In a virtual meeting, the Portfolio Committee was briefed by the Auditor-General of South Africa (AGSA), the Department of Small Business Development (DSBD) and its two entities, the Small Enterprise Finance Agency (SEFA) and the Small Enterprise Development Agency (SEDA), as part of the Committee’s preparation for the Budgetary Review and Recommendations Report (BRRR).
The Committee welcomed the Department’s achievement of a clean audit for three consecutive financial years, but was not pleased with the regression in SEFA’s performance. The entity had gone from a clean audit in the prior year to an unqualified audit opinion, with material findings on matters of compliance in the period under review. The auditors attributed this regression to non-compliance by submitting financial statements that did not meet the requirements of the prescribed financial reporting framework, and inter-company loans that had been approved without a special resolution. The Committee urged SEFA to correct its mistakes to attain a clean audit status by the end of the current financial year.
The Chairperson of the Committee commended SEDA for being in the process of implementing a performance reporting system that would eliminate manual intervention, which was prone to errors. The Committee was pleased that in the period under review, the small business development portfolio had achieved 67% of its annual targets, with the DSBD achieving 56% of its annual targets and SEFA and SEDA achieving 60% each. It expressed its appreciation for the commitment made by the Minister of Small Business Development to continue monitoring and ensuring that the remaining targets were also met.
The Chairperson said the purpose of the meeting was to get a briefing on the annual performance reports of the Department of Small Business Development (DSBD) and its agencies. She noted the apology from Deputy Minister Dipuo Peters, who had been hospitalised, and invited the Minister, Ms Stella Ndabeni-Abrahams, to take over.
Minister's departmental overview
Minister Ndabeni-Abrahams referred to the census report of 2022, which showed that the government had made great progress over the past ten years in providing service delivery to the people of South Africa. On the economic front, the global economy remained volatile, with high inflation suppressing global demand and the demand for commodities. This had kept the economy on a declining trajectory that was failing to reduce unemployment and inequality at the desired pace. To address this, as government, the agreement was to prioritise developing small, medium, and micro enterprises (SMMEs) and cooperatives to accelerate growth, create jobs and build a more inclusive economy.
The National Development Plan (NDP) aimed to create 11 million jobs by 2030, with 20% coming from SMMEs. The portfolio had to re-think how to achieve this goal, more so after the National Commission had also released its evaluation. At the centre of it, it had positioned the DSBD to play more of a leading role. To this end, the Department developed a third iteration of the small enterprise development strategy for the country, which was known as the National Integrated Small Enterprise Development Strategic Framework. This had already been approved by Cabinet in November 2022, and had been a highlight in the year under review, indicating the work that the Department had done to create a sector that was organised and had a more focused approach. The Department had developed this in close collaboration with all the key SMMEs and cooperatives and stakeholders at the SMME and cooperatives summit.
The 55% performance by the Department, measured against the annual performance plan (APP) targets, misrepresented the real work that the Department had been busy with. There was now a consensus among all key SMMEs and stakeholders, as well as amongst the cooperatives themselves, about what needed to be done to support the entrepreneurs and the cooperatives to become drivers of inclusive growth and transformation. This included tackling red tape, as the year under review would show that progress had been made in reviewing the National Small Enterprise Act.
The Department was still busy reviewing the Business Licensing Amendment Bill, which unfortunately would not be tabled to Parliament in this administration. Additionally, in the year under review, the DSBD supported 25 municipalities to roll out the "red tape awareness" programme. As a result, a list of legislation that cut across sector departments had been identified and submitted to Cabinet to have the responsible ministries and departments ensure that those pieces of legislation were either repealed or amended.
Stakeholders across the ecosystem agreed on the need to increase the SMMEs and cooperatives' participation in key markets. It was important that the entire sector was considered, instead of the Department just looking at the work that they did with the little budget that they had. Everyone in the ecosystem had to play a meaningful role in opening up markets and unbinding chains to benefit everyone.
Minister Ndabeni-Abrahams said that during the year under review, the Department had made progress in building an enterprise supplier development committee, which was formally launched in 2023. This was meant to enhance business development support, because the reason most of the SMMEs that were not able to get access to markets and were not able to get access to funding, was the quality of the business development support that had been provided.
The Department linked 281 SMME products and services to domestic markets as part of taking some products to the market. It was important that this was highlighted, as SMMEs had been complaining that they would develop products, but these products did not get taken anywhere. The Department continues to engage the Ministers in identifying undesirable businesses that must not be licensed to foreigners in South Africa.
Stakeholders had also agreed that the Department needs to scale up its business development services for SMMEs and cooperatives, especially through incubation support. Through the Small Enterprise Development Agency (SEDA), they surpassed the set target of setting up 100 incubators during the 2019-2024 period. An additional 11 incubators had been approved to be established during the year under review. Collectively, a total of 2 507 SMMEs and start-ups were incubated during this financial year.
The ecosystem had further agreed that they urgently needed to reduce the SMME credit debt, which was estimated to be above R350 billion, with some estimates putting it closer to R500 billion. In response to this, the Department had developed a funding policy and continued to bring partners on board, and were also in the process of signing agreements with different funds. This had already been considered in April, and they had looked at ways to increase the credit allocation to SMMEs and cooperatives and de-risking bank lending to them, while including credit information to support poor ones.
During the year, the Small Enterprise Finance Agency (SEFA) approved loans to the value of R1.7 billion and dispersed R2.4 billion to SMMEs and cooperatives. Over the same period, it had been able to impact 74 762 SMMEs, and that had helped to facilitate and retain 104 547 jobs. These numbers were highlighted because Members needed to remember the work that the Department did and the impact it had with a budget of only R2 billion, which had to cater for administrative support, all the employees, the travelling that was required, and the support that needed to be given to the SMMEs.
With the Department's programmes, they had surpassed the targets for their support for cooperatives. 321 cooperatives had been supported financially against a target of 200. They had reached 94% of its targets for township and rural entrepreneurship programmes, and had supported more than 80 000 enterprises during the year. The Department believed there was room for improvement, and has since developed a service delivery improvement plan to ensure they reach 100%. The Acting Director General would provide information on where they had missed targets, and what they would do to address this.
During the past year, the Department had been busy integrating SEFA and the Cooperative Bank Development Agency to form a new agency called the Small Enterprise Development and Finance Agency. Cabinet reviewed and approved the business case, which was a step in the right direction because it was critical for the DSBD to create a cohesive environment for the sector responsible for legislation.
DSBD's 2022/23 Annual Report
Ms Thulisile Manzini, Acting Director General, DSBD, said the Department had set out to achieve 25 annual performance indicators and targets over the reporting period, and had achieved 14 (56%). It had received an unqualified audit opinion with no findings for the 2022/23 financial year, which was generally referred to by the Auditor General of South Africa (AGSA) as a "clean audit."
The Department had paid 100% of its valid creditors in under 30 days, having received 11 044 invoices worth R63 million. Its expenditure amounted to R2.514 billion, which was marginally short of its R2.533 allocated budget. No fruitless and wasteful expenditure had been incurred.
The Department had 51.5% representation of women in its senior management service (SMS) ranks, which was above the public service standard of 50%, and had 3.3% representation of persons with disabilities as at 31 March.
In partnership with its agencies, SEDA and SEFA, the Department has implemented 135 public engagement programmes within district municipalities. It continued to implement the SMME-focused localisation policy framework that Cabinet adopted during the 2020/21 financial year:
A total of 281 products and services rendered by SMMEs and Cooperatives were linked to the domestic market.
Through the Small Enterprise Manufacturing Support Programme (SEMSP), the Department aimed to contribute to South Africa’s localisation strategy. As at 31 March, approvals concluded had amounted to R832.6 million at 85 SMMEs, facilitating 5 056 jobs. This was since the SEMSP started approving transactions on 18 September 2020. Over the same period, R548.0 million had been disbursed to 74 SMMEs.
Two progress reports on the review of the Businesses Amendment Bill and proposed changes had been approved by the Executive Committee (EXCO).
The DSBD portfolio mainstreaming strategy for gender, youth and people with disabilities (GEYODI) was approved by EXCO on 27 March.
The Department facilitated the presentation of the women's economic empowerment priorities and expectations through the Brazil-Russia-India-China-SA (BRICS) bloc's women's business alliance.
Ms Manzini reported on the targets that had not been achieved. These included:
- the DSBD's vacancy rate and the under-representation of persons with disabilities (PWDs);
- the SMME business index system had been developed and tested, but not implemented by the end of the reporting period;
- the small enterprises' credit scoring and rating system to facilitate access to finance was not implemented;
- 1 202 women-owned businesses were supported to register on the international platform against a target of 2 500;
- 68 SMMEs and cooperatives were linked to global market opportunities against a target of 250;
- two business infrastructures for SMMEs and cooperatives were refurbished or built against a target six;
- the monitoring report on the Incubator Support Programme (ISP) improvement plan was not approved by EXCO;
- 18 759 township and rural enterprises were supported financially and/or non-financially against a target of 20 000;
- 659 crafters were supported through the Craft Customised Sector Programme against a target 900; and
- 8 988 start-up youth businesses were supported financially and/or non-financially against a target of 10 000.
She recommended that the Portfolio Committee adopt the tabled 2022/23 annual report of the Department of Small Business Development.
See attached for full presentation
SEFA's 2022/23 Annual Report
Mr Thembinkosi Bonakele, Chairperson of SEFA, handed the presentation over to Mr Mxolisi Matshamba, the Agency's Chief Executive Officer (CEO).
Mr Matshamba listed some highlights from the annual report.
Other interest earned had increased by R87m in the current year.
Grant income allocated in the current had been higher than anticipated – a R280m increase in ring-fenced funds.
Expenses had increased due to the increase in property expenses, personnel costs and South African Revenue Service (SARS) penalty reversals.
Cost containment measures had resulted in a 66% cost:income ratio -- an increase of 10% compared to the prior year and an improvement from the 87% target.
Loans, advances and impairments
Gross loans and advances had increased by R677 million, to R3.3 billion, at year end due to the growth in disbursements in the loan portfolio.
Due to declining collection rates, the impairments write-off and bad debt provisions on loans and advances had increased by a net amount of R594 million.
Small businesses continued to find their cash flows under pressure due to rising inflation and operational costs. At year end, the impairment provision was R1.68 billion (2022: R1.1 billion).
Mr Matshamba said that looking ahead beyond the current financial year, SEFA aimed to introduce initiatives to improve the quality of its loan book and collections, and to reduce impairments by:
- Capacitating post-investment monitoring;
- Fully embedding pre-investment activities;
- Leveraging on key strategic partnerships;
- Writing off the debt book that was classified as irrecoverable to align with SEFA policy and International Financial Reporting Standard (IFRS) 9;
- Consistently achieve the budgeted cost-to-income ratio by implementing sustainable cost-containment measures.
Key milestones achieved on the High Performing Organisation (HPO) journey had been:
Leaders of the future
A second intake of the Management Development Programme had been completed, and a junior managers development programme had commenced with 14 participants.
SEFA Work Readiness & Entrepreneur Programme has been implemented, with 27 interns on-boarded.
One SEFA, one culture
Culture transformation sessions implemented, with 70% coverage.
Medium term expenditure framework (MTEF)
The pandemic drastically altered the status quo, with subdued gross domestic product (GDP) growth, sluggish tax revenue collection, and increased business closures and unemployment.
Mr Matshamba said SEFA would improve the organisation’s performance and market position by focusing on the following phases:
- Phase 1 – Building the core: SEFA would focus on taking the organisation back to basics, placing the customer at the centre of what it does.
- Phase 2 – Scaling up capabilities: SEFA would focus on cost and efficiency dimensions by digitising its channels and introducing market interface and engagement tools. This was vital in the current pandemic reality, which was likely to persist long into the MTEF period.
- Phase 3 – Innovating the delivery model: As new, tech-driven platforms took shape in SEFA's operations, the need to maintain the innovation momentum would be fundamental towards the tail end of the MTEF. SEFA would intensify its usage of fourth industrial revolution (4IR) tools, such as machine learning and artificial intelligence (AI), to improve decision-making throughout the operational value chain.
See attached for full presentation
SEFA's 2022/23 Annual Report
Mr Nkosikhona Mbatha, Acting CEO of SEDA, said that during the 2022/23 financial year, the Agency had monitored its 22 performance indicators. The organisation had achieved 100% and more on 19 of them, reflecting an achievement of 86%. It had underperformed on three indicators -- the number of new SEDA access points; the number of SMMEs and cooperatives assisted through the Technology Transfer Assistance Programme; and the Ecosystem Development Plan implementation.
The new economic environment and the global downturn had increased the pressure on organisations to adopt a corporate culture supported by structured pattern-based strategies. SEDA's values laid the foundation for understanding clients’ needs and employees’ attitudes, as these values influence perceptions and enhance the core business value proposition and impact, in collaboration with all role-players in the ecosystem. A performance-driven culture was therefore deep-rooted at all levels in the organisation.
The human resources (HR) unit enabled other divisions to ensure that adequate and efficient service delivery was offered. It had set strategic priorities that were translated into action. A total of 128 employees received recognition for uninterrupted service to the organisation, ranging from five to 15 years.
SEDA was committed to improving the health and well-being of employees, and promoted a workplace that did not expose employees, visitors or clients to hazardous substances or conditions that may cause injury. To improve employees’ quality of work-life balance, it had a dedicated health provider that offered counselling to support and enhance the mental and physical well-being of its employees and their families through the Employee Assistance Programme. This programme included psychological, legal, and economic/financial counselling.
See attached for full presentation
Ms M Lubengo (ANC) said the Department had indicated that the small enterprises credit scoring and rating system to facilitate access to finance had not been implemented, and asked why it was not. How would they be able to measure their credit scoring and rating system? What progress had the SMME sector made towards achieving the NDP target of 9.9 million new jobs by 2030? What was the likelihood of meeting this goal, and what role could the Department play in accelerating efforts towards achieving this goal? What was the latest on the proposed Business Amendment Bill? What were the changes that Eskom had approved? The Department had refurbished two business infrastructures for SMMEs and cooperatives against a target of six -- what progress had it made in this regard? Could the Department provide evidence of the refurbished business infrastructure, more specifically, a ‘before’ and ‘after’ picture?
Mr V Zungula (ATM) said that in all issues concerning the compliance of businesses to labour-related matters, the Department of Employment and Labour (DEL) had mechanisms to ensure that it happened, so when it came to small businesses and the mechanisms put in place to ensure compliance, where was the DSBD when it came to planning? Could the NDP targets be realised without having a clear process for ensuring that SMMEs' invoices were paid on time? Where was the DSBD concerning pushing other departments to pay on time? What was it doing to urge state institutions to source a percentage of their goods and services from SMMEs?
Ms K Tlhomelang (ANC) asked the root cause of the regression in the Department's performance against the set targets was. She wanted the Department to expand on the inadequate controls that were identified by the AG, especially those related to the number of women who owned businesses. How was the Department managing informal trading? How was it assisting SEFA in ensuring that services to clients were not compromised? What had been the impact of the target on the consolidation of the report? What progress had the districts made in the effectiveness of dealing with complaints?
Mr E Myeni (ANC) asked about the DSBD's position on the competition between SEDA and the Industrial Development Corporation (IDC). What kind of financial and non-financial support did the Department give to cooperatives? What was the value of the financial support?
The Chairperson thanked the Department and the agencies that had presented. She expressed her appreciation for all the hard work and progress that they had made in their year under review.
Ms Manzini welcomed the compliments regarding the work that the Department had been doing, and thanked the Members. Regarding the regression, she said that it could be related to the issue of vacancies that needed to be filled, but now that they had been filled, everything should be sorted out.
On the issue of the merger, the Department had moved, and the target date was the end of March 2024.
The DSBD was working with the municipalities on business licensing, and the New Business Licensing Bill would also give the Department more authority to streamline business licensing and enforcement, so it was pushing to have that power and leverage.
Regarding the access to markets, the Department was doing a lot in terms of export support, focusing on various partnerships.
The Department had received comments from the advisor on the Business Amendment Bill, and were now looking to respond.
Everything hinged on the finalisation of legislation. The Department was working on finalising some of the areas it needed to complete through its workstreams.
Regarding the infrastructure target, where only two of the six had been achieved, this was one of those targets where some were half done, and some were complete -- it was just a matter of the time frame taking longer than expected, otherwise there had been progress.
Ms Mosa Makhele, Deputy Director General: Sector Policy and Research, DSBD, said that on the rollout of the red tape production programme, the Department was looking into measuring the effect of the work they had put in so far. Over the past two administrations, a lot of work had been put into red tape awareness, and that work was still continuing. However, the Department was looking at ways of integrating the awareness in setting up the administration in a way that meant it could collect baseline information and indicators that would tell it how to monitor and how to measure the programme and its effectiveness.
Chairperson's closing remarks
The Chairperson thanked all Members, and emphasised her appreciation and noted that the journey ahead was still a long one. It was important that all targets were met at the end of the day, and that support was offered to those who needed it.
The meeting was adjourned.
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