ATC201120: The Budgetary Review and Recommendation Report of the Portfolio Committee on Small Business Development, dated 18 November 2020

Small Business Development

THE BUDGETARY REVIEW AND RECOMMENDATION REPORT OF THE PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT, DATED 18 NOVEMBER 2020

 

The Portfolio Committee on Small Business Development (“the Portfolio Committee”) having considered the performance of the Department of Small Business Development (“the Department”), alternatively, (“DSBD”) and its entities, Small Enterprise Finance Agency (“sefa”) and Small Enterprise Development Agency (“Seda”), dated 18 November 2020, reports as follows: -

 

1. INTRODUCTION

The Money Bills Procedures and Related Matters Amendment Act (Act 9 of 2009) sets out the process that allows Parliament to make recommendations to the Minister of Finance to amend the budget of a national department. In October of each year, Portfolio Committees compile Budgetary Review and Recommendation Reports (“BRRR”) that evaluate service delivery performance given available resources, consider the effective and efficient use and forward allocation of resources, and may make recommendations on forward use of resources. As a result, BRRR also serve as source documents for the Standing and Select Committees on Appropriations and Finance when they make recommendations to the Houses of Parliament on the Medium-Term Budget Policy Statement (“MTBPS”).

 

This year’s BRRR process is taking place under very trying conditions due to ongoing Covid-19 endemic. On March 15, 2020, President Ramaphosa declared a national state of disaster in South Africa in terms of the Disaster Management Act, 2002, following the declaration of the global Covid-19 pandemic by the World Health Organisation. Despite that this proclamation was made 15 days away from the end of the 19/20 financial year, and ought not to have thwartedthe Department from fulfilling its objectives or deliverables as outlined in the 2019/20 Annual Performance Plan (“APP”), it should alsobe remembered that South Africa’s general elections were held on 08 May 2019. There was, therefore, an element of disruption as the state was transitioning from fifth to sixth administration. As a consequent, Departments and state owned entities could only table to Parliament their strategic plans and APPs during July 2019.

 

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 BRRR is therefore a tool to assess 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.

 

1.2        Limitations of the Report

As alluded to hereinabove, this year’s report is being considered under very strenuous conditions. The country is grappling an unprecedented calamity which even the first world countries have not been able to grasp fully yet. Due to ongoing lockdown and extraordinary measures the state is taking to save lives while balancing the disruptive effects to the country’s economic and social priorities, Department’s and entities’ tabling of the annual reports to Parliament by 30 September, as provided for under section 40 (1) and (3) of the PFMA and chapter 18 (18.3 and 18.4) of the Treasury Regulations was waivered. Accordingly, the Department and entities did not appear before the Portfolio Committee to present and defend their performance for the previous financial year.

 

Instead, it was decided that quarterly reports would be utilised to gauge the performance of the Departments.Other state Departments of Public Service and Administration (“DPSA”) as well as Planning, Monitoring and Evaluation (“DPME”) did not brief the Portfolio Committee, so are other constitutionally created institutions like Financial and Fiscal Commission (“FFC”) had not been invited to give their perspective on the DSBD performance,as is usually the case. Only Auditor General of South Africa (“AGSA”) was able to present audit findings of the Department and Seda. This report is thus a reflection of the quarterly reports as presented to the Portfolio Committee by the Department and entities, Seda and sefaduring 2019/20 financial year.

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.

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. This being the final year of the 2014 - 2019 Medium Term Strategic Framework (“MTSF”), the Department had an additional responsibility to contribute to the two outcome(s) of the first generation MTSF, namely, Outcome 4: Decent employment through inclusive growth, and Outcome 7: Rural development.

 

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 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. 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”.

 

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, the Medium Term Strategic Framework and the State of Nation Address that the Department has to contribute to in achieving them. Thereafter, an overview of the strategic plans of the Department and its entities are highlighted with a 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 2018/19 BRRR recommendations to ascertain if any of these have at all been implemented.

 

Section four (4) and five (5) considers the Department’s and entities financial and nonfinancial performance against its allocation for the financial year 2019/20. Unlike the previous financial years where annual reports are used as source documents, this year’s BRRR report considered all four quarterly reports (2019/20) in determining the performance,including programme performance and key performance indicators of the Department and entities.

 

Section seven (6) of the report discusses the Committee’s observations and perspectives with regard to the quarterly reports of the Department and entities concerning its mandates, strategic objectives and core issues previously and currently identified by the Committee. Whereas section eight (7) 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.

 

 

 

 

2.         OVERVIEW OF THE STRATEGIC AND OPERATIONAL ENVIRONMENT

The National Development Plan (“NDP”) is a long-term development plan, crafted by the National Planning Commission (“NPC”) on behalf of the South African government in collaboration with South Africans from all walks of life. The NDP aims to achieve the following objectives by 2030 -:

• Uniting South Africans of all races and classes around a common programme to eliminate poverty and reduce inequality
• Encourage citizens to be active in their own development, in strengthening democracy and in holding their government accountable
• Raising economic growth, promoting exports and making the economy more labour absorbing
• Focusing on key capabilities of both people and the country
• Capabilities include skills, infrastructure, social security, strong institutions and partnerships both within the country and with key international partners
• Building a capable and developmental state
• Strong leadership throughout society that work together to solve our problems

 

2.1        Relationship with National Development Plan (NDP)

The implementation of the National Development Plan (NDP) is one of the key government imperatives under the current administration and is aligned with the Africa Agenda and the global Sustainable Development Goals (“SDGs”). The NDP focuses us on the overall objectives, supported by South Africans, to eradicate poverty and substantially reduce inequality by 2030 through the creation of jobs and accelerating inclusive economic growth. The Department is directed to implement chapters three (3) and six (6) of the NDP that deal with the economy and employment as well as rural inclusive growth. The NDP is the country’s vision, with a target of creating 9.9 million new jobs from small businesses by 2030.

 

2.2        Relationship with the Medium Term Strategic Framework

The current period marks the end of the first Medium Term Strategic Framework following the adoption of the NDP. The Cabinet had decided back in 2013 that the 2014 - 2019 MTSF would form the first five-year implementation phase of the NDP and mandated work to begin on aligning the plans of the state organs with the NDP vision and goals. Thus, for the past five years the MTSF has made some priorities aimed at achieving radical socio-economic transformation through decent employment and inclusive growth. The Department of Small Business Development had been assigned to champion some of the priorities, namely, outcome four (4): Decent employment through inclusive growth, outcome five (5): A skilled and capable workforce to support an inclusive growth path and outcome seven (7): Rural development. The 2019 - 2024 MTSF, to inform the new strategic plan of the Department and entities, is still being finalised.

 

2.3        State of the Nation Address

During 13 February 2020, the State President Honourable Matamela Ramaphosa delivered his third state of the nation address (SONA) wherein a number of policy issues of interest to the Department of Small Business Development were announced. He, among others, underlined “the state of our economy that was not growing at any meaningful rate for over a decade whilst the rate of unemployment is deepening”. The President specifically made mention, as part of alleviating youth unemployment, the partnership between the National Youth Development Agency (“NYDA”) and the Department to provide grant funding and business support to 1000 young entrepreneurs in the next 100 days. Whereas SheTradesZA platform to assist women-owned businesses to participate in global value chains and markets was also announced as one of the most innovative initiative. He furthermore announced plans to reinforce procurement opportunities for small enterprises by designating more than 1000 locally produced products to be procured from Small, Medium and Micro Enterprises.

 

2.4        Summary of the Key Priorities Informing the 2020-25 Strategic Plan and 2020/21         Annual Performance Plan

The key priority / focus areas informing the balanced strategy framework of the DSBD have been identified and incorporated into the plan. These include -:

• Finalisation and implementation of the Township Entrepreneurship Fund;
• Establishment of Funds in partnership with the private sector;
• Review and implement Credit Guarantee Scheme;
• Finalise and implement the SMME Funding Policy;
• Finalise amendments to the National Small Enterprise Act to deal mainly with the establishment of the SMME Ombud Office, regulations/licensing of businesses owned by foreign nationals and unfair business to business practices;
• Implement National Incubation Policy and Incubation Standards; and
• Accelerate establishment of incubators and digital hubs in the townships and rural areas.

3.         SUMMARY OF PREVIOUS KEY COMMITTEE RECOMMENDATIONS

During the 2019 Budgetary Review and Recommendation Report, the Portfolio Committee made the following recommendations:

 

Table 1: 2019 BRR Recommendations

	Recommendations	Response from the Department
1.	It is envisaged that the 2019 - 2024 Medium Term Strategic Framework shall have been completed before the end of Quarter 3. The Portfolio Committee is urging the Department to immediately resume crafting the strategic plan that complies with all the government prescripts pertaining to the strategic plans and organisational structure e.g. Public Finance Management Act (1999) and Public Service Act (1994) before the end of Q3 of the 2019/20 financial year;	The Department developed a draft 2020 – 2025 Strategic Plan and a draft 2020/21 Annual Performance Plan and submitted the two planning documents to the Department of Planning, Monitoring and Evaluation (DPME) on 31 October 2019 – before the end of Q3 of the 2019/20 financial year in line with the Revised Framework for Strategic Plans and Annual Performance Plans (2019) provision timeframes. The plans complied with all the government prescripts pertaining to planning and took into consideration the sixth Administration’s priorities as reflected in the 2019 – 2024 Medium Term Strategic Framework (MTSF). To date, the Department had revised and re-tabled both the 2020 – 2025 Strategic Plan and the 2020/21 Annual Performance Plan, aligned to the 2019 – 2024 MTSF, the 2020 special adjustments budget and the economic recovery interventions in response to the Covid-19 pandemic. The Department submitted its structure to the Minister for Public Service and Administration in order to finalise alignment between the budget and organisational structure and cognisant of the fact that the structure may change to align to the priorities of the sixth administration. In July 2019, the Minister withdrew submissions regarding the organisational structure of the Department noting the intent to review and align to the priorities of the sixth administration. To date, the organisational structure has been drafted and the Minister has initiated engagements with the Minister of Finance in preparation for consultations with DPSA on the organisational structure. To structure delivery of the DSBD mandate and enhance the value of its services, a Business Delivery Model (BDM) was developed. The Delivery Model focused on areas such as Product and Markets, Information, Finance and Enterprise Development and informed the current review of the organisational structure.
2.	The Portfolio Committee agree with MPAT recommendation that the Department ensure that all the plans are aligned to the national priorities to enable effective monitoring, and that the Department attempts to conduct evaluations and make use of the outcomes thereof to improve future programmes and to report progress to the Portfolio Committee on a quarterly basis;	Department thrived to promote compliance and good governance by ensuring its compliance with MPAT standards. During the planning period, the Department had ensured that the revised and re-tabled 2020-25 Strategic Plan and revised and re-tabled 2020/21 Annual Performance Plan were aligned to the MTSF 2019-2024 which is the implementation plan and monitoring framework for achieving the NDP 2030 and priorities for the sixth administration. The monitoring framework for achieving priorities is clearly reflected in the Department’s planning documents on the outcomes, indicators, and targets levels towards the achievement of priorities to enable effective monitoring and parliamentary oversight.
3.	The Department needs to address the challenges noted within the Strategic Management environment – Annual Performance Plans, and the monitoring of organisational performance and institutionalisation of evaluations to reflect on quarterly performance reports to Parliament;	The Department is in the advanced process of recruiting a Deputy Director: Monitoring and Evaluation, which is set to ensure that the Department’s Monitoring Unit is capacitated so that it will adequately review the performance indicators and targets and will further ensure that these are developed in terms of the principles contained in the Framework for Managing Programme Performance Information and revised Framework for Strategic and Annual Performance Plans. Furthermore, the Internal Audit Unit has started reviewing the performance indicators, targets and quarterly performance reports with the aim to provide quality assurance and ensure that they are developed in terms of the principles contained in the Framework for Managing Programme Performance Information. This process started with the revised 2020-25 Strategic Plan and 2020/21 APP. At present, the Department is developing the Strategic Planning, Monitoring and Reporting Framework and Standard Operating Procedure (SOP). The Framework and SOP will outline the details of the Planning, Monitoring, Evaluation, Implementation and Reporting cycle of the Department, linking long-term planning with medium and short-term planning. The Framework and SOP will also ensure that all reported targets are supported by accurate, valid and complete information and will be easily retrieved when the final reporting the process is performed.
4.	Management of financial disclosures within the required timeframes must be attended to as non-adherence to prescripts in this area could pose serious risks for the Department in terms of potential conflict of interest or its SMS doing business with the state;	During the eDisclosure process for 2019, all the SMS members disclosed according to the appropriate prescripts. All 16 Finance and SCM officials disclosed. Of the level 12 MMS members that were required to disclose, one out of 22 did not disclose because the official was on long-term incapacity leave. Of the level 11 MMS members, three out of twenty-three officials did not disclose because they were no longer in the employ of the Department (two were transferred to other departments and one resigned). However, at the time of eDisclosure, they were not yet removed from the Departmental establishment. Of the CIS and BBSDP, eight out of twenty-four officials did not disclose. Seven officials out of the eight were on suspension, pending investigations, and one had resigned. The DPSA was informed of all the suspensions, transfers and resignations through an official letter from the ADG as well as through the completion of transfer requests to remove the officials from the DSBD establishment.
5.	Considering that other state departments i.e. Economic Development Department have been collapsed or reconfigured, this provides DSBD an opportunity to consolidate all small enterprise functions e.g. rural and township economy, and budgets scattered in various other state Departments. The Department must guide the Portfolio Committee which of the functions, budget and personnel will be relocated or transferred to the DSBD, so that if required, the Portfolio Committee can start the process of interacting with other Portfolio Committees of Parliament before the finalisation of the strategic planning processes for both the Department and the Portfolio Committee;	The movement of functions from one department to another are managed through a process called the National Macro Organisation of Government which is chaired by The Presidency supported by the Department of Public Service and Administration. It is not up to the Department to determine the functions that must be transferred as these are determined through a Proclamation by the President.
6.	The strategic plan of the Department must also pronounce on the institutional realignment of entities e.g. standing Committee recommendation to transfer sefa to DSBD and/or amalgamate Seda and sefa into a single entity;	The Department’s 2020 – 2025 Strategic Plan made a pronouncement on the institutional realignment of the entities: Currently the department has two entities (Seda and sefa) reporting to it, but a Cabinet decision has been taken to consolidate them into a single new entity. During the 2020/21 financial year the Department is working on finalising the process of consolidating the entities to form one new entity that will offer both financial and non-financial support to small enterprises increasing efficiencies for the benefit of SMMEs and Co-operatives. A draft Business Case has been developed.
7.	The utilisation of financial intermediaries (wholesale lending) by sefa was raised sharply by the Committee members during the BRRR process and flagged by the FFC as increasing the cost of capital for struggling small enterprises. The standing recommendation of the Portfolio Committee is that sefa should consider insourcing wholesale lending facility, or, consider alternative approaches of lending money to its clients e.g. only financial institutions regulated by the South African Reserve Bank. 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 Co-operative Financial Institutions (“CFI”) 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. Officials from the Department were part of the team that travelled with the Portfolio Committee to visit Mondragon Co-operative in Spain. The Department has a responsibility to implement resolutions emanating from its travel report;	The Department’s entity, sefa, will continue to use financial intermediaries as part of building a diversified financial sector. This is due to the fact that in South Africa, which is unique to our country, there are very few banks. If well supported and properly regulated, some of these financial intermediaries may develop into smaller banks. To address the concern about their registration or regulation and high financing rate, sefa has already been instructed to remedy the situation. The Department will require the financial intermediaries to be registered with the Financial Services Board as part of ensuring their proper regulation. The Department acknowledges that the National Credit Regulator (NCR) registration does not work as it will make the financial intermediaries no different from loan sharks. sefa is considering measures to ensure those already in the system are given time to comply as well. It should be noted that the sole regulation by the SARB will inhibit the developmental mandate of facilitating more financial institutions as it will mean only banks can be used, thus perpetuating monopolistic hold of the banks and yet banks hardly fund SMMEs and Co-operatives. During this term of office, when considering the SMME Funding, DSBD will also consider facilitation of broader participation by Historically Disadvantaged Institutions (HDIs) in banking services versus the current Banks Act.
8.	The Department must prioritise the stabilisation of sefa through appointments of permanent accounting authority and accounting officer before this undermines the agency’s operations and stability. The Portfolio Committee is hereby recommending these appointments be concluded before the end of the current financial year;	The new CEO, Mr Mxolisi Matshamba, was appointed has resumed his term of office on 1 November 2020. In light of the ongoing process of merging sefa and Seda, the Department opted to extend the term of office for the Board of Directors from 1 August 2020 to 31 July 2021.
9.	One of the topical and delivery area for the Department is the issue of market access. Without strong private sector partnerships, the Department is not likely to go further in terms of realising this objective hence the Portfolio Committee call to the Department to spearhead a mix of strategic interventions e.g. Wholesale and Retail charter, a comprehensive Market Access Strategy with clear plans to leverage private and public procurement opportunities, as well as the role of informal trading, rural and township economy enterprises;	The Department has finalized and presented to Cabinet a localisation policy framework which aims at deepening the industrial base amongst small businesses and co-operatives. The main purpose of this framework is to enhance the competitiveness of local small enterprises to produce products of good quality, at the right price and the required volumes to access markets. At the start of the financial year, the Department started to negotiate with wholesalers to list products manufactured by small businesses and co-operatives. By the middle the year, negotiations commenced with retailers to also consider listing SMMEs and co-operatives and place their products on the shelves. A basket of goods products most often purchased by spaza shops that are used to support SMME manufacturing (48 products) was produced. To date 78 SMME brands on this basket are being listed with wholesalers. The Department is currently in discussion with the large retailers in the country on the listing of SMMEs brands with retailers. Further, the localisation policy framework proposes that certain categories of goods and services should be procured from SMMEs and co-operatives by the public sector. The implementation of the Localisation Policy Framework is underway. Over the MTEF the Department will intensify its commitment to deliver the required infrastructure that would provide marketplaces for small enterprises to trade their products. An overarching plan is to make a call to all District Municipalities to partner with DSBD in establishing product markets in townships and villages. The product markets will provide affordable, safe and modernised spaces where small enterprises meet the buyers of their products. Enhanced products that comply with both domestic and international standards will provide an opportunity for small enterprises to access markets beyond their communities including exposure to international markets. The increase in uptake of SMMEs and Co-operatives participation in existing and newly established SEZ will be pursued by the Department, working in partnership with the dtic and with all the SEZ.
10.	In line with the recent launch of the District-based Service delivery model, the Portfolio Committee standing recommendation is that the Department must work hand in gloves with all spheres of government and ensure that it upscale the involvement of Local Economic Development (“LED”) structures by active participation in Integrated Developmental Plan (“IDP”) sessions, including the introduction of a more robust mechanism in ensuring that there is better co-ordination between activities of the respective Provincial Governments and the DSBD, and various other initiatives and mechanisms that bring to life DSBD mandate e.g. Intergovernmental Relations Framework Act (“IRFA”), National Spatial Development Perspective(“NSDP”), Presidential PovertyNodal Points (“PPNP”) and Transversal Agreements to mention             the few;	Government is implementing a District Development Model where all government departments and spheres are expected to jointly develop and implement interventions through a One-Plan approach. The Department has deployed over 54 managers into all Districts who are championing the Portfolio’s intervention in the Districts. We are working as part of government collective as this assist us to do more together as a collective than the Department running on its own without other departments and various spheres of government.
11.	The Department must ensure that the guidelines for the different incentive schemes are revised to ensure that they are aligned to the objectives of the scheme and are not       susceptible to abuse before the finalisation of the blending finance model currently being crafted;	The term sheets for each new programme have been developed. The new programmes are blended finance and the blended finance guidelines are applicable to the schemes.  The qualifying criteria for the Business Viability Programme, Township and Rural Entrepreneurship Programme and the Manufacturing Support Programme is aligned to the principles and objectives of the blended finance model. The guidelines of the co-operatives development support programme were revised and are now aligned to the principles and objectives of the blended finance model).
12.	The management, and/or, Bid Adjudication Committee should ensure strict adherence to the guidelines and standard operating procedures of the BBSDP and CIS incentive scheme. The responsibility for ensuring compliance with BBSDP guidelines should be clearly allocated and the responsible officials should be held accountable for any non-compliance. The Portfolio Committee should be informed quarterly concerning the progress attained;	The BBSDP and CIS were discontinued from the beginning of the 2020/21 financial year. The 2018/19 and 2019/20 provisions that are currently being processed are treated in accordance with the guidelines and SOPs of the programmes. The responsible managers are tasked with the responsibility to ensure full compliance with the guidelines and SOPs. The BBSDP has been replaced with the Blended Finance Program administered through sefa. The BBSDP directorate has been renamed to Business Support Directorate and this unit is currently processing historical approvals claims received before end of the previous financial year. Stricter measures to ensure full compliance and existence of these enterprise have been bolstered through bringing in Seda to independently visit and inspect these enterprises before any payments can be made. In addition, the Directorate has thoroughly reviewed the approvals to ensure full compliance in terms of documentation required and adherence to the program guidelines
13.	Management or responsible officials have an obligation to conduct site visits to verify that the goods and services were actually delivered/received through pre-and post-site visits. As recommended in 8.16 below, owing to its geographic footprint, Seda could be utilised for this purpose;	Seda has been brought on board to assist with the verification and conduct due diligence on the enterprises.
14.	Suspected misrepresentations by beneficiaries, suppliers and network facilitators must be investigated and the necessary action be taken before the end of the current financial year;	This process is underway with the assistance of the Auditor-General of South Africa. A progress report was provided to the Portfolio Committee on Small Business Development by the AGSA in the meeting of 4 November 2020. The DSBD was also part of the meeting.
15.	The Department should, on an ongoing basis, perform an independent assessment on the reasonability of the quotations received from the beneficiaries to identify instances of abuse and ensure that value for money is received;	The remaining applications that are currently being assessed by Seda will be returned for validation to the adjudication committee to ensure new and updated quotation are received that are in line with the requirements of the business and the application.
16.	The Portfolio Committee standing recommendation, which has also been affirmed by the AG is for the Department to consider enhancing the role of Seda in the adjudication, allocation and monitoring processes of the incentive schemes, as the entity has shown sound controls over these processes and has a wider geographical presence;	Seda is responsible for providing non-financial support to SMMEs and Co-operatives and therefore has limited capacity of advancing financial support. The entity has however been brought on board to verify the existence of businesses that have applied for funding and also conduct site visits to verify the requirements of these businesses as well as conducting post investment site visits to check whether the money was spent on the approved interventions.
17.	The review of the National Small Enterprise Act (1996) must be accelerated and tabled to the Portfolio Committee in line with the DSBD annual performance plan (2019/20), wherein the Department undertook to submit the bill to Parliament before the end of the current financial year;	The National Small Enterprise Amendment Bill has been finalised for presentation to Cabinet in quarter three of 2020/21. Amendments on remaining areas, i.e. institutional arrangements, chapter 4 have been initiated and are aimed to be finalised and ready for submission to Cabinet before the end of Quarter 4 2020/21.
18.	In addition, DSBD position with respect to the review of the Co-operatives Act (as amended) must be clarified to the Portfolio Committee as these have implications on the programme and budget of the Committee. So are reviews of the Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises and review of the Integrated Strategy on the Development and Promotion of Co-operatives (2012 - 2022).	After the proclamation of the Act, there were two areas (Co-operatives Development Agency and the Co-operatives Tribunal) that needed amendment. The Tribunal will form part of the newly established Ombudsmen for SMME and Cooperatives. The Cooperatives Development Agency will be merged as part of the new institution merging SEFA, SEDA and CBDA. The Definition of Small enterprises is part and parcel of the Reviewing the Small Enterprise Act. The CIS Funding instrument has been replaced by the Blended Finance Support Instrument to support co-operatives and SMMEs. The NSEA Amendment Bill will also propose the mechanism to deal with Unfair Business to Business Practices. As part of reviewing the two strategies, DSBD has also developed a number of financial support scheme which were aimed at providing relief to SMMEs and Co-operatives during Covid 19 pandemic and lockdown, which some of the schemes will be extended to provide support to the Economic Recovery post the pandemic.

Source: 2019 BRRR Report

 

4.         OVERVIEW OF FINANCIAL AND NON-FINANCIAL PERFORMANCE

The initial budget allocation for the Department during the 2019/2020 financial year and over the Medium Term Expenditure Framework (“MTEF”) as shown on table 2 below was R8 billion. This allocation consisted of transfers to Small Enterprise Development Agency, and a R1 billion portion of the Small Business and Innovation Fund (“SBIF”) that had earlier been announced by the President and the Minister of Finance in February 2018. It had also been projected that the fund would receive R3.2 billion over the medium-term, which the DSBD would spend on small business intermediaries, such as fund managers and incubators. This report is based on the 2019/20 financial year budget which was spread 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 2: Overview of 2019/2020 Budget and MTEF Estimates

PROGRAMME	AUDITED OUTCOME	MAIN APPROPRIATION	MTEF
	2017/18 R’000	2018/19  R’000	2019/20  R’000	2020/21 R’000	2021/22 R’000	TOTAL OVER MTEF R’000
Administration	116,999	127,121	124,388	131,496	139,630	395,514
Sector Policy and Research	16,748	22,447	35,615	39,416	42,310	117,341
Integrated Co-operatives Development	99,204	115,017	127,628	135,080	142,269	404,977
Enterprise Development and Entrepreneurship	1,226,533	1,223,868	2,280 921	2,407 271	2,539 124	7,227,316
TOTAL	1,459,484	1,488,453	2,568,552	2,713,263	2,863,333	8,145,148

Source: DSBD Annual Performance Plan 2019/20

 

The austerity belt-tightening measures that were being implemented across all spheres of the state in the middle of 2019/2020 financial year remained a lingering threat to the Department for a number of reasons e.g. consistent underperformance on financial and nonfinancial indicators stemming largely from high vacancy rate. The summary of performance and expenditure trends for all four quarters of the 2019/20 financial year is highlighted below.

 

4.1        Quarter 1 Performance

The first quarterly report of the Department was presented to the Portfolio Committee on 18 September 2019. First quarter expenditure was R386.8 million or 15.1 per cent of the appropriated budget of R2.6 billion. This resulted in the underspending of R93.2 million that was mainly on transfers and subsidies for incentive schemes.The Department reported that 25out of the 33 quarterly targets (75.7%) were achieved. As shown on table 3 below on Programme 1: Administration, 5 out of 8 targets were achieved, Programme 2: Sector Policy And Research, 8 out of 9 targets attained, Programme 3: Integrated Co-Operatives Development, 8 out of 10 targets, while on Programme 4: Enterprise Development And Entrepreneurship, 4 out of 6 targets were successfully completed. The Portfolio Committee was further briefed that reasons for underperformance during the quarter was that DSBD had to wait for the priorities of the Sixth Administration and furthermore ensure that it has the  resources to implement those priorities.

Table 3: Q1 Performance

Branch	No. of Performance Indicators	Quarterly Targets	Achieved	Not Achieved	Adjusted Budget (R‘000)	Expenditure to-date (R‘000) / Variance (%)
1. Administration	9	8	5 (62.5%)	3 (37.5%)	124 388	27 582 (3.97%)
2. Sector Policy and Research	9	9	8 (88.8%)	1 (11.2%)	35 615	4 161 (35.66%)
3. Integrated Co-operatives Development	10	10	8 (80%)	1 (20%)	127 628	14 512 (44.27%)
4. Enterprise Development and Entrepreneurship	6	6	4 (66.7%)	2 (33.3%)	2 280 921	340 527 (18.68%)
Total	34	33	25 (75.7%)	7 (24.3%)	2 568 552	386 781 (19.42%)

Source: DSBD Q1 Report (2019/2020)

 

On financial performance, expenditure onProgramme 1: Administration, was lower than projected by R1.1 million or 4 per cent mainly on goods and services due to overstatement of audit cost and outstanding invoice for travel and subsistence, on Programme 2: Sector Policy and Research, spending was lower than projected at R2.3 million or 35.7 per cent mainly on compensation of employees as a result of vacancies and goods and services because of delayed research projects. On Programme 3: Integrated Co-operative Development, spending was lower than forecasted by R11.5 million or 44.3 per cent. This was mainly due to slow disbursement of funds under the co-operative incentive scheme where underspending was R10.6 million or 61.2 per cent of the projection, attributed to claims not complying with the guidelines. Lastly, on Programme 4: Enterprise Development and Entrepreneurship, spending was lower than estimated by R78.2 million or 18.7 per cent mainly on transfers and subsidies particularly incentive schemes.

 

4.2        Quarter 2 Performance

The Department presented its quarter 2 report to the Committee on 20 November 2019. The presentation done by the Acting Director General painted a picture of a Department that was improving on its financial and non-financial performance. As demonstrated by table 4 below the Department achieved an average performance of 80%.  The Department furthermore attained 54% on women occupying senior management positions, while people with disabilities occupied 2%. Similar to the first quarter, the vacancy rate remained relatively high at 10%. Important milestone that was not achieved was on the Ombuds Service Bill specifically consolidation of position paper into a draft bill.

 

Table 4: Q2 Performance

Branch	No. of Performance Indicators	Quarterly Targets	Achieved	Not Achieved	Q2 Budget (R‘000)	Q2 Expenditure (R‘000) / Variance (%)
1. Administration	8	8	8 (100%)	0	31 255	29 893 (4.4%)
2. Sector Policy and Research	6	6	5 (83%)	1 (17%)	8 174	4 974 (39.1%)
3. Integrated Co-operatives Development	5	5	4 (80%)	1 (20%)	39 307	19 825 (49.6%)
4. Enterprise Development and Entrepreneurship	5	5	3 (60%)	2 (40%)	489 968	465 108 (5.1%)
Total	24	24	20 (83%)	4 (17%)	568 704	519 800 (8.6%)

Source: DSBD Q2 Report (2019/2020)

 

On the financial performance a variance of R48 million or 8.6% percent was recorded. The Department had projected an expenditure of R568 million but could only disburse R519 million, an underperformance of 3.6% was therefore recorded. The Department contended that there were numerous reasons why it underperformed. For instance, Seda transfers to the tune of R89 million had not been drawn down during Q1, Black Business Supplier Development Programme (“BBSDP”) underspent by R40.3 million due to non-compliant claims, Co-operatives Incentive Scheme (“CIS”) underperformed by R17.7 million owing to non-compliant claims, National Informal Business Upliftment Strategy (“NIBUS”) floundered by R6.6 million) while  Small Business Innovation Fund (“SBIF”)underspent by R113.3 million. In addition, and akin to Q1, Compensation of Employeesunderperformed by R5 million due to vacant posts, while Goods and Servicesalso contributed to the low spending by R3.3 million due to outstanding invoices for computer services and travel.

 

4.3        Quarter 3 Performance

The third quarter report of the Department was presented to Parliament on 04 March 2020. Overall performance under Programme 1, Administration, reached a high of 71%, down from 80% during the previous quarter. However, the number of informal businesses supported through Informal and Micro Enterprise Development (“IMEDP”) was exceeded with the Department supporting 836. The vacancy rate remained high and this was attributed to a moratorium on filling of vacant posts due to then pending general elections. Programme 2 performance indicators were attained while Programme 3 performance was less than satisfactory due to high volume of non-compliance of applications resulting in delayed processing of payments. With respect to Programme 4, National Treasury’s approval for the transfer of funds tosefa was only confirmed in October 2019. This resulted in the funding adjudication processes starting late in November 2019.

 

Table 5: Q3 Performance

Branch	No. of Performance Indicators	Quarterly Targets	Achieved	Not Achieved	Q3 Budget (R‘000)	Q3 Expenditure (R‘000) / Variance (%)
1. Administration	8	7	5 (71%)	2 (29%)	29 622	4 493 (13,17%)
2. Sector Policy and Research	5	5	4 (60%)	1 (40%)	4 482	5 305 (54,20%)
3. Integrated Co-operatives Development	5	5	4 (80%)	1 (20%)	27 901	11 104 (28,47%)
4. Enterprise Development and Entrepreneurship	9	9	6 (67%)	3 (33%)	892 648	62 291 (6,52%)
Total	27	26	19 (73%)	7 (27%)	954653	83 193 (8,02%)

Source: DSBD Q3 Report (2019/2020)

 

Financial expenditure during Q3 came to R954 654 million (92%) against projected R1 846 billion, resulting in an underperformance of R83.192 million (8.0%). At the time of reporting, the year-to-date expenditure was R1 861 235 billion (72.5%). Transfers and subsidies to the tune of R66.3 million could not be effected for a number of reasons highlighted below:-

• Seda (R15 million): IMEDP backlog – awaiting cash flow approval by National Treasury;
• BBSDP (R39.5 million): Available cash in bank of R66.7 million from Q1 and Q2;
• CIS (R8.8 million): Non-compliant claims;
• NIBUS (R4.3 million): Change in the strategic direction from the SEIF Programme to the Product Market and Development Programme;
• Craft CSP (R1.7 million): Delay in the commencement of the project;
• SBIF (R106.3 million): SBIF over performed in Q2 as sefa urgently required funds to kick-start the project in September whilst the projections were in October;
• Household transfers (-R201 thousand):  leave credits (R101) thousand and sponsorship of R100 thousand to Wits – entrepreneurial support;
• Compensation of Employees underperformed by R3.2 million due to vacant posts;
• Goods and Services also contributed to the low spending by R11.9 million largely due to outstanding invoices for travel and venues. Cancelled research projects also contributed to low spending, whilst Capital asset underperformed by R1.7 million due to delays in delivery of computers and laptops and replacement of a vehicle.

 

4.4        Quarter 4 Performance

The last quarterly report for the 2019/2020 financial year was presented to Parliament on 17 June 2020. During quarter 4, DSBD achieved 22 of its 26 targets. Administration had achieved six of the seven targets, Sector Policy and Research achieved five out of five, Integrated Co-operatives Development achieved four out of five, and Enterprise Development and Entrepreneurship, achieved seven out of nine targets. On Programme 1: Administration, the Department had set itself a target of less than 5% expenditure variance, and had come in well under that target with 2.15%. On average, creditors were paid within 30 days, the system to register small enterprises was developed and implemented, this was to enable them to acquire support from the Department.  The Department furthermore achieved more than 50% representation by women while people leaving with disabilities constituted more than 2%. Nevertheless, months after national general elections, the vacancy rate remained stubbornly high owing to a revised structure that was being crafted for concurrence with the Department of Public Service and Administration.

 

The performance on Programme 2: Sector Policy and Research, much to the satisfaction of the Portfolio Committee, the focus during this quarter was in Northern Cape. This was one of the provinces where the Department had been underperforming. The Department was able to cover a number of municipalities, as well as District Municipalities, in the province. It had been able to service 33 municipalities – more than double the targeted 16 -- because it had adopted a district approach, enabling it to interact with a number of municipalities that fell under those particular districts. The development of an SMME index was one of the targets that the Department had set itself at the beginning of the year, with the aim of measuring the path of SMMEs over a period of time. This target was achieved, and the Department was rolling it out.The DSBD further briefed the Committee that it was also looking at business turnaround and retention initiatives, due to a number of SMMEs that were collapsing. A decision was thus taken to include this target for the 2020/21 financial year.

 

On Programme 3: Integrated Co-operative Development, the Department had a target of supporting co-operatives to the value of R22 million while Programme 4: Enterprise Development and Entrepreneurship, the Department had a target to support SMMEs with blended finance to the value of R33 million. Other incentives programmes such as BBSDP, the Department was able to exceed its target by allocating more money, while some money had been diverted to certain Covid-19 interventions.

 

Table 6: Q4 Performance

Branch	No. of Performance Indicators	Quarterly Targets	Achieved	Not Achieved
1. Administration	8	7	6 (86%)	1 (14%)
2. Sector Policy and Research	5	5	5 (80%)	0
3. Integrated Co-operatives Development	5	5	4 (80%)	1 (20%)
4. Enterprise Development and Entrepreneurship	9	9	7 (78%)	2 (22%)
Total	27	26	22 (85%)	4 (15%)

Source: DSBD Q4 Report (2019/2020)

 

On the financial performance, the Department had originally budgeted R316.1 million, but had spent R358.6 million, exceeding the target by R42.5 million, or 13.4%. It had been allocated R2.268 billion for the full year, and R2.220 billion had been spent -- an under-spending of R48.7 million. Expenditure per programme for the quarter had been:

• Programme 1: Budget R33.8 million; spent R29.6 million;
• Programme 2: Budget R7.9 million; spent R5 million;
• Programme 3, Budget R35.2 million; spent R57.3 million;
• Programme 4, Budget R239.2 million; spent R266.7 million.

On compensation of employees had been R37.5 million, and R34.8 million had been spent, which had resulted in an under-spending of 2.7 million for the quarter. The targeted expenditure for goods and services had been R29.7 million, and R15.3 million was spent -- an under-expenditure of R14.3 million largely as a consequent of vacant posts. R306.4 million had been spent on transfers and subsidies, which was R58.4 million higher than the R247.9 million target. Payments for capital assets had amounted to R2 million – double the budgeted figure.

 

5.         REVIEW OF THE DEPARTMENTAL ENTITIES

 

5.1        Small Enterprise Development Agency

 

5.1.1     Quarter 1 Performance

Seda appeared before the Portfolio Committee to present its Q1 report on 18 September 2019. The agency’s performance information was structured in line with Seda’s approved Annual Performance Plan for 2019/20. It gave information on performance against targeted indicators, both on outcome and output levels. In quarter 1, only 27 indicators were considered for review, the organisation performed well on 17 indicators, that reflected an organisational performance of 62%. The performance combined client support interventions implemented from the National Office, the Provincial Network and network partners including supported incubators.

 

Table 7: Q1 Performance

PROGRAMME 2019  Q 1	ACHIEVED %	NOT ACHIEVED %	PROGRAMME 2018  Q 1	ACHIEVED %	NOT ACHIEVED %
PROGRAMME 1: ENTERPRISE DEVELOPMENT	25%	22%	PROGRAMME 1: ENTERPRISE DEVELOPMENT	27%	23%
PROGRAMME 2: SEDA TECHNOLOGY PROGRAMME	15%	3.7 %	PROGRAMME 2: SEDA TECHNOLOGY PROGRAMME	15%	0%
PROGRAMME 3:     ADMINISTRATION     (Support services &    Partnerships)	22%	11%	PROGRAMME 3:     ADMINISTRATION     (Support services &    Partnerships)	23%	12%
TOTAL	62%	38%	TOTAL	65%	35%

Source: Seda Q1 Report (2019/2020)

 

The total revenue budgeted for Seda for the 2019/20 financial year amounted to R948,0 million and the total expenditure budget amounted to R948,0 million. The actual expenditure for the period 1 April to 30 June 2019 amounted to R188,05 million resulting in a pro-rata underspending of R49,49 million (20.84%), against the pro-rata budget of R237,54 million. Commitments at the end of June 2019 were about R33,29 million.

 

5.1.2     Quarter 2 Performance

Seda’s performance information is structured in line with Seda’s approved Annual Performance Plan 2019/20. It gave information on performance against targeted indicators, both on outcome and output levels. In quarter 2 only 31 indicators were considered for review, the organisation performed well on 28 indicators, which reflected an organisational performance of 88%. There had been improvements in the enterprise development programme, the Seda development programme and administration. It had also done well in achieving 11 769 learners participating in entrepreneurship in schools compared to the annual target of 12 000 learners. Underachievement was mostly due to a shortage of staff, owing to resignations.Total number of staff as at end September 2019 was 696. Of this number, 189were Business Advisors (173 as per approved structure +16 MOUs). Total staff vacancy rate was standing at 2.4 % while for Business Advisors was4%.

 

Table 8: Q2 Performance

PROGRAMME 2019  Q 2	ACHIEVED %	NOT ACHIEVED %	PROGRAMME 2018  Q 2	ACHIEVED %	NOT ACHIEVED %
PROGRAMME 1: ENTERPRISE DEVELOPMENT	34%	12%	PROGRAMME 1: ENTERPRISE DEVELOPMENT	36%	10%
PROGRAMME 2: SEDA TECHNOLOGY PROGRAMME	22%	0 %	PROGRAMME 2: SEDA TECHNOLOGY PROGRAMME	18%	4%
PROGRAMME 3:     ADMINISTRATION     (Support services &    Partnerships)	31%	0%	PROGRAMME 3:     ADMINISTRATION     (Support services &    Partnerships)	29%	3%
TOTAL	88%	12%	TOTAL	83%	17%

Source: Seda Q2 Report (2019/2020)

 

5.1.3     Quarter 3 Performance

Seda’s third quarter report was presented to the Portfolio Committee on 11 March 2020. In quarter 3, only 31 indicators were considered for review, the organisation performed well on 26 indicators, translating to an average performance of 84%. There were nevertheless areas where the agency underachieved e.g. number of informal business supported through Supplier Development Programme where only two hundred (200) was attained. The number of co-operatives assisted with access to finance was lower than projected due to challenges in securing   loan finance for newly established co-operatives and the number of clients supported through National Gazelles was smaller than forecasted. The agency informed the Committee that a third Cohort would not be invited, the programme will not continue in its current form. An amount of R15 396 680, 63 has been spent on the Gazelles Grant by end of Quarter 3.

 

Table 9: Q3 Performance

PROGRAMME 2019  Q 3	ACHIEVED %	NOT ACHIEVED %	PROGRAMME 2018  Q 3	ACHIEVED %	NOT ACHIEVED %
	Targets Allocation  Per Programme as %  of  all Organisational Targets  Measured  this  Quarter			Targets Allocation  Per Programme as %  of  all Organisational Targets  Measured  this  Quarter
PROGRAMME 1: ENTERPRISE DEVELOPMENT	32.26%	16.13%	PROGRAMME 1: ENTERPRISE DEVELOPMENT	33%	14.29%
PROGRAMME 2: SEDA TECHNOLOGY PROGRAMME	22.58%	0 %	PROGRAMME 2: SEDA TECHNOLOGY PROGRAMME	21%	0%
PROGRAMME 3:     ADMINISTRATION     (Support services &    Partnerships)	29.03%	0%	PROGRAMME 3:     ADMINISTRATION     (Support services &    Partnerships)	21%	10.71%
TOTAL	83.87%	16.13%	TOTAL	75%	25%

Source: Seda Q3 Report (2019/2020)

 

During Q3 Seda’s financial performance was characterised by underspending. The Agency reported that it would catch up during Q4, to ensure the maximum execution of funds. The plans of Seda were up and running to ensure that in quarter 4 there was no surplus. Most of the underspending were in the areas of the National Gazelles project, the Community Private Partnerships Programme (“CPPP”) projects, and the KwaZulu Natal Economic Development, Tourism and Environmental Affairs (“KZNEDTEA”) co-operatives assistance programme, as well as incubators. On National Gazelles Project: Grant amounts of R33 million to clients have been approved. Procurement processes already taking place for all approvals, year to date spend is R16 million including BDS. The balance was expected to be spent during Q4 as Seda was wrapping up the project and finalising procurement. The Committee was further informed that the programme wouldbe discontinued during 2020/21 financial year.

 

Another area of underperformance was Project Plan for CPPP Project & Cooperate Assistance Program (EDTEA). Seda reported that project in KZN was finalised, thus the procurement process of R13 million commenced late due to delays from the project funders to finalise their list of clients and co-operatives interventions. While on incubators, some tranches, amounting to R23 million were due for payment during Q4 owing to late submission of Annual Reports (“AR”) and Annual Financial Statements (“AFS”) and Central Supplier Database (“CSD”) non-compliance matters, that had to be addressed before 2019/20 disbursements. Seda further reported that New Digital Hubs (X6), Township Incubators (X9), Universities and TVET College Centres (X8) for Entrepreneurship Rapid Youth Incubators with a combined approval value of R43 million were in the process of approval. Disbursement will only be done after the approval and compliance processes is concluded but before the end 2019/20 financial year.

 

5.1.4     Quarter 4 Performance

The last quarter report for the 2019/20 financial year was tabled to Parliament on 24 June 2020. During this quarter, the agency was reporting against 32 strategic indicators. The Committee was advised that although there had been improvements in its overall performance against its annual targets, it could not maximise its full potential because of the outbreak of Covid-19. However, 28 indicators were achieved, an organisational achievement of 88%. It had ensured consistent service delivery through co-locations at 87 municipalities and partners, with 23 co-locations at Seda branches, and 11 mobile units. It had trained 46 Local Economic Development (“LED”) officers on Seda basic diagnostic tools in 3 provinces, and a further 34 on the New Venture Creation, in partnership with the Services SETA, from six municipalities. It had been a challenging exercise to secure finance for newly established co-operatives owing to the major banks’ strict lending criteria. The entity would improve through the merger of Seda and sefa which would result in streamlining their operations.

 

Table 10: The budget Split Per Expenditure Category

Category of expenditure	R’Million	% of budget
Compensation of employees	354,40	41.09%
Operating costs (excluding employees compensation)	158,12	18.34%
Programmes and projects	342,66	39.73%
Capital	7,25	0.84%

Source: Seda Q4 Report (2019/20)

The total revenue budget for Seda for the 2018/19 financial year amounted to R862,43 million and the total expenditure budget also amounted to R862,43 million.The actual expenditure for the period 1 April to 31 December 2018 amounted to R566,84 million resulting in a prorata underspending of R75,13 million (11.70%), against the pro-rata budget of R641,97 million. Commitments as at the end of December 2019 were about R23,68 million. Whereas the total amount attributed to the compensation of employees as shown in table 10 above added up to R354 million, operating costs of R158 million, while programmes and projects equalled to R342 million.Total number of staff compliment as at 31 March 2020 was 677.Of this number, 185 were Business Advisors (165 as per approved structure +20 MOU’s). Staff vacancy rate at the time was 5% while that of Business Advisors was 8%. A significant proportion of the national office was in the Enterprise Development Division and the Seda Technology Programme, which were part of the core services.

 

5.2        Small Enterprise Finance Agency

 

5.2.1     Quarter 1 Performance

Small Enterprise Finance Agency appeared before the Portfolio Committee on 18 September 2019 to present itsfirst quarterly performance against the approved corporate plan for the financial year 2019/20. The agency informed the Portfolio Committee that its amortised Total Loan Book as at 30June 2019 stood at R1.6 billion, comprising R858 million of Wholesale Lending (“WL”) facilities and R761 million Direct Lending (“DL”) facilities. During the same period, the accumulated impairment for loans and investments, excluding Direct Lending legacy book stood at 37% exceeding the target by 4%.

 

The total approvals for the quarter were R160 million against the target of R186 million which represented 86% of the quarterly target. Of that, R53 million was from Direct Lending, R47 million from Wholesale Lending and R60 million went to Khula Credit Guarantee (“KCG”) programme to assist Black-Owned businesses (panel beaters) in the motor body repair industry to have access to the insurance market clients.It was further recounted that uunderperformance was due to unavailability of quality wholesale deals - financial viability of intermediaries and their stage of readiness.

 

 

 

Table 11: Loan Book Performance Q1

	Approvals R’million	Disbursements R’million	Jobs	Number of SMMEs
Target	R186	R159	18 399	18 036
Achieved	R160	R97	15 130	14 385
Percentage	86%	61%	82%	80%

Source: Sefa Q1 Report (2019/20)

 

The total sefa disbursements for Q1 amounted to R96.5 million against the target of R159 million. TheDL disbursements were R48 million against the target of R57 million.WL loan program disbursed R48 million against the target of R152 million. The total disbursements as at 30 June 2019 represented 61% of the quarterly target. In value terms, majority of sefa’s disbursements were done in Limpopo followed by KwaZulu Natal. The reason being that Limpopo has greater activity of microfinance institutions that mainly support Women-owned businesses.

 

With respect to the developmental impacts, one of the key agency indicator, during Q1, 14 385 SMMEs received financial support via the sefa loan programmes, resulting in the creation and maintenance of 15 130 jobs.R83 million was disbursed to black-owned SMMEs, R17 million to townships based SMMEs, R50 million to women-owned SMMEs and R28 million to youth-owned enterprises. Overall, organisational collections in Q1 amounted to R73.6 million. DL loan collections were R40.7 million while WL collected R33.2 million.

 

Table 12: Development Impact Q1

	Youth R’million	Rural R’million	Women R’million	Black R’million
Target	R48	R90	R90	R133
Achieved	R28	R54	R51	R84
Percentage	58%	60%	56%	63%

Source: Sefa Q1 Report (2019/20)

 

5.2.2     Quarter 2 Performance

During Q2, as presented to the Portfolio Committee on 20 November 2019, a total of R187 million loan facilities wereapproved, representing 67% of the quarterly target. Total disbursements for the quarter were R187 million, representing 79% of the quarterly target and 54% of annual target year to date. In Q2, 16 109 SMMEs received financial support via the sefa loan programmes, resulting in the creation and maintenance of 18 877 jobs. R156 million was disbursed to black-owned SMMEs, R12 million to townships based SMMEs, R65 million to women-owned SMMEs and R37 million to youth-owned enterprises.

 

Overall, organisational collections in Q2 amounted to R97.7 million. DL loan collections were R35.6 million while WL collected R62 million. The loan book accumulated impairment stood at 39.9% as at 30 September 2019. This was 6.9% percent above the target of 33%.The total approvals for the quarter were R188 million against the target of R279 million which represent 67% of the quarterly target -- R87 million from Direct Lending (DL), WL SME R90.6 million while Microfinance received R10 million. Underperformance in the approvals target was due to no approvals recorded for the quarter for KCG. At the time of reporting, the year to date approvals achieved stood at R380.7 million.

 

Table 13: Loan Book Performance Q2

	Approvals R’million	Disbursements R’million	Jobs	Number of SMMEs
Target	279	238	27 599	27 053
Achieved	187	187	18 877	16 109
Percentage	67%	79	68%	60%

Source: Sefa Q2 Report (2019/20)

 

As regards the development impacts, number of jobs facilitated during Q2, 68% of target achieved. The majority of jobs facilitated were contributed by the Microenterprise sector. At the time of reporting the number of jobs facilitated represented 45% of the annual target. The number of SMMEs financed – 60% of target achieved. The number of SMMEs financed represented 42% of the annual target. Enterprises based in rural provinces received R90 million in Q2; those in the townships received R12 million; women-owned businesses received R65 million; black-owned businesses received R156 million over the quarter. In value terms, majority of sefa’s disbursements were done in Gauteng followed by KwaZulu Natal. The reason being that Gauteng and KwaZulu Natal have higher density of SMMEs registered in South Africa.

 

 

 

 

Table 14: Development Impact Q2

	Youth R’million	Rural R’million	Women R’million	Black R’million
Target	72	134	134	200
Achieved	37	90	65	156
Percentage	51%	67%	48	78

Source: Sefa Q2 Report (2019/20)

 

5.2.3     Quarter 3 Performance

As at 31December 2019 sefa’s amortised Total Loan Book stood at R 1.7 billion, of this, R876 million was on WL facilities and R892 million on DL facilities. The total approvals for the quarter were R432 million against the target of R279 million which represent 155% of the quarterly target. The actual amount that went to Direct Lending was R104 million from, R253 million went to Wholesale Lending whileMicrofinance received R75 million. The total sefa disbursements for Q3 were R394 million against the target of R238 million and represent 166% of Q3 target. Of that, DL disbursements were R85 million, WL loan program disbursed R309 million and the value of KCG’s taken-ups amounted to R50 million.The year to date disbursements achieved was R828.7 million.

 

In Q3, 21 713 SMMEs received financial support via the sefa loan programmes, resulting in the creation and maintenance of 23 821 jobs.R304 million was disbursed to black-owned SMMEs, R43 million to townships based SMMEs, R176 million to women-owned SMMEs and R59 million to youth-owned enterprises. Overall, organisational collections in Q3 equalled R119.7 million.DL loan collections amounted to R32,5 million while WL collected R87,2 million. The loan book portfolio at risk stood at 55% as at 31December 2019. According to sefa, the over achievement was due to approvals made under the Small Business Innovation Fund (SBIF).

 

Table 15: Loan Book Performance Q3

	Approvals R’million	Disbursements R’million	Jobs	Number of SMMEs
Target	279	238	27 559	27 053
Achieved	432	394	23 821	21 713
Percentage	155%	166%	86%	80%

Source: Sefa Q3 Report (2019/20)

 

In terms of jobs facilitated - 86% of the target was achieved.The majority of SMMEs facilitated were contributed by the Microenterprise sector.About 36 co-operatives were financed during the quarter under review and year to date 60 cooperatives were financed.Enterprises based in the priority rural provinces received R154 million in Q3; those in the townships received R43 million; women-owned businesses received R175.7 million; black-owned businesses received R303.7 million over the quarter. In value terms, majority of sefa’s disbursements were done in Gauteng followed by KwaZulu Natal. The reason being that Gauteng and KwaZulu Natal has a higher density of SMMEs registered in South Africa.

 

Table 16: Development Impact Q3

	Youth R’million	Rural R’million	Women R’million	Black R’million
Target	72	134	134	200
Achieved	59	154	176	304
Percentage	82%	115%	131%	152%

Source: Sefa Q3 Report (2019/20)

 

5.2.4     Quarter 4 Performance

The total sefaamortised Total Loan Book as at 31March 2020 stood at R 1.5 billion, comprising R902million Wholesale Lending facilities and R645 million Direct Lending facilities. A total of R637 million loan facilities during Q4 were approved, representing 342% of the quarterly target and 152% of the annual target. Total disbursements for the quarter were R295 million representing 186% of the quarterly target and 142% of the annual target. In Q4, a total of 12 385 SMMEs received financial support via the sefa loan programmes, resulting in the creation and maintenance of 18 637 jobs. R182 million was disbursed to black-owned SMMEs, R24 million to townships based SMMEs, R71 million to women-owned SMMEs and R40 million to youth-owned enterprises. Overall organisational collections in Q4 amounted to R75 million. DL loan collections were R27.4 million while WL collected R47.7 million. The loan book portfolio at risk stood at 49% as at 31 March 2020. The over achievement was due to the implementation of the SBIF fund.

 

 

 

 

 

Table 17: Loan Book Performance Q4

	Approvals R’million	Disbursements R’million	Jobs	Number of SMMEs
Target	186	159	18 399	18 036
Achieved	637	295	18 637	12 385
Percentage	342%	186%	101%	69%

Source: Sefa Q4 Report (2019/20)

 

The total sefa disbursements for Q4 were R295 million against the target of R159 million and represent 186% of Q4 target. DL disbursements were R45 million, WL loan program disbursed R250 million, WL SME disbursed R129 million, Microfinance disbursed R28 million while KCG disbursed R93 million. With regards to the number of jobs facilitated - 101% of target achieved. The majority of Jobs facilitated were contributed by the Microenterprise sector. The number of SMMEs financed – 69% of target achieved. Similar to Q3, the majority of SMMEs facilitated were contributed by the Microenterprise sector.

 

Enterprises based in the priority rural provinces received R49 million in Q4; those in the townships received R24 million; women-owned businesses received R71 million; black-owned businesses received R182 million over the quarter. In value terms, and this was a trend throughoutall quarterly reports except in Q1 where Limpopo came first, majority of sefa’s disbursements were done in Gauteng, followed by Kwa-Zulu Natal. The reason being that Gauteng and Kwa-Zulu Natal have higher densities of SMMEs registered in South Africa.

 

Table 18: Development Impact Q4

	Youth R’million	Rural R’million	Women R’million	Black R’million
Target	48	90	90	133
Achieved	40	50	71	182
Percentage	83%	55%	79%	137%

Source: Sefa Q4 Report (2019/20)

 

 

 

 

 

 

6.         OBSERVATIONS

Having reflected on the Department, sefa and Seda quarterly performance reports for2019/20 financial year, the Portfolio Committee hereby register the following observations and recommendations for consideration by the Department: -

6.1        The Portfolio Committee ispleased with the overall performance of the portfolio but         notes that there is still room for improvement. Seda and sefa accomplishments oftwo            (2) clean audits and unqualified audit from the Department of Small Business             Development    for the 2019/20 financial year are steps in the right direction and should   be encouraged;

6.2        It is essential to note that lot more could have been achieved during the financial year      under review but due to national general elections that took place in May 2019, in            particular the period of transition from fifth to sixth administration, state annual plans           and service deliveryperformance were indeed impacted;

6.3        One such area of underperformance by the Department was and remains the filling of      vacant posts especially at senior management level. Throughout the period under   evaluation, the Department’s vacancy rate has consistently been higher than 10%. This    has often been attributed to incomplete organisational structure. The Department has      conceded that this is affecting its ability to achieve some of the targets and it might very    well have led to the redirection of resources when the national state of disaster was   announced in March 2020;

6.4        The Committee notes that throughout the DSBD appearance in Parliament, members       have consistently flaggedallocation of resources to provinces like Northern Cape and        North West. The two regions receive less attention from the Department, sefa and   Seda. In value terms, and this pattern persisted all through the previous financial year             apart from in Q1 where Limpopo came first, majority of sefa’s disbursements were          done in Gauteng, followed by Kwa-Zulu Natal. The reason being that Gauteng and   Kwa-Zulu Natal have higher densities of SMMEs registered in South Africa while with            Limpopo, reason advanced was that there is greater activity of microfinance institutions in the province. By implication, even in Limpopo, the beneficiaries were not necessarily            small enterprises but microfinance institutions;

6.5        Another major policy area of future focus reported regularly by Seda was with respect     to inability to secure finance for newly established co-operatives owing to the major   banks’ strict lending criteria. According to Seda, this was on course to improve with             the merger of Seda and sefa which hopefully would result in streamlining of the   operations;

6.6        Sefa on the other hand, attributed some of its uunderperformance to “unavailability of     quality wholesale deals - financial viability of intermediaries and their stage of       readiness”. This is in spite of the Portfolio Committee having recommended that the   agency must prioritise community and village owned banks of the same kind to Grameen Bank e.g. Co-operatives Financial Institutions (“CFI”) and Co-operative        Banks owing to their licensing and regulation by South African Reserve Bank and          National Credit Regulator are far more transparent than privately owned microfinance             institutions. Due to their registrations, licensing and regulation, sefa is unable to exercise oversight over microfinance institutions, as they are not administered or        overseen by Prudential Authority (“PA”) and Financial Sector Conduct Authority           (“FSCA”);

6.7        On the policy and legislative front, all initiatives planned for the previous financial            year(s) were deferred for 2019/20 financial year e.g. 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). In 2019, the Committee       had been told“failure to complete the task was due legislative drafting incapacity that      exists, thus resulting in over reliance on external assistance and counsel in driving    this unit of work. Given the skills/competency shortage, the Department has considered it vital to explore the option of secondment of officials from other Government     departments with legislative acumen       and experience to augment the existing gap”;

6.8        Sefa quarterly reporting methodology requires further analysis. The agency         underperformed during Q1 and Q2. However, during Q3, total approvals jumped       straight to R432 million against the target of R279 million which represent 155% of the      quarterly target. The total sefa disbursements for Q3 were R394 million against the           target of R238 million and represent 166% of Q3 target. While during Q4, R637 million    loan facilities were approved, representing 342% of the quarterly target and 152% of            the annual target. Total disbursements during the same period were R295 million             representing 186% of the quarterly target and 142% of the annual target. In such circumstances, fiscal dumping, when money is not spent for its intended purpose, is usually probable;

6.9        During the 2019 BRRR the Committee welcomed the replacement of Klynveld Peat          Marwick Goerdeler (“KPMG”) by SizweNtsalubaGobodo (“SNG”). However,      stressed that considering the nature of business sefa does on behalf of the government       and people of South Africa and the amount of money that is apportioned to the agency on an annual basis, the Committee remains of the view that sefa books should better be       handled by the supreme audit institution of South Africa, Auditor General. While in the       meantime, and through AGSA, SNG must brief the Committee in a similar fashion             AGSA brief the Committee concerning DSBD and Seda audit findings;

6.10      Regarding audit outcomes for the 2019/20 financial year the Portfolio Committee             notes Auditor General observations which are as follows -:

• In previous years, material non-compliance with the various incentive guidelines has been reported. While this material finding was not included in the 2019/20 audit report there remains instances where the guidelines were not fully adhered to;
• On strategic planning and performance management, specific information systems were not implemented to enable the monitoring of progress made towards achieving targets, core objectives and service delivery as required by the public service regulation;
• The Audit Committee at DSBD was established until December 2019 but has not been in place since then;
• The systems to collect and report on achievements related to these incentives were not adequate to ensure credible information, adjustments were required during audit process on four incentive related achievements;
• No findings of connected beneficiaries and suppliers were identified across both the BBSDP and CIS initiatives in the 2019/20 period;
• Reviews by the adjudication committees to ensure that applicants met the requirements/ provided the required documentation as per the BBSDP and CIS guidelines were not always effective. Indicators of potential fictitious beneficiaries such as applicants who are above the thresholds for compulsory VAT registration but are not registered were not identified through the review process;
• There was no evidence that the department performed post approval site visits for the paid applicants for both BBSDP and CIS. While these visits were to some extent impacted by the lockdown, this requirement of the guidelines is pivotal to ensuring the objectives of the incentives are ultimately achieved;
• The audit opinion of the department has remained unchanged for the past four financial years. The main obstacles preventing the department from obtaining a clean audit outcome remains the quality of submitted annual performance reports. The quality of financial statements has been largely maintained, some attention needs to be paid to ensuring the different incentives are correctly classified in the budgeting and reporting processes.
• Management (accounting officers/ authorities and senior management) do not respond with the required urgency to AG messages about addressing risks and improving internal controls. Inadequate implementation and monitoring of action plans by these role players to address key audit matters have been identified as a root cause for the repeat findings. This is particularly relevant to the performance reporting environment of both auditees;
• The instability and prolonged vacancies in key positions can cause a competency gap and affect the rate of improvement in audit outcomes. Capacity to undertake the necessary oversight through pre- and post-site visits was not adequate.

 

7.         RECOMMENDATIONS

7.1        Strategic posts have remained vacant for too long. The Committee notes that absence    of a permanent Director General may handicap the Department in fulfilling its mandate.    Filling up the post of an Accounting Officer is critical and should be expedited ideally       before the end of 2020/21 financial year, including other senior posts i.e. Deputy             Director General(s) and Chief Director(s);

7.2        The Committee is mindful that filling of vacant posts is reliant on a successful     finalisation of the organisational structure. Accordingly, the Departments of         Small Business Development and Public Service and Administration (“DPSA”) are     being urged to cordially conclude this matter preferably before the end of the 2020/21     financial year;

7.3        During the 2019 BRRR process the utilisation of financial intermediaries (not properly      registered, licensed and regulated) by sefa was raised sharply by members of the            Committee and flagged by the FFC as increasing the cost of capital for struggling small         enterprises. The Portfolio Committee viewpoint is that sefa should consider insourcing             wholesale lending facility, alternatively, consider auxiliary approaches to lending money to its clients e.g. giving priority to financial institutions regulated by the South     African Reserve Bank (Prudential Authority and Financial Sector Conduct Authority)        and National Credit Regulator;

7.4        While significant improvement in adherence to the Black Business Supplier         Development Programme (BBSDP), Co-operative Incentive Scheme (CIS) and           National Information Business Upliftment Strategy (NIBUS) guidelines were noted in            the 2019/20 financial year, some instances of non-compliance were still noted. The          most glaring weakness is the absence of post funding visits across the schemes.      According to Auditor General, “the Department exposes itself to not achieving against   its core mandate if the post funding visits are not undertaken to ensure small businesses       were positively impacted by the efforts of the Department. The Department must thus     ensure that the guidelines for the different incentive schemes are revised to ensure that they are aligned to the objectives of the scheme and are not susceptible to abuse;

7.5        The management, and/or, Bid Adjudication Committeemust ensure strict adherence         to the guidelines and Standard Operating Procedures (“SOP”) of incentive schemes.    The responsibility for ensuring compliance with guidelines and SOP should be clearly        allocated and responsible officials should be held accountable for any non-        compliance. Automating application and approval processes must be expedited in order        partly to reduce non-compliance and improve efficiency. The Portfolio Committee      should be informed quarterly concerning the progress attained;

7.6        Management or responsible officials have an obligation to conduct site visits to beneficiaries in order verify if goods and services are/were actually delivered/received            through pre-and post-site visits. Owing to Seda geographic footprint the agencycould            be utilised for this purpose;

7.7        The tenacious skewedness in the distribution of funds and resources as observed in all   quarterly reports in favour of Gauteng and KwaZulu Natal, at the expense of other       struggling provinces like Northern Cape and North West, necessitates urgent attention.            Historical inequities exist between provinces as well as between districts within    each province. Remedial measures could include, amongst others, equitable allocation of resources per provinces and districts;

7.8        For the past 11 months, the Department has been without the Audit Committee. The        existence of an Audit Committees in South African national government departments   is not only a legal requirement. These committees perform certain activities as an   additional layer of accountability instrument to the departments. The Department must     accordingly appoint members of the Audit Committee before 31 March 2021;

7.9        The audit opinion of the Department has remained unchanged for the past for years.       According to the Auditor General, “the main obstacles preventing the department from      obtaining a clean audit outcome remains the quality of submitted annual performance   reports”. The Portfolio Committee implores the Department to pay special focus in this             particular area and ensure that internal audit is properly capacitated with competent         personnel;

7.10      The Portfolio Committee has noted AG forewarnings that Management (accounting          officers/ authorities and senior management) do not respond timeously and with the        required urgency in addressing risks and improving internal controls. The Committee            is calling on the Department to act swiftly in dealing and implementing AG             recommendations. In line with the AG recommendation to the Committee, all DSBD,        Seda and sefa quarterly reports must provide feedback on the implementationand           progress of action plans toensure improvement in the audit outcomes of the portfolio.

 

Report to be considered.