Implementation of DSBD BRRR; Proposed Committee Bill; with Deputy Minister
Small Business Development
01 March 2023
Chairperson: Ms V Siwela (ANC) & Mr H April (ANC)
The Portfolio Committee met virtually to be briefed by the Constitutional and Legal Services Office (CLSO) about the proposed Committee Bill, and to consider and debate the feedback from the Department of Small Business Development (DSBD) on the implementation of the Budget Review and Recommendation Report (BRRR).
The Committee expressed its happiness with the presentation by the CLSO, stating that it was a step in the right direction in getting the Bill passed and effectively serving small businesses. However, it was concerned over how the necessary public participation would take place.
The Department's presentation provided extensive feedback on the Committee’s BRRR observations and recommendations, which covered a number of areas, particularly those concerning co-operatives, sole proprietors, and informal and rural businesses. It stressed that the Department would revise the programme and increase the grant component for co-operatives. The merger of the Small Enterprise Development Agency (SEDA), the Small Enterprise Finance Agency (SEFA) and the Co-operative Banks Development Agency (CBDA) would help streamline services, consolidate budgets, and increase efficiency in meeting its targets. This merger was in process, and SEDA and SEFA were already collaborating on some programmes
The Committee expressed concern about a variety of topics covered in the presentation, including a lack of consideration for co-operatives, small businesses in townships and rural areas, and limited provision for the youth, women, and people with disabilities. The Committee shared its frustration as it had not yet received the requested beneficiary lists of the small businesses that had received the COVID-19 and Flood Relief Funds necessary for it to perform oversight. Members were also concerned about the red tape surrounding the application process for funding. The Committee appreciated the introduction of an Energy Relief Fund, but was disappointed with the lack of details about this project.
The Chairperson said the purpose of the meeting was to hear and engage with the presentation by the Constitutional and Legal Services Office (CLSO) on the legislative drafting unit of the proposed Committee Bill, a briefing by the Department of Small Business Development (DSBD) on the Budgetary Review and Recommendations Report (BRRR) observations and recommendations, and the adoption of previous meeting minutes.
The Chairperson welcomed Mr Sdumo Dlamini, Deputy Minister of Small Business Development.
The Chairperson apologised for not being able to stay for the duration of the meeting due to medical reasons and asked the Committee to appoint an acting Chairperson in her absence.
Mr H April (ANC) was nominated and seconded as the acting Chairperson.
The acting Chairperson requested that the Committee observe a minute of silence for Ms Maurencia Gillion (ANC), a Member of Parliament (MP) in the NCOP, who had passed away the previous day.
CLSO Presentation on proposed Committee Bill
Ms Telana Halley, Parliamentary Legal Advisor, CLSO, delivered a presentation on the process and timeframe of the proposed Committee Bill.
Ms Halley said that before the Bill or amendment could be drafted, a policy document had to be created outlining what the Committee aimed to achieve and what the Bill would entail. The development of a policy document could take approximately one to two months.
The presentation extensively outlined the process for creating the Bill, and provided an estimated timeframe. It was estimated that an average of six to ten months would be required to develop and process the Bill in the National Assembly (NA), followed by an average of two to three months in the National Council of Provinces (NCOP). The total estimated timeframe for the processing of the Bill was between eight and 13 months.
She emphasised that the CLSO would not develop the policy. This would need to be done by the relevant stakeholders and experts, but the entity could assist in drafting the Bill.
Mr H Kruger (DA) thanked the acting Chairperson and extended his congratulations to the acting Chairperson for chairing his first meeting, and extended his sympathy to the family of the late Ms Gillion.
Based on the presentation delivered, he said there was no reason not to continue with the Bill. In his understanding, it took approximately 13 months to finalise a Bill and if it was accepted that the election would take place in May 2024, there were approximately 14 months to push the Bill through. He said an effort should be made to actively work on the Bill so that they could serve small businesses.
Ms B Mathulelwa (EFF) also extended condolences to the family and friends of the late Ms Gillion. She said she was happy to have seen the presentation on the Bills, as the Committee was in the process of pushing through this particular Bill. She was more concerned with the many other Bills the Committee would have to put in place because of the many obstacles preventing small businesses from performing at their best and at full capacity. As an example, she highlighted the decriminalisation of the agricultural aspect of small businesses, as they were unable to operate freely in the farming sector. There was a problem with the by-laws clashing the development of small businesses. As a Committee concerned with this, they would need to amend as much legislation as possible to enable people to operate their own businesses wherever they were.
Ms K Tlhomelang (ANC) said she wanted to appreciate the presentation because of its perceived intention to fill in the gaps in the law, and this would allow the Committee to resolve the loopholes that were present.
She asked if the Committee would facilitate public participation, and what the actual process would consist of. How would the Committee ensure public engagement happened according to the public participation procedure?
Ms Halley responded that the process would consist of the Committee Secretary advertising the Bill, and comments by the public would be called for. It was up to the Portfolio Committee to decide what form the public participation would take because there was no set process, only guidelines that should be followed. She said that Mr King Kunene, Committee Secretary, would be best placed to advise the Committee if it would be done nationally, provincially, or both, as had been done with the amendment to Section 25 of the Constitution.
The acting Chairperson said that the Committee would decide, based on Mr Kunene’s advice, how the process would work.
BRRR observations and recommendations
Mr Lindokuhle Mkhumane, Director-General (DG), DSBD, provided feedback to the Committee on the BRRR observations and recommendations. The purpose was for the Department, the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA) to provide feedback to the Committee.
The presentation provided details on the feedback to the Portfolio Committee about the BRRR observations and recommendations, and what steps were being taken to implement the recommendations.
The Committee was particularly interested in aspects of the presentation that concerned co-operatives, sole proprietors, and informal and rural businesses. The presentation stressed that the Department would revise the programme and increase the grant component for co-operatives. The DG commented that this redesign could potentially help ease the issues related to the funding of co-operatives.
The presentation highlighted that the merger of SEDA, SEFA and the Co-operative Banks Development Agency (CBDA) would help streamline services, consolidate budgets, and increase efficiency in meeting its targets. This merger was in process, and SEDA and SEFA were already collaborating on some programmes.
The report noted that the Department was working toward easing the red tape which prevented successful funding applications. Red tape had made the application process difficult for many applicants who consequently could not access funding. The Department was committed to this objective.
The presentation emphasised that an effort was being made to ensure an equitable distribution of funds across all provinces, especially those where there were more townships and rural areas. It observed that during the 2022/23 financial year, SEFA had allocated more money to priority provinces to increase its reach.
Mr Kruger said that while he appreciated the presentation, his concern was with co-operatives. He expressed frustration when it was said that something would happen in the next quarter, as he had heard this since 2014 and nothing had happened yet. The problem was that communities were suffering, and there were many applications for co-operatives. He gave the example of farmers that needed to look after themselves and supply themselves with electricity. If farmers could come together, especially in small towns/dorps, and create co-operatives with the support of the DSBD, they would be able to generate electricity for themselves as well as the towns/dorps. He said that either the Department did not understand the working of co-operatives, or there was no appetite for giving co-operatives attention.
Mr Kruger said that the Minister of Finance had announced finance models for electricity, which had become a big problem for small businesses. The Minister had announced that businesses would receive a 125% deduction on their taxable income, and that households would receive an R15 000 rebate for solar power systems. He asked the DG if sole proprietor businesses that were not registered but did business from their homes would qualify for the 125% deduction or the household rebate of R15 000.
Mr D Mthenjane (EFF) expressed frustration that the Committee was hearing the same thing again. The DG had told the Committee that the people who were given money did not want to pay, but were living luxurious lives. This meant that the wrong people were being given funds, and money was being allocated to people living in the suburbs. These people did not need the money and were not using it for their businesses, but rather to support their luxury lives. He asked how the DG knew that these people were living luxury lives. The Department and its entities should provide the Committee with details of these people to whom money had been given to so that it could summon them and request a portfolio of evidence on what had happened with the funds received. This would allow the Committee to be on the same page as the DG, as what was being said and what was being experienced were different. The presentation had stated that the SEDA would provide details, but when would this happen? This would act as the starting point in figuring out the cause of the problem. He said that people had complained that they did not receive money because they did not meet the criteria. The application process was not user-friendly, and they were getting rejected. He asked if the criteria could be eased, because people who had been rejected were frustrated as they had provided the necessary information or documents, but were still being rejected.
Mr Mthenjane said that the merging of SEDA, SEFA, and the CBDA was taking too long. He asked why it was taking so long, and what was being done to speed up the process. The parliamentary term was almost over, but there was no tangible evidence that anything had happened. The plan was a good one, but nothing was being done.
He had not heard anything about the youth and people living with disabilities. Without consideration for the youth, they were turning to crime and drugs because there was nothing to keep them busy and no way to earn a living. The Department should not act like a “racist bank,” choosing who it gives money based on race and class.
He agreed with Mr Kruger, and said that it seemed that the Department was not worried about co-operatives and informal traders. These entities had little access to the basic necessities needed to earn a living for themselves. The Department should provide money for these entities to access necessities such as shelter and electricity. Rural areas should not be ignored, as the people there also had a right to access the funds, like those who had received money and lived luxury lives.
Ms Tlhomelang agreed with Mr Mthenjane that people from the rural areas were experiencing serious problems. She thought this was partly because public participation was avoided in these areas and that government chose instead to go into areas where there was little to no problem with service delivery. More attention had to be given to the previously disadvantaged areas. She said that it would be helpful for the Department to consider the information provided by the Deputy Minister in November-December 2022 after he went into a previously disadvantaged area to engage with the public on this matter.
Ms Tlhomelang was happy that progress had been made on the issue of red tape following the observations and support of the Committee. The revised criteria mentioned in the presentation to reduce the red tape around the process were beneficial.
She expressed concern that despite progress, she wanted to check if the Department had made provision for small, medium and micro enterprises (SMMEs), informal traders and co-operatives, and allocated them a specific percentage of the available funds. Did the revised criteria make provisions for allocations to the youth, people with disabilities, or women? Would the revised criteria allow those previously rejected, because of the strict criteria, the opportunity to re-apply? She asked if the revised criteria were already in place, or if they would come into effect at the beginning of the next financial year.
Ms Tlhomelang said that she had seen that the DSBD had appointed ten new staff members, but the organigram showed 144 vacant posts. She asked what the Department’s plan was to fill the other posts and if this affected its functioning.
Mr Mthenjane expressed his concern that Ms Tlhomelang was acting as a spokesperson for the Department, as she had stated that she agreed with his points and criticisms, while simultaneously opposing what he had said.
The acting Chairperson asked Ms Tlhomelang not to respond during the meeting so that the meeting would not become side-tracked from its agenda.
Mr J de Villiers (DA) said he understood the concerns of the other Members of the Committee about people who failed to qualify for funding. The Committee had been concerned about these people, while constantly trying to get a list of those who had succeeded in their applications and received funding. He asked why it had been so difficult to get the list of successful beneficiaries so that the Committee could understand who these people were and perform the necessary oversight, which was its duty.
He said that on 23 November 2022, a question had been put to the Ms Stella Ndabeni-Abrahams, Minister, of Small Business Development, to which she had replied and acknowledged that the full names and lists of all the beneficiaries of the COVID-19 Relief Fund package and the Flood Relief Fund would be accessible if requested. This had not been the case. He had emailed the Committee Chairperson the same day to formally request the full lists for the Committee, but had received no response. He asked the DG what hoops needed to be jumped through to get accurate lists of any relief packages given by the Department. This was necessary to do oversight, to see how and why certain people had qualified, and to understand how many people did not qualify, and why. It seemed like there was a shroud of secrecy around the list of beneficiaries. He asked the DG how the Committee could access these lists.
Mr de Villiers said that on 18 January, the Minister had announced an energy relief package for small businesses. He emphasised that small businesses were suffering because of the energy crisis, and called it the biggest crisis the country had seen since the end of apartheid. Loadshedding was destroying small businesses, and was destroying people’s livelihoods, jobs and means of income. Loadshedding was a problem in every household and business, small or big, regardless of race, class and religion, and that was why such a relief package had been welcomed. Since the announcement, the Minister had had an opportunity to speak for 13 minutes during the debate on the State of the Nation Address (SONA), but had not announced a date or provided any details on the energy relief package. He asked when details could be expected, because this was a highly urgent matter, and small businesses needed assistance. The longer it took to receive details about the package and begin the rollout, the more businesses were suffering and closing down. He said that when this package was released, the Committee should have access to the list of recipients, and the application process should not be difficult. There should not be racial preferences because loadshedding affects everyone.
Ms Mathulelwa supported Mr de Villiers's concerns about the list of beneficiaries who had received funds from the Department. The issue was that small businesses were a part of the beneficiaries of the COVID-19 Relief Fund, and there had been a misuse of funds relating to COVID-19 assistance. This was why there was so much concern about the list of beneficiaries, and it created suspicion as to why the Department did not want to release the list. They had been waiting for the list since 2021, and it was not practical to be waiting for these lists because, without it, the Committee was unable to do its due diligence. She said it was likely that some of the beneficiaries were family of Ministers, and were benefiting from money that was allocated as relief for small businesses. There was also an issue of "ghost" beneficiaries. She said that an energy relief fund was also necessary, especially for poultry farming, which required electricity and would have to shut down without financial intervention.
Ms Mathulelwa said the Committee was unable to do oversight of the beneficiaries and the application process. When it performed its own investigations, its findings contradicted the reports by the Department, SEFA and SEDA. She had heard people complain that SEFA was unhelpful, but SEFA had reported to the Committee that they had funded various projects and assisted small businesses. This was very problematic, so performing oversight on the list of beneficiaries was necessary because if this did not happen, the Department’s activities would have come to a standstill, and no other progress would have been made.
Mr Kruger asked if it was agreed that red tape was a problem, and commented that it did not matter what intervention government was trying to put in place, as there was always red tape for small and micro businesses. Red tape prevented small businesses from accessing any intervention or relief. He proposed introducing a red tape reduction bill, because the red tape reduction (RTR) task team was not helping small businesses. He proposed introducing it as a Committee Member’s Bill, and volunteered to lead the study group if the Committee allowed it.
Mr Mthenjane said that in the presentation, Mr Mxolisi Matshamba, Chief Executive Officer (CEO), SEFA, had stated that they had started speaking with SPAR, so that SPAR could partner with small businesses and farmers in rural areas for the production of goods. He said that this was a good idea, and should also be done with Shoprite, Checkers, Boxer, and other shops benefiting in these areas, but not helping the people. He commended SEFA for this, and said it should have happened long ago.
The acting Chairperson acknowledged the ideas suggested by the Members, and asked Mr Matshamba to respond.
Mr Matshamba said that the beneficiary lists had been compiled for Parliament, and that he had signed off the covering letter, and had covered the issue of the Protection of Personal Information (POPI) Act so that the necessary information remained protected. He had spoken to the DG and would go back and check where the list had been held up. He said the list had been drawn up after tabling the Department’s Quarter Two performance report.
There had been a capacity crisis within SEFA around the people directly involved in working with co-operatives. They had increased their capacity late in 2022, and there was a programme manager for co-operatives. As a result, SEFA was able to approve R14.4 million for co-operatives in Quarter Three. SEFA had applications totalling R21 million for co-operatives that were in the process of being approved, and he was hopeful that this would be concluded by the end of March. The added capacity allowed SEFA to see progress around co-operatives, and these numbers would be shared with the Committee in the quarterly reports.
Mr Matshamba said that the report had not really been about youth, women, or people living with disability, but he confirmed that when presenting quarterly reports to the Committee, SEFA did report on the disbursements and approvals to youth, women, and entities that were based in townships or rural areas. SEFA was still working on meeting these targets, and would report back about these designated groups in the Quarter Four report. He said the only area where SEFA struggled was with the disability target group, which had previously been flagged. SEFA was relooking at the disability target because the target had not been scientifically set previously. The target stated that 7% of the population was living with a disability, and implied that 7% of the funds must be disbursed to people with disabilities. He believed this was an error, because it assumed that all persons living with a disability had businesses. SEFA was working to find out how many able-bodied people were in business and use that to find out how many were disabled, and then properly determine how much money should be allocated to people with disabilities. While this was an issue, SEFA had streamlined the issue of disabilities and the numbers were improving. SEFA had increased its capacity so that people were working strictly on the issue of disability.
Responding to the issue of people not repaying SEFA, he said that when SEFA assessed the performance of the loans after the money had been disbursed, it looked at the failure rate of the businesses and how it many were unable to repay the loan. It went to the credit bureaux to look into the lifestyle of the business owners. It had been able to pick up that money was being siphoned out of the businesses to finance the lifestyles of the business owners. There was a culture of non-payment among some of SEFA's clients, and they were facing the moral dilemma of people not wanting to pay back government money. SEFA had started the process of Operation Batala, and had sent letters of breach to clients who had not paid back money. Some clients had already received court judgments, and people were now coming forward to make payment arrangements. SEFA had never taken this route before, but they were now putting pressure on non-paying clients who could afford to repay the loans. He said that the only area where there was no challenge of repayments was with poor women in the micro-finance base, because there were groups that encouraged the repayment of SEFA's funds. The issue was more prevalent in the upper levels, where the loan amount was higher than R250 million.
Mr Nkosinathi Mbatha, CEO, SEDA, stated that the Agency had nothing to hide concerning the Flood Relief beneficiary list. Through the DG, he would ensure that Committee Members could access it. He said it was very important for the list to be available, because the Flood Relief Fund had been successful. He noted that KwaZulu-Natal (KZN) had issued an announcement in the previous week for SMMEs to apply.
Mr Mkhumane said some commitments had been made on support for co-operatives. Most of the evidence that the Department supported people who did not qualify for funding came from the Co-operative Incentive Scheme (CIS). Because of this, the Department was tightening up, which meant that the Department could not disburse money because they had to follow up on the money that had already been disbursed and ensure that the co-operatives existed were productive, and able to protect the investment that government provided. He said that from 1 April, the Department would get approval from Treasury to shift the support provided through SEDA, but SEFA would continue providing support, which would put SEDA in a position to support co-operatives. He said a comprehensive review of the strategy directed by the political principles had to be relooked at if the legislation needed to be amended.
The Director-General said that the DSBD had applied for approval from Treasury for the support that would be administered internally regarding load-shedding interventions. He emphasised Mr de Villiers’ point that the issue affected everyone, and that the support should be equitable. Based on the resources the Department would be given, they considered other interventions. He believed that more resources were available, and said that the Department was engaging with the Treasury to utilise the prospect scheme.
Something that was being considered was the involvement of development finance institutions (DFIs), but the DFIs should not go via the banks because they should be able to access their register. There were issues around registrations with the Reserve Bank which the Department handled, along with the Treasury. There were conditions that commercial banks were able to access the register because they worked directly with the Reserve Bank and were licensed. There was also discussion about what tools were going to be used, because the Department did not have the capacity to determine that people needed generators with a specific capacity. It was engaging with the National Business Initiative and the Council for Scientific and Industrial Research (CSIR) to possibly develop an app that SMMEs could utilise to assess the capacity they would need for alternative power. The Department was committed to engaging with all stakeholders in this space, including the Department of Mineral Resources and the Department of Forestry, Fisheries, and the Environment. He said that the DSBD was looking at this as an opportunity to develop alternative power sources for small businesses, potentially taking some of them completely off the grid. This was a technical exercise that had to be done so that the proper support could be provided, and they were relying on the other stakeholders for advice so that government funds did not go to waste.
The DG said that sole proprietors fell into the category of clients that would approach SEDA because micro-businesses would fall into that category. Informal businesses would also be supported, and there was already the Informal and Micro Enterprises Development Programme which targeted informal businesses. They had plans to expand that to accommodate loadshedding interventions.
Mr Mkhumane said he had checked with the Ministry, and had found that some information had been shared on the beneficiaries. The lists had been sent to the Committee. He had received copies of the emails, including one sent in May 2022, and another in December 2021, providing the requested lists. He said that in the report the Department had presented on 1 June, the Committee had requested that the Department provide a list of co-operatives, which had been provided. He asked that the Committee refer back to those records. He said that the POPI Act meant that some details were not able to be shared without the permission of the beneficiaries, but he would continue to look into the issue.
The Director-General said that slides 41-42 of the presentation had mentioned the support of rural areas. They already saw the results with the shift of funding moving from some provinces and prioritising more rural ones. This was being done to ensure that the expenditure was increased in areas that needed it. The Department had advised SEDA that townships and rural areas should be prioritised. Slide 42 of the presentation went into detail about the increases in provinces such as the Northern Cape, where the annual targets for approvals and disbursements had already been exceeded by December 2022. The Department was making a deliberate effort to increase support to rural areas.
Mr Mkhumane said that the DSBD did not have 144 vacant positions. The ultimate structure after the approval by the Department of Public Service and Administration (DPSA) in September 2022 had given the DSBD an additional 144 positions, but the budget was not available for the Department to fill them. The Treasury had started allocating the available budget, and the Department had 45 positions for 2022/23, 43 for 2023/24, and 58 for 2024/25. This meant that the ultimate structure would be achieved only by 2025. They were prioritising filling these positions.
The Director-General said that the list of beneficiaries for COVID-19 relief had been published on the Department’s website at the time.
He said that the presentation had made specific reference to the youth and what was being done with the Youth Challenge Fund, in collaboration with SEDA and SEFA, to ensure the quality of the applications and that the disbursement of funds would be justified.
He asked that the acting Chairperson distribute the emails shared on the provision of the beneficiary lists.
The acting Chairperson asked to hear from Ms Semphete Oosterwyk, CFO, SEDA, to establish whether the payments referred to in the last meeting had been made to the small businesses.
Ms Oosterwyk asked to be reminded about what payments the acting Chairperson was referring to, but added that the average timeframe for payments was around nine to ten days.
The acting Chairperson enquired if Mr Kunene had returned to the meeting platform following a connection issue. He had not, so he proposed that the consideration and adoption of the minutes of the meetings from 15 and 30 November 2022, and 22 February be held over to the next Committee meeting.
The meeting was abruptly ended due to technical difficulties. The acting Chairperson decided to adjourn the meeting because not all of the Committee Members were able to return to the meeting platform. He apologised for the technical difficulties, and emphasised that these were the issues small businesses faced daily.
The meeting was adjourned.
April, Mr HG
Siwela, Ms VS
De Villiers, Mr JN
Dlamini, Mr SM
Hendricks, Mr MGE
Jacobs, Mr F
Kruger, Mr HC
Lubengo, Ms ML
Luthuli, Mr BN
Mathulelwa, Ms B
Mthenjane, Mr DF
Myeni, Mr ET
Tlhomelang, Ms KB
Zungula, Mr V
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