ATC181017: The Budgetary Review and Recommendation Report of The Portfolio Committee on Small Business Development

Small Business Development

THE BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT
 

The Portfolio Committee on Small Business Development (“the Committee”), having considered the performance of the Department of Small Business Development (“the Department”), alternatively, (“DSBD”) and its entities for the financial year 2017/18 reports as follows:

 

  1. INTRODUCTION

 

1.1        Purpose of the Budget Review and Recommendation Report

The Constitution of the Republic of South Africa, 1996 (“the Constitution”), specifically Section 77 (3), stipulates that an Act of Parliament must provide for a procedure to amend money bills before Parliament. It is this constitutional provision that gave birth to the Money Bills Amendment Procedure and Related Matters Act  No. 9 of 2009 (“the Act”). The Act sets out the practice that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national department. Section five (5) of the Act, posits that the National Assembly, through its Committees, must annually evaluate the performance of each national department with reference to the following:-

 

  • The medium term estimates of expenditure of each national department, its strategic priorities and measurable objectives, as tabled in the National Assembly with the national budget;
  • Prevailing strategic plans;
  • The expenditure report relating to such Department published by the National Treasury in terms of Section 32 reports of the Public Finance Management Act, No 1 of 1999 (“PFMA”), as amended in 2009;
  • The financial statements and annual reports of such Departments;
  • The report of the Committee on Public Accounts relating to the Department; and
  • Any other information requested by or presented to a House or Parliament.

 

Accordingly, Committees must submit the Budgetary Review and Recommendation Report (“BRRR”) annually to the National Assembly. The BRRR assesses the effectiveness and efficiency of a Department’s use and forward allocation of available resources and may include recommendation on the use of resources in the medium term. Committees are to submit the BRRR after the adoption of the budget and before the adoption of the reports on the Medium Term Budget Policy Statement (“MTBPS”) by the respective Houses in November of each year. The Act therefore makes it obligatory for Parliament to consider the Department’s budgetary needs and shortfalls vis-à-vis the Department’s operational efficiency and performance. In the case of DSBD, this is done taking into consideration the fact that the Department has oversight responsibilities over the two entities, that is, Small Enterprise Finance Agency (“sefa”) and Small Enterprise Development Agency (“Seda”). The Committee is accordingly required to make recommendations on the forward use of resources to address the implementation of policy priorities and services as these may require additional, reduction or re-configuration of resources for the Department. Those recommendations have to be submitted to the Minister of Finance and the Minister of the Department of Small Business Development for execution. This gives effect to Parliament’s constitutional powers to amend the budget in line with the fiscal framework.

 

1.2        Methodology used in the formulation of this BRRR

The Committee interrogated all presented documents as outlined in clause 5 of the Money Bills Amendment Procedure and Related Matters Act. It also assessed the performance of the Department for the 2017/18 financial year as outlined in the Annual Performance Plan (“APP”) of the Department against the set of targets as presented in the tabled annual performance plan in 2017. Furthermore, the Portfolio Committee engaged a number of different stakeholders and various organs of state that play a role in appraising the financial and non-financial performance of the Department, including the briefing by the Auditor-General of South Africa (“AGSA”), alternatively, (“AG”), regarding the audit outcomes of the Department and its entities. Even though, the Department(s) of Planning, Monitoring and Evaluation (“DPME”) and Public Service Administration (“DPSA”) were not called to present to the Portfolio Committee but their contributions were solicited.

 

In carrying out such exercise, the Committee utilised a number of source documents, including the revised Strategic Plan of the Department, APP’s, Annual Reports, 2017/18 Financial Statements, Estimates of the National Expenditure (“ENE”), numerous briefings by the Department and its entities during the course of the year, as well as the State of the Nation Address (“SONA”). The Committee also used the Constitution as its basis. In addition, this report has taken into consideration the best lessons learnt from the Portfolio Committee interactions with institutions that provide support to survivalist, small, micro, medium and co-operative enterprises since it was constituted in July 2014, lessons learnt from various oversight visits, conferences and engagements with numerous stakeholders. Information gathered from the above-mentioned activities is then utilised to argue for the reduction or addition and/or reconfiguration of resources and Departmental programmes.

1.3        Mandate of the Committee

In terms of the Constitution of the Republic of South Africa, Portfolio Committees have authority to legislate, conduct oversight over the Executive and facilitate public participation. Parliament’s mission and vision statements, the rules of Parliament and its Constitutional obligations govern the Portfolio Committee on Small Business Development mandate. The mandate of the Portfolio Committee is to contribute to the realisation of a developmental state and to ensure effective service delivery through discharging its responsibility as a Portfolio Committee of Parliament. Its vision includes enhancing and developing the capacity of Committee Members in the exercise of effective oversight over the Executive Authority (“EA”).

 

One of the Committee’s core objectives is to oversee, scrutinise and influence the action of the Executive and its agencies. This implies holding the Executive and related entities accountable through oversight of its programmes, scrutinising its budget and expenditure (‘annually’), and recommending through Parliamentary processes, actions it should take in order to attain its strategic goals and contribute to service delivery. As an integral part of Committee oversight role, Section 5 of the Money Bills Amendment Procedure and Related Matters Act directs the National Assembly, through its committees, to periodically evaluate the performance of each national department. This process leads to a committee having to submit a report of this assessment known as a Budgetary Review and Recommendation Report, which is then tabled to the National Assembly.

 

1.4        Mandate of the Department

The Department of Small Business Development plays a major role in effecting Chapter three (3) and six (6) of the National Development Plan (“NDP”). Both chapters deal with the economy and employment as well as rural inclusive growth. The NDP builds on the government’s New Growth Path (“NGP”) which aims to create five (5) million jobs by 2020 and bring about a new, more inclusive, labour-intensive and efficient economy. Additionally, the Department has a responsibility to contribute to the two outcome(s) of the Medium Term Strategic Framework (“MTSF”), namely, Outcome 4: Decent employment through inclusive growth, and Outcome 7: Rural development. In the midst of executing its directive the Department further carries an obligation to observe, adhere and implement policy articulations as contained in the successive State of the Nation Addresses i.e. Nine Point Plan (“NPP”), 30 percent Procurement Policy, sector transformation charters, to keep tabs on the policies and acts that fall outside its ambit but that may potentially and adversely affect the small business sector i.e. Preferential Procurement Policy Framework Act (“PPPFA”), Broad-Based Black Economic Empowerment Act (“BBBEE”) and BBEEE Transformation Charters, Industrial Policy Action Plan (“IPAP”), Companies Act as well as its five year Strategic Plan to name the few.

1.4.1     Small Enterprise Development Agency

Small Enterprise Development Agency is an entity of the Department 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 entity as prescribed by the Public Finance Management Act. Seda Annual Report 2017/18 details how the organisation continues to live up to expectations and make significant contributions towards creating decent employment through enterprise development also leading to vibrant, equitable, sustainable, rural communities that contribute towards food security for all.

 

Seda was conceptualised in 2004, through amendment of the National Small Business Act, amendment Act 29 of 2004, which 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. Seda mandate stems from the National Development Plan, Medium Term Strategic Framework 2014-2019, Strategic Plan and Annual Performance Plan (APP) of the Department, its five-year Strategic Plan and APP that are compatibly aligned to its executive authority.

 

1.4.2     Small Enterprise Finance Agency

The Small Enterprise Finance Agency was 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. On 1 April 2015, sefa was officially handed over to DSBD. It is a registered entity in terms of the Companies Act of 2008 and incorporated in terms of 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 agency has six (6) subsidiaries that report to it, two (2) associate partners, three (3) joint ventures and one joint operation. Its mandate is to be “the leading catalyst for the development of sustainable survivalist, small, micro, medium and co-operative enterprises through the provision of finance. Likewise, its sister entity SEDA, the agency’s directive find expression in the National Development Plan, Medium Term Strategic Framework 2014-2019, Strategic Plan and APP of the Department, as well as its five-year Corporate Plan and APP. For 2017/18 financial year sefa fortunes were mixed and this report will explicate further why it was so.

1.5        Outline of the Report

This BRRR consists of seven sections. Section one (1) briefly outlined the mandate of the Committee and the Department, the purpose of this report and the methodology followed in preparing the report.

 

Section two (2) sets out the key policy focus areas for the Department. This includes an overview of the relevant national priorities as outlined in the government policies and plans such as the National Development Plan, New Growth Path, the Medium Term Strategic Framework and the State of Nation Address that the Department has to contribute in achieving them. Thereafter, an overview of the strategic plans of the Department and its entities are highlighted with the view of assessing whether or not they address the broader government priorities and plans originating from the afore-said policies and plans.

 

Section three (3) revisits the previous recommendations and responses for the past two financial years to ascertain if any of these were at all implemented.

 

Section four (4) considers the Department’s financial performance against its allocation for the financial year 2017/18. It briefly examines the 2018/19 MTEF programme allocation in terms of the economic classification and per sub-programme.

 

Section five (5) deals with overview of the service delivery performance including programme performance and key performance indicators.

 

Section six (6) interrogates the Departmental entities, the financial and non-financial performance; forward-looking budgetary and/or performance requirements are evaluated.

 

Section seven (7) of the report discusses the Committee’s observations and perspectives with regard to the strategic plan of the Department concerning its mandates, strategic objectives and core issues previously and currently identified by the Committee. In addition, this section sums up all issues of interests and concerns to the Committee that could have handled differently and issues that require DSBD attention going forward.

 

Lastly, section eight (8) is a synthesis of recommendations, past and present, based on the deliberations informed by the assessment of the Department in each of the sections discussed above. These recommendations are categorised into two: Funding recommendations and Governance related recommendations.

 

2.         OVERVIEW OF THE STRATEGIC AND OPERATIONAL ENVIRONMENT

 

The strategic plans and objectives of the Department and its entities are determined largely by the ecosystem in which they operate. Prior the adoption of the National Development Plan as a guiding blueprint for the country’s socioeconomic development, there was a level of policy uncertainty, fragmentation and disintegration within and outside the public sphere, which did not auger well and at best contradicted the government’s efforts of accelerating growth, reducing unemployment and inequality as well as complete eradication of poverty. The National Development Plan brought much needed stability and confidence in the governance system. In the past, the government had certainly explored a number of micro and macroeconomic policy measures that yielded inconsequential results.

 

The adoption of the NDP not only placed an onerous obligation on the state to align its machinery in particular its planning processes but also enjoined the civil society, labour and business to fast-track vision 2030. Thus, all strategic plans and annual performance plans of the organs of state must find expression in the plan, NGP, SONA and MTSF, considered a building block to vision 2030. These plans and strategies are annually reviewed during the State of the Nation Address, whereby the Departments and their entities are expected to align their annual performance plans in accordance to the priorities and primacies contained in each State of the Nation Address.

 

2.1        Relationship with the 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 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 business 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.

 

Therefore, chapter three give DSBD marching orders to put in place mechanisms that seeks to reduce the cost of doing business through microeconomic reforms, to develop proposals for an acceptable minimum standard of living and proposals on how to achieve this over time to remove the most pressing constraints on growth, investment and job creation, including energy generation and distribution, urban planning etc., as well as to position South Africa to attract offshore business services, and build on the advantage provided by its telecommunications, banking and retail firms operating in other countries.

 

While chapter six emphasises the role of infrastructure in bringing about economic development particularly in rural areas. The plan postulates that rural economies will be activated through improved infrastructure and service delivery. It instructs the state sector to conduct a review of land tenure, to analyse the nature of services and support offered to small and micro farmers, a review of mining industry commitments to social investment, and tourism investments. It further mandates the government to substantially increase investment in irrigation infrastructure, to create tenure security for communal farmers, especially women, investigate different forms of financing and vesting of private property rights to land reform beneficiaries that does not hamper beneficiaries with a high debt burden.

 

2.2        New Growth Path and National Development Plan

The Department has a responsibility to implement various policy propositions for growth, decent employment and equity as captured in the New Growth Path. 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 programme, namely: -

 

2.2.1     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;

 

 

2.3        Medium Term Strategic Framework and National Development Plan

The Department is directed to contribute to service delivery outcome 4 (‘decent employment through inclusive growth’) and service delivery outcome 7 (‘rural development’) of the 2014-2019 Medium Term Strategic Framework. It is tasked to create a favourable legislative and policy environment for survivalist, small, micro, medium and co-operative enterprises, develop and grow small business sector in township and rural areas, and establish public and private partnerships aimed at maximising support for small businesses.

 

Over the medium term and, in line with the NDP, the Department plans to focus on increasing the number of small enterprises that it supports in all nine provinces, review the strategy for SMME Development and Entrepreneurship, reinforce support for co-operative enterprises, develop and intensify market access opportunities for small enterprises, support incubators for small enterprises, and strengthen Departmental operational capacity. The Department is further tasked with an assignment of moderating redundant regulatory bottlenecks, which it plans to do through its red tape reduction programme for the operations of small enterprises in municipalities.

 

2.4        State of the Nation Addresses [2014-2018]

 

2.4.1     SONA 2014

During the 2014 State of the Nation Address (SONA), first State of the Nation Address of the fifth democratic administration, the President announced the creation of the Small Business Ministry as a National Department in accordance with the re-organisation of some national departments. The Ministry was assigned a mandate to lead an integrated approach to the promotion and development of small businesses and cooperatives through a focus on economic and legislative drivers that stimulate entrepreneurship to contribute to radical socioeconomic transformation as advocated in the Mangaung Resolutions of the ANC Conference in 2012. During the announcement, the President further put forward key policy objectives and deliverables for pursuance by this new Department as follows: -

  • To increase tourism contribution to the country’s revenue to more than 125 billion rand by 2017;
  • Prioritisation of support to small business, as well as township and informal sector businesses in particular using the SMME development programme to boost broad-based black economic empowerment;
  • Sharpen the implementation of the amended Broad-based Black Economic Empowerment Act and the Employment Equity Act, in order to transform the ownership, management and control of the economy;
  • Promotion of employee and community share ownership schemes and boost the participation of black entrepreneurs in the re-industrialisation of the economy;
  • To reposition Development Finance Institutions  (“DFI”) in the next five years to become real engines of socio-economic development and;
  • To support Postbank so that it can play a leading role in the expansion of banking services to the poor and the working class.

2.4.2     SONA 2015

During this SONA, the Department was given an additional mandate to strengthen efforts designed to solidify the small business sector. It then took a step to strike a decisive and expressive intervention to the development of small business sector through its involvement towards the attainment of the NPP plan specifically to “unlock the economic potential of survivalists, small, micro, medium and co-operatives, particularly township and rural enterprises” as pronounced by the President during the 2015 State of the Nation Address. Other key policy objectives and deliverables for the year ahead were proposed as follows: -

  • Resolving the energy challenge;
  • Revitalising agriculture and the agro-processing value chain;
  • Advancing beneficiation or adding value to our mineral wealth;
  • More effective implementation of a higher impact Industrial Policy Action Plan;
  • Encouraging private sector investment;
  • Moderating workplace conflict;
  • Unlocking the potential of SMMEs, cooperatives, township and rural enterprises and;
  • To reform State sector and boosting the role of state owned companies, ICT infrastructure or broadband roll out, water, sanitation and transport infrastructure and;
  • Operation Phakisa, which is aimed at growing the oceans economy.

 

2.4.3     SONA 2016

The 2016 State of the Nation of Address emphasised the state of world economy, in particular the economies of two of our partners in BRICS, Brazil and Russia that were anticipated to contract further, with ramifications on the small business sector. The third strategic partner, China, was also predicted to achieve below 6 percent economic growth owing to the hostile global economic conditions. Additional areas of importance for the Department were identified as follows: -

  • Government started the process of creating One Stop Shop/Invest SA initiatives to signal that South Africa was truly open for business. State departments were directed to fast-track the implementation of this service, in partnership with the private sector. It is hoped that through such initiatives, legislative and regulatory obstacles that frequently impedes offshore investment will ultimately be eliminated;
  • It was announced that SA Tourism will inject R100 million a year in the economy to promote domestic tourism, and to encourage South Africans to tour their country;
  • The President further underscored the need to empower survivalists, small, micro, medium and co-operative enterprises to accelerate their growth, access to high-quality, innovative business support that can dramatically improve the success rate of the new ventures and;
  • Big business was urged to partner with new and small businesses particularly those that are owned by women, youth and people with disabilities, as part of broadening the ownership and control of the economy and lastly;
  • The establishment of the SMME fund, a partnership between government and private sector, was announced.

 

2.4.4     SONA 2017

In the 2017 SONA, President Jacob Zuma impressed on a number of fundamental policy proposals to invigorate the small business sector as follows: -

  • Government’s commitment to support black smallholder farmers in particular the implementation of a commercialisation programme for 450 black smallholder farmers;
  • The State to utilise the 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;
  • And through such regulations and programmes, government will be able to use the State buying power to empower small enterprises, rural and township enterprises, designated groups and to promote local industrial development;
  • To use the State expenditure of R500 billion a year buying goods and services to achieve economic transformation;
  • To implement the new regulations making it compulsory for big contractors to subcontract 30 percent of business to black-owned enterprises by the 1st of April 2017;
  • To focus on a few key areas packaged as the Nine-Point Plan to reignite growth so that the economy can create the much-needed jobs and;
  • To focus on areas such as industrialisation, mining and beneficiation, agriculture and agro-processing and energy in an endeavour to benefit small business sector;
    1. SONA 2018

The 2018 SONA, first to be delivered by President Cyril Ramaphosa, underscored the role of small enterprises in sustaining and growing the economy. The role of social partners was pointed out as “vital in building a small business support ecosystem that assists, nourishes and promotes entrepreneurs”. The President made a commitment that government will honour its undertaking to set aside at least 30 percent of public procurement to SMMEs, cooperatives and township and rural enterprises. Other microeconomic interventions to include investment in small business incubation, conception of a small business and innovation fund targeted at start-ups, reduction of regulatory barriers for small businesses and the rollout of the CEOs fund – which currently stands at R1.5 billion.

 

2.5        Strategic Plan(s) of the Department

The Department of Small Business Development was established in May and proclaimed on July 2014. The Broadening Participation, a division within the dti, was shifted to the Department, with financial and human resources. During 2014/15, the Department operated as part of the dti Budget Vote 36 until the end of that financial year. In 2015/16, Budget Vote 31 on Small Business Development became effective, but was still implementing programmes that were transferred or inherited from the dti. Hence, governance and corporate services functions operated under the auspices of, or, through a Cooperation Agreement with the dti.

2.5.1     Strategic Plan: 2014 - 2019

During the 2014 BRRR process, the Department presented its first draft Strategic Plan for 2014-2019. The draft Strategic Plan highlighted strategic objectives of the Department for the period concerned and targets for each year going forward. The Portfolio Committee was content with the quality of the draft Strategic Plan. The strategic objectives proposed in the draft Strategic Plan were aligned to the mandate, vision and mission statement of the Department. In addition, the targets and outcomes set to achieve the policy focus areas were relevant to the Department. However, while the proposed resources to fund the execution of strategic plans were aligned to the set targets, there were still some gaps with regard to understanding the needs of the target market in order to determine the relevant support provision.

 

Consequently, in May 2015, during the Budget Vote Report process, the Department submitted a final draft Strategic Plan that incorporated concerns raised by the Committee during the previous year, October 2014. As such, the final draft Strategic Plan was adopted by the Committee pending Department of Public Service Administration approvals. The adopted Strategic Plan highlighted the strategic objectives of the Department for the 2014-2019 period and targets for each year going forward. The strategic objectives were informed by the government strategic sector or cluster priorities as derived from the MTSF, focus sector policy areas emanating from policy documents such as NDP and situational analysis of the sector.

 

Procedurally and as required by National Treasury and DPME, strategic objectives should state clearly what the government institution/department intends doing (or producing) to achieve its strategic outcomes oriented goals, these must be in accordance with the vision, mission and mandate of the Department. The objectives should generally be stated in the form of an output statement, although in exceptional circumstances government institutions might specify them in relation to inputs and activities or outcomes. Each objective should be written as a performance statement that is specific, measurable, achievable, relevant and time-oriented often referred to as SMART, and must set a performance target the institution can achieve by the end of the period (‘five years’) of the Strategic Plan. The Department had originally identified the following five programmes, viz.: -

 

  • Programme 1: Administration - This programme, has remained intact throughout DSBD evolution, consist of support services to the Department such as a Chief Information Office, Human Resources, Legal Services, Corporate Governance and Ethics, Auxiliary Services and a unit to execute the marketing and communications of the department;

 

  • Programme 2: Customised Intervention Programmes - The key focus for Programme two was on improving the quality of financial and non-financial support services to small enterprises;

 

  • Programme 3: Co-operatives - The Department had undertaken to implement a new support model for co-operatives, including implementation of the Co-operatives Act directive to establish, among others, Co-operatives Development Agency (“CDA”), Co-operatives Training Academy (“CTA”) and Co-operatives Tribunal (“CT”), including developing and providing financial and non-financial support services;

 

  • Programme 4: Research, Policy and Intergovernmental – Programme four was dedicated to assessing existing policies enshrined in legislation affecting Small Business, Co-operatives, Youth Enterprise Development, Women Empowerment and National Informal Strategies with a view to enhancing policies in line with the mandate of the Department. The conclusion of transversal agreements with other Government Departments, State Owned Entities and private sector to enhance implementation of Departmental strategies were to be achieved under this programme;

 

  • Programme 5: Enterprise Development and Entrepreneurship – This Programme was introduced to ensure increased access to employment and entrepreneurship for high-impact businesses as well as marginalised groups, focusing on skills development, franchising, technology transfer and incubation, advancing support for the emerging and smaller enterprises.

 

Following DPSA approving a start-up structure comprising of only three (3) divisions/programmes, the Department was therefore obligated to reconfigure the structure. Hence, the Portfolio Committee would subsequently adopt the strategic plan of the Department with only three (3) programmes as per DPSA directive and these were -

  • Programme 1: Administration – As above, this programme has remained intact during the course of DSBD progression, its purpose is to provide strategic leadership to the Department and its entities, ensure successful implementation of the Department’s mandate through sustainable and integrated resource solutions and services that are customer-driven. The programme encompasses support services to the Department which include, the Ministry, Office of the Director-General, Cluster Oversight and Strategic Planning, Corporate Services, Financial Management and Communication and Marketing;

 

  • Programme 2: Co-operatives Support and Development - The key focus of this programme was to create an enabling environment that will facilitate the establishment, growth and development of Co-operatives through the development and review of policy and legislation and provision of enhanced financial and non-financial support services utilising improved institutional arrangements. This programme constituted sub-programmes, namely, Primary Co-operative Development, Incubation Support Programme, Co-operatives Supplier Development Programme, Intergovernmental relations, market development, Research, planning, monitoring and evaluation;

 

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

 

  1. Strategic Plan: 2015 -2019

The annual report and performance outcomes being reported to at this time are based on this strategic plan. Subsequent to Budget Vote 31 becoming effective, the Department began establishing its own policy regime, Audit Committee, Internal Audit function, Risk Committee and risk management function. From this time, it organised itself into functions as an autonomous and effective administration with effect from 1 April 2016. The challenge on the other hand has always been that the Department inherited programmes conceptualised at different times by the dti. It did not take over a ready-made and full solution to deliver the small business development and co-ordinating mandate of a Department. It thereafter commissioned a Programme Review in July 2015, the aim being to determine the relevance and impact of the existing programmes as opposed to the mandate of the Department.

 

The key findings and recommendations of the Review, presented to the Portfolio Committee in November 2015, were that the Department must, rationalise and refocus programme activity on areas of highest impact; create a clear delineation of responsibility between the Department and its agencies; invest in a comprehensive policy, research, monitoring and evaluation capability; package DSBD, sefa and Seda offerings to present a single point of entry for survivalist, small, micro, medium and co-operative enterprises; strengthen points of interactions between other areas of government and with the private sector; consolidate the mandate for co-operatives to improve focus, and most importantly and conduct proper change management.

 

The Review further suggested an adoption of a value-chain based product and services architecture, to enable the Department to tackle sector deficiencies and to position the Department as the guardian of overall small business sector performance. DSBD adopted most of the findings and recommendations that emanated from the review, which informed the Department’s strategy moving forward, value-chain service delivery model and programme structure. As a result, the 2014 - 2019 Strategic Plan was slightly altered to accommodate the new business model that the Department had adopted, which to a great extent, informed the Department’s 2016/17, and ultimately, 2017/18 annual performance plan(s). This therefore, meant that the Department had three programmes as follows: -

  • Programme 1: Administration – As indicated earlier, the purpose of Programme one is to provide strategic leadership, management and support services to the Department;

 

  • Programme 2: Small, Medium and Micro Enterprises and Co-operatives Policy and Research - The purpose of Programme 2 is to formulate policies and conduct research for the development and growth of suitable small businesses and co-operatives that contribute to the creation of employment and economic growth;

 

  • Programme 3: Small Medium Micro Enterprises and Co-operatives Programme Design and Support - The purpose of this Programme is to support the development and growth of small businesses through designing financial and non-financial business development support programmes and interventions i.e. National Informal Business Upliftment Strategy (“NIBUS”).

 

  1. Strategic Plan: 2015-2019 (Revised in 2017)

During 2017, the Department embarked on a process of reviewing its strategic plan. The Minister approved the strategic plan. The revised strategic plan, informing the 2018/19 annual performance plan and budget     were thus considered by the Portfolio Committee in May 2018. The strategic plan review process was complemented by reformation of the organisational structure to ensure alignment with the approved budget structure for 2018/19. In terms of the revised strategic plan and APP currently being implemented, bar programme one (Administration), there are three (3) other programmes as follows:-

 

Branch 2: Sector Policy and Research - To create an enabling environment for the development and growth of sustainable small businesses and co-operatives and to ensure the desired impact is achieved in contributing toward the creation of employment and economic growth by SMMEs and Co-operatives

 

Branch 3: Integrated Co-operatives Development - To promote an ecosystem that enhances the establishment, growth and sustainability of co-operatives through the design, piloting and monitoring of the impact of support services and instruments; championing of functional partnerships agreements; the advocacy and thought leadership in advancing economic growth and job creation by Co-operatives; and the establishment and governance of the institutional arrangements provided for in the Co-operatives Act.

 

Branch 4: Enterprise Development and Entrepreneurship - To promote an ecosystem that enhances entrepreneurship and the establishment of growth and sustainability of small businesses through the designing, piloting and monitoring of the impact of support services and instruments; the promotion of targeted local enterprise development; championing functional partnerships; advocacy and thought leadership in advancing economic growth and job creation by SMMEs and entrepreneurs.

 

2.6        Strategic Plan of the Committee and Parliament

In line with the Parliaments Strategic Plan, and in order to be able to perform its constitutional mandate, the Portfolio Committee on Small Business Development held its first strategic session in February 2016 wherein, a full-fledge Strategic Plan and 30 Strategic Objectives were developed. Each Strategic Objective developed is in line with the Strategic Objective(s) and Outcome(s) of the fifth Parliament.

 

Areas of spill-over from the 4th Parliament, most of them under the stewardship of the Department(s) of Trade and Industry (“the dti”) as well as Economic Development (“EDD”), are also integrated into the new plans of the 5th Parliamentary plans, specifically the plans of the DSBD, and with extension, the Portfolio Committee on Small Business Development. Additionally, the Strategic Objectives of the Committee are further informed by the Department’s and its agencies priorities, including but not limited to, the implementation of the New Growth Path strategy in support of the National Development Plan, promotion of rural, township, women, youth based enterprises and co-operatives.

 

In conclusion, an analysis of whether the strategic objectives address sector priorities, sector policy focus areas and sector situational analysis, and whether in overall, the strategic plan is aligned to the Departmental vision, mission and mandate will be dealt with on the section which deals with Committee Observations (‘Section 7’). Furthermore, a review of the Departmental performance based on the performance reported in the Annual Report and other documents will be expounded in the same section. Also, areas that the Committee feel are omitted or unnecessary, duplicated, irrelevant will be highlighted with the aim of drawing recommendations.

 

 

3.         SUMMARY OF PREVIOUS KEY COMMITTEE RECOMMENDATIONS

 

During the 2017 Budgetary Review and Recommendation Report, the Portfolio Committee made the following recommendations:

 

 Table 1: 2017 Recommendations

Recommendations

Response from the Department

The Committee is in agreement with National Treasury and DPME that the Department  must refocus its attention to Programme 3, which include Agency Oversight, Monitoring and Evaluation and intensify initiatives directed at supporting Intergovernmental Relations, Provinces and Municipalities as previously argued by the Committee

The Department agrees with this recommendation. The recommendation has been implemented. Governance and performance oversight occurs at

  • A technical level through the quarterly Governance Forum (a meeting between the DG and CEOs) which  considers
    • Quarterly Performance Reports, and ,
    • Recommends strategic matters for the attention of the Executive Authority (EA),
    • Matters of common interest
    • Work Stream reports on Shared Services; Communications, Research and International Relations
  • Quarterly meetings between the EA and Accounting Authority

 

The Department has revised the jobs specifications for a position recent vacated, to that of the position Director: Entity Performance which provides for engaging with entities at a programme planning, implementation and monitoring level.  For the first time the department will have the technical capacity to influence and oversee the impact of its transfer to Seda. The position will be advertised mid-August and should be filled by 1 November 2018.

In line with the Auditor-General recommendations, the Department must report quarterly to the Committee on the implementation, progress and action plans to address poor audit outcomes, to provide feedback on status of key controls, especially the monitoring of incentives scheme and to provide to the Committee a list of action taken against transgressors

The Department agrees with this recommendation.

  • The Department will with effect Quarter 1 in 2018/19 routinely include a progress report on the Audit Action Plan in its reports to the Committee.
  • The Forensic Investigation into the audit findings and other reported incidents is underway and will be finalised by 30 August. The AG will table its report in Parliament after the report has been adopted by the Department and the Minister
  • The Department in turn will report on the actions taken in response to the Forensic Investigation (+ 30 October 2018)

The Department must further explore other strategic partnerships and use other structures such as President’s Coordinating Council (“PCC”) in order to expedite the signing of Transversal agreements and relocation of other functions that still exist in other departments to DSBD.  This could unlock more funding for the Department, as the Minister of Finance also sits on the Council

The Department has not engaged the Presidential Coordinating Council with regard to the agreements.  However, during the 2017/18 financial year:

  • The Department managed to unlock funding through a Transversal Agreement (Services SETA, DSBD, SEFA and SEDA) to the value of R1.5 billion. 
  • Finalised an agreement with National Treasury which will specifically focus on monitoring the 30% set – asides together with the Office of the Chief Procurement Officer.
  • Local Government SETA (LGSETA) – training of cooperatives and LED officials.

 

Agreements finalised or to be finalisedin 2018/19:

  • Agriculture Research Council - Technical support for agricultural cooperatives.(concluded)

 

  • Draft agreements
    • Department of Agriculture, Forestry and Fisheries (DAFF) -
    • CoGTA -
    • National Agricultural Marketing Council –
    • Consumer Goods Council - open market within the retail space)
    • Coca-Cola South Africa - market access and capacity building for SMMEs and cooperatives

Strategic posts have remained vacant for far too long.  The Department must furnish the Committee with an Action Plan on the filling of vacant positions that exist in the Executive of the Department, which are Deputy Director-Generals and Chief Directors before the end of Q3 of the 2017/18 financial year

  • The Department provided the Committee with status reports on its Recruitment Plan in its 2017/18 Q3 and Q4 reports
  • The position of Deputy Director General: Enterprise and Entrepreneurial Development was filled with effect June 2018. As the incumbent was in internal candidate, his Chief Directors position become vacant.  This recruitment process has been initiated.
  • There are no other vacant Chief Director positions
  • The interviews for the post of Deputy Director General: Integrated Cooperative Development is scheduled for 16 August 2018 and the post of Deputy Director General: Policy and Research is scheduled for 7 September 2018. Noting that there might be unforeseen changes in the diaries of the panel (Minister and Deputy Ministers)

With the National Small Enterprise Act so outdated, the Department is in some way operating in a vacuum. The finalisation of the Act must be accelerated.  The draft bill must be submitted to Parliament before 31 March 2018

  • The draft Bill was not submitted to Parliament by the recommended date.  Initially, the review to the Act started as amendments to the existing provisions such as the amendments to the definitions and the schedule.  However consultations and research pointed to the need to a re-draft the Act taking to provide for, among other, professionalization of business advisory service, access to justice for SMMEs, 30-day payment and revising sections 18-20 of the Act. This required more time for the Act to be finalised. 
  • The new definitions and Schedule will be published in August 2018, and the Amendment Bill will be tabled in Parliament in the 2019/20 Financial year.

Furthermore, the Department must submit to the Committee a list of all other regulatory and legislative measures it plans to formulate or amend (acts, bills, strategies, plans, policies etc.) before the end of the fourth quarter of 2017/18 financial year.

Other than the National Small Enterprise Bill, the Department is not planning to submit any Bill to Parliament, save the tabling of the National Small Enterprise Bill in 2019/20

Pursuant to 8.5 and 8.6, small business sector often complain that they spend much time and devote significant resources to activities such as filling out forms, applying for permits and licences, reporting business information, notifying changes, etc.  This is particularly onerous for smaller enterprises and may even discourage people from starting up new business. The Department has a responsibility to develop a red tape reduction strategy before the end of 2018/19 financial year.

  • The Department concurs with the counsel of the Portfolio Committee
  • The Department has an active project for developing a National Strategy for Red Tape Reduction as its own red tape work with stakeholders have confirmed the need for thus this.. The project is with the Government Technical Advisory Centre (GTAC)
  • While the Guidelines on Red Tape Reduction issued by the dti are still in force, no national strategy or framework exists for addressing red tape.  As a result of this, the field of red tape reduction and the interventions that have been designed to address it, suffer from a lack of coherence. 
  • Furthermore, the logic model and Theory of Change that informs red tape reduction interventions and modalities, have not been made explicit, resulting in decision-makers having no clear frame of reference on which to base their programmatic interventions and strategies.

The proposed project seeks to address above by developing a National Red Tape Reduction Strategy, providing clarity on the logic model and theory of change that underlie various red tape interventions and methodologies, and their associated advantages and disadvantages.   The Strategy will also provide clarity on which of these interventions and methodologies we are prioritizing a country, and a clear programme of action in this regard, will accompany it. This Strategy will be finalised in 2019/20

There is a need to revisit Cooperatives Act, 2005 as amended, on the subject of the creation of secondary co-operatives.  In its current format, there are conditions precedent that impede or depress the creation of secondary co-operatives, when in reality, secondary co-operatives should provide services to primary co-operatives.

  • The Department agrees with the recommendations.
  • Consultations are underway with the Cooperatives sector and interested parties on amendments to the Act. 

The work on the revision of the Act is scheduled to commence in the 2019/20 financial year.

On market access intervention, the Department needs to provide adequate support to projects, both financial and non-financial, lead an integrated process of nurturing co-operatives from inception phase to spearheading market access intervention programmes.  The Portfolio Committee would like to recommend that a Market Access Unit within the Department urgently develop a detailed and realistic Market Access Strategy on or before 31 March 2018, contents of which will include plans to scale up support to all projects previously visited by the Portfolio Committee in Eastern Cape, Limpopo, KwaZulu Natal, Mpumalanga, Gauteng and Free State.

  • The Department agrees with the recommendation. However, the Department was not able to conclude the Market Access Strategy on or before 31 March 2018 as it does not have the technical capacity or financial resources to develop the Strategy;
  • Hence, the development of this Strategy has been included in the projects which will be funded and technically supported by the EU-funded “Employment Promotion through SMME Support Programme.”  This work is scheduled for completion by 31 March 2020.

The proposed strategy referred to on 8.9 must include the implementation plan of the Cabinet Resolution of 2007 which sanctioned that 85 percent of expenditure on ten(10) designated products and services be procured from survivalist, small, micro, medium and co-operative enterprises.

The recommendation is supported and will be reflected in the Market Access Strategy.

Furthermore, policy priorities outlined by the State President during each SONA, become the program(s) of government to implement.  The proposed strategy must incorporate a plan for operationalisation of 30 percent procurement of goods and services from government and state owned entities from small enterprises, as announced by the President during 2015 State of the Nation Address.

  • The recommendation is supported and will be reflected in the Market Access Strategy.
  • The agreement with the National Treasury provides for the monitoring of the 30% set-asides policy; and, National Treasury and DSBD will strengthen the guidelines, reporting mechanisms and enforcement measures.  At this stage, State owned enterprise and Local Government are not bound by the authority of the Office of the Chief Procurement Officer (OCPO).  Thus their procurement patterns are not included in the data of the Central Supplier Database (CSD).

 

That strategy or policy must be expanded to take account of the private sector in line with the 2017 State of the Nation Address call 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 must accordingly, also in fulfilment of the 2016 BRRR recommendation, finalise and present the first draft to the Portfolio Committee of the proposed Retail and Wholesale Charter during the fourth quarter of 2017/18 financial year.

  • The Department, together with sefa, Seda and the dti, are working towards the development of a portfolio Enterprise and Supplier Development Framework that will reflect the integration of small businesses into the private sector value chains. The development of the Framework will be developed in close partnership with the private sector.
  • The Framework will leverage the provision of the Priority Element of Enterprise and Supplier Development prescript articulated in the Broad-Based Black Economic Empowerment Act, 2003 (No. 53 of 2003) as amended in pursuit of developing a cache of ready-to-supply small businesses.
  • The Framework will articulate leveraging existing sector codes of good practice on broad based black economic empowerment to develop ready-to-supply small businesses.

The Framework will be finalised during the fourth quarter of the 2018/19 financial year.

The Department must urgently engage National Treasury to ascertain how much it would cost to establish support entities, such as, National Small Business Council, Co-operatives Development Agency, Co-operatives Training Academy and Co-operatives Tribunal.  Such engagement to include discussions on:-

a)         Practice Note or Regulation on the implementation of the proposed cession of contracts as requested by sefa. Some of the small enterprises currently being  liquidated are owed monies by other government departments and SOE’s;

b)          Implementation of 30 percent set aside policy and;

c)         The possibility of relocating small, micro, medium and co-operative enterprises functions / directorates / budget currently residing in other Departments;

 

In the event that the Department encounter challenges in either retrieving small enterprises programmes left in various departments or in creating intervention strategies, the Department must inform the Portfolio Committee so that the Committee can initiate the process of engaging other relevant Committees and National Treasury.

The recommendations are noted. 

  • The Department has not engaged with the National Treasury with regard to the cost of establishing of Support Entities mentioned in the recommendations as the responsibility for costing and the presentation of the budget bid rests with the Department.
  • It is assumed that the “National Small Business Council” referred to in the recommendation is the National Small Business Advisory Council.  The costs are affordable (Council sitting fees as per NT rates and travelling costs).
    • CDA & Co-operatives Training Academy and Co-operatives Tribunal: 

The Department has formulated the Business Case for the establishment of the Cooperatives Development Agency (CDA) and Tribunal. The responsibility of developing the Business Case for the Training Academy rests with the Department of Higher Education (DHET). DSBD has calculated the establishment cost for the CDA to be a total amount of R 279 million. The cost covers mainly the total OPEX. The business case for the Cooperative Tribunal has estimated the cost of establishing the tribunal to be R 25 million.

  • National Treasury has argued that due to fiscal constraint environment the funding for the CDA and Cooperatives Tribunal will have to be delayed until the environment has changed.      

 

The Committee is still looking forward to the Department bidding proposal to the National Treasury, encompassing a clear value proposition and social rate of return for the government through utilising, among others, computable general equilibrium (CGE), applied general equilibrium (AGE) or econometrics model(s).  The Committee is reasonably conscious of the reality that National Treasury is a contested terrain, it is not likely to increase DSBD budget to accommodate for the creation of the proposed institutions without a well-articulated and clear business case.

The Department agrees with the Committee that there is a need to use econometric tools and techniques, including but not limited to the Computable General Equilibrium and Applied General Equilibrium, to underline the value proposition, measure the impact of its programmes, and the rate of return on the resources invested by Government. The Department currently does not have the in-house capability to undertake the econometric modelling and impact assessments needed. However, in the short term it is engaging sister Departments and other stakeholders to assist in undertaking the required assessments and in the long term it is will be creating the necessary post within its organogram in order to be able to do these assessments in-house and thus not be beholden to either consultants or the goodwill of other Departments. It will also allow branches in the Department easier access to the resources needed in order to ensure that Policy development is evidence based and projections based of these are plausible.

The Committee notes that SEFA has struggled to lend money to small enterprises through Co-operative Financial Institutions (“CFI”).  It is also not persuaded of SEFA’s approach where intermediaries are made use of to advance loans to small enterprises.  This is tantamount to abdication or renunciation of its responsibility.  The Committee has in the past, indicted Department and SEFA to have a strategic discussion on the matter and report back to the Committee but this has not happened.  There is a need to consider a model that will be cost-effective and sympathetic to circumstances of small enterprises, and most importantly, it must accelerate the use CFI’s and Co-operative Banks as part of a broader government strategy to streamline access to finance particularly for survivalist, small, micro, medium and co-operative enterprises.  The Committee would be pleased to receive feedback from both DSBD and SEFA on the matter before 31 March 2018

  • SEFA is exploring ways to find an effective approach to use CFI as a mechanism to lend to cooperatives and small enterprises.
  • Sefa is revising its business model to on the one hand make its processes more user-friendly to SMMEs and Cooperatives and on the other hand to manage its impairment rates
  • National Treasury has conducted a diagnostic assessment of Development Finance Institutions (DFI) which informed a Draft Framework on DFIs. This Framework makes recommendations and simplifying the protocols governing DFIS, rendering the DFI system more coherent and better positioned to serve citizens

 

 

Pursuant to 8.15 above, the Department must explore alternative and affordable financing for small enterprises in an effort to curbing exploitation by financial intermediaries, including to champion the review or amendment of the Usury Act, and/or any other acts or policies that suffocate small enterprises.

 

DSBD has reviewed and amended the CIS and BBDDP funding instruments in order to provide cheap funding for primary cooperatives and SMMEs. The funding requirement for primary co-ops has been increased from maximum of R350k to R1.5m. This is grant funding for improving the growth and development of primary, secondary and clusters of co-operatives.

The Department must further speed up the creation of Co-operative Development Agency in order to champion and fast-track the creation of CFI’s and Co-operative Banks, promotion of community stokvels with a view to converting or formalising them into CFI’s and Co-operative Banks.  The existing financial instruments have proved futile for small businesses.  The Department and SEFA must explore other means of helping small enterprises in a manner that is self-reliant using the Gramin Bank of Bangladesh model and/or Limpopo based Small Enterprise Foundation.

  • The Department agrees with the recommendation
  • DSBD has been engaging NT on the creation of Cooperative Development Agency. However,  the challenge is the constrained fiscal environment that makes it difficult to secure budget allocation to establish the CDA to play this critical role.
  • A functional and adequately resourced CDA, as well as cooperation with the Cooperative Banking Development Agency,  will advance  creation of CFI’s and Co-operative Banks, promotion of community stokvels with a view to converting or formalising them into CFI’s and Co-operative Banks.

 

There is an existing Co-operative Bank Development Agency (“CBDA”), created in terms of the Co-operative Banks Act 40 of 2007, (“Co-op Banks Act”), but it is currently being reconfigured, where some functions and units are being transferred from National Treasury to Financial Services Board (“FSB”) and South African Reserve Bank (“SARB”).  However, there is no consultation or strategic engagement with the Department.  The Department must urgently engage the agency, while on one hand, the Committee needs to invite the agency leadership for a briefing.

  • On 1 April 2018, the South Africa’s financial regulatory system was fundamentally changed with the coming into operations of the new twin peaks regulators, namely, the Prudential Authority (PA) and the Financial Sector Conduct Authority (FSCA. The effect of the development of the twin peaks meant that the supervision component of the CBDA was transferred to the reserve bank under the PA.
  • In response to these developments, CBDA has embarked on a strategic planning process resulting in the creation of the three pillar system (a) developing a national strategy that positions the development of sector and ensure the establishment of the National Cooperative Bank and amend the Cooperative Banks legislation (b) establishment of an incubation facility that will assist in sustaining existing CFIs (c) finally, rollout the capacity building of the CFI. The new strategy was developed in consultation and participation of DSBD.     

The Department has a duty, in conjunction with SEFA, to rapidly finalise the development of the rescue strategy for struggling small enterprises before 31 March 2018.  The concept of business rescue finds its foundation in one of the stated purposes of the Companies Act, which is to "provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders”.  In its correspondence to SEFA Board of Directors, the Committee strongly advocated for the agency to adhere to these provisions before progressing to section 129 of the National Credit Act.

The DSBD commissioned a study on a Small Business Rescue Strategy which was finalised and approved 4 December 2017.The Department is in the process of finalising the operational / Business Plan which will be approved by end of September 2018.Thereafter, it will be presented to the ESEID Cluster for approval/adoption and implementation across government and its entities.

SEFA Board of Directors, in its capacity as the Accounting Authority, must exercise its oversight responsibility by ascertaining if in the case of Super Grand Agricultural Feed Primary Co-operative Limited and four other co-operatives, the Chief Executive Officer, in his capacity as the Accounting Officer, performed his duties diligently and meticulously without contravening Section 38 (a) (i) (b) (c) (ii) and (h) (i) (ii) (iii) of the PFMA, findings of which must be reported to the Committee for record before the end of the third quarter of the 2017/18 financial year.

  • The Sefa Board has conducted and concluded its investigation.
  • The Sefa Board has been requested to prepare and provide the department on a full report as required by the Committee on or before 30 August 2018.

The Department must develop growth strategy to position co-operative enterprises as a tool for community socio-economic development in order to shift resources from consumptive to productive budget.  This is likely to reduce dependency of poor families’ on government hand-outs, which costs the state billions annually.

  • The Department agrees with this recommendation;
  • Currently, DSBD is reviewing the Integrated Cooperatives Strategy with the view, amongst other things, to consider the areas that needs amendment to ensure that co-operatives enterprises are made to be tool for community socio-economic development.

The 88 percent failure rate of co-operative enterprises is a clear demonstration that interventions such as CIS are failing and therefore necessitate appraisal.  The Committee is thus reiterating and stressing the urgency by the Department to finalise   the review of the CIS grant before 31 March 2018.

  • The Department agrees with this recommendation. 
  • The CIS was a very progressive intervention when it was introduced as a once-off start-up grant. It was never designed  to meet the development needs or cooperatives over its life cycle.
  • The  grant has been reviewed and the new provisions will be implemented in the last two months of the third quarter of the financial year, 2018, preceded by marketing an popularising the new provisions

 

It must speed up the development of a Master Plan and national strategy for co-operatives and SMME’s development, with a specific focus on township and rural economy, to include informal traders, street vendors and whackers before the end of the 2018/19 financial

  • The Department agrees with this recommendation
  • The evaluation of the Integrated Strategy on the Promotion of Small Enterprise’s and Entrepreneurship (ISPESE) has been concluded, in March 2018
  • The Department has finalised the Improvement Plan in response to the Evaluation, in consultation with stakeholders in the small business sector. The Improvement Plan has been submitted for internal approval.   Following the approval of the Improvement Plan on 1 August 2018, the DPME will table the Improvement Plan to the ESEID Cluster and submitted to Cabinet for approval. 
  • The Revised 2019/20 Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises, which in effect will be the Master Plan and national strategy for SMME’s development, will be completed by March 2019.  This Strategy will provide have a specific focus on township and rural economy.

 

Informal Traders

  • The Department has a Cabinet approved National Informal Business Upliftment Strategy (NIBUS) which focuses on the development and support of informal businesses. This strategy flows from the recommendation of the Integrated Strategy for Promotion of Entrepreneurship and Small Enterprises mentioned above which called for government to make a concerted effort to support informal businesses. The strategy is mainly aimed at addressing the development void at the lower base of Small, Medium and Micro Enterprise (SMME) Development. The focus is mainly on designated groups, i.e. women, youth and people with disabilities, in townships and rural areas of South Africa.

 

  • NIBUS has two instruments under the enterprise development pillar, namely; Shared Economic Infrastructure Facility (SEIF) and Informal Micro Enterprise Development Programme (IMEDP).

 

  • The IMEDP provides developmental support to informal and micro enterprises that are mostly operating in townships and rural areas of South Africa and owned by historically disadvantaged individuals and strengthen the capacity of credible informal and micro enterprises to be sustainable through training and equipment support.

 

  • Shared Economic Infrastructure Facility (SEIF) assists with the establishment of new or upgrade facilities (infrastructure) where a number of informal, micro and cooperative enterprises are operating together (using the common facility) to do business. This is achieved through partnership with various partners like municipalities, Traditional councils and private sector

The Department has a responsibility to broaden its understanding of all the projects under its support, identify gaps that require intervention in the form of additional funding, infrastructure, technical assistance, skill development, training and those that require signing of transversal agreements in an effort to leveraging soft and hard infrastructure extremely needed by the co-operatives

  • The Department agrees with this recommendation.
  • Notwithstanding its limited monitoring and evaluation capacity, the department is repeating the 2017 Action Research project to determine the development status of Cooperatives and will conduct a similar study on SMMEs funded through BBSDP. The Department has conducted a rapid assessment of EIP projects, and provided the Committee with a report.
  • The Department concurs that the resources and support required to boost the sustainability of SMMEs and Cooperatives, falls squarely in the mandate of other departments, and as such Transversal Agreements are an effective means to unlock these resources

In its existence, the Committee has received a number of complaints from small enterprises with issues such as non-payment of services and unfair competition from big business. The Department needs to spearhead conceptualisation and creation of the Small Business Ombudsman.

The Department agrees with this recommendation.  Access to justice for SMMEs is a priority for the Department therefore the amendment of the Act provides for mechanisms to address these concerns.  Various options are being explored including but not limited to the utilisation of the Competitions Commission Tribunal, the creation of the dedicated office of the Small Business Ombudsman.

 

 

 

 

4.         OVERVIEW AND ASSESSMENT OF FINANCIAL PERFORMANCE

 

  1. Budget Allocation and Financial Expenditure

The audited financial statements for 2017/18 were tabled in Parliament together with the Annual Report of the Department and its entities from 9 - 11 October 2018. The Department received an appropriation of R1.4 for the 2017/18 financial year. As at 31 March 2018, expenditure was R1.459 billion which translates to 99 percent of the adjusted budget, resulting in a R16.2 million (1.1%) under performance for the year. The main contributor for 1 percent underperformance are transfers amounting to R12.4 million. Part of the transfers (R9.9 million) could not be disbursed, as beneficiaries did not meet the milestone reporting requirements.

 

Table 2: Overall Performance for the period 2017/18

Branch

No. of Annual Targets

Exceeded

Achieved

Partially

achieved

Not Achieved

Budget

(‘000)

Expenditure (‘000)

Administration

12

2

(16.7%)

2

(16.7%)

6

(50%)

2

(16.7%)

119 711

116 999 (97.7%)

smme’s and co_operatives policy and research

17

1

(5.9%)

7

(41.1%)

4

(23.5%)

5

(29.4%)

17 324

16 748

(96.7%)

smme’s and co-operatives programme design and support

25

3

(12%)

15

(60%)

3

(12%)

4

(16%)

1 338 635

1 325 737

(99%)

 

Total

54

6

(11.1%)

28

(51.8%)

9

(16.7%)

11

(20.4%)

 

1 475 670

1 459 484

(98.9%)

Source: DSBD Annual Report (2017/18)

 

 

The Department managed to spend R129 million or 97 percent of the adjusted R133 million. The overall under expenditure on personnel amounted to R3.4 million or 2.6 percent of the adjusted budget as a result of existing vacancies. As at 31 March 2018, the vacancy rate stood at 11.9 percent of 241 posts. Goods and services expenditure was R78 million or (99.6%) of the adjusted budget of R78 million which constitutes an under spending of (0.4%) or R327 Thousand. The main cost drivers were travel and accommodation (R20.7 million), operating leases (R18.9 million), consultancy services (R13.5 million), catering (R3.7 million), regulatory audits (R3.3 million), training and development (R2.1 million), advertising (R1.4 million) and travel related administrative fees (R1.2 million).

 

 

4.1.1     Programme 1: Administration

The purpose of the Administration programme is to provide strategic leadership to the Department and to ensure that the Department fulfils its mandate through sustainable and integrated resource solutions and customised services. During the 2017/18 financial year the programme was allocated R119 million. The spending focus or sub-programmes were Ministry, Departmental Management, Corporate Services, Financial Management, and Communications.

 

Table 3: Programme One Expenditure

Programme 1: Sub-programmes

2017/18

Final Appropriation

R’000

Actual Appropriation

R’000

Over/Under expenditure

R’000

Ministry

31 095

30 909

186

Departmental Management

17 381

16 895

486

Corporate Services

46 719

45 161

1 558

Financial Management

16 584

16 281

303

Communication and Marketing

7 932

7 754

178

Total

119 711

116 999

2 712

Source: DSBD Annual Report (2017/18)

 

The programme spent R117 million (97.7%) of the adjusted budget of R119.3 million, resulting in a variance of R2.7 million (2.3%). With the allocated resources programme one spent R18.9 million on operating leases for office accommodation, leased vehicles and printing machines, R5 million on computer services, desktop services provided by State Information Technology Agency (“SITA”), Logis and Persal mainframe and the Microsoft licences, R3.3 million on regulatory audit fees by the Auditor General, as well as R10.7 million for travel and subsistence on official trips.

 

  1. Programme 2: SMME and Co-operatives Policy and Research

The purpose of programme two (2) is to formulate policy and conduct research for the development and growth of sustainable small businesses and co-operatives that contributes to the creation of employment and economic growth. During the financial year under evaluation, the programme was appropriated R17.3 million down from R26.1 million in the 2016/17 financial year. The spending focus over the medium term for programme two were policy and research, sectoral monitoring and evaluation as well as international relations.  The programme successfully disbursed R16.7 million (96.7%) of the adjusted budget of R17.3 million, resulting in an under expenditure of R576 thousand (3.3%). Under expenditure occurred largely on Compensation of Employees due to vacant posts.

 

Table 4: Programme Two Expenditure

Programme 2: Sub-programmea

2017/18

Final Appropriation

R’000

Actual Appropriation

R’000

Over/Under expenditure

R’000

Policy, Research and Legislation

11 388

10 823

565

Monitoring and Evaluation

2 085

2 079

6

International Relations

3 851

3 846

5

Total

17 324

16 748

576

Source: DSBD Annual Report (2017/18)

 

4.1.3     Programme 3: SMME and Co-operatives Programme Design and Support

The purpose of programme three (3) is to support the development and growth of small businesses by designing financial and non-financial business development support programmes and interventions. The programme was allocated R1.3 billion for the 2017/18 financial year.  The greater part of the estimated expenditure, 94 percent or R1.105 billion, had been earmarked for transfers and subsidies to the Department’s entities that provide financial and non-financial small business support services. Expenditure for programme three was R1.3 billion or 99 percent of the allocation. Seda is funded under the Enterprise Development subprogramme (R811 million). While Co-operatives Development Support, Development Finance, Competitiveness Support, Enterprise Development, Market Development and Stakeholder Relation are also funded under this programme.

 

Table 5: Programme Three Expenditure

Programme 3: Sub-programmea

2017/18

Final Appropriation

R’000

Actual Appropriation

R’000

Over/Under expenditure

R’000

Competitiveness Support

47 935

40 196

7 739

Enterprise Development

845 151

845 037

114

Cooperatives Development

9 766

9 754

12

Market Development

82 295

77 340

4 955

Enterprise Development Finance

353 488

353 410

78

Total

1 338 635

1 325 737

12 898

Source: DSBD Annual Report (2017/18)

 

Expenditure for Programme three was R1.3 billion (99%) of the R1.3 billion adjusted budget, resulting in an under expenditure of R12.9 million (1%). The under expenditure occurred largely on transfers as listed here below:

  • SEIF (R7.4 million): The Makhado Municipality tranche worth R4.8 million could not processed before the end of the financial year as the agreement was finalised during the third (3rd) quarter, which resulted in the first (1st) tranche only being disbursed in the fourth (4th) quarter. The Stellenbosch Municipality tranche worth R3 million could also not be processed as project start date was also delayed;
  • BBSDP (R7, 000): The allocated budget has been exhausted. The remaining R7000 was insufficient for any BBSDP claim as the lowest claim on hand is R10, 500 for the network facilitators;
  • EIP (R4.9 million): Underperformance as the Department could not disburse three (3) payments amounting to R4.8 million as follows: two existing incubators (Nunnovation/ Steelbest) and one new incubator (Nwanedi New Generation) as a result of slow progress on the project and non-compliance to the scheme guidelines;
  • CIS (R55 thousand): The remaining R55 000 was inadequate to meet any CIS claim submitted by end of March 2018.

 

4.2        Funding Proposal for 2018 MTEF

For the current financial year 2018/19, the Department was budgeted R1.4 billion. The Department’s total budget allocation, which includes transfers to Small Enterprise Development Agency, is expected to increase from R1.4 billion in 2018/19 to R2.7 billion by 2020/21 financial year. 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. In line with the revised strategic direction of the Department and the annual performance plan for the current financial year, the budget and MTEF allocations are now apportioned to four programmes as compared to three programme during the previous financial year. The Department’s budget is distributed 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 6: DSBD 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: National Treasury/DSBD Annual Performance Plan (2018/19)

 

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, will now go 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. Contrasted with the Department’s three other core programmes, 2 - 4, each programme correspondingly is appropriated R22 million, R111 million and R1.2 billion.

 

4.2.1     Programme 1: Administration

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 7 below provides an overview of the programme expenditure estimates for 2018/19 financial. Year.

 

Table 7: Proposed 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: National Treasury/DSBD Annual Performance Plan (2018/19)

 

 

4.2.2     Programme 2: Sector Policy and Research

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. The purpose of the programme is to create an enabling environment for the development and growth of sustainable small businesses and co-operatives in order to create employment and grow the economy. Table 8 below is a brief indicative what each subprogramme will receive.

Table 8: Proposed 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: National Treasury/DSBD Annual Performance Plan (2018/19)

 

 

4.2.3     Programme 3: Integrated Co-operatives Development

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. The Programme is accountable for the 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 among others.

 

Table 9: Proposed 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: National Treasury/DSBD Annual Performance Plan (2018/19)

 

 

4.2.4     Programme 4: Enterprise Development and Entrepreneurship

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.

 

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 thus 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.

 

 

Table 10: Proposed 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: National Treasury/DSBD Annual Performance Plan (2018/19)

5.         OVERVIEW AND ASSESSMENT OF SERVICE DELIVERY PERFOMANCE

 

  1.  

The Auditor General of South Africa representatives appeared before the Portfolio Committee on the 9th of October 2018 to present the audit findings. The Department and entities did did well during the previous financial. The Department obtained unqualified audit opinion with no material misstatements on the annual financial statements, while Seda and sefa, both obtained clean audits. However, there were few areas of discomfort such as irregular expenditure of R41 million and R860 000 respectively incurred by Seda. These relates to a competitive bidding process which was not adhered to during the appointment of Mtiya Dynamics and lease extension contract not approved. The AG cautioned that there seem to be a steady growth of irregular expenditure.

 

The Auditor General had, in 2015/16 financial year, flagged one non-compliance matter worth R1.8 million, R23 million during 2016/17 financial year and now R41 million for 2017/18 financial year. The latest irregular expenditure relates to payments made on contracts irregularly awarded during previous year. National Treasury has thus responded to Seda and indicted that ALL payments including the management fee be categorised as irregular and must be recouped. Concluding its presentation the AG further alerted the Portfolio Committee that three of its recommendations to the Department have not been addressed, while non-compliance findings on incentives appropriate remedial action will be determined by recommendations of the ongoing forensic investigation. During July 2017, the Accounting officer committed to addressing the findings raised during the previous year audit. The accounting officer also committed to reduce the vacancy rate.

 

5.2        Overview of Programme Performance

 

5.2.1     Summary of Programme 1 Performance

The Department had set itself a target of twelve (12) Key Performance Indicators (KPIs) for the 2017/18 financial year. As demonstrated in table 11 below it excelled in the attainment of two targets, achieved two, partially achieved six and could not achieve two targets. The Department accomplished a 3rd unqualified Audit Opinion from the Auditor General with no material adjustments to the Annual Financial Statements, achieved a representation of 51 percent of women in its Senior Management Services (SMS), above the public service standard of 50 percent and 2.8% people with disability as at 31 March 2018, two (2) of whom are SMS members. The key areas of concerns, however, are AG findings regarding irregular expenditure, concerns around finalisation of the revised strategic plan (2017) and organisational structure both of which have only been approved by the Minister.

 

Table 11: Summary of Programme 1

Total Number of KPIs

12

KPI’s with targets exceeded

2 (16.7%)

KPI’s with targets achieved

2 (16.7%)

KPI’s with targets partially achieved

6 (50%)

KPI’s with targets not achieved

2 (1.7%)

 

R’000

Budget

119.7

Expenditure

116.9

Under spending

2.7

Spent

98%

Underspent

2%

Reasons for variance

 

The Programme spent R117 million (97,7%) of the adjusted budget of R119.3 million, resulting in a variance of R2.7 million (2,3%).

Source: DBSD 2017/18 Annual Report

 

5.2.2     Summary of Programme 2 Performance

For the 2017/18 financial year programme two had 17 targets in total, including targets regarded by the Portfolio Committee as relevant and central to the mandate of the Department. Some of the targets for programme two are review of the National Small Enterprise Act which was not achieved, revised Strategy on the Promotion of Entrepreneurship and Small Enterprises and revised Co-operatives Strategy both reported to have been achieved but no evidence to substantiate that. This programme exceeded one target, archived seven, partially achieved four and fell short of five targets. During the previous two financial years, the Department had planned to table the draft bill before the Parliament. However, this was not achieved, and the Portfolio Committee has been informed that it would not be achieved during the current financial year 2018/19. This is despite annual report (12:179) indicating that this deliverable will be or would have been achieved by November 2018. 

 

Table 12: Summary of Programme 2

Total Number of KPIs

17

KPI’s with targets exceeded

1(6%)

KPI’s with targets achieved

7 (41%)

KPI’s with targets partially achieved

4 (24%)

KPI’s with targets not achieved

5 (29.4%)

 

R’000

Budget

17.3

Expenditure

16.7

Under spending

576

Spent

97%

Underspent

3.3%

Reasons for variance

 

The Programme spent R16.7 million (96,7%) of the adjusted budget of R17.3 million, resulting in an under expenditure of R576 thousand (3,3%). Under expenditure occurred largely on Compensation of Employees due to vacant posts.

Source: DBSD 2017/18 Annual Report

5.2.3     Summary of Programme 3 Performance

Under programme three, the Department had set itself a target of 25 KPIs but could only attain 15, an achievement of 69 percent, exceeded on three targets, partially achieved three and failed to meet four targets. Some of the deliverables under programme three include number of black SMMEs supported through the BBSDP, number of Co-operatives supported financially through the CIS and number of Informal businesses supported through the IMEDP to mention the few. As illustrated in table 13 below there was a combined underspending of more than R12 million as a result of CIS, EIP, SEIF and BBSDP.

 

 

Table 13: Summary of Programme 3

Total Number of KPIs

25

KPI’s with targets exceeded

3(12%)

KPI’s with targets achieved

15 (60%)

KPI’s with targets partially achieved

3(12%)

KPI’s with targets not achieved

4 (16%)

 

R’000

Budget

1.33 billion

Expenditure

1.32 billion

Under spending

12.9

Spent

99%

Underspent

1%

Reasons for material under spending

 

The underspending occurred largely on transfers i.e. SEIF, BBSDP, CIS and EIP.

Source: DBSD 2017/18 Annual Report

 

5.3        Interaction between the Committee and Small Businesses and Co-operatives

 

5.3.1     Free State Oversight Visit

In an effort to deepening understanding of small business ecosystem, the Portfolio Committee embarked on one oversight visits to Free State provinces, where it engaged a substantial number of small enterprises, municipalities, traditional leadership and small business representatives. The oversight visits were in accordance to the mandate of the Portfolio Committee as outlined in the Constitution of the Republic of South Africa, which is to legislate, conduct oversight over the executive and facilitate public participation. The visits were also in furtherance and to accomplish the Committee’s own strategic objectives that are rooted on the strategic objective(s) and outcome(s) of the fifth Parliament. These (strategic objectives of the Committee) further recognises the Department and its agencies’ priorities as captured in their respective five-year Strategic Plans and Annual Performance Plans.

 

The Portfolio Committee embarked on a visit to a selected few enterprises that have benefited from sefa and Seda since inception of the Department in 2014. A total of twenty beneficiary projects from sefa and two from Seda, all in the Free Sate, had been selected for assessment to gauge the level of progress, to understand their business and operational requirements, opportunities and challenges, impact on poverty and job creation, alignment with local and district municipality Integrated Development Plans, Free State Economic Growth and Development Plan, Free State Infrastructure Development Master Plan and Intergovernmental Relations Framework Act to mention but the few. The aim of the visit was to further evaluate progress made on projects supported by the Department, sefa and Seda in line with their strategic plans and annual performance plans, to also test the legitimacy of information provided by the Department and its agencies through its quarterly and annual reports, to interact with internal and external stakeholders to inform the Department future strategic plans and annual performance plans, to ensure intergovernmental checks and balances in an effort to reinforcing the Departmental systems and processes in supporting small, micro, medium and cooperatives enterprises. For ease of reference, a detailed report of the Portfolio Committee is available at https://pmg.org.za/committee/116/.

 

5.3.2     Workshops with Big Business and Small Business Sector

Throughout the course of 2017/18 and 2018/19 financial years, the Portfolio Committee held rolling engagements with the big business and small enterprises. This follows a number of complaints received by the Portfolio Committee from small enterprises. A number of small enterprises addressed the Committee on the challenges they have had to deal with, in what appeared to be a deliberate attempt by big business to choke small enterprises, and in some instances to crush them into oblivion through, among others, withholding legitimate payments. The companies that came forward were mainly in the telecommunications industry, but also from the construction industry. They indicated that small businesses did not intend to compete, but rather to complement; big businesses in their growth paths. The attitude that big businesses had of solving each dispute that arose between themselves and a small business through litigation was very detrimental. It is expected that such interactions will enrich the process of creating Small Business Tribunal.

 

5.3.3     Study Visit to Spain

Perhaps an important milestone for the Portfolio Committee which however falls within the 2018/19 financial year reporting but worth of being mentioned, was the study visit to Spain.  The study tour was aimed at providing members of the Portfolio Committee and staff an international viewpoint on cooperatives development, to obtain an in-depth knowledge of the sector, to learn how Spain and Basque Country experiences could provide an experimental model for South Africa to emulate in order to amplify its efforts to grow the cooperatives movement, to observe and acquire basic knowledge of a functioning cooperative industry, and to get an insight of the past and present legislation and regulatory practices that have effectively generated an ecosystem that allows Spain’s cooperatives sector to thrive.

During this visit, the Portfolio Committee interacted with various stakeholders including leadership of Mondragon Corporation where more than 266 cooperative enterprises are owned by employees, further networked with Government Ministry, Basque Parliament, Basque Trade and Investment Agency as well as the Spanish Business Confederation of Social Economy. The Committee also had an opportunity to conduct site observations at the Mondragon University, Fagor Arrasate Co-operative, Ulma Packaging Co-operative and Otalora Training Centre to observe the entire training process that an aspiring member is exposed to before being considered a full-fledged member of a cooperative, and how such progression and continuous learning are integrated into the syllabi of the Mondragon University. It is anticipated that the Portfolio Committee recommendations will form part of the 2019/20 annual performance plan of the Department.

 

6.         REVIEW OF THE DEPARTMENTAL ENTITIES

  1. Small Enterprise Development Agency

Seda provides business related information, advice, consultancy, training and mentoring services in all areas of enterprise development. These services aim at providing solutions related to various business functions from production to human resources, finance, marketing and export development. Rural enterprise development and cooperatives are supported through the Cooperatives and Community Public Private Partnerships Programme (CPPP). Seda’s performance information is structured in line with Seda’s approved Annual Performance Plan 2017/18 – 2019/120. It gives information on performance against  targeted indicators, both on outcome and output level. From a total of 25 strategic indicators that were considered for the review, the organisation performed well on 21 indicators, this reflect an organisational performance of 84 against a target of 75 percent. Table 14 below provides a brief summary of Seda programmes:-

 

Table 14: 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

 

6.1.1     Seda Budget Allocation

The total revenue budget for Seda for the 2017/18 financial year amounted to R796 million and the total expenditure budget amounted to R796 million. The Vote 31 contribution to the SEDA budget was R576 million of which R160 million was allocated to the Seda Technology Programme (“STP”). The agency has a significant role to play in augmenting the public sector attain its national development plan targets.

Table 15: Budget Summary (MTEF)

Income R’000

Audited Figures

 

Draft

FY 15/16

FY 16/17

FY 17/18

FY 18/19

FY 19/20

SEDA- DSBD Budget from MTEF

478,2

481,5

577,4

610,9

645,1

STP-DSBD from MTEF Budget

132,2

152,3

158,3

167,5

176,9

External earnings

69,3

114,0

16,8

-

12,0

Other income

16,0

14,4

5,0

5,0

5,0

TOTAL INCOME

695,7

762,2

757,5

783,4

 

839,0

 

                          

                          

Source: Annual Performance Plan (2017/18)

 

 

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 billion. Of the R85 billion cut in government expenditure projected for the next three years‚ R53 billion was peeled from national government budgets. The Department and its entities were not spared from such budget cutbacks. 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 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.

 

6.1.2     Financial Performance

The total revised revenue budget for Seda for the 2017/18 financial year amounted to R798 million and the total expenditure budget to R798 million. The budget split per expenditure category is as follows:

 

       Table 16: Programme Overview

Category of expenditure

R’million

% of budget

% of expenditure

Compensation of employees

R 330,31

41.37%

42.64%

Operating costs (excluding employees compensation)

R 146,59

18.36%

19.08%

Programmes and projects

R 309,97

38.82%

37.22%

Capital

R 11,63

1.45%

1.06%

       Source: SEDA Annual Report (2017/18)

 

The draft actual expenditure for the period 1 April 2017 to 31 March 2018 amounted to R765 million resulting in a pro rata under spending of R33 million (4.16%), against the pro-rata budget of R798 million. Draft commitments up to 12 months were about R26 million. For financial year under consideration, Seda obtained unqualified audit opinion. Nonetheless, the following issues were flagged during the audit process:-

  • Operating leases paid after expiry of lease contract due to negotiations not completed within the prescribed timeline. Seda paid for operating leases in some of the provinces where the lease contract had already expired. Corrective action was taken to prevent this from happening in future;
  • A Board member in the employee of the state was erroneously paid board fees, in contravention of the Act in particular section 13 (2) which states as follows “Members referred to in subsection (1) who are in the service of the State may not receive additional remuneration or allowances for serving on the Board, but may be reimbursed for expenses incurred in the performance of their functions in terms of this Act”;
  • National Gazelle programme – the amount of R15 944 273 (in 2016/17) and R18 781 000 (in 2015/16) was paid for the pilot implementation of the National Gazelle programme, as noted under the AG these transactions have been recorded as irregular expenditure. These amounts are irregular expenditure as Management approved them without complying with procurement process in inviting competitive bids. Corrective actions are being taken by the Accounting Authority to address this situation. Seda now performs the National Gazelle programme internally and the period of the pilot phase has passed.

 

  1. Non- Financial Performance

Seda performance information is structured in line with the entity’s approved Annual Performance Plan 2016/17 – 2018/19, key offerings being, Business information and advice, Business Management, Training and Mentoring and SEDA Technology Programme (“STP”). As earlier indicated from 25 strategic indicators that were considered for the review, the organisation performed well on 21 indicators, this reflect an organisational performance of 84. The agency established 27 new colocations, facilitated a total amount of R37million of access to finance for clients, completed 15 month pilot for the BESD programme at 19 sites with 1633 participants. The agency has further signed various Memorandum of Agreements (“MoU”) with companies in order to open market access for small enterprises and co-operatives with the likes of Midmar Crushers, Hullets Mill and Dunlop in KZN; PetroSA, Pick & Pay and Woolworths in Western Cape etc.

 

There were areas, nonetheless, There are areas however where Seda felt it underperformed. These include but not limited to number of clients accessing Seda services online, number of informal business accessing Seda services, percentage of person with disabilities employed and serviced and percentage of stakeholders engaged. In addition, number of clients supported through the National Gazelles programme was way below the target of 200. The process of selecting the second cohort is nearing completion. Going forward, the programme will focus on the top 40 qualifying small enterprises that were successful during the pilot phase.

 

6.2        Small Enterprise Finance Agency

sefa’s operating model makes provision for financing and business support directly to small, micro, medium and co-operative enterprises through its regional office network and indirectly through intermediary financial institutions such as Retail Finance Intermediaries (RFIs), Microfinance Finance Institutions (MFIs), Funds, Joint Ventures (JVs) and Co-operative Financial Institutions (CFIs). In addition, the agency administers a Credit Guarantee Scheme that indemnifies banks and other financial institutions who provide credit facilities to small businesses against possible default. sefa also administers Small Business Funds that support and promote small enterprise sector participation in strategic value chains. sefa plays a crucial role in the provision of finance to small businesses, particularly start-up businesses.

 

As an agency of the DSBD, sefa’s programmes are responsive to the Department’s policy initiatives such as those aimed at addressing imbalances of the past. To offer a holistic approach to small business development, some of these programmes are carried out in collaboration with Seda, which is instrumental in providing non-financial support. sefa’s role in DSBD portfolio strategy is to enhance the financial inclusion of the small business sector and to build a sustainable funding ecosystem that responds with speed, to small enterprises’ needs.

 

6.2.1     sefa Budget Allocation

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.

 

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

The agency offers four main products, namely, Direct Loans (asset finance, Term Loans, Revolving loans and Bridging loans, Purchase Order Product and Amavulandlela Scheme for entrepreneurs with disabilities), Wholesale Loans and Equity (on-lending facilities, Funds and joint ventures, Micro-finance, Structured Finance Solutions), Business Support (Institutional strengthening, technical support and mentorship), Credit Guarantees (Credit Indemnity guarantees and Supplier guarantees) as well as Rental Property. sefa has taken on the challenge of job creation, facilitation and support in the small enterprises space and make remarkable inroads, albeit few hiccups which threatens its existence emanating from ballooning impairments and losses in the property portfolio. sefa performance over the five-year period since 2014 is shown below on table 17.

 

Table 17: sefa Financial Performance over five-year

 

2014

2015

2016

2017

2018

Approvals

R1.1 billion

R1 billion

R1.1 billion

R827 million

R446 million

Disbursements

R549 million

R1.3 billion

R1.2 billion

R1 billion

R1.3 billion

Businesses Financed

46 407

68 724

54 833

43 211

45 141

Jobs Facilitated

46 402

60 169

75 670

55 997

54 389

Source: sefa Annual Report (2017/18)

 

6.2.3     Financial Performance

For the 2016/17 financial year, sefa received an unqualified audit (clean audit) report. No expenditure was classified as unauthorised, fruitless and wasteful expenditure amounted to nil. Sefa approved R446 million in loan financing to SMMEs and Co-operatives for the financial year ended March 2018. Over the past three years, a cumulative R701 million was disbursed to youth-owned businesses, approximately R1,3 billion to women-owned enterprises, close to R1,4 billion was disbursed to entrepreneurs operating in priority rural provinces, and R2,6 billion was allocated and disbursed to businesses owned by black entrepreneurs. However, impairments on loans and advances on the direct lending portfolio remain high and are a serious threat that management is addressing through various interventions.

 

These attempts have ensured an improvement from 70 percent during the previous year to 69 percent in the current year. On the other hand, the Wholesale Lending channel’s impairments that are relatively lower realised an increase from 26 percent the previous year to 35 percent in the current year. This increase was largely driven by impairments on Micro loans and Co-operative lending within the Wholesale Lending portfolio. The Group reported a total comprehensive loss of R268 million, up from R209 million in 2017. For financial year 2017/18, sefa continues to wrestle with obstinate accumulative impairment levels that are above the entity’s target of 29 percent.

 

7.         OBSERVATIONS

 

Having reflected on the Department, sefa and Seda annual reports and financial statements for 2017/18 financial year, the Portfolio Committee hereby register the following observations and recommendations for consideration by the Department: -

 

7.1        Over the period of four (4) years since the Department was created, the Department appears to have turned the corner. There have been noticeable improvements in terms of meeting the statutory and regulatory deadlines. It has met its reporting, planning, monitoring and evaluation obligations for the period under review in compliance with the government’s outcomes-based approach and also adhered to quarterly reporting;

7.2        The Portfolio Committee has progressively observed that the Portfolio Strategic Framework approach adopted by the Department and its entities has enabled the Department to utilise expanded connections of the two agencies, Seda and sefa towards the implementation of the small business development mandate. There are nevertheless areas of improvements;

7.3        There is visible progress in the Department and entities as manifested in the accomplishment of the third unqualified audit opinion from the Auditor General with no material adjustments to the Annual Financial Statements, DSBD representation of 51 percent of women in its Senior Management Services (SMS) cadre and above the public service standard of 50 percent, prompt payment of invoices, 2.8 people living with disabilities as at 31 March 2018, two of whom are SMS members;

7.4        The Portfolio Committee is pleased that after a protracted delay to institute forensic probe into allegations of malfeasance it discovered in its oversight visit to Mpumalanga, the forensic investigation is currently underway. The Portfolio Committee further notes Auditor General observation that preliminary investigation actually gives credence to the Portfolio Committee deduction that there was certainly fraud and corruption in the handling and management of the Co-operative Incentive Scheme;

7.5        The Portfolio Committee further notes that following its return from the same oversight visit in Mpumalanga, it had sharply raised areas of discomfort with sefa Board of Directors. The Portfolio Committee was expressly concerned with the developments in Mokgwaneng where four unsuspecting co-operatives, with no balance sheet, were coerced into signing a R20 million loan facility with sefa. The visit did not seem to have yielded any positive results due to lot of information being withheld by all parties concerned. Following its recommendation to sefa Board of Directors to probe the matter further, the Committee is content at how sefa has handled the matter. The Committee has noted recent feedback from sefa that while forensic investigation did not explicitly determined that there was fraud or corruption, but one official has since resigned and the matter has additionally been referred to National Prosecuting Authority for criminal investigation;

7.6        The Minister approved the organisational structure of the Department and it was subsequently submitted to the DPSA for concurrence. However, there has been no finality on the matter. In terms of the Public Service Regulations, the Minister of Public Service Administration must approve organisational structure of a national department. The Portfolio Committee observed during the Budget Vote process that the structure currently being implemented by the Department for 2018/19 financial year is the same structure that has not been approved by DPSA;

7.7        It appears therefore that the Department approved its own revised strategic plan (2017) 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.     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 at executive level between DPSA and DSBD as prescribed by the act;

7.8        The Portfolio Committee is on record having recommended the Department’s      proposed separation of programme three (3), into programme three (3) and (4), with   dedicated Deputy Director Generals which therefore implies support of the new      structure and revised strategic plan on condition that proper procedures are followed;

7.9        On the policy front, 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). To

7.10      Also, 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;

7.11      Furthermore, the appointment of 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 was deliberated at length during the Budget Vote process. The Portfolio Committee had then recorded and welcomed Minister’s    undertaking to appoint Advisory Body within two weeks’ of that sitting;

7.12      The Portfolio Committee has consistently (2016 – 2018) flagged payments by Seda to     the former CEO of sefa as irregular and inconsistent with the Act. The Chairperson of           the Board acknowledged to not have been made aware of the matter yet the agency’s        own annual report (156:168) has flagged these payments as irregular;

7.13      The Portfolio Committee further notes National Treasury instruction to Seda to classify    amounts paid for the implementation of the national gazelles programme as irregular  expenditure as they were approved by Management without complying with procurement processes in inviting competitive bids;

7.14      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 thoughtful 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;

7.15      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”;

7.16      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 based on an ex-officio principle. 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.

 

8.         RECOMMENDATIONS

 

8.1        Despite the challenges the Portfolio Committee is of the view that the     Department has taken necessary steps in addressing some of these challenges. The         Portfolio Committee would like to see some of the remaining issues i.e. finalisation        of the organisational structure and the lingering question of a strategic plan addressed    by 31 October 2018;

8.2        In line with the Auditor General recommendations, the Department must report     quarterly to the Portfolio Committee on the implementation,  progress and action plans         to address poor audit outcomes, to provide feedback on status of key controls,     especially the monitoring of incentives scheme and to provide to the Committee a           list of action taken against transgressors; 

8.3        In relation to 8.2, the Department and Seda must provide the Portfolio Committee a         detailed plan of action how it would recoup monies erroneously paid to the former sefa           CEO before 31 October 2018;

8.4        Pursuant to 8.2 and 8.3, the Department and Seda must furnish the Portfolio       Committee with a detailed plan of action in addressing National Treasury and Auditor         General concerns regarding irregular expenditure incurred in the implementation of         national gazelles by 31 October 2018;

8.5        The Department must expeditiously deal with issues of underperformance. In its own       admission, strategic posts have remained vacant for far too long. The Portfolio       Committee is concerned that absence of a permanent Director General may      handicap the Department. The Department must furnish the Committee with an Action      Plan on the filling of vacant positions that exist in the Executive of the Department,    which are Deputy Director-Generals and Chief Directors before the end of Q3 of the       2018/19 financial year;

8.6        With the National Small Business Act so outdated, the Department is in some way           operating in a vacuum. The finalisation of the Act must be accelerated. The Portfolio            Committee notes that the schedule was gazetted. The draft bill must be submitted to           Parliament before 31 March 2019;

8.7        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 31 March 2018;

8.8        The Department must further speed up the creation of Co-operative        Development Agency in order to champion and fast-track the creation of Co-operative         Financial Institutions (“CFI”) and Co-operative Banks, promotion of community        stokvels with a view to converting or formalising them into CFI’s and Co-operative           Banks. The existing financial instruments have proved futile for small businesses. The           Department and sefa must explore other means of helping small enterprises in a     manner that is self-reliant using the Gramin Bank of Bangladesh model and/or Limpopo             based Small Enterprise Foundation;

8.9        There is an existing Co-operative Bank Development Agency (“CBDA”), created in terms of the Co-operative Banks Act 40 of 2007, (“Co-op Banks Act”),  but it is currently being reconfigured, where some of the functions and units are being transferred from National Treasury to Prudential Authority (“PA”), an agency of the South African Reserve Bank (“SARB”). Notwithstanding that CBDA is currently under the chairpersonship of an official from the Department of Small Business Development, there appears to be no consultation or strategic engagement between CBDA and DSBD. The Department seem out of touch with the recent developments at CBDA and Prudential Authority and its responsibility in developing financial co-operatives. The Department must urgently engage both entities with a view to crafting a strategy to develop and support financial co-operatives;

8.10      The Department has a duty, in conjunction with sefa, to rapidly finalise the development of the rescue strategy for struggling small enterprises before 31 March 2019. The concept of business rescue finds its foundation in one of the stated purposes of the Companies Act, which is to "provide for the efficient rescue and recovery of financially distressed companies, in a manner that balances the rights and interests of all relevant stakeholders”. In its correspondence to sefa Board of Directors, the Committee strongly advocated for the agency to adhere to these provisions before progressing to section 129 of the National Credit Act;

8.11      As previously recommended, Section 2 of the National Small Business Amendment Act No 26 of 2003 requires the Minister to appoint members of the Advisory Board. The Department has so far not supplied the Portfolio Committee with plausible or compelling reasons why after 24 months of having started the process, the Advisory Body is not up and running;

8.12      Furthermore, the Portfolio Committee had in the past recommended to the Department needs to engage National Treasury in order 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. In light of the present co-operatives mortality rate such institutional support structures are indispensable;

8.13      In keeping with the principle of the Portfolio Strategic Framework approach, Seda Accounting Officer ought to be appointed as a Non-Executive Director to the sefa Board of Directors before the end of Q3 2018/19 financial year;

8.13      Treasury Regulation 8.2.3 provides that “Unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgement”. The prescribed period referred to in section 38(1)(f) of the Public Finance Management Act (“PFMA”) is 30 days from receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgement, as provided in Treasury Regulation 8.2.3. Timeous payment of services rendered to some government departments and state owned entities continue to kill small enterprises and co-operatives. The Portfolio Committee is of the strong view that the Minister of Small Business Development must write to the Ministers of Public Service Administration (“DPSA”) and Planning, Monitoring and Evaluation (“DPME”), with a view to constituting a core team that will ensure that the accounting officer’s responsibility [in terms of section 38(1)(f)] to settle all contractual obligations and to pay all money owing, including intergovernmental claims, is adhered to within the prescribed (30 days) or agreed period.

 

9.         APPRECIATION

 

The time lines for the assembly of the BRRR are very tight. The Committee would like to express its appreciation to the Minister, Deputy Minister and the Director General, the Auditor- General and entities who all participated in the 2018 BRRR process. The Committee also extends its unreserved gratitude to the Committee staff that has willingly and voluntarily ensured that work is done even beyond normal working hours, setting a good example for all public servants. Lastly, the words of appreciation go to Committee members for their constructive contribution towards the success of the Committee. 

 

Report to be considered.

 

 

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