Programmes Review Project implementation: progress report by Department of Small Business Development

Meeting report

Department of Small Business Development: Programmes Review Project

Ms Edith Vries, Director General: Department of Small Business Development (DSBD), took the Members through the presentation, saying that the programmes had been evaluated on whether the planned programme activity were aligned to the challenges set by the mandate and whether the programme execution was delivering the desired results. The three main criteria that were adopted to evaluate DSBD’s programmes were the strategic relevance and alignment to mandate, the level of impact and the opportunity cost. The outcome of the evaluation resulted in one of four recommendations -- to upscale, to restructure, to transfer/partner, or discontinue.

The DSBD had decided to upscale the following programmes:

• Red tape reduction.
• Credit rating system.
• Co-location programmes.
• Township and rural enterprise development.
• Local economic development forum support.
• Shared economic infrastructure facility (SEIF).
• Informal and micro enterprise development programme (IMEDP).

There were a number of programmes that were also restructured. These included:

• Co-operatives development support programme.
• Secondary market co-operatives scheme.
• Incubation support.
• Supplier development programme.
• Revitalisation of distressed mining towns.
• Knowledge management.
• Black business supplier development programme (BBSDP).
• Co-operatives incentive scheme (CIS).
• Emerging enterprise development programme (EEDP)
• Guiding framework for youth mainstreaming.
• Technology for women in business (TWIB) partially.

Ms Vries said that 2016/17 would be the first year during which Budget Vote 31 -- the DSBD’s budget -- would operate independently from the Department of Trade and Industry (dti). It was important to note that the DSBD had limited human resources, which had increased from 159 at 31 March, to 189 at 30 September, of which 105 (55%) were in administration. It was constrained financially, having received R150 million in ‘new money” to implement its mandate in the current financial year. Of this amount, R95 million was for the National Informal Business Upliftment Strategy (NIBUS), R50 million for incubation support and R5 million for cost of employment (CoE).

After completing the programme and organisation diagnostic, the DSBD had arrived at strategic themes which included:

• rationalising and refocusing programme activity on areas of highest impact;
• creating a clear delineation of responsibility between the DSBD and other agencies;
• investing in a robust policy, research, monitoring and evaluation capacity;
• consolidating the mandate for cooperatives to improve focus; and
• strengthening points of interaction between other areas of government and with the private sector.

The Department also planned to bed down its organisational structure and conduct a proper change in management.

Programmes such as the Emerging Enterprise Development Programme (EEDP) had been restructured to expand the focus and to achieve the main-streaming targets (50% women; 30% youth; 2% people with disabilities; 50% township; and 30% rural-based enterprises). With the ‘red tape’ reduction programme, there was a broader approach to focus on provincial and municipal regulations facing small businesses and cooperatives, which would be driven mainly at the policy level.

During the first quarter of the 2016/17 financial year, the review of the Black Business Supplier Development Programme (BBSDP) and the Cooperatives Incentive Scheme (CIS) had been initiated and were scheduled for completion in the first quarter of the 2017/18 financial year. New models for the BBSDP were being tested with partners -- government departments, the private sector and international partners -- as well as draft partnership guidelines.

Programmes such as Bavumile and the Mass Youth Enterprise Creation Programme, had been discontinued and their budgets reprioritised as from the 2016/17 financial year. The technical training that was offered under programmes such as the Bavumile model, had been mainstreamed in the Department and the Small Enterprise Development Agency’s (SEDA’s) programmes. The DSBD would formally discontinue selected programmes, such as the SA Lifestyle Hub (SALH), by the end of November.

A website and online selling platform had been created, and with the closure of the SALH on 30 November, a concerted effort to continue to market and secure orders through the website would be undertaken. The Department would engage agencies and other departments on programmes to be transferred, and formalise the transfer of functions and associated budgets for the Small Enterprise Finance Agency (SEFA) and Isivande.

Ms Vries said that an example of programme delineation was the cooperatives development programme. The cooperatives area had a few challenges, such as a high failure rate and the cooperatives model not being well understood. This would require a research and review process that would lead to the development of a clear cooperatives model for the country and a master plan that would guide implementation. SEDA and SEFA support would be migrated to the Cooperative Development Agency (CDA) to create a one-stop shop for co-operatives. The establishment of the CDA would be done through an incubation model under SEDA. Development of the co-operatives model would take into account the model formulated by the Portfolio Committee (PC).

The Department would be reviewing the National Small Business Act, and was currently in the preliminary consultation stages. This was to ensure that the Department’s research and policy needs were enhanced, as well as to create a conducive legislative and policy environment for SMMEs and cooperatives, drive integrated planning and monitoring for their development, and drive a comprehensive research agenda.

The CDA would be incubated under SEDA during the 2016/17 financial year in order to offer financial and non-financial support tailored for cooperatives. The support would be in the form of administration of government incentives, provision of training and improvement of working conditions in the cooperatives’ sector, and improving the sustainability of cooperatives and their contribution to the country’s economy.

Discussion

Mr T Chance (DA) said that the DSBD should put itself in the shoes of small businesses in considering its priorities for attending to the needs of SMMEs. It would be constructive if it could come up with answers that addressed and reflected an understanding of the challenges that those businesses faced. It was very confusing for small businesses to know who they could go to when they need assistance, and the visibility of the DSBD to the small business community was essential. How visible was the DSBD to the SMMEs and the cooperative community on the ground? The Department should have offices in different places to which small businesses could go to when requiring assistance, but the footprint of the DSBD was still very small. This made it questionable whether it would impact on the Nine Point Plan’s job creation target for SMMEs and cooperatives by 2030. Did the DSBD agree to this analysis and if so, what was it doing about it?

He said he was shocked at the R34 million costs for SA Lifestyle Hub, with the service provider accounting for R27 million of that. He asked who the service provider was, as well as the impact of the expenditure of such an enormous amount, and why the service provider had been paid so much. In the presentation slides, it was quite interesting that the partnership part of the whole value chain was no longer there or included. He asked if it had been omitted on purpose, and what the stance of the Department was on partnerships. Was it an open process that was available to al,l or it was limited to a few?

It seemed that the Department was taking the Committee very seriously now in measuring its impact in terms of job numbers and the contribution to the gross domestic product (GDP). However, he noticed that the issue of taxation paid had not been included, although the Minister, Ms Lindiwe Zulu, had recently included it in her budget speech for the Department, and that a certain number of companies had been newly registered with the SA Revenue Service (SARS). He asked who the Department had consulted with in the United Kingdom (UK) during the study tour, which had looked at the longevity impact of small businesses. What progress had been made with the initiative to establish a SMME Fund? Was the Minister confident that the Minister of Finance would contribute to that fund? Did the Department believe that the appalling performance of cooperatives to date was largely the reason for the Treasury not approving spending on the CDA and the Bank? What did the DSBD think would be required to change the Minister of Finance’s mind?

Mr Chance said it seemed from the presentation that the Department had undergone a fairly radical paradigm shift, but time would tell. The Department accounted for 0.1% of the total budget of government expenditure, yet cooperatives and SMMEs were expected to create 90% of jobs created, so what was the DG’s view on the R15.5 billion spent by other departments in terms of monitoring its impact across government generally? Did the DG think that if the Department was able to show results, it could go back to Treasury and say that a R1.2 billion increase to offset the inflation rate was not enough for the Department to achieve its goals?

Mr H Kruger (DA) said that the ‘red tape’ reduction research already done in the country had shown that red tape cost SMMEs billions of rands (R74 billion in 2004), and a lot had been talked about it in the media, in politics and in the SMME sector. What he did not understand was why the Department was still waiting for an impact report and had spent a lot of money on a company to do this research, when the research had already been done in the past. A strategy to work on reducing red tape should have started two years ago. The Bill would help give the answers. Had the Department studied the Bill and if so, what were its findings? He referred to an article he had read about the SMMEs contributions to the GDP being 42%, but that their contribution to job creation was lower, at less than 30%. If this was true, clearly the Department was focusing on the wrong model of doing business. According to the Department’s research, what was the SMMEs’ contribution to job creation in the country? What was the Department doing to stop the ‘grant-to-grant’ behaviour (exploitation of government business grants) that was happening?

Mr T Mulaudzi (EFF) said the presentation had indicated some programmes were going to be discontinued, but there was no clarity on how many would be discontinued. He asked the DG to provide some detail of which programmes were going to be discontinued, and why. He said ‘restructured selected programmes’ did not go hand in hand with radical transformation, because in 2014/15 and 2015/16 State of the Nations Addresses, the President had referred to ‘radical transformation,’ and the main reason the Department had been established was for that purpose -- to actualise and materialise that radical transformation. When one spoke of radical transformation, one must look at poor people and the poor people were in rural areas, so the Department must go into those areas to transform them. That was actually what would constitute radical transformation, because everyone knew how poor those areas, and the people there, are. The Department said it provided about 30% of its overall funding to the rural areas, yet the townships received 50% -- this was not a pro-poor model. This was why there was a huge influx into the big cities, because people from rural areas leave those areas to go to cities to access jobs. In order to prevent this, more radical transformation needed to take place in the rural areas than in the urban areas.

With regards to transversal agreements, it did not seem like the cooperatives were accommodated in the Department. At the beginning of the fifth term, there had been a request for the Department to be renamed, but now the term was about to come to an end and yet the name had not been changed. What was wanted was a clear documentation of agreements with all departments and state-owned entities (SOEs) so that the lives of the people could be radically transformed through cooperatives as well. The transversal agreements must be made mandatory with all departments, so that the Department’s objectives and initiatives could be achieved.

It had been said that the CDA was under the SEDA in the current financial year. He asked whether the CDA had been formed yet, or was still under planning. If it was formed, how would people know about it -- how was awareness going to be raised to ensure that people were aware of it across the country, and in particular the poor people in rural areas? Cooperatives were important, and the Department had to understand that, because it seemed that the focus was more on SMMEs, which empowered only individuals.

Mr N Capa (ANC) asked what would happen if the job creation target was not achieved. When the Department spoke of radical transformation and change, what was it referring to?

The Rev K Meshoe (ACDP) asked about the R15.5 billion budget that was supposedly allocated to the Department. He said it was clear that the money had been scattered and disbursed to other departments. Had the Minister’s opinion been solicited when the money was disbursed, because it was the responsibility of the Department to ensure that jobs were created? Secondly, how many departments had benefited from the budget, and was there any way of finding out if there had been a direct contribution to the creation of jobs?

He asked about the impact on the Department of operating independently from the dti and whether the R1.2 billion that it received was too little to produce the number of jobs that it was expected to produce or create. As 88% of cooperatives were failing, how was their sustainability going to be improved, bearing in mind how many had failed in the past already?

Mr X Mabasa (ANC) asked how the DSBD was planning to influence other departments to contribute towards the 90% job creation to ensure that the achievement of the target was a smooth and collective effort. He asked about the relationship between the DSBD and the Department of Higher Education and Training (DHET), because it was supposed to help a lot in the skills development area. With regard to supporting people with disabilities, a proposal had been drafted to increase the target from 2% to 7% to ensure that they also got adequate support.

Ms T November (ANC) said if the Department did not build relationships with local municipalities it would continue to be difficult to achieve its goals, particularly in the remote and rural areas. She therefore suggested that the Department take note of building up those relationships, otherwise it would lead to fruitless efforts.

DSBD’s response

Ms Vries said that the presentation was a progress report on the implementation of the programme review. The Department had previously presented to the Committee on the outcome of the reviews, and this information had not been included in the previous presentation. The Department agreed that the landscape was fragmented and there were multiple players in that fragmentation. There were a number of small businesses that had established themselves, and some of them were actually doing well, and others were not.

The Department had been in place for just over two years. There had been nothing two years ago, and just the mere process of establishing a department took time. The Department had appointed a chief financial officer (CFO) for the first time this year, and therefore one needed to look at the progress that had been achieved thus far. Ultimately, the role of the Department was to do the coordination and to begin to bring meaning and make that landscape much easier and less complex for SMMEs and cooperatives in order to be able to operate effectively in that space. The Department was still going through a process of establishment, hence its progress had been slow. The Minister and the Deputy Minister had been active in putting the mandate out there, but the Department did not always have the capacity to deliver. There were some organisations that had come forward to assist within the Department, because the footprint was very wide.

The Department had put in place a national inter-departmental coordination forum, with all the 18 departments within the economic cluster and the social cluster. By the end of the financial year, the DSBD was hoping to put out guidelines on how it was going to monitor and report and how the R15.5 billion was going to be spent. Right now, the DSBD did not consult on the R15.5 billion -- the departments go to Treasury themselves and submit their proposals to Treasury on why they need the money, and what the money was going to be spent on. Treasury was also part of the inter-departmental coordination forum, and the DSBD was targeting the 18 departments that were in the above-mentioned clusters.

The Rev Meshoe said he did not understand the R15.5 billion being allocated to the DSBD, but then having to be channelled to various departments. It was the DSBD’s, yet these other departments had to go and make a request or bid to Treasury.

The Chairperson asked the DG to explain to the Committee the core business of the Department.

Ms Vries said Treasury could best answer why the money was allocated the way that it was. For example, R1.7 billion of the allocation was going towards the agricultural support grant, and there was another that went towards the development of tourism enterprises. This was how it was made up in the budgeting process. The budget that the Department had been allocated came from the dti’s broad participation unit, plus the money that had been allocated to establish the Department, so there had been no process yet to dislodge the money from the other departments. She could not answer why Treasury had allocated the money that way.

The Chairperson interjected to ask about the core business of the Department, because when the Department goes to treasury it made a bid on its core business, and that was what the Committee was trying to understand right now.

Ms Vries said the core business was to drive an integrated approach and to coordinate what happened in the development of SMMEs and cooperatives, and to create an enabling environment for SMMEs and cooperatives to come into the mainstream economy and bring about social transformation. Currently, the DSBD’s job was to create the legislative policy and regulate to ensure that this happened. The services that were offered were still largely the services that had previously been offered by the Dti. The Department had established this platform with other Departments, and it was reviewing the Small Business Act together with all the departments. These were some of the things that were being done to integrate the departments and address the core business of the Department.

Mr Kruger suggested that it seemed the core business of the Department was to do the job of the dti, or some part of the job of the Dti. He asked the DG whether she thought that the R15.5 billion should come straight to the Department or continue being disbursed to those other departments by Treasury.

Ms Vries said the budget must be increased in order to deliver the mandate of the Department. It had partnered with the Department of Rural Development and Land Reform (DRDLR) towards rural development, and a huge chunk of the money had been allocated to that department, and it would account to the DSBD. Right now it was slightly difficult to comment on the impact, because the time frame was very short since the allocation of the money.

The Chairperson asked what proposal had been made to the DRDLR which was going to add value to SMMEs and cooperatives, and what kind of relationship did the DSBD seek with the DRDLR.

Mr Mzoxolo Maki, Acting Deputy Director-General, DSBD, said that when the engagements with the DRDLR had commenced, one of the issues that was foremost in the thinking was that it had a responsibility through outcome seven, sub-outcome six, which was to support rural enterprises. The DSBD had come to understand that the DRDLR had a branch called enterprise development, and did not want to do exactly what it was doing, and it had sought to collaborate with them on how it could deliver its services in the rural areas. One of the issues raised was that rural businesses did not have access to enterprises development, and the DRDLR had highlighted that it provided the equipment but the businesses failed because the locals did not know how to run businesses. This was where the DSBD would come in and assist and coordinate within that space, to ensure that the local businesses thrived.

Mr S Mncwabe (NFP) said that it seemed that the Department needed to go back to the basics. The core functions of the Department were not steady and effective. Perhaps there should be a workshop.

Ms Vries said that the Department had been asked to come and present on the programme reviews of the DSBD, not the details of the transversal agreements, so information had not been prepared for that.

The Chairperson said that what transpired in the transversal agreements should be in line with the mandate of the DSBD.

Ms Vries said that the information on taxation was covered in more detail in the information provided by SARS. The DSBD had worked very closely with SARS on that as well, but the team had not considered it necessary to look into it. However, the DSBD had to ensure that the companies that had been assisted for compliance actually did comply, and had registered new businesses working together with the Companies and Intellectual Property Commission (CIPC) and SARS.

She could not comment on why the Treasury had not considered funding the CDA, but she had initiated that conversation at a political level. The CDA had not yet been established, but it was currently in the business plans for the year, and the proposal was to provide a different approach to ensure the steady and proper functioning of the CDA. Both SEDA and SEFA had some funding allocated for the CDA, and it was planned on pulling those resources together to ensure that the CDA was established.

The Chairperson said that in the presentation it had been outlined that the CDA was not going to be established in this financial year.

Ms Vries said this had been stated on the assumption that the business case was approved, and it had indeed been approved by the officials, but not by the Minister of Finance and Department of Public Service and Administration (DPSA). The Department would come back to the Committee and present on the progress of the establishment of the CDA when new developments surfaced.

With regards to the red tape reduction study, the DSBD did not have an established research unit to conduct the research. It had tried to pull together different personnel to assist in the research, and this was where the Department of Performance Monitoring and Evaluation (DPME) had come in and offered to do the work for the Department. The research had been paid for by the DPME.

The DSBD was aware of the Bill, and a social economic impact study had to be done first. It had not gone the normal route with the red tape bill – it had asked itself why it should do the research when there had been research that had already been done before. The research was not from scratch, but it looked more deeply into the research that had already been done, as well as synthesised the research, so it would work on strengthening it to come up with a solid hypothesis or direction on its plans for red tape reduction.

With regard to the contribution of SMMEs and cooperatives to job creation being very low, that sense had been confirmed by Stats SA, and it had applied the definitions as contained in the SMME Act. Another institution that could confirm that was SARS, with the provision of the information around tax paid by SMMEs. The DSBD was trying to pull that information together so it could provide the statistics. It was the first time this year that the DSBD had indicated that the target for women’s development through businesses was robust, and that signalled a paradigm shift towards uplifting the rural enterprises.

The Chairperson asked if the DSBD shared the same sentiment with the Committee in terms of not providing resources to the DRDLR.

The DG responded that the DSBD did share the same sentiments.

The Chairperson said the allocation for rural areas should be bigger than for the townships. The continuous township development was creating a problem for government due to the huge influx of people leaving rural areas to stay in townships. A radical transformation in the rural areas was needed, and urgently, because that was where their homes were, and job creation in the rural areas answered to the demand for reconstruction and development (RDP) houses in towns or city areas.

Ms Vries said eventually the fruits of the entire government’s efforts in terms of job creation get reflected in the labour force surveys statistics published quarterly. She held the view that government did not create jobs, but rather the environment and the instruments for that to happen. The view was that small enterprises and cooperatives generally employed labour-intensive methodologies, rather than capital-intensive methods which they did not have the money for, and this explained why it was a major source of job creation, so the Department had to work hard to establish a solid environment for SMMEs and cooperatives. There was a lot of good will in government to support SMMEs and cooperatives to ensure that they survived and thrive in the economy.

The Department had not yet done anything about the target for people with disabilities being reviewed, and had not been aware of it until the Member had brought it up. Its grants were largely going to people who applied to the DSBD, and it had met its target of 2% funding provisions for businesses led by persons with disabilities.

The Department was not really accessible at the ground level, but people reached out to it through the local municipalities, intermediaries and councillors. It was amazing how some people had managed to make it without the Department, but ultimately it was not present at the ground level.

Mr S Bekwa (ANC) said Committee was trying to understand exactly where the department thought the people or businesses that needed help went to when they actually needed it.

Mr Capa stated that it did not seem like the Committee was getting any legitimate or further information from the Department.

Mr Chance asked the DG to provide the Committee with the breakdown of that R15.5 billion. Secondly, he asked if the Department had participated in the engagements and expert view on the national minimum wage within the context of its impact on small businesses and if so, what was its position?

The Chairperson said she did not understand why the Department was called the Small Business Development, particularly the ‘development’ part of its name, because when one was developing something they were hands on and on the ground. However, it seemed that the Department was mainly doing coordination and monitoring work that was being done by other departments. The Committee had made mention of the fact that the money that was budgeted for the development of SMMEs and cooperatives did not actually get to the businesses and people that it was intended for. This was something that needed to be looked into -- the way in which money was provided to the SMMEs and cooperatives needed to change.

With an unhappy tone, the Chairperson suggested that the Department should do a bit of introspection in terms of its core business, and step up, because there were cooperatives that were doing well in the rural areas but they did not receive adequate support from the Department, and infrastructure was not provided for these cooperatives in order for them to thrive. Cooperatives would continue to fail because they were not prioritised by the Department, and it was saddening and disappointing, because some cooperatives had the potential to grow into bigger businesses.

Consideration of Minutes

The Chairperson allocated some time for Members to have an opportunity to go through the minutes before consideration. The minutes for 11 and 16 November 2016 were adopted, with the proposed spelling and grammatical changes.

The meeting was adjourned.