to be approved before the current Parliament ended, so the process would have to be restarted in 2024. He proposed that the Committee take matters into their own hands and introduce a Committee Bill.
He asked SEFA if, from a business perspective, they thought that the current model was sustainable or not.
Mr Kruger asked about their property portfolio -- how accurate the database was, and if they knew where all their properties were -- because, in rural areas, it could sometimes be difficult to track who owned certain properties.
He asked if they could significantly reduce the R339 million in impairments so that many more SMMEs could be served with that windfall. SMMEs often complained about red tape, but also about finance.
Mr G Hendricks (Al Jama-ah) reiterated the President’s promise to the nation that the Committee was meant to carry out, which was that the most vulnerable in society should not face obstructions in obtaining permits to trade. Moving the permit procurement process from the municipalities to the DSBD was meant to facilitate this. However, implementation had been slow. He asked the Chairperson to ask the DSBD if they would consider offering certificates of application so that traders could do business while waiting for registration. He felt this process would go a long way to fulfilling the mandate. He also encouraged SEDA to be more proactive in informing the public about government’s programmes.
Mr H April (ANC) asked what the DSBD, as a coordinating department for SMMEs, was doing to ensure that businesses were paid the money that national and provincial departments owed them.
He questioned why the Department had failed to pay certain valid creditors within the 25-day period they had set for themselves, especially since small businesses were vulnerable to slow cash flow problems. What was the rand value of these late payments, how many businesses were affected, and the strategy to prevent this in future?
He requested that the Department provide clarity on the financial and non-financial support given to youth start-ups and a demographic breakdown by gender, race and location. He wanted to know the Department’s strategy to make these start-ups more sustainable going forward
About the Township and Rural Enterprise Programme (TREP) sectors, Mr April wanted to know what had led to the underperformance in this sector, and what was being done about it. He also asked which new sectors had been identified to expand the TREP.
He asked SEFA what its best and worst challenges in the past decade had been.
How much did it cost SEFA to disburse funds to micro-lenders, cooperatives, and other SMMEs, and how much of the total amount disbursed was disbursed to cooperatives, compared to SMMEs?
With the youth unemployment issue in mind, he asked why disbursements to youth-owned enterprises had underperformed in the 2021/22 financial year.
He requested that SEFA provide a demographic breakdown by gender and location for the spaza shops it had assisted.
He asked for details about SEFA’s performance in the automotive aftermarket programme.
What steps had SEFA taken to ensure that intermediaries charged fair interest rates to micro-lenders in the 2021/22 financial year? He also asked how much it costs SEFA to lend to the intermediaries that lend to informal traders and micro-lenders, compared to what it would cost SEFA to lend directly to the sector.
He asked what support the Portfolio Committee provided to support SEFA in terms of legislation to help improve performance, since they were serving the same purpose of addressing unemployment in the country.
Mr April expressed his concern about the high turnover of staff in the Department, and how it affected performance. There needed to be a concrete plan to address this, especially with the high levels of unemployment.
Mr D Mthenjane (EFF) asked how far the Department had gone to help the people affected by the floods in Durban, since this was not mentioned in the report.
He told SEFA that they would like the breakdown of its support to small businesses to go even further -- by province was not enough. A regional breakdown in future would help in addressing the regions that may not have received sufficient support.
He asked SEFA to explain the criteria used to process a request for funds. Was there a special procedure, or did they process all requests the same way, because there were complaints that people submitted applications and received no response? Regardless of whether they were eligible or not, there needed to be feedback to these businesses.
Ms B Mathulelwa (EFF) called SEFA's spending into question, because none of its funds had reached the victims of the floods and unrest in KwaZulu-Natal. She also mentioned the Auditor-General’s findings of corruption within the Department and questioned whether the audit report was truly accurate. She also requested a list or database of the SMMEs that SEFA had aided, in the interest of transparency.
Ms Mathulelwa also requested SEDA to provide a breakdown of performance by region, rather than by province in the future.
She was frustrated by the DSBD for not sharing the latest developments on their activities, especially its progress with legislation. This created a situation where the Committee and the Department were not working in tandem with one another.
Mr F Jacobs (ANC) noted that the Department had met most of its targets and received a clean audit, and they deserved congratulations for that. He acknowledged that there had been incidents of corruption and agreed that those people should be held accountable, but added that the government and the ANC’s performance should not be wholly dismissed as a result.
He asked what strategy the DSBD had in place to empower women by increasing the number of women using the SheTradesZA platform, since it had not reached its 2021/22 targets. He commented that many women were informal traders and vulnerable groups such as disabled women. He asked how the Department planned to make its platforms more accessible to ensure that nobody was left behind.
He asked the Department if there was a strategy for localising solar panel manufacturing to help address the energy crisis, especially in the areas servicing previously disadvantaged people.
He asked for a breakdown of where cooperatives were located, and whether there was a plan to improve this sector’s performance.
It was unacceptable to bring the Small Enterprise Amendment Bill only in December next year, and he felt that there needed to be more regular updates. He also asked whether the Department had the capacity to implement the bill.
Mr Jacobs wanted to know about the under-spending in the Department, asking it to account for the 63% under-expenditure on the European Union (EU) funding and what its impact was.
What could be done to expand the youth programme, and how had that been going?
Referring to the spaza shop support programme, he asked what SEFA was going to do differently to support spazas going forward to address the underperformance. How was this model going to be different? How could the private sector be incentivised to help more without focusing solely on profit generation, but on accessibility to the people?
Mr Jacobs asked what SEDA had done to mitigate the impact of budget cuts on their programmes, especially the technology transfer programme. Had it conducted a needs analysis to look at the uptick of panel beaters, motor mechanics and other automotive aftermarket sector actors, and if so, what were the findings of this report? How would SEDA take advantage of the opportunities afforded by the African Free Trade Agreement (AFTA)?
SEDA had missed its cooperatives targets -- what was the plan to address that, as well as the youth-oriented targets? He emphasised that it was important to get the private sector on board and maximise the amount of money accessible to these departments to help more people.
The Chairperson thanked the Members for their questions because the main goal was job creation, and these questions were necessary for that.
Mr Mkhumane clarified that the Committee had given the Department a deadline of 31 December for the Bill, and they were working with Cabinet towards that deadline.
Mr Mhlanganisi Masoga, Director: Policy Development, DSBD, referred to the Businesses Act Amendment Bill and the role of municipalities and provinces in the Department’s issuing of licences. He said the Department planned to bring the Bill to Parliament in early 2023.
He said it was not possible to centralise the licensing process to a national level because the constitution stated that the regulation of street trading was the exclusive competency of the provinces. However, as a Department and Committee, they should work on creating national trade legislation that guides the provinces and municipalities.
The key was to get the bill going to facilitate the work that provinces wanted to do. Without the legislation nationally, governments were constrained to do the work
Mr Matshamba, responding to the questions directed to SEFA, said the entity aimed to appoint a sector specialist to facilitate improvement in the people with disabilities sector. There had been a slight improvement, but they were still working to do more.
He said that the current SEFA funding model was sustainable. The main area where they wanted to improve was the quality of the loans.
On the management of owned buildings, he said their database was accurate because local municipalities impose rates and penalise late payments. They keep an accurate book and minimise wasteful spending. They were also working to stop issues such as sub-letting in those buildings.
On impairments, he said that the Department was making sure that new loans were of high quality and would result in the money being paid back. He commented that the lending space was an inherently high-risk environment, so there would be some money that would have to be written off. They were also training and upskilling people, especially young entrepreneurs.
On the cost of lending, he said the cost for micro-lending was 7c per rand, for wholesale lending to SMMEs it was 21c, and for direct lending to clients, it was 43c. The Khula Credit Guarantee (KCG) cost only 2c per rand, and was one of the most efficient lending products they had. The Department wants to drive partnerships with the banks for KCG to leverage its user bases so that they could lend to and support more people.
The big goal was to improve the capacity of SEFA, so the support the Committee could provide was access to more funding, especially for KCG and micro lending.
He said that SEFA does not lend to intermediaries that were not registered to the National Credit Regulator to protect micro-lenders.
He agreed that understaffing and high turnover was a major issue because it meant that the current employees were overstretched in their roles, which could lead to a reduction in performance. They were working to employ more workers with 24-month contracts, but it had been challenging.
On turnaround time, the Department introduced a loan origination system that showed applicants the progress of their application so that they knew how far along they were in the approval process.
Regarding the request for information about SMME loan recipients, they were still looking for legal clarity because of the Protection of Personal Information (POPI) Act, and the difficulty in releasing the personal information of clients.
He said there was no substantiated evidence of corruption at SEFA, but an independent entity had been appointed to run a whistle-blowing line. They had also sourced an outside panel of auditors to search for this information.
There were high levels of impairments in the cooperatives sector, with R5m having to be written off as an example. SEFA had found that the lack of governance structures around this sector was a potential cause. They were working on it, and were confident that by the end of the year, there would be better results because of improved governance.
On the question of spazas and funding them alongside banks, they were reviewing this model to fund them perhaps through suppliers, rather than banks -- for example, lending through subsidies. However, they were still working on this.
Mr Mbatha agreed with Mr Hendricks that more work needed to be done to be more visible and inform people about SEDA’s opportunities.
On the start-ups and youth-owned businesses, he highlighted the issue of market access. Businesses could access funding, but it was difficult to enter the market. The Department had therefore started training and lending some of these businesses assistance in marketing, as well helping with their sustainability. There was also management training to help business owners deal with growing their businesses. In their packages, they try to offer enough support to cover the challenges that businesses often face.
Responding to a Member's comments on the KZN flood aid, he said that the Department had a budget of R50 million to split between KZN and the Eastern Cape (EC). In the second quarter report, they would deliver a breakdown of how this would be spent. Of that R50 million, R35 million had been allocated to KZN and R15 million to the Eastern Cape, and with this, they had been able to sustain the jobs that would have been lost without it. To date, they have paid out about R26 million.
Regarding its visibility, SEDA had representation in most districts and aimed to have offices and access points within reach of the most dense residential areas. They had missed their targets in the first two quarters, but were confident that by the year-end, they would have the access points available.
He said the Department had sought additional funding for training. The National Skills Fund (NSF) had approved about R55 million, but they were exploring options to get more, such as more private sector investment.
They were actively looking to address turnover, which was very important to them. They were reviewing their contract periods as well, to become more attractive.
Mr Mkhumane responded to some of the questions addressed to SEFA.
Regarding red tape reduction, SEFA had identified several possible interventions and worked on them at the district level. The seven key indicators for municipalities that they had identified were prompt payment; communication of business information; supply chain management; business licence and permit issue; complaints management; target procurement; and informal sector management.
On expenditure control, especially in Programme 3, the Department did spend money and achieved a lot, but they still considered a 90% performance as an under-achievement, so that could colour some of the reports negatively.
On making sure small businesses were paid on time, he said the payment of SMMEs was part of the performance targets of accounting officers, so if these goals were not met, there needed to be consequence management. The Department was working on this. They were also working on getting a clearer breakdown of payments, as some were to small businesses and some were to larger corporations, but they were being reported together.
An invoice that the Department was not able to pay had been a payment to Vodacom amounting to R30 000.
The Department was working with the State Information Technology Agency (SITA) to develop an invoice tracking system to optimise the payments to small businesses, and other invoices.
On the expansion of TREP, the Department had expanded this sector to support any business operating in townships and rural areas.
He said the Auditor-General’s findings had been for the 2015/16 and 2016/17 financial years. The requisite consequence management was already underway, and the relevant people were being investigated. The Department received a clean audit for the 2021/22 financial year.
The SheTradesZA targets were not achieved, but they worked closely with the Department of Women, Youth, and Persons with Disabilities to better engage with women-owned enterprises and provide support. They aimed to have 40% of their interventions going towards women-owned enterprises.
On the understanding of product markets, there was a gap in expertise in the Department as they required experts in engineering and other fields so that they were not taken advantage of by service providers. This led to delays in the construction sector, but the Department did not want to overspend unnecessarily.
Some of the Youth Challenge Fund had been made available, but it was not enough to address the gap. They had ring-fenced funds from other schemes to redirect them to the youth. They had also found a lack of quality in applications, so they wanted to assist the youth with knowledge in this area as well.
There had been delays in the EU spending because of the red tape involved. However, the money was not lost and rolled over to the next financial year to facilitate the planned programmes. There were conditions attached to these funds, and the departments had to produce business and annual plans for approval to use these funds.
Deputy Minister's closing remarks
Mr Sidumo Dlamini, Deputy Minister of Small Business Development, thanked the Committee for their support and feedback to the Department and its entities. The questions brought up by the Members would help them to operate better than before. The Department and the Committee would continue to work together, as they had the same goal of bringing services to the people of the country.
The Chairperson thanked the SEDA and SEFA teams for their presentations. She urged them to keep on going, and said the Committee was behind them.
The Committee adopted the minutes of a previous meeting.
The meeting was adjourned.
Siwela, Ms VS
April, Mr HG
Dlamini, Mr SM
Hendricks, Mr MGE
Jacobs, Mr F
Kruger, Mr HC
Lubengo, Ms ML
Mathulelwa, Ms B
Mthenjane, Mr DF
Myeni, Mr ET
Ndabeni-Abrahams, Ms ST
Tlhomelang, Ms KB
Zungula, Mr V
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