DSBD & SEDA 2023/24 Annual Performance Plans; with Minister

Meeting report

The Chairperson officially opened the meeting, welcoming all those present, and announced her early departure due to health-related issues.

The Committee was advised to elect an acting chairperson in the absence of Ms Siwela. Ms M Lubengo (ANC) nominated Mr F Jacobs (ANC), and was seconded by Mr H April (ANC).

The acting Chairperson welcomed all those present, and asked for the presentation of apologies.

An apology was received from Ms Dipuo Peters, Deputy Minister of Small Business Development,  as she was attending the School of Governance economic cluster for executive managers.

Mr H Kruger (DA) suggested that the National Council of Provinces (NCOP) be invited to these briefings, seeing the Department was responsible for briefing select committees. It would save the departments time, as they would not have to make the same presentations multiple times.

Mr Lindokuhle Mkhumane, Director-General, Department of Small Business Development (DSBD), responded to Mr Kruger’s suggestion, and said that the suggestion of a joint approach was not new, but it was a decision that had to be made by the executive authority. This suggestion had also been communicated to the select committees’ secretary, only to find that the select committees had already scheduled a programme that differed from the departments.

The Chairperson called for the adoption of the agenda. Mr Kruger proposed adopting the agenda, and was seconded by Mr April.

The Chairperson provided the Minister with an opportunity to make remarks before the Small Enterprise Development Agency (SEDA) made its presentation.

Minister's overview

Ms Stella Ndabeni-Abrahams, Minister of of Small Business Development, thanked the Committee for the opportunity to present the Department’s annual performance plan (APP). She said that the global economy had remained constrained due to Covid-19, and there was a prediction of at least a third of countries in the global community experiencing an economic recession in the current year.

Concerning pursuing economic sectors intending to create jobs, several factors had to be considered. These included:

• market concentration;
• access to finances;
• entrepreneurial and technical skills; and
• business support for incubation.

These were just a few of the factors to be taken into consideration. Pursuing these sectors aligned with the country’s economic recovery plan. The regulation of informal economies, such as those existing in townships and rural areas, was of the utmost importance.

This year's focus was on business development, with four designated programmes aimed at administration, sector development, development finance and enterprise development. These programmes would ensure the Department’s engagement, despite the constraints that prevented optimum performance.

The Minister hinted at further future endeavours. The National Small Business Amendment Bill was to be submitted to Parliament, to make it easier for entrepreneurs to regulate their businesses. Measures to combat load-shedding were underway.

She said any further progress would be communicated to the Committee later. The Department was doing its best to ensure the realisation of the set plans.

Minister Ndabeni-Abrahams asked to be excused, as she was due to attend a Cabinet meeting.

The Chairperson accepted her request, and called upon SEDA’s chairperson and chief executive officer (CEO) for their presentation.

Small Enterprise Development Agency (SEDA) 2023/24 annual performance plan and budget

Mr Nkosikhona Mbatha, Acting Chief Executive Officer (CEO), Small Enterprise Development Agency (SEDA), said he would only focus on Part C of the presentation, which would be discussing the performance measures of the entity. He did, however, briefly go through Parts A and B, which addressed the entity’s mandate and strategic focus, respectively. (See presentation attached)

Part C focused on the four programmes previously mentioned by the Minister, and they were expanded upon.

Programme 1: Enterprise development

This programme was concerned with providing needs-based and growth-oriented business support to small enterprises and cooperatives through the SEDA network. This support came in the form of business-related information, advice, consultancy, training, mentoring services, access to markets, and other business-specific interventions. Township and rural-based enterprises were prioritised to ensure they remained competitive and contributed meaningfully to the South African economy. Its budget had been increased from R249m in the 2022/23 financial year, to R301.9m in 2023/24.

Programme 2: Technology Programme

This programme involved providing small, medium and micro enterprises (SMMEs) and cooperatives with the necessary skills and tools to enhance their productivity and sustainability. SEDA provided incubation services and technology transfer assistance. Its budget for 2023/24 amounted to R113m.  

Programme 3: Impact and sustainability

This programme measured the progress and impact of business after SEDA intervention, considering factors such as the number of jobs created, jobs sustained and overall turnover improvement. This programme also offered SMMEs business support in the form of provision of incentives for quality and compliance standards, and product testing and certification. Its overall budget amounted to R87.5m in the 2023/24 year.

Programme 4: Administration

This programme provided strategic leadership and the capacity for SMMEs to carry out their missions. This included monitoring satisfaction at both customer and employee levels, and introducing initiatives to improve business innovation and agility. This programme also encouraged collaboration to promote service access. Its overall budget amounted to R11.3m in the 2023/24 year.

Mr Mbatha briefly went through each programme’s outcomes, outputs, and indicators. He said that he would not delve deeply due to time constraints. (See presentation attached)

 

Mr Elias Maabane, Acting Chief Financial Officer, SEDA, discussed the financial aspects of the presentation.

He said that during the 2023/24 financial year, an allocation of R859.8m had been received from the DSBD as part of the overall R900m under revenue income. This was a 0.64% increase from the R854.4m allocated in the previous financial year. This increase had called for a realignment of targets, but SEDA would still be able to meet the needs of SMMEs.

Under DSBD-specific projects, R81.3m had been received in the 2022/23 financial year, and R60m of this amount had been allocated to projects concerned with relief. There had been a decrease in the 2023/24 financial year to an overall amount of R31.3m. Of this amount, R25m had been allocated to export development, and the remaining R6.3m would be spent on the upcoming project already underway.

Under external earnings, an amount of R8m had been received from funders, including the North West Province, and would be used for incubators.

Other income received was interest accumulated from the bank. This amount had declined from R10m in 2022/23, to R5m in 2023/24. This decline was due to a reduced bank balance in the current financial year.

Mr Maabane moved on to the expenditure section, and reported that the compensation of employees (CoE) had increased by R22.5m to R397.7m in the 2023/24 financial year.

There had been a decline in programmes and projects, from R554.8m in the previous financial year. This amount was inclusive of the R60m that had been allocated towards the flood relief project in KwaZulu-Natal and the Eastern Cape.

He said that after consideration of the funds allocated to the programmes discussed above, there was proof of financial constraint, which meant a reduction in plans was necessary. There were 11 new incubators undergoing establishment, and some funds would be used for this, and later for their upkeep.

Mr Maabane expanded on the use of funds for Programme 4, stating that most of the allocated funds were spent on office space and its functionality. This was evident from the newly improved network technology in offices.

Under assets and liability management, there was evidence of a declining trend. This was due to an instruction by National Treasury that SEDA had to spend all its surpluses from the previous financial year, which had meant depleting all its cash reserves, which formed part of its assets. Proof of this could be found in the cash flow data.

An amount of R5.7m had been allocated towards infrastructure upkeep and obsolete assets.

The section on updated risks and mitigation was not discussed.

See attached for full presentation

Discussion

Mr M Mabika (DA) questioned the Small Enterprise Finance Agency's (SEFA’s) criteria for approving funding applications, seeing that SEFA had rejected even applications that had been put together with the assistance of SEDA, its partner. Why was this? Where else were small businesses supposed to seek financial aid? How many businesses had been rejected in all of South Africa?

Ms B Mathulelwa (EFF) expressed concern over SEFA’s lack of accountability concerning allocating funds. She suggested that SEDA be capacitated to act independently on behalf of the Department. SEFA was ineffective in carrying out its intended purpose, and thus had to be discontinued.

Mr D Mthenjane (EFF) said he had received several complaints from Middleburg, where small businesses complained that SEFA had rejected their applications despite implementing whatever the agency had recommended for their applications. There were also complaints of malpractice by SEFA employees. Why was this? Could SEFA be invited to one of these briefings to account for themselves?

The Chairperson asked that the Committee focus only on the presentation by SEDA, and said the North West Province and SEFA would have their own meetings to brief the Committee.

Mr Kruger said that it seemed as though the allocation of funds to SEDA benefited its employees more than it did the small businesses it was supposed to assist. In the 2021/22 financial year, SEDA’s expenditure allocation had been balanced, with the compensation to employees not even amounting to half of the allocation for programmes and projects. However, as the financial years went by, this was changing, with more money going towards employees. Why was there such a big increase in the compensation of employees, whilst there was a decrease in the allocation for programmes and projects?

Mr April did not have any comments, but wished only to commend SEDA on its performance, as evident in provinces such as Gauteng.

The Chairperson seconded Mr April in commending the SEDA on its performance, with much regard given to staff turnout and consequence management. He requested that SEDA implement a better entrepreneurship ecosystem in the public sector. How did SEDA facilitate collaboration between entrepreneurs, multinational corporations and private businesses? Was SEDA’s focus on regulating informal economies only underway in townships that were in the big cities, or did they also focus on smaller, more obscure townships and rural areas? What was the link between training, access to funds, and market access?

Lastly, he asked how SEDA was going to attain both the human resources and technological capacity and the political drive to pursue its set plans.

Responses

Mr Mbatha responded that he and the CEO of SEFA had tasked officials from both entities with establishing what the possible loopholes were in the relationship that existed between SEDA and SEFA. The one most common loophole identified was in the feedback process, and the resolution was the implementation of constant communication between the two entities, especially concerning applications. There was also a need for communication between the executive officials of SEDA and SEFA to ensure a coherent understanding of the criteria for funding applications and mitigate rejections.

SEDA was also looking into collaboration with other prospective funders, especially in the private sector, to bridge the gap for sectors SEFA found to be an economic risk and did not fund. SEDA could not, however, pursue funders independently -- it did not have the power to do so. All it could do was convince private businesses to volunteer to fund emerging enterprises.

Mr Mbatha stated that he would pass on the concerns raised by the Committee regarding SEFA employees to the entity's CEO.

To answer Mr Kruger’s question, Mr Mbatha said that SEDA had acted on instructions from the National Treasury. The amounts indicated in the presentation, including the decrease in allocated funds for programmes and projects, had been affected by the existence and depletion of surplus amounts from previous financial years.

To answer the Chairperson’s questions, SEDA was working on its expansion model and access points in townships and rural areas. Progress, once in operation, would be communicated to the Committee.

DSBD 2023/24 annual performance plan and budget

Mr Mkhumane said the first area of focus was the global economic environment, which indicated that South Africa was at the bottom regarding economic development indicators, with little change between its current rate and what was predicted for 2024.

Performance-related matters

The Department had the following objectives:

a) Accelerate implementation of the Township and Rural Entrepreneurship Programme (TREP) by the SBD Portfolio, in collaboration with Cooperative Governance and Traditional Affairs (COGTA), the Department of Trade, Industry and Competition (DTIC), National Treasury, provincial Economic Development Departments, and selected municipalities.

b) Create an enabling environment for SMMEs and Cooperatives within which to operate:

• Implement the SMMEs and cooperatives funding policy to ensure improvement in access to finance for SMMEs and cooperatives. The re-introduction of the Small Business Advisory Council, the Ministers and Members of Executive Council (MinMec), and leveraging on partnerships with the provinces, were identified as key instruments in achieving this priority.
• The Red Tape reduction programme to be implemented in partnership with the provinces, ensuring that the growth of SMMEs and cooperatives was not hindered by the red-tape measures that exist in the system.
• The Department had started the process of reviewing the Businesses Act, and intended to introduce an amendment Bill to Parliament during the 2023/24 financial year. The Businesses Act provided for the issuing of trade licences and permits by municipalities to both formal and informal businesses that wanted to operate in their geographic jurisdiction. 

c) Continue to implement the Localisation Policy Framework and Implementation Programme on SMMEs and Cooperatives:

• During the 2023/24 financial year, in response to the trajectory to ensure that 1 000 products/services are procured from SMMEs and cooperatives by 31 March 2024, and a further 250 SMMEs and cooperatives produce products and services for the domestic market.
• The Small Enterprise Manufacturing Programme would promote and encourage localisation in targeted sectors. The Department, through SEFA and in collaboration with the Department of Trade, Industry and Competition (DTIC), had introduced this programme, whose aims were:

 

1. Facilitate and ensure an increase in the number of competitive small businesses and cooperatives supported, focusing on township and rural economies.
2. Business infrastructure, where small businesses would interact with the market to showcase their product or service offering with the view to transact. During the 2023/24 financial year, the Department planned to establish seven business infrastructures.
3. Report on the number and performance of incubation centres and digital hubs for SMMEs' development.
4. The portfolio SMMEs' and cooperatives' interventions would prioritise women, youth and people with disabilities (PWDs) to ensure a minimum 40% target for women, 30% for youth and 7% for PWDs.

Game Changers

Five game-changers were identified, and were briefly explained as follows:

1. Game changer 1: New economy start-up aimed at creating a more enabling support ecosystem for high tech and energy start-ups.
2. Game Changer 2: The TREP, which was aimed at redirecting broad-based black economic empowerment (B-BBEE) resources and Enterprise and Supplier Development (ESD) accelerator funding towards SMMEs in townships and rural areas.
3. Game Changer 3: Refuelled Incubator/Accelerator Programme, which was concerned with primarily extending the existing network of incubators for start-ups and accelerators for scale ups in terms of the tiered small business support model.
4. Game Changer 4: Recapitalised SMME funding package, in which four interventions were proposed:

• Khula Credit Guarantee (KCG);
• Micro finance intermediary franchise programme;
• Direct lending programme;
• Tailored blended finance.

1. Game Changer 5: Supplier development partnership programme. This game changer was focused on leveraging the commitment of corporates and large firms to on-boarding and supporting emerging suppliers.

The Minister had briefly discussed the alignment of the economic reconstruction and recovery plan (ERRP). Mr Mkhumane did, however, make mention of the priorities of the ERRP, their departmental outcomes, and departmental indicators. (See presentation attached)

The next item discussed was the alignment of the Department’s 2023/24 APP with the National Development Plan (NDP) and the revised medium term strategic framework (MTSF) 2019-24. The following issues were discussed:

• Direct links to the revised MTSF 2019-24 priority;
• Indirect links to the revised MTSF 2019-24 priority;
• Alignment to the national annual strategic plan.

Mr Mkhumane discussed the previously addressed four programmes, this time with more detail on how they were aligned to the Department, as discussed by the Minister in her opening remarks.

Updated key risks and mitigation

The following outcomes, along with their key risks and risk mitigations, were discussed:

• Improved governance and compliance;
• Improved integrated and streamlined business processes and systems;
• Increased participation of SMMEs and cooperatives in domestic and international markets;
• Expanded access to financial and non-financial support and implementing responsive programmes to new SMMEs and cooperatives; and
• Reduced regulatory burdens for emerging SMMEs

Amendments to revised 2020-25 revised strategic plan

The five-year target of the Department was to have 10 000 women-owned businesses registered on an international platform. This had been removed from the APP, and was to be pursued and reported on by SEDA.

Recommendation

It was recommended that the Portfolio Committee on Small Business Development adopt the 2023/24 annual performance plan of the Department of Small Business Development.

Mr Mkhumane concluded the Department’s presentation.

See attached for full presentation

Deliberations

Mr Kruger asked to be given more time to process the presentation.

Ms Mathulelwa said it was ineffective to give the responsibility for red tape reduction to external parties, and that the Department should deal with it personally. The red tape was limiting informal economies.

Mr V Zungula (ATM) encouraged innovation by the Department with regards to SMME support. It was important to prevent market saturation in informal areas.

What was the progress on red-tape reduction by the Department?

What was being done about the late payment by the Department to SMMEs?

What was being done to prevent unfair competition between South African merchants and foreign unregistered merchants who were so prevalent in townships? How was the amended Business Bill going to combat this? How would this Bill revive South African-owned merchant businesses to alleviate poverty and unemployment among citizens?

Ms Lubengo asked for clarity on a discrepancy that had been identified in the previous oversight visit to the North West, wherein an enterprise had claimed to have received R350 000 in funding, but after verifying the documentation, it had been found that R800 000 had been allocated to said entity – how was this possible?

Mr April expressed shock at the findings of the oversight visit, and asked what the Department was doing about them. What was to be done about the unfair interest rates being charged by intermediaries? What was the Department doing about SEFA’s failure to inform the public about the Khula Credit Guarantee (KCG) that had provided SMMEs in the spaza shop industry a R7 000 grant introduced in March 2022? How was the Department planning to implement the Game Changer project? Was there a regulatory body in place that SMMEs could submit grievances to?

The Chairperson asked what the Department was going to do to remedy its debt to SMMEs. How was the Department going to ensure its NDP target of 9.9 million SMME employment opportunities?

DSBD's responses

Mr Mojalefa Mohoto, Chief Director: Enterprise Development, DSBD, responded to the question on red tape reduction. The red tape reduction programme was broad, expanding across tiers of government. At the national level, a number of departments have been consulted to ease regulations to reduce the burden on emerging enterprises. An example of this was the transport sector. The Regulatory Impediment Review had identified 29 pieces of legislation that were restricting to SMMEs and had thus concluded the report, and its submission was underway to Parliament.

At the municipal level, a red tape reduction programme was currently being rolled out to limit the delay caused by red tape. There was hope to have indicators of significance after rolling out this programme, which communities could use in the absence of the Department.

He said the game changers were already in function.

Regarding timely payments, interactions had taken place with National Treasury, with the requirement to pay suppliers within 30 days, but National Treasury was also faced with constraints. Implementation needed to be tightened, even if that meant introducing new regulatory policies.

Mr Mkhumane said the issue on the payment of suppliers was the lack of commitment from department principals, and a lack of consequence management. However, the Public Finance Management Act (PFMA), along with other regulatory bodies, had stipulated a 30-day payment period.

There was also an issue of vague reports which did not adequately break down the money owed to SMMEs, and which sometimes led to debts owed to smaller enterprises being overlooked and thus remaining unpaid.

All entities and departments involved had to be brought to account.

There was a need to establish a regulatory body that would protect the rights of SMMEs and prevent malpractice. The Companies Tribunal acted as such, but it was not absolutely effective.

There had been a legislative provision in the Immigration Act addressing the issue of illegal foreign merchants. Non-South Africans wishing to trade in South Africa had to invest at least R5m and employ a certain number of South African employees. Implementation of this provision clearly was the problem. The Department of Labour’s inspectors would be used to check the validity of these establishments.

To answer Ms Lubengo’s question, the enterprise in the North West had indeed been given R320 000 instead of the documented R800 000, which was not a discrepancy. The amount given to the entity was not the total allocated fund, as certain amounts had to go towards formalisation processes.

Concerning targets, unless a target was 100% achieved, it was not accounted for. This then meant that the presentation did not necessarily provide an accurate depiction of the Department’s progress. Statistics were, however, available if the Committee requested them.

The establishment of interim measures while awaiting the implementation of the merger was underway.

Engagement between SEDA and SEFA was encouraged. SEFA had to communicate all developments to SEDA, which had a larger public audience, to prevent delayed communication or a lack thereof.

Mr Jeffrey Ndumo, Acting Deputy Director-General, DSBD, said the Business Bill would be submitted to the Minister in the current week and prospectively before Parliament by July.

Further discussion

Mr Zungula requested tangible information on the red tape reduction programmes. He also suggested timelines and targets be set for these investigators brought in from the Department of Labour. Evidence of their effectiveness was necessary.

Was the Department not concerned, given the progress of the Business Bill, that the current Parliament would not have enough time to process and finalise the Bill, seeing as their tenure ends in May 2024? What was the risk of having to restart the process, with the possibility of a new administration?

Department's response

Mr Mkhumane said he would consider Mr Zungula’s concern, adding that given the importance of the Bill, the time risk was one worth taking.

The progress on red tape reduction programme would be provided to the Committee.

The meeting was adjourned.