ATC151028: Budgetary Review and Recommendation Report of the Portfolio Committee on Small Business, dated 28 October 2015

Small Business Development

Budgetary Review and Recommendation Report of the Portfolio Committee on Small Business, dated 28 October 2015

The Portfolio Committee on Small Business (the Committee), having assessed the financial and non-financial performance of the Department of Small Business and its entities for the 2014/15 financial year, reports as follows:


  1. Introduction


For some years even before 1994, the end of the apartheid, the lives of the majority of ordinary South Africans especially blacks have relied on the Small Medium Micro Enterprises (SMMEs) sector peculiarly in informal sector. Their incomes and work have been secured in this sector. This sector shows the potential to reduce unemployment and poverty rates and fairer distribution of income. Hence thereof this sector has become a focal point for South Africa because of the critical and important role it is perceived to play for economic and social development.


Currently, South Africa is characterised by two economies, that is, first and second economies. Much of the informal sector falls under the second economy. The two economies are totally distinct from each other. The first economy is modern, integrated with global economy and possesses much of the country’s wealth. Whilst the second economy is underdeveloped, isolated from the first and global economies and contributes little to the country’s wealth. Meanwhile the majority of poor South Africans are concentrated in second economy in order to generate their incomes. In addition, Survey of Employers and Self Employed conducted by Statistics South Africa in 2013 revealed that about 69.2 percent of the participants in this sector participated because of unemployment. This means that the majority of unemployed national labour force is accounted for in this very informal sector to earn their living. Therefore, the informal sector is an important source of jobs for many groups.


Importantly, aside from creating jobs, there are other benefits accrued in expanding this sector through broadening the base of new and existing businesses, these include benefits such as the reduction of economic concentration, higher levels of competition, and increased opportunities for Broad Base Black Economic Empowerment. It is however that, there are real obstacles ( as identified in National Development Plan) to create an environment that can lead to the realisation of the afore-said benefits, these include  amongst others, policy environment that traditionally favours concentration and large corporations, and distortions created by apartheid in ownership and access to land, capital and skills for the majority of population. Thus, SMMEs and Cooperatives can also play a pivotal role in changing apartheid legacy patterns of business ownership.


It is against this background that the current government deems the development SMMEs and Cooperatives sectors as the panacea for employment, poverty reduction and fairer distribution of income, and to radically transform the economy as far as business ownership patterns are concerned.  To crystallise its commitment in the development of Small Business and Cooperative as a tool for radical economic transformation, the current government administration has established a dedicated department that will pursue such in July 2014 after the president signed the proclamation which established the Department of Small Business Development.


  1. Mandate of the Committee


The mandate of the Portfolio Committee on Small Business Development (the Committee) as derived from the Constitution is to maintain oversight over the Department of Small Business Development. The Committee executes its mandate by doing the following, to monitor the financial and non-financial performance of the Department and its entities to ensure that national objectives are met; to process and pass legislations; and to facilitate public participation relating to issues of oversight and legislation.


As an integral part of Committee oversight role, Section 5 of the Money Bills Amendment Procedure and Related Matters Act requires the National Assembly, through its committees, to annually assess the performance of each national department. A committee must submit a report of this assessment known as a Budgetary Review and Recommendation Report (BRRR).


1.2. Mandate of the Department


The mandate of the Department of Small Business and Development (the Department) is informed by the Resolution of the 53rd Congress of ANC, the 2014 ANC Election Manifesto. Furthermore, the mandate is derived from the different pieces of legislations and policies such as White Paper on National Strategy for the Development and Promotion of Small Business, National Small Business Act, Co-operatives Act and National Development Plan (NDP), the New Growth Path and the Industrial Policy Action Plan. Flowing from above, the Department is mandated to lead an integrated approach to the promotion and development of small businesses and cooperatives through a focus on the economic and legislative drivers that stimulate entrepreneurship to contribute to radical economic transformation.


1.3. Purpose of the Budget Review and Recommendation Report


The primary purpose of the BRRR is to annually assess the performance of the Department with reference to the medium term estimates of expenditure of the Department, its strategic priorities and measurable objectives, as tabled with the National Assembly with national budget, the expenditure report relating to the Department, in this case Quarter 1 and quarter 2 expenditure reports, and financial statements and annual report of the Department. Subsequently, the Committee is required to make recommendations on the forward use of resources to address the implementation of policy priorities and services as these may require additional, reduction or re-configuration of resources for the Department. Those recommendations have to be submitted to the Minister of Finance and the Minister of the Department of Small Business Development. This gives effect to Parliament’s constitutional powers to amend the budget in line with the fiscal framework.


It is worth noting to highlight in upfront that part of the information that is required to construct this BRRR is contained in the Department of Trade and Industry (DTI) documents such as Annual Report. Thus, both 2014/15 financial and non-financial performance of the Department has been reported in the Annual Report tabled by the Minister of DTI in conjunction with Minister of Small Business Development in September 2015. The motive behind is that this Department became an independent Vote during the 2015/16 financial year. As such its budget and performance were included in the DTI’s 2014/15 Budget and Annual Report tabled in Parliament in March 2014. However, Strategic Plan and Medium Term Estimates and half yearly expenditure will be used as the basis to construct this BRRR and inform efficient and effective forward use of resources.


1.4. Previous BRRR (recommendation and responses by the Ministers)


It should be noted that the Committee was established in July 2014 after the proclamation of the Department by the President. It therefore managed to construct its first BRRR for 2013/14 performance. Thus 2014 BRRR of the Committee recommended to the National Assembly that:


The Department of Small Business Development should be allocated all proposed funds.


Response from the Minister of Finance: The DSBD will receive funds amounting to over R3 billion in relations to the functions moving from the Department of Trade and Industry (cooperatives and small business). This is mostly comprised of transfers and other funds (compensation of employees and goods and services) associated with the function shift. The new department also receives an additional R 139 million over the 2015 MTEF to support its establishment.


There should be an Establishment of the DSBD as a separate vote and the allocation provided to the new department.


Response from the Minister of Finance:  The Department of Public Service and Administration issued a determination that functions related to small business and co-operatives will shift from the Department of Trade and Industry to the DSBD with effect from 1 October 2014. The National Treasury is in the process of engaging with the affected departments on the shifting of funds and on the proposed budget programme structures, including the creation of a separate vote.


The Department should consider reviewing its transfer payments to identify savings going forward.

Response from the Minister of Small Business Development: The Department is currently undertaking a review of all its programmes, including those that are funded through transfer payments.

The recommendations from this review exercise will guide the Department on the programmes that can be reconfigured or reprioritized. Subsequently, the outcomes of that process will lead to savings, since the Department will have to fund streamlined and more focused programmes.


There should be more resources to core-functional programmes of the Department


Response from the Minister of Small Business Development: The programme review exercise will guide the department in terms of proper allocation of resources. The programme review exercise will assist to determine the core-functional areas that the Department should focus on in order to address the felt needs of its target market. In so doing, the financial principle of funds follow functions will be used in order for the Department to allocate more funds in functional areas or programmes which will be deemed as core and should thus be prioritised


The Department should negotiate all necessary functions which aligned with the mandate of the Department which are still located in other Departments should be moved to the Department.

Response from the Minister of Small Business Development: The Department has commenced discussions with National Treasury with a view to identifying all the small business development functions that are still located in other departments. The Department brought the National Treasury on board as it is the national department responsible for coordinating intergovernmental financial relations, managing the budget preparation process and exercising control over the implementation of the annual national budget.

Additionally, the National Treasury has comprehensive knowledge and understanding of all small business-related functions located in other departments, and will conduct a proper assessment of all these functions so as to ascertain a suitable approach for alignment. The Department has commenced the process of engaging various government departments on this matter. In this regard, the Department is keen to ensure that the process of harmonising all the small business related functions under its umbrella is finalised so as to make certain that there is no duplication of functions between departments. Importantly, this harmonisation will make for better coordination across all three (3) spheres of government.


There is a need to conduct research on the needs of the target market (poor communities) in order to tailor-make and streamline the relevant support provisions that will respond positively in tackling the triple challenges of unemployment, poverty and inequality.

Response from the Minister of Small Business Development: The Department holds the same view regarding the need for the provision of relevant support mechanisms that will respond positively to addressing unemployment, poverty and inequality. This is in line with the implementation of the National Small Business Act, 1996, which prescribes the completion of the Annual Review of Small Business in South Africa which covers areas identified by the Minister or Director-General. In spite of that, the Department has targeted to harness existing research capabilities within other governmental departments and entities; review relevant research outputs on small businesses and co-operatives on an ongoing basis towards co-generating, collating and synthesising small business and cooperatives’ intelligence and whether the Department’s programmes (and the challenges that they are targeted at) are appropriately conceptualised, reviewed, adequately resourced, distributed and meaningfully redesigned towards their equitable and targeted response to the felt needs.

 The results of the aforesaid programme review will also assist to determine the most appropriate support measures derived from their felt needs perspective that should be implemented to provide small businesses with resources to render them more sustainable and competitive. 

There is a need for the Department to conduct a scientific study to assess the effectiveness and efficiency of the departmental entities and programmes migrated from the DTI in order to align them with the mandate of the Department.

Response from the Minister of Small Business Development: The Department is currently conducting a study to assess the effectiveness and efficiency of the current entities and programmes and is expected to be finalised during the month of November 2015. The scope of the review exercise will culminate in reports and recommendations on the upscaling and alignment of DSBD programmes, as well as an implementation plan to guide the execution of the recommendations. The scientific study is undertaken in two stages. The diagnostic stage aims to review the Department’s operating environment, internal structures and the existing support programmes.

The major tasks for this stage are the review of the external environment that SMMEs operate in; the department’s strategy, budget and operations, as well as the department’s current programmes and interventions. The design stage is geared towards formulating strategic recommendations on the optimal programme structure to deliver the department’s strategy. The tasks for the design stage entail producing reports on the review and alignment of current programmes; and developing a business case, an implementation plan and a communication plan to manage stakeholders.


There is a need to reconfigure Programme 4 in order to accommodate the Market Research Unit.

Response from the Minister of Small Business Development: Currently, the market research activity is being supported by the Market Access Support Unit. The aforesaid programme review exercise will provide the department with valuable information that will inform the refinement of the Department’s 5-year Strategic Plan, which will, in turn inform its structure going forward.

It is important to note that the review exercise will, as mentioned in the preceding paragraphs, provide findings and recommendations that will help to determine the most appropriate strategy, structure and systems that will enhance the Department’s support measures to the small business sector. 

It is worth noting that the 2013 DTI’s BRRR  recommended that the  National Assembly should request the Minister of Finance and Minister of DTI to ensure that the Co-operative Development Agency, the Broad-Based Black Economic Empowerment Commission, the Co-operative Tribunal, the National Trust Fund on Indigenous Knowledge, and the National Council on Indigenous Knowledge are adequately funded for the 2014/15 financial years and over the MTEF period to ensure that these bodies are able to fulfil their mandates. Up to date the Cooperative Development Agency and Cooperate Tribunal are not yet established due to unavailability of funds during this financial year. In view of that and the importance of operation of these institutions, the 2015 BRRR has to resuscitate this recommendation.


1.5. Methodology used in the formulation of this BRRR


This report is a culmination of interactions with different stakeholders that play a role in assessing the financial and non-financial performance of the Department such as briefing by Auditor-General on his opinion with regard to audit outcomes of the Department to mention but a few. In addition, lessons learnt from oversight visits, workshops, conferences, symposiums and engagements with stakeholders are used to assess the performance of the Department and its impact to service delivery, in this instance, the reduction of poverty and inequality and the creation of employment. Further, lessons learnt from aforesaid activities can be used to argue for the reduction or addition and/or reconfiguration of resources and departmental programmes.


Subsequently, this report has taken into consideration the best lessons learnt from the Committee interaction with institutions that provide support to SMMEs and Cooperatives since it was constituted in July 2014. In assessing the impact of both financial services and non-financial services to SMMEs and Cooperatives as well as the effectiveness of programmes which were designed by the DTI to develop SMMEs and Cooperatives, the Committee engaged with various organisations and individual SMMEs and Cooperatives. The purpose of that exercise was to get an understanding of the state of SMMEs and Cooperatives in South Africa and to allow the affected groups and individual SMMEs and Cooperatives to speak for themselves so that recommendations of the Committee on the BRRR could also take into consideration issues raised by SMMEs and Cooperatives from a felt need perspective.


In pursuit of its fact finding mission about the status of the SMMEs and Cooperatives’ development, this year, the Committee has interacted with various individual SMMEs and Co-operatives; institutions supporting SMME; government departments; private sector in particular retail sector. Thus, it is important to single out some few engagements which were critical that the Committee had this year and they are as follows:


1. 5 1. Interaction between the Committee and small businesses and cooperative


In February 2015, the Committee undertaken an oversight visit to KwaZulu Natal (KZN), Eastern Cape and Gauteng provinces. The Committee interacted with small businesses and cooperatives in these respective provinces. In KZN province, the Committee interacted with several small business owners and cooperatives, but for the purpose of this report a few selected interactions require to be singled out and are inter alia:


  • The Committee visited a 1000 square meter greenhouse project in Umbumbulu, a rural village under Inkosi Nathi Maphumulo in Vulamehlo Local Municipality. Vulamehlo is one of the six local municipalities that form Ugu District Municipality. Ugu District Municipality is one of the 27 Poverty Nodes prioritised for development in order to reduce poverty and create jobs. The project was initiated in 2012 by Kohwa Holdings (Kohwa). Kohwa is a private company whose mission is to develop agricultural small businesses in South Africa focusing mainly on poor rural areas so as to facilitate participation of poor rural communities in mainstream economy through agricultural small businesses.


In its presentation, Kohwa Holdings highlighted that the project has been operating for two years. It is a socio-economic development oriented project with features of food security, job creation, poverty reduction, rural development and skills development targeting people at community level who would be regarded as unemployable due to low education levels. Kohwa develops such people to Agribusinesses that would supply agricultural fresh produce to the multinational retail sector as well as the public sector market. Furthermore, the presentation highlighted that the project is currently supplying Spar and Fruit and Veg retailors in Pine Town. Kohwa reported that they had also approached Massmart and Pick n Pay to present the model to them with a view of influencing the retail sector to replace imported fresh produce products with locally produced products.


In spite of the above, Kohwa indicated that they are experiencing challenges in the operation of this projects. The challenges are ranging from an inadequate road to the project, lack of power supply, lack of a communication network and water supply. Further, Kohwa seeks the buy-in of the government to ensure access to land, funding and markets for the expansion of the project to entire country.

  • The Committee has also visited and interacted with Ezinqoleni Local Municipality Informal Traders and Street Vendors. In its engagements with these informal traders, the Committee interacted with individual informal traders and their representatives. One of the individual street trader that the Committee interacted with was Mr Dlamini, who is selling airtime, prepaid electricity vouchers, sweets and snacks. Mr Dlamini is a disabled person who decided to start his business in 2008 due to lack of employment opportunities for him. He operates his business in a 1m2 corrugated shack and a start-up finance came from his pension money. Furthermore, the Committee interacted with the representative of Ezinqoleni Local Municipality Informal Traders and Street Vendors.  The Committee was informed that they are experiencing challenges such as lack of proper infrastructure, lack of proper training in business management and access to finance. These are the very same sentiments echoed by the individual informal traders and vendors like Mr Dlamini.


Interestingly, when the Committee asked them about their knowledge of the existing institutions which are designed to provide financial and non-financial support to them, they had no clue of such institutions.


  • In its interaction with different small business owners and cooperatives such as individual tuck-shop owners in Gauteng province, in the areas of Dobsonville and Kagiso, they all raised similar challenges, namely, the lack of assistance and information that can enable them to access small business support programmes available from government of which the key challenge to them is access to finance and relevant business training. These challenges were also raised by the President of the South African Tuck-shops, Taverns, Small Enterprises and Vendors Association (SATTSEVA), Mr Thekiso Dikgale, the organisation which represents them.


  • In addition, the Committee visited and interacted with Sikhulile Jersey Cooperative which is situated in West Rand area and produces jerseys for surrounding schools. During the interaction with this Cooperative, the Manager of this Cooperative informed the Committee that they struggle to get raw material used to produce these school jerseys because they have to queue in long queues in order to get the raw materials. In some instances, they have to wait longer days and hours to get their order from the suppliers of raw materials. This impacts negatively in their business operations because they cannot timeously deliver to their clients.


In light of the above, the Manager indicated that it could be easier for them if they can have a control of raw materials. Hence therefore that he made a proposal of procuring the machinery which is used to produce the raw material they use to produce school jerseys. However, the only challenge that impedes the execution of such plan is lack of finance to procure the required machinery. If they can own such machinery that would mean that there will be no more delays in their production caused by the delays in the delivery of raw materials.


  • In June 2015, the Committee hosted the King of Midlands which is a secondary cooperatives which operates in in a taxi industry. This Cooperative had a good proposal to buy a garage whereby taxis could fill fuel. They also intended to buy a tyre fitment centre and spare service whereby their taxis could get spares to service and fix them. Importantly, they had a good business case because they identified the market and competitive advantage compared with other spare services. They informed the Committee that they presented their proposal from the Department of Trade and Industry and later assigned an official to assist them for funding application.  Apparently, they ended up paying an amount in the tune of around R270 000 for a consultation fees which excluded flights and accommodation to a consultant who was assigned to them by an official from the DTI who was assigned to assist them. Up to date they haven’t received any funding from the DTI and their business plan has covered with dust and what also pains them most is that the garage that they earmarked to buy has been sold to another buyer.


In a nutshell it is clear drawing from the afore-said interactions made by the Committee with affected groups and other interactions that are not mentioned in this the examples given above, that there are common challenges which re currently facing small businesses and co-operatives, and they are as follows:


  • Lack of access to market
  • Lack of access to finance
  • Very high interest rates charged by intermediaries that are used by the Development Financial Institutions (DFIs).
  • Poor infrastructure for businesses to operate from.
  • Lack of adequate support infrastructure such as roads, electricity, communication services, water and sanitation to enhance business operation.
  • High costs of doing business due to high travelling, rental and electricity costs.
  • Government Red Tape.
  • Fragmented support services offered by government that are also not easily accessible
  • Duplication of support services resulting with confusion at community level and competition between different departments of government and spheres of government.
  • Lack of adequate skills development and training programmes resulting with poor skills level in small businesses and cooperatives.
  • Non-payment of invoices within 30 days mainly by government departments and state owned companies.
  • Unfair competition posed by foreign nationals through a well-orchestrated measure of the township and rural economy take over as well as the infringement of by-laws which affects the operation of local SMMEs especially spaza shops.


It is worth noting that most of the challenges highlighted above are the same challenges identified in the National Development Plan (NDP).


1.5.2 Interaction between the Committee and other institutions that play role in the support provision for small businesses and cooperatives.


The Committee has interacted primarily with Ithala Bank and the Small Enterprise Finance Agency (SEFA). The motive for the interaction with Ithala Bank was to learn its model since there were good reports on how it managed to strike a good balance between disbursing of funds (increasing loan book) and debt collection. This was viewed as critical because more small business owners and cooperatives in the KZN province were able to access finance from Ithala Bank and later repay such loans. Thus, it was interesting to learn their model with the aim of comparing it with other Development Finance Institutions (DFIs) so that the Committee can learn the best possible lessons which can be shared with other DFIs with regard to financial support to small businesses and cooperatives. On the other hand, the Committee engaged with Small Enterprise Finance Agency (SEFA) for the purpose of understanding their model and progress in the financial provision to small businesses and cooperatives. Out of the two interactions that took place between the Committee and the SEFA, it was evident that their model is not supporting the development course of small businesses and cooperatives, for example, through its wholesale lending, SEFA uses the intermediaries which charge interest between 40 percent and 110 percent to the end user (small businesses and cooperatives). In addition, SEFA’s risk model was found to be not developmental in nature because it considers the very same prescripts required by the commercial requirements such as mortgage bond and sound financial statements.


Further, during the process of constructing a Budget Vote Report for 2015, the Committee interacted with the Industrial Development Corporation (IDC) which manages funds for Isivande Women’s Fund, an initiative of the Department of Small Business Development which has been migrated from the Department of Trade and Industry. Its objectives are to invest in businesses based in South Africa which are owned and managed by women; and build and develop women-owned businesses. In its presentation, it was highlighted that one of the funding criteria is the requirement that a business which applies must be commercially viable. Then, by virtue of this requirement, it excludes most of the small businesses owners and cooperatives that are women since most of them will not be able meet this requirement.


It is therefore against this background that resulted the Committee decided to converge a workshop in an attempt to assess the relevance of financial instruments used by DFIs to provide finance to small businesses and co-operatives in July 2015. Consequently, amongst others, the Committee observed the following from that deliberations of that workshop:


  1. There is a mismatch of products provided by DFIs and what is required by their clients.  This was evident when some of the presenters referred to them as roadblocks to achieving their objectives in terms access to funding. Furthermore, some of the presenters expressed shock about the products offered by these DFIs based on their previous failure to support and guide them as per their needs, hence the analogy of a relationship between parent and a child was used.


  1. There is lack of clarity of information on the requirements and products that are offered by DFIs.  It was observed from the presentations made by SMMEs and Cooperatives that there are no known standardised requirements whereby SMMEs and Cooperatives could preliminary assess themselves whether they meet such requirements before submitting the application. Moreover, it was realised that the requirements would constantly change as applications get processed. On the other hand, there is lack of availability of information to guide the applicants on which relevant DFIs have to be approached/ contacted for certain products. In most cases, they get to realise that they could have sought assistance elsewhere, which makes them feel that their time gets wasted due to lack of clarified services offered. For example, if an applicant requires more that R5miilion from SEFA, she/he will be advised to instead approach the IDC because told that SEFA doesn’t grant funding of more than R5miilion from its Direct Lending.


  1. The requirements required by DFIs automatically exclude their clients from accessing finance. In most cases one of the requirements by DFIs from their clients is to submit physical addresses, which understandable made to comply with National Credit Act. However, this requirement excludes most of micro-enterprises and survivalist enterprises which in mostly operated by people living in informal settlement and operate them for income generation purposes since they are not employed. In addition, the DFIs normally require that the business must be in operation for a period of between six months and a year and should show financial sustainability. This requirement is worrisome because it excludes people that intended to start their businesses in terms of accessing capital.


  1. The budget allocated to these DFIs decreases on a year to year basis. Most of the DFIs presented like the NDA, RHL (Rural Housing Loan) and NEF raised their concerns about the perpetual decreasing of their budget allocation. This is an element which threatens their survival and performance since they will no longer achieve their targets as planned.



Importantly, the Committee also invited the Mr Oskar Goitia the Chairperson of Mondragon to the workshop that held to assess the relevance of financial instruments used to provide financial support to SMMEs and Co-operatives. The purpose of inviting Mondragon was to learn best lessons from the model of Mondragon for Co-operative development. Subsequently, the following observations were observed by the Committee:

  • Importance to establish a Co-operative bank in order to mobilise funds for Co-operatives instead of self-reliant on government funding. In South Africa, grounds are conducive for the implementation of Co-operative Bank because there is a similar structure to that of Co-operatives Bank which has been operating without being regulated, that is, Stokvels.
  • The establishment of vocational training for Co-operatives in order to gain relevant and necessary skills required to run an effective and successful Co-operatives.


Furthermore, in order to deal with other challenges as mentioned in above (mostly in sub-section 5.1.1), the Committee has interacted with the government departments such as the Department of Correctional Services, Department of Basic Education, Department of Defence and Military Veterans, the Department of Social Development, the Department of Water and Sanitation, the Department of Transport, and the Departments of Energy and Telecommunication. The purpose for these interactions were mainly to unlock market access for SMMEs and Cooperatives, to create an adequate support infrastructure such as roads, electricity, communication services, water and sanitation to enhance business operation. Over and above this, the Committee interacted with the Fast Moving Consumer Goods (FMCG) as well as the retail sector, companies such as Pick n Pay, Mass Mart, Tiger Brands and Woolworths in its endeavours to assist SMMEs and Cooperatives to have access to markets for their goods and services. Following such interaction, retailors raised some critical issues which are as follows:

  • That they spend about R77b on fresh produce procurement per year. 70% of that is on imported, 30% is locally procured and between 2% and 2.5% is procured from SMMES and Cooperatives  owned by black from poverty nodes in rural  areas and townships.


  • The retail sector shows willingness in adhering to the 30% policy of procurement of goods from SMMEs and Cooperatives provided such SMMEs and Cooperatives are well coordinated and managed in order to meet the standard of quality in terms of goods supplied as well as the demand of the private sector in terms of volumes and quantity.


  • The support given to SMMEs and Cooperatives does not match the needs of the retail sector creating an imbalance between supply and demand.


  • The Department of Small Business Development as well as SMMEs and Cooperatives do not engage the retail sector to understand what products are needed by the retail sector before embarking on production. Instead they produce what they think is needed by the retail sector and then approach the retail sector to sell products that are not necessarily demanded by customers of the retail sector. The retail sector raised a need for both the Department of Small Business as well as SMMEs and Cooperatives to conduct a market research and engage with the retail sector that the supplier development process should relate to the demands of customers who buy goods from the retail sector as the retail sector is not the end user of the goods they buy.


  • The retail sector also raised their concerns about the funding criteria of DFIs which does not help the SMMEs and Cooperatives to meet the demands of the retail sector in terms of tons required by the retail sector and the capacity of suppliers. In other words the funding that is provided by DFIs to SMMEs and Cooperatives is not informed by the buying capacity of the retail sector, the DFIs decide on the maximum loan for SMMEs and Cooperatives as a one size fits all.


  • The private sector also showed willingness to implement the 70% local procurement policy which is aimed at replacing imported goods with locally produced goods. They however highlighted that this policy needs a paradigm shift on support services provided to SMMEs and Cooperatives by government and financial institutes with the aim of building their capacity for them to take advantage of this policy which opens access to the market.


  • The turnaround time in processing applications for funding by DFIs is too long as well as uncoordinated services provided by the Department of Small Business and its entities results with cancellation of contracts awarded by the retail sector to SMMEs and Cooperatives.

Lastly, the Committee adopted the Strategic Plan of the Department in June 2015. The adopted Strategic Plan is better aligned to the mandate of the Department as compared to the one submitted by the Department in February 2015. In the process, the Committee managed to strategically guided the Department through robust constructive debate that culminated to a more streamlined and aligned Strategic Plan.


The limitation of this report is that it has not prudently been able to look backwards as it was supposed to do so due to lack of available information. This is due to the fact that the Department was formed through the transfer of Programme: Broadening Participation from the DTI. The available information with regard to that Programme is insufficient for the purpose of this report since this report considers a wide variety of information available to a fully established Department.


1.5. Outline of the report


This BRRR consists of six sections. Section 1 briefly overviews the mandate of the Committee and the Department, the purpose of this report and the methodology followed in preparing for this report, as well as the limitations of the report.


Section 2 sets out the key policy focus areas for the Department. This includes an overview of the relevant national priorities as emanated from government policies and plans such as the National Development Plan, the Medium Term Strategic Framework (MTSF) and the State of Nation Address which the Department has to contribute in achieving them. Thereafter, an overview of the strategic plan will be highlighted with the aim of assessing on whether or not addresses the broader government priorities and plans emanated from the afore-said policies and plans.


Section 3 assesses the Department’s financial performance against its allocation. Firstly, a comparison of the Department budget and the actual expenditure as at 31 September 2015 will be assessed. Lastly, it considers the 2015/16 MTEF programme allocation in terms of the economic classification and per sub-programme.


Section 4, deals with the review of the Departmental entities, whereby the concentration is given to the review of 2014/15 financial and non-financial performance.


Section 5 of the report discusses the Committee perspective with regard to the strategic plan of the Department in terms of their mandates, strategic objectives and core issues previously identified by the Committee. In addition, the financial and non-financial performance and their additional forward-looking budgetary and/or performance requirements are assessed. This section is divided into governance and funding.


Section 6 the report draws recommendations based on the deliberations informed by the assessment of the Department in each of the sections discussed above. These recommendations are categorised into two: Funding recommendations and Governance related recommendations.


  1. Overview of the Strategic and Operational environment


The plans and objectives of the Department are determined largely by the environment in which it operates. In this case, the environment in which the Department operates has been enabled by active policies and plans that the current government has adopted since taking offices in May 2014. The NDP has been adopted as the guiding and living policy document as per the current government planning. Hence therefore, government plans and strategies have to be aligned with the NDP. Thus, all strategic plans and annual performance plans of organs of the state have to be streamlined to align with the broader government plans (NDP and MTSF). These plans and strategies are annually reviewed during the State of Nation Address, whereby the Departments and their entities are expected to align their annual performance plans. Flowing from this, the next paragraphs will focus on policy areas from the NDP that are relevant to the Department.


  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.

The NDP has highlighted a number of key issues which relate to the Mandate of the Department, and they are inter alia:


Economic transformation:  This means the broadening of opportunities for all South Africans, particularly for previous historical disadvantage people. In order to realise this, there is a need for increasing employment, reducing poverty and inequality, and raising the standard of living and education through broadening ownership and control of capital accumulation; and equity in ownership of assets, income distribution as well as access to management, professions and skilled jobs.


Amongst other possible solutions proposed in the NDP to transform ownership of the economy, is the creation of an enabling environment for small micro and medium enterprises and entrepreneurs to thrive. This includes inculcating the spirit of entrepreneurship in schools, lowering the cost of doing business in the economy, and reducing barriers to entry in various value chains.


Small businesses support job creation and redress skewed ownership: It is postulated that small businesses will play an essential role in employment creation. This is due to their buoyance in job creation in the period between 1998 and 2005, claiming about 60 percent of jobs created in the very same period. It is further projected that the share of SMMEs output will grow substantially by 2030. Other than creating employment and contributing to economic growth, SMMEs will play a key role in redressing the distortions created by apartheid in ownership and access to land, capital and skills for the majority of the South Africans.


The above explanation clearly shows the important role that can be played by small businesses in tackling the triple challenges of unemployment, poverty and inequality in our country. It is therefore in that spirit that the NDP proposed key support measures to small business development which are:


Public and private procurement: It is proposed that the government must make government procurement opportunities more accessible to small businesses, streamline tender processes so as to improve transparency and get rid of corruption; this has to be accompanied by the commitment to 30 day payment to smaller suppliers. Moreover, there is a need to leverage the Local Procurement Accord to promote stronger buyer-supplier relations and deeper localisation.


Regulatory environment: a comprehensive regulatory review for small businesses to assess whether special conditions are required. This includes regulations in relation to business registration, tax, labour and local government.


Access to debt and equity finance: This has to do with examining the role of the state in easing access to finance to start-ups and emerging businesses. A risk-sharing agreement should be created as start-ups are particularly in need of financial support and are least able to access it. Moreover, there is an urgent need to consider to reform the mandates and operations of the DFIs in line with initiatives already undertaken, and upgrade the skills of those providing business advice and services. Furthermore, there is a need to explore the role of venture capital.


Small business support services: There is a need to consolidate, strengthen and streamline these support services. The size of the business, its geographical location and the sector in which it operates will determine the kind of assistance, needs and support interventions required.  Thus, support interventions should be subdivided, based on whether small firms are start-ups or multiple start-ups; survivalist businesses, high growth businesses, very high potential or high impact businesses; and new industries or new technology businesses.


Enterprises with highest potential are those who have previously started businesses successfully, then the state will have to create strong markets for such businesses to buy and sell, thereby making it simpler to start more of those businesses. This group of entrepreneurs is a great target market for an incentive system. In addition, another requiring focus is on those entrepreneurs who have failed before. This is due to the fact that they will potentially find it difficult to start businesses again as credit access and so on becomes challenging. Thus, this clearly shows that the government must change its one- size fits-all support programmes.

Further, public-private partnerships have to be considered, where the private sector is incentivised to provide small businesses with support and with increased payment contingent upon success (incubation).


Address the skills gap: by providing training for school leavers and unemployed youth with a focus on skills development; develop skills for students currently in school with focus on grooming an entrepreneurship attitude; and promote skills development for new sectors with a focus on high-technology skills advancement.


  1. Medium Term Strategic Framework (MTSF)


Following the adoption of the NDP, the 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. Since May 2014 elections, the MTSF has been aligned to the national governing party’s election manifesto. The MTSF is the result of an intensive planning process involving all three spheres of government. It provides a framework for prioritising and sequencing government programmes and development initiatives for the next five years.

Importantly, the NDP provides the framework for achieving the radical socio-economic agenda set out in the governing party’s election manifesto. It recognises the need for a capable and developmental state, a thriving business sector and strong civil society institutions with shared and complementary responsibilities. It identifies decent work, education and the capacity of the state as particularly important priorities. It also highlights the need to improve the quality of administration of many government activities.


Thus, for the next five years, the MTSF has identified some priorities aimed at achieving radical socio economic transformation through decent 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 areas 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 needs to ensure that historically excluded and vulnerable groups, in particular the youth and black women, have increased access to economic opportunities. The 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. The 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


  1.  State of 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. In order to enable this policy pronouncement, the Committee resolved in one of its meetings that the Department should ensure that this policy is implemented. As such, the Department has identified some impediments to effective implementation of this policy. One of the major impediments identified was the Preferential Procurement Policy Framework Act (PPPFA) because of its requirement of 80: 20 potentially excludes the participation of thriving SMMEs and Cooperatives in public procurement and also disregards the development agenda of this country.


Subsequently, the Department had numerous engagements with the National Treasury to enable the implementation of this policy. These engagements have culminated to the proposed amendment of PPPFA Regulations of 2011 to change weights that will accommodate the 30 percent set-aside state procurement for SMMES and Co-operatives. Importantly, in August, the National Treasury published the Draft PPPFA Regulations of 2015, which proposed a 50/50 ratio of price to BBBEE rating for public comments. It became clear from organisations that commented including some opposition political parties, that this Draft PPPFA Regulations was not welcomed. As such, in order to circumvent unnecessary litigations, the National Treasury decided to withdraw the Draft PPPFA Regulations of 2015. After, the National Treasury received a state law advice, they resolved to pass a Procurement Bill which the first draft is expected by December 2015 and thereafter be processed next year. The primary objective of this proposed Procurement Bill is to repeal the current PPPFA and thus make it possible for the implementation of 30 percent se-aside procurement policy to SMMEs and Cooperatives.


Importantly, on the other hand there is an existence of policy known as 75 percent Local Content Policy which can be complemented with the one above. 75 percent Local Content Policy seeks to enforce all the companies participating in tender process to have outputs produced using 75 percent of local material. Currently, this policy is championed by the DTI. In its implementation, this policy has manifested some challenges. The noticeable challenge was when the Department of Energy made the low-pressure solar water geyser a “designated product” under government procurement process. It ruled out that both tank and collector tubes, which absorb the sun’s radiation to heat the water, must each have 75 percent local content. Due to the fact that there was no existence of local tube manufactures, companies could not qualify under the government procurement rules. In line with that, those companies that bided complained that they have looked into setting up tube factories but they couldn’t compete with the low costs of China. What transpired out of this exercise was the reliance of SMMEs on other partners to import raw materials to be assembled locally.


Flowing from the above, the Department through its Supplier Development Programme prepares SMMEs to be ready to compete and comply with government procurement rules of the 75 percent local content.

  1.  Outcome 4: Decent employment through inclusive growth


The NDP provides a long term vision through 2030 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.


  1.  Strategic Plan of the Department


During the 2014 BRRR process, the Department presented its first Draft Strategic Plan for 2014-2019. The Draft Strategic Plan highlighted strategic objectives of the Department for the period concerned and targets for each year going forward. It is worth noting that during the Committee deliberations with regard to the submitted Draft Strategic Plan in October 2014, the Committee commended the strategic plan of the Department. The Strategic objectives proposed in the Departmental Strategic Plan have been found to be aligned with the mandate, vision and mission statement of the Department. In addition, the strategic objectives are set to achieve the focus policy areas relevant to the Department. Furthermore, the strategic plans in the form of set targets and outcomes were found to be aligned to the strategic objectives of the Department. Lastly, the proposed resources to fund the execution of strategic plans were aligned to the set targets, however, there were still some gaps with regard to understanding the needs of the target market in order to determine the relevant support provision. Consequently, in May 2015, during the Budget Vote Report process, the Department submitted a Final Draft Strategic Plan which incorporated concerns raised by the Committee in October 2014. As such the Final Draft was adopted by the Committee. 


The adopted Strategic Plan highlighted the strategic objectives of the Department for the 2014-2019 period and targets for each year going forward. The strategic objectives are informed by the government strategic sector or cluster priorities as derived from the MTSF, focus sector policy areas emanating from policy documents such as NDP and situational analysis of the sector. Strategic objectives should state clearly what the government institution/department intends doing (or producing) to achieve its strategic outcomes oriented goals which are aligned to the vision, mission and mandate of the Department. The objectives should generally be stated in the form of an output statement, although in exceptional circumstances government institutions might specify them in relation to inputs and activities or outcomes. Each objective should be written as a performance statement that is SMART and must set a performance target the institution can achieve by the end of the period (Five years) of the Strategic Plan. Nonetheless, the Department has flagged the following as its strategic objectives:

  • 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.
  • To facilitate radical economic transformation through increased participation of small businesses and cooperatives in the mainstream economy.
  • 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.
  • 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.


It is envisaged that once the Department achieves the afore-said strategic objectives, it will then be achieving the ultimate outcome which is to better the lives of the people. As such, the Department aims to achieve the following outcomes in order to attain the ultimate outcomes:

  • Increased contribution to Growth Domestic Product (GDP), sustainable livelihoods and creation of job opportunities.
  • Increased participation of SMMEs and Co-operatives in the mainstream of the economy.
  • Simplified regulatory environment to promote competitiveness and market access.
  • Increased participation of role players to support SMMEs and Co-operatives development


It should be noted that in the Draft Strategic Plan submitted by the Department during the 2014 BRRR, the Department had five (5) programmes which included, Programme 1: Administration, Programme 2: Customised Intervention Programmes, Programme 3: Co-operatives, Programme 4: Research , Policy and intergovernmental, Programme 5: Enterprise Development and Entrepreneurship. The adopted strategic plan of the Department only has three (3) programmes. The motive behind the reduction of the programmes is due to the fact that during the 2014 BRRR process the Department had submitted a proposed structure that comprised of the five (5) divisions of which the Department of Public Services and Admiration (DPSA) approved a start-up structure which constitutes of only three (3) divisions in March 2015. As a result, the Department has to reconfigure itself with the approved structure.


The Department has the following three (3) programmes:


  • Programme 1: Administration- The purpose of this programme is to provide a strategic leadership to the department and its entities to ensure the successful implementation of the department’s mandate through sustainable and integrated resource solutions and services that are customer-driven. This programme comprises of support services to the Department which include, the Ministry, Office of the Director-General, Cluster Oversight and Strategic Planning, Corporate Services, Financial Management and Communication and Marketing.


  • Programme 2: Co-operative  Support and Development: The key focus  of this programme 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. This programme constitutes sub-programmes which include, Primary Cooperative Development, Incubation support programme, Cooperatives Supplier Development Programme, Intergovernmental relations and market development and Research, planning monitoring and evaluation.


  • Programme 3: Enterprise Development and Entrepreneurship- The purpose of this Programme is to create an enabling environment and growth of sustainable small businesses so that they contribute to the creation of employment and economic growth. This programme is constituted Enterprise Development, Entrepreneurship and Franchising, Incentive, grants and soft loans, regional industrial special projects, Gender, youth and people with disabilities and National Informal Business Upliftment Strategy Sub-programmes.


Flowing from the above, an analysis of whether the strategic objectives addressed sector priorities, sector policy focus areas and sector situational analysis; and whether in overall, the strategic plan is aligned to the Departmental vision, mission and mandate  will be dealt with on the section which deals with Committee Observations (Section 5). Furthermore, a review of the departmental performance based on the performance reported in the Annual Report and other documents will be given in the very same section. Subsequently, areas which the Committee felt were omitted or unnecessary, duplicated, irrelevant will be highlighted with the aim of drawing recommendations.

  1. Financial Performance Assessment and Service delivery performance


It was alluded in the introduction that the Department was officially established in July 2014 following the signing of Proclamation by President. Immediately after its establishment, the Broadening Participation Programme of DTI was migrated to the new Department to pursue its planned programmes under the auspices of the new Department. Importantly, not all the sub-sub programmes which constituted Broadening Participation Programme migrated to form the Department, other sub-sub programmes such as Broad- Base Black Economic Empowerment (BBE), Support Programme for Industrial Innovation(SPII), Incubation and Technology and Human Resources for Industry Programme (THRIP) are still residing within the DTI. Only the Enterprise Development sub programme migrated to the Department in its entirety. Thus, the budget for 2014/15 is extracted from the R1.1 billion appropriated for the Broadening Participation Programme of the DTI tabled during the 2014/15  National Budget.

It is worth noting that instead of dwelling much on reviewing the financial performance of the Department, much of the time will be spent on unpacking the funding proposal for the Department. The financial performance assessment will only focus on the 2014/15 financial year and the first two quarters of this financial year, whereby the Department has become a standalone vote. Thus, the following table will unpack on the Departmental financial performance for the 2014/15 financial year and the first two quarters of the 2015/16 financial year.


3.1. 2014/15 Financial Performance and 2015/ 16 Quarterly Financial Performance


Table 1: Overview of Vote allocation and spending for the period 2014/15 2015/16













Quarter 1

Quarter 2













11 330

45 030

27 134

27 076

24 943


9 433

27 076

24 943

Co-operative  Support and Development

11 922

11 922

10 179

15 188

3 724


2 554

7 946

5 697

Enterprise Development and Entrepreneurship

1 076 768

1 076 768

1 063 475

1 023 975

294 131


208 298

568 068

517 078



1 100 020

1 133 720

1 100 788

1 103 188

311 075


220 285

603 090

547 718





For the 2014/15 financial year, Table 1 reveals that the department has received an allocated budget of R1.1 billion at the beginning of financial year. During the adjustment budget period in October 2014, the Department received an additional budget of R33.7 million, which then translated into R1.133 billion. At the end of 2015/15 financial year, the Department has spent R1.100 billion, translated to under-spending of R32 9 million or about 3 percent. This under expenditure was due to a very low spending in the Administration Programme owing to unfilled critical position.


Furthermore, the above table reveals that for the for the 2015/16 financial year, the Department has received an allocation of R1.1 billion. For Quarter 1 (Q1), the Department planned to spent R311 million (28.2percent) of its allocation for 2015/16 financial year. At the end of Q1 the Department has only managed to spend 20 percent which means that it underspent by 8.2 percent from its funds budgeted to spend in the Q1. The most contributing programme to this under expenditure is the Co-operative Support and Development which underspent by about 22 percent. The reason behind this low spending in this programme is due to the inability of the Department to assist the 214 Primary co-operatives that were targeted to receive funding, training and access to markets which the Department targeted for Q1, instead the Department managed to assist 53 Primary Co-operatives in this regard. The inability of the Department to achieve it set target for Q1 is attributed to the fact that the new Co-operative Incentive Scheme (CIS) Adjudication Committee was appointed late in Q1 as such it couldn’t process any application.


By the end of the second quarter (Q2), the Department planned to spend R603 million (54.7 percent) of R1.1 billion budgeted for the 2014/15 financial year. At the end of Q2, Table 1 reveals that the Department has only spent R548 million which is the 49.6 percent of the R1.1 billion budgeted for 2015/16 financial year.  This reflects a total underspending of about 5 percent. The overall underspending of 5 percent is still due to low spending in the Programme: Co-operative Support and Development.


It is worth noting to that the R548 million (49.6 ) spent at the end of the second quarter was spent to amongst others, the department has successfully managed to link and integrate to market value chains almost 20 Primary Co-operatives in Limpopo and KZN provinces of which 13 Secondary C-operatives were supported; 2553 SMMEs were supported compared to the 2 174 SMMEs that were targeted to be supported at the end of Q2; and 10 events, 11 outreach programmes and 2 exhibitions were conducted compared to 2 events, 4 outreach programmes and 2 exhibitions that were targeted under this period reviewed-this overachievement can be attributed to the fact the Department is regularly invited by other government departments to their events to present on its functions.

Importantly, the over-arching challenge that led to the poor spending and under achievement by the Department to date is the lack of capacity. This is due to the fact that most of the critical and senior positions are still vacant. This means that the Department doesn’t have executive management which is the layer of management responsible to driving the performance of the Department. This puts the Department at a risk of not achieving good audit outcomes owing to governance in particular. This has been echoed by the presentation the Committee received from the South African supreme audit institution (Auditor-General of South Africa) which indicated that factors such as the delay to fill vacancies in the Senior Management such as Chief Financial Officer (CFO) and the Head of Supply Chain Management (SCM), vacant position of an Internal Audit and the delay in the appointment of Audit Committee members have a potential of resulting to a regress audit outcomes in the next audit period.


  1. Funding Proposal for 2016/17 MTEF


Table 2: Proposed funding for 2016/17 MTEF


Economic Classification











Compensation of Employees

114 806

122 225

129 315

Goods and services

59 131

59 761

63 227

Machinery and equipment

2 220

1 284

1 357

Transfer payments

949 029

1 074 113

1 136 412


481 495

583 197

617 022

     SEDA Technology Programme

139 187

146 146

154 622


9 222

9 689

10 251


19 125

20 081

21 246


225 000

236 250

249 953

    Co-Operatives Incentive Scheme

75 000

78 750

83 318


1 125 186

1 257 383

1 330 311


The Department has proposed an allocation of R3.7 billion over the 2016/17 MTEF which is due to the propose allocation of R1.1 billion (2015/16), R1.3 billion (2016/17) and R1.3 billion (2017/18). Over the 2016/17 MTEF, about 85 percent of the proposed budget of R3.7 billion will be transferred to departmental entities and the remaining chunk of the proposed budget (about 10 percent) will be used to pay salaries in the form of compensation of employees.  SEDA and BBSDP are expected to receive the majority of budget of the proposed allocated budget for the Department. Thus, it is clear from the above explanation that the majority of proposed funds will be channelled to the departmental entities which they render services on behalf of the Department in order to achieve its mandate.


For this current year and over the 2016/17 MTEF, with the current baselines from the 2015 National Budget, the Department has reported that it is currently operating under the risk that threatens the achievement of its set targets. Importantly, non-achievement of the set targets will mean that the country will not be able to achieve the 11 million jobs expected from SMMEs and Co-operatives by 2030, poverty and inequality will not be reduced, subsequently, these three challenges will persist to plague the plight of the majority of South Africans. In view of the above, the Department has listed the following risks which couldn’t be funded through the reprioritisation of budget baseline:


  1. In mindful of the fact that the Department was established through the migration of functions from the DTI, this has resulted in the public to continue approaching the DTI for some of the functions that were migrated and currently provided by the Department. The Department is utilising other government departments events to communicate its mandate and services to the public which is not an effective platform to communicate with the SMMEs. The Department is also in the process of reviewing its programme to ensure that they assist small businesses to drive radical economic transformation. This up scaled programmes will have to be communicated to the sector and that will be impossible to do without marketing budget.  


To mitigate the risk above the department will need the following human resources:

      Public Liaison and Presidential Hotline Management,  DSBD Customer Call Centre, Media Relations, Internal communication, Content Development and Management, Webmaster, Events and Marketing, Management Support and Design services.


The total estimated budget over the MTEF R10 778 916.84


The Department will also need operational budget to cover the following:


Production of branding materials, Printing of leaflets, pamphlets, booklets and publications about department’s services and programmes, media networking sessions, Advertisements/Advertorials on department’s services and events, Outside broadcasts, Corporate video, Video capturing of departmental events, community media support, Radio and television documentaries, Independent media monitoring; Communication research and Quarterly external newsletter


The total estimated budget over the MTEF R16 000 000


  1. The establishment of the Department, necessitates the need for the revision of the current legal framework in order to identify the role of the new ministry and its relationship with the relevant SMME support institutions across all spheres of government. Some of the issues that will be covered by the comprehensive review include definition of small businesses, Review of the schedule / Sectorial classification, Provide focus on the Informal Economy, Relook the role and make-up of the Small Business Advisory Council as well as support institutions.

Concerning with the current budget limitations, the department will not be able to embark on a full review and currently is dependent on the contributions of the Provinces to conduct these consultations.


The total estimated budget over the MTEF R5 000 000-00


  1. One of the identified key causes of high failure rate of cooperatives is lack of market access and thus, the Department is in the process of negotiating transversal agreements that will enable Cooperatives and SMMEs to take advantage of procurement opportunities from both the public and private sector. Currently, the Department does not have a dependable profile of the market for Cooperatives and SMMEs and a reliable database of cooperatives that can be linked to existing market opportunities. Market Access Support Unit will need human resource capacity that will enable the unit to conduct market research, identify market opportunities and negotiate transversal agreements. Therefore, there will be a need for a budget to fund for the following activities: Personnel, Market Research, Database development, and Domestic and International trade missions/exhibitions.


The total estimated budget over the MTEF R 10 000 000-00


  1. The other identified cause of Cooperative high failure is lack of access to market and cost reduction that comes with economies of scale and scope. The development of secondary cooperatives provides requisite support to primary cooperatives, which contributes to their sustainability and ensure that they in return contribute to employment creation and poverty reduction. Failure to fund the programme will hamper such progress and stunt the growth of primary cooperatives and their sustainability. 


The total estimated budget over the MTEF R360 000 000-00


Flowing from the above, the next important step is to get an understanding of how the proposed budget to be allocated in the departmental programmes and what are those budget line items that share significant amount per programme level. Furthermore, it is important to find out on what will be purchased by the proposed budget over the 2016/17 MTEF. Thus, the following subsection attempts to respond on the questions posed above with the purpose of detecting whether the purchases of the proposed line items will achieve the set targets and thereby the objectives of the Department.


  1. Allocation per programme level

Table 2: Proposed allocation on programme level









66 587

69 143

73 154

208 884

Cooperatives Support and Development

16 066

16 714

17 683

50 463

Enterprise Development and Entrepreneurship

1 042 533

1 171 526

1 239 474

3 453 533


1 125 186

1 257 383

1 330 311

3 712 880


Table 2 shows that Programme 1: Administration is proposed to receive a budget of R209 million over the MTEF. Over the financial years of MTEF, the programme is budgeted to receive an amount of R67 million (2016/17), R69 million (2017/18) and R73 million (2018/19). Further, this programme is expected to share about 5.6 percent of the proposed total allocation of budget for the Department over the 2016/17 MTEF. Part of the proposed budget for this programme will be used to secure an accommodation for the Department. Currently, the Department is accommodated within the DTI and pays a monthly rental of R 390 000 or about R4.7 million per annum. Following intensive search for accommodation, the DTI promised the Department to make space available  in 2n and 3rd floor of its Block G building with an estimated annual rental of R 15 million for the 2015/16 financial year,  R16 Million and R17 million for 2017/18 and 2018/19 financial years respectively.  Furthermore, some part of the proposed budget will be used to install an independent Information Communication Technology (ICT) for the Department. This include the procurement of ICT, ICT services licensing and consumables. Lastly, the proposed budget under this programme will be used to fill critical positions in this programme, which include the position of Chief Director in Marketing and Communication which is currently unfunded. This position is envisaged to discharge its functions in areas such as media relations, marketing and branding, events, co-ordination, internal communication, website management, design, language and editing, services, call centre management, speechwriting and communication research, and content development.


Programme 2: Co-operatives Support and Development is proposing to get an allocated budget of R50 million over the 2016/17 MTEF. This will constitute a budgeted amount of R16 million (2016/17), R16.7 million (2017/18) and R17.6 million (2018/19). The overall budget of R50 million set to be allocated to this programme will only represent an insignificant percentage of 1.4 percent. This means that the support and development of Co-operatives function will receive 1.4 percent share of the total budget of R3.7 billion over the MTEF. The proposed budget is set to fund the Supplier Development for Co-operatives- which is a programme designed to increase the competitiveness, capacity and capabilities of cooperatives supply base where there are comparative advantages and potential competitive advantages of local supply. Further, the proposed budget allocation will be used to fund Incubation Support Programme and Market Access Programmes for Co-operatives which have been explained in the previous paragraphs as included in the risks that were identified by the Department in order to achieve its set targets and objectives.


It is worth noting that it is worrisome that the programme which is the core function of the Department is set to receive an insignificant allocation of 1.4 percent. The proposed allocation which is even lesser than the proposed budget for Programme 1: Administration which renders a support function to the Department. The development of Cooperatives is one of the core-function of the Department as alluded in the previous paragraphs. It was previously mentioned in the previous paragraphs of this report that the Resolution of the 53rd National Conference of the ANC, National Development Plan, ANC 2014 Manifesto and the MTSF have prioritised the development of Cooperative as one of tools for economic transformation. In spite of that, this deems this programme to be one of the core-functions of the Department which has to share a significant amount of the proposed budget in order to achieve its objectives. Importantly, this concern has been raised during the previous BRRR and 2015 Budget Vote Report. In fact what is more worrisome is that the percentage share of this programme to the proposed total budget has decreased compared to the 2 percent that was proposed in the previous BRRR.


Programme 3: Enterprise Development and Entrepreneurship is proposed to be budgeted an amount of R3.5 billion over the MTEF. Out of the proposed budget amount of R3.5 billion, R1 billion, R1.2 billion and R1.2 billion will be spent in 2015/16, 2016/17 and 2017/18 financial years respectively,  This Programme shares a significant budget of about 93 percent over the 2016/17 MTEF. Importantly, a significant share of about 85 percent of this proposed budget will be transferred to the departmental entities such as SEDA. The remaining amount is proposed to be used to fund programmes such as Bavumile Skills Development- which aims to enhance the existing skills of women to produce quality and commercially viable cultural products for participation in major local and international markets. Currently, the programme is focused in the Creative Industries. Moreover, the proposed additional funds will be used to fund the National Informal Upliftment Strategy (NIBUS) - which aimed at creating a conducive environment as well as business support, both financial and non-financial services for informal businesses through intergovernmental coordination and partnerships with various stakeholders. It should be noted that most of the plans for NIBUS were not funded in this current financial year (205/16). Lastly, the proposed budget allocation under this programme will also be used to fund expansion of Centres for Entrepreneurship- this programme has prioritised the establishment of Centres for Entrepreneurship with Technical and Vocational Educational Training (TVET) institutions and Universities in line with the departmental strategic framework on the promotion of entrepreneurship and small enterprises which include fostering an entrepreneurship culture through entrepreneurship education, increasing enterprise creation and the network of support services.


  1. Service Delivery and assessment of service delivery performance


This subsection explains the non-financial performance of the Department for the 2014/15 financial year (previous financial year). In essence it attempts to explain on what the R1.100 billion or 97 percent was spent on. As such 97 percent of the budget allocated to the Department (R1.133 billion) was spent to achieve the following targets .Other targets that were achieved due to this spending are reported under each relevant departmental entities (SEDA).






Performance measure / Indicator

Baseline 2013/14

Annual Performance Against Target

Deviation from planned target

Comment on variance








BBSDO implemented

Number of enterprise approved for  BBSDP

1 066

1 280


Under-achieved by 497

Applications recorded were fewer than anticipated

CIS implemented

Number of enterprise approved for  CIS




Under-achieved by 224

Applications recorded were fewer than anticipated

Finalisation and implementation of Youth Enterprise Development Strategy (YES)

Implementation of report on YEDS produced

YEDS approved and launched by the Minister of the DTI in November 2013

Pilot implementation of YEDS and report produced

Approved Mass Youth Enterprise Creation Programme (MYECP)

Pilot implementation of the YEDS not done and report not produced

The YEDS that was migrated to the DSDB was reconceptualised and approved by the Minister of DSDB

Implementation of National Strategic Framework on Gender and Women Economic Empowerment

Submit for approval the Draft National Strategic Framework on Gender and Women Economic Empowerment

The Framework was presented to the Economic and Employment Cluster

Finalise and re-submit the National Strategic Framework on Gender and Women Empowerment to Cabinet for approval

Target not achieved

National Strategic Framework on Gender and Women empowerment was not submitted to Cabinet for approval

The Department changed focus from the framework strategy

Finalisation and implementation of the national Informal Business Upliftment Strategy (NIBUS)

Reports produced on pilot implementation of the NIBUS

NIBUS approved by Cabinet

Pilot implementation of the NIBUS and a report produced

A preliminary pilot report on informal Traders Upliftment Programme was produced and tabled at the Project Steering Committee

The Pilot implementation of the NIBUS not done and a report was not produced

The implementation of the NIBUS is underway utilising programmes as approved by the Minister of DSBD




  1. Review of the Departmental Entities


Since its establishment in 14 July 2014, the Department currently has an executive authority over two entities, namely, Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA). SEDA was immediately transferred from DTI to the Department in July 2014, whilst, the Cabinet decision taken on 29 January 2015 instructed SEFA to 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. This section will briefly highlight the non-financial performance and financial performance for the 2014/15 financial year. It is worth noting that the performance that was reported by these entities is based on the Annual Performance Plans submitted to their previous Executive Authorities, in the case of SEFA, the Department of Economic Development (EDD) in March 2014. Nonetheless, these institution has reported their performance to the Committee and it is inter alia:


4.1. Small Enterprise Finance Agency (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 IDC. Its mandate is to foster the establishment, survival and growth of SMMEs and contribute towards poverty alleviation and job creation.

  1. Overview of the Service Delivery Performance- Non- Financial Performance


For the 2014/15 financial year, SEFA has significantly contributed to the economy of South Africa. The institution managed to finance about 68 724 businesses of which 90 percent were micro enterprises. As such SEFA disbursed R1.3 billion to small business funding which represents an increase of 58 percent when it is compared to the 2013/14 financial year. Importantly, 50 percent of the R1.3 billion disbursed was disbursed in the priority provinces whilst 74 percent of this R1.3 billion was disbursed to the businesses owned by black people. This 58 percent significant increase in the funds disbursed for the 2014/15 financial year has translated to the creation of 60 169 (Sixty Thousand one hundred and sixty nine) jobs.  These jobs were created in strategic sectors of the economy such as Services (including retail, wholesale and tourism); Manufacturing (including agro-processing); Agriculture (specifically land reform beneficiaries and contract-farming activities); Construction ( small construction contractors); Mining (especially small miners); and Green economy (renewable energy, waste and recycling).

It is worth noting that the most sector of the economy which received a significant share from the funds disbursed is Construction Sector. Furthermore, almost 50 percent or half of the funds disbursed during 2014/15 financial year was in the form of Direct Lending as opposed 24 to  percent Wholesale SME loans.

For the first time since its existence, SEFA has managed to approved R40 million to Co-operatives. Furthermore, SEFA has entered into partnerships in its drive of targeting to support the development of co-operatives through funding. One of the most important partnership that SEFA achieved to partner with, is Co-operative Bank Development Agency (CBDA) aiming to focus on the development of Co-operatives banking platform.

Importantly, some of the beneficiaries that benefited from the R1.3 billion disbursed by SEFA include amongst others, Mqheleng Waste Management Company which is owned by black woman in Ficksburg in Free State Province. This company has received a soft loan from SEFA through direct lending, amounting to R493 000. This company has developed to an extent it has managed to create 10 jobs, mainly youth. This has indeed contributed to country’s economic agenda of youth employment.


  1. Financial Performance


For the 2014/15 financial year, SEFA has received unqualified financial audit (clean audit) continuing its track record since its establishment in 2012.  SEFA’s financials show an improvement in general. This has been coupled by an increase of its assets base from R2.2 billion in 2013/14 to R2.4 billion in 2014/15 financial year. However, there are still challenges such as inability to strike a balance between increase in loan book and the changes (increase) in impairments. According to the Small Enterprise Finance Agency (SEFA), even though the impairments have increased by 22 percent, the increase still remains below the current industry norm.  Although its financial performance as shown in its Income Statement was not good for the 2014/15 financial year due to the increase in Net Loss of which impairments significantly contributed, its Balance Sheet shows a stable financial position due to increase in its equity by more than half compared, to 2013/14 financial year, due to the IDC’s loan being converted to equity.

  1. Small Enterprise Development Agency (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 NDP and outcome 4 of government’s 2014 – 19 MTSF, that is, decent employment through inclusive economic growth which both 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 and employment.

  1. Overview of the Service Delivery Performance- Non- Financial Performance


At the end of 2014/15 financial year, SEDA has a total of 43 branches of which most braches are in KZN Province (6) and Western Cape is the least number of branches (3).  Mpumalanga province is the most province with number of Co-location points whilst Gauteng Province (16) recorded a high number of SEDA Supported Incubators.

For the 2014/15 financial year, SEDA achieved the performance recorded below:

99% as opposed to targeted (93%) was achieved in client satisfaction levels with quality of SEDA services. This high performance is attributed to the efforts and quality of business development service providers and to the improved project management.


63% compared to the initial targeted (52%) was achieved in number of assisted clients which indicated an increase in turnover. This was achieved owing to increase in market access which enabled the clients to increase their turnover.


43% against the targeted (33%) of assisted clients indicated an increase in number of people employed was achieved owing to increase market access which enabled the clients to increase their turnover.


3,016 against the targeted (1,710) clients supported by the SEDA Technology Programme (STP) was achieved due to increase in number of incubators and intake of the new clients at established incubators.

On the other hand, SEDA could not perform well in the following areas:

R6.8 million against the targeted R10 million value of service delivery costs covered by delivery partners was achieved. The inability to achieve the set targets is due to partners that have contributed towards SEDA’s delivery costs in the past had to reduce their contributions as a result of financial constraints. 


42 against the targeted 10 clients assisted in Technology Transfer Programme was achieved. The underachievement was due to insufficient funds available to assist qualifying clients.

  1. Financial Performance


For the 2014/15 financial year, SEDA received unqualified audit with findings in annual financial statements, internal controls, leadership and financial management.  In terms of financial performance as shown in its statement of financial performance, SEDA has generated a surplus of R68 million which is more than 100 percent increase compared to 2013/14 financial year (R20 million). This can be attributed to significant increase in revenue streams such as external earnings (increased by R20 million), and an increase in budget allocated from fiscus (by about R50 million).

At the end of Q2 of the 2015/16 financial year (current year), SEDA has in overall managed to generate a total revenue of R347 million which is more than by 5. 6 percent compared to revue SEDA planned to generate (R368 million) at the end of Q2 for this current financial year. This increase is due to over collection in external earnings by R21 million recorded at the end of Q2. On the other hand, SEDA has underspent by 13.4 percent. The under expenditure is mainly due to annual salary increase from 1 April 2015 not effected yet.


5. Observations of the Committee


A robust interaction between the Committee and the Department and its entities ensued in the process of constructing this BRRR. Subsequently, critical issues were raised and discussed with the aim of reaching a workable and long lasting solution so that the Department can successfully achieve its ultimate outcome of reduction in unemployment, poverty and inequality. Furthermore, some of the deliberation raised below emanated from Committee engagements with other relevant stakeholders, thus, as highlighted in the methodology of this report, all relevant reports of the Committee, research, minutes from those engagements are used as the basis for arguing and deliberating some issues for the purpose of arguing for additional/reduction of funds and in some instances changes in policies governing the Department. Issues raised in those engagements were mostly centred around governance and administration and funding. As such those issues are grouped into two headings, namely,   Governance and Funding and they are shown below:




5.1 Governance


Since 2008, the Ministry of Finance has consistently put an emphasis on savings and reprioritisation. Control measures were put into place such as austerity measures and guides in order to crystalized the importance of savings and reprioritisation by government departments. These efforts are due to the limited budget which the country operates upon it, which has to fund productive investment expenditure, service delivery and service the country’s debt. In view of the above, it is also encouraged that the government departments to reconsider transferring funds to entities.


Flowing from the above, there is a need to consider the current funds budgeted to be transferred to departmental entities. This is due to the fact that there is quite a substantial amount of money which will be lost in this value chain before it reaches the target. The costs of running these entities is quite significant although their impact is not clearly felt. It should be noted that in one of the interaction that took place between the Committee and the Department and its entities, it was once suggested that a consideration has to be given to reconfigure SEDA and SEFA with the aim of creating one stop shop services.


The Committee has raised some concerns in the manner which the Mission and Strategic objectives are crafted. For example, the mission of the Department says nothing about what the Department is expected to deliver over this current term of government and as per the NDP. Ideally, the difference between a mission and a vision is that a mission is something to be accomplished whereas a vision is something to be pursued for that accomplishment. Furthermore, the Mission should be more specific on what exactly will be done by the Department for South Africa to realise a radically transformed economy.

In this regard, the Committee proposed an intensive interaction with the Department in order to formulate sound departmental vision, mission and strategic objectives which were viewed as just copy of vision and are too generalised.

The Committee raised concerns about the current governance arrangement which governs SEFA. It was mentioned in the previous paragraphs of this report that following the Cabinet decision of 29 January 2014 which instructed SEFA to migrate to the Department. In terms of its memorandum of association, SEFA is a subsidiary of IDC which the Department of Economic Development has executive authority over it, meaning which IDC is the sole shareholder of SEFA. Thus, by virtue of IDC being an entity of EDD, it automatically make EDD to be the sole shareholder of SEFA. This is confusing because during the budget bids, the proposed budget for SEFA was not bided by the Department but instead by EDD which is no privy to the new priorities of the Department with regard to SEFA.

It is important to note that during the Committee interactions with SEFA, the Committee was informed that SEFA had a proposal to resolve the challenge of persistent increase in impairments. However, the strategy would need an intervention of their executive authority (the Department). Emanating from the sky rocketing number of defaulters from SEFA’s clients once they are granted bridging loan (which is the main cause of increase in impairments), SEFA came up with a proposed possible solution to this challenge through the implementation of cession. This will mean that, the clients will have to first enter into agreement with SEFA surrendering rights to SEFA that it will cede proceeds of the contract awarded to it into SEFA bank account, and SEFA will be obliged to release the outstanding balance once SEFA deducted what is due to them.


It is concerning to the Committee that the Department has not prioritised and have not shown a sense of urgency to review all legislations governs the development of small business with the purpose to amend such legislations The rationale for the amendment of this act is that the Department has been given a new mandate to lead and coordinate the development of SMMEs, thus, indeed crystallised the importance of this act to be amended so that it can corporate the new direction the country has taken in the development and promotion of SMMEs.


Signing of transversal agreements including partnerships with other organisations be it governmental or non-governmental serves as an integral part of the Departmental strategy and its entities to execute some of its tasks in order to achieve its overarching ultimate goals of job creation, poverty reduction and fairer distribution of income. Flowing from that, the Committee proposed that agreements signed and partnerships entered to should reflect the understanding of both parties entered into such agreements, to ensure that it is of mutual benefit to both parties, and should create self-sufficient and self-reliant citizens. For example a transversal agreement between the Department and a municipality should reflect such benefit which will have to accrue to the end-user. The motive behind this is to have a mutual understanding of how to execute the planned activities and to safeguard that no priorities take precedence over the other. In this instance, the partnership that SEFA entered to with Walk-in 25 which is regarded as a community development business model that seeks to assist entrepreneurs that were previously disadvantaged in townships and rural villages, the Committee had some serious reservations. For example, it is not clear how the traditional entrepreneurs will have to benefit from this model. Further, it is not clear whether indeed the target group is benefiting from this business model or the owners are the ones who benefited most. Lastly, it still remain a concern that the Walk-in 25 was piloted in Orlando East Town, in Johannesburg but it’s still continuing piloted in other parts of the country such as Aganag Municipality in Limpopo Province without proper assessing the outcomes of the first pilot project.  In spite of this, the Committee requested the Department and SEFA to brief the Committee about the whole working and progress made about this business model.


Regardless of the fact that the National Treasury is in the process of drafting a bill that will make the effective and efficient implementation of 30 percent set –aside state procurement to small businesses, the Committee raised concerns in the manner in which other finance regulations act as barrier in formalising informal sector. For instance the drive to achieve clean audit contributes significantly in retarding progress the formalisation of informal sector. An example was made whereby a certain government department visited a deep rural areas of Ngqeleni near Mthatha in Eastern Cape Province, it was compelled to procure catering for launch in Mthatha which was about 60 kms away from the area. This was despite the fact that there were an existence of caterers that could have been used to provide such service but they couldn’t be employed by that department because they were not registered to SARS and CIPC.


Flowing from above, the situation narrated above, provoked some other issues to be considered, for example, the pertinent question will be asked as to why they were no registered as trading entities. In attempting to answer that, it would obviously lead to the issue of location of the SEDA and SEFA offices. In line with that, the Committee raised concern about the slow rate in which these entities are pursuing the issue of co-locating their offices in areas where establishing a branch is not an option.


The Committee intensively deliberated on the current model that SEFA is using to lend money to micro-enterprises through the use of intermediaries in the form of micro finance. Since the first interaction with SEFA, the Committee has persistently raised its dissatisfaction about the use of intermediaries which reported that they charge an interest between 40 percent and 110 percent. Importantly, the Committee maintained the view that SEFA as government institution that was created to service all small businesses including micro and survivalist should ensure that it reaches through those kind of businesses because these are businesses operated by the poor of the poorest which SEFA is expected to uplift them from poverty, thus, SEFA has to reach these small businesses without using micro lenders (intermediaries). On the other hand a deliberation was ensued around the cost of providing direct lending to those micro-enterprise and survivalist. Indeed, it was found to be very expensive to directly lend to these businesses because SEFA will need to incur operating costs such as personnel, machinery and others which will be more than the money requested on loan. For example, it could cost around R700 to directly lend R500 to micro-enterprises, if a consideration is only given to SEFA’s current cost income ratio of 122 percent. Despite of that, the Committee held the view that the current SEFA model which uses intermediaries should be reviewed.


The Committee also noted a lack of synergy between the Department and its entities in terms of communicating some of issues usually picked up and raised by the Committee to the Department. For example the SEFA reported that it couldn’t fund the businesses owned and operated by people with disabilities. It came as a surprise to the Committee because at the beginning of this year, the Committee undertook an oversight visit to the KZN, Eastern Cape and Gauteng provinces accompanied by the Department. In Gauteng, the Committee visited Self Help Association for Paraplegics (SHAP), an association that organises people living with disabilities. SHAP informed the Committee in the presence of the Department that they got contracted by a company in Cape Town through the assistance from the Department of Social Development to produce reflector clothes. From the work of producing reflector clothes, each worker earns a stipend of R900 per month. This company only provides the centre with raw material that is used to produce the reflector clothing. The centre incurs the operational costs such as water, electricity and repairs of equipment used to produce the reflector clothing. This means that the company that is contracted by the state to supply these reflectors just passes all the costs of doing its business to the centre which is operated by the poor people. Surprisingly, SEFA, the Departmental entity claimed that it couldn’t find any business that is owned by people living with disabilities.


5.2. Funding


The Department has raised some urgency and need to fund programmes that it described as putting the Department into risk of not achieving its objectives. These include amongst others, lack of funds to market the Department so as to increase its awareness to the public and its potential clients. Importantly, this has exhibited in the workshop the Committee held with DFIs with the aim of assessing the relevance of their financial instruments. Most of the small business attended and presented clearly stated that they were not aware of the existence of the Department, they still knock at the DTI’s offices for assistance. Importantly, lack of awareness of the Department has been cited by small business entrepreneurs and co-operatives in many interactions the Committee had with them.  In addition, review of legislation, market access support unit and supplier development- which aims at enabling 70 percent local content policy were also identified as risks by the Department which have to be adequately funded.


The approval for a start-up structure was received from DPSA on 24 April 2015. This start-up structure has not been fully funded by National Treasury, as such most of the critical position are still vacant. This is concerning and worrisome to the Committee because its view is that, this start-up structure is incommensurate with vast tasks given to the Department as per its mandate as derived from NDP. Thus, if the very small structure, as the view of the Committee, is not even fully funded, this has a high potential to impede the execution of the Departmental tasks. Currently, about a quarter of this structure is not funded including positions that are directly linked to the priorities of the Department such as the Chief Director: Informal Businesses (NIBUS). Importantly, the issue of funding the approved structure should be taken seriously because in most of engagements the Committee had with the Department like when the Department presented its Q1 Performance Report, lack of capacity was the overarching reason behind under achievement of the set targets for Q1.


It was alluded in the beginning of this report that, the Committee has conducted a workshop aimed at assessing the relevancy of financial instruments used by DFIs in order to provide finance to SMMEs and Co-operatives with the purpose of developing and promoting them. It has emerged in the workshop that the budget allocated to these DFIs decreases on a year to year basis. Most of the DFIs presented like the NDA, RHL and NEF, raised their concerns about the perpetual decreasing of their budget allocation. This is an element that threatens their survival and performance since they will no longer able to achieve their targets as planned.

Since the amendment of Co-operative Act in 2005, its implementation is not yet seen. The Act as emended established Co-operative Development Agency, Co-operative Academy and Co-operative Tribunal for instance, up to date these institution are still not established. This is despite the recommendation made in 2013 BRRR to the Minister of Finance and Minister of DTI that they should ensure that the Co-operative Development Agency and the Co-operative Tribunal are adequately funded for the 2014/15 financial year and over the MTEF period to ensure that these bodies are able to fulfil their mandates. Up to date the Minister of Finance hasn’t funded the establishment of these institutions.


5.3. Summary of reporting request


This sub-section lists additional information requested by the Committee during the deliberations. Importantly, during the Committee interactions and thereby deliberations there were some issues that necessitated for a further clarity or discussion, thus, those matter are listed below so that they can be addressed as per the request:


Reporting matter

Action required


Walk in 25:

A detailed explanation of this business model, including how it benefits to the target clients

 Briefing to the Committee

February 2016

Gazelles Programme: Expectation cost and impact thereof

Briefing to the Committee

February 2016

National Small Business Advisory Council

Briefing to the Committee

March 2016



6. Recommendations


Emanating from the discussions and deliberations made by the Committee, the following recommendations were drawn. They are categorised into Funding which include all those recommendations that are directed to the Minister of Finance, and Governance which include recommendations directed to the Minister of Small Business Development. These recommendations are as follows:


6.1. Funding Recommendations


  1. To urgently adequately fund the programmes that the Department described as posing risks if not funded. Those programmes include,


  1. The review of legislations that existed before the establishment of the Department,
  2. Marketing to increase awareness about the existence of the Department
  3. Supplier Development to enabled the implementation of 70 percent local content policy
  4. Market Access Support Unit for creation of dependable profile of the market for cooperatives and SMMEs and a reliable database of Cooperatives that can be linked to existing market opportunities.


  1. To fully fund the start-up structure that was approved by the DPSA in 24 April 2015. Most of the unfunded positions in the start-up structure are aligned with the core function of the Department, as such if these positions are continuously not filled due to lack of funding that will deem this department inefficient and less important.


  1. To fund the establishment of the Co-operative Development Agency, Co-operative Academy and Co-operative Tribunal as proposed by the enacted Cooperative Act, 2005 as amended. This recommendation has been recommended to the Minister of Finance since 2013 BRRR and no response has been received up to so far.


  1. To allocate all funds requested by the Department through budget processes for 2016/17 MTEF.
  2. To review the allocation given to all DFIs since there is a consistent depletion of their budget over the years which is an element that can potentially hamper the development agenda of this country.


  1. Governing recommendations


  1. To consider reconfiguration of its support institutions with an idea of creating one stop shop for the provision of required services to SMMEs and Co-operatives.


  1. To converge a strategic workshop with all the relevant stakeholders in order to develop a sound mission (which will be more specific on what will be done by the Department for the country to realise a radical economic transformation) and strategic objectives which are SMART. Further, the workshop should act as a springboard to design a Master Plan for the development of SMMEs and Co-operatives that will be known and followed by the government.


  1. To fast-track the processes that aimed at signing transversal agreements that will benefit SMMEs and Co-operatives with all spheres of government,  private and non-government organisations


  1. To review the current model of using intermediaries to micro-finance. There is a need to consider a model that will be cheap and considerate to circumstances of micro and survivalist enterprises. 


  1. To institutionalise the constant communication between the Department and its entities.


  1. To produce a comprehensive plan to deal with all impediments to SMME development growth and promotion, including finance regulations and legislations.



  1. To conduct a comprehensive regulatory review for small businesses to assess whether special conditions are required. This include regulations in relation to business registration, tax, labour and local government.


  1. To consider having a support service for SMMEs and Cooperatives that focuses on market research and feed that information back to SMMEs and Cooperatives in order for them to produce goods that are required by the market (customers of the retail sector).


  1. To review their funding models to make them relevant to the needs of SMMEs and Cooperatives and more importantly to address the imbalance of supply and demand of the retail sector so as to effectively implement the 30% procurement policy from SMMEs and Cooperatives as well as the 70% local procurement


  1. To engage with National Treasury to issue a practice note which enable the implementation of the proposed cessions.


  1. To initiate a discussion with the DFIs and the private sector financial players as to how they can establish a venture/start-up capital fund.


Report to be considered.




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