Adjustments Appropriation Bill: DBE & DSBD briefings; with Ministers and Deputy Minister

Meeting report

DBE: Special Adjustments Budget and 4th Quarter update

Mr Mathanzima Mweli, Director General (DG), Department of Basic Education (DBE), started the presentation by comparing the Department’s financial and non-financial 2018 and 2019 performance, which indicated that in terms of the achievement of targets, the DBE had dropped.

There were three main reasons for the decrease. The first was the challenges around infrastructure, which accounted for 90% of the under-performance. It had serious challenges with local contractors, particularly in the Eastern Cape (EC) and KwaZulu-Natal (KZN), which was where the bulk of the DBE’s work was.  He had had several meetings with the EC Black Contractors Association, which was quite resolute about not allowing contractors from outside the province coming to work in the EC. This had resulted in some contractors who came from outside abandoning projects, causing the underperformance.

Another challenge was to get the Department of Environmental Affairs (DEA) and the National Education Collaboration Trust (NECT) to help the DBE to deliver infrastructure in the school sanitation appropriate for education (SAFE) programme. It had taken the DBE a long time with National Treasury (NT) to get these organisations approved as implementing agents. These were the two main reasons.

The other reason was that meetings set up with the NW province regarding the curriculum had been cancelled, and some of the meetings which had required monitoring towards the end of the financial year could not be fulfilled because they coincided with the lockdown.

Turning to the financial performance at the end of the fourth quarter, Mr Mweli said the DBE had been allocated R24.4 billion, and R20.1 billion (82%) had been allocated to transfer payments. The DBE had been able to spend R23.7 billion of the R24.4 billion (97%).

The budget cuts had required the DBE to take funds out of all five of its programmes, because it needed to contribute to the R500 billion stimulus package announced by the President, and it had lost R2 billion overall in the process.

Because of COVID-19, face-to-face activities had been drastically reduced, almost to zero. This had presented an opportunity to save. The DBE had also looked at a reduction in some of its projects, such as the Matric Second Chance, with savings in workbooks, catering and venue facilities, because meetings happened virtually most of the time. However, the R540 million budgeted for emergency sanitation and water in the capital expenditure budget had received an additional R60 million from the line budget provided in infrastructure, bring it up to R600 million.  

The biggest cut had been from the infrastructure budget, which meant that many of the projects that were supposed to have been rolled out in the current financial year, would have to be kept on hold, and if things continued in this way, the DBE might not be able to roll out infrastructure projects as it had previously planned.

None of the conditional grants had been spared. All had had to undergo cuts, reducing the totals amount available by R2.3 billion, from R19.5 billion to R17.2 billion. Almost all of this reduction had come from the education infrastructure grant, but the national school nutrition programme (NSNP) had remained unscathed. The DBE had taken money from one of its entities, the South African Council of Educators (SACE), but it would be able to continue with its business without the R4.7 million which had been its contribution to the cut.

Mr Mweli described the impact of some of the cuts in the DBE’s programmes. In the case of public examinations, the amount of R13 998 million was insufficient for the management of the November 2020/2021 exams. This included the setting and moderation of question papers, Brailling of question papers, payment to the Independent Examination Board (IEB) for non-official languages, the marking guidelines discussion, and the centralised marking of subjects. The management of the examination computer system will also be compromised, given the cut in the budget from R23 million to R16million. The normal expenditure on the maintenance of the examination computer system was R45 million.    However, the DBE believed that would still be able to ensure that its activities continued and young people would still be able to sit for exams.

New developments that would be compromised would be the Introduction of the General Education Certificate (GEC), electronic marking (E-marking), and the item banking system.

The budget cuts could be accommodated to some extent by:

• The combination of the June and November examinations;
• Monitoring being done remotely, using alternative modalities;
• Conduct of the low stakes marking guideline discussions could be done using virtual platforms.   

Mr Mweli referred to exam-specific areas that the DBE was focusing on to modernise its national and public exams systems, like the deployment of information communication technology (ICT) to help it to operate more quickly and smartly. Face-to-face activity was not going to happen that much anymore, so it would be deploying resources to ICT to monitor and to carry out some of its activities.

The DBE had had to change a lot of things related to the National School Nutrition Programme with the arrival of the COVID-19 pandemic. Food handlers had to be trained, and had to be provided with COVID-19 essentials such as masks, gloves and other equipment to ensure safety and health measures and social distancing while the pandemic continued. The programme was providing food parcels to children who were still at home, and also feeding children who were at school.

A breakdown of the cuts to the Education Infrastructure Grant (EIG) affecting each province showed that they were much bigger than what the presentation showed, because more money came from the provinces’ equitable shares.

In the area of water supply and sanitation, the DBE had to respond to 3 157 schools for the provision of water, and 1 428 schools had to be provided with sanitation. It had provided portable sanitation to schools that had pit latrines, and some people were unhappy, calling them “funeral toilets” or “glorified pit latrines.” This was an emergency solution, however. A more permanent solution would take a little longer, including alternative technology to provide sanitation.

The DBE had used Rand Water as an implementing agent to do Phase 1 of this work. It was looking forward to the provinces taking over Phase 2, which would be the permanent installation of this infrastructure. The DBE met every day at 06h00 with the relevant parties to monitor progress, to make sure with the provinces that there were no schools which could not open for the day because of the unavailability of water and sanitation.

Challenges had been encountered during this process, where tankers on their way to deliver water to schools were stopped by communities who did not have a water supply, demanding to have first use. The challenge was that the money had been set aside for the schools, not for the communities. Some of the temporary water and sanitary infrastructure had been stolen and taken away. The DBE had met with the Municipal Infrastructure Support Agency (MISA), the Department of Cooperative Governance and Traditional Affairs (CoGTA) and the South African Local Government Association (SALGA) to find a permanent solution for this problem, and to get municipalities to take responsibility. Many municipalities had not recovered from the recent drought, and were really battling to provide water to communities and schools.

Discussion

Mr M Mlenzana (ANC) asked if procurement more centralised in the DBE, or if there was an element of decentralisation. What were the effects of the centralisation/decentralisation? He was referring, for example, to the delay in the implementation of COVID-19 programmes because of contractors turning back some people, alleging they had not been consulted.

Mr Mweli replied that the DBE had done both. Certain services/items were being procured at a national level, and there was procurement managed by implementing agents, especially for infrastructure, so it was decentralised in this way. The implementing agents which the DBE made use of included the Independent Development Trust (IDT), Koega, the Development Bank of South Africa (DBSA), and the Vula Trust.  

Mr O Mathafa (ANC) referred to the centralisation of procurement in relation to the contractors who were turned away by local contractors. In some instances, it was a fair request by locals to participate in the mainstream economy. If procurement was centralised, it did not allow for that request to be translated into a reality. Were the policies governing procurement friendly enough to allow locals to participate? He believed policy interventions should allow for contractors to make sure that locals were taken on board when projects were launched.

Mr D Joseph (DA) said the same problem had occurred with the construction project at the Clanwilliam Dam. Even if a construction company came from a different province, because it was a national tender, local labour was important, and when no local labour was contracted, it caused problems.

Ms Angie Motshekga, Minister of Basic Education, said that the first call had to be to employ local people, but there were two other factors to take into account. There were laws governing infrastructure development, such as the required level of proficiency required for high cost buildings.  If one was in the EC and one’s construction company was categorised as a level 1 company, one would not qualify to be contracted if the contract required a company categorised as level 6. This was a big challenge. Smaller companies rightfully felt that they were being given crumbs, because the big contracts always went to the big companies.

Mr Mweli said the Committee should not think that only companies from a specific province could be contracted to build infrastructure within that province. The laws of the country did not allow for that. The DBE could also provide information to show, in respect of infrastructure, how many contractors came from the EC, and he believed more that 90% would come from the province. The list could be made available to the Committee. As the Minister had explained, the provinces would only look wider afield if they could not find a contractor with the requisite skill/capacity level. Smaller contractors were given more projects to compensate and to up-skill themselves so that eventually they could also take on progressively bigger projects over time.

The DG said the law was clear that if a contract was awarded to a company from outside the province, 30% of that contract had to be given to local role players. The DBE insisted that implementing agents had to go beyond the 30% obligation.

Ms D Peters (ANC) advised the ministry and the DG to involve the police in the issue of contract hijackers. There were contract hijackers in KZN who demanded that they be given 30% of the jobs, but who did not apply during the tendering process. They waited for the allocation of the contract to a company, and then disrupted the process. They were actually disrupting and sabotaging the delivery process of their own infrastructure, especially in rural communities.

The Chairperson also condemned the hijacking of projects for whatever reason. Related to this, why were construction companies contracted from outside a province? What influence did it have on localisation and getting the economy going in the province where the project was being built?

Mr Mweli thanked the Member for the advice to involve the police in the contract hijackings. The DBE had tried to do that, but it was a big hindrance in many ways.

Mr Mlenzana referred to the cut of the school backlogs infrastructure grant, and said there were cases where two schools operated on the same site. Was the Minister aware of how many similar cases there were?  He knew about one in the Alfred Nzo Municipality.

Mr X Qayiso (ANC) asked how many schools were affected by the R2.2 million budget reduction, and how many schools were still without basic services.

Mr A Sarupen (DA) asked about the reduction in the Education Infrastructure Grant. Which critical projects were affected, and which schools were affected in which provinces?

The DG replied that the DBE could supply the Committee with details of the projects affected by the cuts and the provinces they were in, but he did not have it available immediately.

Ms Peters emphasised the deplorable conditions under which children, especially in the rural areas, went to school. In 2019, around exam time, learners in the EC and KZN were writing exams in the sun, primarily because the school infrastructure did not allow for them to write inside. She believed that 25 years down the line, the situation prevailing in schools could not be justified. The types of schools and ablution facilities were dehumanising. The President had committed to eradicating the pit latrines, especially in view of the challenges related to those learners who fell into the pit latrines in the EC and Limpopo, so she believe that the youth should be the key priority for the Department. She did not think it would be proper for it to go for the “Rolls Royce” of toilets, while learners did not have classrooms. She thought one needed to look at how Covid-19 had laid bare the fault lines that, despite the Department’s delivery record, showed it still had big challenges.

Mr Qayiso said here was no excuse for the infrastructure backlog, but there was a backlog and at the same time, a reduction in resources for infrastructure development. The President had also emphasised the importance of infrastructure development to the growth of the economy. It did not make sense and if it were up to him, he would not allow it. By cutting the budget for infrastructure development, the country was going back to a crisis, instead of moving forward.

Ms N Ntlangwini (EFF) said it was only now the DBE was “sort of trying” to do its work. It was only because of COVID-19 that many of the schools had seen a toilet and running water. It was only because it was currently a requirement that the Department was now running around to install water in schools. This was why communities were stopping the water supplies meant for schools.

Mr Mathafa said the DG was correct in saying that most of the reprioritisation of funds’ impact would be on infrastructure. He asked whether there were any non-fixed costs, or fixed expenditure, which could be saved during this period of COVID-19 and moved to the area of infrastructure.

Ms Ntlangwini asked about the under-spending on the Accelerated Schools Infrastructure Delivery Initiative (ASDI) process. This process was supposed to improve the learning environment in rural communities. Why was there under-spending and under-performance in that programme?

The DG replied that the DBE had not necessarily volunteered any cuts. The way things worked in finance was that the Department of Finance asked the DBE to volunteer a cut, and if it did not volunteer a cut, NT would take an even larger cut out of its budget -- and in inconvenient places. The DBE was working with the NT team to agree on the cut.

Minister Motshekga said she would reflect on the broad policy aspects which the questions touched on. She always felt uncomfortable about reminding Members about the relationship between the powers of national government and the provinces. Sometimes it made life difficult in terms of what were national competencies and what were provincial competencies. For provincial responsibilities and competencies, funds were voted and accounted for in the provincial legislatures.

Mr Mweli added that the Minister had also explained that this was Vote 16, which was Basic Education only. Equitable share was in the provinces. When the national DBE became involved in the provinces, it was for special projects and for a limited time period -- for example, with the ACIDI, which would end in March 2021. It was the provinces’ responsibility to deliver infrastructure. It was the national DBE’s responsibility to monitor and support the province in its processes.

Minister Motshekga said Members were quite correct about infrastructure, and the fact that it was really an albatross on the system. She reminded them that national DBE held money for the provinces, but the implementation of infrastructure development was a provincial competency. She was not saying that the education sector should not be blamed, because it had not performed very well, but it was a provincial competency. The ACIDI was a special project to deal with mud schools, so it was very specific. The provinces had to provide national DBE with a list of mud schools in the province. National DBE had been given R2 billion by the NT to focus specifically on mud schools, and almost R10 billion had gone to the provinces to deal with mud schools, as well as electricity, water and sanitation. SAFE was also a special project, which came about when the President asked NT to give national DBE money to deal with pit latrines after the two accidents. It was not part of the routine functions of the DBE.

Mr Mlenzana asked how involved school governing bodies (SGBs) were in overall school development. There was a case where the SGB was querying the logic of putting in state-of-the-art toilets costing R2 million into a dilapidated school. The SGB had not been consulted beforehand.

The Minister explained that in areas where there were pit latrines, there were no bulk services. In areas that had bulk services, like Gauteng, it was easy to install a toilet at a cost of about R2 000. If one wanted to install a toilet in areas without bulk services, one had to install the technology which would make the toilet hygienic and safe, and process the waste products in a proficient way. It was not a “Rolls Royce” -- it was the only thing that was available. The DBE had searched the market, and had brought down the price from R40 000 per seat to R20 000 per seat. It was the nature of the environment which forced the DBE to make certain choices.

Mr Mlenzana asked about controlling the process of learners and teachers returning to school. What was happening with the nutrition of children who were not in school?

Mr Sarupen asked about the recent court ruling on the national school nutrition programme, where the court had ruled that it had to be rolled out across the country. He had noted that there had been a R1 million reduction, as stated in the presentation, so was this project still fully funded, and would the Department be able to comply with the court ruling?

The DG replied that the DBE was still able to meet the requirement of the court ruling to in feed learners who were at school and those who were at home, in different modalities. The presentation contained all of those modalities.

Ms Peters asked whether the food handlers preparing school meals had received the requisite training on how to prepare food hygienically, and so that it retained its nutritional value. During the COVID-19 period, videos had been doing the rounds showing how school meals were being prepared under adverse conditions.

The Minister replied that food handlers had been trained in COVID-19 protocols.

The DG said training had been happening all along. There was a diet that had been worked out by expert dieticians from the Department of Health (DoH) and DBE officials, and the food handlers stuck to the guidelines provided for handling food.

Mr Mathafa asked if the DG had seen the media article about the DBE in the EC spending R400 million on the lease of 55 000 tablets for Grade 12 students. Was this article true? What was the view of the DBE? Had this been done within the needs assessment of the province, considering the glaring backlog in infrastructure and other items referred to on a regular basis in the media and in education discussion groups? Some schools in the EC still had pit latrines, and were dilapidated to the point where they were uninhabitable. For Members, it was important to have clarity on issues like this, because when these issues were raised by constituencies, they would be able to respond to them.

Ms Ntlangwini asked why the provincial government was leasing tablets and not buying them. Would it not make more sense to buy them? What special applications did these tablets have that they had to be leased?

The Chairperson also asked why the tablets were leased and not bought. The lifespan of a tablet was about three years. This had formed part of operational expenditure instead of CAPEX. The Committee would like to be furnished with more detail on this deal. He said that the tablets would have to be connected to the internet. Members of the Committee who resided in the EC always struggled with connectivity. He was concerned about the networking infrastructure in the EC.

Ms Peters asked what the DBE’s engagement was with the Department of Communications regarding the rolling out of computer network infrastructure. If the DBE was going to be giving out laptops or tablets, it needed internet access. Many rural communities were unable to do home schooling and linking up with classrooms, especially with the impact of COVID-19 and some learners unable to return to school.

The Minister referred to the tablets, and said where provincial resources and decisions around the competencies were involved, one could ask for answers, as national DBE was doing. However, the national ministry could not take direct responsibility, because it was not the responsibility of the national DBE, but that of the province.

The DG said that the Premier and Member of the Executive Committee (MEC) for education in the EC had instituted an investigation into the procurement of ICT and the devices. He would advise the DBE and Committee to wait for the outcome of that investigation. He had seen the article, and been told that the Premier had started an investigation.

Ms Peters asked why some of the school principals defined themselves as being outside of the DBE’s coal face delivery management -- responsible agents or managers -- because it was important that they saw themselves as part of this.

Mr Mlenzana asked what percentage of posts within the Department was vacant, and why it was not filling funded vacant posts.

Ms Peters asked how many posts had been vacant, and for how long. There were many unemployed graduates, while the Department had vacancies. Unfilled funded posts did not constitute savings for the DBE. It was under-spending, and it was wrong for the government to under-spend in these difficult economic conditions, where people -- especially young graduates -- were unemployed.

Minister Motshekga replied that the provinces employed teachers, not the national DBE. The national DBE trained teachers for the provinces. It was running a programme to identify unemployed teachers in different provinces so that it could assist in filling vacant posts and spreading teachers more evenly from provinces with an oversupply, to provinces where there were many vacant posts. For example, there was a shortage of Afrikaans teachers in the EC, and the posts were being filled with teachers from the Western Cape (WC).

Mr Mweli said the vacant posts referred to were directors’ and chief directors’ posts, not teachers’ posts. The main reason why there had been a delay in the filling of these posts was the fact that these posts were filled before, but people had been promoted to deputy director general (DDG) level, leaving the posts vacant. At the same time, the Department was undergoing a process of restructuring and re-organising, as a result of which, the posts took even longer to fill. There was a new department of business intelligence, for example. This was a line function department of growth, employment and redistribution (GEAR), and it had taken over some of the functions of the curriculum department. This restructuring took a year to complete, and had caused the delay in the filling of posts. The vacant posts did not exceed 10% -- probably around 5% to 6% -- but more accurate numbers would be provided.

Ms Peters asked how many small businesses in the country had been affected adversely by the DBE’s failure to pay them within the stipulated period. Some small businesses had gone bankrupt because of not being paid on time. Some of those related to school infrastructure, where they claimed that they had left schools incomplete primarily because they had not been paid, and they had relied on payment to be able to continue doing the work.

Ms Ntlangwini referred to the late payment of invoices which had resulted in fruitless and wasteful expenditure. What would happen to the officials responsible, because Parliament could not accept the repeated yearly practice of late payment?

The DG replied that the DBE tried its best to pay its invoices in time. It had even worked during the lockdown in order to process invoices in time. There had been fruitless and wasteful expenditure as a result of certain delays, but he was not aware of business people who were adversely affected by the DBE not paying on time. The DBE submitted an obligatory report on payments every month to NT.

Ms Peters addressed the quality of the PPE and sanitisers provided to schools. There had been reports that some of the sanitisers were just water. She felt that the service providers who had supplied the watery sanitisers had to be blacklisted. Some suppliers only wanted to make a quick buck at the expense of the lives of educators, support staff and learners.

Ms Ntlangwini asked what the DBE planned to do about the fake and below-standard hand sanitisers used in schools in the Alfred Nzo District Municipality. It was putting the lives of teachers, support personnel and learners at risk, because they did not have the minimum 70% alcohol content. The suppliers had to be black-listed, and criminal charges of attempted murder had to be laid against them.

Ms M Dikgale (ANC) said PPE was not working well at schools. She applauded the DBE for trying, but it had to provide good quality PPE so that the learners could be taken care of. She was aware of instances where children had to be let into class without temperature checks because the thermometers were not working.

Mr Mweli replied that the DBE had become aware of the fact that some of the people using the thermometers had not read the manual, which stated that if the thermometers were kept under very cold conditions, they did not work. They had to be kept in place with a suitable temperature, and when they communicated this le later on, they were able to handle the thermometers.

Mr Sarupen asked whether the DBE was benchmarking the cost of PPE to the provinces to ensure value for money, and to make sure that there were no undue cost escalations or profiteering at the expense of the children of the country.

The DG replied that the Minister had answered this question as well. The issue of quality had been raised, and the national DBE was monitoring the procurement processes. It had got provinces to return some of the items they had procured, and some service providers had been removed from the list of suppliers to government, and had been blacklisted.

Mr Qayiso asked what the impediment to the removal of pit latrines from schools actually was.

Ms Dikgale said schools needed permanent sanitation solutions. She was aware of a case where ‘funeral toilets’ were imported from Gauteng to Limpopo province, as if there were none in Limpopo. What was the DBE’s plan in terms of permanent solutions?

Mr Joseph referred to the sanitation/toilet challenges, and asked what the time frame for a permanent solution was. He had heard other Members ask about the cost, but he wanted to know whether this was permanent, because infrastructure development, as Members before him had stated, was the solution to what was needed in schools.

The Minister replied that when one dealt with an emergency, one would find that there were no established coordinating structures. She had had to hand over toilets, which had been erected under the SAFE programme, to a school, and the principal had remarked that he wished he could go and teach in the toilets, because the toilets were better than the school. She had had to go to the province and ask what its plans were around upgrading the school infrastructure, because the budget to do that was under the control of the province. This was a grey area, and she was in dialogue with provinces about coordinating and synchronising national and provincial programmes better in order to improve performance.

Mr Mweli explained that the reason the presentation had referred to “emergency water and sanitation” had been because it was for three months only. It was for the emergency of COVID-19. Beyond the three months and the R600 million spent, the responsibility would return to the provinces.

Mr David van der Westhuizen , Manager: DBE Infrastructure Department, referred to the water supply and sanitation situation, and said it was important to note that there was a difference between the infrastructure solution and the service solution. Water supply and sanitation was in essence a municipal function and not an education function, so when schools needed to re-open under the COVID-19 situation, this had become a very prominent issue. The DBE had then engaged with the provinces in one-on-one meetings and had asked them to identify which schools in their province would not be able to open because of the water supply and sanitation issues. All the schools had been identified by the provinces.

He thought the Minister had highlighted very clearly the difference between the role of the provinces and the role of the national DBE. Under the emergency situation, the national DBE provided solutions which catered for both the infrastructure as well as the service, so in the Rand Water contract, the DBE had provided the tanks and the delivery of water to those tanks. In the case of sanitation, the DBE had provided the temporary toilets and the servicing of the toilets under the emergency, but obviously it was not a long-term solution. The long-term solution would be to place the responsibility back where it belonged, with the provinces. His infrastructure department in the DBE had to make sure the right infrastructure was on site. If a tank was needed, a tank had to be put in place. If a toilet was needed, a toilet had to be put in place. If a tap was needed, it had to be put in place. Engagement was then needed with the service provider, which was the municipality.

In the DBE’s engagement with SALGA, MISA and CoGTA, it had started to prepare a data set of all schools. There were close on 24 000 public schools, and the DBE had mapped every school, on a one-on-one basis, to a water service authority area of jurisdiction, and the water service authority had engaged with other entities in terms of water services providers. The DBE had a one-on-one mapping of which school belonged to which authority, to which provider, what the closest municipal water treatment works was, or even waste water treatment works, and where one should connect and try to get the contact persons for all of this, because that was the long-term solution.

In the meantime, the DBE was engaging with provinces. The DG had mentioned that every morning at 6 a.m., the DBE infrastructure department met with every provincial head of infrastructure to confirm whether there were schools which could not open because of water problems, for example. The provincial infrastructure heads had all confirmed that morning that all schools could open. There were minor problems in one of the provinces, and the information could be made available if needed. The DBE was even tracking issues of vandalism and storm damage.

Ms Ntlangwini asked about the cost of one water tank, and the ‘Rolls-Royce’ toilets at the school mentioned earlier.

Mr Joseph referred to the implementation of water tanks by Rand Water, and asked what the value for money on these water tanks was, because the DBE -- and other departments as well -- did not seem to be able to exercise control over the value for money, which he thought was important.

Mr Van der Westhuizen replied that through the Rand Water contract, the DBE had procured the tanks from about 40 different service providers. There had been a couple of Parliamentary questions in this regard, and the DBE had provided a lot of detailed answers to them. It had basically bought all the tanks that were available in the country. The average cost of a 5 000 litre tank had been R5 019.

Ms Ntlangwini asked whether the DBE could supply a written list of the 40 suppliers of the tanks and the cost thereof, so that it could be on record.

Mr Joseph referred to the adjustment budget cut to all programmes, and asked what the R1.8 billion cut in the area of planning, information and assessment constituted. Did it include infrastructure as well? The presentation had also referred to the payment of capital assets, but he was not whether infrastructure was included in the R1.8 billion as well.

The DG asked the chief financial officer (CFO) to explain the R1.8 billion.

Mr Patrick Khunou, DBE CFO, said the R1.8 billion related to planning, and R181 million related to curriculum support. As the DG had explained, the bulk of the R1.8 billion was the Education Infrastructure Grant (EIG), which was R1.621 billion. As was apparent, the EIG formed the bulk of the DBE budget, which meant that any budget cut would cut significantly into the EIG. The rest, amounting to R191 million, was for internal projects, like systemic evaluation, national assessments etc. The other amount was R181 million for curriculum projects, and the breakdown was as follows:

• R23 million for matric second chance,
• R71 million was for workbooks, and
• R85 million was for internal costs like catering, travelling, venues and facilities.

As everybody was aware, with the advent of COVID-19, travelling, catering and events fell away because everything happened online.

The Chairperson said the biggest challenge facing the country was stagnant economic growth and the negative 7.2% growth rate. What was the role of the Department in stimulating economic growth? He had heard that stationery was being imported from China. Should the DBE not be deliberately trying to reignite the economy by stimulating the local manufacture of stationery and procuring it locally? Every item that was imported contributed negatively to the economy, and was equal to exporting jobs.

The Minister replied that the problem around stationery had more to do with the Department of Trade and Industry (DTI) than the DBE. There were only two stationery suppliers in the country, which meant that SA had never built the manufacturing capacity to supply in its own stationery needs. She was aware of this problem.

The DG said the Minister was right. There were three stationery suppliers in Durban, and the DBE knew them by name. These companies also imported their materials from overseas, because it was cheaper. They were supplying the whole country with stationery for basic education.

The Minister said the other problem was to get the balance right regarding economies of scale. In the EC, there was no industrial capacity -- there was no-one producing sanitisers there. That was why schools had received water in the end. She agreed that locals had to be given preference to participate in local projects, but in some cases it was not easy, or impossible, to find locals who could deliver the product at the correct scale, price and quality required by government. It was also difficult negotiating between a local producer and one from another province.

Mr Mweli said that the major contribution of the DBE to the economy was the building of infrastructure, but the cut to the infrastructure funding meant that its contribution had been reduced. Initially, the masks used in the DBE were procured from China. The DBE had then said there were industries and factories that had collapsed in the WC, Gauteng and KZN, and had decided to resurrect them and procure locally. It had worked with the DTI and reopened those closed down factories, and kept those which were going to close going. That was another contribution.

The Chairperson asked the Minister and the team to say three positive things about the Appropriations Adjustment Bill relating to the DBE.

The DG replied that maybe in terms of the conditional grants, it gave the DBE the ability to move funds around. Other than that, it had made an indelible mark on the sector.

Mr Joseph referred the Minister and Deputy Minister to the procedures for the opening and closing of schools. If the plan was to open the school on a Monday, the implementation already started on the Sunday before -- for instance, boarding school learners had to move into their residences on the Sunday before. These timing and practical implications had to be kept in mind when opening and closing schools.

The DG replied that Mr Joseph had made a valid point about learners returning to school. The Minister had noted the remark.

The Chairperson thanked the DBE for the engagement. It was a big Department, and the Committee would have preferred more time with it.

Ms Ntlangwini said the Minister had been providing misleading information by saying that there were no companies in the EC which produced hand sanitiser. That answer was unacceptable. The Minister needed to take responsibility for her Department. She was a national minister, and to always defer responsibility to the provinces was unacceptable. Ms Ntlangwini said she was not satisfied with the Minister’s response, and was planning to take further steps to hold her accountable.

She added that the Portfolio Committee on Appropriations was no ordinary committee. It was dealing with the taxpayer’s money, and the Minister was providing misleading information by saying that there were no producers of hand sanitisers in the EC -- the Committee could not accept answers like that. Learners and teachers were going to die, and their deaths would be on the Minister and her Department’s conscience.

Mr Mlenzana said what the Minister had come up with, was exactly what he was going to ask for. He wanted to put his neck on the block, because he was one of the culprits who had agreed the previous day that the time be divided evenly between the two presentations. He appealed to the Chairperson to allow the discussion to continue for 10 more minutes, because the meeting could not end on this note. He appealed to the Minister to allow Members to ask for explanations and clarifications, and for answers to be provided in writing, in order to continue the interaction.

This Committee was the appropriating entity, thus voting/motivating for funds to be given to national and provincial departments. Mr Mlenzana asked the Minister to avail herself and her Department to be present when the Committee called provinces which seemed to have challenges, so that matters could be streamlined between the national and provincial spheres of government.

The Minister accepted Mr Mlenzana’s proposal that the interaction be continued in writing, but raised serious objections to Ms Ntlangwini’s approach. She thought Ms Ntlangwini was out of order, and refused to tolerate her bullying tactics.

The Chairperson said the Committee would forward the questions it would like the DBE to answer. He asked the Minister to bear with the Committee, because with the best of intentions, it was very difficult to have nine provinces, with nine MECs, coming to appear before the Committee. It would rely on the Minister, through her structures, to bring a full team of MECs or heads of departments.

The Committee would follow the approach proposed by Mr Mlenzana, and send the questions to which the Minister and the DBE would reply in writing. The questions on education were close to everybody, and evoked intense emotions. Members, ministers and government officials had to be balanced and had to try to be unemotional about the issues, emotional as they were.

It had been the Committee’s first interaction with the DBE, and there would definitely be further engagement. He wished the Minister, Deputy Minister, the DG and his team luck with their engagements, and said the Committee appreciated the challenges the Department was facing throughout the country.

Department of Small Business Development

Minister’s overview

Ms Khumbudzo Ntshavheni, Minister of Small Business Development, said she had a bereavement in the family, but had chosen to attend the meeting because she thought what this Committee was doing was important -- not only for the country, but also for small businesses in general . Her ministry wished to have a detailed engagement with the Appropriations Committee, because it held the view that that in SA small businesses could play a critical role in resuscitating the economy of the country, as it was doing in other countries. In Western Europe, Russia and China, the economies were driven by small businesses. SA as a country appreciated that, but continued to act in the interest of big business, also in terms of what it appropriated for small business.

 If one looked at the fact that the National Development Plan (NDP) proposed that by 2030, more than 90% of jobs must be created in small businesses, and more than 70% of the gross domestic product (GDP) must be contributed by small businesses, the budget allocations did not match that expectation.

Even when the government had made interventions, those interventions were not sufficient. If one looked at the example of the COVID-19 pandemic, the Department of Small Business Development (DSBD) could manage to gather amongst its own programmes only R530 million to provide relief to small businesses directly. Now it was engaging with the NT around the National Credit Guarantee Scheme of more than R200 billion, which was going to go to R300 billion. Although it was said that it was going to benefit small businesses, if one looked at the threshold -- in terms of the definition of small businesses and small, medium and micro enterprises (SMMEs) in SA -- that money was mainly going to those that were previously advantaged, and continued to exclude the majority of small businesses.

This ministry had continued to engage with NT. It had given NT a proposal on the participation of the Small Enterprise Finance Agency (Sefa) under its guidance, to make sure that the Department would be able to assist the small businesses, but she thought this Appropriations Committee had an important role in interrogating the appropriations, and whether they would indeed contribute to the recovery of the economy. She accepted that the DSBD and its agencies still had a long way to go to earn their place as the shining stars of the government in terms of driving the SMME agenda. At times, the Department’s pace of response had been slow, despite its good intentions and the best of its programmes. It was working on dealing with its limitations and towards being more efficient, improving its turnaround times.  

If one compared where the Department was currently to where it was before, there was indeed an improvement, but the improvement was not good enough. It was trying to use technology, to make sure that it had a better reach. It was trying to work with partners in local government and municipalities, and this was supporting the district-based development model, so that it could strengthen its reach and make sure that the smallest or the most informal of small businesses could be assisted by the DSBD.

Budget reallocation

Mr Lindokuhle Mkhumane, Acting DG: DSBD, said everyone was aware that a state of national disaster had been declared, and the DSBD had had to come up with interventions that would cushion SMMEs and co-operatives, because most of them were not operational, especially under the Level 5 regulations

In line with the President’s directive that departments had to cut their budgets by 20%, the DSBD had submitted its revised arrangements by 22 May. SMMEs, and cooperatives in particular, had been affected. Most of them had been unable to operate. That was why the Department had had to come up with various interventions, the key one being debt relief, because one wanted to make sure that at least SMMEs would still be able to operate. It had assisted them by paying for rent and utilities, because it knew the SMMEs could not ask municipalities to defer payments, because they did not have money either.

The DSBD had negotiated an intervention at a later stage with the Department of Employment and Labour (DEL), because most businesses had not registered their workers for UIF, so it had to make sure that people did not go without any income. The Department could partially fund the salaries of the employees.

With the re-prioritisation by the DSBD, NT had reduced its budget by R67 million. The Department had had a target to support 103 SMMEs and cooperatives through blended finance, but had to remove this target for 2020/21 because the money had been repurposed to support the COVID-19 response. Of the R87 million meant to support 1 000 cooperatives, R63 million remained after the re-prioritisations. The budget to support 700 majority black-owned businesses through the Black Business Supplier Development Programme (BBSDP) also had to be re-prioritised.

In terms of the interventions the Department came up with to support especially township and rural area-based businesses, it had decided to customise the interventions for every type of informal business. There was a list of sub-sectors within the informal business space where it had been able to allocate some budget, even though it was not sufficient.

The objective of this process was to support the fomalisation of informal businesses. The department wanted to support them to develop a credit record, because if they wanted to become big and competitive, they needed to have some sort of credit record, so that they could be able to access money from other financial institutions. The DSBD was supporting them with equipment, stock and access to infrastructure. Those were the schemes, the chisa nyama’s, and the spaza shops. Some were being launched. Some existed already, but what the Department knew was that these interventions were changing the way in which rural and township business were functioning. It wanted to make sure that they were formalised so that some could become part of the mainstream economy, and could become big businesses.

The last of the interventions was the Small Enterprise Manufacturing Programme. It was the programme the Department wanted to utilise to drive localisation, because COVID-19 had exposed SA as a country that did not manufacture enough articles locally. It was going to drive localisation through SMMEs and cooperatives. It had interacted with the big retailers, and they had provided lists of products they were procuring from outside, which could be manufactured locally. This was one of the big schemes that would change the way SMMEs were viewed in this country.

The Department was supported by the Department of Trade and Industry and Competition (DTIC). It had contributed R200 million towards the development of a small scale manufacturing facility. There was a R316 million budget that had been re-prioritised in 2019. He would come back to this at a later stage. There was also the R1.2 billion budget that had been set aside for this financial year, so the total budget that was available for intervention was R1.7 billion. The Department was engaging with NT through the National Credit Guarantee Scheme. In terms of the baseline, what had been reduced in this financial year was R67 million, most of which had been taken from goods and services.

Sefa had been made responsible for implementing the interventions, and the Department had a structure that met almost every week to look at how it was disbursing funding, and how it was formulating the programmes that were responding, both to the COVID-19 as well as the economic recovery.

The enterprise development and entrepreneurship branch was the DSBD’s biggest. The money that went to the Small Enterprise Development Agency (SEDA) came from that particular branch, which was around R850 million. Then there was the R1.2 billion that went to Sefa for the interventions the department had developed. There was a branch called integrated cooperatives, which had R140 million, and the incentive scheme that supported cooperatives came from that particular branch. The smallest branch, sector policy and research, had R128 million, and administration had R129 million.

The allocation per economic classification was broken down into transfers and subsidies (R2 billion), which went to supporting businesses, goods and services (R89 million), compensation of employees (R162 million), and machinery and equipment (just above R4 million). The adjusted budget had cuts totalling R67 million, with R6.4 million taken from administration, R8.1 million from sector policy and research, R13 million from integrated cooperatives, and R36 million from enterprise development and entrepreneurship.

Money had been saved on travelling and the use of consultants, so money had reduced from those areas to make up R28 million. Under transfers and subsidies, R29 million had come from the Township and Rural Entrepreneurship Fund, and R10million came from cooperative incentives. This made up the R67 million that this Department had to give back to NT.

On 4 March, the Cabinet had approved the Township and Rural Entrepreneurship Programme. The pandemic accelerated the implementation of this programme.

The DSBD had established an economic recovery task team, made up personnel from the Department, as well as the entities, where the response was discussed and the implementation monitored. There was a plan for economic recovery and small business support which would be presented to the cluster which had been well received, because it showed exactly how it would be tackling the support for small business, and to make sure that they were part of the economic recovery of this country. This plan was aligned to the 2025 strategic plan and the 2021 annual performance plan (APP), and the DSBD had implemented the interventions. These fell under the normal business operations of the Department, as well as the entities, but this plan went further and ensured that informal businesses received special attention during this period.

The programmes still had the approval structures that had been put in place, so the Department was not being reckless in advancing support to small businesses. Credit committees had to look at these applications. Due diligence would be done to make sure that the right people were funded. The Department had engaged with private sector stakeholders. Commercial banks had been really supportive, especially with the spaza shops, as well as other informal business initiatives.

In terms of funding the projects, there were guidelines which were being followed to the letter to make sure the DSBD did not have adverse findings.

It had engaged with other government departments and sector education and training authorities (SETAs), because they had a lot of resources and reach, and they could support the DSBD in providing some of the training support.

Private sector organisations were also part of the Department’s engagements. It met almost on a weekly basis with the private sector, because its support was needed to make sure that the businesses survived and grew, and were part of the economic recovery system.

Partnerships were established in order to facilitate co-funding, because the Department did not have all the resources. It also relied on co-funding by other partners. For example, with debt relief, the DSBD had had some of the money -- R530 million -- but the demand on the scheme was overwhelming. The applications the Department had received totalled R5 billion, meaning that it had a deficit of R4.6 billion, so one could see that COVID-19 really had a great impact on SMMEs and cooperatives.

Broad-based black economic empowerment (BBBEE) was very important to the DSBD. All its initiatives were geared at stimulating the development of black businesses across the spectrum. The aim was to grow these companies so that they could become serious players in the economic space. The Department was biased towards women- and youth-owned businesses, and those owned by people with disabilities. It was making sure it implemented a judgment in a case that had been brought against the President, as well as the Department, on the criteria. It would make sure the Department was clear on race, youth, well as disabilities, and would therefore be strong in terms of implementing BBBEE.

Regarding its performance for the last financial year, the DSBD was still working with the Auditor General (AG), and there had been some delays. The Department was expected to submit financial reports to the AG at least by the end of this month, but in terms of its performance for the fourth quarter, it stood at 85%. Because of the meetings that the Department was having, it had had to shift budget and not execute programmes, and had focused on coming up with interventions that were responding to the COVID-19 pandemic and preparing themselves to make sure that the schemes were launched as soon as possible.

Ms Semphete Oosterwyk, CFO: DSBD, said the Department had overspent in terms of cash flow by 13.4%, but had also under-spent in terms of its set targets, by 15%. Administration had not achieved one target and had under-spent by 12.6%. The sector policy and research programme had spent R5 million, 36.4% less than its R7.9 million budget, but had achieved 100% of its targets. The integrated co-operative development programme had achieved only 80% of its targets, and had spent R57.4 million against a budget of R35 million -- an over-expenditure of 63%. In the last programme, which was the enterprise development and entrepreneurship programme, two targets were not achieved. The Department had hoped to spend R239 million, but had exceeded this by 11.5% by spending R267 million.

The programme which had overspent the most was transfers and subsidies, where the Department had exceeded the budget by R58.4 million. This was, from a cash-flow projections perspective, more than the Department actually exceeding the budget, because it had for the first three quarters accumulated surpluses of R72 million, which it had used to offset the overspending.

The Small Business Innovation Fund (SBIF) had not really overspent. When the Department re-prioritised it, it did not have a line item for the COVID-19 emergency fund. The only line the Department had to transfer money to Sefa with NT approval had been this SBIF line. R85.3 million had been re-prioritised from the various items in the Department. R19 million was taken from goods and services, and R60 million was re-prioritised from the Black Business Supplier Development Programme (BBSDP).

R6.3 million had been received in December, but could be processed only in the fourth quarter, hence the cash that was available for SBIF purposes. One programme which under-spent had been the BBSDP, which under-spent by R56.6 million. The Department had engaged the office of the AG to help with a forensic investigation around anomalies it had picked up during the regulatory audit. The recommendations that came through required the Department to become more stringent in assessing the applications that it received. There was therefore slow progress in processing Cooperative Incentive Scheme (CIS) claims which were BBSDP-related, because some of the claims that the Department had received where not fully compliant. The CIS was in the same category, but most of the CIS claims were able to be corrected to bring in the necessary documents that the Department required to be able to process the claims. Therefore the R24.8 million CIS overspending was not overspending in terms of the budget, but more a catch-up of the cash flow surplus the Department had.

The National Informal Business Upliftment Strategy (NIBUS) scheme had over performed by R15 million. The surplus was from the second and third quarters. The Craft Customised Sector Programme (CCSP) had over-performed by R4.7 million. The reason was that the Department had received the claims much earlier in the fourth quarter. The disbursements had happened late.

SEDA had under-spent by R15 million, because the Department had hoped to transfer the money in the fourth quarter, but they had requested the money in the third quarter. The Department had the money in its account, but had used money that it had as a surplus in the bank account, to give SEDA the money in the third quarter.

Transfers, which were mainly leave credits which were paid out to officials who left departments and had not necessarily been planned for, also over-performed by R271 million, and the Department had used money from goods and services to offset that. Because of vacancies, it had under-spent on compensation of employees (CoE) by R2.6 million. Goods and services actually under-spent by R14.3 million, mainly because of travelling invoices and venues which still needed to be paid, but also because the Department had re-visited its APP,

With the advent of the new administration, most of the research programmes had been stopped and the budgets allocated were no longer required. The DSBD had had to buy capital assets in response to the COVID-19 pandemic, such as laptops for officials who would ordinarily have utilised Central Processing Units (CPUs), so it had exceeded the cash flow for the quarter by R976 million.

Minister Ntshavheni said that what was becoming apparent to the Department was that when the engagements were done, a discussion was needed on the recapitalisation of Sefa, because in the main, it continued to carry the largest of the applications for support from SMMEs. Without its recapitalisation or discussing its funding model, the DSBD was going to continue to give expensive finance to small businesses, because then Sefa tended to rely on interest charges. The Department was in dialogue with NT, but also with the Presidential Council on state-owned enterprises (SOEs) on the amalgamation or rationalisation of Sefa and SEDA, asking what the business model and the funding model was, so that the cost to businesses would not be unfairly high. Those engagements were progressing, and she desired another engagement with the Committee before the next round of appropriations in order to influence how that recapitalisation took place.

The Minister said the other issue she needed to indicate on the issues that had been raised was that the DSBD’s engagement with the private sector was yielding much progress, but government was not firm enough in terms of obliging the private sector to contribute to the development of the country. The reason why the BBBEE programme had been suspended was that the way in which it was currently run was not beneficial.

One large corporation had come to the Department to say it wanted to do the equitable placement through a replacement programme, but they wanted to spend only R100 million, and in that R100 million they wanted to advance their products. The Department had said this was not acceptable. It was engaging with the BBBEE Commission about what the minimum should be that was prescribed for the private sector to contribute. The economic recovery of this country would not get off on the right footing if the private sector did not contribute what they had promised to contribute.

Discussion

Mr Joseph said from his personal experience, he understood what people went through when struggling to start businesses. They had good ideas and business plans, but the support was not there, because the security required for previously disadvantaged people was 100 times higher. He did not know why that was the case – it was as if this group of people were not trusted. The result was that they could not make a contribution in the economy and feed their families.

Minister Ntshavheni replied that the Department’s focus on women, youth and people with disabilities was non-negotiable. With youth in particular, the governing party had set a target of 20%. The Department’s own target was 30% support for youth-owned enterprises. It had not met that target, but was pushing for it aggressively. It was also debating the 40% vs 50% support for women-owned enterprises. Because of the court judgment, it was debating the percentage for race, because the court had ordered the Department to specify the percentage of black people who benefited from the funding in terms of redress that had not been done in the country. Currently, it was working on 70%. If one looked at Business Partners, one of the entities where the department was a shareholder, it was 30% black and 70% white. If one went to the banks, even if one used the national credit guarantee as an example, the majority of those who benefited -- more than 70% -- were white. Government had to address the market failure.

Ms Ntlangwini asked about the suspension of the Township Entrepreneur Fund. What were the plans of the Department to have this addressed, especially with township businesses that were faced with inequalities?

Mr Joseph said the intervention in the rural economy was critical, as the Minister had mentioned. A lack of economic development in the rural areas led to urbanisation. Everyone was coming to the cities looking for opportunities, while the country could invest in the rural economy, create a balance and take the pressure off urbanisation. The SMMEs were critical in this respect.

The Minister replied that there was a concern over the redirection of funds from the Township and Rural Entrepreneurship Fund. The DSBD had re-prioritised this programme to close that gap. That was why the Department was not itself concerned about it. The schemes she was talking about, including the localisation and industrialisation programmes, dealt with township and rural entrepreneurship development.

When it created the schemes for informal and micro enterprises, the DSBD had partnered with the banks and said, as a requirement, that the government had to use whatever its investment was to create a credit profile for these micro and informal businesses, so that they could qualify for lending or credit facilities of the banks.

Similarly, on the national credit guarantee scheme, the Department’s approach was that it wanted to deal with the market failures. Its intervention was that it wanted to clearly support black businesses, women-owned and youth-owned businesses. The President had said it had to insist that the national credit guarantee scheme also had to assist informal and micro businesses, because they were the bulk of the businesses and needed to be funded.

The conditions that the banks wanted were not helpful, because they wanted a credit profile and they wanted to service only their clients. That was why the Department had intervened with NT, and there had been significant progress. It hoped there would be a decision within the following few weeks in terms of the Department’s participation. It wanted to participate through the Khula Credit Guarantee Scheme which it already had, and it would partner with the banks, because it thought that if the Khula Credit Guarantee Scheme was used, it would get better traction with SMMEs.

Mr Joseph asked the Minister about the senior acting positions mentioned in the presentation. There had also been an under-spent amount of R2 million. He thought maybe the acting managers did not get the same salary as the appointed managers would get. Why were there senior managers acting in positions on a continual basis?

The Minister thought that the period the person was acting was not important. What was important was what was being done to fill the posts. The DG position was being been filled. The Department of Public Service and Administration (DPSA) was finalising the appointment. The interviews for the position of the CEO of Sefa had been done and the approval processes were under way. The position should be filled soon.

The SEDA CEO position was not vacant. The CEO had been suspended and the board was completing the process. The suspension had been done in April. The Department had urged the board to complete the process as speedily as possible so that the CEO could either resume her duties, or the position could be filled by someone else.

Mr Joseph said the COVID-19 situation had started in March, but the critical decisions were made by Cabinet towards the end of March. By the end of March, the departments should almost have been done with their fourth quarterly spending, which was an overview of the whole year’s spending. He was not sure whether departments were hiding behind the fourth quarter and COVID-19. He understood that the South African Social Security Agency (SASSA) and some other departments were directly affected, but most departments had to have completed their fourth quarter expenditure by 26 March.

The Minister clarified that COVID-19 had started to hit China in November 2019, and in December it was already under lockdown. Trade with China had been affected by that. The government was already discussing in January what had to happen if the outbreak in China became a global pandemic. At that point, China had shut down tourism and travel. The economy had been impacted as early as January and February. The re-prioritisation was a way of saying: “Let’s slow down so that we can have a response if this outbreak reached us faster.” It was not an excuse. The reality was that the pandemic was in the consciousness of government since November. This was when the decisions were taken. This Department had been the first to announce relief schemes, because it was already ready to support small businesses during the COVID-19 period.

Mr Joseph referred to cash flow and overspending in the presentation. He assumed there had been a reprioritisation of money, but asked where this R58.4 million was going to come from, resulting in a 63% overspend. He did not assume a shifting of money, but where had the Department got the money from? What could it do better in future to avoid the cash flow challenges?

Ms Ntlangwini focused on the key responsibilities of the DSBD and also how important and vital it was to the country's economy. Mr Joseph had picked up on the cash flow issues of the Department. It seemed as if all departments coming to the Appropriations Committee were using COVID-19 as the reason for under- and overspending. She cautioned them to avoid doing that, because in appropriations one accounted for the money that one spent. For the Committee to determine whether the over- and under-spending was really due to COVID-19, she thought the Department should provide the Committee with a spreadsheet or layout, where the amounts of over- and under-spending were explained. The Committee needed to look into the approach of these departments ascribing all their over- and under-spending to COVID-19. This practice created a wrong culture regarding accounting for funds.

The Department needed to take an active role in also addressing its own under-spending, especially when under-spending was described as savings. A funded post that was vacant was not a saving.

The Minister agreed that there had to be an improvement in cash flow management. The DG and the team would respond to that.

Mr Joseph said the Committee needed to support this Department, because the future of this country and its economy was largely based on how well Parliament supported it.

Ms Peters said she fully agreed with Mr Joseph when he said the Committee needed to support this Department, especially at this point, working towards post-COVID-19. With this Appropriations Committee, the Department would always find a soft spot to land whenever it had serious challenges with regard to funding. If anything, this was the Department the Committee needed to fight for, because many people were going to lose their jobs, or had already lost their jobs. Many of them would try their hands at small business with the little packages they had. They needed to find a safe haven in the DSBD.

Mr Qayiso said he appreciated the issue of amalgamation. The President said there had to be a way to review the role of the SOEs, to maximise their role as far as the development of the economy was concerned. The recapitalisation had to happen, and this Committee was fully behind the DSBD

The Chairperson agreed with the Minister that there was a huge incongruence between the expected outcomes of the Department and the resources which had been made available. This pattern repeated itself with all other development funding institutions (DFIs) which were involved in funding SMMEs and black-owned companies. This Committee had to desist from doing it. Giving R2 billion to a national department which had to take care of all small businesses in the country did not add up. It was an unreasonable expectation. There was definitely a need for more resources for this Department.

The Minister thanked the Committee for its commitment to support the Department with future appropriations. It was available to have detailed engagements with the Committee where more clarity was needed, or where the Committee could guide the ministry and the Department, so that when the Committee fought for resources for the Department, it was fully empowered in terms of the work it was doing.

Ms Peters said the DSBD must also move with the times and set itself up to respond to the challenges, especially of those of young people, as well women, because she believed that in the current climate, government really had to make sure that it responded to the needs of the youth and women.

There seemed to be a standstill in SEDA’s pitches, which was a springboard for SMMEs. Taking into consideration the fact that people were connecting digitally and working virtually, she suggested that SEDA looked at a digital resurgence of their pitching arrangement. The SEDA processes were also still too paper- or document-centric, and small businesses were at times struggling to source access to the internet, let alone getting documents to be printed.

SEDA had to make their processes easier, especially for small business of young people. SASSA processed the applications for the R350 grant with the Unstructured Supplementary Service Data (USSD) platform, and the DoH with their COVID-19 messages were also utilising the USSD platform. There were many other government departments and other entities using the platform, not only the mobile networks. She suggested that SEDA should also create that type of operational arrangement where it became data-free and easy to access, especially for the youth in this instance. It would be a data-free site, and it would be accessible.

The Minister said Ms Peters had raised important issues around the use of technology. The Department had started to use technology. It had created the SMME database. It did not have the solid state drive (SSD) feature, but it was going to move to it. The SMME database allowed the Department to also integrate its back office, to minimise the separation between SEDA, Sefa and the department, so it was working at the back end to make sure that everything else could be done online. Currently, the applications on all the informal and micro business schemes that had been announced were done online. The spaza support scheme was not online yet, but would be soon. The Department was starting to process online, and it would come and share with the Committee the significance of that SMME platform in enabling SMMEs, not only as a way of knowing how many there were, but also for them to participate even in the global value chains, through that platform. The Department was talking integration with the European Union (EU) platform, with the international trade centre platform and with the Africa Medical Supplies platform, and many other platforms. It was also talking with other big corporate companies in terms of linkage with their own platforms, and also creating a trade exchange from it. Regarding virtual pitching, SEDA was already working on a way to allow for virtual pitching so that the pitch for funding could continue across the country, without disadvantaging rural provinces.

Ms Peters said there was also a need for the DSBD to provide incentives. The Minister might not be old enough to remember, but in the townships and rural areas, the government used to build shops, where small businesses used to lease them from government. Examples were Thaba’Nchu, Botshabelo, Mahikeng, as well as in the EC. In Kuruman, Mothibistad, there were shopping complexes which were owned by provincial entities, which just needed to be refurbished and leased out to these township and rural economic enterprises so that high rental overheads would not be a deterrent from renting a space. The foreign-owned tuck shops had identified this niche, and were leasing houses from South Africans to use as shops. It was important to see how this could be used to support small business owners.

The Minister replied that Ms Peters had referred to the shops in the townships, and the Department was working with the DTIC to revitalise the industrial parks and make them available to small businesses. Sefa also had a very strong portfolio across the country of properties that it wanted to dispose of, and the Department had said they could not be disposed of -- they had to be re-purposed for use by small businesses. In 2019, the board and executive committee of Sefa had gone around the country to assess the properties. The assessments could not be completed because of the COVID-19 pandemic. This process would be finalised when circumstances allowed for it and the infrastructure would be made available.

The Department was also working on what it called the Shared Infrastructure Programme. This was a programme that made it possible for SMMEs to own properties/facilities together, without necessarily carrying the full financial burden. She used the example of the fashion industry, where a collective of small independent fashion designers displayed their wares in a shared space called Young Designers Emporium (YDE). In terms of the clothing, textile and leather strategy, the Department was creating Mzanzi Fashion/ Ekasi Fashion. It would function along the same lines as YDE, and the DSBD would rent a shop in a mall to showcase their wares. The same could be done for people growing agricultural products. The details of the Shared Infrastructure Programme would be made known at a later date.

Ms Peters said it was painful to see Pick n Pay, SPAR and Woolworths selling vetkoek (fat cakes), taking business from poor township women raising children and grandchildren. Young people could also do this, but they could not compete with Woolworths, SPAR and Pick n Pay.

The Minister replied that the Department could not stop Woolworths from selling vetkoek, but it had a scheme to support informal and micro restaurants, chisa nyamas and ekasi take aways, to make sure they could compete strongly with Woolworths, including packaging, and making the product available in a way that was presentable.

Ms Peters asked why the government allowed Pick n Pay and Checkers to put up mobile truck tuck shops in the townships. This worked against the objectives of government to generate economic activities in townships from which township people could benefit.

The Minister agreed that Pick n Pay and Checkers should not be allowed to open spaza shops in townships. The Department was working with the SA Local Government Association (SALGA) to make sure that the practice stopped. The ministry had taken a decision as government. Sefa was partnering with Pick n Pay, and the DSBD had stopped the partnership. Those businesses had to be left to be operated by ordinary township people who could not afford to invest in big business. The participation of these big retailers in this market made what was normally a low-entry business very expensive. A spaza shop of Pick n Pay cost R300 million, while one could start an ordinary spaza shop with R1 000.

Mr Mathafa referred to the repurposing of funds towards COVID-19. This point was coupled with the view that “...there are measures that we think can be implemented to achieve the NDP target of nine out of 10 new jobs being created by SMMEs.” What measures could be implemented to realise this target?

The Minister replied that the Department had taken a decision to re-prioritise the Township and Rural Entrepreneurship Programme, because it believed the majority of people could start informal and micro businesses where they resided, and this would create jobs. The Department would provide information on the spaza support programme to show how many jobs had been preserved and created so that the Committee could see it was chasing job creation targets.

Ms Peters said there was a need for peer-mentoring. SEDA needed to create a platform where emerging small businesses, especially young people, could have mentors and coaches available, as part of its support for existing small businesses. It would reduce the over-reliance on SEDA. She also believed incentives needed to be created. She asked whether an opportunity could be created, after the appropriations season, to get the DTIC and the DSBD to discuss jointly how to incentivise the starting up of businesses in order to resuscitate the broader economy and the township economy. With the black industrialist development programme that the DTIC was driving, she believed that the DSBD needed to be the incubator for the black industrialists’ businesses. Without the incentives, which NT had to provide, it would be impossible to incubate the industrialists that needed to emerge from the black community.

Mr Mathafa said the earlier discussion with the DBE had inspired this question. Mention had been made regarding small and emerging building contractors that did not reach the legislated requirements to win big tenders and contracts. Ms Peters had mentioned peer-mentoring incubation programmes. Did the DSBD have any measures and mechanisms to ensure that these small individual contractors did not remain in that space, but could grow and develop in order to be to able to compete on an equal footing with those that were already developed, considering that most of their work in local economic development would revolve around manufacturing and construction.

The Minister said she was privileged to sit in on the discussion with the DBE when it was explaining the exclusion of small contractors and emerging contractors. There was a tendency by officials to put requirements in their bids to make sure they excluded small and emerging contractors. Part of this Department’s responsibility, when it dealt with both the Public Procurement Bill and localisation, was to specifically say: “We are no longer creating a 30% requirement in the Bill. We are saying certain categories of jobs were to be reserved and preserved for the local people.” Local could not be the whole of SA -- local meant that province or region. When the department submitted its support for the Township and Rural Entrepreneurship Programme, it detailed the number per province and individual districts that it wanted to support in that area to ensure the spread. This was what the district based development model required.

On the Infrastructure Development Programme, the DSBD was part of the inter-ministerial Committee. She agreed with the Department of Public Works and Infrastructure Minister, Ms Patricia de Lille, that  the infrastructure programmes for government had to contain clear targets and clear reservations for local and emerging contractors -- not at a percentage level, but particular jobs had to be reserved for them. Officials would then stop putting in requirements which excluded small and emerging contractors.

The Minister said the DG had mentioned the industrial development/localisation programme, which was an incubation programme the Department was creating. It would come and share the details with the Committee, because it needed more funding. It was funding it through blended finance, and it wanted to fund it through the national credit guarantee scheme participation, but it would need more money. The details would be shared later.

Mr Mathafa asked whether the Department had a view or a sense of how much SMMEs contributed to the GDP of the country. Was it happy with that particular rate of contribution, and if not, what would be ideal as a target for the Department?

The Minister replied that the GDP contribution by SMMEs before COVID-19 was between 24% and 35%, depending on the sector. The target set by the NDP was 70% by 2030. The Department would have an engagement at Cabinet level to see whether it was still feasible, and if it was feasible, what support was needed to reach that target.  

Mr Mlenzana asked the presenters to speak about the resuscitation of the economy through the informal economy. He appreciated the endeavours by the ministry in terms of driving localisation, but he wanted to know more. Did the ministry have a tool for impact assessment, to measure whether what it did nationally also prevailed at the local level?

The Minister replied that SA had learnt from Eastern Europe that informal businesses were the major drivers of the economy. Even in the country where it was estimated that 2.4 million businesses were SMMEs, 1.4 million were informal businesses, and they therefore made the largest contribution. That was why there were dedicated schemes to support informal businesses. The Department was not only supporting them as informal businesses, it was moving so that it could account for those businesses in the economy, and that was why it required them to register with the SA Revenue Service (SARS). They were also supported to register their employees with the UIF. When they registered with SARS, they were exempted from paying tax. They paid R10 UIF per employee per month, and the employee was protected by the Workmen’s Compensation Act. Having these informal businesses on record helped the Department to fight for budget. NT would know the numbers and the impact on the economy that it was chasing.  

The Minister said she had adequately covered everything except the question on how impact was measured. In the Department’s reports, it had a balance score card where it reported on the development impact on basically the core areas -- the policies of government, particularly in relation to the advancement of funding to the designated categories in terms of the country’s demographics, be it on race, gender or disabilities. The Department also reported consistently on its penetration and the impact it made in townships and on rural economies. All the relevant reports were readily available and could be supplied to the Committee. The Department could also make a submission on the matter to the Committee.

Mr Mlenzana said the ministry had a database with the performance history of cooperatives in particular and small businesses in general. There was an allegation that Department officials, whether in development agencies or departments, as soon as COVID-19 was announced would immediately jump in and create their own cooperatives for their personal interests, to the disadvantage of the already existing small businesses and cooperatives.

He had information, which he could provide outside of this session, on a cooperative which had been established in 2006. It had been funded by Tourism, and in 2008 it was funded by Social Development. Then there had been a lull until 2013, when it had its only signboard funded. It had collapsed since. It was a craft centre for women and people with disabilities. It was currently crumbling. What was this Department doing to assist these SMMEs and cooperatives in dealing with the delayed payments by the departments and entities? Delayed payments were cases where government department did not pay invoices within 30 days.

The Minister replied that the Department did not have a database of the SMMEs and cooperatives it had supported in the past, but was recreating that record and tracing the support. For instance, when it did the schemes where it supported small businesses to revitalise the economy, it was saying investments that government had made in the past, had to be recouped, so in addition to supporting new businesses, it had to re-invest in those it had supported before which were now struggling, to make sure they succeeded. That was why its interventions were not once-off. They were 24 to 36-month engagements.

Mr Mkhumane wanted to clarify something around expenditure on the PPSDP. The DG said an audit had been done by the AG. The audit had come out with some findings, and the Department had had to strengthen some internal control measures. There had been some delays, because it had had to check the connectedness of businesses, for example, because some people established multiple enterprises, so they would be benefiting twice from the same scheme. Internal control measures therefore had to be instituted. To make sure these people were not bypassing the system, one had to go to the Companies and Intellectual Property Commission (CIPC), then to the Central Supplier Database (CSD), and also interact with SARS. To prevent government employees from benefiting from the Department’s schemes, It also had to interact with the DPSA to check the Personnel Administration System (PERSAL), so processing payments to some of the approved projects had to be delayed. The Department chose to save the taxpayer money, rather than possibly funding the wrong enterprises. It was working to ensure that these internal controls in future did not delay payments to approved projects.

Ms Ntlangwini said there were companies taking relief funds from government, only to close shop two months down the line and retrench people. Private companies and the government needed to work hand-in-hand. If a company was taking any emergency relief from the government, it could not just retrench workers at will. This Department was also responsible for job creation.

The Chairperson said the Committee debated before about the R200 billion facility of NT and the SA Reserve Bank. This money had not been accessed by SMMEs or black businesses. It was seen to be mostly urban-based. Rural areas had no chance of accessing this money. It would be difficult for BBBEE companies to access this money, especially those not based in cities. At the last count, only 5% of the money had been used, with all the types of economic problems that came with it. The Department had been interacting with the NT. What had been its response? The Appropriations Committee felt that the financial developmental institutions (FDIs) also had to be able to access this money. Also, there had to be conditions attached to the financial relief which businesses had to abide by -- for example, not retrenching workers after accepting financial relief from the government.

Ms Ntlangwini asked whether the Department could provide the Committee with a list of companies that had received emergency funding in writing, because then the Committee would be able to see whether there was a fair flow of relief going to companies.

The Minister said she would provide the list of companies and sectors which had benefited from financial relief from government, and would deal with the issue raised by Ms Ntlangwini that companies received financial aid from government and then retrenched workers afterwards.

When the Department reported on its disbursements and approvals, the disbursements and approvals were not the same, because it was doing monthly disbursements, and the employer had to provide proof that the business was operating and the workers were still employed, because it did not pay if the business had shut down. The Department had advised the UIF to do the same, and the UIF was also doing monthly disbursements to ensure it did not pay for people who were no longer employed, resulting in the money ending up with the employer.

Mr Qayiso commended the work of the ministry over a long period of time. The brief of this Department was the roll-out of the people’s economy at the township level. This Department was a platform for many small entrepreneurs and business people to find their feet in the business world and revive the township economy. The issue he wanted to raise was the one of employers not registering their workers for UIF. The DSBD had to work very closely with SARS and the DEL. SA had a high number of unemployed people, leaving the door wide open for exploitation, because many unscrupulous small business owners did not register their workers for UIF. When this happened, the DSBD failed in the mandate it had to fulfil in the economy, that of creating formal jobs. This Department, SARS and the DEL had to work together to track down this anomaly.

The Minister replied that she had dealt with the requirement to register informal businesses with SARS and the UIF. The Department received criticism from people asking why this was necessary. The answer was to protect the workers, but it was also that better funding could be made available for them in the future only if those informal businesses were formally be accounted for in the economy,.

It had taken the Department two months of negotiations with the UIF for the DSBD to access funding for SMMEs which had not registered their workers for UIF. If it had not succeeded in that negotiation, the majority of SMME employees would not have benefited from UIF during COVID-19. This Department was working closely with the commissioners of SARS and the UIF as well as the Department and Minister of Labour, in terms of registration and their continued participation and support.

The Chairperson asked the Minister what her experience had been with provincial development institutions, like the Free State Development Corporation. Had there been any interaction, and what had come out of it? When the Committee dealt with the Land Bank, it had seen there was such a huge need to recapitalise these institutions which focused on black business. Government had to walk the talk. One of the things that had been raised by the Land Bank, which had been raised by the DSBD,t was the cost of funding for small businesses. Small businesses had to be able to benefit from discriminatory funding -- in other words, the interest rates had to be low. As Mr Joseph had said, black businesses ended up paying more than established businesses for funding, because they were seen as high-risk clients. This was called market failure. This was where the government had to step up, otherwise it would forever lament the lack of economic activity amongst the black population, while doing nothing to stimulate it. NT had to start funding inclusive growth, because not much was happening.

The Minister said she wanted to express sincere appreciation for the commitment the Committee had made to support the DSBD. As Department, it had created a Ministers and Members of Executive Council (MINMEC). Since the establishment of this Department in 2014, there had never been a MINMEC, but this year it had created one. It included the Minister, the Deputy Minister, and the MECs responsible for economic development in the provinces, because everybody realised that economic development in the provinces was not driven by the mandate of the DTIC, but by the mandate of the DSBD. In that MINMEC the politicians collaborated on a number of things. In the schemes that the Minister had referred to, the provincial departments were supporting the Department by topping up funds where there were gaps.

She used the example of KZN. The Department was going to support over 2 500 spaza shops in KZN. The province had then said it would top up, to expand the number to 3 500.The provinces topped up, using their own agencies. The provinces were not fully integrated with the Department yet, but she was happy with the integration and cooperation from the provinces up to this point. Limpopo, North West, the Free State and KZN in particular were very cooperative. When the DSBD needed to work with call centres, these provinces availed their own call centre capacities, some using their agencies.

The Department was hoping the other provinces would also improve their cooperation with this DSBD as they clarified their issues. It was concerned about the collaboration with the Western Cape (WC), which was minimal, as it tended to frustrate the work of the Department. It had engaged at Cabinet and other levels about this matter to promote a more cooperative response from the other provinces, including the WC. The WC was not a federal state.

The Chairperson asked what the Minister’s take was on the Public Procurement Bill. Was it starting to deal with this Department’s challenges? The bill said the government had to hold the private sector responsible. One way of holding the private sector responsible, when it procured goods and services from government, was to ensure it had dealt with some of the things the Committee was raising. He wanted to find out whether the Minister and her team had looked at the Public Procurement Bill and whether it was addressing some of the things the Committee was raising.

The Minister replied that the Bill was a good start. The Department was making submissions on some of the issues involved. The Public Procurement Bill should not only prescribe percentages. The Department wanted the supply of certain goods and services to be strictly reserved for SMMEs. If the Bill said 30%, officials had ways of working around that. If one said the uniforms of police and soldiers had to be procured only from SMMEs and cooperatives, then there would be no debate about big or small business. It had to be a small business, and officials could be held accountable for it.

The DSBD was arguing, for instance, why bread used in the feeding schemes of government, hospitals, food parcels of social development should not be procured from small businesses and cooperatives. That was the move that the Department was promoting. It would share its comprehensive submission on the Public Procurement Bill with the Committee.

Mr Mlenzana was interested in the black business supplier development programme, which was listed amongst those where the expenditure trend was not very good. What was the root cause for the low implementation of this programme, which was geared towards cooperatives and SMMEs scaling up their operations?

The Minister said that the DG would deal with the poor performance of the Black Business Supply Programme, but the DSBD was no longer continuing with that. It had improved it, and hoped that the programme of industrialisation would enhance the participation and performance of black industrialists, because it was also strongly partnering with the private sector and the banking sector to make sure the speed and efficiency was much better.

Closing remarks

The Chairperson said the engagement was the beginning of a process. This was the only forum which could galvanise inclusive growth in the economy of SA. The Committee would engage with the Department on a continuous basis.

The meeting was adjourned.