ATC180510: Report of the Portfolio Committee on Small Business Development on Budget Vote 31 of the Department of Small Business Development for Financial Year 2018/19, dated 10 May 2018

Small Business Development

REPORT OF THE PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT ON BUDGET VOTE 31 OF THE DEPARTMENT OF SMALL BUSINESS DEVELOPMENT FOR FINANCIAL YEAR 2018/19, DATED 10 MAY 2018
 

1.         INTRODUCTION

 

The Portfolio Committee on Small Business Development (“the Portfolio Committee”) having considered the Annual Performance Plans and Budget allocations of the Department of Small Business Development (“the Department”) or (“DSBD”) and its entities, Small Enterprise Finance Agency (“sefa”) and Small Enterprise Development Agency (“Seda”), reports as follows (10 May 2018): -

 

1.1        Background

The Constitution of South Africa (Act No. 108 of 1996) recognises that the legislative authority has an important role to play in overseeing both the financial and non-financial performance of government departments and public entities. Section 27 of the Public Finance Management Act (No. 1 of 1999) makes provision for Ministers to table the annual budget for a particular financial year in the National Assembly before the start of that financial year. Whereas section 10(1)(c) of the Money Bills Amendment Procedures and Related Matters Act (No. 9 of 2009) makes provision for Ministers to table Strategic Plans and Annual Performance Plans for (APPs) their respective Departments, public entities or institutions, which must be referred to the relevant Portfolio Committees for consideration and adoption.

 

It is important for the strategic plans to be tabled within the stipulated period because the plans provide information for the budget appraisal process of the relevant Portfolio Committee. Strategic Plans identify strategically important outcome orientated goals and objectives against which public institutions medium-term results can be measured and evaluated by Parliament. Annual performance plans identify the performance indicators and targets that the institution endeavours to accomplish in the upcoming budget year. The annual performance plan shows funded service-delivery targets or projections. The annual budget sets out what funds an institution is allocated to deliver services and most importantly, indicates the resource envelope for the year ahead, and sets indicative future budgets over the Medium Term Expenditure Framework (MTEF). The budget covers the current financial year and the following two years.

 

At the beginning of each year following the State of the Nation Address (SONA) by the President, the Minister of Finance tables before Parliament, amidst great expectation and enthusiasm by South Africans, a detailed outline of the State's Budget: how much money will be or ought to be spent, on what, in that financial year. Thereafter, various government Departments present their budget votes before Parliament stipulating how they intend reconciling their resources with service delivery imperatives as outlined by the President of the Republic of South Africa in the State of the Nation Address. One of the main statutory functions of Parliament is to discuss, pass and oversee the State's Budget. The Department of Small Business Development Budget (Vote No. 31) was referred to the Portfolio Committee for consideration and reporting.

 

1.2        Purpose of the Budget Vote

The budget is a political and financial instrument that the government uses to ensure that its policy programmes are operationalised through the allocation of financial resources to the different spheres of government, specifically to programmes and projects. It reflects an outcomes centred public spending approach. It is further described as a tool that the government uses to evaluate the financing of its key policy objectives. It also used to evaluate whether the macro-economic perspectives of the Budget and the respective Budget Votes meet the requirements of government policies and give substance to the government’s five-year plan. Therefore, the purpose of Vote 31 for the Department is to promote the development of survivalist, small, micro, medium and co-operative enterprises that contribute to inclusive growth and job creation. In compliance with the referral by the National Assembly, the Portfolio Committee held briefings on April 25, 2018 with the Department of Small Business Development, Small Enterprise Development Agency and Small Enterprise Finance Agency to consider their annual performance plans and the Department budget vote.

 

1.3        Objectives of the Report

The objectives of the report are as follows: -

  1. To describe and analyse the budget of the Department of Small Business Development over the 2018/19 financial year;
  2. To report on its deliberations and consideration, which is essentially the unpacking and examining of the Department annual performance plan and its associated budget vote (Budget Vote 31) in relation to the strategic plan and;
  3. To make recommendations concerning the endorsement, adjustment or rejection of budget vote 31 and any other recommendation regarding the implementation of the Department strategic plan.

 

1.4        The Portfolio Committee Process

The above exercise explains the significance of the budget and strategic plan process in the calendar of Parliament and the requirement for departments to table these on time to ensure that Parliament is provided with information required for its oversight work. On the of March 2018, the Minister of Small Business Development tabled to Parliament the annual performance plan of the Department for 2018/19 including for the entities, sefa and Seda for corresponding financial years for consideration and report.

 

Upon referral of these instruments by the National Assembly, the Portfolio Committee scheduled two extended briefing sessions, first with the Department of Public Service Administration (DPSA) on Wednesday 18 of April 2018, with second session held on Wednesday the 25th of April with the Department of Small Business Development, Small Enterprise Finance Agency and Small Enterprise Development Agency so as to afford them an opportunity present their annual performance plans and budget for the following financial years.

 

The engagements considered the past performance of the Department of Small Business Development and its entities. Minister Lindiwe Zulu could not make it to both sessions due to erstwhile commitments, Deputy Minister Cassel Mathale briefly attended the session on April 25, while the delegation was led by the Director General Prof Edith Vries, Accounting Authorities and Chief Executive Officers from the agencies. The Committee’s consideration of Vote 31 involved a robust engagement with the leadership from the Department and the Director-General, Prof Edith Vries, on 25 April 2018 where they provided the context within which the Department and its entities annual performance plan(s) had been developed and presented. The budget was deliberated against the Departments strategic plan and government priorities as captured in the National Development Plan (NDP), Medium Term Strategic Framework (MTSF), New Growth Path (NGP) and State of the Nation Address (SONA) within the prevailing economic conditions, which can best be defined as tough, but stable.

2.         OVERVIEW OF THE DEPARTMENT OF SMALL BUSINESS DEVELOPMENT

 

2.1        Aim and Purpose of the Department

To support the radical transformation of the economy through the promotion and development of sustainable and competitive entrepreneurs, small businesses and co-operatives, that contribute to job creation and economic growth.

 

2.2        The mandate of the Department

The mandate of the Department is “to lead and coordinate an integrated approach to the promotion and development of entrepreneurship, small businesses and co-operatives, and ensure an enabling legislative and policy environment to support their growth and sustainability”.

 

2.3        Legislative and Policy Mandates

The directive of the Department is primarily premised on diverse sections of legislations and policies such as the White Paper on National Strategy for the Development and Promotion of Small Business (1995), Small Business Development Act (1980), National Small Business Act (1996), as amended in 2004, Companies Act (2008), Close Corporation Act (1984), Co-operatives Act (2005), Co-operatives Amendment Act (2013), Industrial Development Corporation Act (1940), Business Act (1991), Broad Black Business Economic Empowerment Act (2003), National Empowerment Fund Act (1998), Preferential Procurement Policy Framework Act (2011), Local Government Bylaws, Youth Enterprise Development Strategy, Strategic Framework on Gender and Women Empowerment Strategy, Innovation and Technology Strategy, National Development Plan (NDP), New Growth Path (NGP), the Industrial Policy Action Plan (IPAP), Agricultural Policy Action Plan (APAP) and 2014-2019 Medium Term Strategic Framework (MTSF).

 

2.4        Vision of the Department 

A radically transformed economy through integrated and effective enterprise development and entrepreneurship promotion.

 

2.5        Mission of the Department

The coordination, integration and mobilisation of efforts and resources towards the creation of an enabling environment for the growth and sustainability of small businesses and co-operatives.

 

 

2.6        Values

The values and principles that underpin the DSBDs pursuit of its vision and mission are shared across the three entities, and are predicated on the principles of Batho-Pele as follows: -

  • Innovation;
  • Integrity;
  • Professionalism;
  • Customer-centric and;
  • Commitment.

 

2.7        Strategic Outcome-Oriented Goals

2.7.1     Planning and policy coherence in the sector that promotes an enabling ecosystem          for SMMEs and co-operatives;

2.7.2     Equitable access to responsive and targeted products and services that enable the         growth and development of SMMEs and co-operatives;

2.7.3     An enhanced contribution to socio-economic development outcomes by the       sector;

2.7.4     Sound governance and the optimal utilization of available resources;

2.7.5     A professional and capacitated small business development sector.

 

 

 

 

 

 

 

 

 

2.8        Proposed Programme Structure (2018/19)

 

Table 1: Proposed Programme Structure

Programme NO.

Programme Name

Sub-Programmes

Programme 1

Administration

  1. Ministry
  2. Departmental Management (Office of the DG)
  3. Corporate Management
  4. Financial Management
  5. Communications and Marketing

Programme 2

Sector Policy and Research

  1. Research
  2. Policy and Legislation (including IGR and Coordination)
  3. International Relations and Trade Promotion
  4. Monitoring and Evaluation

Programme 3

Integrated Co-operatives Development

  1. Co-operatives Development
  2. Co-operatives Programme Design and Support
  3. Supplier Development and Market Access Support

Programme 4

Enterprise Development and Entrepreneurship

  1. Enterprise and Supplier Development
  2. SMME Programme Design and Support
  3. SMME Competitiveness
  4. Entrepreneurship

Source: DSBD 2017 Strategic Plan

 

3.         EXPENDITURE ANALYSIS BASED ON ESTIMATES OF NATIONAL      EXPENDITURE

 

The Department’s total expenditure over the MTEF period, including transfers to the Small Enterprise Development Agency, is expected to increase at an average annual rate of 22.6 per cent, from R1.5 billion in 2017/18 to R2.7 billion in 2020/21. This increase is mainly due to a Cabinet approved additional allocation of R2.1 billion over the term for the proposed small Enterprise Development Fund (EDF), which is expected to commence in 2019/20 financial year. Meanwhile, the Cabinet approved a baseline reduction of R131.1 million to the Department’s budget over the MTEF period. This is likely to affect transfers to the agency by R123 million, and the Administration programme by roughly R8 million. To mitigate the impact of these reductions, the Department and the agency have been cautioned to implement stringent cost containment measures on areas that have negligible impact on service delivery.

 

3.1        Evaluating and Reviewing the Policy and Strategy

The information submitted to National Treasury on this indicator has not changed from the one submitted the previous financial year where the Department had planned to review the National Small Business Act (1996) and the Co-operatives Amendment Act (2013). The Department is also evaluating and revising the 2005 Strategy for the Development of Small Businesses and Entrepreneurship. The evaluation will allow for an evidence-based review of the strategy to ensure that it is relevant and responsive to business cycles, recent economic activities, and the socio-economic effects of high unemployment, inequality and poverty. To carry out these and other related activities, the department has provided R71 million over the medium term in the Sector Policy and Research programme

 

3.2        Increasing Support for Small Enterprises

The Department plans to continue to support black-owned small enterprises through, among others, Black Business Supplier Development Programme (BBSDP), which offers a cost sharing grant to small enterprises to acquire tools, machinery, equipment and business development training to a maximum of R1 million per applicant. An estimated 2 192 small enterprises are expected to benefit from the programme between 2018/19 and 2020/21 through an allocation of R858.9 million in the Enterprise Development and Entrepreneurship programme. The Department will deliver some of its programmes through the Small Enterprise Development Agency that is mandated to implement government’s small business strategy. The agency’s activities are funded through transfers from the department in the Enterprise Development and Entrepreneurship programme, which amount to R2.4 billion (36 per cent the department’s total budget) over the MTEF period.

3.3        Developing and Supporting Co-operatives

The Department will continue providing financial support to cluster co-operatives through the Co-operatives Incentive Scheme (CIS) to a maximum of R1 million per applicant for primary co-operatives and R10 million per applicant for secondary co-operatives. The scheme intends to improve the viability and competitiveness of an estimated 232 cluster co-operatives over the MTEF period through the provision of working capital to lower the cost of doing business. Allocations to the scheme are set to increase at an average annual rate of 5.6 per cent, from R78.8 million in 2017/18 to R92.8 million in 2020/21, in the Co-operatives Programme Design and Support subprogramme in the Integrated Cooperative Development programme.

 

The department plans to host the annual International Cooperatives Day during the second quarter of each financial year over the medium term. The event will bring together cooperatives from all provinces and the Southern African Development Community to contribute to discussions and share latest methodologies to build the cooperatives movement. These events will provide such organisations with a platform through which they can access procurement and market opportunities in the public and private sectors. The event is budgeted for in the Co-operative Programme Design and Support subprogramme in the Integrated Co-operatives Development programme.

 

4.         POLICY PRIORITIES FOR 2018/19

 

4.1        National Development Plan

The Department of Small Business Development was established in 2014 with an inclusive mandate of developing survivalist, small, micro, medium and co-operative enterprises (“Small Business”) as defined in the National Small Business Act, 1996. It plays a vital role towards the implementation of chapters three (3) and six (6) of the National Development Plan (NDP) that deal with the economy and employment as well as rural inclusive growth. The NDP is the country’s vision, with a target of creating 9.9 million new jobs from small businesses by 2030. The NDP identifies the important role that small, medium, micro and co-operative enterprises play in inclusive economic growth and employment. The plan articulates the benefits of increased coordination and support, incubation, and reduced costs of regulatory compliance for small enterprises to achieving a transformed and inclusive economy. Central to meeting the vision enshrined in the NDP is the implementation of the New Growth Path (NGP), the Industrial Policy Action Plan (IPAP) and the National Infrastructure Plan.

 

 

4.2        New Growth Path

The Department has a responsibility to implement various policy propositions for growth, decent employment and equity as captured in the New Growth Path (NGP). The NGP aims to create five (5) million jobs by 2020, and also forge a new and more inclusive, as well as labour intensive and efficient economy. According to the NDP (2011: 117), “the NGP is the government’s key programme to take the country onto a higher growth trajectory”. Of specific interest to the Department are three microeconomic policy propositions advocated in the plan, namely: -

 

4.2.1     Rural Development Policy

  • emphasis on rural development and agricultural value chains;
    1. Enterprise development in particular the promotion of entrepreneurship
  • creation of one stop shop and single funding agency;
  • strict adherence to a 30-day payment period or fiscal penalties for non-compliance;
  • elimination of red-tape and;
  • address exorbitant cost of space in shopping Malls;
    1. Developmental Trade Policies
  • Lobbying for a trade policy that endeavours to promote exports while addressing unfair competition against domestic producers i.e. recent developments on African Growth Opportunity Act (AGOA) being the latest example.

 

4.3        The Medium Term Strategic Framework

Following the adoption of the NDP, Cabinet decided in 2013 that the 2014-2019 MTSF should form the first five-year implementation phase of the NDP and mandated work to begin on aligning the plans of state organs with the NDP vision and goals. Thus, for the next five years the MTSF has made some priorities aimed at achieving radical socio-economic transformation through decent employment and inclusive growth. These focus areas will form 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, namely, outcome four (4): Decent employment through inclusive growth, and outcome seven (7): Rural development. Key targets for the MTSF include:-

  • An increase in the gross domestic product (GDP) growth rate from 2.5 percent in 2012 to 5 percent in 2019;
  • An increase in the rate of investment to 25 percent of GDP in 2019;
  • The share in household income of the poorest 60 percent of households rising from 5.6 percent in 2011/12 to 10 percent in 2019 and;
  • A decrease in the official unemployment rate from 25 percent in 2013 to 14 percent in 2020.

 

4.3.1     Outcome Four

Outcome four proposes that employment intensive programmes and initiatives will receive top priority, especially those that target youth and women. According to the Strategic Plan of the Department the key sub-outcomes and the actions which constitute five-year plan and corresponding annual performance plans are sub-outcomes three (3), five (5) and eight (8).

 

4.3.2     Outcome Seven

Outcome seven’s overarching theme is ‘vibrant, equitable, sustainable rural communities contributing towards food security for all’ but the main areas of contribution for the Department is on sub-outcome six (6) “growth of sustainable rural enterprises and industry – resulting in rural job creation”.

 

4.4        State of the Nation Address

In the 2018 State of the Nation Address (SONA), President Matamela Ramaphosa impressed on a number of fundamental policy proposals to invigorate the small business sector. According to the Bureau for Economic Research (BER), out of 26 key promises made in the SONA 2018, the new administration has so far delivered on 19 points. Some of these undertakings in as far as the small business sector is concerned, include but not limited to: -

  • He stressed that “Radical economic transformation requires that we fundamentally improve the position of black women and communities in the economy, ensuring that they are owners, managers, producers and financiers”;
  • The President further asserted that, “ultimately, the growth of our economy will be sustained by small businesses, as is the case in many countries. It was therefore our shared responsibility to grow this vital sector of the economy”;
  • He reiterated 2017 SONA assurances that government will honour its undertaking to set aside at least 30 percent of public procurement to SMMEs, co-operatives and township and rural enterprises;
  • The government will continue to invest in small business incubation and encouraged big business to do the same;
  • He applauded the establishment through the CEOs Initiative of a small business fund – which currently stands at R1.5 billion – as an outstanding example of the role that the private sector can play.

 

 

4.5        Planned Policy Initiatives

The Department has deferred all its planned policy initiatives for 2015/16, 2016/17 and 2017/18 to 2018/19 financial year. Obviously, these, particularly the review of the National Small Business Act and Co-operatives Act which by the way does not form part of the DSBD policy initiative or deliverable for the current financial year, have direct sway on the work, programme and budget of the Portfolio Committee. More so considering that the term of the Fifth Parliament ends in 2019. Also, in terms of the Portfolio Committee five-year strategy, the Committee had foresaw or recommended designing of the franchising regulations in order to curb the market domination and abuse by the few players on the economy. It remains unclear if these will be accomplished within this term. Table 2 below highlight four such initiatives: -

 

Table 2: Planned Policy Initiatives

Policy

Intent

National Small Business Act (No. 102 of 1996

  • Continue with the amendment of the Act in order to take into account latest shifts and trends in global and national economic and  small business environment, and best practice in terms of small business development approaches;
  • In the process of ensuring its alignment to the act, the Department will seek to identify gaps, in partnership with industry, in pursuit of covering all aspects of required support to the small business sector.

Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises

  • The evaluation of this Strategy having been concluded by DPME in Mar-18, DSBD can commence the review the Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises, in order to remain relevant and to accommodate recent economic activities and business cycles, and respond to identified trends and opportunities;
  • The review will primarily be informed by the Improvement Plan, which will be crafted in response to the findings and recommendations of the Evaluation Report; and to design programmes that are flexible and responsive to the vision of achieving radical economic transformation.

Midterm Review of the Co-operatives Strategy (2012-20220:

  • Conclude the Midterm Review of the Co-operatives Strategy (2012-2022), which may result in a revision of the Strategy and will inform the development of an integrated approach to co-operatives development.

Monitoring and Reporting Framework on the 30% Set-Aside Policy

  • The 2017 Public Sector Supply Chain Review confirmed that, in 2016/17, government spent over R700 billion on the procurement of goods and services, as well as construction works;
  • If a 30% of that money were to be directed to SMME’s, as it is now provided for in the 2017 Regulations of the Preferential Procurement framework Act, it would make a significant contribution to the sustainability of the SMME and cooperatives sector;
  • Apart from supporting by National Treasury)  in the development of the new Public Procurement  Act , DSBD will develop guidelines as well as a monitoring and reporting framework to guide departments as to their engagement with this important matter.

Source: DSBD 2017 Strategic Plan

 

5.         BUDGET ANALYSIS

The budget and Medium Term Expenditure Framework (MTEF) allocations below support and contribute to the four expanded Strategic Goals as captured in the Department Strategic Plan and the 2018/19 annual performance plan. This section will explore budget allocations per programme for the 2018/19 financial year. Table 3 below breaks down the budget allocation per programme for 2018/19 compared to allocations for the previous financial years. The Department’s total budget allocation, which includes transfers to Small Enterprise Development Agency, is expected to increase from R1.4 billion in 2017/18 to R2.7 billion by 2020/21 financial year. As alluded to earlier, this increase is mainly due to a Cabinet approval of an additional allocation of R2.1 billion over the term for the proposed small Enterprise Development Fund (EDF), which is expected to start during 2019/20 financial year.

 

However, baseline reduction in all government departments as directed by National Treasury will certainly influence few of the DSBD programmes. Most importantly, Seda MTEF budget allocation has been reduced by 5 percent from 2018/19 to 2020/2021 financial year. Accordingly, a number of strategic initiatives i.e. incubation expansion and one municipality one programme (OMOP) will have to be postponed or deferred due to limited resources. The Department’s budget is dispersed across the following four programmes: -

 

  • Programme 1: Administration;
  • Programme 2: Sector Policy and Research;
  • Programme 3: Integrated Co-operatives Development and;
  • Programme 4: Enterprise Development and Entrepreneurship.

 

Table 3: Consolidated Budget Summary 2018/19

Programme

(R’000)

Audited Outcome

Main Appropriation

MTEF

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

Administration

22 376

66 447

98 925

121 597

124 729

134 448

143 216

Sector Policy and Research

 

11 707

 

11 692

 

13 848

 

18 107

 

22 413

 

23 546

 

25 031

Integrated Cooperatives Development

 

88 821

 

89 727

 

92 568

 

106 799

 

111 034

 

117 743

 

124 674

Enterprise Development and Entrepreneurship

 

1 002 632

 

931 026

 

991 700

 

1 229 259

 

1 230 277

 

2 298 715

 

2 426 530

TOTAL

1 125 536

1 098 892

1 197 041

1 475 670

1 488 453

2 574 452

2 719 451

Source: DSBD Annual Performance Plan

 

Compared to the previous financial year, DSBD budget registered negligible increase to R1.48 billion from R1.47 billion. The bulk of the allocation of R1.2 billion goes to a new programme four (4), owing to transfers payable to Seda of R769 million. The agency’s provision constitutes 52 percent of DSBD budget of R1.4 billion. Possibly, the variation that the Portfolio Committee has consistently been opposed to is the substantial allocation of DSBD budget to Programme 1 (Administration), a mere support function, which despite the budget cuts, its apportionment increased from R121 million in 2017/18 to R124 million in 2018/19 and, anticipated to reach R143 million during 2020/21 financial year. This is in spite of the vacancy rate target range of 10 percent having gone up to 11.9 percent from 9.8 percent during the previous financial year. Contrasted with the Department’s three other core programmes, 2 - 4, each programme correspondingly received R22 million, R111 million and R1.2 billion.

 

5.1        Programme 1: Administration

The purpose of Programme 1 is to provide strategic leadership, management and support services to the Minister, Director-General, the Department and its entities.  The programme is responsible, among others, for making certain that sound governance is in place, enhanced contribution to socioeconomic development outcomes, professional and capacitated small business development sector as well as guaranteeing that limited resources are utilised optimally. Programme 1 has been allocated R402 million over the MTEF period. Of this human capital constitutes R218 million while operational contribution equates to R166 million. For the current financial year Programme 1 is projected to increase to R124 million from R121 million in 2017/18.

 

The amount of R124 million allocated to the Programme during the current financial year is set to be appropriated among its sub-programmes which include, Ministry, Departmental Management, Corporate Services, Financial Management and Communications. According to the Department strategic plan the main cost drivers over MTEF beside human capital are in operations, wherein R58.7 million has been set aside for office accommodation, R32.4 million for travel and subsistence, and R27.1 million for the stabilisation of information and communications technology (“ICT”) in the Department. Table 4 below provides an overview of the programme expenditure estimates for 2018/19 financial.

 

 

 

 

 

 

 

 

 

Table 4: Expenditure Estimates – Programme 1

Programme 1: Administration

(R’000)

Audited outcome

Adjusted appropriation

Medium-Term Expenditure Estimates

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

Ministry

22 376

29 898

29 691

33 102

29 176

30 729

32 924

Departmental Management

0

15 232

14 514

19 312

19 976

21 041

22 489

Corporate Services

0

21 317

33 456

46 956

51 178

56 220

60 295

Financial Management

0

0

14 929

15 186

17 541

19 275

19 901

Communications

0

0

6 335

7 058

6 858

7 183

7 607

Total

22 376

66 447

98 925

121 614

124 729

134 448

143 216

Economic classification

Current payments

21 264

63 479

96 022

116 840

119 135

128 674

137 149

Compensation of employees

11 407

34 591

52 230

65 115

67 615

72 742

78 259

Goods and services

9 857

28 888

43 792

50 725

51 520

55 932

58 890

Transfers and subsidies

0

0

25

0

0

0

0

Households

   

25

0

0

0

0

Payments for capital assets

1 112

2 968

2 878

5 774

5 594

5 774

6 067

Transport equipment

1 080

0

0

3 000

0

0

 

Other machinery and equipment

32

2 951

2 850

2 774

5 594

5 774

6 067

Software and other intangible assets

0

17

0

0

0

0

0

 Payments for Financial Assets

 

 

28

 

 

 

 

Total

22 376

66 447

98 925

121  614

124 729

134 448

143 216

Source: DSBD Annual Performance Plan

 

 

5.2        Programme 2: Sector Policy and Research

The purpose of Programme 2 is to create an enabling environment for the development and growth of sustainable small businesses and co-operatives through, among others, commissioning of research, development and review of policies and legislation(s), coordination and promotion of sound intergovernmental relationships, promoting the sector interests in the regional and global arena, as well as effective monitoring and evaluation of programmes to ensure the desired impact is achieved in contributing toward the creation of employment and economic growth. The budget allotted to this programme over the MTEF period is R70.9 million. It has four (4) sub-programmes, namely, Research, Policy and Legislation, International Relations and Trade, as well as Monitoring and Evaluation. For the current financial year the programme is allocated R22 million. Table 5 below is a brief indicative what each subprogramme will receive.

 

Table 5: Expenditure Estimates – Programme 2

Programme 2

(R’000)

Audited outcome

Adjusted appropriation

Medium-Term Expenditure Estimates

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

Research

0

0

0

0

7 521

7 628

8 493

Policy and Legislation

11 707

11 692

13 644

7 229

4 852

4 947

4 940

Monitoring and Evaluation

0

0

0

6 657

2 887

3 166

3 326

International Relations

0

0

204

4 112

7 153

7 805

8 272

Total

11 707

11 692

13 848

17 998

22 413

23 546

25 031

Economic classification

Current payments

11 640

11 675

13 813

17 998

22 357

23 490

24 975

Compensation of employees

 

9 783

 

9 908

 

10 252

 

10 799

 

10 779

 

10 819

 

11 627

Goods and services

1 857

1 767

3 561

7 199

11 578

12 671

13 348

Transfers and subsidies

 

22

 

0

 

0

 

0

 

0

 

0

 

0

Households

22

0

0

0

0

0

0

Payments for capital assets

           45

17

35

0

56

56

56

Other machinery and equipment

45

17

35

0

56

56

56

Total

11 707

11 692

13 848

17 998

22 413

23 546

25 031

Source: DSBD Annual Performance Plan

 

5.3        Programme 3: Integrated Co-operatives Development

The Programme is accountable for creation of a conducive environment that facilitates the establishment, growth and development of co-operative enterprises through the development and review of legislation and policy, design, piloting and monitoring the impacts of support services and instruments, championing of functional partnerships and co-operation agreements, and the advocacy and thought leadership in advancing economic growth, job creation and social cohesion. The Programme has three subprogrammes, namely, Co-operatives Development, Co-operatives Programme Design and Support, as well as Supplier Development and Market Access Support. As a guardian of the Co-operatives Act, the Programme is responsible for providing leadership and implementation and governance oversight of the institutional arrangements arising from the Act.

 

During the MTEF period the Programme has been allocated R353 million, of which R111 million has been earmarked for the current financial year. The main cost drivers for the Programme are transfers to the tune of R264 million to, among others, CIS beneficiaries. The amount of R64.5 million has been allocated to human capital while R24.7 million has been assigned for operational requirements. The focus of the programme over the medium term will be on delivery of financial and non-financial support to co-operative enterprises.

 

Table 6: Expenditure Estimates – Programme 3

Programme 3

(R’000)

Audited outcome

Adjusted appropriation

Medium-Term Expenditure Estimates

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

Cooperatives Development

3 393

3 949

6 847

7 976

10 728

11 871

12 667

Cooperatives Programme Design and Support

85 428

85 778

76 136

90 545

94 406

99 709

105 426

Supplier Development and Market Access Support

   

9 585

8 278

5 900

6 163

6 581

Total

88 821

89 727

92 568

106 799

111 034

117 743

124 674

Economic classification

Current payments

13 821

14 696

28 689

28 049

27 682

29 724

31 815

Compensation of employees

11 647

13 375

23 554

22 546

19 768

21 544

23 170

Goods and services

2 174

1 321

5 135

5 503

7 914

8 180

8 645

Transfers and subsidies

75 000

75 019

63 879

78 750

83 318

87 984

92 823

Public Corporations

75 000

75 000

63 879

78 750

83 318

87 984

92 823

Households

0

19

0

0

0

0

0

Payments for capital assets

0

12

0

0

34

35

36

Other machinery and equipment

 

0

 

12

 

0

 

0

 

34

 

35

 

36

Total

88 821

89 727

92 568

106 799

111 034

117 743

124 674

Source: DSBD Annual Performance Plan

 

5.4        Programme 4: Enterprise Development and Entrepreneurship

During the MTEF planning, Programme 3, which focused on both on co-operatives and SMME support, was split into two budget programmes three and 4. Programme 4 is responsible for shaping a vibrant and suitable ecosystem for the development and growth of sustainable small businesses through various interventions i.e. the development and review of legislation and policy, the design, piloting and monitoring of the impact of support services and instruments, the promotion of local economic development and entrepreneurship, championing functional partnerships, and advocacy and thought leadership in advancing economic growth and job creation. One of the key and immediate deliverable for the Unit is the finalisation of the review of the National Small Business Act, implementation and institutionalisation of the Act.

 

Programme 4 has been allocated R5.9 billion over the MTEF with a sizeable portion of this amount going to Seda. The spending focus for the Enterprise Development and Entrepreneurship Programme over the medium term will be on the four (4) subprogrammes constituting the Programme, namely, Enterprises and Supplier Development Programme, SMME Programme Design and Support, SMME Competitiveness and Entrepreneurship. For the current financial year 2018/19 the Programme has been allocated R1.2 billion.

Table 7: Expenditure Estimates – Programme 4

Programme 4

(R’000)

Audited outcome

Adjusted appropriation

Medium-Term Expenditure Estimates

2014/15

2015/16

2016/17

2017/18

2018/19

2019/20

2020/21

Enterprise Development and Supplier Development

681 234

652 836

675 944

794 152

787 078

835 959

875 434

SMMEs Programme Design and Support

288 729

235 635

282 540

268 545

290 968

1 307 266

1 379 581

SMME Competitiveness

32 669

42 555

12 816

91 023

89 427

91 141

103 487

Entrepreneurship

0

0

20 400

75 539

62 804

64 349

68 028

Enterprise Development and Supplier Development

 

1 002 632

 

931 026

 

991 700

 

1 229 259

 

1 230 277

 

2 298 715

 

2 426 530

Economic classification

Current payments

54 158

47 603

40 136

41 800

51 893

54 343

58 361

Compensation of employees

40 916

35 259

27 986

33 992

42 648

46 703

50 241

Goods and services

13 242

12 344

12 150

7 871

9 245

7 640

8 120

Transfers and subsidies

948 020

883 230

951 492

1 187 396

1 178 280

2 244 263

2 368 056

 Departmental agencies and accounts

 

644 398

 

622 835

 

652 914

 

767 301

 

769 452

 

815 861

 

854 167

Public Corporations

287 302

243 625

298 409

420 095

408 828

1 428 402

1 513 889

Non-profit institutions

16 320

16 726

100

0

0

0

0

Households

 

44

69

0

0

0

0

Payments for capital assets

454

193

72

0

104

109

113

Other machinery and equipment

454

193

72

-

104

109

113

Total

1 002 632

931 026

991 700

1 229 259

1 230 277

2 298 715

2 426 530

Source: DSBD Annual Performance Plan

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SMALL ENTERPRISE DEVELOPMENT AGENCY

 

6.         MANDATE

Small Enterprise Development Agency (SEDA) is an entity of the Department of Small Business Development whose mandate include, inter alia, developing, nurturing, supporting and promoting small business ventures throughout the country, whilst ensuring their growth and sustainability in a harmonised fashion with various stakeholders. The Minister of Small Business Development is the executive authority of the agency and as such exercise oversight role over the agency as prescribed by the Public Finance Management Act. SEDA was conceptualised in 2004, through amendment of the National Small Business Act, amendment Act 29 of 2004, which essentially made provision for the incorporation of the Ntsika Enterprise Promotion Agency, the National Manufacturing Advisory Centre and any other designated institutions into a single Small Enterprise Development Agency under the Department of Trade and Industry (the dti). It is a schedule 3A national public entity in terms of the Public Finance Management Act (PFMA), Act 1 of 1999, as amended, and incorporated as a company in terms of the Companies Act, 2008.

 

7.         LEGISLATIVE AND OTHER MANDATES

 

A broad legislative framework as outlined below governs Seda’s work:-

 

Table 8: Seda Legislative Framework

 

Name of Act

Purpose

1.

National Small Enterprise Act,

No. 102 of 1996 amended by

the National by the National

Small Business Amendment Act,

No. 29 of 2004

  • To provide for the establishment of the Advisory Body and the Enterprise Promotion Agency; and;
  • To provide guidelines for organs of state to promote small business in the Republic; and to provide for matters incidental thereto.

2.

Occupational Health and Safety

Act, No. 85 of 1993

  • To provide for the health and safety of persons at work and for the health and safety of persons in connection with the use of plant and machinery;
  • The protection of persons other than persons at work against hazards to health and safety arising out of or in connection with the activities of persons at work;
  • To establish an advisory council for occupational health

3.

Public Finance Management

Act, No. 1 of 1999

  • To regulate financial managenemtn in the national and provincial government;
  • To ensure that all revenue, expenditure, assets and liabilities of those governments are managed efficiently and effectively and;
  • To provide for the responsibilities of persons entrusted with financial management in those governments and to provide for matters connected therewith.

4.

Cooperatives Act, No. 14 of

2005

  • To provide for the formation and registration of co-operatives; the establishment of a co-operatives’ advisory board; the windingup of co-operatives; the repeal of Act 91 of 1981; and connected matters.

5.

Basic Conditions of Employment

Act, No. 75 of 1997

  • To give effect to the right to fair labour practices referred to in section 23(1) of the Constitution by establishing and making provision for the regulation of basic conditions of employment; and thereby to comply with the obligations of the Republic as a member state of the International Labour Organisation; and to provide for matters connected therewith.

6.

Income Tax Act, No. 58 of 1962

  • To consolidate the law relating to the taxation of incomes and donations, to provide for the recovery of taxes on persons, to provide for the deduction by employers of amounts from the remuneration of employees in respect of certain tax liabilities of employees, and to provide for the making of provisional tax payments and for the payment into the National Revenue Fund of portions of the normal tax and interest and other charges in respect of such taxes, and to provide for related matters.

7.

Labour Relations Act, No. 66 of

1995

  • To facilitate the granting of organisational rights to trade unions that are sufficiently representative;
  • To strengthen the status of picketing rules and agreements; to amend the operation, functions and composition of the essential services committee and to provide for minimum service determinations;
  • To provide for the Labour Court to order that a suitable person be appointed to administer a trade union or employers’ organisation;
  • To enable judges of the Labour Court to serve as a judge on the Labour Appeal Court;
  • To further regulate enquiries by arbitrators; to provide greater protection for workers placed in temporary employment services;
  • To regulate the employment of fixed term contracts and part-time  employees earning below the earnings threshold determined by the Minister;
  • To further specify the liability for employer’s obligations; and to substitute certain definitions, and to provide for matters connected therewith.

8.

Employment Equity Act, No. 55

of 1998

  • To provide for employment equity; and to provide for matters incidental thereto.

9.

Promotion of Access to

Information Act 2 of 2000

  • The purpose of this Act is to give effect to the constitutional right of access to any information held by the state, as well as information held by another person that is required for the exercise or protection of any right.

10.

Promotion of Administrative

Justice Act 3 of 2000

  • The purpose of this Act is to give effect to the right to administrative action that is lawful, reasonable and procedurally fair and to the right written reasons for administrative action as contemplated in section 33 of the constitution of the Republic of South Africa, 1996 and to provide for matters incidental thereto.

Source: Seda Strategic Plan

 

8.         SEDA STRATEGIC PILLARS

 

Vision

To be the centre of excellence for small enterprise development in South Africa.

 

Mission

To promote entrepreneurship and develop small enterprises by providing customised non-financial business support services that results in business growth and sustainability in collaboration with other role players.

 

Values

  • Customer centricity;
  • Nurturing;
  • Innovation and;
  • Responsible conduct.

 

Goal

Ensure that the small enterprise sector grows and increases its contribution to sustainable and equitable social and economic development, employment and wealth creation.

 

9.         STRATEGIC OUTCOME ORIENTED GOALS

 

During the 2016/17 planning cycle the Department, SEDA and SEFA embarked on a joint planning process that culminated in the development of a Portfolio Strategic Framework 2015/16 - 2019/20 and will feed into an overall Strategic Framework for the entire Small Business Development Portfolio. The Framework has five Strategic Outcome Oriented Goals which are linked to the National Development Plan and the MTSF 2014-2019 Sub-Outcomes, which are: -

  1. Policy and planning coherence in the sector, that promotes an enabling ecosystem for SMMEs and co-operatives;
  2. Equitable access to responsive and targeted products and services that enables the growth and development of SMMEs and co-operatives;
  3. An enhanced contribution to socio-economic development outcomes by the sector;
  4. Sound governance and the optimal utilisation of available resources and;
  5. A professional and capacitated Small Business Development Sector.

 

The overall national outcomes that the DSBD and SEDA takes the cue from are the creation of decent employment through inclusive economic growth and vibrant, equitable sustainable rural communities contributing towards food security for all. The Results Based Management Framework below depicts how SEDA Strategic Themes links to the Strategic Oriented Outcome Goals, the expected intermediate and ultimate outcomes, as well as the government outcome of decent employment through economic growth.

 

9.1        Alignment of Strategic Themes and Outcomes

 

Table 9: Government Outcomes

Government Outcome 4: Decent employment through economic growth

Government Outcome 7: Vibrant, equitable, sustainable rural communities contributing towards food security for all

Ultimate Outcome (Impact)

Increased contribution of small enterprises and co-operatives to the SA economy, and promotion of economic growth, job creation and equity.

Intermediate Outcomes

  • Increase in turnover of assisted small enterprises and co-operatives
  • Increased number of people employed in assisted small enterprises and co-operatives
  • Reduced mortality rate of assisted small enterprises and cooperatives

SEDA Strategic Themes

Increased service delivery

Improved operational excellence

Increased stakeholder partnering

Source: SEDA Annual Performance Plan

 

 

 

 

 

10.        SEDA PROGRAMME SUMMARY

 

Table 10: Programme Overview

Programmes

Purpose

Description

Programme 1: Enterprise Development

To support small businesses and cooperatives by providing them with needs based and growth oriented non-financial business development support, to ensure that their businesses are sustainable and contribute to the countries developmental goals of decreasing unemployment and increasing economic contribution to GDP.

This programme is intended to support the achievement of the organisational capacity perspective of the balanced scorecard. By improving service access the organisation seek to ensure that supported enterprises and cooperatives are provided with business related information, advice, consultancy, training, coaching, mentoring and business development intervention to improve their business performance. These services aimed at providing solutions related to various business functions from production to human resources, finance, marketing, quality improvement and export development. Rural and township enterprises including cooperatives are prioritised by ensuring that must of the support offered is directed towards them

 

Programme 2: Seda Technology Programme

 

To provide technology and innovation oriented interventions, including quality and product

improvement support to small enterprises and cooperatives. To enable incubated clients to improve their

survival rate beyond first challenging two years of business start-up by providing support to improve their

product offering and other business development support.

This programme is intended to support the achievement of the organisational capacity perspective of the balanced scorecard. By improving service access the organisation seek to ensure that supported enterprises and clients are provided with incubation support, technological equipment and innovation support to improve their capacity and productivity. Another focus of the programme is to ensure that incubated clients are given tools to be self-sustainable post incubation period and are able to contribute meaningfully to the economy. The Quality and Standards interventions ensure that the products and services of the supported enterprises complies with the statutory and regulatory requirements and create market access.

Programme 3: Administration;

To provide strategic leadership and support to core delivery to ensure successful implementation of the organisations strategy. This includes monitoring organisations performance, strategic alignment with the shareholders expectations and capacitating the organisation to achieve its set objectives

This programme is intended to support the achievement of all the perspectives of the balanced scorecard i.e. organisational capacity, internal processes, finance and customer and stakeholder perspectives. By improving strategic alignment, stakeholder engagement, organisational performance increasing funding improving cost efficiencies including improving customer and stakeholder satisfaction the organisation seek to ensure that all non-core divisions are able to support, improve and optimise their functions to contribute effectively in the organisation performance.

Source: SEDA Annual Performance Plan

11.        SEDA BUDGET ALLOCATION AND ANALYSIS

 

During the budget speech in February 2018, the Former Minister of Finance Malusi Gigaba announced far-reaching measures to curtail public spending to the tune of R85.7 billion. Of the R85.7 billion cut in government expenditure projected for the next three years‚ R53.4bn was peeled from national government budgets (particularly large programmes and transfers to public entities‚ at R30bn). The Department and its entities, Seda and sefa, were not spared from such budget cutbacks. Table 11 below details Seda’s budget for the three year planning cycle as per the MTEF allocation. The agency’s total budget for 2018/19 is R774 million down from R820 million in 2017/18 financial year. While Seda’s MTEF allocation increased with R118,5 million from 2016/17 to 2017/18, for the current financial year this allocation has been cut by R123 million, an equivalent of five (5) percent from 2018/19 to 2020/21. According to the agency, this will certainly have implications on a number of strategic initiatives such as incubation expansion, the one municipality one product (OMOP) programme, and promotion of Seda’s interventions in the key growth sectors that will either be delayed or postponed due to narrow resources.

 

Most of the fixed costs like office rental, goods and services increase with rates that are mostly above the rate of inflation, meanwhile the allocated budget amounts are increasing at minimal rates that are below the rate of inflation. This results in the amount available for programmes and projects being reduced accordingly as the total budget amount is limited. Seda has also experience reduced funding from partner organisations. Commitments have been made to service small enterprises and cooperatives in these areas, and Seda cannot close these service centres down due to reputational consequences. Seda is a service organisation and as such, needs to allocate adequate funds to the compensation of employees. The current allocation to compensation of employees is below the industry benchmark, due to available financial resources. The process of migrating programmes from the DSBD to Seda has not yet been finalised, and as such, the budget amounts associated with these programmes are not included in the tables below.

 

 

 

 

 

Table 11: Budget Summary (MTEF)

Income R’000

Audited Figures

 

Draft

FY 16/17

FY 17/18

FY 18/19

FY 19/20

FY 2020/21

SEDA- DSBD Budget from MTEF

481.5

575.8

580.2

648.2

677.7

STP-DSBD from MTEF Budget

152.3

176.5

159.2

167.7

176.5

External earnings

108.0

663.0

-

12.0

12.0

Other income

12.6

5.0

5.0

5.0

5.0

TOTAL INCOME

754.4

820.3

774.5

832.9

871.2

 

Expenditure R’000

FY 16/17

FY 17/18

FY 18/19

FY 19/20

FY 2020/21

 

 

 

 

 

Compensation of employees

300.2

330.3

352.6

376.4

401.8

Goods and services

453.6

472.0

403.1

436.8

448.8

Depreciation

18.3

18.0

18.8

19.7

20.6

Interest

-

-

-

-

-

TOTAL EXPENDITURE

772.1

820.3

774.5

832.9

871.2

             

Source: SEDA Annual Performance Plan

 

SMALL ENTERPRISE FINANCE AGENCY

 

12.        MANDATE

The Small Enterprise Finance Agency (sefa) is a fairly new entity established in April 2012 through the amalgamation of South African Micro-Finance Apex Fund (SAMAF), Khula Enterprise Finance and Industrial Development Corporation’s small business activities. It is incorporated as an entity in terms of the Companies Act of 2008 and Section 3(d) of the Industrial Development Corporation (IDC) Act, 1940, and thus a wholly owned subsidiary of the IDC. Section 3(d) of the IDC Act seeks “to foster the development of small and medium enterprises and co-operatives”. The entity is ironically a schedule 2 (in line with the parent entity IDC) but not a schedule 3A entity like Seda. There are no provisions within the body of the PFMA dealing with subsidiaries as a corporate form, separate from their parent entities. Therefore, in a truest sense, the Minister of Small Business Development is not the Executive Authority and therefore her ability to exercise oversight responsibility over the agency as prescribed in the Public Finance Management Act is impaired.

 

13.        LEGISLATIVE AND POLICY MANDATE

 

sefa’s operations are governed and guided by a wide range of legislative requirements and government policies. The following are the key legislative instruments and government policies that inform sefa’s strategy and operational plans: -

 

Table 13: Applicable Legislations

National Legislation

Government Policy/Strategies

Industrial Development Corporation Act

 

White Paper on National Strategy for the Development and Promotion of Small Business in South Africa (1995)

National Small Business Act (1996) as amended in 2004

Integrated Small Enterprise Development Strategy (2004)

National Credit Act

2011 State Owned Enterprise (SOE) Presidential Review

Financial Intelligence Centre Act (FICA)

New Growth Path (NGP)

Public Finance Management Act (1999, as amended)

Industrial Policy Action Plan (IPAP)

Treasury Regulation 29.1.3 requirements

National Development Plan (NDP)

Companies Act of 2011

Government’s Medium Term Strategic Framework (MTSF) -Outcome 4: Create Decent Employment Through Inclusive Growth

Co-operatives Amended Act

 

Short Term Insurance Act

 

Consumer Protection Act, 2008

 

Promotion of Access to Information Act, 2000

 

Source: sefa APP 2018/19

 

13.        SEFA STRATEGIC PILLARS

 

Vision

To be the leading catalyst for the development of sustainable small, micro, medium and co-operative enterprises through the provision of finance.

 

Mission

To provide simple access to finance in an efficient and sustainable manner to small, micro, medium and co-operative enterprises throughout South Africa by: -

  • Providing loan and credit facilities to SMMEs and co-operative enterprises;
  • Providing credit guarantees to SMMEs and co-operatives;
  • Creating strategic partnerships with a range of institutions for sustainable SMMEs and co-operative enterprise development and support;
  • Developing, through partnerships, innovative finance products, tools and channels to catalyse increased market participation in the provision of affordable finance.

 

Values

SEFAs values and guiding principles to deepen institutional culture and organisational cohesion are: -

  • Kuyasheshwa: We act with speed and urgency;
  • Passion for development: Solution-driven attitude, commitment to serve;
  • Integrity: Dealing with clients and stakeholders in an honest and ethical manner;
  • Transparency: Ensuring compliance with the best practice on the dissemination and sharing of information with all stakeholders;
  • Innovation: Continuously looking for better ways to serve our customers.

 

Objectives

  • Increase access and provision of finance to SMMEs and co-operatives and contribute towards job creation;
  • Build an effective and efficient SEFA that is sustainable and performance driven.

 

14.        ALIGNMMENT TO GOVERNMENT PRIORITIES

 

Pursuant to the 2016/17 and 2018/19 planning cycle, the Department, Seda and sefa embarked on a joint planning process that culminated in the development of a Portfolio Strategic Framework 2015/16 - 2019/20. This process feeds into an overall Strategic Framework for the entire Small Business Development Portfolio. Based on this framework, DSBD, sefa and Seda have agreed on five high level strategic outcome oriented goals for the period 2015/16 – 2019/20. The five high-level strategic outcome oriented goals, goal statements, national policy alignment and sefa’s contribution and goals are detailed below.

 

Table 14: Portfolio Strategic Outcomes Oriented Goals

 

Portfolio Strategic Outcome-Orientated Goal

 

Goal Statement

National Policy Alignment

sefa Contribution and Role

1.

Policy and planning coherence in the sector, that promotes an enabling ecosystem for SMMEs and Co-operatives.

The Portfolio will drive policy and planning coherence, and an enabling ecosystem in the sector, by:

 Providing direction and leadership to the sector broadly and across all 3 spheres of government.

 Leading evidence based legislative, regulatory and policy review and refinement.

 Leading and strengthening IGR mechanisms and fora to improve coordination with national departments, agencies, provinces and municipalities.

NDP and MTSF Sub-Outcomes:

4.3.2: Measure and reduce delays and unnecessary red tape around authorisations needed for provincial investments.

7.6.1: Promote sustainable rural enterprises and industries in areas with economic development potential.

 sefa will implement streamlined business processes to reduce application turnaround times and customer complaints.

 45% of sefa funding will be channelled to priority rural provinces (Limpopo, Mpumulanga, Northern Cape, Eastern Cape, Free State and North West)

2.

Equitable access to responsive and targeted products and services that enables the growth and development of SMMEs and Co-operatives.

The Portfolio will ensure equitable access to responsive and targeted products and services by:

 Coordinating and integrating support services to small businesses and Co-operatives, in particular those in townships and rural areas.

NDP and MTSF Sub-Outcomes:

4.5.2: Township and rural economies supported and report on the impact in terms of the number of business supported, value of the grant approved and geographic location of the supported businesses.

sefa’s loan programmes are targeted at the following groups – youth, women, rural communities, township owned businesses and business owned by entrepreneurs with disabilities.

3.

An enhanced contribution to socio-economic development outcomes by the sector.

The Portfolio will enhance the sector’s socio-economic contribution by:

 Monitoring and evaluating the impact of investments made in small business development and the sector’s contribution to economic growth and job creation, to inform evidence-based decision-making.

 Strengthening support to ensure the mainstreaming of the sector into the formal economy.

NDP and MTSF Sub-Outcomes:

Outcome 4: Decent employment through inclusive growth.

Outcome 7: Vibrant, equitable, sustainable rural communities contributing towards food security for all.

sefa contributes to socio economic development by:

In the 2018/19 FY sefa will fund 72 200 SMMEs and Co-operatives and in the process facilitate 74 443 jobs.

4.

Sound governance and the optimal utilisation of available resources.

The Portfolio will ensure sound governance, effectiveness and efficiency in its operations

NDP and MTSF Sub-Outcomes:

Secondary to Outcome 12: An efficient, effective and development-oriented public service.

sefa’s Governance, Risks and Compliance programme is focussed at ensuring effective institutional management aimed at pro-actively identifying and mitigating institutional risks, compliance and the effective utilisation of resources.

5.

A professional and capacitated SBD Sector.

The Portfolio will build a cadre of capable and skilled professionals in the sector, and among its own staff

 Building human resource capacity and promoting a culture of high performance.

 Supporting efforts to promote an entrepreneurial culture across society.

NDP and MTSF Sub-Outcomes:

Secondary to Outcome 5: A skilled and capable workforce to support an inclusive growth path.

sefa will invest in a National Mentorship Programme to support its funded clients during the investment phase.

Source: sefa APP 2018/19

 

15.        SEFA PROGRAMME OVERVIEW

 

In order to ensure effective implementation of the Corporate Plan, the following programmes have been formulated:

 

Table 15: Strategic Programmes

Programme

Strategic Programmes

Strategic Initiatives

  • Access to finance for SMMEs and Co-operatives;
  • Informal Sector and Micro-Enterprise Finance;
  • Roll out Fresh Produce Market Project to two additional geographical areas;
  • Consolidate and strengthen strategic partnerships in under-served provinces & roll out approved projects;
  • Support MFI growth and development, new product development and new partnerships;
  • Partner with private and public institutions to offer crucial business development services needed by informal business that sefa cannot provide directly;
  • Raise funds from external sources (Corporates and International Donors) and use those funds as equity/quasi equity in niche intermediaries with mandates closely aligned to sefa and donor funding partners to improve the sustainability of end users;

 

  • Direct Lending
  • Increased Development Impact;
  • Improved Financial Sustainability;
  • Client-Centricity Towards Client-Sustainability;
  • Enhancing Operational Efficiencies and Effectiveness
  • Automation of front-end processes.

 

  • Wholesale SME Lending
  • Improve the sustainability of end users through the use of equity/quasi equity to fund niche intermediaries with mandates closely aligned to sefa and donor funding partners;
  • Expand the Structured Finance Solution (SFS) offering, in partnership with Direct Lending;
  • Build value adding partnerships to expand outreach to under-served Provinces;
  • Increase revenues through leveraging government, DFI, Donor, and ESD Resources;
  • Managing costs by maintaining a lean Wholesale Lending structure;
  • Preserve capital in Wholesale Lending business.

 

  • Co-operatives’Lending
  • Leverage financial and non-financial resources of other role players into a holistic framework;
  • Develop a “Co-operative Growth Eco-system Plan”;
  •  

 

  • Khula Credit Guarantee
  • Extend coverage to include a wider range of financial institutions and commercial suppliers of inputs to SMEs;
  • Introduce flexibility of terms and conditions to increase attractiveness of products and services to targeted SME financiers. The aim is to re-engineer the scheme to facilitate the attractiveness and ease of use by participating institutions (new agreements, enhanced business processes and systems);
  • Develop, pilot and market new products and services to facilitate increased uptake of the indemnity facility. The following products and services will be developed and implemented;
  • Introduce risk-based pricing – develop and use a risk based premium pricing model.
  • Post Investment/ Workout and Restructuring Management;
  • The primary objectives of the unit are to manage the loan portfolio by reducing the current high levels of impairments from 45% in 2017/2018 to 36% in the 2018/2019 financial year and reduce it further by 100 basis points over the MTEF period.
  • Implement a pro-active monitoring approach in the identification of early warning signals for portfolio investments;
  • Workout and Restructuring;
  • Mentorship and business support programme to develop client sustainability;
  • Collections;
  • Delinquent Loan accounts.
  • Build an efficient and effective sefa that is performance driven and sustainable.
  • Financial Management, Supply chain and Compliance.
  • Cost Management;
  • Cash Preservation & Cash Management;
  • Raise Additional Funding Through External Donors;
  • Improved Financial Integrity and Automation

 

  • Human Resource Management.
  • Impact;
  • Sustainability;
  • Productivity;
  • Effectiveness.

 

  • Information and communication technology (ICT).
  • Improved ICT governance;
  • Network/Infrastructure management;
  • Application development.

 

  • Corporate Strategy and Reporting.
  • Corporate planning and reporting;
  • Research Management and Information Dissemination;
  • Project Management Office (PMO);
  • New Product Development.
  • Build a strong and effective sefa brand emphasising accessibility to SMMEs.
  • The role of Marketing and Communication is to position and market sefa, its products and services to SMMEs and Co-operatives and to facilitate strategic engagements with key stakeholders.
  • Enhance the sefa brand emphasizing accessibility of its products and service to SMMEs and Co-operation Enterprises;
  • Customer Relationship Management;
  • Stakeholder Engagement;
  • Build an effective Internal Communication Platform.
  • Compliance, Governance, Enterprise Risk

Management and Internal Audit.

  • Operational Risks.
  • Promote sustainability of sefa operations;
  • Continued compliance with new regulations and legislation;
  • Effective Reporting.

 

  • Credit Risk Management.
  • Credit risk Appetite;
  • Greater Alignment between credit and business;
  • Optimise credit portfolio reporting;
  • Better segmentation or diversification of portfolio;
  • Revise Pricing Framework for Direct and Wholesale Lending;
  • Risk Quantification Develop and maintain credit risk models.

 

  • Internal Audit
  • Assurance on core sefa business processes;
  • Create a sound Control Environment and assist Management to achieve organisational goals;
  • Improve Internal Audit Productivity/Effectiveness;
  • Improve Risk Management and Governance processes;

 

  • Company Secretariat and DRM.
  • Enhanced governance practices;
  • Enhanced guidance and secretarial support to Board and Committees;
  • Compliance with applicable laws, policies and procedures;
  • Automation;
  • Strengthen DRM to effectively Support business decisions.

 

  • Legal Services
  • Contracting – Facilitate the drafting of loan agreement and amendments based on committee decisions;
  • Represent and facilitate the resolution of all sefa legal disputes;
  • Institute and facilitate the process of legal collection where funded clients has reneged on the contract agreements.
  • Property Management.
  • Properties management programme.
  • Sale and transfer of Properties;
  • Effective and efficient administration of the property portfolio;
  • Ensure that the sefa property portfolio is preserved.

 Source: SEFA Annual Performance Plan

 

16.        FINANCIAL CONSIDERATIONS

 

sefa operations are funded by the following revenue streams: (a) interest and dividends from loans and advances, bank deposits and cash; (b) fee income; (c) property rental income: and (d) an annual government subsidy (the MTEF allocation). Total income over the planning period of 5 years amounts to R2.7 billion, comprising of personnel expenditure, movement in impairments, investment property expenditure and other operating expenditure (office rental, travel, marketing and advertising, management fees paid to fund managers and legal fees). The main source of income for sefa remains the MTEF allocation of R725 million over the MTEF period with an average annual increase 3 percent over the period.

 

The Board approved budget cycle over the years 2018/19 to 2022/23. This budget incorporates the drawdown from the IDC facility. The loan facility amounts to R921 million, at zero percent (0%) interest rate and no raising fees. The loan is subject to 60 (sixty) month capital moratorium thereafter the loan shall be paid over a 120 month period. First instalment shall be on the 61st month following the first drawdown. This loan will be used for on-lending purposed only. Even though the facility amount to R921 million, sefa anticipates withdrawing only R640 million during the five (5) year period ending 2022/23. The IDC loan draw down is necessitated by the worsening cash status of sefa with the depletion of cash resources over the 5-year period because of high staff costs, high impairments rates and a worsened properties portfolio.

 

17.OBSERVATIONS

Having reflected on the Department, sefa and Seda strategic plans, annual performance plans and budgets for 2018/19, the Portfolio Committee hereby register the following observations and recommendations for consideration by the Department: -

17.1 The creation of the Department of Small Business Development in 2014 reaffirmed prominence of the small business segment to South Africa’s economy, and the hope that it can lead the way to a more thriving future. The Portfolio Committee welcomes DSBD efforts to continually forge strategic partnerships with stakeholders in both the public and private sector. It notes, however, that the pace at which these partnerships are pursued has been rather sluggish. For instance, the Department has not cemented relations with other likeminded Departments i.e. the Department of Social Development (“DSD”) to empower indigent households in order to moderate their dependency on social allowances, as well as Cooperative Governance and Traditional Affairs (“COGTA”) in the development of, among others, feasibility studies and master plans at a ward level. Such interventions are necessary to attract investments;

17.2 The Committee notes that during the course of the budget vote process at the start of2017, it was briefed that, during the DSBD interaction with DPME and National Treasury back in November 2016 as regards its 2017/18 APP, the Department had subsequently been encouraged to review its 2017/18 APP to strengthen oversight role over the entities in order to reduce duplication of functions, to review its Budget Programme Structure to reflect its core functions which are the coordination and oversight of sector performance, and to reflect its contribution towards the priorities of the economic sector as reflected in the 2014 - 2019 MTSF and the NDP. However, owing to delays in the finalisation of the 2017/18 annual performance plan, the Department had to revert to implementing the approved start-up structure with effect from 1 April 2017. After that, the review of the strategic plan and the 2018/19 APP began in earnest, and the two were successively concluded sometime in 2017. The revised strategic plan, informing the  2018/19 annual performance plan and budget have both been considered by the Portfolio Committee;

17.3 The Committee notes that the process stated hereinabove was supplemented by redesigning of the organisational structure to ensure alignment with the approved budget structure for 2018/19. According to the Department (31: 2018/19 APP) the “proposed organisational structure still has to be consulted with the DPSA and approved before implementation. It is anticipated that the implementation of the new structure will commence during April 2018”.  Regrettably, it seems the Department has flouted Public Service Regulations, annulled its own commitment as expressed in the APP and went ahead to implement an organisational structure that has not been  agreed  to;

17.4 DSBD presentations, strategic plan and annual performance plan, were preceded by DPSA appearance before the Committee on Wednesday the 18th of April 2018. The Committee noted contradictory information between the two presentations with respect to the organisational structure. According to DPSA, while “the Department has finalised the proposed organisational structure, a pre- consultation meeting with the DPSA has been requested as soon as possible to assess the proposed organisational structure for core and support functions, prior to formal submission to the MPSA”. This, therefore, implied that the review of the organisational structure was and still a work in progress.  Whereas on the 25th of May 2018 the Department informed the Committee that the “redesign of the organisational structure and alignment to the mandate and approved budget structure for 2018/19 Financial Year is complete. The finalisation of the redesign is undertaken in consultation with Department of Public Service and Administration (DPSA) and National Treasury (NT)”;

17.5 When presenting the revised strategic plan on Thursday 10 May 2018, the Director General reiterated that the organisational structure mentioned on 17.4 above, was in fact aligned to the revised strategic plan and has been approved by DPSA. However, upon validating this information with DPSA, the Committee was informed that “according to DPSA records the approved structure of DSBD is not aligned to the  strategic plan signed on 28 February 2018”. Communique to the Committee further argued that “since the date of the issuing the letter (October 2017) the DSBD has not consulted the DPSA as is requested in the letter and required in terms of PSR25(2)(a)(i) so as to align the structure to the strategic plan”. An accompanying letter shared with the Portfolio Committee, written by then Minister Faith Muthambi to the Minister of Small Business Development Lindiwe Zulu, the Department was advised to address the following four issues:-

  • Alignment of the private office to chapter eight (8) of the Ministerial Handbook for Members of the Executive and Presiding Officers on the establishment of Private Office in support of Members;
  • The Department should ensure effective use of existing capacity, promote efficient and economic use of resources;
  • Employment of persons additional to the approved establishment should be reflected on the organisational structure, and;
  • Consider the issues raised by the Portfolio Committee on Small Business Development in the developmental of the organisational structure.

17.6 The Department approved its own revised strategic plan without properly subjecting it to government practices as required in terms of the Public Service Regulation Section  25(2) (a) (i) which posits, "Based on the strategic plan of the department, an executive authority shall –

(a)determine the department’s organisational structure in terms of its core mandated and support functions -

(i) in the case of a national department or national government component, after consultation with the Minister and National Treasury”.

The process followed by the Department is not consistent with this provision. Furthermore, it appears that the Director General misinformed the Portfolio Committee when she actually confirmed that the organisational structure was endorsed by DPSA when in fact this was not the case. Ordinarily, the revised strategic plan of the  Department was not even supposed to have been tabled without these processes having been fully exhausted and mutually concluded between DPSA and DSBD as prescribed by the act.

17.7      The Committee further notes other potentially contentious propositions in the revised strategic plan (49: Strategic Plan) i.e. transfer of Enterprise Incubation Programme (EIP) and Shared Economic Infrastructure Facility (“SEIF”) to Seda, Informal and Micro Enterprise Development Programme (“IMEDP”) and Black Business Supplier Development Programme (“BBSDP”) to sefa, and Co-operatives Incentives Scheme (“CIS”) to Co-operatives Development Agency (“CDA”), an entity that does not up till now exist. These issues have not been canvassed nor discussed with the Portfolio Committee. Yet they have massive repercussions on the structure and budget of the Department;

17.8      The Portfolio Committee is accordingly concerned that trilateral discussions involving DSBD, Seda and sefa  have been initiated on migrating certain programmes that are  said “to be in line with the DSBD’s value proposition model which clearly delineates roles between the DSBD and its agencies (46: 2018/19 Seda APP)”. The Portfolio Committee has no thorough comprehension of what these organisational proposals entail i.e. implications on the budget, personnel, organisational structure and services delivery model. The Committee is similarly concerned that not so long ago, it interrogated Seda’s capacity to deliver on its mandate without excessive utilisation of consultants, which is currently the norm with the agency;

17.9      In relation to 17.7 and 17.8, the Committee has furthermore received an anonymous letter lambasting the authoritarian nature of the method followed by the Director General of the Department during the migration process. The letter raises a number of concerns such as the structure of the Department having taken more than three years to complete, “even now as I speak there is no structure with an approval signature of the Minister of DPSA, the Department has incurred a huge over-expenditure on goods and services, there is a desperate lack of capacity in CIS, Co-operative Unit and BBSDP, with only five officials expected to serve nine provinces as well as DG having announced that CIS, EIP, BBSDP and IMEDP will be migrated to agencies without proper, open and honest discussions with staff on this matter”;

17.10    The Portfolio Committee is worried at the period elapsed since the Department was proclaimed in July 2014 to date in relation to the progress registered. The Committee appreciates that “the complexity of establishing an effective and efficient department is often underestimated” but does not entirely agree with this assertion. During its interaction with the Portfolio Committee on the 18th of April 2018, DPSA made it crystal clear to the PC that, at the most, the process of creating a new and fully functional Department should not exceed eighteen (18) months. We are in year four (4) since the Department was announced but there is still no approved organisational structure;

17.11    Other strategic matters that the Portfolio Committee has condemned since 2015 perhaps as a consequent of continuous restructuring of the Department include among others, the issue of vacancies. The Committee noted the Director General utterances during her presentation on the 25th of April 2018 equating as success the reduction of vacancy rate from 23 percent in September 2015 to 11.9 percent in March 2018. But in the same manner not indicating that this was beyond the DSBD target range of ten (10) percent, while also not addressing tenacious vacancies in the senior management level i.e. Deputy Director General and Chief Director rank which in the Portfolio Committee vantage point, upsets the proficiency of the Department. There is no clear plan from the APP by when these posts would be filled;

17.12    The Portfolio Committee has observed that over a period of time its recommendations are generally not incorporated in the annual performance plans of the Department, Seda and sefa. They are therefore not budgeted for and often fall between the cracks i.e. timelines of the advertisements of the Advisory Body was presented to the Committee by the Director General. An undertaken was made that the process would be completed before the end of 2017. In addition, a number of other recommendations with financial implications i.e. institutional support structures, remedial action plan on projects visited by the Committee i.e. Mpumalanga, Free State, Eastern Cape and KZN Abalimi pilot project were presented to the Committee but nothing is being done to implement them;

17.13    The programme review initiative referred to on the revised strategic plan that “was not well thought out and rushed, which is why there were no strong recommendations on the operations and programmes offered by the agencies” is a matter that the Portfolio Committee has consistently contended. For instance, some programmes were transferred and others discontinued i.e. Isivande Women’s Fund, this was done in spite of the Portfolio Committee assessment that such programmes were aligned to the mandate of the Department and should therefore be retained;

17.14    For two consecutive financial years, the Committee recommendations specifically in regards to programme review have not been factored into the annual performance plans of the Department, Seda and sefa. As a result, in an attempt to reconciling the differing viewpoints between the Department and the Committee, the Department has appeared twice before the Committee, first during November 2015, and again on the 23rd of November 2016. Notwithstanding, the programme review remains an incomplete initiative or exercise in the agenda of the Portfolio Committee. It is accordingly reflected as such in the Portfolio Committee Tracking Tool;

17.15    The Department and its entities, sefa and Seda, do not seem to have a clear strategy on how to leverage 30 percent public sector procurement set aside. The Portfolio Committee has made numerous suggestions to the Department and its entities for consideration when formulating APPs. Nevertheless, it is negligible number of these recommendations that are incorporated in all three APPs. Recently, the Portfolio Committee was forced to release Market Access Unit of the Department due to poor workmanship and sheer lack of understanding and appreciation of the significance of the market access. A while back, during the 2016 and 2017 BRRR process, the Committee recommended that on market access interventions, the Department needs to provide adequate support to projects, both financial and non-financial, lead an integrated process of nurturing small enterprises from inception phase right up to spearheading market access intervention programmes. Market access, access to finance, skills development and red tape, are four notable areas in the life of an entrepreneur that requires DSBD fierce response and clear-cut strategy;

17.16    There are also no strategies or plans to “utilise strategic levers that are available such as legislation, regulations, licensing, budget and procurement as well as Broad-based Black Economic Empowerment charters” to influence the behaviour of the private sector and drive transformation as announced by the Former State President during 2017 SONA. This is even though the Portfolio Committee having recommended to the Department, during 2016 and 2017 BRRR as well as 2016 and 2017 Budget Vote reports, to forge strong partnerships with the private sector and facilitate conceptualisation of the Wholesale and Retail Charter which in terms of the Committee timelines, was due for accomplishment during Quarter 1 of 2017/18 financial year;

17.17    During the 2017 Budget Vote the Portfolio Committee noted that for three consecutive financial years, budget allocation for Programme 2, a core unit in the Department had been miniscule. During the 2017/18 financial year, it did not only receive the lowest allocation but was also slashed by R4 million, from R26 million to R22 million, which when combined only amount to less than 2 percent of the total Departmental budget – 0.8 per cent less than in 2016/17. While Programme 1, a mere support unit, its allocation increased from R98 million in 2016/17 to R121 million in 2017/18. This trend looks set to continue during the current financial year. Compared with the Department’s three other core programmes, 2 - 4, each programme respectively received R22 million, R111 million and R1.2 billion while Programme 1 got R124 million;

17.18    The Portfolio Committee commends the Department’s proposed separation of programme three (3), into programme three (3) and (4), with dedicated Deputy Director Generals. However, it is equally important to underline the amount constituting “transfers and subsidies”, which at the face value, appears enormous. The Committee notes that out of R1.4 billion allocated to DSBD, R1.2 billion, roughly over 84 percent of DSBD budget, equates to transfers and subsidies with DSBD disbursing and administering just over R480 million (BBSDP, CIS, NIBUS and EIP), Seda R769 million and IDC R10 million. This brings into question the role of the Department and its measure of success or output i.e. whether it exists to dispense grants, incentives, facilitate transfers to agencies and/or management of consultants;

17.19    The Committee also noted transfers of R10 million to Industrial Development Corporation (IDC) towards Customised Sector Programme (CSP). The basis for this transfer to IDC instead of sefa or Seda had never been explained to the Committee until recently. Nevertheless, the Committee records and pleased that this function and budget will be transferred to Seda during the current financial year;

17.20    All policy initiatives planned for 2015/16, 2016/17 and 2017/18 have been deferred to 2018/19 financial year i.e. finalisation of the review of the National Small Business Act, revision of the Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises and review of the Integrated Strategy on the Development and Promotion of Co-operatives (2012 - 2022). While during the course of its existence, the Department has not contemplated to evaluate the Co-operatives Amendment Act (2013), Co-operative Development Policy for South Africa or adopted the Portfolio Committee recommendation(s) to craft, inter alia, the Franchising industry regulations as narrated in the five year strategic plan of the Portfolio Committee. Accordingly, the latter three policy related initiatives do not appear on the revised strategic plan of the Department and therefore not likely to be reviewed during the fifth Parliament. Coincidentally nonetheless, the annual performance plan of the Department (29:2018) does cite “the amendment of the National Small Business Act and Co-operatives Act as key deliverables for MTSF (the same MTSF which its lifespan ends in 2019)”;

17.21    As above, the Portfolio Committee has been consistent in its call for the creation of institutional support structures, and went further to implore DSBD to engage National Treasury with a view to ascertaining how much it would cost to put up these institutional mechanisms. The Co-operatives Amendment Act (2013) proposed the creation of the Co-operatives Development Agency (“CDA”), Co-operatives Advisory Council (“CAC”), Co-operatives Tribunal (“CT”) as well as Co-operative Development Fund (“CDF”) as a statutory body reporting to CDA. Not one of the agency has been created. The Committee is concerned that consecutive draft annual performance plans submitted to National Treasury, which include budget bids, have unusually excluded appeals for the creation of these agencies;

17.22    Furthermore, the Portfolio Committee records that throughout the four (4) year period of DSBD existence, the Department has strangely not delivered the National Small Business Advisory Body to represent and promote the interests of small business as directed by the National Small Business Amendment Act No 26 of 2003. The committee records and welcome recent undertaking by the Minister during the presentation of DSBD strategic plan that the process to appoint a small business Advisory Body will be concluded in two weeks’ time;

17.23    The Economic Development Department (EDD) legally remains the Executive Authority for sefa. The public entity functionally reports to DSBD as its Executive Authority through a MoA between the Minister in line with a Cabinet directive and decision. However, in its own admission, the Department concedes, “this arrangement remains clumsy as the entity is required to report to two Portfolio Committees and Shareholder Compacts are unduly delayed because it has to be approved by the Boards of sefa and IDC and two (2) Ministers”. Furthermore, the Committee observed during the DPSA presentation that “Government Technical Advisory Centre is in the process of developing a business case for the amalgamation of sefa (under EDD) and Seda (under DSBD) with the aim to amend the National Small Business Act”. The APP has no clear plan or way forward on measures to remedy this predicament. From the Portfolio Committee point of view, it is not clear why EDD and DSBD signed a MoA to co-manage sefa as this arrangement is untenable and unusual;

17.24    The Committee noted recent termination of public sector contracts by Auditor General of South Africa (“AGSA”) in particular that of KPMG. While the Committee cast no aspersions on the integrity of the financial statements produced by the embattled audit firm on behalf of sefa, the Committee nevertheless holds a view that it would be judicious and far-sighted of the Minister and sefa Board of Directors, in their respective capacities as shareholder and accounting authority, to engage the Auditor General on the matter to ascertain if all is above board with sefa financial statements. The Committee is on record having registered its misgivings with Auditor General’s outsourcing of audit functions to third parties. The agency is presently going through financial strain pushing it to tap into IDC loan. According to the agency “the IDC loan draw down is necessitated by the worsening cash status of sefa with the depletion of cash resources over the five (5) year period as a result of high staff costs, high impairments rates and a worsened properties portfolio”;

17.25    The secondment of sefa Chief Executive Officer to Seda Board of Directors is a step in the right direction. The Portfolio Committee is however expressly concerned that this secondment is not on an ex-officio basis. Additionally, it notes that sefa has failed to hold similar rule or principle to achieve the same purpose to appoint Seda Chief Executive Officer to its Board of Directors.

 

18. RECOMMENDATIONS

18.1The Minister has a duty to appear before the Portfolio Committee before 31 May 2018, to explain in detail, the procedure followed and appropriate corrective measures the Minister would pursue against the Director General for failing to comply with Public Service Regulation Section 25(2) (a)(i), and  also, for: 

  • Rendering DSBD non complaint with Parliamentary processes;
  • Creating unnecessary conflict between DSBD and the Portfolio Committee;
  • Misleading Parliament by repeatedly stating that DPSA had approved a structure aligned to the revised strategic plan when in fact this was not true;
  • Making the Portfolio Committee on Small Business Development scheduled unplanned meeting outside of its calendar or that of Parliament;
  • Creating a perception in the Department that, a Portfolio Committee of Parliament recommendations can be ignored arbitrarily by the officials without consequences.

18.2 In relation to observations 17.7 and 17.8 the Portfolio Committee is opposed to the  revised strategic plan propositions that some of the functions, personnel and budget be outsourced to sefa and Seda. The Committee reservations with respect to sefa and Seda incapability to deliver is well documented. The Department should build its own internal capacity and that of local economic development (“LED”) in municipalities in order to take full control of its deliverables. The Committee is therefore, and in principle, amenable to the revised strategic plan on condition that all unsettled or contentious issues of disagreements are resolved and/or rescinded as these may lead to unfunded budget. Such revision must have been concluded on or before the end of Q1 2018/19financial year;

18.3 Pursuant to 18.2, and a complaint received incognito by the Portfolio Committee, the Minister must determine if the proposed relocation of programmes, staff, budget etcetera by the Department to its agencies was done in accordance to PSR Section 32 (1) (2) (3),which deals with ‘transfer of functions’ and include this report in her presentation to the Portfolio Committee as per 18.1 above. While the Portfolio Committee is clear on this matter, it is important however, to fully appreciate the decision-making process and criteria used when this process was embarked upon;

18.4 The DPSA reiterated its commitment recently to assisting the Department finalise the long outstanding issue of organisational structure. The Portfolio Committee wishes to recommend to the Department to conclude this matter before 31 May 2018, finalise appointments of Deputy Director Generals and Chief Directors before the end ofQ2 2018/19 financial year, and bring down vacancy rate from a high of 12 percent to less than five (5) percent on or before end of Q3 2018/19 financial year;

18.5 The programme review initiative must now be concluded immediately. Subsequent to a resolution adopted on 23 November 2016, the Secretariat of the Portfolio  Committee will schedule a date no later than 31 May 2018 for DSBD to present the final and approved programme review. The presentation to include process followed when the Department of Trade and Industry (the dti) handed over Isivande Women’s Fund to IDC, which eventually passed it over to a fund manager, benefits to the intended recipients i.e. previously disadvantaged individuals more especially women, and a possible plan to retrieve funds from the fund manager before 2022;

18.6 As noted in the previous pages, the Portfolio Committee has no idea why DSBD and EDD entered into a MoA to co-manage sefa when DSBD proclamation in 2014 made it clear that sefa should report to DSBD. The Portfolio Committee Secretariat will facilitate a meeting with EDD Portfolio Committee with a view to proposing the nullification of the MoA. The respective Committees must push for the amendment of the IDC Act which established sefa. If the Secretariat is unsuccessful in scheduling a  meeting between the two Portfolio Committees, the Chairperson(s) and Whips of the Committees must meet ideally before 31 May 2018 in order to put this matter to rest;

18.7 Pursuant to the aspirations of the Co-operatives Amendment Act (2013) which advocated for the creation of the Co-operative Development Fund, the Portfolio Committee hereby recommends that the Department must develop a well-articulated  framework for leveraging Co-operatives Financial Institution (“CFI”) and Co-operative Banks to unlock access to capital for small enterprises. The revised strategic plan is mute on this and other critical issues that deals with access to finance. This framework  or plan must be presented to the Portfolio Committee before the end of Q1 2018/19,and its finalisation to be effected once the PC has concluded its visits to Kenya and Spain by 31 September 2018;

18.8 The Portfolio Committee previously recommended that the Department and sefa must review the current model of using intermediaries which are generally not easy to monitor and commonly charge high interest rates. The Committee is of the view that there is a need to consider various models that are cost-effective and sympathetic to circumstances of micro and survivalist enterprises. A plan must presented to the Portfolio Committee before of Q2 2018/19 financial year;

18.9 Without strong private sector partnerships the Department is not likely to go further. In line with the call made by the former President during in the 2017 state of the nation address for the government “to utilise strategic levers that are available such as legislation, regulations, licensing, budget and procurement as well as Broad-based Black Economic Empowerment charters to influence the behaviour of the private sector and drive transformation”, the Department, in particular the Market Access Unit must facilitate, with the private sector, the creation of the Wholesale and Retail Charter by Q3 of the 2018/19 financial year;

18.10 Furthermore and in relation to 18.9, the Portfolio Committee strongly recommends that a Market Access Unit of the Department, urgently develop a detailed and realistic Market Access Strategy, contents of which shall include plan(s) to leverage 30 percent procurement set aside before the end of Q2 2018/19 financial year;

18.11 The high failure rate of co-operative enterprises remains a constant reminder that CIS interventions without providing rudimentary support to co-operatives i.e. infrastructure, capital and market access, skills development and systematic elimination of inefficiency costs, have failed and therefore necessitate appraisal. In its current arrangement, CIS is essentially about distributing money to co-operatives with absolute zero monitoring and evaluation. The Committee is thus reiterating and stressing the urgency by the Department to finalise the review of the Co-operative Incentive Scheme before end of Q1 2018/19. As recommended in 18.8 above, the Committee restates that in providing support to co-operatives, the Department needs to understand underlying principles of the Co-operative Development Fund which is much more inclusive and developmental than CIS approach;

18.12 As previously recommended, the Minister is obligated in terms Section 2 of the National Small Business Amendment Act No 26 of 2003 to appoint members of the Advisory Board before end of Q1 2018/19. Furthermore, the Department needs to engage National Treasury to ascertain how much it would cost to establish necessary institutional support structures i.e. Co-operatives Development Agency, Co-operatives Advisory Council, Co-operative Development Fund and Co-operatives Tribunal, including discussions with the Department of Higher Education concerning the Co-operatives Training Academy, outcomes of which must be reported to the Portfolio  Committee before end of Q22018/19;

18.13 The Department must come up with a plan or strategy of retrieving small business functions and resources from other Departments estimated to be in the region of R15 billion. In the event that the Department encounter challenges in either retrieving those small enterprise’s programmes left in various departments or in creating intervention strategies, the Department must inform the Portfolio Committee so that a process of engaging other relevant Committees, National Treasury, DPME and DPSA is activated before end of Q2 2018/19;

18.14 Pursuant to 18.13, the Department must jointly, with DPSA, DPME and National Treasury, develop a business case to transfer Rural Development from the Department of Rural Development and Land Reform (“DRDLR”) in order to align the Department with injunctions and aspirations of the MTSF and NDP which directs that DSBD must “facilitate poverty reduction, social organisation, youth development and the development of cooperatives, rural enterprises and industries”, a programme currently being implemented by DRDLR. The Department must report progress before the end of Q2 2018/19 financial year;

18.15 The review of the National Small Business Act needs to be concluded without delay and bill tabled before Parliament on or before end of Q2 2018/19. Pursuant to recommendation 8.25 of the 2017 BRRR Report, the bill must incorporate dispute resolution mechanisms i.e. Small Business Ombudsman. In addition, DSBD position with respect to the review of the Co-operatives Act (as amended) must be clarified to the Portfolio Committee as these have implications on the programme and budget of the Committee. So are reviews of the Integrated Strategy on the Promotion of  Entrepreneurship and Small Enterprises and review of the Integrated Strategy on the Development and Promotion of Co-operatives (2012 - 2022). These have been under policy initiatives for three consecutive financial years without a hint of what their statuses are.

 

Report to be considered.

 

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