DSBD, SEFA and SEDA Q2 &3 of 2023/24 Performance

Meeting report

The Chairperson officially opened the meeting and introduced a new Member of the Portfolio Committee, Ms Nuraan Muller (ANC).

Apologies were received from Mr H Kruger (DA), who was on family leave, Ms M Lubengo (ANC), who had other committee duties, and the Minister and Deputy Minister of Small Business Development (DSBD), who had Cabinet responsibilities.

Mr E Myeni (ANC) moved to adopt the agenda and was seconded by Mr H April (ANC).

Opening remarks by DSBD

Ms Thulisile Manzini, Director-General, Department of Small Business Development (DSBD), introduced her delegation which comprised the executive members of the entities, namely, the Small Enterprise Development Agency (SEDA) and Small Enterprise Finance Agency (SEFA). Leading SEDA were Ms Xoliswa Daku, Chairperson, SEDA, and Mr Nkosikhona Mbatha, Chief Operating Officer, SEDA. Mr Mxolisi Matshamba, the Chief Executive Officer, represented the SEFA.

SEDA Quarter Two Performance

Mr Nkosikhona Mbatha, Chief Operating Officer, Small Enterprise Development Agency (SEDA), stated that the purpose of the report was to highlight the organisation's performance for the 2nd quarter of the 2023/24 financial year. In the current financial year, the organisation would monitor and track its performance based on 2023 indicators. A total number of 16 indicators were tracked and measured during quarter two with SEDA achieving 100% on 15 indicators, which translated to a 94% performance achievement. The organisation underperformed on one indicator - Number of Small, Medium, and Micro Enterprises (SMMEs) and cooperatives supported through trade mission, achieving only 57% on this indicator.

Reasons for variance, corrective measures, key projects, and financials were further discussed in detail.

(See presentation)

SEDA Quarter Three Performance

The report highlighted the organisation's performance for the 3rd quarter of the 2023/24 financial year, and in the financial year, the organisation monitored and tracked its performance on 2024 indicators. A total number of 19 indicators were tracked and measured during quarter three, for which SEDA achieved 100% on 16 indicators, translating to an 84.2% performance achievement. The organisation underperformed on three indicators, for which two achieved between the 80% to 99% category. These were:

• Number of jobs created by SMMEs, and cooperatives supported through non-financial support interventions.
• Number of township and rural-based businesses supported with non-financial support interventions.

One indicator achieved below 50% category:

• Number of cooperatives assisted through Cooperatives Development Support Programmes.

Reasons for variance and corrective measures were discussed in further detail in the presentation.

(See presentation)

SEFA Quarter Two Performance for 2023/24 Financial Year

The continuous decline in the South African economy greatly affected SEFA’s performance negatively. Internally SEFA's operating environment faced the following challenges:

• Pending merger and uncertainty among employees and the resultant impact on the organisational performance.
• Employment conditions and SEFA’s inability to create a stable workforce resulting in leadership gaps, the threat to business continuity, and loss of institutional memory.
• SEFA’s bi-annual business conditions survey was conducted in September 2023, to understand the business operating environment of funded clients. The survey results indicated that SEFA clients were negatively impacted by the adverse economic conditions and were not able to meet their monthly expenses. In turn, the weak performance of funded clients was having a negative impact on the performance of the SEFA loan book and other related funding activity indicators.

Despite these challenges, SEFA management continued to drive performance and provide the necessary support as best as possible even though the causal effects were starting to threaten the outlook of the organisational performance.

(See presentation)

SEFA Quarter Three Performance for 2023/24 Financial Year

The South African economy faced multiple challenges, such as weak spending and production, and an environment characterised by high inflation, rising interest rates, social unrest, and operational constraints had a negative impact on the functionality of SEFA. South Africa’s Gross Domestic Product (GDP) contracted by 0.2% in the third quarter of 2023 (Jul–Sept). The above factors negatively impacted the performance of the SMMEs sector and, in turn, the organisational performance of SEFA. The SMME quarterly update of the 2nd quarter 2023 indicates that the total number of SMME owners increased by just over 154 000 or 6.1% year-on-year. This improvement in SMME numbers occurred simultaneously with an increase in overall employment. The growth in the SMME sector was large because of growth in the informal sector as people sought income-generating activities due to the labour market not creating new formal job opportunities. Internally SEFA's operating environment faced similar challenges in quarter two. Despite these challenges, SEFA management continued to drive performance and provide the necessary support as best as possible. The report reflected the organisational performance against the revised targets as approved by the board in October 2023.

(See presentation)

DSBD 2023/24 Quarter Two And Three Performance Reports

The reports presented overviews of the activities of the Department of Small Business Development (DSBD) in line with the Public Finance Management Act (PFMA) 1 of 1999, Treasury Regulations 5.3 and 30.3, the Guidelines for National Quarterly Performance Reports, and the revised Framework for Strategic Plans and Annual Performance Plans.

The 2023/24 Q2 and Q3 performance reports reflected:

Progress made on the implementation of output indicators and annual targets set in 2023/24 Annual Performance Plan in respect of quarters 2 and 3:

• Actual output, and reasons for deviation
• Corrective Measures for 2023/24 Quarter Two and Three
• Financial Reports
• Human Resource Reports

Quarter three saw an improvement in the Department’s performance, with the general trend suggesting that quarter four would also produce improvements.

(See presentations)

Discussion

Mr H April (ANC) commended the Department for maintaining a stable performance but was disappointed in the lack of effort since 2019, to develop strategies to stimulate the economies of smaller provinces such as the Free State and the North West which had only seen a 1% and 0.3% improvement rate, respectively. He stated that he was, however, optimistic about the future.

Ms N Muller (ANC) asked for clarification on SEDA’s Q3 report on audit findings and remedial actions. She inquired if the organisation could provide clarity on the performance management systems in place to assist with data management and record keeping.

Based on SEFA’s Q3 report, she asked about the provincial disbursement on the informal sector loans criterion.

She asked the Department for an update on the progress of the Business Amendment Bill, the National Small Enterprise Amendment Bill, and the Department’s turnaround plan for cooperatives. She inquired about how cooperatives were supported financially and by how much.

Ms Muller lastly asked about progress on the SMME’s and the cooperative's funding policy.

Ms K Tlhomelang (ANC) asked about SEDA’s Q2 report and why no municipality had been assisted in the red tape reduction awareness programme.

Regarding the organisation’s Q3 report, she inquired why the sector focus, hybrid incubation, and digital hub support strategies had not been revised and why no consultations were made.

Ms Tlhomelang asked what the root cause of the Department’s high vacancy rate was and how long it would take the Department to fill vacancies to meet the 10% vacancy rate, seeing as the current rate was at 27%. She asked what the delay was, as a budget allocation had already been put in place.

She asked for clarity on the indicator for delinquent invoices. As per the Department’s provisions, SEFA would pick these invoices’ tab and establish 30-day payment arrangements, she then inquired about how ready the implementation of the indicator was.

She sought clarity on the 4% underspending as per National Treasury records and for the non-compliance of North West’s Development Cooperation with tax regulations. She asked about the efforts the Department made to change the management in its entities, especially SEFA, to ensure performance improvement and sustain staff morale.

Ms B Mathulelwa (EFF) stated that SEDA’s visibility in municipalities was a concern and recommended that the entity also advertises itself to the general public for increased awareness. She expressed concern over SEFA’s inability to recover funds, stating that if this remains unchanged, it would eventually result in the entity’s liquidation. She mentioned that funds could be allocated to deserving candidates, however, they are given to businesses that do not repay loans.

The Chairperson asked for clarity on the target of incubation, who was in the incubation, where it was, and what the outcomes were. He mentioned that receiving first-hand accounts from people who benefitted from incubation programmes would be helpful.

He inquired about the progress of the merger process.

Addressing SEFA, he asked what innovative products and services were put out in the markets by upcoming businesses to ensure the repayment of loans.

Responses

SEDA

An official stated that a system aimed at addressing the issue of information capturing to make information accessible to the Auditor General had been developed and has been in use since 1 October 2023, as per the Auditor-General’s recommendations. The official mentioned that there should be no issues by the 4th quarter and the new financial year, and stated that quarter one and two were still manually recorded.

SEDA was said to have partnered with SEFA to implement demarcation in rural and urban areas as per cooperative governance and census guidelines. The entity had also advertised funding for cooperatives and would ensure that the funds reach cooperatives in quarter four to accomplish the goal not met in quarter three. In addition, it was clarified that the fund amounts were dependent on the Department's targets.

It was indicated that the next quarter's report would be augmented to include the success stories of beneficiaries as the organisation had assisted many people, including those living with disabilities.

To combat the issue of visibility, SEDA stationed access points across municipalities, however, there was still a need for more advertising, and full branding of access points would be done by the new financial year.

SEFA

Mr Matshamba stated that there had been an improvement in outcomes with SEFA’s partnerships with microlearning institutions, especially in smaller provinces. He highlighted that given the size of these provinces, it was not costly to develop institutions as there was no need for the mass procurement of office spaces, for example, and this further informed the financial disbursement criteria.

He said that the recovery of funds loaned out to businesses was not the sole responsibility of SEFA but also that of government departments and their entities in all tiers of government through the use of a memorandum of understanding (MoU). He added that blaming SEFA alone was inaccurate. Mr Matshamba indicated that a payment plan wherein the use of cessions amongst tiers of government and the businesses that had been granted loans was underway.

In terms of innovative products, he said that SEFA was developing a fund for professionals such as healthcare practitioners and artisans to be accessible to municipalities and communities. He indicated that SEFA is also promoting partnerships with corporations and pursuing the idea of crowdfunding to avoid full reliance on the government budget, which sometimes is not enough. These proposals would be merged in the new financial year and tackle existing challenges.

He stated that SEFA made an effort to diversify the industries it invests in, however, due to a low rate of repayment in quarters one and two, there was not much the organisation could do. Mr Matshamba mentioned that the entity was working with its funding partnerships to develop new strategies to make funding available to communities.

DSBD

Ms Manzini detailed that the consultation process in terms of the sector focus and hybrid incubation strategies was already in motion by the third quarter but had been stopped to avoid the missing inputs by sector stakeholders. She said that the support strategy would certainly be revised by the end of quarter four, as progress had been made.

In terms of the Business Amendment Bill, she indicated that the Bill was now being iterated and a Business Licensing Policy had been established and approved by Cabinet to be gazetted for public comment and/or scrutiny.

Regarding the merger, she said there was progress in incorporating SEFA and the Cooperative Banks Development Agency (CBDA) into SEDA. The National Small Enterpise Development Bill was being finalised by the National Council of Provinces (NCOP) with work streams in place to advance the passing of the Bill. She indicated that an amalgamation committee was formed with representatives from all concerned entities.

On non-payment of invoices, Ms Manzini mentioned that the DSBD was successful in implementing 30-day payment arrangements. The Department also worked with the National Treasury to tackle the existing issue of non- or late payments or delinquent invoices. In addition, the DSBD worked with municipalities to track red tape reduction in small businesses.

Concerning the vacancy rate, she noted that the main cause of the high rate was due to employees filling positions and shortly leaving thereafter. Also, budget cuts affected the vacancy rate negatively, however, the Department established a recruitment plan which had been put in place.

She clarified that the cooperative's funding formed part of the SMMEs and Cooperatives Bill, which had been gazetted for public comments, and this had been incorporated in the Department’s final draft to be submitted to Cabinet.

She said that the SEDA’s poster for proposals was legitimate, whereby SMMEs, if approved, would receive R250 000. She indicated that the call for proposals would close on 1 March 2024.

The Portfolio Committee welcomed the reports presented by the Department and its entities.

Committee minutes

Minutes dated 28 November 2023, 10 October 2023, 11 October 2023, 30 November 2023, 29 November 2023, 18 October 2023, 5 December 2023 and 5 October 2023.

Meeting adjourned