Department of Small Business Development 2021/22 Annual Performance Plan

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Meeting Summary

Video: Select Committee on Trade and Industry, Economic Development, Small Business Development, Tourism

Annual Performance Plans

The Select Committee convened on a virtual platform to be briefed by the Department of Small Business Development (DSBD) on its 2021/22 Annual Performance Plan. Delegates from the Small Enterprise Finance Agency and the Small Enterprises Development Agency were also in attendance.

The Department first outlined its strategic plan for the medium term and the annual performance plans, detailing all the programme and subprogramme plans, including risk assessments and mitigation strategies.

With the current 2021/22 financial allocation of R2.5 billion, the Department has had to cut its coat according to its cloth. The total shortfall on direct small, medium and micro-enterprises benefitting programmes, as presented at the Medium-Term Expenditure Framework bilateral, was R10.5 billion over the Expenditure Framework period and R5.2 billion for the 2021/22 financial year. The final programme allocation, including the baseline of the Small Enterprise Development Agency, is R2.299 billion (2021/22).

Due to the necessary budget cuts, the Department will not afford the proposed organisational structure, which requires about R35 million, that is aligned to the Department’s mandate and strategy and thus render the Department unable to provide resources for proper execution of its mandate and strategy.

Another issue of concern was the R1.2 billion that was transferred to the Small Enterprise Finance Agency for the support for struggling businesses. Members wanted to know what percentage of that R1.2 billion was spent on businesses that have already established themselves beyond a certain period. What percentage was spent on businesses that recently started?

Additionally, the Committee wanted to know the involvement of the Department and its entities in the master plan driven by the Department of Trade Industry and Competition; they wanted to know what the role of the Department is, concerning other departments that have small business sectors within themselves – for example, the Department of Agriculture, Land Reform and Rural Development.

Other questions included: when is the Department going to repeal or amend the Business Act? How they are assisting small businesses regarding the 30-day period that is not being honoured by other departments and entities; the number of incubators that have been established; the constraints that are making it very difficult for the ease of doing business; as well as the criteria they are using for the 2 000 small, medium and micro-enterprises that are assisted to have market support on the international markets.

Meeting report

Briefing by the Department of Small Business Development (DSBD)

The presentation was done by DG, Mr Lindokuhle Mkhumane, and CFO, Ms Semphete Oosterwyk.

Strategic Plan

Global Economic Outlook:

Rebuilding and recovering from the COVID-19 Pandemic

  • The growth recovering following a severe collapse in 2020 that has acute adverse impacts on women, youth, persons with disabilities and the especially informally employed and those who work in contract-intensive sectors.
  • The strength of the recovery is projected to vary significantly across countries depending on access to medical interventions (vaccine-powered economic strengthening) and the effectiveness of policy support.
  • New coronavirus variants of the virus pose concerns for the outlook.
  • The pandemic is expected to reverse the progress made in poverty reduction in the past two decades in the emerging market and developing economies.
  • All emerging market and developing economy regions are expected to grow this year, and South Africa is particularly expected to grow by 2.8%.

Performance related matters

  • The Department plans to continue implementing the Township and Rural Entrepreneurship Programme (TREP): a dedicated programme aimed at providing financial and/or non-financial support to the Township and Rural Enterprises with emphasis on enterprises owned and managed by the designated groups.
  • Another plan is to create an enabling environment for Small Medium and Micro Enterprises (SMMEs) and co-operatives within which to operate:
    • Finalise amendments to the National Small Enterprise Act through the National Small Enterprise Amendment Bill (“the Bill”) that the Department gazetted in December 2020,
    • The Department aims to provide for a simple and enabling framework for procedures for application of licensing of business by setting national norms and standards through the amendment of the Businesses Act, 1991.
    • Implement the SMMEs and Co-operatives Funding Policy to ensure improved access to affordable finance for SMMEs and Co-operatives.
  • Implement the Localisation Policy Framework and Implementation Programme for SMMEs and cooperatives
  • In collaboration with the entities, continue to implement the Small Enterprise Manufacturing Programme
  • Ensure further integration of the SMMEs and cooperatives Database to ensure reduction of red tape for SMMEs and cooperatives
  • Facilitate and ensure an increase in number of competitive small businesses and cooperatives supported
  • Promote sustainability and growth of SMMEs and cooperatives through the implementation of Business Viability Facility
  • Establish and report on the number and performance of incubation centres and digital hubs
  • Sustain SMMEs and cooperatives by linking them to markets through an e-commerce platform.
  • Introduce measures to support the SMMEs and cooperatives prioritising women, youth and persons with disabilities ensure minimum 40% target for women, 30% for youth and 7% for persons with disabilities.

Administration related matters

  • The plans to structure finalisation with programme changes (Sector and Market Development, Development Finance and Enterprise Development).
  • It also plans to finalise the Business case for the new single Small Business Support Entity.

Annual Performance Plan

Programme one: Administration

Purpose: to provide strategic leadership, management and support services to the Department.

Sub-programmes:

1. Ministryto provide for administrative and logistical support to the Minister and Deputy Minister.

2. Departmental Management (Office of the DG) – to provide strategic leadership, management and support services to the Director-General and the Department.

3. Corporate Management To provide enterprise-wide support services comprising of human resources, legal services, learning and development and transformation policy and coordination.

4. Financial ManagementTo provide strategic leadership and advice on supply chain, financial and asset management related services to the Department.

Programme two: Sector and Market Development.

Purpose: to facilitate and increase access to markets for SMMEs through business information, product development support and value chain integration.

Subprogrammes:

1. Sector and Market Development Managementto provide leadership to the branch and support entry and growth of SMMEs in prioritised and designated sectors of the economy.

2. Business Information and Knowledge Managementto provide evidence based (economic analysis, econometrics, research) business information to direct sector thought leadership.

3. Ease of Doing Business to reduce the administrative and regulatory burden of doing business for SMMEs.

4. Access to Market Supportto provide domestic and international market support services to SMMEs.

Programme three: Development Finance

Purpose: to expand access to finance for SMME s and cooperatives through innovative service offerings.

Subprogrammes:

1. Development Finance Management – to provide leadership to the branch and support entry and growth of SMMEs in prioritised and designated sectors of the economy.

2. Business Viability – to provide business assurance strategies for SMMEs.

3. Blended Finance – to design blended financial support initiatives for SMMEs.

4. Model Funding collaboration – to create enabling financial support structures for SMMEs.

Programme four: Enterprise Development

Purpose: to oversee the promotion of an ecosystem that enhances entrepreneurship and the establishment, growth and sustainability of small businesses and cooperatives as well as coordinating business development support interventions across various spheres of Government.

Subprogrammes:

1. Enterprise Development Management – to 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.

2. Enterprise and Supplier Development – to 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.

3. SMME Competitiveness – to work with Municipalities through their integrated Development Plans to develop, enhance and implement enterprise development programmes toward improved Local Economic Development (LED).

Budget

Overview of the adequacy of financial resources for the implementation of plans and interrogation of the allocations:

From inception, the DSBD had most of its baseline funding transferred in line with the functions transferred from the Department of Trade Industry and Cooperation (DTIC), the then Department of Trade Industry, which meant that it was not adequately resourced and continued to implement the DTIC programmes.

With the ushering of the Sixth Administration, DSBD adopted a progressive SMMEs and cooperatives centred business dodel. This model seeks to transform the SMME support landscape, and this is likely to remain unless adequate resources are provided. 

With the current 2021/22 financial allocation of R2.5 billion, the Department has had to cut its coat according to its cloth. The total shortfall on direct SMMEs benefitting programmes, as presented at the Medium-Term Expenditure Framework (MTEF) bilateral, was R10.5 billion over the MTEF and R5.2 billion for the 2021/22 financial year. The final programme allocation, including the baseline of the Small Enterprise Development Agency (SEDA), is R2.299 billion (2021/22).

  • Sector and Market Development: this requires R280 million that would enable localisation, creation of product markets and exposing women enterprises to international markets.
  • Development Finance: this requires R4 billion to enable supporting township and rural enterprises; youth business start-ups and business viability. 
  • Enterprise Development: this requires R1 billion to enable the small-scale manufacturing programme. 

The organisational structure remains largely inadequate to meet the requirements of SMMEs and cooperatives. The current structure that is funded at 210 posts was allocated R155.3 million, whilst 88 additional posts costing R58 million are needed to enable achievement of the DSBD mandate. The final allocation was reduced to R143.5 million, which the Department requested National Treasury to reinstate to R152.4 million by reducing the goods and services budget by R8.9 million (2021/22) and by R40.7 million over the MTEF. 

It should be noted that the current DSBD COE commitments, excluding cost-of-living adjustments, are as follows:

  • 2021/2022: R150 483 225.00
  • 2022/2023: R152 740 473.38
  • 2023/2024: R157 164 712.22

Should the Compensation of Employees (COE) budget be cut, the implications are as follows:

The Department will have challenges to have the required human resources to 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 071 000 at the end of the MTSF (Medium-Term Strategic Framework), implying that 18 posts should be abolished so as to match the available budget. This means that the current recruitment process that includes the filling of the Deputy Director-Generals (DDGs) posts will be negatively affected by non-availability of budget.

Further to this, should government lose the case by the unions for implementation of the cost-of-living adjustments, the DSBD will not afford the implementation of such ruling. Thus, the Department will not afford the salaries of even the existing employees.

Most importantly, with these budget cuts, the Department will not afford the proposed organisational structure, which requires about R35 million, that is aligned to the Department’s mandate and strategy and thus render the Department unable to provide resources for proper execution of its mandate and strategy.

The R40.7 million over the MTEF and R8.9 million for 2021/22 reprioritised from goods and services was from:

  • Travel and subsistence at R14.7 million over the MTEF and R3.2 mil for 202122;
  • Consultancy services at R12 million and R3 million for 2021/22;
  • Computer services at R3 million over the MTEF and R1 million for 2021/22; and
  • Venues and facilities at R8 million over the MTEF and R1 million for 2021/22. 
  • Impact: Curtailing of planned activities, including limiting physical access and training of SMMEs and cooperatives.

Discussion

Mr M Mmoiemang (ANC, Northern Cape) expressed that he is happy that the DG, when he dealt with programme one, took the Committee into confidence about the issues raised by Members – around ensuring that there is alignment between the budget and the structure of the Department.

On Programme two, he wanted to know what can be deduced from the SMMEs development Index pilot survey. He asked how this programme will assist in addressing the survivalists of the SMMEs. It would be important to get a sense of the survivalist character of the SMMEs, to ensure that there is transformation and to massify the SMMEs and the cooperatives in the townships and villages.

On Programme three, he noted that the Department’s focus is to expand access to finance for SMMEs and cooperatives through innovative service offerings. He wanted to know if the cooperative funding policy that they will develop is only an inward-looking policy or is also aimed at taking the private sector on board.

About Programme four, he noted that there was a point raised on the reduction of red tape. He asked if the target the Department has set will assist them in ensuring that there is the support that the Department must give, particularly in the context of the district development model. He asked why, in this financial year, only three districts are being assisted when much more were assisted in the previous financial years.

He said that the 90.6% of the standing of the Department going to the supporting of business is commendable but he wanted to know if this will ensure that the money indeed goes to the townships in rural economies. That is, will it work for the targeted groups and address the red traps?

Lastly, he wanted to know more about the court case concerning the interdict brought by AfriForum on the Tourism equity fund.

Mr J Londt (DA, Western Cape) noted that it is flagged that R1.2 billion was transferred to SEFA for support for struggling businesses. He asked what percentage of that R1.2 billion was spent on businesses that have already established themselves beyond a certain period. He also wanted to know what percentage was spending on businesses that recently started.

On the issue of access to the markets, he noted that the Department said they want to get 2 000 SMMEs to international market opportunities but pointed out that there is a lack of strategic thinking about that. He said it just looks like another number that gets flagged.

He said that he appreciates that the Department will appraise the Committee with a statistical breakdown per province, but they now also need to look at the success rate and failure rate between provinces. With the money that is being limited, he asked that should it not be that, based on historical trends, provinces that have shown a better success rate in getting these SMMEs up and running get more resources to continue with good work. There should also be interventions to those provinces that are not getting the success rate that is required.

The Chairperson noted that they were talking about a small business development master plan. Concerning this master plan driven by the DTIC i.e., on clothing, textile, sugar, automotive, etc., he wanted to know the involvement of DSBD and its entities in this.

He also asked what the DSBD’s role is, concerning other departments that have small business sectors within themselves, such as the Department of Agriculture, Land Reform and Rural Development.

He noted that DTIC always report about digital hubs but also Small Business Development Department also reports about Digital hubs. He wanted to know the connection between these hubs; are they independent from each other or are they collaborating?

In the presentation, the DSBD talked about the Business Act that it will be considering either to repeal or amend. He asked when this was going to be done.

He asked how the Department is assisting small businesses regarding the 30-day period that is not being honoured by other departments and entities – not only those that are procuring from them but also other departments.

He also asked about programme two, which seeks to facilitate and increase access to markets for SMMEs through business information, product development support and value chain integration. He said that he did not get what the indicator will be except that there will be an Annual Report that must be approved by the executive committee. But the Department was not clear on how it will achieve the target itself.

On the incubation support programme, he said that he wanted to know the number of those that have been established. He also asked the Department to update the Committee on the constraints that are making it very difficult for the ease of doing business.

He asked that the criteria the Department are using for the 2 000 SMMEs that are assisted to have market support in international markets.

On programme three, specifically the business viability subprogramme, he said that there is also a viability programme with the Cooperatives Development Agency (CDA). He wanted to know if these are separate programmes.

On programme four, there is a collaboration that the Department will be doing with Municipal LED (Local Economic Development). He wanted to know the state of the LEDs.

Responses

Mr Mkhumane, on the issue of the index and whether it will assist the DSBD in addressing some of the concerns, held that in a survey done during the 2019/20 financial year it was very useful, as they went to interact directly with small business and gave them direct inputs. Therefore, it is not something that is researched by another party. In a survey that they conducted last year, for example, the feedback they got, especially on the vulnerable groups, was that people still feel that as government they are not doing much in terms of prioritising entities that are owned by women and youth. So, they need to pick up their socks and make sure that they provide this dedicated support.

Other issues that were raised were the criteria, the processes, and the timelines. In addressing these issues, they have interventions like the common template. One has to only put their information once; there is no need to fill different forms when applying for different things. The DSBD is trying to streamline its processes so that businesses get easier access to support. The Department is also interacting with other government departments to bring them on board in ensuring that their systems are interconnected.

About the red tape reduction programme and the reason for going down in numbers, he said that as of the end of November 2020, the Department had already interacted with 136 municipalities, which is quite a number of municipalities. But what is critical for them (DSBD) is to go back to those municipalities to check on whether the interventions they have introduced are producing results. They are, however, trying to ensure that they spread the limited resources they have. On that point, he explained that the system of the district approach assists them to cover as many local municipalities as possible. It helps with uniformity and sharing of experiences within the same local municipality.

On access to markets, he indicated that the matter of international trade is led mostly by the DTIC; the DSBD works closely with them. The DSBD also has several interactions with embassies because it needs the advice of the economic representatives from different countries, and they provide guidance in terms of market intelligence of what is possible in their particular countries. Additionally, on the SheTradesZA platform, the DSBD works with the international trade centre, which is an International organisation linked to the United Nations. This organisation assists the Department because it has experience in the international space and so it can provide the DSBD with guidance.

With regards to giving more support to successful provinces, he reckoned that this will go against addressing development in other provinces. The Department must support areas that are not doing quite well so that they can support small businesses. Also, through the CDA, the DSBD has mobile offices, and they can go to various places and interact with stakeholders and SMMEs on a rotational basis, informing them about the support given to small businesses and cooperatives.

On the masterplans driven by DTIC, he said that they have sector champions in the Department to assist them; these champions participate in its development and they also sit in the hearing committee that develops the masterplan to look at interests of the SMMEs and how they are being integrated.

In supporting other departments like the Department of Agriculture, he said that they (DSBD) are sector experts and so they do not try to provide advice about what products can be grown. What they do is to come with business development support as well as access to market support.

On connecting the DTIC hubs and DSBD hubs, he gave an example of one in Botshabelo, Free State. That digital hub is located in an industrial park that is being revitalised by DTIC. So DTIC has provided the infrastructure and DSBD provided the actual digital hub through CDA. But in all other hubs, the DTIC is not involved.

Concerning the Business Act, he said that the DSBD cautious about the timelines because it will be doing a lot of consultations as it wants to bring everyone on board. Once the Department has a product that is acceptable to most people then it will start taking it through government processes and then take it to Parliament.

Ms Dominique Vincent, Acting DDG: Enterprise Development, DSBD, said, on the funding policy, that the main aim is to strengthen the provision of development finance and thus, across the board, improving access to finance, working in conjunction with all key role players within the sector. They intend to deepen access to finance to small enterprises across the board, including cooperatives. The Department is also in discussions with National Treasury to ensure that it aligns to their financial policy, especially on elements that speak to small enterprise development. Thus, one of the key recommendations within the funding policy is to come up with targeted financial instruments and to ensure that it is evidence-based and that it deals with issues around reach and scope. It also looks at financial literacy because they know that things like for poor bookkeeping or documentation are a major contributor towards the SMMEs and Cooperatives not receiving finance from lenders and collateral.

On the business viability programme, she noted that one of the recommendations within the funding policy is business turnaround structure; this is because following the impact of COVID-19, a lot of businesses have suffered, and they require a lot of support when it comes to business turnaround and business rescue.

Another critical area is the fund-to-fund programme that they are looking at, which is at tapping into the private sector’s 1% net profit after tax to empower black SMMEs. They are already in discussions with the BBBEE commission to determine how they can go about becoming a facilitator within this space. So, the aim for the current financial year is to finalise the policy and implementation plan and start with the implementation process.

CEO of SEFA (Small Enterprises Finance Agency), Mr Mxolisi D Matshamba, on the question of the tourism equity fund, said that they are implementing this programme on behalf of the Department of Tourism. The Programme was launched around February 2021 by the Department and the President. SEFA started the process of inviting applicants to apply, and they have put together the criteria for applicants, including the evaluation criteria. Later on, during the process of implementation, solidarity threatened to challenge the programme because it was excluding certain members of the society. But when the Minister engaged them, they did explain to them that no one is going to be excluded in the programme but there is a point-scoring system that indicates that one gets a number of points depending on the level of transformation of one’s company. The lesser the transformation of one’s company the lesser the points one gets. Later on, they then decided to take them to court because the timing of the gazetting of the programme by DTIC and their launch were not aligned. Their argument in court was that they launched before DTIC gazetted the programme. They were then sadly interdicted. He indicated that they had met in the previous week with the legal team of the Minister of Tourism and their legal team (SEFA) (as they also cited) as well as the legal team of the DTIC. They were trying to find ways of resolving this challenge and the legal team is still trying to come up with a solution so that they can evaluate the best possible route to implement the programme.

The implications are a bit costly for the applicants because some of the people had offered to purchase certain businesses following certain timelines and now with these delays, those offers may lapse and they will have to renegotiate the offers. Also, the applications they have received to date, which are about six million, the applicants may be asked to reapply again.

The other question was the COVID-19 relief funds that they displaced to SMMEs that were facing challenges during the lockdown; he said that, as a Department, they had come up with funding instruments to assist businesses to cover their operating costs e.g., paying rentals, staff salaries, etc.  He said that when they do their funding, they do not look at the age of the SMME; they look at the requirements and the challenges, including the future cash flows of the entity and they provide funding to ensure that the business survives.

Ms Ntokozo Majola, Executive Manager: Enterprise Development Division, SEDA, on the question of criteria for assisting in participating in the export development, clarified that it depends on the level of the clients. The Agency first assesses the readiness of the business for the export market i.e., they have attended the export orientation. They must be registered with the Companies and Intellectual Property Commission (CIPC) and the South African Revenue Services (SARS); they should be successfully supplying the domestic market; they must have sufficient production capacity, and the business must have been operating for a period of 18 months, etc. Secondly, they look at the potential – the level of development of the client. Thirdly, they will start the SMMEs from scratch and the main determining factor is the potential of the product. So, they start with basic training, awareness and understanding of what is required in the export market. The Agency is also collaborating with DTIC with their export development and promotion unit because they have a programme that is called the Global Exporter Passport Award programme. They are leveraging from some of the training that they are also offering.

On the question of the number of incubators that are currently existing, she said that those that are supported by CDA, at the end of April, they were standing at 101 and that is a combination of incubator and digital hub as well as centres for entrepreneurship and rapid incubation, which are hosted by Technical and Vocational Education and Training (TVET) colleges.

Ms Zandile Mavundla, Strategy, DSBD, said that the target on Programme two is talking about the annual contribution to jobs by SMMEs and cooperatives, and the Department is focusing on looking into the economic sectors. As part of the National Development Plan (NDP), of the 11 million jobs that are targeted by 2030, 90% of those are expected to come from the SMMEs sector. So, what they are doing through this target is to make sure that they track the contribution that is being made by the SMMEs and the cooperatives in the job sector and see how they can assist and raise that contribution and cooperatives. Once they have tracked this, they then do a report that will show how those who have benefited from the programmes have contributed to the creation of jobs and where can they be assisted.

The Committee deliberated on the previous Committee minutes and adopted them.

The meeting was adjourned.

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