ATC210602: Report of the Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour On Budget Vote 36: Small Business Development, Dated 1 June 2021

NCOP Trade & Industry, Economic Development, Small Business, Tourism, Employment & Labour

Report of the Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour On Budget Vote 36: Small Business Development, Dated 1 June 2021

 

1. Background

 

The Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour, having considered Budget Vote 36: Small Business Development, together with the Departmental Annual Performance Plan, 2021/22 -2023/24, tabled by the Minister of Small Business Development, in terms of the Public Finance Management Act of 1999 (PFMA), as well as the Money Bills Amendment Procedure and Related Matters Act, 2009, reports as follows:

 

1. Committee Process     

 

The Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism, Employment and Labour was briefed by the Department of Small Business Development on Budget Vote 36 and including the Departmental Annual Performance Plan of 2021/22 – 2023/24 on 18 May 2021.

 

1. Introduction

 

The Committee considered the 2021/22 Annual Performance Plan and the Budget of Department on 18 May 2021. Further, the Committee recognised that the Department’s expenditure plans were presented under constrained economic and health context as a result of the global health crisis.

 

The outcome of Statistics South Africa (STATSA) reports reflect that Small Medium and Micro Enterprises (SMME’s) including informal business sectors borne the brunt of the impact of the COVID-19 pandemic and resultant lockdown. It was reported that in the year up to the first quarter of 2020, the number of SMMEs grew by 2.5 per cent yearon year, from 2.55 million in 2019 Q1 to 2.61 million in 2020 Q1. SMME employmentdeclined by 4 per cent to 10.4 million. Formal SMMEs shed many jobs, most during the firstquarter of the year. Informal SMMEs also shed jobs during the first quarter.

 

National Treasury reported that despite easing lockdown restrictions, by the third quarter of 2020 there were 1.7 million fewer jobs than in the same period in 2019. Of the employed, 12 per cent of workers received no pay from their employers in the third quarter (from 17.6 per cent in the second quarter) of 2020. Further, nearly one in five of the workers who did receive salaries, reported that their salaries were reduced. The labour market effects stemming from COVID-19 are particularly severe for low-skilled workers in high-risk occupations, deepening existing inequalities across age, education, gender and race.

 

Within the COVID-19 pandemic context, tourism including aviation, hospitality, and retail industries were the most affected industries. The tourism industry need extra support taking into account its employment creation component. This industry has been identified as a strategic industry in the Economic Reconstruction and Recovery Plan(ERRP) given its ability to absorb employment at various skill levels with the value chain.

 

The Department reported that despite the challenges posed by the COVID-19 pandemic, third and fourth quarter reports reflect emerging economic growth further enabled by the implementation of the Economic Reconstruction and Recovery Plan. The ERRP has five objectives, which are linked to the country’s vision, set out in the National Development Plan (NDP Vision 2030):

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

 

Over the medium term, the Department has committed to implement the following policy areas in response to the ERRP:

• Localisation through industrialisation;
• Supporting sustainability and competitiveness of SMME’s and cooperatives;
• Strengthening the informal sector to forge for a compact of radical economictransformation that advances the economic position of women, youth and persons withdisabilities;
• Making townships, villages and rural areas vibrant centres of economic activity.

 

As indicated in the 2021 Budget Review, the COVID-19 pandemic would have an impact to the Medium-Term Strategic Framework including the National Development Plan 2030.It is already recognised in the public that the national budget is strained, and that would have an effect to the departmental spending priorities. COVID-19 would certain have an effect to the operations of the Department.

 

1. Overview of the Legislative and Policy Mandate of the Department

 

The aim of the Department is to promote the development of small business and cooperatives that contribute to inclusive economic growth. The Department is mandated with the responsibility of leading and coordinating an integrated approach to the promotion of development of entrepreneurship, small business and cooperatives and ensuring an enabling legislative and policy environment to support their growth and sustainability.

Apart from the 1996 Constitution, the following pieces of legislation underpins the work of the Department:

• National Small Enterprise Act (1996);
• Public Finance Management Act, 1999 (No. 1 of 1999), as amended;
• Preferential Procurement Policy Framework Act, 2000 (No. 5 of 2000), as amended;
• Financial Advisory and Intermediary Services Act, 2002 (No.37 of 2002), as amended.
• Broad-Based Black Economic Empowerment Act, 2003 (No. 53 of 2003),as amended.
• National Small Business Amendment Act (2004);
• National Credit Act, 2005 (No. 34 of 2005), as amended.
• Companies Act, 2008 (No. 71 of 2008), as amended;
• Consumer Protection Act, 2008 (No. 68 of 2008), as amended;
• Section 3(d) of the Industrial Development Corporation Act (1940);
• Cooperatives Amendment Act 2013;
• Protection of Personal Information Act,2013 (No. 4 of 2013), as amended;
• Integrated Strategy on the Promotion of Entrepreneurship and Small Enterprises (2005);
• Integrated Strategy on the Development and Promotion of Cooperatives (2012); and
• National Informal Business Upliftment Strategy (NIBUS) and Implementation Framework (2014 and 2015).

In response to the Country’s commitment to multi-lateral and international commitments. The Department’s work over the 2021 medium will also be aligned to the following legislative and policy areas:

• The UN Sustainable Development Goals (SDG) (2015);
• The AU Africa 2063 Agenda (AU 2063);
• The International Labour Organisation (ILO) Recommendation 193 (R193) (2002);
• The ILO Resolution 204 (R204) (2015);
• African Continental Free Trade Area Agreement; and
• Human Rights Implications of COVID-19 suggested by the UN and adapted to the South African Context.

 

1. Budget Policy Area

 

Guided by the NDP and the ERRP, including the MTSF the Department over the medium term, will focus on the following:

• Providing support to small, medium and micro enterprises;
• Providing greater access to finance for start-ups;
• Finalising amendments to the National Small Enterprise Act (1996);
• Developing master plans for meaningful integration of small businesses into the mainstream economy; and
• Intensifying the establishment of infrastructure to expose SMME’s and cooperatives to new markets.

 

Over the medium term, the work of the of the Department is framed around key focus areas namely; support small businesses including Cooperatives, support and promote procurement of local products. Further, to support and promote youth economic empowerment, women owned small businesses including persons with physical disabilities. The Committee in various interaction with departments that it plays an oversight role has emphasised that people with physical disabilities (including women and youth) are more exposed to high risk of poverty and unemployment including access to business opportunities than for people without disabilities. There is a need for government to accelerate implementation of development programmes that will integrate people with physical disabilities to the mainstream economy.

 

1. Spending Over 2021 Medium Term

 

Over the medium term, the Department is anticipated to spend approximately R7,6 billion in order to realise government policy priorities. Transfers and subsidies account for 91 per cent (R6.9 billion) of the Department’s budget, whilst 5.8 per cent (R99.8 million) is allocated for compensation of employees and 3.2 per cent (R16.3 million) allocated for goods and services.

 

It is essential before we outline the spending outlook for the Department 2021 medium term to state that a healthy small business sector is a prerequisite for a growing economy with high employment opportunities. Given the current government fiscal situation, partnership with the private sector including civil society would be pivotal for the successful implementation of the NDP and Economic Reconstruction and Recovery Plan. Private sector resources would need to be leveraged by the Department to fully meet the policy priorities. The Committee reiterated that better engagement by the development partners to enhance business environment for the benefit of SMMEs and Cooperatives, remains essential.

 

The core functional policy priorities of the Department are constituted around crucial functional policy areas namely; Programme 3: Development Finance, Programme 4: Enterprise Development; and Programme 2: Sector and Market Development. Including Programme 1: Administration, which is expected to provide overall core administrative support to enable the three core functional policy programmes to realise their legislative and policy requirements.

 

Programme 1: Administrationpurpose is to provide strategic leadership, management and support services to the Department. The sub-programmes under Programme 1 include: Ministry; Departmental Management, Corporate Management and Financial Management.   The Department, over the medium term period, through its support programme, will undertake various initiatives to strengthen governance and compliance.Programme 1 has an allocation of R356.6 million over the medium-term with four sub-programmes: Ministryhas R84.7 million, Departmental Managementhas R95.2 million, Corporate Managementhas R121.3 million and Financial Managementhas R55 million.

 

Targets such as an unqualified audit opinion; payment of creditors within 25 days; less than 5 per cent variance on annual budget; less than 10 per cent vacancy rate in funded permanent posts; a greater than an equal to 50 per cent of women in senior management service (SMS) employed; 3.2 per cent persons with disabilities employed with the intent of achieving 7 per cent representation at the end of the medium strategic framework period all expected to contribute towards improving the performance of the Department governance and compliance as well as the impact of its interventions.

 

The Ethics Management Policy and Ethics Management Strategy will be implemented to instil a culture of ethical conduct and assure the Accounting Officer that the operations of the Department are in line with ethical standards. This will ensure effective management of ethics related functions such as disclosure of financial interests, conducting remunerative work outside the public service; disclosure of gifts and donations and consequently, reduce the prevalence of fraud and corruption within the Department.

 

Table 1 further indicates that Programme 2: Sector and Market Development, is expected to receive the 3rd largest budget allocation (4,8 per cent). R417.6 million over the medium-term has been allocated to the programme, and split over four sub-programmes: Sector and Market Development Management has R6.8 million, Business Intelligence and Knowledge Management has R80.2 million, Ease of Doing Business has R23.4 million and Access to Market Support has R307.2 million. The Programme is responsible to facilitate and increase access to markets for SMMEs through business information, product development support and value chain integration.

 

Over the medium term, the Programme has planned:

• Provide evidence‐based business information to direct sector thought leadership.
• Reduce the administrative and regulatory burden of doing business for SMMEs.
• Provide domestic and international market support services to SMMEs.
• Support the entry and growth of SMMEs in prioritised and designated sectors of the economy.

 

Access to markets is at the core of the establishment of growth of any enterprise. The growth of market access to SMME’s increases revenue, improve job creation and results in greater growth and expansion. The Department reported that it will intensify its efforts in working towards realising its medium term outcome to increase participation of SMME’s and Cooperatives in domestic and international markets. During the 2020/21 financial year, Cabinet approved the SMME Focussed Localisation Policy Framework and Implementation Programme. This approval gave way for various programmes to be launched, starting with the Manufacturing Support Scheme, which focusses on funding SMME’s linked to the market to increase their capacity and improve their competitiveness.

 

The Department further plans to update its measuring tool in the form of an Index to provide for an accurate information and data on the state of small businesses and cooperatives in the country. This tool assist in measuring the performance and advocating for the design of interventions that are impactful to the growth and sustainability of SMME’s and cooperatives and enable their competitiveness as outlined in the NDP. Through SEDA, the programme will increase the number of incubation centres/ digital hubs to 100 over the medium term period. To ensure that the programme is supported, during the 2021/22 financial year, the Department will ensure that the Incubation Support Programme is evaluated and areas of underperformance are evaluated and addressed.

 

Over the medium term, an estimated R248.1 million is allocated to the Sector and Market Development programme. The Department intends to intensify its establishment of infrastructure to expose SMMEs and Cooperatives to new markets. This infrastructure is aimed specifically at providing affordable, safe and modernised spaces where small enterprises can meet potential buyers.

 

Over the medium term, Programme 3:Development Finance, receive the bulk of the budget.  The Programme is expected to manage the creation of enabling financial support structures for SMMEs and the coordination of SMME funding across government. Further, to manage the design of blended financial support initiatives for SMMEs, and to provide business assurance strategies for SMMEs. In terms of budget allocation, the Programme would receive 54,5 per cent (see table 1).The blended finance model that entails de-risking enterprises traditionally not supported by commercial banks and existing development finance institutions. This is a done through matching a loan facility to a grant, which is allocated R882.1 million over the medium term.

 

During the medium term period, the programme will ensure that SMME and Cooperatives Funding Policy is approved and implemented to promote broader participation in the mainstream economy by small business. This will be done by prioritising enterprises owned by women, youth persons with disabilities that operate in under-served areas such as townships and villages. The Department provides direct and indirect support to SMME’s and cooperatives through its agencies, Small Enterprise Finance Agency (SEFA) and Small Enterprise Development Agency (SEDA) and internal support programmes such as the Co-operatives Development Support Programme (CDSP), Craft Customised Sector Programme (CSP), Township and Rural Enterprise Entrepreneurial Programme (TREP), the Business Viability Programme (BVP), the Small Enterprise Manufacturing Support Programme (SEMSP) and the Youth Start Up Support Programme (YSSP).

 

In 2021/22 financial year, the Small Enterprise Development Agency is expected to spend R867.791 million. In terms of provincial allocation, SEDA is anticipated to spend approximately R47 million in Eastern Cape Province; R42 million in Free State Province; R34 million in Gauteng Province; R60 million in KwaZulu Natal Province; R39 million in Mpumalanga Province; R43 million in Limpopo Province; R39 million in Mpumalanga; R40 million in Northern Cape Province; R41 million in North West Province and R57 million in Western Cape Province.

 

Over the medium term, the Department through Programme 3: Development Financewill ensure that effort is intensified to support 85 000 competitive SMME’s and co-operatives to access financial and non-financial support. The Township and Rural Entrepreneurial Programme aims to support enterprises based in marginalised areas. During the 2021/22 financial year, the Department will provide financial support to the township and rural based entrepreneurs with emphasis on enterprises owned and managed by vulnerable groups. This financial support is valued at R694 million, and is focussed on increasing capacity to access to economic opportunities and enhance their competitiveness.

 

Over the medium term, support to SMMEs would be provided through an allocation of R2.6 billion to the Small Enterprise Development Agency to coordinate and support nationally, and allocation of R510.3 million for internally administered incentives. Access to finance, particularly for the first three stages of business life cycle is crucial for business sustainability. To this end the Department will continue rolling out the Township Entrepreneurship Fund, which is implemented through the Small Enterprise Finance Agency (SEFA) at an estimated cost of R2.9 billion.

 

Deliberate interventions will be implemented to support start-ups, particularly those owned by vulnerable groups. The Department’s business delivery model aims to streamline the processes and strengthen support in delivery of services and in particular, closing gaps in critical areas such as Development Finance.

 

Over the medium term, Programme 4: Enterprise Development is anticipated to drive the transformation of the economy through the creation of a conducive business environment for township, village and rural economies (includes informal businesses). Further, to advance the competitiveness of SMMEs through an integrated approach, such as implementing the district development model. In addition, drive the transformation of the economy through the formulation of policy instruments and advocacy work aimed at the inclusion of SMMEs in the mainstream economy.

 

Over the medium term, R2.742 billion is expected to be spent by the Enterprise Development, and it is split over 3 sub-programmes; Enterprise Development Management has R6.6 million, Enterprise and Supplier Development has R2.690 billion, and SMME Competitiveness has R45.5 million.In terms of budget allocation, the Programme 4 would receive 36,2 per cent. That is the second largest allocation.

 

Through implementation of this programme the Department seeks to reduce the regulatory burden and create a conducive policy and legislative environment for SMME’s and cooperatives. During the 2021/22 financial year, the Programme will ensure that the National Small Enterprise Amendment Bill is tabled in Parliament. The Department has allocated R27 million over the medium term to the Enterprise Development programme to finalise amendments to the National Small Enterprise Act (1996). It was reported that the amendments are aimed at dealing with the establishment of amendments to the small enterprise ombud service, regulating/licensing businesses owned by foreign nationals, unfair business practices and reviewing the definition of SMME’s to ensure a use of single and inclusive definition. The Department will further embark on the revision of the Schedule to the National Small Enterprise Act. To ensure the development of an enabling policy, legal and regulatory environment for small enterprise.

 

Further, the Department reported that it will submit the National Small Enterprise Development Masterplan to Cabinet for approval. It was further reported that the Masterplan will ensure the delivery of an integrated, targeted and effective support interventions aimed at promoting entrepreneurship as well as providing financial and non-financial support to qualifying small enterprise and mainstreaming gender empowerment and the development of youth and persons with disabilities.

 

Further, the Masterplan will stipulate the measures that will be taken to execute the Graduation Model from informal business to competitive, sustainable and growing small enterprises that will contribute meaningfully to the Gross Domestic Product (GDP) of the country, job creation and inclusive growth. Municipalities play a significant role in creating a conducive environment for new enterprises and the growth of existing ones. To this end, the Red-Tape Reduction Programme addresses issues of reducing red tape. This will commence with the Red Tape Reduction Pilot Administrative Simplification Programme in three provinces for SMME’s and cooperatives.

 

Table 1: Summary of the Departmental Spending for the 2021 Medium Term Expenditure Framework

Source: Estimates of National Expenditure, National Treasury

 

As indicated in this report, the current fiscal situation has a direct effect to the departmental expenditure plans. The Department submitted that over the 2021 medium term it needed R10.5 billion to support SMMEs, and in R5.2 billion for the 2021/22 financial year. However, the final budget allocation was R2,5 billion for 2021 financial year, and R7,6 billion over the 2021 medium term.

 

In terms of economic composition, the Department is expected to spend R473.425 million over the medium term. The Department reported that the organisational structure remains largely inadequate to meet SMME’s and cooperatives requirements. The current structure is funded at 210 posts, with compensation to employees allocated R152.4 million in the current financial year. However, an additional 88 posts (costed at R58 million) is needed to enable the Department to fully meet its legislative and policy mandate. The current department’s expenditure in relation to the Compensation of Employees is aligned to the broader government commitment to reduce the “wage bill”. The 2021 Budget, as presented by the Minister of Finance proposed compensation reductions totalling R160.2 billion for 2020/21 to 2022/23, relative to the pre-Budget baseline. The 2021 MTBPS proposed further downward adjustments to compensation, amounting to R143.2 billion for 2021/22 to 2023/24.

 

The Department reported that the reduction of the compensation of employees’ expenditure item, would have the following implications:

• The Department will have challenges to have the required Human Resources to optimal operate. The current organisational structure has 219 posts (inclusive of contract employees who have to be included in the permanent structure), with the budget cut indicated to be R137 million at the end of the MTSF, implying that 18 posts should be abolished as to match the “available budget.”
• This means that the current recruitment process that includes the filling of the Deputy Directors-General posts will be negatively affected by non-availability of budget.

In terms of goods and services expenditure item, the Department reported that the budget has been reduced by R8.9 million for the 2021/22 financial year and R40.7 million over the MTEF period. As a result, over the 2021 medium term, theDepartment is anticipated to spend R236.49 million.

 

1. Issues Arising from Engagement

 

1. The Committee noted improvements relating to the expenditure plans of the Department. Further, the Committee had an appreciation of the context in which the expenditure plans were presented. Given the current fiscal situation a balance in terms of spending with regard to compensation of employees and goods and services should be found taking into account the business operational requirements. 
2. Further, the Committee welcome the efforts of the Department to align the organisational structure with the departmental policy strategy, and the alignment of the alignment of the budget to the organisational structure.
3. The APP prioritised three provinces in respect of the Red Tape Reduction Pilot Administrative Simplification Programme. Members urged that the Department needed to fast-track the extension of this programme to other provinces, particularly to rural areas and townships. Furthermore, Members queried the partnership of municipalities and coordination of the district development model in this regard.
4. The Department was urged to provide the Committee with a report on the success and failure rate of Departmental programmes within provinces.
5. It was highlighted that many SMMEs find it difficult to operate due various regulatory inhibitors across the spheres of government. In terms of ‘ease of doing business’, it was raised by Members that there is a lot that needs to be done. The Department submitted that surveys conducted in 2020 reflected that vulnerable groups especially do not feel that government is doing sufficient to support them. In it’s 2021/22 APP, the Department is in the process of developing an SMME Index. The SMME Index will be made available to other government departments and municipalities to be able to improve their expenditure plans including procurement databases.
6. In response to queries from Members regarding the criteria used for SMME Export Development Programme, the Department submitted that it was working closely with the Department of Trade, Industry and Competition, andleveraging its export development support and training programme. The criteria used to determine eligibility for the SMME Export Development Programme include the following, namely:
   • Registration with the South African Revenue Services (SARS) and Companies and Intellectual Properties Commission (CIPC)
   • Proven ability to successfully supply the domestic market
   • Sufficient production capacity to supply both domestic and international markets
   • Must have been operating for a minimum of 18 months
7. The Department reported that the NDP has a target of the job creation of 11 million jobs of which 90 per cent must come from SMMEs and Cooperatives. The Department indicated that it is working towards the creation of mechanisms to track the performance of SMMEs and Cooperatives in the various industries of the economy such as agro-processing, tourism and manufacturing. Further, the Department submitted that it is also working closely with Statistics South Africa (StatsSA) to ensure that SMMEs and Cooperative’s performance is properly tracked and reported.
8. In terms of coordination of support to SMMEs and Cooperatives with municipalities, the Department noted that the Local Economic Development units in some cases in many municipalities lack capacity and capability. Engagements between the Department and district and local municipalities are ongoing. The Department will be working more closely with the Department of Cooperative Governance and Traditional Affairs to ensure that SMME and Cooperative development support gains more traction at municipal level. Coordination with municipalities will facilitate quick turnaround times in the registration of new businesses, uniformity of interventions and ensure that resources are spread.
9. The Department further indicated that in alignment with the District Development Model, it has developed a SMME Support Plan which clearly indicates how many small enterprises should besupported per District to support efforts to achieve an inclusive economic growth thataddresses spatial disparities. This plan will be implemented in partnership with variousdepartments, provinces and municipalities. The plan would also enable the Department to planbetter on how and where resources should be distributed in a way that redresses the imbalancesof the past. The initiative would attempt to shift resources from urban areas to scale development in the township and rural areas. The support will be in the form of business developmentsupport as well as economic infrastructure support which includes incubation/digitalhubs as well as contributing to the growth and sustain development industrial parks.
10. The Department submitted that through the Small Enterprise Finance Agency (SEFA), the SMME COVID Debt Relief Finance Scheme and SMME Business Growth Resilience Facility were facilities created to assist SMMEs, which were negatively affected by COVID hard lockdown. The assistance provided covered operation’s requirements of SMMEs, which included costs such as rental fees and salaries. The criterion for these facilities did not look at the age of the enterprise however sought to look at the future potential of the business.
11. In relation to coordination with the Department of Trade, Industry and Competition (DTIC) in respect of digital hubs, the Department reported that this was taking place at the Botshabelo Digital Hub wherein the Department provided a budget to SEDA to set up a digital hub in the industrial park. However, it should be noted that DTIC is not involved in all digital hub initiatives of the Department. SEDA plays a pivotal role in the establishment digital hubs.
12. In response to queries relating the SMME Masterplan, the Department submitted that it has various sector champions that would support the implementation of the master plan. The aim is to integrate SMMEs into various industries in economy. Further, the Department submitted that it is leading in the development of the master plan that would cover the creative economy, working closer with the Department of Sports, Arts and Culture. This is the area that government has identified as a strategic industry to create employment opportunities.
13. The Department noted the essential role of development finance institutions, particular at a time where many SMMEs and Cooperatives need funding and financing. Commercial banks are much more risk averse. Further, the current economic and health crisis has made many commercial banks to tightened lending streams to SMMEs. The slow performance of the R200 billion Loan Guaranteed Scheme is one of the indicators that SMMEs and Cooperative find it difficult to access finance. The Department hopes that the SMME Funding Policy Framework would tackle the challenge faced by SMMEs and Cooperative in accessing finance. The Department reported that it is working with National Treasury and industry role players to come up with sound funding policy strategy. The funding policy strategy would also cover financial literacy to support SMMEs and Cooperative to improved financial management.
14. The Department submitted that the Business Viability Programme is aimed at supporting SMME s and Co-operatives to overcome both financial and non-financial constraints that negatively affectbusiness activities. The primary purpose of the Programme is to ensure that SMMEs and Co-operatives are commercially and financially viable and contribute meaningfully to economictransformation and job creation. Some of the interventions will include business turnaround interventionsincluding business rescue for those businesses, which have demonstrated that their business models arestronger to survive in the new normal. A total of 15 000 businesses will be supported in the 2020/21 financial year and 70 000 competitive businesses will be supported over the medium term.

 

1. Findings

 

1. South African SMMEs, already are experiencing an effect of a contracting economy, additional shocks from COVID-19 are putting further pressure on their operations.
2. Lower investment and business confidence remains a red flag. Both are indicators that shows lower revenue and profitability of SMMEs.
3. Many SMMEs lack the financial, operational, and strategic structures that are common in larger businesses. Mostly, are affected with lack of liquidity and cash-flow management.
4. A 2018 study from the Small Business Institute (SBI) reveals that 98.5 per cent of formal businesses in SA fall into the category of small and medium and micro-enterprises (SMMEs). However due to COVID-19, the picture is terrible. It is estimated that our economy will lose as many as 55,000 small businesses.
5. Sme.africa and Sasfin survey of around 1,000 SMEs, indicated that around 60 percent of SMEs may close before the crisis is over. Further, reports indicate that many small businesses have expressed that programmes offered by the Department do not adequately addressed their challenges.
6. The Department is not using sufficiently the SMME ecosystem to generate distribution model for the development funds-Partnership with private sector, and NPOs within the SMME sector.
7. Insufficient communication of the available funds to intended beneficiaries.
8. There is a need to improve coordination with provincial and local government in implementing programmes designed to support SMMEs.
9. The issue that has been raised by businesses and rural communities is the lack of impact of programmes and products designed to support SMMEs, particular those in peri-urban and rural areas.  
10. According to the 2018, National Treasury Report titled “State of Procurement Spent in National and Provincial Departments”, SMMEs still receive much less of the government procurement. This could be the picture that is also experienced by small enterprises with regard to the private sector procurement.
11. Poor performance of the R200 billion Loan Guaranteed Scheme in relation to the financing of SMMEs. Lack of uptake of the assistance loans shows greater systematic problem over the access to financing of SMMEs (including Cooperatives) in the country.
12. 2018 Report titled “An assessment of South Africa’s SME landscape”, by SME South Africa revealed that only 6 percent of SMEs surveyed received government funding and only 9 percent had sourced funding from private sources.
13. Further, the 2020 by SAVCA “Impact of Venture Capital & Private Equity in South Africa” reported that the majority of private equity funding has largely been focused on mature businesses with around 90 percent of funding going to businesses that are more than five years old.
14. Low awareness of opportunities and a lack of financial knowledge still remain major barriers to SMMEs accessing financing.
15. Centre for Development Enterprise (CDE) points that exclusionary eligibility for funding qualification criteria, lack of accurate information, and time lags between application and disbursement of funding has a negative impact to the functioning of SMMEs.
16. Concentration of funding in high growth provinces such as Gauteng, Western Cape at the expense of predominant rural provinces. That shows inequity in distribution of resources in terms of support given to SMMEs. 
17. Application process has the potential to raise red-tape as an inhibitor; Further reports indicate 54 per cent of SMME owners have not completed secondary schooling in South Africa.
18. Identify opportunities to reduce regulations for SMMEs and more generally ensure that regulations are appropriate to the size of operations, case in point spaza shops. Further, there is a need to simplify application rules.
19. The Report of the Financial and Fiscal Commission flagged the utilisation of financial intermediaries (wholesale lending) as one of the cost drivers that increasing the cost of capital for struggling small enterprises.
20. To the lack of data about the number of SMMEs, including spaza shops, that affect planning. Planning, seems to be not adequate.
21. Export support programme needs to be improved. Partnership with Department of Trade, Industry, and Competition should be prioritised. The Department should leverage financial institutions both public and private sector to enhance growth of SMMEs and Cooperatives.
22. Impact of COVID-19 would need many businesses to be supported to implement digital commercial platforms. So digital adoption and an advice culture would certainly need fiscal support. This support should also reach SMMEs and Cooperatives across the country.
23. Government in partnership with the private sector should establish an export initiative (including establishing an export office to support SMMEs).
24. Support for innovation should be improved, and enhanced. The Department should work closer with higher education institutions including entities operating in science and technology both in the public and private sector. Investment in innovation, research and development should be prioritised.
25. McKinsey reports that the Malaysia’s national commercialization platform—PlaTCOM Ventures—helps entrepreneurs turn their ideas into successful products and services. In South Africa, support of high growth-tech companies should be accelerated. Partnership with private sector and industry players in science and technology remains a challenge.
26. Further, the Department should work in a strategic way to improve supplier development programmes that big corporates offer to SMMEs. Supplier development programmes should be much more than social responsibility programme. Must extend to the sustainability of SMMEs.
27. Organisational health and capability should be one of the key priorities that the Department should prioritise.
28. There is a need over the 2021 medium term period for the Department to fill critical posts in order to realise government, and departmental policy outcomes. This should form part of the broader re-engineering of the Department, and to repurpose the Department to meet the needs of the small enterprise industry.
29. Over the 2021 medium term, the Department must fast track the process of merging SEFA, SEDA and NEF to form a focused, single and coherent SMME Development Agency. The merger process of SEDA, SEFA and NEF should be prioritised.

 

1. Recommendations

 

1. The Minister of should continue to engage the Minister of Finance to consider allocating additional resources over the 2021 medium term to the Department to scale-up policy response geared at stimulating the growth and expansion of SMMEs and Cooperatives. The resource allocation should also consider the need of the Department to fill core critical positions. Further, the Committee also encourages the Department to exploit human resources residing within its development agencies.
2. The Minister should fast track the finalisation of SMME Funding Policy Framework. By the end of the 2021 financial year the Minister is urged to submit SMME Funding Policy Framework. The role of other spheres of government, development finance institutions and private players such as commercial banks should be clear articulated. Therefore, their involvement in development of the funding policy is essential.
3. As indicated in the Departmental expenditure plans, by the end of the current financial year, Minister through the Department need finalise and submit the Small Enterprise Master Plan including the Small Enterprise Amendment Bill. 
4. The organisational structure is critical in determining the organisational health and capability pf the Department to meet policy priorities. In preparation of the 2022 medium term, the Minister through the Department must finalise the macro-organisational structure.
5. Over the 2021 medium term, the Minister should finalise the process of merging SEFA, SEDA. Working with the Minister of Trade, Industry and Competition, the merger should include the National Empowerment Fund to form a focused, single and coherent SMME Development Agency. The merger process of SEDA, SEFA and NEF should be prioritised. The Presidency and National Treasury should provide necessary resources to support the merger of the mentioned development entities. 

 

Report to be considered.