North West Oversight Report

Small Business Development

24 May 2023
Chairperson: Ms V Siwela (ANC)
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Meeting Summary

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Tabled Committee Reports

The Committee considered and adopted its report on its March 2023 North West oversight visit. Amongst the observations was that the Informal Traders Support Programme implemented at national level has insufficient information being cascaded down to the provinces to conduct monitoring and evaluation of those projects, as the Committee learned during its oversight of the North West.

SEFA's operating model offers financing and business support to SMMEs and co-operatives indirectly through intermediary financial institutions like retail finance intermediaries (RFIs) and microfinance institutions (MFIs). The Committee learnt during its oversight visit to North West, there is little being done to monitor the transformation agenda of MFIs and RFIs, the rate of interest they charge to small businesses to determine if it is compliant with the National Credit Act, the type of projects that intermediaries finance, how much support co-ops and informal traders receive, and whether such projects adhere to SEFA and DSBD's mandate of financial inclusion.

Committee members raised concerns about DSBD corruption in North West and requested a commission of inquiry and that the SEFA board appears before the Committee for through questioning. Others complained about foreign nationals who did not register their business and paid no tax. They requested oversight visits to other provinces to examine their status of affairs.

Meeting report

The Chairperson in a virtual meeting explained the meeting’s purpose was to consider the North West oversight visit report which was conducted in March 2023. Apologies were noted from the Minister and Deputy Minister.

Committee Report on North West Oversight Visit
Mr Sibusiso Gumede, Committee Content Advisor, read out the report. The recommendations included:
● The Department, National Treasury and South African Reserve Bank must formulate methods to entice commercial banks to participate in the loan guarantee program.
● The Department is urged to expand its strategic alliances with the corporate sector and vigorously pursue outside funding alternatives particularly for startups by, whenever possible, providing an enabling environment. Over and above credit guarantees, the Department and SEFA should explore alternative and innovative financial models such as invoice discounting, cession of contracts and income in order to unlock the balance sheets of commercial banks. Due to severe budgetary restrictions, the Department and SEFA are unable to support millions of small enterprises.
● The Committee supports the proposed initiatives to lessen the negative effects of load shedding on the small business sector. The Committee urges the Department to expedite these interventions so they can be announced on or before June 30, 2023.
● Since its creation, the Portfolio Committee on Small Business Development has had to deal with the issue of business registration and licensing. Two Parliamentary Adhoc Committees that looked into xenophobic attacks in 2008 and 2015 came to the conclusion that small business regulation in the nation, such as the granting of trading permits and business licenses to foreigners, is a significant source of conflict and needs to be addressed through policy. It is a common practice around the world to not grant permits and licenses to immigrants in fields that should be reserved for South Africans.
● As promised in the Department's annual performance plan (2021/22), the Department must urgently finalise the Business Amendment Bill and refer the same to Parliament as soon as possible. As earlier recommended, Section 2 of the National Small Business Amendment Act No 26 of 2003 requires the Minister to appoint members of the Advisory Board. The Committee is requesting that the Department start this process right away in order to finish it by the end of the second quarter of the 2023/24 fiscal year. Alternatively, the Department is required to inform the Committee and give justifications for why this specific commitment is not being carried out as pledged in the successive 2022/23 and 2023/24 annual performance plans.
● To prevent future and unfavorable virements and suspensions, the Department must examines how well it spends its base budget and swiftly identify idle reserves. The primary causes and drivers of such virements are frequently poor expenditure on programs as well as products and services, which are typically an indication of vacancies.
● SEFA needs to monitor retail finance intermediaries (RFIs) and microfinance institutions (MFIs) more closely in order to make sure that they are in line with the government's mandate of making finance accessible to all. The Committee will now scrutinise SEFA's quarterly reports to determine if MFIs and RFIs operations are closely monitored. MFIs and RFIs products and services should not be in competition with SEFA. They also should not work against government objectives of making developmental credit accessible cheaply.
● The Committee is once more requesting that SEDA and SEFA reevaluate how interconnected and interdependent their services are. The Committee disagrees with the idea that funding applications and business plans created by SEDA could be arbitrarily rejected without appeal or corrective action from SEFA. Future SEDA and SEFA quarterly reports should include a column describing the current status of all applications sent to and received by the two organisations
● To support the President’s aspirations to eliminate red tape, the Committee is once again calling for the establishment of a Parliamentary Ad hoc Committee or creation of the executive structure that will interface with the red tape reduction team at the Presidency under the guidance and leadership of Mr Nkosi.

Discussion
The Chairperson thanked Mr Gumede with a well written and detailed report. She asked Members to comment on the report so that it can be adopted and presented to the National Assembly.

Mr D Mthenjane (EFF) said the report is clear and straightforward that there must be a thorough investigation of all the companies that the Department of Small Business Development (DSBD) is funding in North West. There must be an investigation conducted by the South African Police Service Directorate for Priority Crime Investigation. SEFA and SEDA have a lot to answer for as they should have known that these companies should not be funded. Those that are on the wrong side of the law must be arrested.

The Chairperson said that it is important that Members state if they are in support of the report or not.

Mr Mthenjane said that he is in support of the report.

Mr F Jacobs (ANC) agreed with Mr Mthenjane and also supported the report. The Committee worked together, regardless of their support for different political parties, so that the work of oversight could be a success and they expose the corruption that is happening in DSBD in the North West. It was disheartening to know that R10 000 was set aside to give to each struggling spaza shop during Covid-19; however, the beneficiaries were given only R3500. There are still 504 spaza shops owners that did not receive their money. It is high time that government do right by its people in providing services in an efficient and effective manner. It is the duty of the Committee to ensure the money is paid to the rightful beneficiaries within a timeframe that the Committee will establish. He commended Mr Gumede for the well carried out research that exposed Department officials, who were telling lies about why the monies were never paid.

Mr Jacobs said that it is of vital importance that the relevant government departments help in regulating and identifying foreign nationals that are not legal and also not registered to do business in the country. They are not allowed to conduct any business without registering so that they can also pay tax.

Mr Jacobs said that there must be a way of working with the banks to ensure that they create affordable finance for the people.

He also raised a concern that there is an entity that is not licensed by the National Credit Regulator. SEFA and SEDA did not follow the correct procedure in providing this entity with funding. Thus there must be consequence management for the official who signed to provide that entity with funding.

The Chairperson noted that she is rushing to the airport and as a result there might be disruptions to her internet connectivity.

Mr H April (ANC) thanked the content advisor for the wonderful report and he supported the report. He wanted to find out if there has been any consequence management thus far? He asked what can be done to ensure that all the recommendations are respected by the Department especially the proposed three-month deadline to ensure all the all the monies are paid and that there is consequence management. He requested if there can be oversight on checking who is employed within SEFA. It may be found that there are foreign nationals that are employed. This must not be taken as sounding xenophobic but one must follow the correct procedures of checking if they are not put there to benefit “their people” instead of deserving beneficiaries. He reminded the Committee about the matter he raised in 2020 about employees receiving high salaries and that must be looked into. He supports the budget if it is in line with all the requirements.

The Chairperson reminded Members that the meeting only dealt with the Committee Report to check if it has captured the matters properly.

Ms B Mathulelwa (EFF) requested that there must be a commission of enquiry to deal with this matter. She appreciated the well drafted and detailed report. She requested that oversight visits must be carried out on the remaining eight provinces as SEFA and SEDA have created a lot of doubt. She narrated a story of how the Committee was treated while conducting oversight; she is angry about that. The Committee need to visit the farm that denied the Committee entry. The Committee need to find all the SEFA and SEDA reports that can lead the Committee to what has really happened. She asked the Committee to consider inviting the SEFA board to come and answer questions and give the Committee a true reflection of the state of the entity.

The Chairperson thanked Ms Mathulela and asked her if she supports the report.

Ms Mathulelwa said that she supports the report.

The Chairperson agreed with Ms Mathulelwa about the establishment of a commission of enquiry and to invite the SEFA board to answer to the allegations of corruption. She will ask the Committee secretary to write a letter and attach the article that wrote about the corruption allegations and request a meeting with the board. She raised a concern that other Portfolio Committees conduct the interviews for the appointment of board members but Small Business Development is not doing the same.

Mr H Kruger (DA) commended Mr Gumede for an exceptional report and said that the DA supports the report. When the Committee was conducting oversight in North West, he also went to the Agriculture department and there is a similar challenge at that department as well. He suggested adding a recommendation about conducting lifestyle audits for all employees working for DSBD and its entities. He raised this because he is alarmed by the type of vehicles the government officials own.

Ms K Tlhomelang (ANC) thanked members for their condolences and said that she supports the report and recommended that oversight must be extended to other provinces as well.

The Chairperson thanked Members for their contributions, for their efforts in conducting the oversight and their recommendations to the report. She thanked them for putting their political differences aside when conducting the oversight. She again thanked the content advisor for an exceptional report.

The Committee adopted the Committee Report on North West Oversight Visit.

Minutes of the 10 May 2023 meeting were adopted and the meeting was adjourned.

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