DSBD & entities Q1 2023/24 Performance; with Minister and Deputy Minister

Meeting report

The Chairperson welcomed Ms Stella Ndabeni-Abrahams, Minister of Small Business Development, and Ms Dipuo Peters, Deputy Minister, to the meeting. There was an apology from Mr M Mabika (DA). Mr J De Villiers (DA) was overseas following the Rugby Tournament. The Minister and Deputy Minister would be excused from 10h30 onwards to attend a Cabinet meeting.

Minister's opening remarks

Minister Ndabeni-Abrahams said there had been an improvement in the Department's performance compared to previous years. In quarter one of 2021/22, the performance level had been 42.9%, and this had improved to 55% in 2022/23. This year, the quarter one performance had risen to 68%. Other trends may continue to bring improvements, such as filling vacancies, and interventions such as monitoring work.

Many areas needed improvement. Administration was the worst-performing programme, with 57% of targets not achieved. In certain areas, some vacancies need to be filled. In district municipalities, there was underperformance due to a lack of capacity, and changes have been made to address this.

On the small, medium and micro enterprise (SMME) database, things had improved, despite the challenges that come with it being a multi-stakeholder project. On the bills that the Members had complained about, the Businesses Amendment Bill had been delayed as a lot of work had to be done, and the Department was waiting to engage with its stakeholders. Programme three's performance was at 83%, and had improved significantly. The Micro Enterprises Development Programme (MEDP) was also an area of significant improvement. Changes had been made to the Budget Vote. On the Small Enterprise Finance Agency (SEFA), the loan book had not been performing well, according to the targets sets. The Small Enterprise Development Agency (SEDA) was performing well, with an overall 81% achievement.

SEDA: 2023/24 Q1 performance report

Mr Nkosikhona Mbatha, Acting Chief Executive Officer (CEO), SEDA, went through the performance report, highlighting the organisation's performance for the first quarter of the 2023/24 financial year. In the current financial year, the organisation would be monitoring its performance on 24 indicators.

In the first quarter, 16 indicators were due for reporting, and 100% or more had been achieved on 13 of them -- an organisational achievement of 81%. It had underperformed on three indicators:

• The number of SMMEs and cooperatives supported to participate in local markets.
• The number of SMMEs and cooperatives supported with training, mentorship and coaching.
• The number of SMMEs and cooperatives supported through trade missions.

Financial report

The total revenue budget for SEDA for the 2023/24 financial year amounted to R1.195 billion. The

total expenditure budget of R1.195 million (including capital), also includes R235.78

million from the National Skills Fund (NSF).

 

The expenditure for the first quarter 1 (April - June) amounted to R220.28 million against the budget of R232.11 million, resulting in an underspending of 5.10%. The projects that underspent would catch up in the next quarters. 99,9% of the invoices (2 552) were paid within 30 days. Four invoices amounting to R6 280 were paid late, and the consequence management was implemented.

Mr Mbatha explained that the variances were due to:

Personnel costs – The variance of 3.10% in the first quarter was mainly due to the vacancies to be filled. Critical vacancy appointments were in progress.

Administration – Underspending of 6.39% was due to programmes and projects starting later than anticipated. These include the international event for export development, which would catch up in the next quarters.

Depreciation – Under by 12.72% . This was non-cash transaction, caused by underspending of CAPEX.

Capital expenditure – The underspending of 8.85% was due to ordered items receivable in quarter 2.

SEDA had achieved an unqualified audit opinion, with findings. It had been able to resolve the key findings raised by AGSA in the past year, but the performance information findings were raised, as the entity was in the process of implementing the Client Information and Operation management system, whereby clients' information would be captured at the branch level. The system was planned to go live in the second quarter.

There were findings relating to the annual performance plan (APP) measurement and definitions. Management had to review and ensure that APP guidelines and methods of calculations were well-defined and measurable. Other major findings related to the incubators -- mainly the implementation and monitoring of the deliverables as per the memorandum of agreement (MoA). The entity was reviewing the MoA with the incubators and amending the clauses that were inappropriate and costly to implement. The addendum was to be entered into with the incubators in the 2023/24 financial year.

[Please see presentation for more information]

SEFA: 2023/24 Q1 performance report

Mr Mxolisi Matshamba, CEO, SEFA, provided and overview of the first quarter performance.

He said low economic growth environment and structural impediments in the economy -- continual interest rate increases over the last 18 months, the increase in fuel and input costs, effects of load-shedding etc. -- continued to have an adverse impact on the performance of the loan book

Internally, SEFA's operating environment was facing challenges such as the:

• Forensic investigations that impacted on lending operations.
• The pending merger and uncertainty among employees impacting the organisational culture and sustained performance; and
• Employment conditions, and SEFA's inability to create a stable workforce, resulting in leadership gaps, threats to business continuity, and loss of institutional memory.

 

He said increased perceptions of fraud risk at SEFA had led to a negative sentiment in the entity's operating and control environment. Despite these challenges, management continued to arrest these challenges by driving performance and providing support as best as possible, even though the causal effects were starting to threaten the performance of the organisation.

 

Different measures were deployed to improve the first quarter performance to attain the annual set targets. 

A summary of the balanced scorecard indicated a total loan book of R4.2 billion (including funds);

total approvals for the quarter of R81 million; and total disbursements for the quarter of R385 million, 

 

Financial Performance

The year-to-date cost-to-income ratio for the quarter was 57.6%, and this was favourable compared to the annual corporate plan target of 74%. The favourable variance was due to the savings noted under personnel expenses, and technical reserve movements not yet finalised for the quarter. Investment property expenses and other operating expenses also resulted in a lower cost-to-income ratio for the period. 

The interest on lending operations and the investment income had been higher than budgeted. The interest from lending operations for the year-to-date had amounted to R46.4 million against a budget of R43.8 million, resulting in a slight positive variance of 6%. The investment income was R22.6 million more than budgeted (56% above budget) due to the higher-than-budgeted interest rates.

An adverse impact on impairments has resulted from the high inflation, and the effects of loadshedding have negatively affected their clients. The increased cost of inputs affected the businesses' viability and the affordability of the SEFA loans. Businesses had been unable to reach their potential revenues because of fewer trading hours as a result of load-shedding.  

[Please see presentation for more information]

DSDB: 2023/24 Q1 performance report

Ms Thulisile Manzini,  Acting Director-General (DG), DSBD, highlighted some of the Department's performance achievements. The Department had paid all valid creditors within 30 days (2 412 invoices amounting to R13.9 million on an average of four days, and 21 incentive claims worth R15 million on an average of one day.

A variance of 2.6% in cash flow projections had been achieved. Expenditure had been R631 million against a projection of R648.6 million, resulting in a variance of R16.8 million.

The Department achieved 55.9% female senior management service (SMS) level representation, compared to its 5)% target. Stakeholder consultations had been conducted with key stakeholders on regulatory impediments to SMME growth.

A total of 100 products were produced and services rendered by SMMEs and cooperatives linked to the domestic market, compared to its target of 75. An implementation plan for SMMEs and cooperatives linked to global market opportunities was approved by the executive committee (EXCO) on 29 May, and a report on business infrastructure for SMMEs and cooperatives, refurbished or built, was presented to the EXCO on 26 June.

A total of 81 cooperatives, versus a target of 50, were supported financially and/or non-financially, and 688 informal and micro enterprises (target: 333) were supported through the Informal Micro Enterprises Development Programme (IMEDP) to the value of R8.7 million.

The draft National Entrepreneurship Strategy was developed and presented to EXCO  on 29 June.

The national Integrated Small Enterprise Development strategic framework implementation report was developed and approved by EXCO on 26 June.

A progress report on the implementation plan of the SMMEs' and cooperatives' funding policy was approved by EXCO on 29 June.

Ms Manzini referred to the sector-wide monitoring and evaluation (M&E). She said a service level agreement (SLA) between a service provider and the Department had been signed to develop an integrated results M&E system for DSBD programmes.

Two desktop research reports on the utilities and construction industries had been produced and approved by EXCO. A study on the enterprise development models was conducted, where the literature revealed that many opportunities could be explored in the Special Economic Zones (SEZs)to support and develop small businesses to become sustainable.

Since the Eastern Cape Rural Development Agency (ECRDA) and PetroSA had entered into a Memorandum of Engagement to explore potential areas of collaboration, the DSBD had supported small businesses to explore opportunities of processing and supplying biofuels to PetroSA.

The Department of Trade, Industry and Competition (DTIC), in collaboration with the Gauteng Growth and Development Agency (GGDA) in Gauteng and the Limpopo Economic Development Agency (LEDA), held awareness workshops on the “Implementation and Operationalisation of the African Continental Free Trade Area (AfCFTA) Agreement”.

The DSBD, in collaboration with SEDA and Market Access for Digital Entrepreneurs (MADE), conducted a seminar on market access opportunities in the green economy value chain as part of the Youth Month celebrations on 14 June.

In preparation for upcoming political consultations and the BRICS Summit, the Department participated in two engagements -- the North Africa and Central Africa Bilateral.

In collaboration with the European Union (EU) funded Ecosystem Development for Small Enterprise (EDSE) programme, the Department formulated a platform for the International Co-operation Partners Forum (ICPF) to work in the SMME space.

Ms Manzini referred to the Department's progress in responding to audit findings as at 30 June. She said a repeat finding on contingent liabilities had been made, as Legal Services had not made an assessment.

[Please see presentation for more information]

Discussion

Mr H Kruger (DA) said the presentations were precise and informative. On SEDA, how was the success rate of the entrepreneurship awareness programme measured? How many business plans of potential SMMEs were generated by SEDA? How many of these SMMEs were successful in securing finance with SEFA? Why was SEDA reporting on SMMEs and cooperatives, when only 2% of their work was done in the cooperative sector? Rural areas did not see SEDA.

He said SEFA had been accused of bullying other small businesses. Some of these entrepreneurs needed to be invited and allowed to explain how SEFA was bullying them. The overall achievement of 68% was unacceptable. The entities' payment rate to small businesses was congratulatory. What was the Department doing where payment rates were poor? The small business database needed to be up and running as soon as possible. He said red tape was killing South African economic growth. This needed to be addressed, as there was no strategy that was successfully reforming the red tape situation. He also wanted to know how many MOAs had been signed already.

Mr H April (ANC) asked what blockages prevented the Department from implementing the organisational structure and filling vacant posts. Could there be more information on the 2022 public engagement programmes and the district municipalities that benefited from them? What were the outcomes and impact of these engagement programmes? SEFA’s performance had dropped significantly on the developmental impact targets – what oversight was being exercised? What was the root cause for its poor performance? What measures were the Department taking to improve its performance?

Ms M Lubengo (ANC) said that she was not happy with the figures provided by SEDA and SEFA. There needs to be a breakdown of the reports. These entities were not visible, and needed to extend their visibility for people to access them easily. There needed to be more information on SMMEs. Oversight needed to be done on SMMEs, as many of them were not serviced by the entities. Regarding SEFA, what were the consequences aligned with the fraud issue? There were not enough opportunities to develop women at a level above informal traders, and they needed to be represented more.

Ms B Mathulelwa (EFF) asked SEFA if there could be more information on how the new controls work, and how they lead to underperformance on the township and rural targets? How many of the 81 cooperatives had received financial support, and what was the value of the support received? Which municipalities were affected by red tape concerns? How effective was the red tape awareness programme? What was the progress of the Bill, and had a legal opinion been received?

Mr F Jacobs (ANC) said that corrective measures needed to be set for instances of non-delivery. The Department needed to be "hands-on" with the SMMEs.

The Chairperson said that despite the hiccups, credit was due to the entities on their good performing areas. There needed to be turn-around strategies. Issues of risks needed to be adhered to, and internal audits had to be taken very seriously. The Department needed to secure the required resources.

Responses

DSBD

Ms Manzini responded to Mr Kruger on the Department's involvement with other sectors, and said there were day-to-day MOUs that needed to be strengthened. On the red tape, there were engagements with Mr Nkosi in the Presidency to deal with the red tape issue. The lack of accessibility of SMMEs to the entities would be discussed and improved upon. The organisational structure had been approved and there were no blockages. Vacancies need to be filled and targets needed to be met.

More information on the 2022 public engagements could be provided to the Committee. The districts visited had been Capricorn district, Cape Town, Nelson Mandela Metro, Buffalo City, Johannesburg, Mitchells Plain and so on.

On the issue of the root cause of the SEFA's poor performance, she said critical positions were not filled and this was affecting delivery. The suspension of the disbursements from the European Union (EU) fund had also created a problem. The Minister had met with all the entities, and the issues of performance had been discussed. Entity oversight would be strengthened. Information on beneficiaries would be provided to the Committee. Strategies for empowering women needed to be strengthened as well. Risks were being taken very seriously, and they were being addressed.

Mr Jeffrey Ndumo, DSBD, said that the 81 cooperatives had received financial support and were being prepared to be funded. SEDA would fund these cooperatives in the next quarter, as it had been unable to fund them during the first quarter, due to the transition.

Ms Nomvula Makgotlho, Chief Director, DSBD, said that red tape reduction was a process that had been with the Department since before 2019. The reduction was being approached on multiple levels. Awareness workshops were taking place to educate people on red tape reduction and its outcome. Five municipalities have been engaged so far regarding the workshop. During this month, there would be a workshop in Mpumalanga. There would also be a dashboard for municipalities to track and monitor the red tape issues in their area. KwaZulu-Natal municipalities were also involved in these red tape reduction processes.

There was a study currently on the red tape regulatory impact on SMMEs and cooperatives in the country. The study identified 29 pieces of legislation which had implications for the growth of SMMEs. These implications were being considered to determine how to overcome them. On the interventions yielding results, tangible results had not yet been seen, as most programmes were at the pilot stage, but in a few months' time, tangible evidence would be provided to the Committee.

Mr Mojalefa Mohoto, Chief Director: Enterprise Development, DSBD,  said the MOUs were being signed with strategic like-minded departments, such as the Department of Science and Technology, and the Department of Forestry, Fisheries and Environment. Multilateral organisations and agencies were also signing MOUs.

SEDA

Mr Mbatha said the Agency had awareness programmes. The impact of these programmes could be seen when SMMEs were implementing what they had been taught in such areas as compliance, tax, registration and so on. There were also follow-ups on these SMMEs.

Regarding business plans, during the last quarter of last year and the first quarter of this year, 49 cooperatives had been referred to SEFA. 12 of these had been in the disbursement stage before the funds had been moved to SEDA. There were around 11 clients referred to SEFA and other stakeholders, and R11.3 million had been raised. To enhance the entity's visibility, new access points needed approval. There was the challenge of limited funding, but visibility was important and would be prioritised. Community outreach programmes needed to be improved, and would be looked into.

SEFA

Responding to the allegation of bullying, SEFA said its clients needed to come forward so it could investigate this issue. With the Township and Rural Enterprise Programme (TREP), extra controls have been introduced in areas of vulnerability. Interns were being used for site visits. 24% collections were very bad and needed improvement. It has done well on microfinance in the rural areas.

The challenges of the board's investment credit committee had impacted the Khula Credit Guarantee's (KCG's) business and the wholesale business. The BlackRock Capital Investment Corporation (BCIC) was now on board. Vacancies in critical areas were a major issue due to lack of credit analysts and so on. The key issue was funding from Treasury, and there was lack of hope in getting the money. The only way forward was partnerships, and skilled people filling vacancies.

There were follow-up questions on the forensic investigation with SEFA and on the SEFA business plan. More information would be provided in writing to the Committee, and the next meeting would address the forensic investigation.

The meeting was adjourned.