DSBD, SEFA & SEDA 2021/22 Quarter 3 performance; with Minister and Deputy Minister

Meeting report

[please note: the beginning of the meeting and presentations were not captured in the recording]

Small Enterprise Finance Agency (SEFA) 2021/22 third quarter performance

SEFA spoke about its third quarter performance and said the total Loan Book stood at R3.3bn. Total third quarter approvals of R627m were 97% of the targeted amount, and total disbursements of R696m were 85% of the quarterly target, with 22 741 small, medium and micro enterprises (SMMEs) financed and 28 219 jobs created. A breakdown according to sectors showed R622m went to black-owned businesses, R216m went to township businesses, R310m went to women-owned businesses and R145m went to youth-owned businesses. New jobs were facilitated mostly from the informal and microfinance sectors because of the low uptake of SEFA facilities by intermediaries and partner financial institutions, which contributed to the low number of SMMEs and co-operatives being financed.

The spatial distribution of the loans by value showed Gauteng to comprise 35.2%, followed by Limpopo at 17.6% and KwaZulu-Natal (KZN) at 14.8% as the top three provinces granted loans. Total collections as a percentage of instalments raised was 91.5%, but on-time collections stood at only 51.5%, being a reflection of tough trading conditions. SEFA also referred to its human capital management, marketing and communications, and governance decisions taken.

See presentation for further details

Small Enterprise Development Agency (SEDA) 2021/22 third quarter performance
 
SEDA achieved 18 of a total number of 26 indicators for Quarter 3, reflecting a 69% achievement. It trained a total of 7 980 entrepreneurs and SMMEs through various courses and supported 41 392 SMMEs and cooperatives. 732 out of a targeted 1 016 jobs were created, while R210.57m of a targeted R262.24m was spent. The under-spending was recorded in personnel costs due to vacancies; in goods and services expenditure, where there was under-spending on programmes and projects; and in capital expenditure, where there was under-expenditure due to a lack of new computers in the country.

A staff satisfaction survey showed majority of employees were dissatisfied with the entity's leadership and management, remuneration and resources. The customer satisfaction index, however, stood at 80%. SEDA’s vacancy rate was 10%. It had received approval from Treasury for its 2020/21 surplus retention application, and this surplus funding had been added to the expenditure side of the budget. SEDA therefore needed to budget for a deficit for the remainder of the financial year 2021/22 to use the now surplus budget. SEDA also referred to its high impact projects.

See presentation for further details

Department of Small Business Development (DSBD) 2021/22 third quarter performance
 
The Department’s quarterly report reflected the progress made in the implementation of output indicators and annual targets set in the 2021/22 annual performance plan (APP) for quarter three; the actual output and the reasons for deviations and corrective measures; the financial report and the human resources (HR) report. Overall, the Department achieved 15 out of 24 quarterly targets (62.5%) and received an unqualified audit outcome on the 2020/21 annual financial statements. For the first time since its inception, it had received a clean audit outcome on non-financial performance information for the 2020/21 financial year.

All valid creditors were paid on time, and it had achieved a 50% female senior management service (SMS) level representation. The vacancy rate stood at 15.8% because of a moratorium on recruitment and selection in permanent funded posts. The Department had not achieved the third quarter targets of submitting the national integrated Small Enterprise Development master plan to Cabinet and of taking the national Small Enterprise Amendment Bill through the parliamentary process.

The year-to-date expenditure stood at 83% of the adjusted budget and for the third quarter, 95% of targeted expenditure was recorded. In programme three, the target was to support cooperatives to the value of R30m, but only R2.79m had been spent as capacity constraints had delayed the implementation of the programme.

See presentation for further details

Discussion

The Chairperson said that government was responsible for 30% of the country's gross domestic product (GDP), and the private sector was expected to generate nine million of 11 million total jobs, so the SBDC had to ensure there were no blockages. She said the report was good, but what was important was its impact. She referred to an entrepreneur who had a deal with Cashbuild to build a product, but the Department was the stumbling block, which was an example of red tape impacting job creation. Could this matter be resolved, otherwise the issue of job creation would be a myth? She said that the attitude of agency officials was not right. The Department’s documentation and implementation were good, but the outcomes fell short of what they were supposed to be. She was happy with the improvement in the performance of the Department.

Mr G Hendricks (Al Jama-ah) said he was happy to hear of the many international markets opening for small and medium enterprises (SMEs). He wanted to hear more about the Saudi and Muslim markets, which were worth $3 trillion. He said SEFA was like a mini state bank, and the EFF would be asking the Minister about a state bank later that afternoon. He said an incubator hub was not about finding out what the needs of industry were, but about innovating new opportunities and developing new revenue streams, so the Department was off track. Three workshops had been held on innovation hubs, but after attending them he had picked up possible corruption regarding SEDA and wanted someone in the Department to engage with him on this. He had visited Maclear Dam where the money being spent there was divided into ‘packages,’ and small businesses were involved in two or three ‘packages’ of the project, yet the Department was not present or represented. He had also been involved with Oxfam in a Brazil-Russia-India-China-SA (BRICS) megaproject, where there were a lot of opportunities for small businesses, but the DSBD was not found at these presentations. He concluded that the presentations were refreshing, and he looked forward to the roll-out of exciting projects.  

Ms K Tlhomelang (ANC) said the Department was one of eight departments that paid their invoices on time. What was it doing to get the rest of the departments to pay on time also? She said the funding going to poorer provinces seemed to be limited. What was being done to escalate spending in these provinces?

Ms M Lubengo (ANC) said the Department should maintain its follow-up on the roadshows that the Department was implementing so that small business did not die. She said that since 2018/9 the Department was underperforming on its overall targets. What was the main reason for this, and how could it be turned around in the current financial year?

Mr D Mthenjane (EFF) said the Department had agreed that they did not do well, especially in townships and rural areas, but they had not indicated what the challenges were. He said there were many small businesses between Hazyview and Skukuza, but none of them had been contacted by the Department, SEDA or SEFA. The roadshows should also come to these areas. Similarly, there were many small businesses on the road from Nelspruit to Komatipoort. He said there was no proper accountability on how many women, youth and people with disability the Department had assisted.

Mr H April (ANC) was concerned that the study group that was visiting other countries to see how small businesses were operating, was not also doing a benchmarking exercise during these visits. He said the Department’s report on the fourth indicator -- to consolidate a report on 7 000 SMMEs and cooperatives -- was very unclear. In the second quarter, the Department had exceeded its target by 17 865 and in the third quarter again by 18 514. This raised questions on the measuring or reporting of the figures or under-targeting by the Department. Could the Department elaborate? What was the cumulative total of SMMEs and cooperatives that were supported by the end of the third quarter of 2020/21? Could the Department expand on the outstanding broader stakeholder consultations and what the shortcomings of the policy proposals that were submitted were? To what extent did capacity constraints affect the approval of the funding policy by Cabinet? To what extent was the support of the Department to businesses affected by the July uprising? Was any further support envisaged? How was SEFA mitigating the risk of impairments? How was SEFA pre-funding due diligence work and post-investment support? To what extent was the Department working with the Presidency on ensuring that the red tape mentioned by the President in his SONA address was well coordinated and executed? He acknowledged the concerted effort by the Minister and the Department regarding SEDA and SEFA.

Mr J de Villiers (DA) appreciated the detail in all the presentations. On SEFA’s targets on access to finance, he asked what it was doing to research why so many businesses applying for finance failed to get funding. Was it because of compliance issues? This was important because there was funding available and not all were being taken up by businesses. How was the ‘bounce-back’ scheme being implemented, and would it be done by the Department? Could the Department give a brief overview of how this scheme would be run?

Ms B Mathulelwa (EFF) [translation 30:00] was concerned by the statement that government does not create jobs and only the private sector does. She thought it important to make a clear statement on the Department – a true reflection on the state of small businesses was needy. The Committee could not be misled. She spoke to the SMMEs visited by the Committee on its oversight where the promises made were not met – they were crying about the increase in prices compounded now by the price of petrol. [translation 33:40] The President and Minister needed to do more and must account to the Committee – there seemed to be a disconnect between what was said and what was happening on the ground. She was concerned by the SMMEs “bullied” by the Minister when she was in the communications portfolio and now “bullied” again under the small business portfolio. She also voiced her concern that the Minister did not attend meetings of the Committee but when present today, just read her notes and carried on as usual. The Committee should take resolutions and address these matters. The President should be called to account – if government does not create jobs, who will answer?

Mr V Zungula (ATM) said that almost 80% of state spending was going to big business, and there was no push to change legislation so that a certain percentage was allocated to small businesses. One could not say that small businesses created jobs, but then there was no legislation to ensure that government spending was directed towards small businesses. There should be legislation compelling the government to spend on small businesses.

Addressing the issue of non-citizens dominating basic economic activities, he said it was a cause of concern. A North West Chamber of Commerce study had revealed that more than 82% of SMMEs in the province were owned by non-South African citizens. This was unheard of elsewhere in the world. These types of businesses were previously run by black South Africans, and they were blocked from the mainstream economy and now also in the informal economy. The Minister of Home Affairs was addressing issues around the movement of people and he hoped the Minister of Labour would deal with issues relating to employment, but there was nothing from the Department’s side on the domination of this sector and a plan to restore the informal sector to the people. He said government should be leading in enforcing the law. He said the Competition Commission had indicated that small scale farmers were hit hard by poverty and their exit rates were high, while predominantly white big farmers were consolidating and the agro-processing sector was becoming more concentrated. What were the Department and its entities doing to support small farmers and change the high exit rates?

Mr F Jacobs (ANC) said that there were monopolies or oligopolies, predominantly white big businesses, controlling the small business sectors, and they were keeping emerging formal traders out of the market. The SA Informal Traders Association (SAITA) of about 15 000 members would be marching on the JSE demanding what the top 100 firms going to do to create opportunities to ensure inclusive and shared participation and growth. The Committee, as legislators, should do more. He asked if the Department had played a role in the development of the Procurement Bill, and how one would be assured that the bill was small business-friendly.

He said the issue of the capacity to deliver in terms of results was noted in the various presentations. There were many vacancies, and the structures were administration-heavy, and the different departments did not have the requisite skills. The Department spent a lot of time creating awareness, but no one could assist small businesses to apply and become successful. How would officials be located in townships and rural areas and be responsive to the needs of the communities? Could the Department comment on the development index that it spoke about, and what the key findings arising from it had been? He strongly recommended that in the new financial cycle, the Committee work closely with the DSBD to ensure that there was alignment between the challenges of the system and what the Department was going to measure. In the current annual plan, there was, for example, the total to be spent on cooperatives. The money had been unspent, and the Committee was unsure what the money would be spent on and the impact of that spending.

DSBD's response

Ms Stella Ndabeni-Abrahams, Minister of Small Business Development, said the core of the Department‘s interventions was developing small businesses.

On Mr Hendricks’s issue regarding the money spent on building the Maclear Dam, she said the Department was not found everywhere and in every town, but there was collaboration with municipal local economic development strategies (LEDS). Government had adopted a district development model which sought to ensure there was alignment in the implementation of strategies and policies at the local level. The Department had engaged local government on this issue, as there were LED officials who were not aware of what the DSBD did. The Department had been in Maclear as part of engagements in the Eastern Cape and had made a commitment to provide hybrid services through a digital platform.

On the ‘packages’ issue, she said that the Department‘s website or presentations reflected that SEFA had particular types of funding -- for example, a Youth Challenge Fund. It was just a different form of wording being used. However, coordination engagements between different spheres of government, between departments and with the private sector, did need to improve.

The Department had heard about the allegations of corruption, and SEDA would indicate whether the matter had been brought to their attention. Members should provide information to the law enforcement agencies to root out corruption.    

On the 30-day invoice payment rule not being adhered to by other departments, she said Treasury was assisting the DSBD, as it could see who had paid and who had not. The Department was establishing an ombuds office to look into that. The Department in the meantime did engage with departments and the office of the Premiers of the provinces on providing payments on time.

Regarding following up on roadshows, the Department had committed to continuing support after the roadshows.

She said the DG would give details on the poor performance of the Department.

Referring to roadshows in the rural areas, she said Mpumalanga was the first province the DSBD's roadshow had gone to and it had been well attended, with people hungry for information. Many attendees had complained that they had to pay 10% collateral to SEFA, but this was untrue. The Department was focusing on the development side in its interactions at the roadshows so that those who were declined funding knew on what basis they had been declined and had the opportunity to correct these issues. These clients were then taken to SEDA, which did the business development side.

She said the DG would address the specifics of allocations to the youth and women.

She was unsure of the situation regarding the non-inclusion of Portfolio Committee Members on international trips and would have to check with Parliament, as she knew Parliament did conduct study tours which were budgeted for.

She said the funding policy had not yet got to Cabinet as the Department was still busy with consultations. As soon as they were complete, it would be submitted.

On whether the Department had consulted with SEFA and SEDA on why applications were failing, she said what had been identified was a tighter investment in post-investment support was needed to ensure the sustainability of the investment. It was also looking to the Members of Executive Councils (MECs) for economic development, the Department of Cooperative Governance and Traditional Affairs (COGTA), local municipality LED officials and the House of Traditional Leaders to work together with the DSBD and agencies to monitor whether investments became actualised.

She said compliance was one of the reasons people could not access funding, so the Department needed to beef up its capability to assist people to meet the compliance requirements. While the legislative issue was a long process, the engagements with critical stakeholders had become crucial and this was where memorandums of agreements (MoAs) could be signed in the meantime. She said there was also the issue of compliance costs, as it was very expensive for small businesses to meet compliance requirements in South Africa. The Department was engaged in trying to reduce the red tape requirements.

She said the ‘bounce-back’ scheme was led by Treasury, and they were engaging stakeholders. The Department was waiting for that finalisation before engaging with Treasury on the routes that would be taken to disburse the money.

In answer to Ms Mathulelwa’s question, she said there had been no impact on the roadshows. They were currently busy with their fifth province. There would be a report on the roadshows only after they had visited all the provinces when they would be able to trace their impact.

On Ms Mathulelwa’s question on job creation, she said that the National Development Plan, which had support from labour, government and the private sector, meant that it was the country’s plan and not just the government’s plan. The plan had gone into detail and envisaged 11 million jobs being created, and that nine million would have to come from small businesses, not from government. Therefore, President Ramaphosa had called for an enhanced social compact so all the stakeholders could identify and implement the plan. The governments’ role was to create an enabling environment for jobs to be created through legislation and regulations. All parties agreed that the jobs needed to be created, so they should work together to achieve that goal.  

On whether the report was a true reflection of the work done by the DSBD, she said the Department reported according to reporting prescripts, but Members were allowed to do oversight to see whether what was claimed was done had actually been done, and could hold the Department accountable.

On international trade and support and exposure of small businesses, she said the Department recognised that South Africa operated in a global environment, which meant having to go and study what others were doing and to expose the products of those businesses the Department had supported on international platforms so that they could also trade with other countries. 

She said the Department could not mislead the Committee. It had not delved into Ukraine or Russia, and the impact of that conflict would be felt by all if it was not resolved amicably. South Africa itself had resolved its problems through negotiations.

On the issue of her attendance at Committee meetings, she said that unfortunately she would not be able to be at every meeting as other responsibilities were guided by Parliament. No apologies were accepted in Cabinet meetings. There had been attempts to ensure that Committee meetings were not always held on a Wednesday when Cabinet met so that Ministers could attend Committee meetings.

On SMMEs working in the communication sector complaining about being bullied, she said this was the correct Department, to come to as this was the work of the DSBD.

In reply to Mr Zungula’s questions, she said the dominance of big businesses was concerning, and the Department was also frustrated by a recent judgement that threw out certain clauses that were meant to assist the Department to tackle the problem. Small businesses did not exist on their own -- there were also big businesses and co-existence was needed. Big businesses understand that there was a need to invest in small businesses, but they were also frustrated by red tape and the quality of service provided by the Department. The DSBD was beefing up its capabilities and partnering with other stakeholders.

She said the Department had made inputs on the Procurement Bill and had submitted a list of 1 000 products that had to be procured from small businesses.

On what was being done regarding businesses owned by non-South Africans, she said that if it was about the quality of food at spaza shops, one needed health inspectors. There was also a need for fair trade, so it was a question of the standard of products needing to be the same, and if SA Bureau of Standards (SABS) approval was needed, then the SABS stamp of approval had to be on the products. If one needed a permit, then one had to have that permit as the law dictated. This all sought to ensure that there was a protected environment to comply with the National Development Plan. All countries did this. She said Minister Nxesi, of the Department of Employment and Labour, was busy publicising the national policy on immigration because of a scarcity of key skills.

In reply to Mr Jacobs’ questions, she said the Department had engaged with SAITA regarding the march to the JSE, and it had good relations with the JSE itself.

As part of reviewing the organogram, the Department was looking at getting specialists to ensure that when small businesses applied, they were not rejected based on capability. She said the Department had very little funding, but partnering with others would bring in more funds.

She agreed with Mr Jacobs that "smart" principles needed to be applied, and the next APP would contain these smart principles.

Mr Lindokuhle Mkhumane, Director-General, DSBD, said that SEFA had shown that there had been an improvement in performance and had met the target for the Township and Rural Empowerment Programme (TREP) of R138 million, and had exceeded their target by supporting small businesses with an amount of R217 million.

On the issue of payment within 30 days, he said that Treasury had a dedicated hotline for SMMEs that had not been paid on time. Treasury wanted to implement a system where payments to departments and SOEs would be withheld, similar to a pilot scheme involving ESKOM and municipalities that had not paid their ESKOM accounts. There was also a dedicated email address to send enquiries to so that Treasury could follow up.

On the cumulative total of SMMEs and cooperatives that were supported by the end of the third quarter of 2020/21, he said 43 000 were supported through SEDA and SEFA, which were the Department s implementing agencies.

Regarding the drop in performance, the Department always set targets that stretched it to be able to achieve them, but there were also targets that had been relaxed because the Department had no control over the target.

On the issue of access to finance, he said the Department was conducting further consultations and added that Treasury ran the ‘bounce-back’ scheme. The DSBD had engaged with the Banking Association of South Africa (BASA) after it had raised the issue of why the National Credit Guarantee scheme had underperformed, and the Department had made proposals for a new scheme. There was also another scheme where taking equity in the company would be considered, but the credit guarantee scheme would occur first, and there had been discussions with a number of development finance institutions (DFIs) who would join the credit guarantee scheme. The Department was doing risk management by providing business development support to small businesses.

Dr Joy Ndlovu, SEDA Chairperson, responded to Mr Hendricks’s question on information hubs. She agreed that incubators were not information hubs -- it was about innovation technology -- and SEDA’s hubs helped startups develop their businesses and provide a full range of services, so she disagreed with Mr Hendricks that SEDA was off target. She suggested that a list of the incubator hubs could be sent to the Committee Members for them to see for themselves. SEDA was very pleased with the performance of the business incubators and digital hubs and was committed to expanding them. There were currently 104 hubs, and they were also in townships and rural areas.

Mr Nkosikhona Mbatha, Acting CEO, SEDA, responded to the challenges with the TREP and said that on all other TREP targets SEDA had overachieved. The only underperformance had been on a sub-element of TREP, and not on the whole programme.

The issue of spaza shops had been addressed, and Members had spoken about how legislation had to be changed to enable more South Africans to own spaza shops.

In providing training, SEDA was looking to provide for the trainer to come to the trainees’ areas, instead of the SMME trainees having to travel.

Mr Martin Mahosi, SEFA Chairperson, in reply to Ms Lubengo’s question, said that one of the issues that would be looked at in the next financial year was a revision of spending targets for the different provinces. SEFA would be making an extra effort to make sure that marginal provinces got a bigger slice of the budget. This would mean having to augment SEFA’s capacity in those regions to handle the processing of applications there.

On the issues raised by Mr Mthenjane on women, youth and people with disability, he said one of the slides of the report gave full details regarding the entity's performances against these targets.

In reply to Mr April, he said the issue of impairments had been raised in his introduction and it was an issue close to SEFA’s heart. SEFA’s history of impairments from 2019, just before the current board was appointed, reflected a 42% impairment rate. It was currently at 36%, which was a big improvement. He said the key issue with impairments was that people did not want to live up to their responsibilities regarding the repayment of loans.

Replying to Mr De Villiers' question on the challenge to gain access to funding, he said that with the Youth Challenge Fund, most applicants did not meet the compliance requirements. Research was being done on why there were these constraints on small businesses to access funds. Another issue was that of thresholds, such as the maximum amount that could be funded. SEFA would provide the Committee with an account of why applicants were not approved and would be forwarding a supplementary report giving a table indicating the provincial breakdown of applications and approvals.

Regarding Mr Zungula’s question on young farmers, he said one of the shortcomings was that some of the work was done through a wholesale lending channel. In the agricultural sector, in particular, it would appear that finance was going to these wholesalers, who then assisted applicants.

Mr Mxolisi Matshamba, CEO, SEFA, responded to Ms Lubengo’s question on the budgets to poorer provinces and said that SEFA’s budgets had been restructured to allocate more funds to the poorer provinces and to develop products that would be attractive in those provinces, as each province had its own competitive advantages.

Regarding visits to the provinces, raised by Mr Mthenjane, he said SEFA was busy with its fifth province and in each province, it did three towns, and Mpumalanga had already been done.

On supporting small farmers, he said SEFA was finalising a memorandum of understanding (MOU) with the Land Bank, as it had the capacity and skills for this space. It was also looking to the Tiger Brands aggregator model that was being used successfully throughout the country, in which they provided funding and support to farmers with whom they had agreements, and wanted to roll out this model to some areas where there was little support. 

The three reports with recommendations were adopted by the Committee.  

Committee matter

Ms Mathulelwa said that the Committee had to take a resolution that the Committee could not have the Minister absent for 13 meetings, even if Committee needed to change the day or time of the meeting so that the Minister could be present.

The Chairperson said the matter was still under consideration and after thorough deliberation, she would report back to the Committee when a decision could be taken on the issue.

The meeting was adjourned.