Small Enterprise Development Agency, South African Bureau of Standards & International Trade Administration Commission: briefing

TRADE AND INDUSTRY PORTFOLIO COMMITTEE
27 October 2006
SMALL ENTERPRISE DEVELOPMENT AGENCY, SOUTH AFRICAN BUREAU OF STANDARDS & INTERNATIONAL TRADE ADMINISTRATION COMMISSION: BRIEFINGS ON ANNUAL REPORTS

Acting Chairperson: Mr S Rasmeni (ANC)

Documents handed out:
Small Enterprise Development Agency (SEDA) Presentation
International Trade Administration Commission Presentation: Part1 & Part2
South African Bureau of Standards Annual Report 2006: Raising the African Standard

SUMMARY
The Small Enterprise Development Agency briefed the Committee on its Annual Report. The report reflected work from January 2005 until March 2006. The aim of the Agency (SEDA) was to create and promote small business and to integrate services. The merger of three organisations into SEDA had led to a change from wholesale services to a retail-like orientation. The changes included financing facilities. Its international goals had also expanded. The successes were highlighted, and performance showed a 14% surplus over total revenue. 93% of income was received as a grant from the Department of Trade and Industry (dti). Assets exceeded liabilities by a healthy figure. Challenges included inadequate financial and human resources, outreach, establishment of links to business associations and the quality and capacity of service providers. Plans for the way forward were tabled and discussed. Members raised questions on the benchmarking standards, the “one stop shop” approach, the high administration costs, the difference in the fees of directors, how sustainability of small enterprises was measured, and the scope of work. The staff position was discussed, together with the problems of adequate staff resources and knowledge. Members stressed that funding should be related directly to performance.

The South African Bureau of Standards presented the new slogan “Raising the African Standard”. He said that part of the objective at the Bureau was to ensure a better trade scenario by reducing tariffs and non-tariff barriers (NTBs). Highlights over the past year were presented in a number of areas, including research, new standards, new products and market surveillance and training. It had also assisted in education matters, providing laboratories and educator training. The Bureau had achieved a 9% increase in its commercial revenue with 78% of revenue now coming from private or commercial sources. Cash flow from operations had fallen because of increased expenditure needed to modernise. Capital expenditure also showed a 141% increase from the previous year. The operating margin was 6.8%. A summary of performance against objectives was given and the presenter summarized how the Bureau would achieve its aims of promotion of broader participation, equity and redress, meeting the Accelerated Shared Growth Initiative (ASGISA) targets, and increasing awareness of developments at the World Trade Organisation. Its improved regulatory function assisted consumer safety. Challenges included the need to broaden the stakeholder base, the need for conformity assessment, finalisation of the regulatory bill and regional integration.  Members asked questions on salaries, the delay in presenting the audit report, the problems with Russian taxis and the extent of the Bureau’s approval on them and the certification processes and high costs. Outreach, the cooperation on the 2010 World Cup and consumer education were also discussed.

A very brief presentation was given by the International Trade Administration Commission, focusing only on the challenges on the cooperation with China. The Commission was currently working on getting the permits approved. The call centre was established but took up substantial time. The only questions asked were in relation to monitoring of the trade agreement, and suspension of the issuing of permits.

MINUTES
Small Enterprise Development Agency Briefing
Ms A N Damane, CEO of Small Enterprise Development Agency (SEDA) briefed the Committee on the Annual Report. The report reflected work from January 2005 until March 2006. She said that the aim of SEDA was to create and promote small business and to integrate and co-ordinate the public provision of small, micro and medium enterprise (SMME) services. She stated that part of SEDA’s challenges was their strategic shift that resulted from the merging of Ntsika, Namac and CPPP. This merger led to a change from wholesale services to a retail-like orientation. One new change has been the set up of financing facilities, even though this fell outside SEDA’s mandate. Its international goals had also expanded and now it included close co-operation with the government of Finland and improved ties with counterparts in Brazil and India. SEDA was also to be positioned as a creditable and visible brand, using media and public events.

Ms Damane explained that one of the most challenging facets of the merger had been human resource issues. SEDA had a total of 351 employees, with a 2.3% annual turnover. There had been some disagreements with unions. There was a pending case in the labour courts about the SEDA management policy on competitive selection of employees for posts. SEDA had decided to allow outsiders to compete for one post created from the mergers, instead of automatically selecting one of the previous incumbents.

The successes of SEDA were outlined, using a number of examples, and performance highlights were tabled. These showed total revenue of R200 million, expenditure of R171 million and a surplus of R26 million, representing 14% of revenue. 93% of income was received as a grant from the Department of Trade and Industry (dti). Assets exceeded liabilities by a healthy figure. SEDA needed to be financed differently to the organisations that pre-dated it, because it was a larger entity with a stronger mandate. Ms Damane recognised that SEDA needed to acquire more than one source of funding for sustainability.

Challenges included inadequate financial and human resources, outreach, establishment of links to business associations and the quality and capacity of service providers. Plans for the way forward were tabled and discussed.

Dr Anna Mokgokong, Chairperson of the Board of SEDA, stated the new board had only been in existence for four months, but she already could see their passion for their work. It met frequently and showed that it wanted to tackle the country’s problems. She did not feel that parallel routes were the way forward. There needed to be a concerted effort. The Department of Trade and Industry (dti) had promised certain funds to SEDA, but they Treasury must confirm their budget. As a result, she explained, the SEDA finance committee had recommended that there should be no further expansion of operations. Dr Mokgokong said that President Mbeki called for increased access by urgent extension of SEDA’s services to rural areas, but SEDA could not meet his request because of funding constraints. Dr Mokgokong was perplexed by the amount of funding made available for the 2010 World Cup, ASGISA and other projects. National Treasury had a surplus and when money was given to SEDA, it was not being thrown away, but would be used to create jobs and be put back into the fiscus. She made an appeal to the Committee to lobby on behalf of SEDA so that it could be able to acquire its promised funding.

The Acting Chairperson of the Committee did not believe that this was the appropriate time to raise these matters.

Discussion
Dr P J Rabie (DA) said that Ms Damane had referred to a particular problem with unions. He, and presumably other Members too, had received a letter from that union.

The Acting Chairperson did not think that this matter should be further discussed, as the matter was still under consideration by the Labour Court.

Dr Rabie asked how SEDA benchmarked its operations.

Ms Damane replied that SEDA would compare its work with similar organisations in India, Brazil and Malaysia. It also had close relationships with the European Union and the Government of Flanders. SEDA had learnt from them that a “one-stop shop” approach was preferred to asking people to go from one place to another.

Dr Rabie added that he thought it would be a good idea if the Committee could hold on-site inspections of SEDA projects.

Ms F Mahomed (ANC) said that she was concerned that administration fees represented 60% of the budget.

Ms Damane replied that this was so high because SEDA had just merged and had incurred high rental costs associated with acquiring new property.

Ms Mahomed asked about the differences in the fees among the directors.

Ms Damane responded that this arose because some of the directors needed to be at more meetings than others.

Ms Mahomed asked what methods were used by SEDA to ensure the sustainability of SMME’s.

Ms Damane replied that SEDA used three criteria to evaluate sustainability. One was outreach, which examined how many people were positively affected by the creation of the small business and the number of people that could use SEDA services. The second criterion was outcome, which related to how quickly an entrepreneur could access the SEDA channel and set up a business that was ready to run. The third element was job creation.

Prof. B Turok (ANC) said that he supported the idea of on-site inspections and that he acknowledged Dr Mokgokong’s concern on budget problems with the dti and National Treasury. He asked what exactly did SEDA staff do, and what exactly were the outcomes. He noted that SEDA relied on others for funding and then simply seemed to pass this money on.

Ms Damane replied that SEDA facilitated the start-up of small and medium businesses and did not simply pass money on. She added that SEDA supplied potential business people with assistance, for example, on creating business plans. She said that the issue of outcomes was rather difficult because SEDA’s efforts were being hampered by National Treasury not releasing sufficient funding to dti for SEDA.

Prof Turok enquired if there were statistics how many SEDA SMME’s had actually survived. He wanted to know what their contribution was to the economy.

Ms Damane said that Prof. Turok could refer to the Annual report that was given to the Committee, which would detail the specifics on SEDA’s work and achievements during the last 22 months.

Mr L Labuschagne (DA) wondered whether it was necessary to have over 500 pages available on the Internet for the second economy, when so many people in South Africa had no internet access.

He then asked about staff gender composition and why were there no vacancies.

Ms Damane responded that SEDA had 66% women across the board. She said that there were no vacancies at present because SEDA had to stop the rollout of services owing to the budget crisis. If SEDA could expand, then they could see a vacancy rate of around 40%.

Mr Labuschagne said that the Auditor-General’s report had stated that there was a lack of adequate knowledge at SEDA. He asked for comment on this.

Ms Damane responded that they had lost some staff during the merger, but SEDA was addressing the issue. She confirmed that the CFO had left some time ago and that this presented a challenge. SEDA had dealt with it by getting a temporary CFO while they searched for a suitable person for the task. SEDA now had a very able person in whom they have confidence.

Mr Labuschagne said that he noticed that there was wasteful expenditure on credit cards, and asked for an explanation.

Ms Damane said that this was a problem that SEDA had inherited from its preceding institutions, especially Ntsika.

Mr Labuschagne remarked that he hoped that SEDA had read the DA’s proposals on SMME’s to ensure delivery on the ground.

Dr Mokgokong responded that she did read the proposals in the press, but would like to have the unedited version from the DA. She said that she in fact had also quoted Mr Labuschagne recently, and was well aware of his commitment to SMME issues.

The Acting Chairperson agreed with other members who believed that a statement on SEDA’s outcomes was very important. SEDA needed to show that it constantly provided sustainable businesses. Funding should be related directly to how well it had performed its job.

Mr T Gubevu, Executive Manager, Products and Services, SEDA, added that SEDA did use retired business people to help others start their own businesses. It had opted to use mentors in the Cape Town area instead of MBA students from the UCT Graduate School of Business. SEDA had seen very positive results from this endeavour and would replicate it elsewhere. He also mentioned that SEDA had embarked upon a new workshop programme that aimed to increase awareness of how to start a business, and of the required procedures. He stressed that this would happen at one place and at one time so that people could get all the information without having to go to multiple venues.

Mr Gubevu took the opportunity to say that there had also been comments made about cooperation with other ventures to their mutual advantage. SEDA would try to establish further venues where this could occur.

Briefing by South African Bureau of Standards on Annual Report 2006
Mr Martin Kuscus, CEO, South African Bureau of Standards (SABS) presented the new SABS slogan “Raising the African Standard”. He said that part of the objective at SABS was to ensure a better trade scenario by reducing tariffs and non-tariff barriers (NTBs). SABS would offer value added standardization on an ethical and principled basis to uplift and empower industry to compete vigorously towards increased market access.

Mr Kuscus mentioned a Business Day article of 27 October 2006, relating to current trade negotiations on a free trade area within the SADC (Southern African Development Community) region, which was hoped to increase growth in the region. This served to highlight the work of the SABS.

Mr Kuscus remarked on some of the highlights over the past year. SABS had been restructured into seven business clusters. IT had passed 884 standards and new railway safety regulations. It was devising standards for new products such as alternative fuels like ethanol and biodiesel, which were increasingly important, and had achieved in making paraffin appliances safer. Market surveillance had proactively discovered defective canned products at fish factories. SMME training had been effective.

Mr Kuscus reported on SABS work in refurbishing laboratories in high schools, on staff development and peer educator training, hosting an important conference and providing training to standards bodies in DRC, Ethiopia, Kenya, Zimbabwe, Tanzania and Botswana. Water checks were carried out in 100 laboratories throughout Africa. SABS had identified students with good maths and science marks in two provinces and had assisted them to study further. This was a small contribution to helping the country meet its requirements in this field.

 SABS has achieved a 9% increase in its commercial revenue with 78% of revenue now coming from private or commercial sources. This was particularly significant because of South Africa’s difficult economic circumstances, although the strength in the automobile industry had helped SABS. A negative point was that cash flow from operations had fallen because of increased expenditure needed to modernise. Capital expenditure also showed a 141% increase from the previous year. The operating margin was 6.8%.

 Mr Kuscus presented a summary of performance against objectives. Promotion of broader participation, equity and redress in the economy, would take place through supporting national and regional imperatives, preferential procurement and employment equity. Meeting the Accelerated Shared Growth Initiative (ASGISA) would involve promoting sustainable growth, increasing market access opportunities for export and improving market relevance. SABS would also help to keep South Africans aware of changes at the World Trade Organisation (WTO). SABS could help job creation through its ability to contribute to staff development and training on skills, and by assisting in creation of safe and effective products that could compete on a global scale. SABS’s regulatory function was also being improved in a bid for increased consumer safety. Challenges included the need to broaden the stakeholder base, the need for conformity assessment, finalisation of the regulatory bill and regional integration.

Discussion
Mr Labuschagne noted that all executive salaries were shown for end March 2005, and that all went down except for Mr Kuscus’s salary, which had increased. He asked for an explanation.

Mr Kuscus said that he had only joined SABS in the last year and the way in which the salaries were presented did make it appear that he was receiving a large percentage increase. However, only a portion of the previous year had been reflected.

Mr Labuschagne asked if this was the first time the audit report had been delayed.

Mr Kuscus clarified that there was not a qualified audit report. It was taking some time to produce because of internal re-structuring and legal issues.

Mr Labuschagne also asked whether the Russian taxis had been approved by SABS.

Mr Labuschagne said that the government asked SABS to simply inspect four items on the Russian taxis: the rollover protection, limiting the engine to 100km/h, tyres, and seat-belts. SABS was not required to test anything else. The taxis passed on three areas, but there was a problem identified in that the assembly factory did not build the taxis with rollover protection. A change in design would need approval from their headquarters and a change to the manufacturing process. SABS had not tested and took no responsibility for problems with the windscreens and fan belts.

Ms Mahomed asked how the SABS interacted with regulatory councils and SMME’s and whether there should be a preference.

Mr Kuscus replied that IS 9000 regulations and requirements could hurt SMME’s in terms of cost. He acknowledged that it could cost thousands of rands to comply with these rules and SABS had introduced a certification process. He stressed that the certificates could not be provided free, otherwise they would have no value attached to them.

Ms Mahomed asked how the SABS fared on Intellectual Property Rights (IPR), because South Africa needs to protect its human capital.

Mr Kuscus responded that South Africa was in the top ten in the world for the creation of standards, and this included IPR, but there were certain problems. SABS had noted this and was expanding to ensure that there were no encroachments by other countries or people involved in illegal activities. South Africa also belongs to the International Standards Organisation and other similar organisations

Ms Mahomed then asked if the SABS was helping with the Gautrain project. She commented that SABS had just approved a new cement for the World Cup and had been creating standards for organizing events for 2010.

Mr Kuscus said that SABS was trying to be involved in all matters to assist them in being successful.

Mr J Maake (ANC) asked for comment on the impact of paradigm shifts.

Mr Kuscus replied that he felt that the SABS was doing well in this regard. He said he had baseline numbers,  but nothing on paper with him today. He would provide the Committee with a report at the next meeting. SABS  outreach had grown, especially through the use of radio interviews, which centred on topics such as the safety of toys. It was part of consumer education. He said that the marketing was regrettably not as large as corporate South Africa’s campaigns.

The Acting Chairperson said that he was glad to see that South Africa was taking a more robust role at the World Trade Organisation and on free trade. He commended the SABS. 

Mr Kuscus invited the Committee to SABS’s Groenkloof centre to see the advanced technology that the SABS had just obtained.

Briefing by International Trade Administration Commission on Annual Report
Mr I Masege, Acting Chief Commissioner, International Trade Administration Commission (ITAC) tried to cut down on much of his presentation, due to shortage of time. He said that he would focus on China. Mr Masege said that China was part of the challenge that being faced at ITAC. There had been unhappiness when ITAC had published the agreements between China and South Africa and there had been a problem with the implementation of restrictions. He thus was unable to speak about the Memorandum of Understanding between China and South Africa. He said that ITAC was doing all that it could to get permits and certificates ready for 11 November. ITAC had created a call centre for this but sometimes received up to 90 calls a day, leaving no time to do real work on the issues.

Discussion
Ms Mahomed said that implementation of the permit scheme seemed to pose a huge challenge. She asked how it was possible to monitor a trade agreement.

Mr Masege replied that ITAC could give an answer to this question because it only performed an administrative function for the dti. The dti should be able to give an answer.

Ms Mahomed asked why ITAC did not suspend the issuing of permits until after the December boom.

Mr Masege responded that the Minister of Trade and Industry had made this decision and he could not comment on it.

There being no time for further discussion, the meeting was adjourned.