Committee Report on Small Business Development 2014 Budget

Meeting report

The Chairperson welcomed everyone to the third meeting for the Portfolio Committee on Small Business Development.  The Committee had already participated in the consideration of the annual performance plan (APP) and budget of the Department of Trade and Industry (DTI) and the Economic Development Department (EDD) for the 2014/15 financial year. The purpose of the meeting was solely for Members to discuss and deliberate the budget report, and then to adopt it with amendments.  Committee Members needed to agree on issues proposed for amendment before proceeding to the next item.

The Department drew its legislation from the Small Business Development Act of 1980, the National Small Business Act of 1996, as amended in 2004, the Companies Act of 2010, the Cooperatives Act of 2013, the Industrial Development Corporation Act of 1940, the Broad-Based Black Economic Empowerment Act, and the National Empowerment Act.  The Department would also take into consideration the Preferential Procurement Policy Framework Act, and strategies to develop the empowerment of the youth, women and cooperatives. The Department was also mandated to enhance coordination and transversal agreements, and to advance localisation, leveraging on public support while ensuring measurable accountability of State institutions in support of small business.

The Ministry had raised challenges with regard to the non-proclamation of the Department, as this had delayed progress toward meeting timelines, such as processing budget votes and transversal agreements, and required dependency on the departments from which programmes for SBD would migrate.

Discussion
Mr X Mabasa (ANC) said he was concerned about the level of inequalities within the management of most companies.  The Department needed to deal carefully with this issue, as it was not empowering those in the subordinate positions. He also indicated that the name of the Department needed to be considered and possibly include “Cooperatives,” as this would give emphasis on development and assistance to cooperatives.

Mr H Kruger (DA) stated that the primary and secondary mission of the Department already indicated that it would focus on “informal business development as well as cooperatives”, so there was no need to reconsider the name of the Department.

Mr B Mkongi (ANC) said he agreed with Mr Mabasa that the name of the Department needed to be reconsidered by including “Cooperatives”.  It was clear that one of the reasons for the failure of local South African businesses in most townships was a lack of cooperation within the community. The Department needed to encourage multi-stakeholders’ cooperatives in order to bring together civil society and local actors to deliver community needs.

Mr R Chance (DA) mentioned that he would go with the majority on the issue of name changing, as he felt this was not as important as the primary and secondary missions of the Department.

The Chairperson said that amending the name of the Department would then be considered, as the majority of the Committee Members felt that it needed to include “Cooperatives”.

Mr S Mncwabe (NFP) added that he also supported the proposal to change the name of the Department and indicated that the inclusion of “Cooperatives” was important, as it gave a clear indication of the shortcomings that had been identified by the Department, and the way to address these shortcomings.  Local South African businesses could learn a lot from foreign nationals about the importance of cooperation in the development of a small business.  South Africans needed to realise that cooperatives were dedicated to the values of openness, social responsibility and caring for others, and such legal entities had a range of social characteristics. Economic benefits needed to be distributed proportionally to each member’s level of participation in the cooperative.

Mr T Mulaudzi (EFF) also supported the proposal to change the name, and stressed that the Department needed to radically transform the manner in which business was conducted in South Africa, especially in dealing with the issues of inequality, poverty and youth unemployment. He also added that the establishment of the Department of Small Business Development was also intended to dilute capitalism and interrupt the perpetuation of inequality within the management structure of business, as had been indicated by Mr Mabasa.

Mr Chance said the Department needed to prioritise on localising the supply chain to empower local people, create job opportunities and ensure that black-owned cooperatives were strengthened and sustainable.  The Department needed to consult Statistics South Africa to collect data on the number of the existing small, medium and micro enterprises (SMMEs) and cooperatives, as that would assist in determining their impact on the South African economy.

Mr Mkhongi stated that the Department needed to take on the full functions of mentoring, capacity development and incubating SMMEs and cooperatives, to ensure that they were not swallowed up by big businesses and foreigners.

The Chairperson said she was pleased that the Members had managed to point out the barriers that were contributing to the underdevelopment of local businesses, and the ways to address this problem.

Mr Chance mentioned that on page 1, paragraph 1 of the budget report, the word “hibernate” needed to be replaced by “migrate” in order for the sentence to be clearly understood. He added that the Department needed to support the interests of the businesses and explore the issue of labour unions and how they were likely to impact on the development of small businesses.  Labour laws needed to be helpful to SMMEs, which should be subjected to different labour laws compared to well-established companies.  The Department needed to coordinate with other departments, especially on issues that were overlapping with the primary and secondary mission of the DSBD.

Mr Mkhongi mentioned that the Department needed to address the main issues that constrained the development SMMEs in South Africa, and added that a policy shift was needed in order to radically transform the economy.  The Department needed to ensure that development of small business was not about empowering an individual, but rather all the people within the business structure.  He agreed with Mr Chance that the DSBD would need to consider coordination with other departments in order to deal comprehensively with the main issues that constrained the development of SMMEs. 

Mr Mabaso suggested that Mr Mkhongi needed to help the Committee Secretary in the correction of grammatical errors in the Budget report.

Mr Mkhongi indicated that on page 1, paragraph 1, there was not supposed to be a comma after DSBD, and “it’s” needed to be replaced by “it is”. He also questioned the ambiguity of the wording “President” on page 1, paragraph 1, and suggested it was necessary to insert “of South Africa”.  He emphasised that currently the Department did not have its own budget, although in future it would.
The Chairperson said that the issue of grammatical errors needed to be addressed by Committee Members, as it was not the sole responsibility of the Committee Secretary.

Mr Mkhongi accepted the responsibility to work on the grammatical errors in the report and agreed with the Chairperson that this was the responsibility of the Committee Members, who had to take responsibility to produce a well-written Budget report.

Mr Mulaudzi said that the Department needed to consider the issue of National Credit Act, as the majority of South Africans were low income earners who had limited or no access to regular credit channels.   He added it was imperative for the Department to have a formalised structure that represented the Government at all levels.

The Rev K Meshoe (ACDP) indicated that the issue of the National Credit Act was not the responsibility of the DSBD, but fell under the DTI.

Mr Muluadzi responded that even though the issue of National Credit Act did not fall under the mandate of the Department, the mandate of the DSBD was to influence other department structures.

Mr Mabaso said the Department needed to focus more on influencing and changing existing legalisation and policies that were creating barriers in the development and growth of SMMEs. 

Mr Mkhongi responded that the issue of influencing and changing legislation was already mentioned in the mandates of the Department, so it was unnecessary to repeat the issue.

Mr Mabaso said that in the mandates, the Department needed to add “to assist small business and cooperatives to become big businesses.”   This would give an explicit message that small businesses needed to grow into big businesses.

Mr Mncwabe responded that the mandate of the Department already mentioned the need to focus on the development of small business, so it was already dealing with the issue of supporting SMMEs to become big corporations.

Mr Chance said that it was not the responsibility of the Department to ensure that small businesses eventually grew into big businesses, as the Department was mandated only to assist and facilitate the SMMEs to potentially develop into big businesses.   There was a need to include dates or deadlines for the key milestones identified by the Department on page 2 of the report.   The Department also needed to clarify further the budgeted R1 billion allocated to the Broad Participation Division (BPD), and Incentives and administration.

The Chairperson said that SMMEs needed to focus more on accessing a sustainable market than financial support, as this was the main driver of any business.  While the issue of financial support was still important, SMMEs needed to develop a culture of independence.  The Department needed to have a strategic workshop that would focus on the key performance areas, key indicators and the budget allocation of the Department.  She agreed with Mr Chance that without the institutional design of the Department, it was impossible to have measureable and time-bounded milestones. Members needed to indicate in the milestones that the Department was in its initial stages, and therefore would not be able to provide time-bounded milestones.

Mr Mncwabe said he was concerned about some of the legislation within which the Department would operate, especially those laws that were introduced under the apartheid government, like the Industrial Development Corporation Act of 1940 and the Small Business Development Act of 1980. He also suggested that there was a need to stipulate the year for each and every Act, as these were important laws within which the Department would have to operate.

The Chairperson responded that although some of the legislation was implemented under the apartheid government, there were numerous laws and policies that were still relevant to the challenges faced by the current government. She added that ANC government had repealed only those policies that were unjust and exclusionary to the majority of the citizens. 

Mr Mkhongi indicated that on page 1, paragraph3, there was a need to insert “Based” in the Broad Black Business Empowerment Act.   On page 2, paragraph 1, “Department” needed to be replaced by “Ministry”, as the Department of Small Business Development had not yet briefed the Portfolio Committee.  He emphasised that the budget report needed to be written professionally, as grammatical errors could reflect badly on the Members of the Committee.

The Chairperson asked the Committee Members if there were still some issues that needed clarity, and whether they wanted to adopt the amended budget report on Wednesday, 9 July  or wait till Friday, 11 July.

The Rev Meshoe stated that it was wise to adopt the amended budget report now, as all the Committee Members were still present.

Mr Mabasa supported the suggestion of the Rev Meshoe, and indicated that most of the Members might not be present on Friday.

The Rev Meshoe moved the adoption of the amended budget report and Mr S Bekwa (ANC) seconded it.

The Chairperson declared that the Committee had adopted the amended report. She added that South Africans needed to realise that cooperatives were dedicated to the values of openness, social responsibility and caring for others.  Economic benefits needed to be distributed proportionally to each member’s level of participation in the cooperative. The success of SMMEs would play a fundamental role in the reduction of poverty, inequality and youth unemployment, as these were challenges that had been identified by the Government in the National Development Plan and State of the Nation Address (SONA).
The meeting was adjourned.