Department of Small Business Development, SEFA and SEDA Annual Performance Plan

Meeting report

Department of  Small Business Development (DSBD) 2017/18 Annual Performance Plan
Ms Edith Vries, DSBD Director General, stating that during November 2016 DPME (Department of Planning, Monitoring and Evaluation) and National Treasury proposed a change to the DSBD strategic approach to its mandate. The change to the strategic approach required a new structure focusing on coordination so as to lead the growth and sustainably of SMMEs and cooperatives in the country which is a fundamental shift away from implementation. As structure follows strategy, the structure was reviewed. In order to establish stability, a proposal was adopted to firstly have an approved structure that employees can be placed against.

Carried forward by the MTSF Outcome Four (decent employment through inclusive economic growth), primary objectives are the reduction of delays and unnecessary red tape around authorisations that hinder investment and employment, ensuring that township and rural economies are supported, and reporting on impact in terms of the number of business supported, value of the grant approved and geographic location of the supported businesses. For the 2017/18 APP, the existing programme and sub-programme structure is retained, but will be reviewed to better align to the revised strategic postitioning of the DSBD during 2017/18, and to fully inform the 2018/19 APP. National Treasury/ DPME recommend a major focus for Programme 3 on Agency Oversight, Monitoring and Evaluation and on supporting Inter-Government Relations (IGR) and Provinces and Municipalities with their implementation.

Tabulated information on DSBD programmes and their outcomes, as well as audited figures and medium-term expenditure estimates were provided (see document).

In conclusion, the Director General stated that DSBD aims to strengthen its internal performance information systems regarding reporting and review. In addition, it will strengthen implementation and project plans, and there is a solid stakeholder engagement plan. DSBD will be upfront in expenditure analysis and implement corrective actions, also it will strengthen monitoring and evaluation and impact reporting. The Department’s partnerships with its entities are aligned. Going forward there will be proactive community engagements to create awareness of programmes and interventions. DSBD will strengthen its oversight on SEDA and SEFA, and ensure that improved coordination with other departments and spheres of government is solid.

Discussion
Mr H Kruger (DA) asked about Programme 2, specifically about the red tape reduction plan. In 2015 he asked the Minister about red tape reduction plans in municipalities and the Minister replied that training will be done in 12 municipalities. Are the municipalities mentioned in the presentation the same ones that the Minister referred to back in 2015?

Rev K Meshoe (ACDP) stated that there is only 13 years from now to 2030, so he does not see how the 90% job creation will be created without transversal agreements and partnerships with other departments. The challenges are mainly on the ground, so it is important to know when DSBD is planning to address the problems that are being experienced on the ground. He asked when will the agreements be signed, because the department will not be able to solve these problems on its own. How are these targets and plans going to be achieved without the agreements? Secondly, interventions are critically needed to help people that are struggling now – is there a plan in place to intervene immediately?

Slide 10 reflects a commitment to display a radical approach, what does this actually mean? On slide 16, he asked for the budget allocation in percentages for clarity purposes. Under the quarterly targets, in the first quarter, there is a plan to have ten facilitated interactions that will deliver meaningful information to communities, so it will help to be informed where these interactions will take place so that Committee can attend as well. Why is monitoring being allocated a smaller amount than research? The urgency now is to monitor and to train people to acquire the skills. What is the purpose of the research unit?

Mr T Chance (DA) suggested that one of the problems faced by DSBD is that it is one step behind, every time the department is presenting its APP, it always seems to be a plan for the following year. He asked for clarity and information on the two Deputy Directors General for SMMEs and Cooperatives.

Where does the DG see the role of the private sector in all of this, the private sector accounts for 70% of the economy – so are there any conversations planned to take place in that space? And, why have those conversations not happened? It seems that DSBD is operating in its own world that is completely divorced from the 70% of the real world.

Mr N Capa (ANC) stated that the presentation is provocative in terms of whether this will be done or not – if it will be done, will there be any success? He asked about the municipalities that have been assisted in the roll out - are these local or district municipalities? Secondly, he asked for clarity on the informal business infrastructure. Thirdly, with regards to SEFA and SEDA – are they treated similarly or differently by DSBD considering that their mandates are different, the one being a non-financial support structure and the other within the space of financial provision.

Mr S Bekwa (ANC) stated that the department has provided a clear road map of what it intends to do moving forward, albeit, there are challenges. Importantly, the duplication of functions needs to be looked into decisively because some very important functions that are supposed to be within DSBD are being carried out by other departments.

Rev Meshoe suggested that with regards to the 90% target for 2030, DSBD needs to set clear targets within reasonable time frames, so that it can be apparent whether there is going to be progress or not.

Mr Lindokuhle Mkhumane, DSBD Acting Deputy Director-General, stated that there are two targets on red tape – one is the eight municipalities that will be dealt this year, and the other being the red tape interventions to be rolled out. The eight municipalities are the new interventions, but there are still engagements that need to happen with those municipalities. However, DSBD does not identify the municipalities on its own but works with SALGA on this, as well as provincial departments on Economic Development to ensure that there is an integrated approach.

The Chairperson asked for clarity on what is actually being done in municipalities to reduce red tape.

Mr Mkhumane replied that DSBD is organising workshops aimed at informing and educating government officials on the ground about red tape regulations. Guidelines have been developed and issued to municipalities for them to follow when it comes to addressing specific issues that people on the ground need assistance with.

The Chairperson stated that for a period of over two years, DSBD has set a target of only eight local municipalities. With 44 district municipalities, and eight metros, DSBD should be focusing on introducing those guidelines and workshops at that level and it will trickle down to municipalities that fall under the districts and metros.

The Director General said not all the work that DSBD does is reflected in the Strategic Plan, because some of the work has already been implemented and introduced, and already there is a process under way to engage with all the municipalities to underline the importance of support for small businesses, and the development impact of SMMEs and cooperatives, as well as the 400 cooperatives (funded since the inception of DSBD) and where they are located. DSBD is doing this with all the district municipalities, this is work that is already under way. It is unfortunate that it is not in Strategic Plan and APP. The Department’s target is meagre, but it aims to target the areas where all this assistance is most needed and facilitate the creation of chambers. The Department hopes to enter into agreements with those municipalities on how their work can be supported.

The Chairperson highlighted that there is great improvement in the report, considering the recommendations that the Committee has made to the Department. It seems that it is now shaping up very well, and the Committee will continue supporting DSBD.

The Director General stated that she agrees with Rev Meshoe’s sentiments about creating partnerships, but now the aim is to not focus on the number of partnerships but rather the value of those partnerships. DSBD has on its radar the Nine Point Plan – with a target to create 450 000 new jobs by 2019, this is reflected in the Nine Point Plan. One of the research projects DSBD aims to undertake will focus on job retention and creation. In terms of the transversal agreements, DSBD will be happy to present to the Committee the transversal agreements it entered into. Of the 40 agreements that it entered into last year, nine are with the private sector. DSBD is happy to update the Committee on a quarterly basis, and it is working towards the targets set out in the Nine Point Plan.

Due to time constraints, the Chairperson did not allow further responses from DSBD.

Small Enterprise Finance Agency on its Corporate Plan 2017/18 
Ms Hlonela Lupuwana-Pemba, SEFA board chairperson, noted that in November 2016, SEFA interacted with DSBD and the Director General emphatically assured SEFA that there is alignment between Strategic Plan and DSBD. However, in the current National Small Business Act, it is worrisome that up to this point SEFA is not included in the Act on how it is supposed to run its operations and business. Although, this is a policy issue, it is something that needs to be looked into. SEFA is undeniably experiencing challenges with funding, the impairments have long been in existence and the board is working tirelessly to ensure that the impairments are reduced.

Mr Thakhani Makhuvha, Chief Executive Officer at SEFA, stated that the presentation has not taken into account the recent downgrade, so an analysis may be done in the near future should SEFA be affected by it, considering that it is in the business of lending out money and providing financial support to SMMEs. SEFA has now established a new Post Investment Monitoring and Collection Strategy in order to enhance funding collection controls. In addition, it has also increased its co-location points by utilising the 80 SEFA access points to reach out to SMMEs and cooperatives across the country. With regards to the jobs that SEFA aims to create by the end of the year, over the past four years it has created over 200 000 jobs, whilst in the current financial year it has targeted creating 73 000 jobs. The number of enterprises targeted for support in the current year amount to 47 000, but the number will decline in the next financial year to 38 000 due to the continuous funding constraints.

SEFA has six programmes. These deal with access to finance for SMMEs and cooperatives, the identification of informal sector businesses and providing some financial assistance in that space as well as . post investment monitoring to ensure that monies lent to clients is closely monitored and the impact thereof evaluated to ensure return of money lent out to SMMEs and cooperatives.

With regards to financial implications, SEFA gets its funding from the MTEF allocation from the fiscus and it has been significantly reduced by almost 50%. The IDC approved R921 million for a 10 year interest-free facility; SEFA has not yet tapped into this facility but it has now made provision for over R100 million to be made available.

The income statement reports a net loss, although the audited figures are yet to be provided. This is mainly due to rental expenses exceeding the rental income from the properties managed under Programme 6 (Property Management), but measures are being taken to address this including the drafting of new lease agreements with a proviso for recovery of all service costs from tenants, as well as the installation of prepaid meters. SEFA is forging private and public strategic partnerships with key stakeholders with a common interest in the revitalisation and modernisation of the SEFA property portfolio. It has collaborated with the Gauteng Growth Development Agency (GGDA) and Critical Infrastructure Programme (CIP).

Discussion
The Chairperson stated that we have a department that provides financial support to SMMEs and SEFA doing the same thing. She asked if the funding model developed by SEFA complements the financial services that are already provided by DSBD to SMMEs and cooperatives and whether the model is based on facilitating further development or expansion of SMMEs and cooperatives. There is the Abalimi Cooperatives project in the KZN funded by the DSBD through the Cooperative Incentive Scheme (CIS), there is a lot potential for growth with that project but there are also challenges related to funding which the DSBD is modifying. So has there been a discussion between the DSBD and SEFA for both to understand which role each has to play to make the model work?

Mr Kruger asked about the SEFA footprint as it seems that it is still very weak in the rural areas. So what is the plan to bring SEFA closer to the communities in those areas?

Mr Capa shared his concern about SEFA’s publicity – he believes that there is not adequate publicity about SEFA and about what SEFA is doing.

Rev Meshoe referred to slide 36 which reflects that disbursements to township based enterprises are so much lower in comparison to other disbursements. Does SEFA know where these black owned and township businesses are located, and why are they given a much lower funding allocation when they are actually the ones that need funding the most?

The Chairperson asked about how many cooperatives is SEFA working with to provide funding to cooperatives and SMMEs through them. In addition, how many black intermediaries is SEFA working with? Accessibility of services to local residents should be directed to the Local Economic Development (LED) units within the municipalities, so the expansion of co-location points should be more targeted towards the municipalities. 

Mr Makhuvha replied about the Abalimi Project that SEFA has not yet involved itself through funding. A SEFA team was deployed but as far as funding is concerned, no funding discussions have been initiated. Going forward, this is one of the activities that DSBD aims to transfer to SEFA. SEFA will engage with DSBD further on how there can be some alignment on this.

With regards to the rural communities, SEFA has recently met with its counterparts at the Post Office, which has a presence in rural communities and what came out from the discussions is the possible utilisation of the Post Office infrastructure as a way to access the rural areas, as well as the LED offices to increase the footprint. SEFA is not necessarily engaging only at a district level, but it is a work in progress, moving along it aims to penetrate local municipalities. As the Chairperson already noted, when one covers the district municipalities, one will automatically cover the local municipalities and this is something that SEFA aims to take advantage of going forward to spread out its footprint.

The Director General agreed with this sentiment. DSBD’s intention is utilising the LED offices across the country, instead of spending money building new offices and infrastructure, so DSBD will continually engage with municipalities to establish partnerships.

Mr Makhuvha replied that on a monthly basis the marketing and communication team goes out to share relevant information with people on the ground so that the SEFA brand can be known – this is done both in print and at local radio stations. During Women and Youth months, there are various activities that have been set aside to do some promotional work.

70% of SEFA’s funding is allocated to black owned businesses, but this figure often goes up because the majority of its clients are black. So this pretty much includes businesses located in townships. With regards to intermediaries, SEFA is aware that there are not a lot of black intermediaries. However it will work harder at identifying these intermediaries. At the current moment, there are a few black owned intermediaries that SEFA is in partnership with.

The Chairperson said that she has interacted with about four intermediaries, and all of them were white owned. From engagements with them, there is a gross contradiction of radical transformation. For a vehicle like SEFA aimed at developing black businesses, it is worrisome that this is the case. From where SEFA started, there has been significant improvement, although there are still areas for improvement. She thanked SEFA for the presentation.

Small Enterprise Development Agency (SEDA) Annual Performance Plan
Ms Mandisa Tshikwatamba, Chief Executive Officer at SEDA shared some challenges faced by SMMEs and cooperatives in the sector, with access to finance and credit at the top of the list. Start up SMMEs and cooperatives are not financed easily, and there are significant obstacles to credit access. There is poor infrastructure in place and low levels of research and development. Labour laws are onerous, and they discourage SMMEs to employ. There is an inadequately educated workforce in the market leaving a skills shortage as a constraint. The inefficient government bureaucracy and a lack of coordination in government and permit delays are a major obstacle for SMMEs, which essentially makes the reduction of red tape significantly important.

The major considerations during the 2016/17 strategic planning cycle include the board resolution to implement a Balanced Scorecard planning and performance management system. There is the development of a Portfolio Strategy Framework to align the plans of the DSBD, SEFA and SEDA and it will feed into a larger Sectoral Strategy Framework that will be used to coordinate the entire SMME sector. The Framework has five strategic goals which are linked to the NDP and the MTSF:
- Policy and planning coherence in the sector, promoting an enabling ecosystem for SMMEs/ cooperatives.
- Equitable access to responsive and targeted products and services to enable their development.
- An enhanced contribution to socio-economic development outcomes by the sector.
- Sound governance and optimal utilisation of available resources; and
- A professional and capacitated small business development sector.

SEDA’s delivery network or footprint reflects a total of 56 SEDA branches across the country, 44 co-locations with partners, 17 mobile units and 32 kiosks.

The total budget for 2017/18 amounts to R796.19 million with direct service delivery taking up 77.11% of the budget and support functions only absorbing 22.89%. The Vote 31 contribution to the SEDA budget is R575.766 million to SEDA, and R159.935 million to the SEDA Technology Programme.

Discussion
Mr Chance stated that it seems SEDA has made some progress, and asked whether SEDA has compared its business model with the private sector’s small business development support structures – it would be interesting to do that comparison to get some insights. One of the most key things in creating a job is looking into the cost per job created, as well as its economic impact or contribution to the fiscus or the multiplier effect it generates. In addition, he asked for an econometrix analysis regarding the impact of job creation – there is a lot of work that needs to be done in that area to actually understand the economic impact of SEDA, SEFA and DSBD’s work.

With regards to the composition of the board, the board on the SEDA website is not quite correct and he requested the profiles of all the board members in order to be informed about them, who they are and if they have any expertise in the work done by SEDA.

Mr Kruger asked about SEDA’s footprint, and about seeing more SEDA branches across the country, particularly in the rural areas. 

The Chairperson stated that there is tangible improvement at SEDA in comparison to the previous year. She commented on the alignment of services provided, that what is being said in the presentation is not what is actually happening in the ground. When DSBD provides funding, it would happen without SEDA being involved to provide the training thereof, now if there could be alignment before the funding is granted, an engagement with SEDA and SEFA would need to take place for coordination and alignment – this has not taken place. The Committee has visited 12 cooperatives in KZN and those engagements have not yet occurred – engagements between the Department, SEDA and SEFA. Therefore, the alignment is only on paper but not in practical terms.

Furthermore, the Chairperson advised DSBD and its entities to brand their sponsorships as well as their departments. If DSBD or SEDA sponsors a project and provide t-shirts and complimentary gear, the sponsorship branding needs to be conspicuous, it cannot be in faint text or graphics. This is something has happened before, and going forward it needs to change because branding is very important for any government department. Come 2019 when it is time to campaign, people need to know where their providing and sponsorships come from. People need to know that when these sponsorships happen, it is the ANC government that is providing them.

Ms Tshikwatamba replied that the comparisons with the private sector are definitely considered, and there has been some engagement with Organisation for Economic Cooperation and Development (OECD) – as OECD has been doing these comparisons and so SEDA adopted that model in order to understand the deviations that may exist between the public and private sector business support structures. There have not really been any engagements with the private sector except those that are related to partnerships in specific programmes.

The Director General stated that as soon as the SEDA board of directors has been appointed, all that information will be provided to the Committee by no later than June.

Ms Tshikwatamba replied on the alignment of services, saying SEDA along with DSBD has learnt some good lessons. The challenge with the Cooperative Incentive Scheme is that applications come from different channels but some of these channels do not apply good scrutiny and vetting processes. However, slowly but surely SEDA and DSBD are applying themselves tirelessly to take into account information recorded at the ground level to the provincial level so that support can be facilitated for pre- and post-monitoring functions.

The Chairperson appealed to the entities to go out and assist the people on the ground, especially those that are located in neglected or remote places, and address the human dignity aspect of their mandate.