The Select Committee was briefed by the Department of Small Business Development (DSBD) Director General on the 2020-25 revised strategic plan, budget allocation per programme, progress on implementation of the district development per province 2023/24 Annual Performance Plan.
In the virtual meeting, Committee members were concerned about measures used to ensure plans are implemented, employment created through small business development (SBD), performance audits, and the support that the DBSD is offering SMMEs.
Members expressed concern about the lack of results particularly on job creation that was expected to be facilitated by the SMMEs. They asked why it took so long to process SMME funding applications and if DBSD was collaborating with the Red Tape Reduction team in improving the ease of doing business for SMMEs.
Members questioned the budget allocations for the programmes undertaken by the DSBD and its entities. They also asked about the possibility of getting quarterly reports on DSBD beneficiaries receiving funding support; aid provided to informal businesses, and the impact of the budget reduction.
[Due to connectivity problems the first 20 minutes of the meeting were not transmitted which included the opening remarks of the Minister.]
Department of Small Business Development 2023/24 Annual Performance Plan
Mr Lindokuhle Mkhumane, DSBD Director-General, presented the revised 2020-25 Strategic Plan, 2023/24 Budget and APPs of DSBD and its entities Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA).
Mr Mkhumane provided the DSBD mandate, strategic focus, five year targets, budget and the annual performance plan. Key priorities for the Department are to accelerate implementation of the township and rural entrepreneurship programme in collaboration with National Treasury, Provincial Economic Development, selected municipalities and Cooperative Governance and Traditional Affairs (COGTA).
He explained the alignment of the DSBD priorities for the Economic Recovery and Reconstruction Plan:
- Five Game Changers;
- New economy startups
- Township and Rural economy development
- Refuelled incubators / accelerator programme.
- Recapitalised SMME funding package.
- Supplier development partnership programmes
DSBD 2020-25 strategic plan includes these performance outcomes:
- Increased participation of SMMEs/cooperatives in domestic and international markets.
- Increased contribution of SMMEs and cooperatives in priority sectors;
- Scaled up, coordinated support for SMMEs, cooperatives, village/township economies.
- Expanded access to financial and non-financial support and implemented responsive programmes to new and existing SMMEs and cooperatives.
- Reduced regulatory burdens for small enterprises.
- Improved governance and compliance;
- Improved, integrated and streamlined business processes and systems.
Mr Mkhumane outlined the performance indicators in the 2023/24 APP for the DSBD four programmes: Administration, Sector and Market Development, Development Finance, Enterprise Development.
The Department budget breakdown was provided. It was noted that there is no budget to support SEDA new access points; implementation of catalytic projects; new incubation centres; SMMEs and cooperatives asset assist programmes.
Mr M Dangor (ANC, Gauteng) stated that the Minister mentioned a Grameen kind of programme that will be introduced in South Africa. He advised DSBD to engage with Ms Zanele Mbeki, founder of Women’s Development Bank, who started such a programme and found that it was successful in rural areas but did not lend itself to urban areas as the culture in rural areas lends itself to a Grameen programme.
Mr M Mmoiemang (ANC, Northern Cape) noted he was experiencing load-shedding and it affected everything in Acacia Park. He appreciated the presentation. DSBD has a role in meeting the NDP target of creating nine million small, medium and micro enterprises (SMME). His questioning emphasised what could be done to ensure that target is reached? What could be done to ensure DSBD plays a role in reducing joblessness?
The second point he raised was the matter of the endorsement by the Department of Public Service and Administration (DPSA) for the repurposing of the DSBD organogram which is quite critical. In the immediate future, what are the key posts that will be filled for it to be able to execute its work?
It is clear that the Department's budget goes to transfers, as indicated by both the Minister and the DG. He noted the R4.2 billion anticipated to be spent over the medium term to drive transformation through creating a conducive business environment in the townships. It is essential to understand the extent to which municipalities and provinces can ensure that capacity and capability is developed so that the partnership between DSBD, SEDA and the Local Economic Development (LED) units can address the challenges.
The loan guarantee scheme that was made available in 2020 could not be taken up by small business people because of challenges with licensing and regulations. What is DSBD doing to ensure that at the level of LED units in municipalities, more capacity is built to ensure assistance with these challenges for cooperatives and small businesses? He shared his appreciation about its plan to create five more incubators.
Mr Mmoiemang mentioned that the Minister and the Deputy Minister are expected to be all over the show to ensure that the base and SMMEs are re-engineered in the next 12 months. Likewise, he appreciated the mention of the SEDA provincial network and programme per province. It would be quite critical in all nine provinces to give particular attention to delivering the competitive advantages of the One District.
He asked if there is interaction between DSBD and the Department of Mineral Resources (DMR) as our economy is more resource-based. It means job creation is dependent on resources whether it is coal, manganese or iron ore. Job creation is dependent on establishing the crucial mineral economic linkages, and the vital key will be the development of linkages in upstream and mining supply industries. Opportunities start from the downward mineral beneficiation and the knowledge linkages. What relationship does DSBD have with DMR in ensuring that the comparative and competitive advantages in particular districts and regions are also channelled towards the SMME community? DSBD needs to ensure that the sector is not left only to mature businesses, but also the emerging SMMEs.
Mr J Londt (DA, Western Cape) pointed out that the DSBD target stated unemployment will be reduced ‘to 6%’ and not ‘by 6%’ through jobs created by SMMEs. He expressed disappointment that it had only managed to improve on the unemployment figures for only one or two quarters since the establishment of DSBD. At what stage will those responsible for running DSBD say they are failing in their mandate to deliver. It is the outcomes that matter rather than the promises. DSBD’s targets are missed by a massive margin.
The 30-day payment of SMMEs is not being met by government entities and departments. At what stage is DSBD going to be more vocal with a naming and shaming campaign of those that do not perform? Government has an assured income from the tax base meaning they are safe and protected but small businesses have to survive month to month.
He raised a concern for the DSBD target for SMMEs and the additional funding that would be sent to KZN and Eastern Cape. The bigger problem for communities is the state of the roads. Small business owners do not have the free movement of people because of the bad roads. There used to be hubs for tourists that give an injection and have a spin-off effect on top of what is created locally. DSBD should engage with the departments responsible for roads and infrastructure to fix these as a matter of urgency because it is a problem for a community that is cut off and this is not being fought for.
Mr Londt requested a report on the Retail Production Awareness Programme across the country and how it is functioning. He asked if entrepreneurs are looked after, making life easier for them to get business and for ease of doing business.
DSBD created 169 000 jobs in the country but the majority is centred on one province and it is not translating to the rest of the country. The government claims successes but some of it is on the back of interventions made by the Western Cape driven by an environment that is conducive for job creation. He is concerned that in the other eight provinces, only 2 000 jobs were created. If the DSBD mandate states that the majority of new jobs and the decrease in unemployment will be done through SMMEs, then DSBD is fundamentally failing the country as a whole.
Since the elections are coming next year, what is DSBD doing to ensure that the challenges for SMMEs are tackled and not brought back. His concern was about the energy relief package spoken about in the SONA and to ensure that it gets distributed fairly to the entire country. He advised that it is better to invest money in small businesses that have already proven themselves that can survive and create jobs rather than small businesses that have not yet started. His concern is what are the methodologies used to ensure that money is spent and invested properly to safeguard jobs that are already created.
Ms H Boshoff (DA, Mpumalanga) said that Mr Londt had covered most of her questions. She pointed to red tape reduction. They know what red tape has cost the SMMEs over the past few years. Her concern is if DSBD has worked out the costs for larger SMMEs that employ more than 21 employees because of their strict regulations. She asked if DSBD can expand on the partnership entered into with the provinces for red tape reduction.
As of 31 March 2022, unpaid invoices numbered over 67 000 at a value of R6.1 billion. Why is DSBD not coming down on such departments to ensure that they pay timeously?
She stated that incubators have always been an essential part of South Africa's entrepreneurship ecosystem, and they are absolutely vital as SMMEs serve as the backbone of the economy. DSBD should stop talking about innovation without timeframes for implementation. She appreciated the DG’s proposal for incubator digital hubs. However, her concern is how many incubators have been established? Also incubators cannot function properly without electricity. A lot of money will be used on the infrastructure for establishing incubators, but the challenge of electricity is not taken into consideration. How is DSBD to address this and how will it reach SMMEs to assistance them with solar panels or hybrid systems like inverters?
Ms M Mashodi (ANC, Free State) asked for DSBD’s response about the increased losses at SEFA in 2022/23. Her second question was for DSBD to explain in detail what happened to the R800 000 that was allocated to Optimum Youth Harvest Corporation. She asked what DSBD is doing about SEFA failing to inform the beneficiaries of the Khula Credit Guarantee Scheme Spaza facility of the R700 000 plant that was supposed to have reached the intended beneficiaries. Her concern is DSBD has introduced the innovative Game Changer programme but can it explain how it is practically planning to implement the programme, given all its other programmes and priorities.
Mr Mmoiemang noted the Committee’s concern in the past that in rural communities and peri-urban areas, there is a lack of impact from SMME support programmes and products. There is insufficient communication about the funding available to communities. What measures is DSBD putting in place to tackle the lack of information about the number of SMMEs, including spaza shops. Given the emphasis on social contact and its role in turning economies around, is there engagement with development partners to tackle regional finance gaps to support SMMEs and cooperatives in provinces and regions that are lagging behind in economic development. He asked what SEDA could do if it had additional funding.
Mr Londt followed up that it seems as if there is an internal territorial game and is this the reason for the lack of progress in getting the SEDA/SEFA merger done as there were missed deadlines that were set again.
Ms Boshoff asked if DSBD staff work remotely, and if that is the case, to provide the costs for it to provide people working at home with the necessary tools of trade.
The Chairperson stated that they met and raised a concern with Department of Transport (DoT) that besides the trade transport corridors in Gauteng, Western Cape and KZN, the other provinces are being marginalised. The Committee will have another meeting with DoT to indicate what it is doing in each province.
The Committee’s view is that the LED units in the municipalities are weak. SEDA tends to rely on LED units, which are confirmed to be weak by the DG and Deputy Minister. It is a matter that can also be addressed to assist the LEDs so that they are strong in assisting the DSBD and its entities.
The Chairperson raised that there are complaints and fear from areas such as Lusikisiki that there will be outsiders coming in with capital and take over cannabis growing which belongs to them. What assistance can DSBD and its entities provide to the locals in such areas with these fears?
The Chairperson shared the concern about the 30-day payment of SMME bills. He asked if DSBD meets with stakeholders in the business space.
He asked the Minister to respond to the policy related questions. He also pointed the DG to the questions by Ms Mathevula (EFF, Limpopo) and others on the chat.
Minister of Small Business Development response
Minister Stella Ndabeni-Abrahams replied about the National Development Plan target and whether DSBD has failed. DSBD was established in 2014; 80% of jobs must be created through small businesses but it is the responsibility of the whole country to contribute towards this target.
DSBD was established in the interests of small business development, and its role or responsibility is to provide policies and interventions. Looking at the amount that government allocates for SBD, the budget is not close to being achieved. The National Integrated Small Enterprise Development (NISED) framework seeks to look at the entire ecosystem because government contributes only 30% towards GDP and 70% lies in the hands of the private sector. It is one of the reasons the Presidency took the decision to appoint a red tape reduction unit to ensure that all ecosystem players can come forward with their challenges at the local level and we can together overcome them. The legislation amendments are needed. However, we know that the country takes long to process legislation. That is why it is engaging with all ecosystem players. We all agree that jobs need to be created through small businesses. DSBD asks SALGA to find mitigating ways to drive LED to ensure that SMMEs can thrive in local economic development. SALGA is busy working on what municipal by-laws they can standardise and improve for this to happen. In this ecosystem we need big business to unlock value chains and big business to spend on Enterprise Support and Development (ESD). We are not interested in playing the blame game in the provinces. Rather we want to focus solely on what works and it does not matter where it comes from.
The merger is not delayed due to internal fights. DSBD has established a Joint Operations Forum that has technical committees to work on the merger. What was missing was the enabling legislation. The only thing that is delaying the SEDA/SEFA merger is processing the legislation so that they can create the new agency.
On collaboration with the LED units in the municipalities, they are aware of the weaknesses and have engaged with SALGA, COGTA and the National School of Government (NSG) on the need to capacitate the LED units for them to be effective. They have engaged with the University of Johannesburg to provide training courses to equip LED practitioners within municipalities. SEDA officials do visit the LED units in the municipalities they are collaborating with as well.
On the linkage between master plans and the NISED, they have referred several times to the NISED as their master plan because each sector has small business. The DG will talk in detail on ensuring that in every master plan, there is a component that goes to small business.
They have reported to Parliament on the DSBD commitment for flood relief provided to businesses in KwaZulu-Natal and Eastern Cape. DSBD set aside R50 million for formal businesses and R10 million for informal businesses. This money was spent accordingly. Unfortunately, they cannot allocate any more funding for the recent disasters due to the pressures of insufficient budget. DSBD has approached National Treasury to advocate that small businesses need contractual management support and other necessities before they access those loans.
Deputy Minister response
Deputy Minister Dipuo Peters stated that she is in full support of the Minister’s input. One of the key things that the Ministry is fully engaged with is dealing with red tape but also dealing with the bureaucratic channels between SEDA, SEFA and the Cooperatives Bank. She supported the Minister's approach to fast-track the creation of the new entity without overlooking and violating the legal prescripts that govern the three entities.
The Ministry is working together with municipalities and provinces to ensure that they are able to create an environment for enterprise development and entrepreneurial education acceleration. Load-shedding adversely affects small businesses and that is why the Ministry is involved in the intervention to assist small businesses with energy products. The impact of petrol increases on small businesses is also important to take into consideration because some travel long distances for stock and to deliver to customers.
She explained that it would be important for them to develop a strategy on 30-day payments to ensure that departments and state-owned entities accelerate payments to small businesses. The Minister is still to engage with National Treasury to address this with relevant departments to come with solutions. In conclusion, the new Ministry is excited to work together with the Select Committee to improve the environment and the total value chain for small businesses to increase the economic growth, deal with unemployment, eradicate poverty and minimise the inequalities in our society.
Mr Nkosikhona Mbatha, SEDA Acting CEO, explained that SEDA is quite close to the cannabis process, especially in the Eastern Cape. They are part of the meetings that take place with various partners within the Eastern Cape on cannabis. They are looking at incubators around OR Tambo which was approved as one of the 12 that will be implemented this year to support SMMEs. SEDA is looking for additional funding to enable them to train across provinces.
Mr Mbatha noted that the Minister had covered the LEDs as access points. On the platform for international market access, there were 79 businesses that came from the provinces and some were SMMEs. Access to the international market is more than just about having a product. They reach out to assist businesses to ensure that their products meet international standards and the requirements of international markets such as proper packaging and labelling and all other policy standards. They only market the product a year after qualifying. DSBD has promised additional funding for SEDA to do international trade.
On incubation, they are establishing incubators but what is most important is to consolidate what they have and ensure that the ones already established are impactful and have sustainable economies coming from those incubators. R50 million is required to build new incubators.
The key aim for SEDA has been getting the SMMEs trained to participate in the value chain and to produce the right product with partners. They are focusing on the middle chain of the economy of each district, depending on if they have an economic-based incubator. They have a number of private sector partnerships in different provinces and can refer SMMEs to benefit from those partners. SEDA is looking at catalytic projects in each province to align SMMEs to each project. However, it requires funding.
Director General Mkhumane replied to the request by the Chairperson that there is a separation in the reporting on SMMEs and cooperatives, that this is something that the Department has decided on going forward. In the quarterly report, there will be separation of how many SMMEs and how many cooperatives have been supported.
On the increased losses at SEFA in the past financial year, the challenge faced by SEFA is that it is expected to fund businesses that are very risky and cannot get loan support from banks which are strict when approving funding.
Since COVID started, SEFA has not been able to invest in new businesses at a great scale because most of the money was used to support existing businesses to survive. They spent R200 million for COVID response, R200 million for support after the July 2021 riots and over R50 million on KZN flood relief. Due to trying to save jobs in existing businesses, new money is needed to fund start-up businesses.
The losses are informed by the fact that they have asked SEFA to implement payment holidays where the loans do not get repaid. He mentioned that they asked SEFA not to demand their money back. Some things are just investments that result in SEFA not being able to recover the money, and that can be seen as losses. We have asked them to also implement business turnaround interventions, where they also assist with an instrument called business viability. The instrument assists existing businesses that are suffering losses and businesses are not expected to start having capacity to pay back the money immediately.
On the Optimum Youth Harvest Cooperative R800 000 funding, the maximum amount made available to the cooperative was R250 000. The National Youth Development Agency NYDA) and Department of Agriculture invested in the cooperative as well. The money was not accounted for. SEFA will follow up with the businesses that have received funding.
On the lack of information to the public, DSBD is going to have 90 engagements this year; last year they had 60. They engage with the people they have serviced to get feedback on how the intervention is working and what can be changed or adjusted. There are numerous online platforms where they engage. With support from the entities, they go together and communicate what is available in the Department and assist in resolving challenges that are faced by SMMEs and cooperatives.
On the concern about the lack of data which affects planning, Mr Mkhumane replied that they do need to have data because it assists to customise their interventions. With the SMME database they are putting in place they want to know how many businesses are operating and where and how many employees they have. This is a work in progress. There is also a programme driven by the SEDA District Information Management System. They are looking at the ecosystem in a particular district because they need the support of various workplaces to execute this massive mandate.
On remote working, they do have officers who are still working remotely, given that they have a limited budget when it comes to office accommodation. However, there is a long-term plan they are working on with the Department of Public Works and Infrastructure to obtain a proper work space to be able to bring everybody back. Information can be shared on the cost but there is no additional cost at this stage because all officers have laptops and have data plan contracts with Vodacom. The money supposed to be spent on tools of trade was part of the package negotiated on the transfer subcontract DSBD has with Vodacom.
They have prioritised the vacant posts but as indicated there is no budget to fill all 57 positions. They are targeting posts dealing with red tape reduction for immediate filling.
Minister’s closing remarks
The Minister spoke to energy relief and noted Members emphasised that they should not be looking at providing energy relief to start-ups, but instead target those that already exist. That is something they are doing, as the DG has explained. DSBD energy relief funding request was rejected but they returned to National Treasury to motivate and are still waiting for approval. As the DG explained, when small businesses are closed due to the severe impact of load-shedding, it also affects the balance sheet of SEFA. They need to ensure the small businesses are sustainable to pay back the money they have given them.
DSBD has partnered with the Department of Higher Education, Training and Science and Innovation for business development. She pleaded with the financial sector to come on board to ensure that small businesses are empowered. The funding of the SBD portfolio was important to reduce poverty. It can only be done if they work together.
In closing, the Chairperson noted that the Committee is unable to track the implementation of the Annual Performance Plan (APP), unlike the other Portfolio Committees in the National Assembly where departments table an APP that is divided into quarters and its implementation can thus be monitored on a quarterly basis.
The Chairperson released the Minister, the Deputy Minister and their team to deal with internal matters. Thereafter he thanked the Committee members but stated that they do not have enough time to consider the minutes.
The meeting was adjourned.
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