Department of Small Business Development 2022/23 Performance Plan; with Deputy Minister

Small Business Development

29 April 2022
Chairperson: Ms V Siwela (ANC)
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Meeting Summary

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Small Business Development   

The Portfolio Committee convened an urgent meeting to receive a briefing on the Department of Small Business Development's (DSBD's) 2020-25 revised strategic plan and its 2022/23 annual performance plan.

In the virtual meeting, Members asked about the delay in the merger of the Co-operative Banks Development Agency (CBDA), the Small Enterprise Development Agency (SEDA) and the Small Enterprise Finance Agency (SEFA); the decrease in the budget for SEFA’s blended finance product, SEDA’s challenges and the Department’s measures to address those challenges; and the implication of SEDA’s reduced budget for the development of small businesses.

They referred to the R26 billion loss incurred by the South African Special Risks Insurance Association (Sasria). They wanted to know how this would affect small, medium and micro enterprises (SMMEs) and cooperatives affected by the floods in KwaZulu-Natal. They also questioned the rationale for the timeframe of the Department’s strategic framework extending beyond the term of this administration.

They expressed concern over the DSBD's lack of commitment to implement the Committee's inputs and recommendations, the overlapping mandates and legislation between the Office of the Presidency and the DSBD, and what they perceived as the Department’s anti-poor budget policy. Serious concern was expressed over the tension between African foreign nationals involved in small businesses locally and South African citizens and criticised the Department for its lack of action in tackling this issue. There was a view in the Committee that foreign nationals were taking over the small business sector, and the Department should make an immediate intervention in the interest of South Africans.

Other matters raised included adhering to the 30-day payment policy to promote the long-term sustainability of SMMEs and using the DSBD's influence to ensure other departments adhered to this policy. 

Meeting report

DSBD Annual Performance Plan and Strategic Plan 2022/23

Mr Lindokuhle Mkhumane, Director-General, Department of Small Business Development (DSBD), presented the annual performance plan (APP) and strategic plan for the 2022/23 financial year.

He said the Department’s revised 2020-25 strategic plan was informed by various relevant legislative and policy mandates.

Mr Mkhumane provided the economic environment context for small businesses globally, regionally, and South Africa. Economic growth projected that South Africa would be growing at 1.9% in the 2022 financial year compared to the 3.7% in the sub-Saharan region, 4.8% in the emerging market and developing economies, and 3.9% in the advanced economies.

Key priorities for the Department included the township and rural entrepreneurship programme (TREP), the small enterprise manufacturing programme and promoting the growth of small, medium and micro enterprises (SMMEs) and cooperatives.

He explained the alignment of those Departmental priorities concerning the economic recovery and reconstruction plan (ERRP), the NDP and the Department’s MTSF.

The Department’s five-year 2020-25 strategic plan included the following performance outcomes:

  • Increased participation of SMMEs and cooperatives in domestic and international markets;
  • Increased contribution of SMMEs and cooperatives in priority sectors;
  • Scaled up and coordinated support for SMMEs, cooperatives, village and township economies;
  • Expanded access to financial and non-financial support and implemented responsive programmes to new and existing SMMEs and cooperatives;
  • Reduced regulatory burdens for small enterprises;
  • Improved governance and compliance; and
  • Improved, integrated and streamlined business processes and systems.

The Department’s 2022/23 APP consisted of four programmes -- administration, sector and market development, development finance and enterprise development.

(See attached document for details).

Mr Shumani Mathobo, Acting Chief Financial Officer, led the Committee through the Department’s MTEF budget.

He said the DSBD would receive R2.563 billion for the 2022/23 financial year, R2.570 billion in the 2023/24 financial year and R2.685 billion in the 2024/25 financial year. The Department did not expect a budget cut from the Treasury from the 2022/23 financial year.

He clarified that the DSBD was not a revenue-generating department but received revenue from parking, interest and commission on insurance premiums. The high revenue in 2019/20 was due to the amount that was due to the Small Enterprise Development Agency (SEDA), anticipating having other projects in line to complete. However, the application process had not been approved, which led to the funds being returned to the Department, as National Treasury did not accept late payments.

He said the Department was severely underfunded and had several budget shortfalls and explained the implications of National Treasury's reduction to the budget.

Discussion

Mr H Kruger (DA) appreciated the Department’s innovative proposals on the way going forward. He found it exciting that the plan would reduce red tape and work for all the people.

Mr Kruger expressed his concern about the overlapping mandates between Mr Simon Nkosi in the President’s Office and the Department. He suggested the Director-General (DG) and the Presidency’s Office should engage on the issue to clarify their respective responsibilities.

Mr Kruger commented on the local economic development (LED) strategy and described it as the "scrap yard" for politicians, which he believed was problematic. The Department needed to put in place fresh people implementing the strategy instead of having big political heads running the place without achieving any meaningful targets.

He referred to the overlapping legislation issue on page 42 of the presentation. He did not think that the mandates were those of the DSBD but rather the mandates of the Department of Planning, Monitoring and Evaluation (DPME). He recommended Parliament set up an ad hoc committee to monitor the work of the DPME exclusively and that this should be included in the Committee’s recommendations.

Mr M Hendricks (Al Jama-ah) said that he was happy to hear from the presentation that the merger between SEDA and the Small Enterprise Finance Agency (SEFA) was taking place. He found it unacceptable that the Department could not reduce red tape for all municipalities within a year. He refused to accept this "Mickey Mouse" style of reform, which showed a lack of leadership.

He suggested the Department should provide flyers and materials on the type of services it provides in Members’ constituency offices so that they could help the DSBD to expand its footprint.

He said that the strategic plan, which extended to 2025, was misleading because the term of this Committee would end in 2024, so the strategic plan also had to end in 2024. The Department needed to review the time frame because the Committee could not have the risk of running over its term, which would inevitably lead to a lack of accountability.

He noted that the bulk of the budget went to big businesses and gave no consideration to the poor. He refused to accept an anti-poor budget and indicated that the Committee must never approve such a budget.

Mr D Mthenjane (EFF) commented that it was a pity that this Department only had one story to tell, whereas the reality was really disappointing.

He wanted to know why the Department had failed to adhere to the SEDA/SEFA merger deadline. What were the challenges that had delayed the process? Where would the budget be coming from?

The Department had been on a roadshow. He was interested in knowing what message it had been communicating on the ground to address the tension between "fellow African brothers and sisters" and South African citizens.

He noted National Treasury’s budget reduction for SEFA from R377.1 million in the previous financial year to R296 million in the current year. What were the reasons behind this reduction?

He commented that it was a pity that Members continuously saw this Department's failure through its lack of commitment to assist SMMEs and cooperatives and described this as unacceptable. The presentation had made no mention of the flood disaster that had just happened in KwaZulu-Natal (KZN) or such things as visiting the affected victims or assessing the damage. He reminded the Department that small businesses had been severely affected by the flood.

Mr H April (ANC) asked the Department what had informed its decision to set the merger deadline at 1 April 2022. Was the Department confident now that the 20-month period would be sufficient to complete the merger process? It needed to give timeframes that indicated the different stages of the merger, identify the challenges involved, and the source of the budget for the merger.

He described the payment of creditors as a matter of survival for many small businesses. Speaking from personal experience as a small business owner once, he understood that not being paid on time was a catastrophe for small businesses. National Treasury’s report showed that only eight of the 40 government departments had adhered to the 30-day payment policy in the 2020/21 financial year. Given the DSBD's mandate to assist and coordinate small business development, he asked it to outline its plan to ensure that more government departments would be sticking to that 30-day payment rule.

He commented that although big businesses would impose interests on government departments if they did not receive payments on time, this was not a concept of which small businesses were aware. He asked the Department to indicate what it would do to ensure that SMMEs and cooperatives were being paid on time and were aware of the clause allowing the levying of interest. He also wanted the Department to advise the processes for small businesses to levy interest against government.

In exercising his oversight role, he recommended that the DSBD should call the top ten culprits for late payments to SMMEs and cooperatives. This could be done every quarter when the Department presented its quarterly reports. It should also invite two or three other governmental departments to present their budget support for SMMEs and cooperatives.

Ms B Mathulelwa (EFF) expressed concern over the Department’s reduced budget. She also complained that Members’ recommendations were never truly being implemented since they did not receive any feedback on their inputs. She would want to see how the Department implemented Members' inputs this year.

Ms M Lubengo (ANC) said that the South African Special Risks Insurance Association (Sasria) had claimed that it would still suffer a loss of R26 billion in the 2021/22 financial year, despite the R22 billion capital injection provided by National Treasury. What would the implications be on the SMMEs and cooperatives affected by the KZN floods? What were the Department’s measures to address this matter?

Mr V Zungula (ATM) emphasised the importance of establishing a system to track the progress of commitments made by the Department to the Committee.

He stressed that the Department must be responsive to the two most pressing issues faced by South Africans, which he felt were not prioritised. The first was about the foreign nationals operating in the entire South African economy. He felt the foreigners were displacing South Africans. The North West Chamber of Commerce had recently warned government that foreign nationals owned 82% of the SMMEs in the province. Since the SMMEs fell under the DSBD's mandate, he felt that its lack of action on the matter was tantamount to encouraging an anomaly in the country. Such a high percentage of small businesses owned by foreigners was unheard of and should not happen in a sovereign nation. The biggest problem was that laws were not enforced. South Africans were harassed for not having permits to conduct business activities, but foreign nationals were not complying with the Immigration Act as they did not invest the minimum of R5 million in the country, nor did they make sure that 60% of their employees were South Africans. Foreigners were not even registered at the South African Revenue Service (SARS). He found it perplexing that the issue had not received any attention from the DSBD and accused it of deliberately ignoring the problem. He found it tragic that a black government run by black people was facilitating the displacement of black people.

The second pressing issue was the late payments made by government departments to SMMEs. He urged the Department to understand that small business owners had to be paid within the 30-day period because of cash flow sustainability. If they were only paid 90 or 150 days later, it would be tantamount to killing SMMEs. He felt that the Department did not have a concrete plan to address the 30-day payment issue.  

Ms K Tlhomelang (ANC) appreciated that the leadership in government, led by the President, were going door-to-door in the affected areas in KZN and commended this caring government. She expressed concern that the KZN flood disaster added to the existing COVID-19 disaster burden.

She noted the 22% decrease in National Treasury’s budget allocation to the blended finance product of SEFA. The figure had dropped from R377.1 million in the previous financial year to R296 million. She wanted to know the reasons for the reduction, what the requirements were for accessing this fund, and how great the need for this fund was.

Mr F Jacobs (ANC) began by expressing his support and solidarity with the people of Palestine and expressed his appreciation of the DSBD's presentation.

He commented that the main challenge was the Department meeting its targets. He was particularly concerned with the Department’s target for the “mainstreaming of youth, women and persons with disabilities, with a minimum 40% target for women, 30% for youth and 7% for persons with disabilities in the SMME and cooperatives sector.” He was curious to see how this target would be implemented.

He said the Department was mandated to lead and coordinate an integrated approach to developing entrepreneurs, small businesses and cooperatives. Despite that, its entity SEDA had reported lack of coordination. In its APP, SEDA had outlined a number of challenges that it faced. Had the Department engaged with the entity to discuss those challenges, such as limited resources, unrealistic and duplicated targets? How had it planned to address those challenges to assist the entity? How would the merger address some of those challenges?

He asked the Department to clarify the confusing timelines for the APPs of both SEFA and SEDA. In April, he recalled that the Minister had presented the APPs for the 2022/23 financial year for both the Department and SEFA but had also tabled SEDA’s APP for the period of 2023-2025 on 8 April. He believed this had been an omission. Nevertheless, he found the timelines confusing and asked the Department to provide clarity on the matter.

DSBD's response

Mr Mkhumane confirmed that the Department had met with Mr Nkosi at the Presidency’s Office. The DSBD had also been involved in the inter-provincial committee engagements to discuss red tape reductions for small businesses. He pointed out that many existing issues were at the provincial and municipal levels. He suggested that having someone in the Presidency’s Office assisting the DSBD was a great asset for small business development. The Department was looking forward to having that relationship grow. Mr Nkosi was able to look at the red tape issues from those mandates that did not fall under those of the DSBD. Further, the Department and other government departments were reviewing their own mandates, so he did not see that there would be a duplication of line functions. Mr Nkosi had also expressed his commitment to assisting the DSBD in addressing its challenges.

He assured the Committee that the local economic development (LED) strategies, and issues involving the offices, had been taken seriously at the municipal level. The Department’s intervention was that it had entered into agreements on core locations with the municipalities so that people could access support through the LED offices and have SEDA officials assist those in need.

Mr Mojalefa Mohoto, Chief Director: Enterprise Development, responded that the Department was looking at reducing red tape measures in 278 municipalities within the medium-term expenditure framework.

He explained that the requirements for blended finance were:

  • A South African citizen must own the business;
  • More than 70% of the employees in the business were South African citizens;
  • The business was registered at SARS and the Companies and Intellectual Property Commission (CIPC);
  • The applicant had to produce a copy of his South African identity document and proof of address;
  • The applicant had to produce proof of the business’s cash flow.

He said the Minister and other Ministers had been to KZN on weekends after the disaster to assess the situation on the ground. The Minister subsequently made a few announcements related to the DSBD's support that would be rolled out to assist small businesses. The relief measures would target mainly those informal and small businesses affected by the flood. It was expected that the rollout of these assistance measures would be from the beginning of May.

He responded to the question as to why the Department had not adhered to the original deadline of 31 March 2022 to finalise the merger of the Cooperative Banks Development Agency (CBDA), SEDA and SEFA. He explained that the Department had already developed a project charter which outlined the timelines of specific areas of its interventions until December 2023. A lengthy legislative amendment process would be involved, and some of those processes were not within the Department’s control but rather the Cabinet’s control.

Ms Zandile Mavundla, Chief Director: Strategic Management, responded to why the strategic plan would go beyond the expiry term of the current administration, which would end in 2024. She emphasised that the Department’s planning was focused on implementing the NDP. To achieve the goals contained in the NDP, it was critically important for the Department to do its five-year plan, which ran from 2019 to 2024, in line with the current administration's tenure. The APP was the yearly plan for the Department that was derived from the five-year MTEF plan. The MTSF contained a period that exceeded the tenure of the current administration because there was a transitional period in the government from the old administration to the newly elected incumbents, in which the shift of political heads in every government department would result in a power vacuum. Therefore, planning ahead of time and extending the current planning beyond the current administration would ensure that this Department would not be directionless during the transitional period. She assured the Committee that this situation would not affect the effectiveness of its oversight role, as the targets that were contained in the Minister’s performance agreement with the President had to be achieved within the 2023/24 financial year.

Mr Mkhumane said the Department was reviewing the existing legislation to see which areas could recommend reducing red tape. However, the recommendations made by the DSBD were not mandatory. S18 of the National Small Business Act gave the Minister the power only to issue guidelines to promote the small enterprise strategy and did not go further than making recommendations. The Department was currently being tasked to review and come up with a list of legislation that could possibly result in red tape reduction.

He said it was untrue that his Department allocated only a small budget to poor people and was anti-poor. He referred Mr Hendricks to slide 50 of the presentation. It clearly stated that R953 million of the DSBD's budget went to township and rural entrepreneur funds to assist the individuals based in those areas. If this amount was added to the R76 million spent on cooperatives, it would make over a billion rands that the Department was already spending on promoting the poor and start-up entrepreneurs in townships and rural areas. In addition, the Department was also committing R83 million to assist small businesses in townships in dealing with infrastructural challenges. He disputed Mr Hendricks’s claim and emphasised that the DSBD spends its main budget promoting the poor and disadvantaged.

He explained why the Department had been unable to finalise the merger before the initial deadline, 31 March 2022. S16(b) of the National Small Business Act empowered the Minister to identify those agencies or entities delivering a similar mandate and then incorporate them into the SEDA. After the Department began this process and started to consult with other entities and government departments, National Treasury suggested that new legislation would be needed to establish the entity and provide tangible support to small businesses. So, the creation and drafting of this new legislation delayed the process and caused the Department to miss the deadline. However, he was confident that this process should be completed within the 20-month extension.

Commenting on the issue of government making payments to creditors on time, he said National Treasury regulations and the Public Finance Management Act (PFMA) made it clear that all accounting officers had to ensure that payments were made within 30 days. On the seventh day of every month, each government department was required to provide reports to Treasury on payments to creditors. National Treasury was in the process of strengthening this regulation to make sure that all payments were made in the required 30-day period. If small businesses did not receive their payment in due time, there was a process to ensure that whoever was responsible for payment should pay for the interest that accrued, as it would otherwise result in the Department accruing fruitless irregular expenditure.

Mr Mkhumane said the Department respected and took the Committee’s oversight role very seriously. On the remark made by Members that the DSBD repeatedly made the same commitments year after year, he said the Department expected to be invited to the Committee soon to account for the commitments it made during the 2021/22 financial year. Members would get a clearer idea of the progress that it had made on the various commitments it had made in the last financial year.

He commented on the duplication of mandates and indicated that the Department was developing an SMME policy on cooperative funding for small business support. He believed that this process would assist in reducing the duplication of mandates. For instance, to assist those victims affected by the flood in KZN, the Department engaged the province, the agencies in the province, and the Industrial Development Corporation (IDC) to support the affected small businesses. The merger was another example of the Department's approach to offering assistance to small businesses in a much more integrated way. Hence, he assured the Committee that the Department was committed to reducing the duplication of mandates in the governmental sphere.

The issue of foreign nationals was more of an enforcement matter, which was not within the mandate of the Department. The issuing of business permits was within the authority of municipalities. The DSBD reviewed the National Small Business Act to see how it could assist in this regard. However, he pointed out that the Department of Home Affairs (DHA) was responsible for issuing business permits for immigration purposes.

That concluded the Department’s response to members’ questions.

Mr Sidumo Dlamini, Deputy Minister of Small Business Development, commented on the KZN matter and informed the Committee that the Minister, Ms Stella Ndabeni-Abrahams, was in the affected area and had made some announcements to help victims and affected small businesses. He had been in the townships and conducting disaster assessments and making donations to support affected businesses by engaging with business people in the affected areas.

The Chairperson thanked the Department for its well-informed responses, providing clarity for Members on the delay of the merger.

The meeting was adjourned. 

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