Committee Reports: Covid-19 Debt Relief Fund oversight; DSBD 2021/22 Budget

Meeting report

Committee Report on Department of Small Business Development 2021/22 Budget
Mr Sibusiso Gumede, Committee Content Advisor, noted the Report was based on a synthesis of the Annual Performance Plan (APP) from DSBD and the entities of Small Enterprise Finance Agency (SEFA) and Small Enterprise Development Agency (SEDA) report. The Report also took into account a presentation made by Department of Public Service and Administration (DPSA) on the organisational structure of DSBD.

The Report contained DSBD's background, the 11 February 2021 State of the Nation Address (SONA) paying particular attention to the President mentioning small business development and the prioritisation of this sector's economic growth as well as the 2021 Budget Speech delivered by the Minister of Finance.

The main observation was focused on the Covid-19 pandemic which directly affected small businesses. The disruptions caused by the global pandemic on the targets and budget of DSBD has had detrimental consequences on the small business sector in general. The Committee noted the government relief strategies found in the Economic Transformation and Recovery Plan.

The Report welcomed the Cabinet decision to finally endorse the Committee longstanding recommendation to amalgamate SEDA and SEFA – and National Empowerment Fund – into a single entity during the Sixth Administration to ensure integrated service delivery for small businesses.

The 2021/22 budget cuts of the Department and entities, with SEDA's reduced by R248 million, is a source of concern for the Committee in spite of the onerous responsibility entrusted to the Department to turn around unemployment and ignite economic activity.

A supportive financial infrastructure is essential for SMME and co-operatives and it noted the drafting of the SMMEs and Co-operatives funding policy to be implemented before the end of the financial year.

Recommendations in the Report included:
- Finalisation of the Department’s organisational structure should be given primacy.
- The budget cutbacks counteract the policy to deploy small enterprises as triggers of economic regeneration. The Ministers of Small Business Development and Finance should have a strategic dialogue on this as well as the motives of banks in the low uptake of the Covid-19 Loan Guarantee Scheme.
- The 36 month merger of SEDA, SEFA and the National Empowerment Fund should not affect the finalisation of the DSBD organisational structure.
- Proper coordination between the entities should be ensured during the merger so the mandate of the Department is achieved and not at the expense of service delivery to the small business sector.
- The Business Act of 1991 on licensing of informal and foreign owned businesses must be considered for review.

Discussion
The Chairperson welcomed the presentation and asked Members to focus on the recommendations.

Mr H Kruger (DA) said he had no significant issues with the Report but rejected the repeated use of ‘welcomed’ as that suggested all political parties were unanimously in sync with the positions on the items presented. He advised that it be changed to ‘noted’, therefore opening room for opposition. He remarked that observations and recommendations on the Business Act of 1991 were not necessary because the Amendment Bill to the National Small Enterprise Act had not been tabled in Parliament yet.

Mr J De Villiers (DA) agreed. He expounded on the definite conflict between the call by the President during the SONA speeches (to prioritise and empower the small business sector for economic growth to alleviate poverty and unemployment) with the budget cuts on the correspondent Department and its entities. He recommended the finalisation of the appointment of a Minister in the Presidency as the incumbent Minister of Small Business Development had to single-handedly perform oversight of two Departments.

Mr G Hendricks (Al Jama-ah) rejected all the comments and recommendations proposed by the DA members. Two or more ministers should be appointed because there was much-needed support for DSBD. One Minister could be entrusted with running the business of the day, and the other would be assigned to lobbying duties. The inclusion of the recommendation on the Business Act of 1991 was crucial. The reason stemmed from the grievances noted in previous meetings where licences had been denied to small businesses, primarily in the City of Cape Town. The DA ruled through spatial apartheid and made sure that there was no black creep in economic zones.

Mr Hendricks emphatically welcomed the Report and said the majority of the parties endorsed the Report. Therefore, he rejected Mr Kruger’s comment on the wording issue. He emphasised the need for the development of a model structure that consists of all three entities to maintain a clear direction moving forward. This was in hopes of a positive outcome from negotiations with trade unions and everyone else for support of the merger. However, if this recommendation does not gain enough endorsement after consultation, they should unilaterally implement the resolution. This recommendation would start at the top through a single management board and perhaps have directors occupying the second level and down to the other levels taken into consideration workers' rights.

Mr H April (ANC) endorsed and welcomed the Report and complimented the work done by the researchers on the Report. He unequivocally called for adoption of the Report. However, the Report did not refer to the R200 million that the banks and DSBD had not disbursed to assist small businesses. Noting that attending to such matters helped avoid allegiance expressed in words but not backed by deeds. If it were to be granted that most of the Committee think that the Report ought to be adopted, and for this reason, issues affecting small businesses on the ground should be addressed.

Mr F Jacobs (ANC) supported and welcomed the Report. Approving the budget was a critical exercise for assisting small business. Despite party differences, the Committee should work as a unit to fulfill this obligation. He pointed out the big concern about funding and about encouraging the Minister, DSBD and the entities to achieve more with less money and to demonstrate the need for more money. He recommended active lobbying and coordination with the private sector to access funds, especially non-profit organisations such as the Black Umbrellas, for small business funding and support. In the same light motivate DSBD to negotiate for public-private sector collaboration without duplication for maximum developmental impact. Also, it should encourage established businesses to mentor, guide and support small businesses in conjunction with the concrete partnership that needed to be implemented.

Ms B Mathulelwa (EFF) said that due to the number of concerns as stipulated in the Report and challenges still confronted by small businesses, the EFF could not welcome the Report but rejected it because it did not reflect satisfactory work by DSBD. She noted the challenge of the budget cuts for DSBD and the kind of reflection this had. This and all the other issues were not what the people on the ground would want to hear.

Mr D Mthenjane (EFF) agreed and rejected the Report. It was arepresentation of allegiance expressed in words but not backed by deeds. He declined the call for all parties to support and adopt the Report. Parties have the right to express disagreement in line with what they believe the electorate has sent them to do in the legislature. What people sent representatives to do is not reflected in the Report. For instance, in a previous meeting, it was brought to the attention of the Committee that a particular beneficiary did not receive the allocated funds, whereas DSBD reported that this had been done - it was unacceptable. The primary objective of DSBD is job creation through aggressive infrastructure investment and mass employment programmes. This, including several other obligations, has not effectively materialised. Therefore, it would be a tremendous risk for the Report to be accepted without any guarantees of achievement of these priorities.

Mr Gumede acknowledged the comments and recommendations from the Members. He reminded the Committee that one of the critical functions of the National Assembly is to pass laws, and since the inception of the Portfolio Committee, it has passed no laws. Therefore, the review of the Business Act is of paramount importance to inform uniformity at municipal level for legislation on informal and foreign small business that will guide all levels of government.

Mr Gumede repeated the overwhelming support in the previous meeting about appointing a minister that would directly focus on DSBD matters. He noted the observations on the SMME and Co-operatives funding policy that should be tabled before Parliament in this financial year. He proposed a sixth recommendation that would include the Committee's concern about the poor uptake of the Covid-19 Loan Guarantee  Scheme that had not been disbursed and required approval by the banks.

In summation, the Chairperson clarified that despite their party membership, Members in the Committee are urged to work as a collective to conduct proper oversight on DSBD. The Committee Report was based on the synthesis of the findings and deliberations on the APPs of DSBD and the entities. The Committee was entrusted with considering the areas highlighted in the SONA for DSBD. In particular, the conflicting interests at play with the President calling for prioritising the small business sector and Treasury injecting budget cuts on DSBD. Thorough analysis and debates of the issues are necessary. For example, it was recommended that a Minister that would focus on DSBD needed to be appointed, which had been registered. Fundamentally, reviewing and passing legislation based on the Business Act would help mitigate the challenges of the township and rural entrepreneur programmes. The Chairperson endorsed the inclusion of the recommendation on the funding policy. The Committee's function is to scrutinise, observe and recommend, to ensure the improvement of DSBD. The merger of the entities and appointment of the pertinent officials would be heavy-duty to complete, but all critical positions need to be filled for a fully functional and united Department.

The Committee adopted the Report with amendments, with the DA and EFF rejecting it.

Committee Report on Virtual Oversight of Covid-19 Debt Relief Fund Beneficiaries
Mr King Kunene, Committee Secretary, presented the Committee Report of its Virtual Oversight on 17 March of a post-investment meeting with beneficiaries of the Covid-19 Debt Relief Fund. The Fund's administration was steered by SEFA and the Portfolio Committee interacted with 12 enterprises of the 1 497 successful applicants from various provinces. The objective of the virtual oversight was to monitor and evaluate the implementation of the Covid-19 Debt Relief Fund. The beneficiaries presented their business profiles and outlined how the fund assisted throughout the hefty lockdown period. The Committee applauded the entrepreneurs for their resilience during the different lockdown alert levels. The Committee commended both DSBD and SEFA for ensuring the implementation of the Covid-19 Relief Fund. The beneficiaries expressed their gratitude to the Portfolio Committee, DSBD and SEFA for the opportunity to participate in the initiative. As much as the financial assistance contributed to their success or recovery process, the beneficiaries indicated that recovery was sluggish and thus implored for the renegotiation of the loan payment terms. The beneficiaries called for strategies to ease communication barriers between them and SEFA.

The Report observed that the virtual oversight turned out to be effective as the Committee managed to interact with 11 out of 12 beneficiaries invited from the nine provinces. It noted that of 14 800 applicants, only 1 497 were approved and funded from the allocated budget of R 513 million, indicating that a lot more work needed to be done. However, the Report indicated that the beneficiaries were pleased with the financial packages. The beneficiaries stated their willingness to adhere to the terms and conditions of the repayments attached to the receipt of funds. The participants later suggested converting a portion of the loan into a grant and renegotiating the repayment agreement. According to DSBD records, one of the enterprises present, Mvesande Trading CC, was awarded funds when it was not.

The Report recommended that DSBD and agencies enhance their marketing and visibility strategies to ensure that it is easily accessible considering the number of applicants versus the number of beneficiaries. DSBD was also encouraged to enhance its outreach strategies, particularly to enterprises in rural areas and those owned by people with disabilities. This included the need to improve communication strategies post-investment to ensure positive outcomes. The Committee urged that the non-funding of Mvesande Trading CC should be investigated to ascertain the facts; consider assisting the close corporation and improve reporting systems to ensure authenticity of the information.

Discussion
The Chairperson called for the consideration of the Observations and Recommendations of the Report.

Mr H Kruger (DA) noted that the report was well-written and well-researched. However, he did not approve the efforts by DSBD and SEFA in handling the Covid-19 Debt Relief Fund allocation. Even the owners of small businesses on the ground would not applaud the financial management by DSBD during this crisis.

Mr J De Villiers (DA) was impressed by the virtual oversight of the beneficiaries as it was the first of its kind and he commended the innovative measures taken by the support staff that had turned the oversight proceedings into a success. The main concern is the enormous gap between the 14 800 applicants and the only 1 497 enterprises that received funds, which was about 10% of the applicants. The Report did not indicate how much money was received by the 1 497 successful enterprises; arguably, the enterprises did not obtain the total budget amount of R513 million, but a much smaller amount. Therefore, the work cannot be applauded because, ultimately, the budget was not spent, and only a tiny percentage of small business that applied received funds, leaving the vast majority without any financial assistance.

Mr Kunene replied that the amount and percentage used for funding the successful applicants would be inserted into the amended Report.

Mr D Mthenjane (EFF) rejected the Report and noted that it would not be in the people's best interest to applaud or accept the Report, particularly when enterprises such as Mvesande Trading CC expressed grievances about the allocation of funds. Therefore, the Report must be amended to include the complaints of the enterprises that were not satisfied with the work done by DSBD and SEFA. It must be noted that other businesses were not happy because they did not receive the funds.

The Committee adopted the Report with amendments with the DA and EFF rejecting it.

In her closing remarks, the Chairperson endorsed the use of virtual oversight seeing the pandemic was still in progress for future oversight meetings.

The meeting was adjourned.