Question NW3806 to the Minister of Small Business Development

Reply:

In 1994, the new government inherited a highly unequal and concentrated economy, with very low levels of entrepreneurship, little to no black economic ownership, and an extremely weak and fragmented SMME support eco-system.

This made South Africa an outlier. SMMEs play a major role as a driver of growth and employment in both developed and developing economies.

To realise the growth and jobs potential of SMMEs, Government established the Department of Small Business Development in 2014. The mandate of the Department Small Business Development (DSBD) is defined: “to lead and coordinate an integrated approach to the promotion and development of entrepreneurship, Small, Micro and Medium Enterprises (SMMEs) and Co-operatives, and to ensure an enabling legislative and policy environment to support their growth and sustainability”.

Since its inception, the work of the DSBD has been driven by several key policy frameworks, including the National Development Plan, Vision 2030, which is aimed at harnessing the potential of SMMEs, Co-operatives and the informal sector, and sets specific goals for the small business sector as follows:

• To enhance economic growth through SMMEs and Co-operatives as assessed through an increased contribution by the sector to GDP.
• To enhance economic growth through SMMEs as assessed through an increased contribution by the sector to GDP.
• To create 9 million of South Africa’s 11 million needed jobs by 2030 through the SMME sector.
• To reduce the cost of regulatory compliance and promote ease of doing business for SMMEs and ensure policy coherence through partnerships among for SMMEs and ensure policy coherence through partnerships among key societal players, business and government.

The work of the DSBD has until recently been framed by the Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises (ISPESE), which was reviewed and a new national SMME and co-operatives strategy developed – the National Integrated Small Enterprise Development Strategic Framework (NISED) – adopted by Cabinet and launched in November 2022.

The ISPESE and NISED have been focused on addressing the core constraints faced by SMMEs and co-operatives, including:

• Red-tape and regulatory burdens.
• Market concentration, and lack of access to markets.
• The lack of access to finance, and
• Weak entrepreneurial and business development skills, and

Progress since 2014 is framed around what has been done to address these constraints and create a more enabling environment for SMMEs and co-operatives.

Red-Tape

To address the issues of reduced cost of doing business and regulatory compliance in South Africa, commonly referred to as red tape, the Department of Small Business Development (DSBD) is the custodian of red tape reduction (RTR) for Small, Medium and Micro Enterprises (SMMEs) and has initiated a number of interventions to reduce red-tape for SMMEs and co-operatives.

This includes reviewing the Businesses Act (1991), which was transferred from the Department of Trade Industry and Competition (the dtic) to the DSBD in the 2020/21 financial year. The DSBD has reviewed the Act and is in the process of finalising the Business Licensing Amendment Bill. Recently Cabinet has approved the National Business Licensing Policy for gazetting for public comments, by the end of the term a policy on Business Licensing will have been finalised.

The other piece of legislation which has been reviewed is the National Small Enterprise Act, 1996 (Act No. 102 of 1996). A National Small Enterprise Amendment Bill, 2023, has been developed and is currently before Parliament, National Assembly has referred this to the NCOP for concurrence and this should be finalised by the end of February by Parliament. The amendments:

• provide for the establishment and registration, in terms of the Companies Act, No. 71 of 2008, of the Small Enterprise Development Finance Agency (SEDFA) and the subsequent incorporation into SEDFA of the sefa, the Co-operative Banks Development Agency (CBDA) and the Seda.
• establish of the Office of the Small Enterprise Ombud Service ("the Office").
• enable the Minister to declare certain practices in relation to small enterprises to be prohibited as unfair trading practices.
• propose an amendment to section 20(2) of the Act to provide clarity on the interpretation of the powers assigned to the Minister in amending the Schedule to the Act as well as the definition for small enterprises, to allow for simplification of the Schedule.

The DSBD has also, in 2023, undertaken a “Rapid Review of ALL legislation that impacts SMMEs and Co-operatives” for “regulatory guillotining”, that is, at the level of National, Provincial and Local Government.

The DESBD has also supported red-tape reduction at municipal level, and has supported 23 Districts, 108 municipalities, and 4 Metros to roll out the Red-Tape Reduction Awareness Programme. Recently, the department has piloted the Pilot Administrative Simplification Programme (PASP) in association with KwaZulu-Natal EDTEA, COGTA and SALGA, targeting key red-tape reduction including access to infrastructure (specifically water as it permeates all municipalities), customer/complaints management, municipal policies, by-laws/regulations; land development and SPLUMA, building plan approval timelines/processes; and informal trading management. The idea is to consolidate this is a Municipal Red Tape Reduction Dashboard.

Market access

To address market access, the Department developed and continues to implement the SMMEs-focused Localisation Policy Framework that was adopted by Cabinet during the course of the 2020/21 financial year. At the end of 2022/23 financial year, 807 products produced by SMMEs, and Co-operatives were linked/introduced to domestic markets through working relationships with large retailers and wholesalers across the country against a five-year target of 1 000 products.

To drive localisation, the Department designed a focused Small Enterprise Manufacturing Support Programme (SEMSP) aimed at building and supporting SMMEs participating in the manufacturing value chain. The purpose of the SEMSP is to build a manufacturing sector for an improved industrial base through a focused import replacement programme and build the industrial base for both the domestic market and external market. The Programme aims to contribute to South Africa’s localisation strategy. As at 30 September 2023, SEMSP approvals concluded amounted to R879.2m to 94 SMMEs, facilitating 5295 jobs.

The DSBD has also partnered with the International Trade Centre to improve market access for women-led enterprises. As of 30 September 2023, the total cumulative number of South African members registered on the ITC SheTradesZA platform is 3004, whilst the ITC'S web developers finalise the system update. The Department is continuing to intensify its effort working towards realising its outcome to increase participation of women, youth and persons with disabilities, SMMMEs and Co-operatives in the domestic and international markets.

To date, 188 SMMEs and Cooperatives were exposed to global market opportunities, between 2022/23 and 2023/24, through international missions, exhibitions, and fairs. Our work in exposing SMME products and services to global markets through the Small Business Exported Development Scheme has seen an extension in driving the African Continental Free Trade Area (AFCFTA) markets during the 2023/24 financial year.

The other area of focus for DSBD has been the opening of corporate supply chains for SMMEs and co-operatives. To this end, an Enterprise Supplier Development (ESD) Community of Practice (COP) has been established with the private sector to overcome fragmentation and strengthen the key element of targeted entrepreneurship development. The ESD COP is complemented with an ESD e-learning platform and a series of masterclasses by Seda along with a website for COP member recruitment and the promotion of capacity building events and activities.

Access to finance

Here the focus has been on supporting SMMEs and co-operatives from under-served communities with access to finance, be it direct lending, blended finance, and micro-finance.

There have been numerous instruments designed and impended since 2014. This includes those for supporting SMMEs, Cooperatives and informal enterprises in townships and rural areas such as the Township and Rural Entrepreneurship programme. There are instruments for youth, such as the Youth Challenge Fund, those targeting people with disabilities such as the Amavulandlela Funding Scheme, as well as those implemented during COVID-19 to support SMMEs and Cooperatives experiencing financial distress such as the Business Viability Programme

Since 1 April 2014 to 31 October 2023, the DSBD, through its implementing agency sefa, approved loans to the value of R12.3 billion, disbursed into the South African economy R14.5 billion[1], and provided financial support to 597 473 SMMEs and Co-operatives. These funded clients in turn helped create and retain 809 148 jobs.

In terms of developmental impact:

• sefa disbursed R11.6 billion to enterprises owned by black entrepreneurs,
• R5.5 billion to women-owned businesses,
• R2.9 billion to businesses owned by youth,
• R109 million to enterprises owned by persons with disabilities,
• R1.9 billion to small businesses operating in the townships, and
• R4.4 billion to enterprises operating in rural towns and villages.

The DSBD has also developed an SMME and Co-operatives Funding Policy to ensure improvement in access to finance for SMMEs and Co-operatives. The Policy is now at NEDLAC.

Business Development Services

Much of DSBD’s entrepreneurship and business development support is implemented through Seda. Since 2014, the following has been achieved:

Number of clients reached through entrepreneurship awareness sessions	201 879
Number of clients supported with various interventions	414 205
Number of clients supported through Incubation Programme	69 840
Number of incubation centres established	110
Number of jobs created by supported clients	38 787
Number of jobs sustained by supported clients	62 118

The 110 Incubation Centers and Digital Hubs are aimed at nurturing new and existing small enterprises by providing them with financial and technical advice pertaining to the running of a business. The breakdown of these 110 that are in various stages of implementation is 73 Technology Business Incubators; 31 centers for Entrepreneurship and Rapid Incubation; and six Township and Digital Hubs that focus on various designated sectors within which small business start-ups are functioning.

The goal of increasing incubation centers and digital hubs to 100 by 2024 has already been achieved, and the new focus is on improving governance, independent sustainability and returns on investments.

Conclusion

As is evident, much has been achieved since the establishment of the DSBD in 2014. But much more needs to be done to place SMMEs at the centre of driving the country’s inclusive growth. The merger of Seda, sefa and the CBDA will provide seamless and customised support to the sector but needs to be effectively capitalised to effectively contribute to addressing the triple challenges of poverty, unemployment and inequality, and leveraging the kinds of partnerships envisaged in the NISED.

1. Due to the nature of sefa’s partnership with the intermediaries, disbursements are always higher because the intermediaries roll sefa’s money several times a year before paying it back. ↑