Department Annual Report and National Small Business Amendment Bill: briefings

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Trade and Industry

26 October 2004
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Meeting report

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
27 October 2004
DEPARTMENT ANNUAL REPORT AND NATIONAL SMALL BUSINESS AMENDMENT BILL: BRIEFINGS

Chairperson:

Mr B Martins (ANC)

Documents handed out:

Department Annual Report presentation
National Small Business Amendment Bill: Department PowerPoint presentation
National Small Business Amendment Bill
National Small Business Amendment Bill [B23-2004]
National Small Business Act

SUMMARY
The Department presented their 2004 Annual Report and shared some achievements, such as balancing their budget. They discussed their vision and plans for the next three to five years, and how the budget would support the strategy. Achievements in the first half of 2004/5 and flagship projects were also identified. Members were dissatisfied that the Director-General was not present to field their questions, and raised a number of concerns on the Department's failure to assist small, medium and micro-enterprises (SMMEs); whether the Department's activities adequately focused on the 'second economy'; whether its overseas trade missions were successful, and whether it did anything to assist rural communities and women.

The Department also informally briefed the Committee on the National Small Business Amendment Bill that will establish the new Small Enterprise Development Agency. Members clearly indicated that they would not support SEDA unless experienced people were employed during a major change management exercise.

MINUTES

Department submission
Ms W Dobson said the Department had underspent its budget by a third in 2000 but that at present the budget was balanced. She expanded on the key outputs that were delivered by the Department's seven programmes: Administration, International Trade and Economic Development, Enterprise and Industrial Development, Consumer and Corporate Regulation, The Enterprise Organisation, Trade and Investment South Africa and a new addition, Marketing. During 1999 to 2004, they had consolidated their fundamental transformation, and improved outreach and customer service. In 2003, the Department's strategic planning process was implemented and its strategic plans set out how it would contribute to government's 'Vision 2014'. She discussed the Department's ten strategic objectives for the next three to five years, and how the Department's budget would support the strategy. She explained the Department's 13 flagship projects. The outputs delivered since 1 April 2004 were described, such as the progress made on the Apex Fund and Broad-based Black Economic Empowerment (BBBEE).

Discussion
Ms N Khunou (ANC) agreed that the Department's strategy should focus on the contribution that it made to the economy and not purely on numbers. She commented that the issue of language was key to making the Department more accessible and wanted to see a change in this area. She stated that geographical demographics showed that the Department was ignoring certain areas. She suggested that the Department look at fronting in the implementation of BBBEE and asked if the Department really followed up all the calls it received. She asked how far the transformation of procurement of goods and services was and why the Small and Medium Enterprise Development Programme (SMEDP) had supported 4 600 enterprises but the Black Business Supplier Development Programme (BBSDP) had helped only 259 enterprises. She asked why R4.7 billion had been invested in 15 strategic industrial programme projects but only R185 million for 30 projects funded by the Support for Industrial Innovation Programme (SPII).

Ms E Cheng (IFP) asked how successful the 1040 exporters that are supported by the Export Marketing and Investment Assistance programmes were. Iscor and local manufacturers could not compete with Japanese imports due to the strong rand. She enquired if the 15 000 small businesses assisted by Ntsika were sustainable and in what industry or field of business they were. She suggested that the Department do a study to see which type of industry would be successful with the strong Rand and train the small business how to adjust to the floating Rand.

Dr E Nkem-Abonta (DA) said that he could not understand the point of a strategic plan if it was not supported by a strategic measurement system. He commented that he could not verify any of the Department's statistics and that the Department's reporting should address how they were meeting their strategic and not operational goals. He added that the indicated cost of labour did not include transfers so it was not showing the real cost of labour.

Ms D Ramodibe (ANC) asked where the developments, training and operations of the Department occurred and who the beneficiaries were. She enquired where the new jobs created were situated and if the rural communities benefited from these jobs. She asked what programmes existed to assist future exporters without knowledge of exporting. She enquired how much money was budgeted for the Technology for Women in Business Programme (TWBP) and what strategy the Department had to address the lack of available skills to match the market demand for skills.

Mr J Maake (ANC) asked about the scope of the divisions of the Department, and if the Department's strategy was over-ambitious considering the limited staffing levels. He enquired about where the accountability lay for inter-departmental activities and how the film incentive was structured, as it was a tool never before exploited that could boost the economy.

Mr L Labuschagne (DA) pointed out typing errors in the annual report. He stated that the off-set programme entailed the National Industrial Participation (NIP) annual report, which the Committee had not yet received. He asked what had happened to the 25% of the Department's agencies that had not complied with required service levels. He enquired why 33% of the Regional Agencies did not comply with the Public Finance Management Act and what was being done about this. He stated that the demand for Small and Medium Enterprise incentives exceeded the supply and asked how this was being addressed. He asked what the status of KHULA was and how much money the National Lottery had collected.

The Chairperson stated that the Committee would want to see the Director-General of the Department.

Ms F Mahomed (ANC) asked how much of the budget should be allocated to encouraging direct foreign investment. She acquired how effective the missions abroad had been and how the Department monitored these missions and how often the Department received reports. She asked how many women had gained from the nineteen agencies. She expressed concern that, in the light of the rapid spread of urbanisation, the Department had not reached out enough and enquired what budget the Department needed to create rural infrastructure. The budget stated that the procurement of goods and services was 12.5% and equipment was 0.5% and she enquired what the difference was. She asked if Members could attend the Department's training programmes and also how much money had been spent on the creation of jobs and alleviation of poverty.

Ms B Ntuli (ANC) asked how many of the 1477 properties provided to the Small Medium and Micro Enterprises (SMME) were given to black people to ensure that the second economy was being addressed. She asked for clarity around Khula financing three new retail finance institutions, as Khula was itself a development bank. She enquired how many black enterprises received investment incentives. She was of the opinion that some of the agencies were under-funded and asked if the Department's refusal to allocate more money to staffing would not affect these agencies. She continued to ask if the Department intended to complete all its work effectively without recruiting new expertise. She enquired about how many of the 1 040 squatters helped by the Department were black.

Mr S Rasmeni (ANC) asked for a definition of an economic citizen. He enquired if the Department was proud of the 16 000 calls that it received and how the Department knew these callers were being helped. He noted that the Annual Report did not include the extent to which the Department interacted with the provincial, local and municipal governments. He stated that the Committee would call the agencies to make presentations to be held accountable.

Mr S Maja (ANC) remarked that the Department was silent on whether the jobs created benefited the disabled and the rural areas and asked for a break down of the jobs the Department had created. He asked for an indication of how the Department's resources were allocated to the remote, rural and urban areas.

Dr M Sefularo (ANC) asked how many Industrial Development Zones (IDZ) were planned and if the Department had shared goals with the economic-cluster it was part of. He enquired how the Department's flagship projects related to other departments and if anything was being done in the area of medical technology. He asked if there was a classification of roles and responsibilities between the various levels of government so that the degree of operational facilities moved as low as possible and the strategic facilities as high as possible. He enquired about the number of BBBEE benefactors moved into corporate government and if there was a programme to increase this number. He asked what the Department's position was on innovation and the registration of patents. He enquired if the Training Programmes encouraged entrepreneurs. He remarked that the Department had been part of a conference on Competitiveness and the Committee had not been invited. He commented that the Committee had passed numerous conventions and protocols to Parliament and never found out how they were implemented. He asked if the Minister of Finance's announcement to relax exchange controls came out of a convention or a protocol.

Mr S Njikelane (ANC) asked how the Department was performing at ground level and to what extent the Department had been able to implement beneficiation programmes in certain sectors. He enquired what the Department's strategy was on economically struggling sectors and what the Department was doing around the area traditionally seen as falling under social services. He asked if the state and other stakeholders were providing an enabling environment for the Department and what areas had been added to the Department since June 2004.

Mr M Moss (ANC) enquired what assistance and guidance was being given to Local Economic Development (LED) and what progress had been made on the recapitalisation of taxis. He asked the Department to elaborate on the oil and gas services identified on page 21 of the presentation.

Professor B Turok (ANC) asked if the Department knew about the new push from the European Union (EU) to review its development policies in Africa. He commented that the Department could play a very central role in development and co-operation between Africa, South Africa and the EU.

Ms Dobson said she would inform the Director-General that the Committee wanted to see him but that she would try and answer the questions raised by the Committee. She commented that due to the vast range of areas covered by the Department, it would be useful for the Committee to call each division to Parliament.

She responded that the Department's system of measuring its impact on the economy was being put in place but that it would be premature to measure at present as this type of impact should only be measured three, five or seven years down the line. The Department would measure the input processes, output and outcomes of the strategies on 1 April 2005 against its 155 key indicators, even though only a year had passed since the implementation of the strategies. She recognised that the Committee did not just want outcomes but also specifics for their constituencies and said that the information was available and could be given to the Committee. The Department would take this need into account when designing a monitoring system.

The Department's advertising campaign used all languages and mediums. As a result, the number of calls to the Department had increased by 63%. She added that there was a need to interrogate if the callers were being helped. She commented that most of the Department's assistance was to the first economy but the Department did not yet have the tools to assist the second economy and it was focusing on developing these tools. She stated that the Department was aware of fronting and that it had procured 51% of its requirements from black businesses.

The reason that SMEDP assisted more enterprises than the BBSDP was that the SMEDP had been around longer and was geared to handle that amount of business. The BBSDP was young and needed to start small. The Department was no longer hearing an outcry about the strong Rand and it was not responsible for exchange rate controls. She reported that there was recovery in manufacturing, production and exports and there was an increase in the demand for disposable goods from the local manufacturing industries. Iscor was very competitive but the problem was that its prices did not make it beneficial for South African industries to buy locally. This hindered the possible down stream benefits. The Department was considering different intervention options.

The Auditor-General could do a performance audit on the Department's information to verify it and a performance audit was being built into the Department's monitoring and evaluation programme. She answered that the Department had limited resources in the face of unlimited demands and that it needed the Committee's advice on how to allocate its funds and what to prioritise. She responded that the Department's financial support for exporters came in various forms such as financial assistance for producers to go abroad to market themselves and financial and training support for future exporters. The Trade and Investment South Africa division was developing its own strategies for support of export development. She stated that R6 million went annually to the TWBP and other programmes also supported women.

The Department did not have enough staff but the budget had a fixed amount for staff set by the Treasury. There would be growth in certain areas that would require new staff and this would require the re-deploying of existing staff. She explained that she was not familiar with the film incentive and could also not answer why the agencies were not complying with the requirements. She said that the off-set report should have been tabled and presented to the Committee and that would be done. She agreed that the demand for incentives exceeded the supply, especially after the Department had advertised itself. This situation existed in other developing countries and the Department was only attempting to address serious market failures and targeted groups, as it was attempting to develop self-sustaining enterprises.

The Department was doing targeted promotional work to attract direct foreign investment and the Strategic Industrial Programme was the big ticket. The issues that hindered investment were concrete issues such as the supply of electricity and clean water, not HIV/AIDS figures. The Department was attempting to manage the foreign offices effectively but the division that managed this was under resourced. She explained that the Department's agencies needed to be informed about the need for them to benefit women. The difference between equipment and procurement was that equipment was seen as a capital expenditure while procurement concentrated on consumables. She invited Members to attend the Department's training. She explained that the Department did not focus on job creation and poverty alleviation alone, but if its strategy was correct then it would impact positively on those areas. The questions about Khula needed to be addressed to Khula when they appeared before the Committee.

She clarified that new money would be given to the agencies if they began new programmes but the administration costs of the agencies should not increase. She explained that all citizens were economic citizens and that the Department had chosen this term as opposed to customers, as the customer was always right. The Department had to deal with conflicting interests and the word "citizen" embodied the fact that people had both rights and responsibilities. The Department was doing customer surveys to find out if the call centre customers were satisfied with the help they received.

There was a section in the Department responsible for inter-governmental relations and it had an annual programme of MinMEC meetings and a monthly technical MinMEC meeting. The Department also met regularly with the metropolitan councils. She said that the economic cluster had a Micro-Economic reform strategy that clarified the duties of all the governmental departments and it was functioning to achieve shared goals. Coega, Richard's Bay and East London were the IDZs. There were no other IDZs planned yet as IDZ locations needed to be looked at holistically and comprehensively. The participation of economic citizens in the Department occurred through senior managers attending NEDLAC 63 hours a week and through an Industrial Forum but it did not yet have a method of dealing with consumer groups.

She could not comment on the implementation of conventions and protocols and patents. The Department did not rescue struggling sectors but it did have an open door policy and was willing to assist these sectors. The Department was starting to look at social services from an industrial perspective. She remarked that the India Brazil South Africa (IBSA) was still important and on the agenda and that the Department of Transport had taken over taxi recapitalisation. She closed by saying that the National Treasury was the department that led the consideration and implementation of protocols and conventions, so she could not comment on this.

Department briefing on Small Business Amendment Bill
Ms H Lupuwana (Chief Operating Officer: Enterprise and Industry Development Division) gave an informal briefing on the purpose of the National Small Business Amendment Bill (NSBAB). She discussed the establishment of the Small Enterprise Promotion Agency (SEDA) and its objectives. She explained the functions and financing of SEDA and what it corporate governance would look like. The transitional arrangements were also addressed.

Discussion
Professor Turok stated that the Committee had to be vigilant in keeping SEDA accountable for its funding and budget, specifically because its predecessors were such failures. He commented that the Department had previously employed people who knew nothing about small business and SEDA needed to ensure that they employed experts with experience in this area. He suggested that on page seven of the NSBAB, the word "and" should replace the word "or" with regards to the requirements of a board member, so that all must have experience. He recommended that the wording on page 4 be changed from "any" to the "policy of government", as SEDA could not pick and choose which policy it wanted to implement.

Dr Sefularo asked if the functions of SEDA that had been discussed in the previous SEDA presentation would be included in the regulations as they were not in the NSBAB. He suggested that the NSBAB incorporate the desire of the Committee to do away with those things that caused problems of duplication and proliferation. He commented that Clause 1(3)(4) of the NSBAB stated the need for a bottom-up approach but that the Bill was top-down in its orientation. He asked for clarity on the local and regional governance mechanism of SEDA.

Ms Mahomed asked what the rationale was for transferring staff from the old companies.

Ms Lupuwana explained that the term of the existing boards had been extended by a year for the sake of continuity. There were vacancies on the board and the Department would look for candidates with an understanding of SMMEs. The Department would try to incorporate local and provincial governance. The Department could not afford to shed staff so all the staff would be transferred but because of the new structure of the SEDA, the CEO and Executive positions would be externally advertised and the present CEO would have to reapply.
Professor Turok was not satisfied and remarked that continuity was good but that change was better. He stated that there needed to be change management at SEDA and that he would vote against SEDA's budget until serious management change had occurred. He commented that change on the ground would only occur if the Department were vigorous in implementing change and focusing on the quality of people appointed.

Ms Mahomed said that the Committee would support any good work done by SEDA but that the Department needed to recognise that SEDA's work had to reach the end user to be successful.

Mr L October (Deputy Director General) responded that the Department understood that SEDA would have to deliver. It was important that this issue was emphasised and that the issue of delivery of services to the community was a flagship project. He agreed that there was a need for a new institution and that the Department needed to deal with staffing, management and production but that these human resource problems could not be addressed in the Bill. The Department was in the process of finding a proper CEO for SEDA.

Ms Mahomed offered the Committee and individual Members' assistance to the Department to help deal with the human resource requirements.

Mr Njikelane asked if the information outlined in the previous presentation would be present in the regulations. He stated that there needed to be regular reports on SEDA's outsourcing to tighten the regulation of this. He remarked that the process of appointing board members needed to be clarified as the Minister had to appoint the Board from the recommendations given to him. He asked the Department to keep the Committee informed on the changes in SEDA's management plan and if the Department had any ideas on what role the Members could play as agents of change.

The meeting was adjourned.

 

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