ATC210518:Report of the Portfolio Committee on Small Business Development on Budget Vote 36: Small Business Development for financial year 2021/22, dated 12May 2021

Small Business Development

Report of the Portfolio Committee on Small Business Development on Budget Vote 36:  Small Business Development for financial year 2021/22, dated 12May 2021

 

1.         INTRODUCTION

 

The Portfolio Committee on Small Business Development (the Portfolio Committee) having considered Annual Performance Plans (APP) and budget allocations 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) reports as follows: -

 

1.1        Background

At the beginning of each year following the State of the Nation Address (SONA) by the President, the Minister of Finance tables before Parliament a detailed outline of the State's Budget: how much money will be or ought to be spent, on what, in that financial year. The Minister of Finance delivered his budget speech on 24 February 2021. His speech set the scene for the tabling of the Strategic Plans and Annual Performance Plans. The Department has complied with this obligation by tabling its budget vote before Parliament, which, amongst others, proposes how the Department aim to reconcile its resources with the service delivery imperatives as outlined by the President of the Republic of South Africa in the State of the Nation Address particularly in light of the Covid-19 pandemic. One of the foremost statutory functions of the Parliament is to therefore discuss, pass and oversee the Department’s Budget.

 

The Department of Small Business Development Budget (Vote No. 36) was referred to the Portfolio Committee for consideration and reporting. Strategic Plans identify strategically important outcome orientated goals and objectives against which public institutions medium-term results can be measured and evaluated by Parliament. Annual performance plans identify the performance indicators and targets that the institution endeavours to accomplish in the upcoming budget year. The annual performance plan shows funded service-delivery targets or projections. The annual budget sets out what funds an institution is allocated to deliver services and most importantly, indicates the resource envelope for the year ahead, and sets indicative future budgets over the Medium Term Expenditure Framework (MTEF). This budget vote report covers the current financial year and the following two outer years.

1.2        Purpose of the Budget Vote

The budget is a political and financial instrument that the government uses to ensure that its policy programmes are operationalised through the allocation of financial resources to the different spheres of government, specifically to programmes and projects. It reflects an outcomes centred public spending approach. It is further described as a tool that the government uses to evaluate the financing of its key policy objectives. It also used to evaluate whether the macro-economic perspectives of the budget and the respective budget votes meet the requirements of government policies and give substance to the government’s five-year plan. Therefore, the purpose of Vote 36of the Department is to promote the development of small businesses and co-operative enterprises that contribute to inclusive growth and job creation.

 

1.3        Objectives of the Report

The objectives of the report are as follows: -

1. To describe and analyse the budget of the Department of Small Business Development, vote 36, over the 2021/22 financial year;
2. To peruse vote 39in relation to sefaas the agency is still being funded through the Department of Trade, Industry and Competition (DTIC) via Industrial Development Corporation (IDC);
3. To report on the deliberations and consideration, which are essentially the unpacking and examining of the Department annual performance plan and its associated budget vote in relation to the strategic plan;
4. To make recommendations concerning the endorsement, adjustment or rejection of budget vote 36 and any other recommendations regarding the implementation of the Department strategic plan;
5. To record general and specific observations and make appropriate recommendations.

 

1.4        The Portfolio Committee Process

Due to the country’s ongoing lockdown as a consequent of the Covid-19 epidemic, Portfolio Committees are meeting via online mechanism to pore over the Departments and entities strategic and annual performance plans, budgets and performance targets. Likewise, and in compliance with the referral by the National Assembly, the Portfolio Committee held its briefings with the Department of Small Business Development, Seda and sefa on 05May 2021via virtual platform. This budget vote report is accordingly a culmination of that interaction.

 

2.         OVERVIEW OF THE DEPARTMENT OF SMALL BUSINESS      DEVELOPMENT

 

2.1        Aim and Purpose of the Department

To lead and coordinate an integrated approach to the promotion and development of entrepreneurship, Small, Micro and Medium Enterprises (SMMEs) and Co-operatives, and to ensure an enabling legislative and policy environment to support their growth and sustainability.

 

2.2        Mandate of the Department

The Department of Small Business Development is tasked with the responsibility of leading and coordinating an integrated approach to the promotion and development of entrepreneurship, small businesses and cooperatives; and ensuring an enabling legislative and policy environment to support their growth and sustainability. The realisation of this mandate will lead to a transformed economy, increased employment, and the reduction of poverty and inequality. A legislative framework that includes the following acts guide the Department’s mandate -:   

• the National Small Enterprise Act (1996);
• the National Small Business Amendment Act (2004);
• section 3(d) of the Industrial Development Corporation Act (1940);
• the Co-operatives Development Act (2005), as amended;
• the Co-operatives Amendment Act (2013) and;
• the Co-operatives development policy.

 

2.3        Vision of the Department 

A transformed and inclusive economy driven by sustainable, innovative SMMEs and Co-operatives.

 

2.4        Mission of the Department

The coordination, integration and mobilization of efforts and resources towards the creation of an enabling environment for the growth and sustainability of SMMEs and Co-operatives.

 

 

 

2.5        Values

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

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

 

2.7        Programme Structure (2021/22)

The programme structure, soon to be overhauled during the current financial yearhasthe following four programmes –

 

Table 1: Programme Structure

NO.	Programme Programme Name	Sub-Programmes
Programme 1	Administration	Ministry; Departmental Management (Office of the DG); Corporate Management; Financial Management;
Programme 2	Sector and Market Development	Research; Business Information and Knowledge Management; Ease of Doing Business; Access to Market Support; Sector Specific Support.
Programme 3	Development Finance	Programme Policy; SMMEs Design and Support; Risk Cover & Business Rescue; Co-operative Support; Monitor and Report on entity transfers.
Programme 4	Enterprise Development	Enterprise and Supplier Development; Entities Performance; SMME Competiveness; Entrepreneurship; Policy and Legislation Support (IGR and Coordination).

Source: DSBD 2021/22 Annual Performance Plan

3.         POLICY AND LEGISLATIVE PRIORITIES FOR 2021/22

 

3.1        National Development Plan

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.

 

3.2        The Medium Term Strategic Framework

With respect to the seven (7) priorities identified in the Medium Term Strategic Framework (MTSF), the Department has a primary/lead role in relation to Priority 2: Economic Transformationand Job Creation and their related sub-outcomes and interventions which are as follows -

• Upscale and expand support to small businesses;
• Creating more jobs;
• Inclusive economic growth;
• Re-industrialisation of the economy and emergence of globally competitive sectors;
• Increased access to and uptake of Information and Communication Technology (ICT);
• Competitive and accessible markets through reduced share of dominant firms in priority sectors; and
• Mainstreaming of Youth, Women, and Persons with Disabilities with minimum 40% target for Women, 30% for Youth and 7% for Persons with disabilities in the SMMEs and Co-operatives Sector.

 

3.3        State of the Nation Address

During the State of the Nation Address, the President accentuated the small enterprise sector as an engine of growth for the future. He cited, amongst others, that plans and actions to support local manufacturers through Localisation Policy Frameworkand import substitution industrial policy that could help catalyse growthwere already being implemented. Master plans e.g. on clothing and textiles, sugar, poultry and automotive sector were being rolled out and provide useful examples of what can be attained if private and public partnership were to be intensified. In that regard, the Portfolio Committee would like to see a Department that is responsive to the President’s marching orders through integrating and converting SONA policy aspirations into tangible and implementable programmes e.g. incentivise entrepreneurs to invest in the economy, remove redundant bureaucratic red tape and improve ease of doing business, pay particular attention to unfavourable tax regime that throttle small enterprises, tackle unstable power supply andrelatively high connectivity costs, and intensify market access initiatives.

 

3.4        The Economic Reconstruction and Recovery Plan

The global economy is “on a cliff-hanger,” still lurching from the COVID-19 pandemic whose impact will be felt for years to come. South Africa has not been spared. It is in this context that South African government has created a strategic blueprint for economic recovery, the Economic Reconstruction and Recovery Plan (ERRP). Thus, according to the Minister of Small Business Development, “the 2021/22 APP is presented within the context of driving the implementation of the ERRP with a focused view on achieving inclusive growth”.The plan has the following five policy objectives -

• To create jobs, primarily through aggressive infrastructure investment and mass employment programmes;
• To re-industrialise our economy, focusing on growing small businesses;
• To accelerate economic reforms to unlock investment and growth;
• To fight crime and corruption; and;
• To improve the capability of the State.

 

3.5        Planned Policy Initiatives

During the MTSF period, the Department plans to undertake comprehensive amendments to the National Small Enterprise Act. Accordingly, the Department has been “allocated R27 million over the medium term in the Enterprise Development programme to finalise amendments to the National Small Enterprise Act (1996). These amendments are aimed at dealing with the establishment of a Small Enterprise Ombud service, unfair business practices, and reviewing the definition of SMMEs to ensure the use of a single and inclusive definition.

 

In its APP, the Department has made an undertaking to table the National Small Enterprise Amendment Bill before Parliament during the current financial year. It is important nevertheless tonote that, in the past the Portfolio Committee had pleaded with the Department to look into aligning the Business Act (1991) with the current developmentsin as far as it  regulates informal trading, foreign owned businesses, licensing and to keep track of other key legislative and policy initiatives falling outside DSBD purview such as the current Public Procurement Billdue to their direct bearing on the small enterprise sector.

 

4.         OVERVIEW OF THE 2021/22 BUDGET ALLOCATIONS AND PROGRAMME        PERFORMANCE PLANS

 

Over the medium term, the Department will focus onproviding support to small enterprises, provide greater access to finance for start-ups, finalise amendments to the National Small Enterprise Act (1996), develop master plans for the meaningful integration of small businesses into the mainstream economyand intensifythe establishment of infrastructure to expose SMMEs and co-operatives to new markets. Table 2 below provides budget summary for vote 36 as approved and recorded by the National Treasury with four programmes as follows - Administration, Sector and Market Development, Development Finance and Enterprise Development.

 

During the MTEF period, expenditure is expected to increase at an average annual rate of 4.1 per cent, from R2.3 billion in 2020/21 to R2.6 billion in 2023/24. Transfers and subsidies are anticipated to account for 91 per cent (R6.9 billion) of the Department’s budget over the period ahead, while 5.8 per cent (R99.8 million) is allotted for compensation of employees and 3.2 per cent (R16.3 million) for goods and services.

 

Table 2: Overview of 2021/22 MTEF Budget Estimates

Programme	MTEF
	2021/22 (R’000)	2022/23 (R’000)	2023/24 (R’000)	TOTAL (R’000)
Administration	116.3	120.7	119.6	356.6
Sector and Market Development	138.8	138.8	140.0	417.6
Development Finance	1 380.8	1 384.3	1 386.5	4 151.6
Enterprise Development	902.3	916.6	923.8	2 742.8
TOTAL	2 538.3	2 560.3	2 569.9	7 668.5

Source: National Treasury ENE (2021/22)

 

4.1        Budget Allocation Per Programme

 

4.1        Programme 1: Administration

The purpose of programme one is to provide strategic leadership, management and support services to the Department. Programme 1 has five sub-programme and sub-purpose to perform the following functions -:

• Ministry - provide administrative and logistical support to the Minister and Deputy Minister, as well as support staff and make provision for their salaries;
• Departmental Management (Office of the DG) - provide strategic leadership, management and support services to the Director General and the Department;
• Corporate Services - provide enterprise-wide support services comprising of human resources, legal services, learning and development and transformation policy and coordination;
• Financial Management - provide strategic leadership and advice on supply chain, financial and asset management related services to the department; and

 

Table 3: Programme 1 - Administration

Programme 1: Administration	2021/22	2022/23	2023/24	Total MTEF
Sub-programmes	R'000	R'000	R'000	R'000
Ministry	25 942	28 186	30 530	84 658
Departmental Management	32 317	32 877	30 000	95 194
Corporate Services	39 590	40 939	40 758	121 287
Financial Management	18 451	18 679	18 299	55 429
Total	116 300	120 681	119 587	356 568

Source: DSBD Annual Performance Plan2021/22

 

The Programme has an allocation of R356 million over the medium-term, down from R409 million during the previous financial year. The four sub-programmes constituting the programme are funded as follows: Ministry has R85 million, Departmental Management (ODG) has R95 million, Corporate Management has R121 million and Financial Management has R55 million.The programme is responsible for, among others, making certain that sound governance is in place, enhanced contribution to socioeconomic development outcomes, professional and capacitated small business development sector as well as guaranteeing that limited resources are utilised optimally.

4.2.2     Programme 2: Sector and Market Development

The purpose of programme 2 is to facilitate and increase access to markets for SMMEs and co-operatives through business information, product development support and value chain integration. The Programme is responsible for the following sub-programmes -:

• Sector and Market Development Management – provide leadership to the branch and support entry and growth of SMME’s in prioritised and designated sectors of the economy;
• Business Information and Knowledge Management – provide evidence based (economic analysis, econometrics, research) business information to direct sector thought leadership;
• Ease of Doing Business – reduce the administrative and regulatory burden of doing business for SMME’s;
• Access to Market Support – provide domestic and international market support services to SMME’s.

 

Table 4: Programme 2 - Sector and Market Development

SECTOR AND MARKET DEVELOPMENT	2021/22	2022/23	2023/24	Total MTEF
Sub-programmes	R'000	R'000	R'000	R'000
Sector and Market Development Management	2 200	2 335	2 249	6 784
Business Intelligence & Knowledge Management	26 433	27 634	26 178	80 245
Ease of Doing Business	8 090	7 775	7 529	23 394
Access to market support	102 083	101 025	104 083	307 191
Total	138 806	138 769	140 039	417 614

Source: DSBD Annual Performance Plan 2021/22

 

The Programme has been allocated R418 million over the medium-term with four sub-programmes: Sector and Market Development Management has R6.8 million, Business Intelligence and Knowledge Management has R80 million, Ease of Doing Business has R23 million and Access to Market Support has R307 million.

 

4.2.3     Programme 3: Development Finance

This programme is responsible for expanded access to financial and non-financial support and responsive programmes to new and existing SMME’s and Co-operatives. The Programme has an allocation of R4 billion over the medium-term with three sub-programmes - Development Finance Management has been apportioned R6.8million, Business Viability has R15 million, Blended Finance has R4 billion and Model Funding Collaboration has R47 million.

 

Table 5:Programme 3 - Development Finance

DEVELOPMENT FINANCE	2021/22	2022/23	2023/24	Total MTEF
Sub-programmes	R'000	R'000	R'000	R'000
Development Finance Management	2 200	2 335	2 249	6 784
Business Viability	4 985	5 005	4 870	14 860
Blended Finance	1 358 235	1 361 223	1 363 732	4 083 190
Model Funding collaboration	15 398	15 706	15 628	46 732
Total	1 380 818	1 384 269	1 386 479	4 151 566

Source: DSBD Annual Performance Plan 2021/22

 

During the MTEF period, the programme will ensure that the SMME’s and Co-operatives Funding Policy is approved and implemented to promote broader participation in the mainstream economy by small businesses prioritising on enterprises owned by women, youth and People with Disabilities (PWDs) that operate in underserved areas such as townships and villages.The following four sub-programmes constitute programme three –

• Development Finance Management – provide leadership to the branch and support entry and growth of SMME s in prioritised and designated sectors of the economy;
• Business Viability – provide business assurance strategies for SMME;
• Blended Finance – design blended financial support initiatives for SMME;
• Model Funding collaboration – create enabling financial support structures for SMME.

 

4.2.4     Programme 4: Enterprise Development

The purpose of Programme 4 is to administer the promotion of an ecosystem that enhances entrepreneurship and the establishment, growth and sustainability of small businesses and Co-operatives as well as coordinating business development support interventions across various spheres of Government. The Programme has the following sub-programme –

• Enterprise Development Management – provide leadership to the branch, exercise oversight in the execution of programmes by the implementing agencies and coordinate the provision of an entrepreneurship development and support service infrastructure;
• Enterprise and Supplier Development – drive the transformation of the economy through the formulation of policy instruments and advocacy work aimed at the inclusion ofSMME’s in the mainstream economy and;
• SMME Competitiveness – work with Municipalities through their integrated Development Plans to develop, enhance and implement enterprise development programmestoward improved Local Economic Development (LED).

 

Table 6: Programme 4 - Enterprise Development

ENTERPRISE DEVELOPMENT	2021/22	2022/23	2023/24	Total MTEF
Sub-programmes	R'000	R'000	R'000	R'000
Enterprise Development Management	2 200	2 200	2 200	6 600
Enterprise and Supplier Development	885 531	900 112	905 014	2 690 657
SMME Competitiveness	14 633	14 293	16 608	45 534
Total	902 364	916 605	923 822	2 742 791

Source: DSBD Annual Performance Plan 2021/22

 

Programme 4 (Enterprise Development) has been allocated R2.7 billion over the medium-term with four sub-programmes: The Enterprise Development Management has R6.6 million, Enterprise and Supplier Development has R2.7 billion, and SMME Competitiveness has R46 million. During the 2021/22 financial year, the programme will ensure that National Small Enterprise Amendment Bill is submitted to undergo Parliamentary processes. The Department will also embark on the revision of the Schedule to the National Small Enterprise Act with an aim at ensuring alignment and utilisation of the SMME definition by ensuring that revision Schedule to the National Small Enterprise Act amended is submitted to the Minister for approval to be gazetted.

 

 

 

 

5.         OVERVIEW OF THE STRATEGIC FOCUS OF THE PUBLIC ENTITIES OF          THE DEPARTMENT

 

Currently the Department has two entities (Seda and sefa) reporting to it. However, Cabinet has resolved to consolidate them, to also include the National Empowerment Fund (NEF). During the 2020/21 financial year, the Department will work on finalising the process of merging the three to form one entity that will offer both financial and non-financial support to small enterprises and increase efficiencies for the benefit of SMME s and Co-operatives.

 

5.1        Small Enterprise Finance Agency

 

5.1.1     Background and Mandate

The Small Enterprise Finance Agency (sefa) 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 corporatised as an entity in terms of the Companies Act of 2008 and Section 3(d) of the Industrial Development Corporation (IDC) Act, 1940, and thus a wholly owned subsidiary of the IDC. Section 3(d) of the IDC Act seeks “to foster the development of small and medium enterprises and co-operatives”.

 

Whereas sefa sister entity, Seda, is a schedule 3A entity, sefa is oddly a schedule 2 entity (in line with the parent entity IDC).  There Public Finance Management Act has no provision that deals with subsidiaries as a corporate form and/or separate from their parent entities. In terms of the PFMA, the Minister of Small Business Development is legally not the Executive Authority and therefore her ability to exercise oversight responsibility over the agency as prescribed in the Public Finance Management Act is still impaired. However, Cabinet has already concluded to amalgamate entities into one to ensure delivery of integrated business development service to small businesses and this will be implemented during this current term of the sixth administration.

 

5.1.2     Sefa’s Vision, Mission, Values and Strategic Objectives

The table below provides a strategic overview of sefa’s vision, mission, values and core objectives –

 

Table 7: sefa’s Vision, Mission, Values and Strategic Objectives

Vision	To be the leading catalyst for the development of sustainable small, micro, medium and co-operative enterprises through the provision of finance.
Mission	To provide simple access to finance in an efficient and sustainable manner to small, micro, medium and co-operative enterprises throughout South Africa by: - Providing loan and credit facilities to SMMEs and co-operative enterprises; Providing credit guarantees to SMMEs and co-operatives; Creating strategic partnerships with a range of institutions for sustainable SMMEs and co-operative enterprise development and support; Developing, through partnerships, innovative finance products, tools and channels to catalyse increased market participation in the provision of affordable finance.
Values	Sefas values and guiding principles to deepen institutional culture and organisational cohesion are: - Kuyasheshwa: We act with speed and urgency; Passion for development: Solution-driven attitude, commitment to serve; Integrity: Dealing with clients and stakeholders in an honest and ethical manner; Transparency: Ensuring compliance with the best practice on the dissemination and sharing of information with all stakeholders; Innovation: Continuously looking for better ways to serve our customers.
Strategic Objectives	Ensure sefa is a high impact, high-performance Development Finance Institution (DFI) that is responsive to the government’s microeconomic policies and specifically the DSBD MTEF plan; Align sefa’s organisational structure, culture and innovative delivery model to be responsive to its mandate and strategy; Develop the sefa brand value-proposition for our target markets, improve distribution reach, and establish winning collaborative models; Improve sefa’s sustainability, operational effectiveness, efficiency and service delivery by streamlining business processes and deploying technology solutions.

Source: sefa Corporate Plan 2021/2025

 

5.1.3     Legislative and Policy Mandate

Sefa’s operations are governed and guided by a wide range of legislative requirements and government policies. The table below outlines the most prominent policies and Acts that guide and influence sefaoperations.

 

Table 8: Guiding Legislations

Policies and legislation that guides sefa Operations
Foundational Policies	Sector-Based Policies	Legislation
The National Strategy on the Development and Promotion of Small Business in South Africa (1995)	Co-operatives Development Policy (2004)	National Small Business Act (1996; revised 2004)
Integrated Small Business Development Strategy (2004 – 2014)	Integrated Strategy on the Development and Promotion of Cooperatives (2012)	National Credit Act
The Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises (2005)	National Informal Business Upliftment Strategy (2013)	Industrial Development Act
	Youth Enterprise Development Strategy 2013-2023 (2014)	Financial Intelligence Centre Act (FICA)
		Consumer Protection Act, 2008
		Companies Act of 2011
		Co-operatives Act (No. 14 of 2005)
		Short Term Insurance Act
		Promotion of Access to Information Act, 2000
		Public Finance Management Act (1999 as amended)

Source: sefa Corporate Plan 2021/2022

 

5.1.4     sefa-Seda Collaboration

As alluded to hereinabove, the strategic objective is to merge two entities’ operations over the MTEF period to create a seamless delivery vehicle to implement financial and non-financial SMME support services.  Presently, to improve uptake on programmes offered by sefa, Seda’s pre-investment support unit is being aligned to facilitate and provide high quality and bankable business plans, access to markets and industry accreditations among other interventions to SMMEs and co-operatives. The collaboration between Seda and sefa depends on aligning Seda’s pre-business support unit to the DSBD-approved programmes, sectors and target groups as per sefa’s corporate plan. This will ensure a consistent quality pipeline to sefa. To enhance business support services to SMMEs and co-operatives, sefa and Seda will implement a collaborative partnership that will result in relevant and structured mentorship, coaching, turnaround strategies and training to SMMEs. A strategic project will be established in the CEO’s office to institutionalise the collaboration with Seda.

 

5.1.5     Summary of sefa’sMTEF Strategic Objectives and Programmes

The following listed programmes support the sefaannual plan implementation and strategic objectives –

 

Table 9: Strategic Objectives and Programmes

Strategic Objective	Programme
Strategic Objective 1- Achieve a high impact, high-performance through being responsive to the government’s microeconomic policies and specifically the DSBD MTEF plan	Programme 1: Increase access and provision of finance to SMMEs and Cooperatives: Sub-programme: Informal Sector and Micro-Enterprises Finance Sub-programme: Wholesale SME Lending Sub-programme: Co-operative Enterprise Lending Sub-programme: Credit Indemnity Scheme Sub-programme: Direct Lending Programme 6 – Property Management
Strategic Objective 2 - Improve sefa’s financial sustainability, operational effectiveness, efficiency, and service delivery by streamlining business processes and deploying technology solutions	Programme 2 – Post Investment Monitoring/ Workout and Restructure Programme 3 – Corporate Service Sub-programme -Finance and Supply Chain Management Sub-programme – Information Communication Technology
Strategic Objective 3 – Improve financial access and distribution reach and establish relevant value propositions and winning collaborative models	Programme 4 – Marketing and Stakeholder Management
Strategic Objective 4 – Instil an outcomes orientated organisational culture supported by streamlined organisational structure and innovative delivery model that is aligned to the mandate and strategy	Programme 3 Corporate Services Sub-programme – Human Capital Management Sub-programme – Strategy, Planning g and Reporting Programme 5 – Governance, Risk and Compliance Sub-programme – Enterprise Risk Sub-programme – Credit Management Sub-programme -Legal Services Sub-programme - Internal Audit Sub-programme - Company Secretariat

Source: sefa Annual Performance Plan 2021/22

 

5.1.6     Financial Consideration

When the agency was created in 2012, the initial capitalisation was derived from the three main sources -:

a)         The balance sheet of the merged institutions (Khula and South African Micro-                  Finance Apex Fund [samaf]);

b)         Annual transfers from the fiscus (MTEF allocation), and

c)         The long-term interest-free loan from the IDC

During the current financial year, sefa is allocated R247 million. The MTEF funding is used by sefa to fund some of the operational expenditures and may be used to lend to clients.  The remaining funding sources are ring-fenced and may not be used for sefa’s operational expenditure. However, the re-flows from these initiatives will flow to sefa, and the budgets have been prepared on this basis.

 

In addition to MTEF allocation, the IDC – sefa’s shareholder, is making funding available to sefa to be used specifically for on-lending to support loan portfolio growth. The total facility amounts to R640 million, and the facility does not attract any fees nor interest. This loan facility is subject to a 60-month capital moratorium, and after that, the loan is payable over 120 months, with the first instalment being due on 31 July 2023. The first disbursement of R150 million on the facility from IDC was advanced to sefa in July 2018. Further, the drawdown of R180 million on this facility will be received before the end of 2021 financial year, with the remaining amount of the facility planned to be drawn down in 2022 financial year.

 

5.2        Small Enterprise Development Agency

 

5.2.1     Background and Mandate

Small Enterprise Development Agency (Seda) is an entity of the Department of Small Business Development whose mandate include, inter alia, developing, nurturing, supporting and promoting small business ventures throughout the country, whilst ensuring their growth and sustainability in a harmonised fashion with various stakeholders. The Minister of Small Business Development is the executive authority of the agency and as such exercise oversight role over the agency as prescribed by the Public Finance Management Act.

 

Seda was conceptualised in 2004, through amendment of the National Small Enterprise Act, amendment Act 29 of 2004, which essentially made provision for the incorporation of the Ntsika Enterprise Promotion Agency, the National Manufacturing Advisory Centre and any other designated institutions into a single Small Enterprise Development Agency under the Department of Trade and Industry (the dti). It is a schedule 3A national public entity in terms of the Public Finance Management Act (PFMA), Act 1 of 1999, as amended, and incorporated as a company in terms of the Companies Act, 2008.

 

 

5.2.2     Seda Vision, Mission and Values

 

Table 10: Seda’s Vision, Mission, Values

Vision	To be the centre of excellence for small enterprise development in South Africa.
Mission	To promote entrepreneurship and develop small enterprises by providing customised non-financial business support services that results in business growth and sustainability, in collaboration with other role players, including global partners who make international best practices available to local entrepreneurs.
Values	Nature Innovation Customer- centric Responsible conduct

Source: Seda Annual Performance Plan 2021/2022

 

5.2.3     Seda Programme Summary

 

5.2.3.1  Programme 1: Township, Rural and Informal Businesses

The purpose of Programme 1 is to support rural, township based enterprises and informal businesses to ensure that they are competitive and contribute meaningfully. This includes providing compliance support to aid business formalisation to enable business growth by providing necessary support to ensure that they are competitive. Table 11 below provides summary of outcomes, outputs and performance indicators.

 

Table 11: Outcomes, Outputs, Performance Indicators and Budget

Outcomes	Outputs	Output Indicators	MTEF Period
			2021/22	2022/23	2023/24
Promote entrepreneurship and provide targeted support to township and rural based SMMEs and Co-operatives to be competitive and create decent jobs	Facilitate entrepreneurship awareness	Number of SMMEs and Co-operatives reached through entrepreneurship awareness sessions	37 104	40 000	4500
	Improve informal business support	Number of spaza shops andgeneral dealers supported	9 276	10 000	12 000
		Number of personal carebusinesses supported	2 000	2 200	2 500
		Number of informal and micro restaurants and shisanyama supported	1 500	2 000	2 500
		Number of fruit and vegetablevendors supported	4 638	6 819	8 757
	Facilitate township and rural based SMMEs and Cooperatives support	Number of panel beaters, motor mechanics, auto spares and auto-fitment businesses supported	4 638	6 819	8 757
		Number of small scale bakeries and confectionaries supported	2 000	2 200	2 500
		Number of clothing, leather and textile businesses supported	2 000	2 200	2 500
		Number of butcheries supported	2 000	2 200	2 500
	Facilitate job creation	Number of jobs created	4 638	6 819	8 757

Source: Seda Annual Performance Plan (2021/22)

 

5.2.3.2  Programme 2: Business Competitiveness and Viability Programme

The purpose of Programme 2 is to provide support to SMMEs and Co-operativesby providing them with necessarysupport to develop and enhancebusiness production capacity andcapabilities. This also includesimproving their competitivenessin order to access local andinternational markets.

 

Table 12: Outcomes, Outputs and Performance Indicators

Outcomes	Outputs	Output Indicators	MTEF Period
			2021/22	2022/23	2023/24
Improve SMMEs and Co-operatives growth through the development of competitive local products and services with access to local and international markets	Number of competitive SMMEs and Co-operatives supported	Number of SMMEs and Co-operatives supported to be competitive in local markets	2 500	3  000	3 500
		Number of SMMEs andCo-operatives listed to supply wholesalers and retailers	1 000	1 250	1 500
		Number of SMMEs and Co-operatives exposed to international markets	1 000	1 250	1 500
		Number of SMMEs and Co-operatives registered on export platforms	1 000	1 250	1 500
		Number of SMMEs and Co-operatives assisted through incubation programme	3 247	4 546	4 379
		Number of SMMEs and Co-operatives assisted with productivity improvement	2 783	3 637	4 379
		Number of SMMEs andCo-operatives assisted with quality improvement	2 783	3 637	4 379
Improve competitiveness, viability and innovation of SMMEs and Co-operatives through the facilitation of enterprise development ecosystem focusing on targeted sectors	Facilitate business development through ecosystem support	Number of SMMEs and Co-operatives assisted through the ecosystem	70 000	75 000	80 00
	Improve stakeholder management	Percentage of identified stakeholders participating in the ecosystem	75%	75%	75%
	Improve SMMEs and Co-operatives competitiveness and viability	Number of SMMEs and Co-operatives whose turnover has increased	2 783	4 091	5 254
	Facilitate sector specific support	Number of SMMEs andCo-operatives supported in the manufacturing sector	2 783	4 091	5 254
		Number of SMMEs and Co-operatives supported through sector specific training	2 783	4 091	5 254
		Number of SMMEs and Co-operatives supported with enterprise coaching	2 783	4 091	5 254

Source: Seda Annual Performance Plan (2021/22)

 

5.2.3.3  Programme 3: Administration

The Purpose of Programme 3 is toprovide 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.

 

Table 13: Outcomes, Outputs, Performance Indicators and Budget

Outcomes	Outputs	Output Indicators	MTEF Period
			2021/22	2022/23	2023/24
Ensure the delivery of the Seda mandate through an agile, innovative, excellent and customercentric organisation	Increase innovation within the organisation	Percentage of innovative ideas implemented	25%	30%	35%
	Improve staff recognition and engagement	Percentage of staff recognised for excellence	25%	30%	35%
		Percentage of staff satisfaction	75%	80%	85%
	Improve customer satisfaction	Percentage of customer satisfaction	80%	85%	85%
	Improve stakeholder satisfaction	Percentage of stakeholder satisfaction	80%	85%	85%
	Reduce vacancy rate	Percentage of vacancy rate	10%	10%	10%
	Allocate most funds to core delivery	Percentage of funds allocated to core delivery	75%	75%	75%

Source: Seda Annual Performance Plan (2021/22)

 

5.2.4     Seda Budget Allocation

During the previous budget vote process, Seda Accounting Officer informed the Portfolio Committee that the agency is anticipating a major reduction in its budget over the MTEF by approximately R123 million. In this current financial year Seda MTEF allocation has been cut by R284 million. According to National Treasury estimates, during the present financial year the agency’s Programme 1 (Administration) is set to be allocated R215 million, Programme 2 (Township, rural and informalBusiness) will receive R476million while Programme 3 (Business competitiveness andViability) budget is R232 million.  Through these programmes, the agency will facilitate, amongst others, the establishment of 27 new incubators, mainly in townships and rural areas, establish approximately 1 290 new enterprises through incubation, and create 25 000 new jobs and 86 000 sustained jobs with SMME ecosystem partners.

 

Table 14: Expenditure Estimates Per Programme

Programmes	2019/20	2020/21	2021/22	2022/23	2023/24
	Audited outcome R'000	Revised budget R'000	Estimated budgets R'000
Township, Rural and Informal Businesses	441.5	473.7	437.7	438.8	444.2
Business Competitiveness and Viability Programme	273.8	194.0	232.0	237.6	239.1
Administration	168.6	203.5	215.2	225.8	225.3
Total expenditure	916.1	897.7	884.8	902.2	908.7

Source: National Treasury ENE 2021/22

 

Two of the Sedaprogrammes have slightly been reconfigured. Township, Rural and Informal Business and Business Competitiveness and Viability Programme have replaced the Enterprise Development and Seda Technology Programme. Seda plans to continue providing financial support, technical assistance and governance management for the incubation centres. Expenditure is expected to increase at an average annual rate of 0.4 per cent, from R898 million in 2020/21 to R908 million in 2023/24. Combined spending on goods and services, and compensation of employees accounts for 97.9 per cent (R2.6 billion) of the agency’s total budget over the period ahead. This is mainly due to the fact that Seda is a service oriented organisation. The agency derives 96.5 per cent (R2.6 billion) of its revenue through transfers from the Department, increasing in line with expenditure.

 

 

 

6.         OBSERVATIONS

 

Having reflected on the Department, Seda andsefaAnnual Performance Plans and budgets for 2021/22,the Portfolio Committee hereby register the following observations and recommendations for consideration by the Department: -

 

6.1        The coronavirus pandemic is affecting small businesses in a variety of ways. The            Portfolio Committee is conscious of the disruption that the pandemic has caused on the            targets and budgets of the Departments and entities, as well as detrimental    consequences to the small business sector in general. The Committee notes that many    small enterprises are struggling to stay afloat because they cannot operate under the   Covid-19 lockdown while the government ability to cushion them has been impaired          by persistent budget cutbacks;

6.2        It further notes government response and leadership demonstrated by the           Department and entities towards ameliorating deadly impacts of the pandemic to the        sector. The Committee welcomes numerous interventions such as the creation of the   Covid-19 Emergency Fund, SMME Debt Relief Fund, Business Growth and Resilience     Facility including the Spaza Shops Support Programme. Some of these measures,     while partially introduced to galvanise the small enterprise sector in the face of a   ferocious pandemic,they are being repositionedunder the Economic Reconstruction        and Recovery Plan and annual plans of the Department and entities;

6.3        The Committee welcomes the appointment of the Director General Mr Lindokuhle             Mkhumane. It is hopeful that this appointment will bring much needed stability and     solidity in the Department. While at the same instant, it notes and welcome measures        to speed up finalisation of the organisational structure as guided by the Department of   Public             Service Administration. It is only through successful conclusion of the    organogram that other endogenous encounters plaguing the Department e.g. vacancy          rate, underspending etc can be sufficiently dealt with;

6.4        The Cabinet decision to finally endorse the Committee longstanding recommendation      to amalgamate Seda and sefa – and National Empowerment Fund into a single entity         is also welcomed. The Committee notes that entities will be consolidated to ensure delivery of integrated business development service to small businesses and this will      be implemented during this current term of the sixth administration;

6.5        The Department’s and entities budget cuts, with Seda’s budget in particular reduced by   R248 millionin the current financial year is a source of concern for the Committee. Whilst it is understood that these reductions are provisional measures owing to ongoing       epidemic and, they are however being carriedout in spite of the onerous responsibility             entrusted to the Department to turn around the curve of unemployment and ignite            economic activity;

6.6        A supportive and well-oiled financial infrastructure is essential in the medium to   long-term to encourage sustainable, viable, and significant improvements in access to SMME and co-operatives finance. In that context, the Committee             notes that the Department is currently drafting the SMME and Co-operatives funding       policy for implementation before the end of the current financial year;

6.7        Equally, the Committee is concerned over poor uptake of the Covid-19 Loan Guarantee   Scheme, which according to the Banking Association of South Africa (BASA), less    than R18 billion in loans had been approved by banks as of 27 February 2021. Considering that National Treasury had initially provided a guarantee of R100 billion         to the scheme, with the option to increase the guarantee to R200 billion if necessary,             less than a fifth of the original R100 billion has been utilised, and less than 10% of the           total available;

6.8        Lastly, the Committee notes that in its APP, the Department has made an undertaking     to table the National Small Enterprise Amendment Bill before Parliament during the current financial year. However, it is observed that the Department’s APP excluded   details concerning the review of the Business Act (1991) when National Treasury has       made financial provision for this activity in its estimates of national expenditure or vote 36.

 

7.         RECOMMENDATIONS

 

7.1        The Department is operating on a start-up structure. Finalisation of the Department’s       organisational structure should be given primacy. Both Ministers of Small Business        Development and of Public Service and Administration must endeavour to conclude discussions on this matter before the end of Q2 of the current financial year, and early    enough for the next financial year planning cycle which begins in August.

7.2        Likewise, the persistent budget cutbacks and National Treasury characterisation of the     current and proposed structure as “expensive”, contradicts the President’s call in his     successive State of the Nation Address to deploy small enterprises as triggers of           economic regeneration. The Committee would in this regard recommend to the    Minister of Small Business Development to have a strategic dialogue with the Minister          of Finance to deliberate on these matters, including what might possibly be motives or       remonstrations by banks for low uptake of the Covid-19 Loan Guarantee Scheme.

7.3        While the Committee anticipates legislative and policy reconfiguration as a consequent    of the Cabinet decision to merge the Small Enterprise Development Agency, Small             Enterprise Finance Agency and National Empowerment Fund into a single entity, with             a lead time of approximately 36 months as specified in the Annual Performance Plan      of the Department, the Committee would like to caution and recommend that these should not be achieved at the expense of service delivery and to the detriment of the         small business sector. The Committee will continue to monitor closely service delivery             consistency or lack thereof during quarterly reports presentations.

7.4        Furthermore, the merger between Seda and Sefa, and with extension NEF, should if        possible, be assumedin isolation or separately from regular operations of the      Department and entities as all three agencies are governed by different legislations that           ultimately require alignment or amendment. However, proper coordination between the             entities should be ensured and monitored to safeguardthat the mandate of the    Department is achieved. The Portfolio Committee will monitor service delivery            consistency or lack thereof during quarterly reports presentations.

7.5        During the AnnualPerformance Plan presentation on 5 May 2021 the Department informed the Portfolio Committee that it has experienced delays in the reviewing of            key legislations and policies, most significantly, the amendment of the National Small         Enterprise Act. While the Portfolio Committee notes the undertaking by the         Department to table the bill during the current financial year, it would also recommend            that certain clauses or sections of the Business Act (1991) as they pertain to regulation         and licensing of informal and foreign owned businesses be considered for review.

 

 

Report to be considered.