The Select Committee was briefed by the Department of Small Business Development (DSBD) on its 2023/24 first and second quarter performance reports. In the virtual meeting, Members asked the DBSD for a comprehensive report on its underachievements, the implementation of corrective measures, the delays in processing important legislation involving the state law advisors, and what the Department was doing about it.
A Member pointed out that at some stage, the DSBD was going to be earmarked as one of the critically important departments to lift the country out of its current unemployment situation, yet it was moving at a slow pace instead of getting an exponential improvement and taking up the mandate of being one of government's core departments. Concern was expressed about the National Small Enterprise Amendment Bill, particularly concerning the wide powers conferred on the Minister. The Minister was asked if she was willing to step back and not have all that power vested in one individual, because that would be dangerous and subject to abuse.
The Department's two entities, the Small Enterprise Finance Agency (SEFA) and the Small Enterprise Development Agency (SEDA), reported on their challenges faced, particularly the effect of load-shedding on small businesses, particularly in the manufacturing and logistics sectors.
Members questioned issues affecting the database of small, medium and micro enterprises (SMMEs), the vacancy rate of over 30%, and progress in implementing the red tape reduction programme.
Minister’s opening remarks
Ms Stella Ndabeni-Abrahams, Minister of Small Business Development, said that as the global economy remained volatile, the economy was on a low growth trajectory that was neither reducing unemployment nor inequality at the desired pace. The Department of Small Business Development (DBSD) prioritised the development of micro and small-medium enterprises to accelerate growth, create jobs and build a more inclusive economy.
The DSBD was a young Department with a limited budget, but it took pride in that close to a million jobs had been saved due to the interventions of the portfolio. It was also assessing the impact of its work, and the contribution of the sector to total business turnover was growing. According to StatsSA, in 2013, the sector contributed 25% of the total business turnover, with large enterprises contributing 75%. By 2021, the sector's contribution had increased to 33%, with large enterprises declining to 67% of total business turnover. In sectors like construction, the sector's contribution had increased from 39% in 2013 to 63% in 2021. Manufacturing also saw an increase from 18% to 27% in 2021. The statistics showed that the collective effort was yielding results.
The Minister presented the Q1 results, and said that the performance was much better than last year, when only 56% of the target had been achieved. This year, 68% was achieved, and 69% in Q2, which showed that things were settling from an organisational perspective, as there was more clarity and certainty on what needed to be done, especially in monitoring and accountability. The audit for the financial year 2022/23 had been received, and there was a great improvement from the 2021/22 financial year, as there had been a shift from an unqualified opinion to a clean audit.
Since the new organogram was approved in September 2022, vacancies have decreased from 34.5% in April to 32%. The Department was now above the target for women in senior management, but there were still performance issues that were being paid attention to, especially in the township and rural entrepreneurship programme. The red tape support programme provided to municipalities -- most importantly, the intergovernmental collaboration that existed -- showed that the enterprises operated in a conducive environment. On the red tape, they had just completed the regulatory impediments review. They were in the final stages of amending the Business Licensing Amendment Bill, which would soon be taken to Cabinet for approval and gazetting. There had been progress on the National Small Enterprise Amendment Bill, which was currently undergoing a public hearing. The Northern Cape and Limpopo hearings had been completed, and they would finish Mpumalanga and the Free State today.
Minister Ndabeni-Abrahams said that the Small Enterprise Development Agency (SEDA) had improved in performance compared to the last financial year. In the current financial year, it had underperformed in one indicator, compared to four for the same period last year. The Small Enterprise Finance Agency's (SEFA’s) performance was more concerning, with underperformance in the loan book. This had to do with suspending disbursements while fraud investigations were being undertaken.
2023/24 Quarter One Performance Report
Ms Thulisile Manzini, Acting Director-General, DSBD, presented the performance report for the first quarter.
The presentation looked at the background and purpose, governance and compliance, and overall performance summary. It included performance highlights, under-achievements, provincial breakdowns for SEFA and SEDA, financial reports, human resources report, the National Development Plan's (NDP's) anticipated specific outcomes, overall performance by programme and recommendations.
Ms Manzini said the Department had achieved 55.9% female senior management service (SMS) representation, which was greater than the target they had set for Q1. Stakeholder consultations with key stakeholders on regulatory impediments to small, medium and micro enterprise (SMME) growth were conducted. A total of 99 products were produced and services rendered by SMMEs against a target of 75, and co-operatives had been linked to the domestic market.
The implementation plan for SMMEs and co-operatives linked to global market opportunities was approved by EXCO on 29 May, and a report on business infrastructure for SMMEs and co-operatives refurbished was presented to EXCO on 26 June. A total of 82 co-operatives, against a target of 50, were supported financially and/or non-financially. A total of 688 informal and micro enterprises, against a target of 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. The national integrated small enterprise development strategic framework implementation report was developed and approved by EXCO and the progress report on the implementation plan of the SMMEs and co-operatives funding policy.
She said that in value terms, the majority of SEFA's disbursements were done in Gauteng, followed by KwaZulu-Natal and the Western Cape, while the majority of SMMEs in Limpopo, KwaZulu Natal and Mpumalanga were supported through SEFA's microfinance and informal sector loan programme. On SEDA expenditure per province in April to June, the provinces had spent 99.38% of their budget in quarter one, resulting in a 0.62% underspending.
Mr Shumani Mathobo, Director, DSBD, provided an overview of spending trends for the first quarter. On compensation of employees (CoE), expenditure for the first quarter had amounted to R41 million against a projection of R43.3 million, resulting in a variance of 5.1%. The underspending was mainly due to the vacancy rate of 31.7%. He also provided financial reports per economic classification on goods and services, transfer payments, and capital assets.
Ms Manzini reported on the audit findings progress as of 30 June on areas like incentives, provisions, key management personnel, contingent liability, pre-determined objectives, and internal audit. No findings were raised by the Auditor-General of South Africa (AGSA).
See attached for full presentation
2023/24 Quarter Two Performance Report
Ms Manzini said the Department had obtained an unqualified audit outcome, without material findings, on non-financial performance information for the 2022/23 financial year -- a clean audit. It had managed to process 2 809 invoices amounting to R20.1 million on average within five days. It had spent R819.3 million against the cashflow projection of R838.7 million, resulting in a variance for the quarter of R19.4 million (2.3%).
The Department achieved 54.3% female SMS representation, which was above its target, and 32 public engagement programmes were implemented by the DSBD and its agencies within district municipalities. It had supported 80 co-operatives financially and/or non-financially. A total of 544 informal and micro enterprises were supported through the informal micro-enterprises development programme. The national integrated small enterprise development strategic framework implementation report was developed and approved by EXCO, and the Department had conducted two consultations with key stakeholders on regulatory impediments to SMME growth.
In value terms, the majority of SEFA's disbursements were done in Gauteng, followed by KwaZulu Natal and the Eastern Cape. The majority of SMMEs supported in Limpopo, KwaZulu-Natal and Mpumalanga were through its micro finance and informal sector loan programme.
SEDA’s expenditure per province had amounted to a total of R194.77 million, resulting in an overall overspending of R7.22 million.
Mr Mathobo provided an overview of spending trends, and indicated that CoE for the second quarter had amounted to R43.3 million against a projection of R51 million, resulting in a variance of 13.9%. The underspending was mainly due to the vacancy rate of 32%. He also provided financial reports per economic classification on goods and services, transfer payments, and capital assets.
See attached for full presentation
Mr J Londt (DA, Western Cape) commented that since the beginning of the term, when the Department had started, the Committee had continuously heard that it was young, and that was the reason it was not functioning the way it should be. He expressed his frustration, pointing out that at some stage, the DSBD was going to be earmarked as one of the critically important departments to lift the country out of its current unemployment situation, yet it was moving at a slow pace instead of getting an exponential improvement and taking up the mandate of being one of government's core departments.
At the end of the day, one had to look at the scoreboard, and the scoreboard was emphasising that there had been regression and stagnation. The Department was putting forward invalid reasons -- for example, the implications of the Covid 19 pandemic. Across the world, economies were struggling, but the Department was ignoring the fact that many other countries had a similar situation but were growing at a tremendous rate.
He said there were only six months left in the term for some improvement, considering the December holidays and the elections, which would put an enormous responsibility on the Department, the Minister, and Members of the Committee to try and achieve something. The Minister had touched on the National Small Enterprise Amendment Bill; unfortunately, during this term, the majority had lined up to the party position instead of proposing something that really worked for the country. There was a lot of good in the Bill, but there were also some concerning aspects to it. The excessive power afforded to the Minister was a prime example, particularly the power to declare certain practices as constituting unfair trading practices. Unfortunately, with the current government, if these powers were given to individuals, they would be abused. Looking at the Covid-19 period, irrational regulations had been introduced, and the basic principle of having checks and balances in place had not been adhered to.
Mr Londt asked the Minister if there was a real chance for her to leave something positive to ensure that these excessive powers that lay with one individual were subject to checks and balances, so that something could be put forward to move the Department and the sector. This was a major concern, so the Minister needed to be willing to step back and not have all that power vested in one individual because that would be dangerous, and there was a proven record that it did not work.
Mr M Dangor (ANC, Gauteng) said the report indicated that there had been underachievement and a need for corrective measures, but the Department had not provided them. He asked that when the Minister responds, she should emphasise the corrective measures for the underachievement.
He said the Committee was heading into a programming period of putting legislation on the table, and not all of the legislation was going to be able to be dealt with, so the National Small Enterprise Amendment Bill ought to be prioritised as an important one. It needed to go through the National Assembly ( NA) and National Council of Provinces ( NCOP) processes before the elections, and be adopted and passed.
The Chairperson welcomed the two presentations. He emphasised that the Select Committee was a committee of the NCOP, so it represented the interests of the provinces. He therefore asked the Acting Director General, when dealing with the third quarterly report -- particularly on programmes 2 and 3 -- to have a slide for each programme that contained a breakdown of the numbers. The Department had been to all the provinces, therefore they should be included in the report.
He asked the Minister about the position of Director-General (DG). The current incumbent had mentioned that she had been seconded to the Presidency. Before and after 2019, the Department had had no DG, and the current acting DG had been seconded for the longest period. He wanted to know the timeframes for the secondment of the DG.
He referred to Mr Londt's comments on the Bill, and said the legislation from the executive involved proposals. The final arbiter for this legislation was Parliament, so whatever one saw in the legislation were mere proposals from the executive, and it was up to the Committee, the NCOP and Parliament to agree or disagree with those proposals. In the meantime, it was premature to go into detail about its contents, as it had not been formally and officially presented to the Committee.
On the issue of the Phase Six SMME database, it was said in the first quarter that there was a lack of input from stakeholders and that the Department was going to approach the Council for Scientific and Industrial Research (CSIR), but suddenly in Programme Two there was a lack of funds. The issue was no longer the input from the stakeholders, and the Department was quiet on the issue of the CSIR. There was a need for clarification as to whether the challenge was a lack of funds or a lack of input, or if something was happening with the CSIR. How did this particular output find its way into the Department's annual performance plan (APP) if it was not budgeted for?
Ms M Moshodi (ANC, Free State) referred to the red tape reduction programme. The annual target was 30 municipalities, but only one municipality had been assisted in the first quarter, so what would be done differently going forward to reach the total target? The Department had a 31.7% vacancy rate in the first quarter, and the maximum vacancy rate per year was supposed to be 10%, so what measures were being taken to address this challenge?
Mr Londt appreciated the Chairperson addressing the issue of the Bill, and said the reason he had raised the matter was because the Minister herself had referred to it, and there were timeframes that needed to be met in the NCOP. He acknowledged that it had not been brought up officially, but it had been raised in the meeting by the Minister, and that was why he had addressed it. If a middle ground could be found, that would provide impetus for the next step and help to ensure that the Committee did not "trip over" itself in the pressurised period shortly before the elections, and could meet the prescribed deadlines.
The Chairperson explained that the amendments to the clauses and sections of the legislation were subject to the proposals made by the public during public consultations, so Members of Parliament did not make proposals. If they were to make proposals, those proposals must first be subjected to further public consultation.
Regarding the red tape issue, he said the Department had indicated that it would do in the future to identify three provinces when they rolled out the programme so that if any of the three disappointed them, at least they would have the other two to go to. He asked the Department to share the experience of the Presidency, which was also dealing with the same matter.
He said the Acting DG had raised concern about the office of the chief state law advisor concerning the delays on the Small Business Amendment Bill. He asked if the delays were just accepted, or if the Department had engaged the office to ask why there were delays, because, by now, the Bill should have been introduced to Parliament.
Minister Ndabeni-Abrahams responded to the issue raised about the delays involving the state law advisors, and said that the Department was setting timelines when submitting legislation to them. There was also a gap in the Department, which was why she highlighted the issue of attending to its capacity in her introductory remarks. The quality of work submitted by the Department's team led to delays by the state law advisors. This issue had been raised, and the Department had agreed with the state law advisors that they would assist in submitting what was expected from them. She clarified that the delays were not because of the state law advisors. Therefore, the corrective measures involved the need to go externally to get support, because the Department could not afford not to have the Bill submitted to the Cabinet and gazetted.
She assured the Committee that they would continue to fill the vacancies, but experience across government in relation to the drafting of legislation was the challenge the Department was faced with.
She agreed with the Chairperson on the issue of particular clauses in the Business Licensing Bill.
The Chairperson addressed the Minister, and mentioned that the Committee had not received a briefing on the Bill, so it would be unfair to other Members who had not received briefings from their parties in the National Assembly (NA). He proposed waiting until the NA was done with the Bill, transmitted it formally to the NCOP, and referred it to the Select Committee for engagement.
The Minister acknowledged the guidance of the Chairperson.
Addressing the issue of the DG, she said that the DG was transferred to the Presidency responsible for red tape. They were awaiting a submission, as they had to wait for permission from the Presidency to advertise the post. She had checked with the DG, who had said the submission was on its way to the Minister’s office, so the post would be advertised soon.
Acting DG Manzini responded to Mr Dangor on a comprehensive report for under-achievements and the corrective measures, and said the Department would have a slide for Q3 and Q4 to deal with that.
The Department was trying to deal with the vacancy rate, as they had a recruitment plan in place. The Department of Public Service and Administration (DPSA) process was that the Department had to go via the DPSA. If they provided the permission, the DBSA would be better positioned to deal with the issue. She gave an assurance that when the Department came back to report on Q3 and Q4, they would follow the guidance provided to make sure that when they mentioned numbers, they would also provide the information stating the places referred to.
Mr Mxolisi Matshamba, Chief Executive Officer (CEO), SEFA, responded on the issue of lending, and said there was evidence that its clients were struggling to service debt, especially when load-shedding escalated, and the impact was especially severe for those who were in the manufacturing sector. In the first two quarters, the worst performing sector had been manufacturing, because when there was load-shedding, their operating hours were reduced, and this had a dire impact on their productivity and revenue generation, as they were operating at 50% capacity. In response to this, SEFA restructured their debt and allowed it to reduce its repayments until load-shedding improved so that it could also improve its operating hours and productivity.
The other sector that had a low performance was the logistics sector, as trucking businesses were hit hard by the high fuel prices and the amount of time spent at Eskom, as most of them were delivering coal to Eskom. There had also been long waits at Richards Bay, delivering chrome for export. These factors were beyond the control of the clients, and SEFA’s intervention was to give them space by reducing the repayments, which directly impacted SEFA’s collection rate as an entity. If a client was supposed to pay R50 000 and could afford only R25 000, they would collect the R25 000 instead of no payments at all. More than 600 of SEFA’s client accounts were closed in the second quarter due to the continuous bouncing of debit orders, low revenues or lack of money deposited in their accounts. This was a clear indication that the clients were struggling.
He indicated that the Township and Rural Enterprise Programme (TREP) book had also struggled, and the collections were at 11%. They had tried to tighten the lending, and it had improved to 15%. By Q2, it had improved to 24%, which still remained a very low collection rate. They had therefore tried to improve the lending requirements so that the clients were able to pay back the money, and made provision for mentors in case some clients decided to be delinquent and misappropriate their funds. A number of interventions were being put in place by looking at the quality of the loans approved, but also by providing more support.
He was concerned that the fuel price was not helping. He gave an example of a client that had just started a business in East London, and when they went for a site visit, the client had informed them that his diesel bill per day was approximately R12 000 when there was load-shedding. For a manufacturing business, one could not use solar or wind generation, as the machines were heavy-duty machines, and at the same time, it was costly to use generators for hours.
Ms Mosa Makhele, Deputy Director General (DDG): Sector Policy and Research, DSBD, responded on the issue of the red tape reduction, and how the Department was going to improve to make sure things were done better to meet some of the targets. She said that at the moment, the red tape programme was structured in such a way that it was demand-driven, as the municipalities had to approach the Department to do red tape awareness sessions.
Mr Mojalefa Mohoto, Chief Director: Enterprise Development, DSBD, on the issue of the red tape reduction, mentioned that when the Department started awareness campaigns at the beginning of the financial year, some municipalities that were not necessarily ready to ensure that the campaigns were carried out. However, this had improved as the year progressed. Regarding the work with the Presidency, quite a number of approaches were being adopted, with a task team that had managed to unearth quite a number of relevant activities that the Department was running -- for example, the water and tourism transport licensing.
Ms Mbali Mbatha, Manager: Corporate Services, DSBD, commented on the issue of the SMME database, and said there was a bit of inconsistency in reporting. The issue of stakeholders emanated from the Department enhancing the existing platform they were working on.
On the question of vacancies, she said that the Department had been able to appoint six SMME members from April this financial year, although they had been experiencing challenges in reaching their targets. The Department was working hard to ensure that the vacancy rate was decreased. She added that in this financial year, they had to create 88 positions to implement the structure.
The Minister thanked the Chairperson, the Committee and her team, and indicated that the Department was a work in progress, and was aware that the Members were concerned, especially with the poor spending on the Township and Rural Enterprise Programme, as most business that required their support were in the townships and rural areas.
The meeting was adjourned.
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