DSBD, SEFA & SEDA Q1 2024/25 Performance; with Deputy Minister

Meeting report

The Chairperson opened the meeting and greeted all the Members that were present at the meeting. She excused the Minister and Members, Ms K Bilankulu (ANC), Ms L Ngobeni (Action SA), and Mr C Malematja (ANC) for their absence.

She asked Members for a confirmation of the adoption of minutes.

She appreciated the presence of the Deputy Minister and gave her the platform.

Opening Remarks by Deputy Minister

Ms Jane Sithole, Deputy Minister of Small Business Development, greeted the Members and announced the presence of the Small Enterprise Development Agency (Seda) and the Small Enterprise Finance Agency (Sefa), and proceeded to have the officials introduce themselves. She stated that the instability of the Gross Domestic Product (GDP) has greatly impacted employment dynamics. Youth unemployment has gone from 250 000 to 4 900 000 so Small, Medium and Micro Enterprise (SMMEs) need to be properly implemented to mitigate this.

The first quarter’s performance was good overall, capacity has strengthened, and the Department is doing generally well having reached 21 of 23 performance indicators. Some targets were not reached, but the Department will explain the reasons behind this. The Department just needs to strengthen the quality of service offered although the Department will provide reasons for under-performing.

She handed over the first presentation to the Acting Director-General (DG), Ms Thulisile Manzini, who presented the DSBD 2024/25 Q1 report.

Acting CEO Ms Ntokozo Majola presented Seda’s performance report. Sefa’s 2024/25 Q 1 performance was presented by Mr KT Bonakele and acting CEO Mr Nkosikhona Mbatha.

DSBD 2024/25 Quarter One Performance Report

The DSBD’s 2024/25 Q1 Performance Report provides an assessment of progress made on key output indicators and targets set in the 2024/25 Annual Performance Plan (APP). The report also includes a financial analysis, a review of governance and compliance activities, human resources performance, and corrective measures for unmet targets. It adheres to relevant laws such as the Public Finance Management Act (PFMA) and National Treasury regulations.

Governance and Compliance

The Department maintained compliance with parliamentary and regulatory requirements, including the PFMA and Treasury guidelines. Key activities during the quarter included:

-Three Executive Committee (EXCO) meetings, three Management Committee (MANCO) meetings, and one extended EXCO session. Submissions of key reports, such as the 2023/24 Q4 Performance Report to the Minister and DPME, the 2019-2024 Medium Term Strategic Framework (MTSF) progress report, and the Annual Performance Report to the Auditor-General.

Overall Performance Summary

The DSBD has 34 output indicators and reported on 23 quarterly targets in Q1. Of these, 91% of the targets were achieved (21 out of 23), while 9% were unmet. Performance highlights by programme:

-Administration: All targets achieved.

-Sector Policy and Research: 87.5% of targets achieved.

-Integrated Co-operatives and Micro Enterprise Development: 83% of targets achieved.

-Enterprise Development, Innovation, and Entrepreneurship: 100% of targets achieved.

Key Performance Highlights

-Payment of 3 060 invoices within 30 days (100% achievement).

-Financial expenditure stood at R907.8 million, with a variance of R13 million below the projected R920.8 million.

-A total of 30 public engagement programmes were held with district municipalities, meeting the quarterly target.

-A draft Red-Tape Reduction Framework for Small Enterprise was developed.

-Significant over-achievements included support to 13 713 competitive SMMEs and Co-operatives (vs. target of 10 000) and 8 105 start-up youth businesses (vs. target of 1 000).

Under-Achievements

-Two quarterly targets were not met:

-Red-Tape Reduction Awareness Programme: No municipalities were trained due to postponements by host municipalities, which were preparing for national elections. A work plan is in place to cover the missed target.

-Financial support to Co-operatives: Although 11 Co-operatives were approved for support, delays in internal processes prevented disbursement. A catch-up plan is being developed to address process delays.

Financial Report

The DSBD’s actual expenditure for Q1 was largely in line with projections, with minor variances:

-Compensation of employees under-spent by R1.98 million due to a 25% vacancy rate.

-Goods and services under-spent by R11.6 million due to delays in project approvals and service provider invoicing.

-Transfer payments slightly over-performed by R368 000 due to a settlement agreement with a former employee.

Human Resource Report

-The Department reduced its vacancy rate by 1% during Q1, although it remains high at 25.2%. Nine appointments were made, but this was offset by three terminations. Temporary additional staff were hired without impacting the vacancy rate.

Recommendations

The Small Enterprise Development Agency (Seda) operates under a governance structure that reports to the DSBD. Its strategic goals are aligned with its mandate to support SMMEs and co-operatives through four key programs:

- Enterprise Development

- Technology Support

- Impact and Sustainability

- Administration

Seda’s performance is rooted in national policy and guided by the Public Finance Management Act (PFMA). Its mission is to foster entrepreneurship, create jobs, and enhance the competitiveness of small enterprises. By the end of Q1 2024/25, Seda had made notable progress toward these goals, achieving 86.67% of its quarterly targets.

Performance Overview

Seda’s performance is measured against 28 indicators in the 2024/25 Annual Performance Plan, with 15 indicators tracked in Q1. Of these, 13 were achieved or exceeded, and two were underachieved, falling between 80% and 99%. Key performance areas include entrepreneurship support, training, and market readiness interventions for SMMEs and co-operatives.

Key Achievements

-Enterprise Development Programme: Seda exceeded its targets for entrepreneurship awareness, supporting 7 528 individuals against a target of 4 000.

- Non-financial support was provided to 6 451 township and rural SMMEs & co-operatives (vs. a target of 3 000).

- 5 975 SMMEs and co-operatives received training, mentorship, and coaching (vs. a target of 2 000).

- Market readiness interventions helped 556 businesses prepare for local markets (target: 267), and 333 SMMEs and co-operatives were supported for international market readiness (target: 50).

Technology Programme:

- The incubation programme met its target, supporting 400 SMMEs and co-operatives.

Impact and Sustainability Programme:

- Seda provided quality improvement interventions to 31 businesses (target: 15) and productivity improvement to 13 (target: 15).

- The number of businesses reporting a turnover increase of 5% or more reached 420, exceeding the target of 150.

- Seda created 1 121 new jobs (vs. target of 900) and sustained 3 077 jobs (vs. a target of 1 500), highlighting its impact on job creation and retention within the sector.

Under-Achievements

-Local Market Linkages: Only 17 SMMEs were linked to local markets, falling short of the target of 20 due to the emphasis on international market interventions.

-Productivity Improvement Interventions: 13 businesses were supported, slightly below the target of 15.

Financial Performance

-Seda’s total budget for the 2024/25 financial year is R1.733 billion. For Q1, Seda spent R246.3 million, representing 95.35% of the quarterly budget:

- Core operations: 90% of expenditure went to core programme activities, surpassing the target of 75%.

- Administration costs: Under-spent by 11.95%, mainly due to delays in travel and advertising expenses.

- Capital expenditure: Overspent by 80.26%, driven by the purchase of inverters for Seda branches.

- Personnel costs: Slightly overspent by 0.49% due to provisions for leave.

-Seda continues to prioritise effective financial management, paying 100% of invoices within the 30-day requirement, with 2 337 invoices processed in Q1.

Governance and Compliance

-In Q1, Seda’s Board held three meetings where it approved several key policies, including the Occupational Health and Safety (OHS) Policy, Retirement Policy, and the Unaudited Financial Statements for the year ending March 2024. Governance practices are in line with PFMA guidelines and ensure strategic oversight and accountability.

Human Resources

Seda’s approved staff structure is 713, with 673 positions filled by the end of June 2024, resulting in a 5% vacancy rate, which is ahead of the target. Seda also achieved 96% customer satisfaction, well above the target of 85%.

Flagship Projects

Key projects in Q1 included:

-Honey Bush Value Chain in the Western Cape, supporting the Honey Bush Tea Co-operative.

-Industrial Hemp and Cannabis Cluster in the Eastern Cape, with a business plan developed and approved. Mahikeng Trade Market in North West, which will operate as a manufacturing hub for SMMEs. Xwikoxeni (Pty) Ltd in Mpumalanga, a waste and recycling business, supported through various interventions including quality management and export readiness.

Challenges and Opportunities

Sefa’s 2024/25 Quarter 1 Performance

Operating Environment

The South African economy during Q1 faced challenges such as high inflation, rising interest rates, and increased unemployment (32.9%). Despite this, small and midsize enterprises (SME) ' confidence remained optimistic due to ongoing reforms aimed at improving business conditions, including access to funding and regulatory changes. Internally, Sefa faced uncertainties due to an impending merger, workforce instability, and leadership gaps. Nonetheless, management focused on sustaining performance.

Overview of Q1 Performance

Sefa's loan book performance was mixed, with notable over- and under-achievements. In Q1:

- Total portfolio: R4.28 billion

- Approvals: R239.5 million (66% of the R360.4 million target)

- Disbursements: R594.4 million (183% of the R325 million target), with 32 450 SMMEs financed and 44 792 jobs facilitated.

Key categories for disbursements included:

- R498 million to black-owned businesses

- R183 million to women-owned businesses

- R67.5 million to youth-owned businesses

- R235 million to rural enterprises.

Loan Book Performance

- Approvals: 384 facilities approved, with the Tourism Equity Fund driving R18 million in direct lending (DL) approvals.

- Disbursements: WL loan programme disbursed R535.5 million (151% of the target), with KCG (Khula Credit Guarantee) accounting for R366 million (589% of target).

- Spatial distribution showed a majority of disbursements in Gauteng (R157.6 million) followed by KwaZulu-Natal (R138 million) and Mpumalanga (R62.9 million).

Post Investment Monitoring, Workout, and Restructuring

Challenges included high impairments (63% in Q1) and low collections (53.9% against an 80% target). To address this:

- Sefa is restructuring loans to provide payment relief to clients facing cash flow issues.

- Mentorship and support are being provided to assist clients with market access and business management.

Financial Performance

The financial performance was marked by high impairments and low revenue growth. Key metrics include:

- Cost-to-income ratio: 101% (vs. a target of 87%)

- Impairment ratio: 63% (above the 45% target)

- Revenue growth: 1% (vs. an annual target of 11%), driven by a decline in interest from lending operations.

The delay in the receipt of the MTEF allocation negatively impacted the cost-to-income ratio.

Human Capital and Facilities Management

Efforts in human resources included the conclusion of lease renewals and ongoing office maintenance. A middle manager development program was implemented, with 15 managers participating. The quarterly OHS (Occupational Health and Safety) meeting was held as required by law.

Organisational Governance

Governance activities in Q1 included:

-The Board approved the Q4 FY2023/24 Sefa Performance Report.

-The appointment of an Acting Sefa CEO was recommended.

Sefa’s Status on Issues Raised by the PC on SSSP, IFS and Intermediaries' Interest Rate

Spaza Shop Support Programme (SSSP)

- During 2021, the SSSP provided applicants with R3 500, and later increased it to R10 500 per applicant in 2022. By September 2024, 99% of the 5 440 applicants were traced and approved for the additional R7 000 top-up.

- As of 17 September 2024, 60 applicants had yet to receive the top-up due to processing via Standard Bank South Africa (SBSA). These individuals have since been asked to re-apply through Nedbank to access their funds.

- Specific to the North-West region, 153 beneficiaries were approved for SSSP and 105 were eligible for the top-up. All were traced, approved, and confirmed to have received their R7 000

Intellimatch Financial Services (IFS) Status

- Sefa funded IFS with R30 million in 2022. However, IFS failed to meet its repayment obligations, prompting Sefa to initiate legal proceedings to recover the loan.

- Legal actions were commenced against IFS, its guarantor Tautona Holdings, and their directors in their personal capacities. A default judgment was granted in February 2024, and liquidation proceedings are ongoing.

- A forensic investigation was conducted by Ernst & Young, revealing potential financial misconduct by IFS. An independent Chairperson was appointed to oversee disciplinary actions against implicated Sefa employees. The Sefa Board has received the findings and will decide on the next steps by the end of September 2024.

- A criminal case was opened with the South African Police Service, and efforts to trace and serve summons to IFS directors are ongoing.

Intermediaries – Interest Rates

- The Portfolio Committee raised concerns regarding high interest rates charged by Sefa-funded intermediaries to micro-entrepreneurs. One client reported being charged a 29% interest rate by SEF, a Sefa-funded intermediary.

- Sefa acknowledged the issue and emphasised that Micro Financial Intermediaries (MFIs) are often the only source of finance for informal and micro-enterprises. These MFIs charge interest rates approved by the National Credit Regulator (NCR), but Sefa is investigating the impact on end-users.

- Sefa is in the process of appointing a knowledge partner to evaluate pricing and ensure the sustainability of MFIs while providing affordable finance to beneficiaries, especially women-owned rural businesses. Over 90% of MFI loans are below R5 000 over a 4-month period.

See attached for full presentation

Discussion
Following the presentations, the Chairperson thanked the Department and provided a platform for Members to ask questions.

Mr HC Kruger (DA) had two inquiries. First, he was interested in the red tape framework and requested that someone send it to him, as its nature has proven unsuccessful globally. Secondly, he noted that Seda focuses on rural areas and may have a low footprint. Presence and awareness are needed, especially in our people's townships. A significant amount of government money is spent on small businesses, yet there have been no revolutionary changes in South Africa. He expressed concern that the issue lies not in financing but in the technical knowledge of entrepreneurship, emphasising that a way must be found to equip SMMEs with entrepreneurial skills. There should be designated areas in townships for people to operate and accessible offices. Mpumalanga could benefit from access to markets for small farmers, as billions of Rands are available in support, yet small business owners, particularly farmers, hardly receive this assistance. He urged the Department to investigate this matter and report back to the Committee.

Ms S Singh (DA) stated that the objectives provided needed to be clear. The Department must set clear targets for job creation, along with measurable qualitative measures. It does not help for the Department to have unclear targets. There is a lot of money spent from other departments, but we need collaborations through AGR to avoid the siloed nature of support provided to people and SMMEs. Regarding small business productivity improvement, if no follow-ups are conducted, progress cannot be tracked, as maintaining and adhering to standards is challenging. She inquired about the timeline for creating the new entity and what transitional measures are in place to ensure no negative impacts on current programs. She sought clarity on existing linkages that support business startups and programs that help clients access international markets, which, from her personal experience, have been disappointing due to unproductive interactions stemming from the small scale of the businesses involved and their inability to assist one another. She suggested exploring local manufacturing opportunities and proposed offering tax credits to companies for production in South Africa, as this could incentivise exports and benefit the economy.

Ms L Sapo (ANC) stated that she would not rejoice over the slight increase in vacancies and progress, and she had three questions. First, the DG spoke about five municipalities they are training; what are those municipalities, and in which provinces are they located? Secondly, regarding co-operatives, if the Department is frustrated by its own processes (leading to under-performance), how should those seeking assistance from the Department feel, and what is the way forward? There is under-support for Sefa’s approvals; what is the reason for that? On the issue of middlemen providing financial assistance to businesses while charging substantial interest rates in rural areas, she sought clarity on the benefits of retaining those intermediaries. The Department pays money to others that could have otherwise gone to SMMEs. What policy measures does the Department have in place to address the risk of middlemen misusing funds? This is concerning because such individuals might not disburse the funds to the SMMEs as intended. In such cases, how would the Department handle the situation?

Ms M Mmolotsane (ANC) appreciated the report and had three questions. The DG stated that they pay their invoices early, but she was concerned about whether their SMME targets were being met with that sense of urgency. Secondly, regarding the five municipalities that were supposed to be trained on red tape but could not be, there have been three meetings since the elections, and the Department cannot continue using the excuse of just having finished elections.

The use of the title "Acting" is not appropriate for roles of such magnitude. Regarding Seda’s workforce demographic statistics, they need to employ skilled South Africans and empower them rather than prioritising foreign nationals, as our economy is unstable and people are affected. Foreign nationals should only be hired for skills that we currently lack in the country. Seda further claimed to have financed 32 450 SMMEs and created 44 732 jobs in rural areas; however, the percentage of jobs in rural areas is small, indicating that awareness needs to be raised where Seda is not known.

Ms M Mafagane (MK) commented on the performance in the first quarter of Seda and asked whether there are possible inaccuracies in the statistics reported due to inconsistencies in GDP and performance metrics presented. She sought clarity on what happens after approaching and approving SMMEs and how this is documented.

Ms B Mathulelwa (EFF) sought clarity on a few matters. She wanted to know how many beneficiaries are employed across provinces Seda has supported so as not to celebrate prematurely. With a 5% turnover increase presented and inflation at a sky-high level, she questioned whether these businesses are profitable and sustainable. There is inconsistency between what is presented and what the Committee has on clients supported against jobs created, which is less than 20% according to the report, suggesting potential deception in the presentation.

Only 2% of SMMEs for people living with disabilities were assisted, which is unacceptable; a detailed plan for supporting people with disabilities is required, including how to statistically deliver positive results nationwide in this context. The last slide indicates that expenditure is at R29 900 000, yet individuals who applied in Gauteng and the Eastern Cape during the first quarter have not received support, including those with disabilities. Therefore, Ms Mathulelwa sought clarity on where Seda has provided assistance in the country.

SEFA takes credit for micro businesses in rural areas, while intermediaries that charge them high interest rates support those businesses. Micro-lenders should not be performing better than SEFA in assisting small businesses, as this is not conducive for small businesses; SEFA ought to standardise the high interest rates charged by intermediaries. She wanted to know if SEFA has conducted an audit, as no apparent recommendations from the Committee have been taken into account except for one.

To the Department, she asserted that everyone should be hired permanently, as the notion of “acting” staff is unacceptable. Finally, she wanted to know how often oversight is conducted in branches to ensure the relevance of the support provided to clients, given the notable differences in the performance of SEFA and its reputation for not providing relevant assistance.

Responses
Deputy Minister Sithole stated she would monitor messages to ensure that all Members' questions are answered within seven days, as they also allow for a detailed report.

Concluding Remarks
The Chairperson recalled the questions raised by the Members. Due to time constraints, she stated that the Department would respond to the Members’ questions via email within seven days. Members were invited to send any further questions to the Department and expect responses within the stipulated timeframe.

The meeting was adjourned.