ATC150519: Report of the Portfolio Committee on Small Business Development on Strategic Plan and Annual Performance Plan (Budget Vote 31) of the Department of Small Business Development for financial year 2015/16, dated 19 May 2015

Small Business Development

Report of the Portfolio Committee on Small Business Development on Strategic Plan and Annual Performance Plan (Budget Vote 31) of the Department of Small Business Development for financial year 2015/16, dated 19 May 2015
 

The Portfolio Committee on Small Business Development, having considered the Strategic Plan, Annual Performance Plan and Budget of the Department of Small Business Development for 2015-16 on the 25 March 2015, 15 April 2015, 06 May 2015, 12 May 2015 and 13 May 2015 reports as follows:

 

1. Introduction

 

The Department of Small Business Development (the Department) was established as a national department in accordance with the reorganisation of some national departments announced by the President in May 2014 following the national elections. The Department was established in the context of radical economic transformation with a specific focus on development of Small Medium Micro Enterprises (SMMEs) and Cooperatives.

 

In spite of the above, 90 percent of the 11 million more jobs are expected to be created through SMMEs and Cooperatives by 2030. A radically transformed economy would therefore be realised through effective participation of SMMEs and Cooperatives in the mainstream economy. Effective participation of SMMEs and Cooperatives would only be realised through adequate investment and provision of supported services in a coordinated manner. Therefore, the Department has a responsibility of leading the process of developing as well as of coordinating financial and non-financial services designed for development of SMMEs and Cooperatives.

 

The Department received its first budget allocation, Vote 31, in the 2015/16 financial year, for sectoral cohesion for advancing the objectives of SMMEs and Cooperatives. A decision to establish a designated department was aimed at advancing the development of SMMEs and Cooperatives for job creation, reduction of poverty and inequalities, with more focus on youth, women and people with disabilities. In the 5th Parliament, the oversight responsibility on small enterprises and cooperatives issues was assigned to the Portfolio Committee on Small Business Development (the Committee). In performing its constitutional mandate, the Committee engaged with the Department’s Strategic, Annual Performance Plans and Budget for 2015-16 on March 25 2015, 15 April 2015, 06 May 2015, 12 May 2015 and 13 May 2015. In addition, the Committee assessed the alignment of the Department’s Strategic Plan with those of the entities mandated to provide support services to SMMEs and Cooperatives. It also assessed the alignment and effectiveness of programmes provided by Non-Governmental Organisations (NGO) and incubators to SMMEs and Cooperatives in partnership with the Department.

 

1. Mandate of the Department

 

The mandate of the Department is informed by the Resolution of the 53rd Congress of ANC and the 2014 ANC Election Manifesto. Furthermore, the mandate is derived from the different pieces of legislations and policies such as the White Paper on National Strategy for the Development and Promotion of Small Business, the Small Business Development Act (1980), the National Small Business Act (1996) as amended 2004, the Companies Act (2010), the Co-operatives Amendment Act (2013), Industrial Development Corporation Act (1940), Broad Black Business Economic Empowerment Act, National Empowerment Act, Preferential Procurement Policy Framework Act, Youth Enterprise Strategy, Women and Gender Empowerment Strategy, Cooperatives Strategy, Innovation and Technology Strategy, the National Development Plan (NDP), the New Growth Path and the Industrial Policy Action Plan.

 

The Department is tasked to lead an integrated approach to promote and develop SMMEs and Cooperatives through economic and legislative drivers that stimulate entrepreneurship. The realisation of this mandate will lead to increased employment, reduced poverty and inequalities, and ultimately a developmental state with viable economy, self-sufficient and self-reliant communities.

 

1. Vision of the Department  

A radically transformed economy through effective development and increased participation of SMMEs and Cooperatives in the mainstream economy.

 

1. Mission of the Department

 

The Department’s mission is to create a conducive environment for the development and growth of small businesses and cooperatives through the provision of enhanced financial and non-financial support services, competitiveness, market access, promotion of entrepreneurship, advancing localization and leveraging of public and private sector procurement.

 

 

1. Values

 

The values of the Department are derived from the Batho Pele principles, namely:

• Customer focused
• Integrity
• Honesty
• Efficiency
• Accessibility
• Commitment
• Human dignity

 

1. Strategic Outcomes-Oriented Goal

 

1. To facilitate the development and growth of small businesses and co-operatives which will contribute to inclusive and shared economic growth and job creation through public and private sector procurement;
2. To facilitate radical economic transformation through increased participation of small businesses and cooperatives in the mainstream economy; 
3. To advocate for a conducive regulatory environment for small businesses and co-operatives thereby enabling them an access to finance, investment, trade and market access in an equitable and sustainable manner; and
4. To facilitate partnerships with all spheres of government as well as the private sector to ensure mutual cooperation that will benefit small businesses and co-operatives.

 

1. Purpose of Budget Vote

The budget is a political and financial instrument that the government uses to ensure that its policy programmes are operationalised through the allocation of financial resources to the different spheres of government, specifically to programmes and projects. It reflects an outcomes centred public spending approach. It is further described as a tool that the ANC Government uses to evaluate the financing of its key policy objectives. It is also used to evaluate whether the macro-economic perspectives of the Budget and the respective Budget Votes meet the requirements of government policies and give substance to the government’s five year plan. Therefore, the purpose of Vote 31 for the Department is to promote the development of small business and cooperatives that contribute to inclusive growth and job creation.

 

1. Expenditure analysis as per Estimates of National Expenditure

The National Development Plan articulates the important role of small businesses and cooperatives in achieving inclusive economic growth, and that these small enterprises are key to achieving the planned job creation target for 2030. The NDP further identifies that regulatory compliance costs need to be reduced in order to transform the economy, for small businesses in particular. It is against this background a designated department to advance the interest and role of small businesses and cooperatives was established in 2014. The Department’s work will contribute to outcome 4 of government’s medium term strategic framework which is, the creation of decent employment through inclusive economic growth, and in particular sub-outcome 3, which deals with the elimination of unnecessary regulatory burdens and lower price increases for key inputs.

 

The Department will advocate for a conducive regulatory environment for small businesses and cooperatives to access finance, investment and markets, in an equitable and sustainable manner. The Department will provide various customised intervention programmes, designed to increase the sustainability of cooperatives so that they can contribute to economy particularly in the agriculture and agro-processing, manufacturing, mining and service sectors. In means of encouraging government procurement with small business and cooperatives, the Department will facilitate their development and growth. It will further facilitate partnerships with all spheres of government, other departments as well as the private sector to ensure mutual cooperation that will benefit small businesses and cooperatives.

 

The Department has a total budget of R3.5 billion over the MTEF period, including a Cabinet approved additional allocation of R139.3 million to support the establishment of the Department. Expenditure on compensation of employees is expected to grow by 13.3 per cent over the medium term as the Department expands its personnel to 171 in 2017/18. The Enterprise Development and Entrepreneurship Programme will be allocated and spend R3.2 billion over the medium term period, because it is the largest unit in the department with 64.3 per cent of personnel under this programme, to provide customised interventions to support small businesses and cooperatives.

 

The Cooperative Support and Development Programme, with an allocation of R48 million, will fund the implementation of new support model for cooperatives, including implementation of the Cooperatives Amendment Act (2013) over the medium term period.

 

Regulatory and institutional support for cooperatives

Over the medium term, the Department will finalise regulations for cooperatives to ensure that the Cooperatives Amendment Act (2013) is properly implemented. The act aims to improve the failure rate of cooperatives and address past problems in cooperative governance, structures, compliance and sustainability. It will also improve coordination between national, provincial and local government to strengthen their support for cooperatives. The Department will conclude transversal agreements with other government departments to enhance the implementation of the act in support of growth of cooperatives. These activities are also funded in the Cooperatives Support and Development Programme.

 

Non-financial and financial support for small businesses and cooperatives

The bulk of the Department’s expenditure, that amounts to R2 billion, 85.5 per cent which is for transfers and subsidies over the medium term, is earmarked for the Small Enterprise Development Agency (SEDA). SEDA provides non-financial support services to small businesses, including business and technology incubation services in specific sectors, focusing on start-ups and enterprises that need rehabilitation. The Department will also provide R686 million in incentives to small enterprises in the agriculture, agro-processing, manufacturing, mining and services sectors through transfers to the Black Business Supplier Development Programme as well as R229 million to cooperatives through transfers to the Cooperatives Incentive Scheme. Both these incentive initiatives are also funded in the Enterprise Development and Entrepreneurship Programme. Over 3 000 small businesses and cooperatives are expected to be supported over the medium term by these incentives.

 

The Department supports the South African Women Entrepreneurs Network (SAWEN) and the Isivande Women’s Fund through transfers in the Enterprise Development and Entrepreneurship Programme. Over the medium term, these transfers total R83.6 million. The Department’s Bavumile Skills Enhancement Programme aims to enhance women’s existing skills to produce quality, commercially viable products for major local and international markets. Over the medium term, the programme prioritises the creative industries and women in rural areas and townships, and aims to train 1 500 women entrepreneurs, a significant increase from the 65 women that were trained in 2014/15. Women with craft skills such as sewing and beading are provided with specialist skills training and assistance in establishing their own enterprises and cooperatives. Funding is in the Enterprise Development and Entrepreneurship Programme under the sub-programme Gender, Youth and People with Disabilities Economic Empowerment, which is allocated R154.9 million over medium term. The Department will facilitate the implementation of the Youth Black Supplier Development Programme which is intended to benefit 1 100 youth enterprises by 2017/18.

 

1. Policy Priorities for 2015/16

 

1. National Development Plan

 

In its 53rd National Conference, the ANC resolved to take the lead in mobilising and uniting all South Africans around a common vision of economic transformation that puts South Africa first. Since, the National Development Plan is a living and dynamic document and articulates a vision which is broadly in line with that of the ANC objective to create a national democratic society, the 53rd National Conference resolved to use NDP as a common basis for this mobilisation. Subsequently, the NDP has highlighted a number of key issues with related to the mandate of the Department which include small business support job creation and redress skewed ownership, access to debt and equity finance, public and private procurement, regulatory environment and economic transformation.

 

1. The Medium Term Strategic Framework

 

Following the adoption of the NDP, Cabinet decided in 2013 that the 2014-2019 MTSF should form the first five-year implementation phase of the NDP and mandated work to begin on aligning the plans of state organs with the NDP vision and goals. Thus, for the next five years the MTSF has made some priorities aiming at achieving radical socio economic transformation through descent employment through inclusive growth. These focus areas will be an integral part in achieving set targets aiming to a radically socio-economic transformation. The Department of Small Business Development has been assigned to champion some of the priorities. The following are the focus area and priorities that are relevant to the Department of Small Business Development:

 

Expanded opportunities for historically excluded and vulnerable groups, small

businesses and cooperatives

 

The government need to ensure that historically excluded and vulnerable groups, in particular youth and black women, have increased access to economic opportunities. Government will continue to broaden the base of black economic empowerment, for example through promoting more employee and community share ownership, with a particular emphasis on empowering youth and women. There will be an emphasis on promoting black industrialists and enterprises in the productive economy.

 

The Department which is responsible for small business development will identify the institutional and regulatory changes required to accelerate growth of the small business sector and raise its contribution to job creation. Government will also strengthen support for cooperatives, particularly in marketing and supply activities, to enable small scale producers to enter formal value chains and take advantage of economies of scale.

 

Local business incubators, industrial and retail sites, marketing agencies, cooperative support programmes and access to finance are amongst the key measures required to promote small enterprise growth, reduce market concentration and expand decent work opportunities.

 

Key targets for the MTSF include:

• An increase in the GDP growth rate from 2.5% in 2012 to 5% in 2019
• An increase in the rate of investment to 25% of GDP in 2019
• The share in household income of the poorest 60% of households rising from 5.6% in

2011/12 to 10% in 2019

• A decrease in the official unemployment rate from 25% in the first quarter of 2013 to

14% in 2020

 

9.3 Outcome 4:  Decent employment through inclusive economic growth  

 

The NDP provides a long term vision for accelerating GDP growth so that unemployment and inequality can be reduced and for creating a more inclusive society. This will be achieved through diligent implementation of programmes and implementation plans, in particular the New Growth Path (NGP) the Industrial Policy Action Plan (IPAP) and the National Infrastructure Plan. In the same vain the development of SMMEs and cooperatives will be the critical instrument to achieve decent employment through inclusive economic growth.

 

9.4. State of the Nation Address

 

In his State of National Address, President Zuma, announced that the Government will set-aside 30% of appropriate categories of State procurement for purchasing from SMMEs, Cooperatives as well as township and rural enterprises.

 

 

10.        Budget Analysis

 

The Department has received an allocated amount of R1.103 billion for the 2015/16 financial year. For the outer years of the 2015/16 MTEF, the department has been allocated R1.125 billion and R1.152 billion, respectively. This represents an average growth rate of 6.8 percent over the 2015/16 MTEF. For the period between 2015/16 and 2016/17 financial year, it is estimated that the budget allocation for the Department will grow by a small margin of about 2 percent and for the period between 2016/17 and 2017/18.

 

The allocated budget of R1103 billion for the financial year 2015/16 is budgeted to finance current payments which include compensation of employees, goods and services, payments for capital assets and transfers and subsidies. The significant amount ( R 935.8 million), that is 84 percent will be transferred to departmental entities or other public corporations and non-profit institutions which are SEDA, SAWEN and Isivande. Of the three programmes from the Department, Programme 3: Enterprise Development and Entrepreneurship is set to receive a significant allocation of R1024 billion or 93 percent of the total budget of R1103.2. Importantly, Programme 1: Administration is budgeted to receive an amount of R64 million or 5.8 percent compared to R15.2 million which is allocated to Programme 2: Cooperative Support and Development.

 

1. PROGRAMME 1: ADMINISTRATION

 

The purpose of Programme 1 is to provide a strategic leadership, management and support services to the Department.  The amount allocated to this Programme is set to be appropriated among its sub-programmes which include, Ministry, Departmental Management and Corporate Services; of which Corporate Services and the Ministry are budgeted to receive most of the funds allocated for this programme. The majority of the budget allocated to this programme is budgeted to finance Compensation of Employees and Goods and services, of which items such as travel and subsidies and operating payments share a big chunk.

 

1. PROGRAMME 2: Cooperative Support and Development

 

The purpose of Programme 2 is to create an enabling environment that will facilitate the establishment, growth and development of co-operatives through the development and review of policy and legislation and provision of enhanced financial and non-financial support services utilising improved institutional arrangements. Its objective is to increase the number of cooperatives accessing the various customised intervention programmes to ensure their sustainability and economic contribution by implementing sector catalytic projects through:

• Growing and facilitating the entry of cooperative enterprises in the mining, manufacturing agro-processing and services sector and
• Providing supplier development programmes for cooperatives through Cooperatives Development Agency.

 

For the 2015/16 financial year, this programme is budgeted an amount of R15.2 million, which is the least amount from the total budget for the Department. This programme has five sub-programmes which include, Primary Co-operatives Development, Incubation Support Programmes, Cooperatives Supplier Development, Intergovernmental Relations and Marketing Development and Research, Planning, Monitoring and Evaluation. Importantly, only one sub-programme, which is Primary Co-operative Development that has been allocated funds, that is, R15.2 million.

 

Therefore, the budget allocated to this programme will be used to finance individual primary co-operatives with start-ups support which aims at enabling co-operatives members to run the co-operatives on co-operatives principles. It will also support these cooperatives with material, basic business skills and equipment using Co-operative Incentive Scheme and Co-operatives Development Agency.

 

1. PROGRAMME 3: Enterprise Development and Entrepreneurship

 

The purpose of this Programme is to create an enabling environment for the development and growth of sustainable small businesses so that they contribute to the creation of employment and economic growth. Its objectives include amongst others, increase contribution to the country’s GDP, sustainable livelihoods and the creation of job opportunities by implementing the youth black business supplier development programme to provide financial support to 900 businesses over the MTEF; to promote boarder participation of small businesses and cooperatives in the mainstream economy by providing financial incentives through the black business supplier development programme and cooperatives incentive scheme; and to increase the participation of SMMEs and cooperatives in the mainstream economy by implementing the global exporter passport programme to ensure that an accelerated development of export ready SMMEs by 2017/18.

 

This programme has received the majority of budget allocated to the Department for the 2015/16. More than half of the allocated budget (R664.6 million) for this programme is set to be appropriated for Enterprise and Supplier Development, Youth and People with Disabilities financial year through transfers to departmental agencies, public corporations and Non-profit organisations, of which Incentives grants and soft loans sub-programme also received a significant share of R322.2 million budget allocation. It is worth noting that two of the sub-programmes of this programme which are Regional Industrial Special Projects and National Informal Business Upliftment Strategy has not been allocated a budget, instead a sub-programme Economic Empowerment has received some allocations despite the fact that it does not even appear in the Departmental Strategic Plan.

 

1. Planned Targets for 2015/16

 

Strategic Objectives	5 Year Strategic Plan Target	2015/16 Targets
Programme 1: Administration
To facilitate radical economic transformation through increased participation of small businesses and cooperatives in the mainstream economy	Effective and efficient staff compliment	10%
	Effective and efficient finance service delivery	Payments to eligible creditors processed within 30 Days
	Effective and efficient marketing service delivery	15 multi-media awareness campaigns, 8 events, 15 outreach programmes and 8 exhibitions.
Programme 2: Co-operative Development
To facilitate radical economic transformation through increased participation of small businesses and cooperatives in the mainstream economy	Linking of  93 co-operatives to market value chains (manufacturing, agro-processing, energy, construction clothing and textile)	Pilot 3 co-operatives linked to market value chains (manufacturing, agro-processing, energy, construction clothing and textile).
	2989 primary co-operatives receiving funding, training and access to markets	270 Primary co-operatives receiving funding, training and access to markets.
	22 Secondary Co-operatives funded	1
	Formulation of a National SMME and Co-operatives Development Framework	Quarterly coordination and reporting on the framework activities
Programme 3: Enterprise Development and Entrepreneurship
To facilitate radical economic transformation through increased participation of small businesses and cooperatives in the mainstream economy.	400 start-ups and growth oriented SMMEs and Co-operatives that access the Fund.	Develop a business case for disbursing the funding and lobby the private sector to contribute to the Fund.
	25 SMMEs and Co-operatives packaged as micro franchisors.
	Centers for Entrepreneurship established in 19 hosting academic institutions.	3 Centers for Entrepreneurship established
	72 SEDA Branches trained and 140 co-location points established.	10 co-location points established.
	All municipalities partnering with the DSBD.	Establishment of new and upgrading of existing infrastructure in 5 identified municipalities commenced and completed.
To advocate for a conducive regulatory environment for small businesses and co-operatives to enable access to finance, investment, trade and market access in an equitable and sustainable manner.	800 Youth enterprises launched.	100 youth trained in New Venture Creation programme
	Red tape reduction guidelines institutionalized at all state institutions	Continuous roll-out of the Red Tape Reduction guidelines at 80 municipalities.
		Monitoring framework for implementing of the municipal red tape reduction guidelines.
		Conduct study to develop guidelines for reduction of sector specific red tape at Provincial level.
		Establish a National Task Team for the institutionalization of the red tape reduction programme
		Table Provincial red tape reduction guidelines at technical MINMEC.
To facilitate the development and growth of small businesses and co-operatives to contribute to inclusive and shared economic growth and job creation through public and private sector procurement	Implementation of the set-asides programme	Issuing of the practice note and monitoring of effective implementation of the 30 % set-asides programme
	1350 craft enterprises supported through product development, market access and enterprise development	Development implemented by Provincial Craft Hubs and Provincial Development Agencies  benefiting 450 Craft Enterprises
		Development implemented by Provincial Craft Hubs and Provincial Development Agencies  benefiting 450 Craft Enterprises

 

1. Small Enterprise Development Agency (SEDA)

 

1. Mandate of SEDA

 

SEDA was established in 2004 in terms of the National Small Business Amendment Act (2004). It is mandated to implement government’s small business strategy; design and implement a standard and common national delivery network for small enterprise development; and integrate government funded small enterprise support agencies across all tiers of government.

 

Its obligation is drawn from the National Development Plan (NDP) and outcome 4 of government’s 2014 – 19 medium term strategic framework that is, decent employment through inclusive economic growth, have identified small business as a key element in achieving the nation’s job creation targets by 2030. Therefore, SEDA is obliged to ensure that small enterprises sector grows and increases its contribution to sustainable and equitable social and economic development, employment and wealth creation. The agency does this through providing business advice, consultancy, training and mentoring and by assisting SMMEs with technology through the technology programme. It also provides for the incubation of business through technology demonstration centres, technology incubators and hybrid centres as part programme, as well as for the development of rural enterprises and cooperatives through the cooperatives and community private partnerships programme.

 

12.2      SEDA Strategic Objectives

 

In the Committee meeting, SEDA made a presentation of its Strategic Objectives and performance Indicators as follows:

 

Strategic Objective 1: aims at enhancing competitiveness and capabilities of small enterprises through coordinated services, programmes and projects.

 

Outcome	Output	Performance Indicator/measure	Performance Targets
			2015/16	2016/17	2017/18
Client satisfaction ensured	Client satisfaction surveys conducted	% of surveyed clients satisfied with the quality of SEDA services	94%	95%	96%
Client business performance improved	Client improvements assessment conducted*	% of surveyed SMME clients whose turnover has increased	54%	56%	58%
		% of surveyed SMME clients whose number of employees has increased	35%	37%	39%
	Supplier development programme implemented	Number of supplier development programme partnerships	5	10	15
		Number of clients supported	75	150	225
	Trade facilitation programme implemented. (Access to markets)	Number of clients supported	75	100	125
	Mentorship and coaching programme implemented	Number of clients supported.	75	100	125
	Training on national and international standards conducted	Number of clients trained	536	563	591

 

Strategic Objective 2: aims at ensuring equitable access to business support services.

 

Outcome	Output	Performance Indicator/measure
			2015/16	2016/17	2017/18
Client reach improved	Clients assisted	Number of clients working with	11,400	10,830	10,290
Proportion of clients in the upper end of the SMME sector increased	Support interventions provided to clients in the upper end of the SMME sector	Number of clients in the upper end of the SMME sector assisted with interventions	372	343	361
		Number of new partnerships on high impact programmes (HIPs) to service the upper end of the SMME sector	10	5	5
Support to clients in key growth sectors prioritized	Support interventions provided to clients in the priority growth sectors	% of clients in the priority growth sectors assisted with interventions.	40%	50%	60%
Rural enterprise development enhanced	Large scale projects and  cooperatives assisted with support interventions	Number of secondary marketing cooperatives supported.	36	45	54
		Number of primary cooperatives established.	90	90	90
Township and peri-urban enterprise development enhanced	BESD programme implemented	Number of clients supported	1,000	1,000	0
Cost sharing with delivery partners maintained	Partnership agreements implemented	Value of service provision costs covered by partners	R 10,3 mil	R 10,6 mil	R10,9 mil

 

 

Strategic Objective 3: aims at strengthening the organization to deliver on its mission.

 

Outcome	Output	Performance Indicator/measure	Performance Targets
			2015/16	2016/17	2017/18
Cost efficiency improved	Financial expenditure monitored	% of direct service costs versus total costs	73%	74%	75%
		% of programme related funding allocated to clients in the upper end of the SMME sector	15%	25%	35%
Organizational staffing improved	Vacancies filled	% vacancy rate	12%	10%	10%
SEDA image improved	Advocacy and lobby initiatives implemented	Annual Stakeholder Forum (ASF) held	ASF held by end September	ASF held by end September	ASF held by end September
		Number of updates on the state of the SMME sector produced	2	2	2

 

1. SEDA Budget Allocation

 

	Medium Term expenditure estimate			Average growth rate (%)	Expenditure Total: Average (%)
R thousand	2015/16	2016/17	2017/18	2014/15 – 2017/18
Enhance competitiveness and capabilities of small enterprises through coordinated services, programmes and products	184 614	196 094	208 305	6.2%	27.9%
Ensure equitable access to business support services	169 055	177 467	186 632	5.0%	25.4%
Strengthen the organization to deliver on its mandate	167 514	151 860	205 260	-0.1%	26.7%
Assist SMMEs with technology through the organization’s technology programme	132 181	138 261	146 146	5.0%	19.9%
Total	653 364	663 682	746 343	3.8%	100.0%

 

12.4      SEDA Budgeted Focus Areas

 

In order to focus on outcomes of job creation, increase in turnover and sustainability, the following are key budgeted focus areas for SEDA 2015/16 financial year:

• Roll out of Small Business incubation;
• Focused attention on cooperative support, including collectively owned large scale projects;
• Development and implementation of the Gazelles programme to identify and profile high performing entrepreneurs;
• Facilitation of timeous payment of SMMEs;
• Public/Private Partnerships;
• Directing specific interventions at medium sized enterprises and cooperatives (i.e. employing between 21 and 200), such as access to markets, mentorship and coaching, supplier development, technology transfer; and
• Repositioning of support functions from a reactive role to a proactive, strategic support role, especially in areas such as ICT, advocacy and lobbying, and human capital.

 

12.5      Expenditure Analysis

 

The national development plan and outcome 4 of government’s 2014-19 medium term strategic framework (decent employment through inclusive economic growth) identify small businesses as a key element in achieving the nation’s job creation targets by 2030. In support of these objectives, the Small Enterprise Development Agency strives to ensure that the small enterprise sector grows and increases its contribution to sustainable and equitable social and economic development, employment and wealth creation. The agency does this through providing business advice, consultancy, training and mentoring, and by assisting SMMEs with technology through the technology programme. It also provides for the incubation of businesses through technology demonstration centres, technology incubators, and hybrid centres as part of the technology programme, as well as for the development of rural enterprises and cooperatives through the cooperatives and community private partnerships programme.

 

In line with the medium term strategic framework’s objectives, the agency’s focus over the medium term will be on continuing to develop, support and promote small enterprises to ensure their growth and sustainability by providing them with non-financial services. Thus, goods and services will remain a key cost driver, accounting for 55.8 per cent of the agency’s total expenditure over the medium term. The agency intends to increase its support of clients through the incubation programme from 1 710 in 2014/15 to 1 980 in 2017/18, and increase its assistance of clients through technology transfer incentives from 63 in 2014/15 to 72 in 2017/18.

 

Expenditure on compensation of employees will continue to drive the expenditure in the agency, accounting for an estimated 41.8 per cent of total expenditure over the medium term. This expenditure is expected to increase to R315.1 million by 2017/18 to account for inflationary increases due to the delivery network being national. The agency’s network comprises 1 national office, 9 provincial offices and 46 branches nationwide, with a projected 32 520 clients over the medium term.

An average of 94.6 per cent of the agency’s revenue is expected to be derived from transfers from the Department of Small Business Development over the medium term. Other sources of revenue include funding from provincial and local governments, and specific projects from signed memorandums of agreement. Revenue is expected to decrease by R123.2 million over the medium term as a result of Cabinet approved budget reductions of R49.3 million in 2015/16 and R73.9 million in 2016/17 being effected on the agency’s allocation due to its accumulated level of reserves

 

1. Small Enterprise Finance Agency (SEFA)

 

13.1      Mandate of SEFA

 

SEFA was established on 1st April 2012 as a result of the merger of South African Micro Apex Fund, Khula Enterprise Finance Ltd and the small business activities of Industrial Development Corporation (IDC). Its mandate is to foster the establishment, survival and growth of SMMEs and contribute towards poverty alleviation and job creation.

 

13.2      Strategic Thrust/objectives

 

SEFA’s strategy is premised on four strategic thrust which are, increased access to finance for small businesses and co-operatives, strengthening human resource capacity, marketing of the SEFA products and services and consolidating the post investment and monitoring support.

 

In order to achieve the aforesaid strategic thrust for the 2015/16 financial year, SEFA has planned a number of programmes aiming to achieve its strategic thrusts, which include amongst others, Streamlining of the loan management processes through increased use of online and workflow technology with the aim of improving turnaround times spent in processing applications; growing of the micro-enterprise loan book through innovative products such as supplier credit, partnerships with community organisations; building the capacity of staff to increase productivity and improved customer centricity or satisfaction which is the element that has a likelihood of contributing significant towards less time taken to process the application; leadership development to ensure a value driven organisation; implementing a customer relationship management strategy that will encompass different client touch points with the aim of creating awareness about the products and services provided by SEFA and measure their effectiveness; strengthening the collection capability through the introduction of a debit order facility and increase collections capacity, this programme will aim at reducing the high rate of impairments experienced by SEFA.

 

It is worth noting that all these programmes highlighted above are customised in such that they contribute in achieving strategic plans, objectives and targets of the Department of Small Business and Development such as red tape reduction, incubation, informal sector/micro enterprise finance and access to finance to mention few.

 

13.3      Budget Analysis

It should be noted afore-hand that the budget of this institution has been allocated under Programme 3: Investment, Competition and Trade of the Department of Economic Development. However, based on the Cabinet decision taken on 29 January 2015 that SEFA should migrate to the newly established Department of Small Business Development which is mandated to lead an integrated approach to the promotion and development of small business and cooperatives. Subsequently, this Budget Vote Report will just give a brief highlights of the budget since the budget of SEFA is still allocated under the Department of Economic Development.

 

SEFA has been budgeted an amount of R406 million for the 2015/16 financial year and R213 million and R224 million for the 2016/17 and 20117/18 financial years. It should be noted that SEFA maximises its own revenue from other income sources which they contribute significantly. These include interest from lending operations, investment property rental income, investment income, indemnity fees and other incomes. However, budget from the fiscus (government as the main shareholder) contributes more than half (64 percent) of the total revenue for the institution, whilst interest from lending operations contribute 23 percent and 4 percent for both investment property rental income and other income.

 

13.4      Isivande and South African Women Network (SAWEN)

It became difficult to consider their budgets according to their plans and targets based on the following reasons:

• Isivande has presented its strategic plan to the Portfolio Committee on Small Business Development on Tuesday, 12 May 2015. The delay was due to the ambiguity on its standing in terms of reporting, particularly from the Departmental officials. This has led to its Strategic Plan not aligning with that of the Department. Further, the Department maintained the view that Isivande is the subsidiary of the IDC, by implication is accountable to the Department of Economic Development (EDD).  Importantly, the budget allocation for Isivande has been allocated in the Department of Small Business Development and transferred to the Isivande. An amount of R8.8 million for the 2015/16 financial year and R9.2 million and R9.7 million for 2016/17 and 2017/18 financial years respectively. However, the aforesaid budget cannot be evaluated and justified whether or not it is appropriate adequately according to the plans and targets of Isivande; and whether or not it will contribute to achieve the ultimate objectives of employment creation, poverty reduction peculiar to women group.
• It has been established that the strategic plan of SAWEN has only recently been aligned with the strategic plan of the Department. As such it was considered by the Committee.

It is worth noting that together these institutions constitute 2 percent of the total budget of the Department. 

 

1. Observations

 

Having met with the Department to scrutinise the Annual Performance and budget for 2015/16, the Committee made the following observations:

1. The Strategic Plan of the Department is aligned to the mandate of the Department. Programmes of the Department are those that were established by the Department of Trade and Industry (the DTI) when the responsibility of developing SMMEs and Cooperatives was a function of the DTI. Therefore, there is a need for the Department to facilitate a scientific assessment of the effectiveness of its programmes within a broader mandate of the Department than when it was a programme in the DTI.
2. The performance indicators in the Annual Performance Plan of the Department are not aligned to job creation and poverty reduction targets of the NDP. The Department responded to this issue by stating that performance indicators are articulated by National Treasury and the Department of Public Service and Administration. This implies that the key performance indicators of the Department is the number of SMMEs and Cooperatives assisted by the Department not the impact of the assisted SMMEs and Cooperatives on job creation.
3. The budget allocated to the Department falls short of the proposed budget from the Budget Review and Recommendation Report (BRRR) in October 2014. However, the Committee understood the position articulated by the Minister of Finance that the government departments have to reprioritise and shift funds within them. Subsequently, the Committee maintained that in order for the Department to fund other programmes that were not funded through fiscus, it must start paving way to enter into transversal agreements with other departments so that the development of SMMEs and Cooperatives could be done in an integrated manner through a collaborative and complimentary approach between government departments and different spheres of government.
4. The Department submitted a Strategic Plan that has a budget allocation for remuneration of personnel in the Department without an organogram. The Budget Review and Recommendations Report (BRRR) of the Committee recommended that the Department should finalise its organogram to enable the Committee to assess the capacity of the Department to deliver as well as value for money spent on human resources employed to deliver such a mandate.
5. The Committee was more concerned that Programme 1: Administration, which is a support function of the Department, is allocated more budget than Programme 2: Cooperatives Development, which is a core function of the Department.
6. The understanding of the Committee is that SEFA has migrated to the Department. The confusion caused by SEFA’s relationship with IDC and the fact that SEFA continued to align its Strategic Plan with that of the EDD is a cause for delayed progress and frustrations in the performance of both the Department and the Committee. This will have negative implications for the development of SMMEs and Cooperatives. It is still not clear whether SEFA is a subsidiary of IDC or not, since there is no documented information or legislation that has been made available to the Committee to clarify the kind of relationship between SEFA and IDC. The only information that the Committee was informed of by the Minister is that there is a Cabinet decision for SEFA to migrate to the Department. However, the relationship between SEFA, IDC and the Department including the line of accountability remains unclear.     
7. The Committee observed with great concern that the funding model of SEFA does not speak to the felt needs raised by SMMEs and Cooperatives that the Committee has interacted with. The use of intermediaries who are given loans by SEFA at 6 percent interest rate for them to provide loans to SMMEs and Cooperatives at interest rates that range between 42 percent and 110 percent is viewed by the Committee as a funding model created to enrich intermediaries and rip off SMMEs and Cooperatives. When this funding model is viewed against the low price procurement policy, it shuts the door for SMMEs and Cooperatives to ever participate in the economy.
8. The Committee observed that the programmes of SEFA do not talk directly with very poor people operating as survivalist enterprises for the purpose of income generation, such as street vendors, spaza shops, tuck shops, hair salons, etc
9. The Committee observed that SAWEN is not a state-owned entity, it is an NGO that receives funding from the Department. SAWEN is supposed to work closely with the Gender Unit within the Department to compliment efforts of the Department in developing women enterprise and facilitate growth and expansion of their businesses through networking.
10. The Committee further observed that there was no close working relationship between the Gender Unit of the Department which resulted with SAWEN continuing to develop a strategic plan that does not relate and compliment the developmental mandate on women given to the Department.
11. The amount of funding allocated to SAWEN does not match needs of women and therefore would have very little impact on development of women.
12. There is unnecessary wastage of resources emanating from the transfer of funds budgeted for Isivande to other public corporation (IDC). These funds get depleted in the way because IDC would take its costs of managing the funds for Isivande notwithstanding that Isivande has to support SMMEs operated by women, which function resides in the Department.  
13. SEDA does contribute to some of government 12 outcomes though it was not specific, however it champions inclusive economic growth.
14. The formation of the new Department has opened opportunities for the staff to engage closer with the Minister on how to do things and the staff knows exactly what to do and the executives of the entity are working closely with those of the Department in terms of developing strategies.
15. On vacancy rate and culture change, the Committee learned that in the past, SEDA had different target which were not aligned to those of the Department, and the current target is 10%. Currently, SEDA is training people to be able to train others on business development. Poaching remains their biggest challenge because banks and other institutions take people from them at higher salaries.
16. The process of appointing a Chief Executive Officer is work in progress since it has come to a halt after the establishment of the new Department.
17. Foreign companies that get support from SEDA are those that are operating legally in South Africa. There is no support given to spaza shops, whether they are foreign or locally owned. The Minister has appointed a task team to look at how small local businesses can learn to operate smarter.
18. The Department have SAWEN, Isivande and Black Business Supplier Development Programme (BBSDP) with overlapping mandates and services offered. This arrangement creates an opportunity for double dipping of beneficiaries, whiles overlapping mandates makes it difficult to measure impact to each beneficiary for each programme. This creates duplication of resources.
19. The Department has planned to continue rolling out red-tape reduction guideline in 80 municipalities in 2015/16 financial year. It has been stated that it will be institutionalised in municipalities. This statement is concerning to the Committee since it will be first time the Department plans to roll out red-tape reduction guidelines.
20. There was no clear distinction between the definitions of upper end and Gazelle businesses.
21. The Strategic Plan for SEDA relates more on medium size enterprise whilst the Strategic Plan of SEFA is more on micro enterprise, therefore there is a mismatch of plans for these two critical institutions which are tasked for the development of SMMEs. This will indeed impact negatively in the development and promotion of SMMEs and hence thereby job creation, reduction of poverty and inequality.
22. Some of the programmes and entities that migrated to the Department are governed by legislations and policies that still reside in the previous departments for example the status of SEFA and its policy to use of intermediaries in wholesale lending.
23. The Strategic plans of the Department and entities showed fragmented approach which indicated that the Department did not concentrate on integrated planning but rather on implementation of plans as they were from the previous departments.
24. The Department does not have a research capacity.
25. There are too many funds with overlapping mandates that caused double dipping which makes it difficult to assess the impact on employment growth, poverty and inequality reductions.
26. Informal businesses are not adequately supported.

 

 

 

 

 

15.        Recommendations

Having considered the Strategic Plan, Annual Performance Plans and budget for the Department of Small Business Development and its entities, the Committee recommends as follows:

1. The Department should rethink its budget for Programme 1: Administration compared to the core functions of the Department such as Programme 2: Cooperative Development. A 20/80 ratio should be used whereby 20 percent be allocated for support functions and 80 percent to core functions.
2. The Committee still maintains that there should be a way of assessing the rate of return on investment and align that return on investment to targets set by the NDP, particularly the 90 percent of 11 million jobs more created through SMMEs and Cooperatives by 2030. Therefore, a progress and impact assessment tool would need to be developed so as to measure results against investment.
3. The Department must furnish the Committee with the status report on transversal agreements with other government institution within one month of the approval of this report.
4. The Department must submit a well costed Organogram to the Committee and prioritise the filling of critical vacant positions such as Director- General and Chief Financial Officer (CFO).
5. The Department, in particular the Gender Unit, should collaborate with the board of SAWEN in order to assess the impact of their programmes for women entrepreneurs with the objective of aligning SAWEN services to the mandate of the Department.
6. The Department should build in-house capacity to manage funds budgeted for Isivande so as to maximise value for money from the budget allocated to Isivande.
7. Both the Department of Small Business Development and Department of Economic Development should speedily resolve the technical migration of SEFA as per Cabinet Resolution.
8. The Department together with the board of SEFA should develop a funding model for SEFA that relates to the felt needs of SMMEs and Cooperatives in order to facilitate development, and not isolated projects that cannot survive without being complimented by value chain development.
9. The Department should use its transversal agreement mandate to assist SEFA to gain access to complimentary funding and support services for SMMEs and Cooperatives located in both the private and public sector.
10. The Department must work intensely with National Treasury to ensure that the budget allocation for SEFA is transferred from the Department of Economic Development to the Department of Small Business Development during the Budget Adjustment period.
11. The Department should ensure that SEFA allocates significant funds to tailor made programmes aiming at assisting the survivalist enterprises in graduating to formal economy.
12. The Department must investigate any hindrance that could delay SEFA and Isivande to fully account to the department, and deal with any of those hindrances accordingly. If for example it’s legislation, the Department should push amendments to such legislation.
13. The Department must expedite the appointment a Chief Executive Officer for SEDA to ensure that there is accountability in the use of resources allocated to SEDA.
14. SEDA must build its own capacity to eliminate usage of consultants that it used to service its clients-base. Moreover it must ensure that it employs staff that have a passion for development so as to prevent the high staff turnover as a result of them leaving for greener pastures.
15.  Development of an Enterprise Development Fund sourced from private sector fund would enhance existing activities of the Department.
16. The Department must expedite the establishment of Cooperative Development Agency as per Cooperatives Development Act 2005 as amended.
17. The Department should prioritise skills development in cooperatives through the establishment of Cooperatives Academy so that they can be capacitated to identify opportunities meant for them, for example, set asides.
18. The Department must speedily establish a Cooperative Bank that will give financial support to Cooperatives and thereby directly contribute to radical economic transformation
19. Each programme and fund, SAWEN, Isivande and BBSDP should have a specific target group whereby a longitudinal and vertical impact can be realised and measured. Furthermore, integrated use of resources should also be applicable to empowerment zones.
20. The Department should be clear on actions to be taken in ensuring that the guidelines of red-tape reduction are implemented.
21. The Department should define and begin to use the terminology that refers to the service and the programme rendered. A clear definition and a difference of absolute size of enterprise and gazelles should be given. Over and above, Key Performance Indicators should indicate and measure impact.
22. Each of the strategic plans for both SEDA and SEFA should be guided by the overall objectives of the NDP, economic growth and job creation targets.
23. The Department should bring all policies and legislation that relate to Small Business Development to Parliament as an Amended National Small Business Act.
24. The Department should ensure that it exercises its work of monitoring its entities; moreover there is a need for the Department to conduct an integrated planning session with all its entities for proper alignment to the mandate, the strategic and annual performance plans of the new Department.
25. The Department and its entities should strengthen their research capacity.
26. The Department should develop a strategy that would formalise the informal businesses and simplify their support services and incentives to make them easily accessible.
27. The Incubator Support Programme should be migrated from the Department of Trade and Industry to the Department of Small Business Development.
28. The Department should consider funding the Small Business Connect newspaper and website.

 

 

The report to be considered.