Department of Small Business Development 2017/18 Quarter 4 performance; with the Deputy Minister

Meeting report

Open and welcome

Mr King Kunene, Committee Secretary, stated that the Chairperson was still ill and that, according to parliamentarian rules, an Acting Chairperson should be elected.

Mr X Mabasa (ANC) was elected Acting Chairperson.

Rev K Meshoe (ACDP) moved for adoption of agenda.

The Acting Chairperson noted apologies from Mr R Chance (DA), Mr H Kruger (DA), Mr S Mncwabe (NFP) and Mr T Mulaudzi (EFF) for their absence and Mr S Bekwa (ANC) for departing early. He also acknowledged an apology from the Minister.

Briefing by the Department

Ms Edith Vries, Director-General, DSBD, said the briefing presented an overview of the activities of the Department in line with the Public Finance Management Act (PFMA), Treasury Regulations and the Framework for Strategic Plans and Annual Performance Plans. The performance report reflected progress made on the implementation of performance indicators and targets set in respect of quarter four (Q4) in the 2017/18 Annual Performance Plan (APP); variances and reasons for variance, key challenges faced by the Department in implementing the mandate and planned actions to mitigate implementation challenges. She noted that the presentation would focus further on governance and compliance, financial performance, human resource, overall performance report by programme and recommendations.

Ms Vries said the Department was mandated to lead an integrated approach to the promotion and development of small businesses and cooperatives through a focus on the economic and legislative drivers that stimulated entrepreneurship to contribute to radical economic transformation. The Department had three programmes, namely, Administration; Policy, Research and Monitoring and Evaluation; and Programme Design and Support. These three programmed were devised into strategic goals and strategic objectives. In the fourth quarter, the Department had 54 performance indicators and 54 annual targets. However, it was reporting against 50 quarterly targets. Whilst 66% of quarterly targets were achieved, 24% of targets were partially achieved and 10% was not achieved. 

Ms Vries provided the Committee with quarter four highlights. The Entrepreneurship Development had found traction in the country since the hosting of the Global Entrepreneurship Congress in March 2017.  Based on this, the 22 on Sloane Business Hub was funded to the tune of R4.7 million. The Transversal Agreement with the Sector Education and Training Authority (SETA) had unlocked an investment of R1.5 billion over a period of three years, which the portfolio could utilise for various entrepreneurship and cooperatives initiatives. The Department developed a non-financial business architecture to enhance interventions and thus effective implementation of the mandate of the Department. The research on the Comparative Analysis on Small Business Legislative provisions was finalised and approved.

The payment file to release the first tranche of money for the EU Employment Creation for Job Creation had been compiled, submitted to the National Treasury and approved by the EU. 14 million had been transferred to the National Treasury RDP account. The Women in Maize Project had reached significant milestones. Provinces such as Gauteng, KwaZulu-Natal, Mpumalanga and Limpopo were involved in the project. The business registration process for the whole of the Vhembe District in Limpopo had been successfully re-engineered with the consent of the Thulamela, Makhado, and Musina and Collins Chabane Municipalities. The Cooperative Incentive Scheme (CIS) exceeded its target for the quarter. The CIS was allocated R78 million and was expected to approve 70 applications; however, it approved a total number of 87 applications to the value of R16.75 million.

During the period under review, disbursements amounted to R29.2 million against a target of R16.7 million. In quarter four, the Department sustained its year-to-date achievement of paying 100% of valid invoice within 30 days; exceeding the target for the employment of persons with disabilities by achieving 2.8%; sustaining its 2-year record of exceeding 50% of women in senior management services (SMS), by achieving 51.2%. After these highlights, she took the Committee through under achievements, followed by financial information.

Ms Vries stated that actual expenditure was R356.7 million (representing R96.6%) against the planned spending of R369.4 million resulting in an under-spending of R12.7 million (3.4%). The year to date projections amounted to R1.476 billion whilst actual expenditure amounted to R1.459 billion resulting in a variance of R16.2 million.

In the conclusion, Ms Vries asked the Committee to approve the quarter four performance report.

Discussion

The Acting Chairperson welcomed those individuals who were appointed in the new positions.

The Meeting was adjourned for a tea break.

Mr Bekwa welcomed and appreciated the presentation, because it talked about what the Department had achieved.  Referring to slide 18, he asked the Department to elaborate on the National Small Business Amendment Bill.   Was it developed and submitted to the Minister for approval?

Rev Meshoe welcomed the presentation. Referring to slide 9, he wanted to know how financial management and controls were related to investigations taking place.  How are building human resource capability and promoting a culture of high performance measured on the ground? He said the Committee had been receiving complaints from staff members. In the last four years, how many SMMEs and cooperatives was assisted to ensure their participation in the mainstream economy? Was support for SMMEs and cooperatives maximised? Was maximisation of support a success?   He remarked that the vacancy rate was 10% and asked why it was said in the presentation that the vacancy rate was not achieved. Referring to the financial performance, he asked why the Department under spent when the SMMEs and cooperatives were in need of financial support. He asked why so much money was spent on travel and accommodation (R20.5 million), operating lease (R18.9 million), consulting services (R13.5 million), and catering (R3.7 million). Could the Department justify such expenditure? He commented that he heard that there would be many cars of officials in the convoy visiting the SMMEs and cooperatives. How could the Department justify R2.1 million allegedly spent on training and development? On the resignation of members, he commented that resignation was due to a low morale; however, he wanted to know what could be reasons of resignation. Referring to slide 33, he sought clarity on whether the DG referred to people who were double qualified. Referring to slide 54, he noted that 508 black SMMEs were supported through the Black Business Supplier Development Programme (BBSDP) and asked the Department to furnish the Committee with a break down. Did SMMEs include Somalis and Pakistanis who were running most of the spaza shops in townships?

Mr N Gcwabaza (ANC) welcomed the presentation. He commented that the Department was expected to contribute 90% of job as it pertained to SMMEs and cooperatives and towards the creation of targeted 11 million jobs by 2030. The Department was expected to do more. It had a huge job to do. It was clear that South African economic growth was dependent on this Department’s performance. He asked the Department to elaborate on reasons behind partial achievements of targets and how far were targets towards completion. He further asked the breakdown of beneficiaries and how soon these vacant positions would be filled? Most of non-filled vacancies were affecting the operation of the Department because these vacancies were critical.  He further remarked that 85% of the budget went to transfers and asked whether those transfers had profits.

Rev Meshoe, referring to accommodation, asked who decided on the size of delegation and who what criteria was taken into consideration when including staff members in the delegation. On a number of occasions, members of delegation were more than Members and this was an indication of fruitless expenditure.

The Acting Chairperson stated that it was important to understand the comments made by the DG and asked whether they were incidental to the briefing or whether they were consciously considered. He asked whether comments of Members were taken into account when developing the quarter four performance report. He said that he agreed with the DG with regard to land. The size of land was dependent on members of cooperative and this had been a frustrating exercise of finding a piece of land. How did the DG address the issue of land when she knew that other departments had a role to play in supporting SMMEs and cooperatives? Was there a way of measuring effectiveness of incubators? The performance of the Department was being affected by a higher number of vacant positions. The Department had to work hard on that. How will the number of 170 black SMMEs supported though BBSDP be broken down if the size of the country had to be taken into account? This number was too small given the challenges the country was facing. It had been stated that rural beneficiaries amounted to 30%. It was a 30% of what and benefiting from what? He remarked that poverty was affecting mainly people in rural areas and townships and asked whether the Department believed that 30% would contribute to uplifting the poor from poverty. He asked the Department to link programme three with what it had done in reality in terms of supporting SMMEs and cooperatives. He asked whether the department was mindful of jobs it had to create when it talked about 50 quarterly targets. The question on incubator should be connected to slide 28. On slide 33, he asked if the Department intended to employ a person just to work on red tape reduction. Was this position disclosed in the Department’s engagements with the Committee? He remarked that officials should make sure that people accounted. The Department should take cognisance that there were needy people. Whether money should be channelled through SEFA or the Small Enterprise Development Agency (SEDA), poor people should be serviced. To what degree did the budget of the Department served the middle class people in lieu of lower class people? Did the budget get to working and poor class? The budget was allocated to promote the poor.

Deputy Minister Cassel Mathale welcomed inputs, comments and suggestions of Members and commented on job creation. He noted that the government was mandated to create a conducive environment that would make it possible for private sector to create jobs. Some of the aspects that the government concentrated on were to provide incentives to private sector in order for it to invest in new programmes. Incentives were dependent on what taxpayers paid - 11 million jobs would be created by private sector. The government would only create a conducive environment for business people to invest.

Ms Vries responded that the Department had to delay the tabling of the Bill because they are still looking at some provisions. When the Department consulted, it s transpired that there were certain aspects that were needed to be include in the Bill. Initially, the Department wanted to amend the principal legislation. It was decided that a new Bill should not be amended, but rather deal with its own aspects in order to address gaps in law. The Draft Bill would be tabled at the end of financial year. It would be tabled before the Minister, then the Cabinet prior to tabling it before the Committee. The current Bill was very administrative in nature because it focused on SEDA and advisory council. There would be a dispute resolution mechanism in that a Tribunal would be established. It would also address issues relating to reduction of red tapes. The effective of incubators were measured. Incubators were intended to ensure that businesses were sustainable and running on their own. A particular period was set in which a particular business would be incubated.

Ms Vries stated that the Department could provide the Committee with the progress on investigations on financial accountability. The Department had engaged with the Auditor-General so as to address identified issues in terms of financial performance. In terms of governance and controls, the Department had policies and procedures which the Department implemented. She reminded Members that in the last two years, the Department had received unqualified audit outcome and such achievement served as a confirmation that internal controls existed and functioned, even though they might not be perfect. The forensic investigations had been undertaken by the Auditor-General.  With these investigations, the Department hoped that real causes would be identified and as a result, the Department would be able to improve on the control systems it had. The Department hoped that it was on the right track in terms of governance and controls. In terms of the structure proposed, there would be Chief Director for Monitoring and Evaluation who would be able to be on the ground physically. The Chief Director would be able to monitor whether the money given to SMMEs and cooperatives were utilised or not.  On money spend on travelling and accommodation as well as on training and development, she responded that staff members mainly travelled to come and account and travelled before and after the Department provided an incentive because officials had to go to the site. Most of the R20 million was spent in terms of programme one whereas about R6 million was spent in terms of programme three. Officials travelled in order to meet potential or prospective beneficiaries to check whether they existed or not and sometimes, it was about checking whether certain beneficiaries were still running their businesses.

Rev Meshoe asked who decided on the size of delegation and why one person should be sent instead of sending five individuals.

Ms Vries responded that, when the Department was presenting on quarterly report, there would be people who manage all programmes. All individuals who formed part of the delegation headed a particular unit. They included for example, the Director-General, Deputy Director-Generals, Chief Financial Officer and Chief Directors. When they come and sit in the House, they would be able to hear what Members want them to achieve and might contribute to provision of clarifications that members might be seeking. On top of this, Members usually asked whether the delegation had provincial representatives. Head of programmes were brought because the DG could not have all details or answers to questions put to her. On the question of convoys, she responded that she encouraged her staff members to use one car when they were visiting sites. They should use one car and stay in the same hotel and they should do their best to cut on and minimise expenditure.

The Deputy Minister said that one thing that the Department should not be apologetic about was site visits for two reasons. First, some businesses were funded and they did not provide reports on their progress and when an entity decided to come to visit, it found a bush. Money was gone. It was critical. Second, the site visits were helpful to those who were still in the business because it was through visits an entity could determine which kind of assistance a particular business needed. The entity had to ensure that a business remained alive and growing. He would rather suggest that his department should make use of its offices in the province or district when visiting and monitoring businesses. Senior officials should go there, but not always.

Rev Meshoe suggested that these visits should be reduced so that more money could be allocated to the core business.

On the question of money transfer, Ms Vries responded that money was transferred to SEDA and SEFA. The SEFA budget was also approved by the Department of Economic Development. SEDA’s budget came mainly from the department. Money was not transferred to provinces. On the compensation of employees, she stated that the money allocated for compensation of employees could not be transferred to fund other activities without concurrence approval from National Treasury and Parliament. Exclusion meant money could not be transferred from allocations from compensation of employees. In circumstances such as this, the money could be transferred if the parliament approved it. The national department had to follow its money and in so doing, the department would engage with municipalities. There were, for example, 47 engagements. These engagement included training and development. For this reason, R2 million was not spent on training SMMEs and cooperatives, but municipal officials.

On the impact measured on the ground, Ms Vries said the Department used a tool of monitoring and evaluation to measure the progress. On incubators, she responded that the private sector should create jobs and that the government should create an enabling environment. On question where 508 SMMEs were provincially and locally based, she responded that 15 SMMEs were from Western Cape, 15 from North West, 4 in Northern Cape, 47 in Mpumalanga, 52 in Limpopo, 96 in KwaZulu-Natal, and 235 in Gauteng, 8 in Free State and 36 in Eastern Cape. The department had also their physical addresses. On whether the department was funding foreign-owned businesses, she responded that in teams of guidelines, the department only funded South African owned enterprises with a particular focus on black-owned enterprises.

Rev Meshoe said that there were naturalised South Africans and asked whether this group was included in beneficiaries.

Ms Vries responded that the Department got enterprises that were registered with South African Revenue Services (SARS) and these were individuals who were paying tax in the country because everything the Department did should be legal. Beneficiaries should be those who were allowed to conduct businesses legally in the country. Some beneficiaries included women-owned entities that benefited from the departmental support. These entities had been growing as their increased on the number of jobs offered and turnover revenue. On the resignation, an individual who resigned was not interested in a counter-offer and accepted an offer in a private industry. In the financial year under review, four staff membershad resigned from permanent posts and 11 staff resigned from a fixed contract. Every time, an individual resigned, there was a vacancy and there was money that such staff could have been compensated. On whether a target was achieved or not, this issue formed part of matters falling under investigations. On the recommendations of the Auditor-General, she responded that these recommendations were taken into consideration. The Department also took into consideration the comments, inputs, suggestions and recommendations of the Committee. On the question why the Department relied on consultancy, she responded that the Department had discussed this with National Treasury and the Department indicated that it was better if the Department employed two senior researchers instead of utilising consultancy. The allocation for researchers was not yet provided. On 170 black-owned SMMEs, she responded that that the Department had no capacity to go beyond that number. On the 30% in rural areas, she responded that DSBD followed guidelines. However interventions in the rural areas could have been 50%. Another 50% was allocated to townships.

In his concluding remarks, the Deputy Minister appreciated an interaction with the Committee and stated that the Committee’s oversight work was taken seriously by the Department because it helped the Department to check whether the programme or project was there and what challenges it was facing. For example, in an engagement with one of municipalities, it was indicated that there was a black farmer who wanted to sell goats internationally and he was advised that, in order to do so, he must partner with a white man. The department found this to be an anomaly and had to visit the farmer. However, the farmer was not ready to trade as he was still gathering information on how to trade internationally. In this regard, site visits helped. In another context, a business could request a help for a truck and money was provided but when the Department visited the business, there would be no truck.

Mr Kunene said that he interacted with the Chairperson and she said that she was given a legal advice and, based on legal advice; she decided to talk to companies first, resulting in the cancellation of the next meeting. He announced that he received an email from cooperatives from the Eastern Cape and representatives came to Parliament to seek the date of interaction with the Committee. The email was sent to the DG and SEDA. These representatives were here to submit their concerns in person.

The Acting Chairperson said that since the representatives were here, the Department should assign one person to speak on them and take matter forward. He thanked the delegation from the Department for an enlightening interaction.

The Deputy Minister remarked that the ambush should however be discouraged because there were processes and procedures that should be followed. The Secretary had made a mistake in allowing the representatives to come in a meeting; however, someone would speak to them.

The Chairperson agreed and the meeting was adjourned.