Extract 1 Observations from the Portfolio Committee on Small Business

The Portfolio Committee on Small Business Development, having considered the Strategic Plan, Annual Performance Plan and Budget of the Department of Small Business Development for 2015-16 on the 25 March2015, 15 April 2015, 06 May 2015, 12 May 2015 and 13 May 2015 reports as follows:

Observations

Having met with the Department to scrutinise the Annual Performance and budget for2015/16, the Committee made the following observations:

  1.   The Strategic Plan of the Department is aligned to the mandate of the Department. Programmes of the Department are those that were established by the Department of Trade and Industry (the DTI) when the responsibility of developing SMMEs and Cooperatives was a function of the DTI. Therefore, there is a need for the Department to facilitate a scientific assessment of the effectiveness of its programmes within a broader mandate of the Department than when it was a programme in the DTI.
  2.   Theperformance indicators in the Annual Performance Plan of the Department are notaligned to job creation and poverty reduction targets of the NDP. TheDepartment responded to this issue by stating that performance indicators arearticulated by National Treasury and the Department of Public Service andAdministration. This implies that the key performance indicators of theDepartment is the number of SMMEs and Cooperatives assisted by the Departmentnot the impact of the assisted SMMEs and Cooperatives on job creation.
  3.   The budgetallocated to the Department falls short of the proposed budget from the BudgetReview and Recommendation Report (BRRR) in October 2014. However, the Committeeunderstood the position articulated by the Minister of Finance that the governmentdepartments have to reprioritise and shift funds within them. Subsequently, theCommittee maintained that in order for the Department to fund other programmesthat were not funded through fiscus, it must start paving way to enter intotransversal agreements with other departments so that the development of SMMEsand Cooperatives could be done in an integrated manner through a collaborativeand complimentary approach between government departments and different spheresof government.
  4.   The Departmentsubmitted a Strategic Plan that has a budget allocation for remuneration ofpersonnel in the Department without an organogram. The Budget Review andRecommendations Report (BRRR) of the Committee recommended that the Departmentshould finalise its organogram to enable the Committee to assess the capacityof the Department to deliver as well as value for money spent on humanresources employed to deliver such a mandate.
  5.   TheCommittee was more concerned that Programme 1: Administration, which is asupport function of the Department, is allocated more budget than Programme 2:Cooperatives Development, which is a core function of the Department.
  6.   The understanding of the Committeeis that SEFA has migrated to the Department. The confusion caused by SEFA’srelationship with IDC and the fact that SEFA continued to align its StrategicPlan with that of the EDD is a cause for delayed progress and frustrations inthe performance of both the Department and the Committee. This will have negativeimplications for the development of SMMEs and Cooperatives. It is still notclear whether SEFA is a subsidiary of IDC or not, since there is no documentedinformation or legislation that has been made available to the Committee toclarify the kind of relationship between SEFA and IDC. The only informationthat the Committee was informed of by the Minister is that there is a Cabinetdecision for SEFA to migrate to the Department. However, the relationshipbetween SEFA, IDC and the Department including the line of accountabilityremains unclear.
  7.   The Committee observed with greatconcern that the funding model of SEFA does not speak to the felt needs raisedby SMMEs and Cooperatives that the Committee has interacted with. The use ofintermediaries who are given loans by SEFA at 6 percent interest rate for themto provide loans to SMMEs and Cooperatives at interest rates that range between42 percent and 110 percent is viewed by the Committee as a funding modelcreated to enrich intermediaries and rip off SMMEs and Cooperatives. When thisfunding model is viewed against the low price procurement policy, it shuts thedoor for SMMEs and Cooperatives to ever participate in the economy.
  8.   TheCommittee observed that the programmes of SEFA do not talk directly with verypoor people operating as survivalist enterprises for the purpose of income generation,such as street vendors, spaza shops, tuck shops, hair salons, etc
  9.   TheCommittee observed that SAWEN is not a state-owned entity, it is an NGO thatreceives funding from the Department. SAWEN is supposed to work closely withthe Gender Unit within the Department to compliment efforts of the Departmentin developing women enterprise and facilitate growth and expansion of theirbusinesses through networking.
  10. The Committee further observed that there was no closeworking relationship between the Gender Unit of the Department which resultedwith SAWEN continuing to develop a strategic plan that does not relate andcompliment the developmental mandate on women given to the Department.
  11. The amount of funding allocated to SAWEN does notmatch needs of women and therefore would have very little impact on developmentof women.
  12. There is unnecessary wastage of resources emanatingfrom the transfer of funds budgeted for Isivande to other public corporation (IDC).These funds get depleted in the way because IDC would take its costs ofmanaging the funds for Isivande notwithstanding that Isivande has to supportSMMEs operated by women, which function resides in the Department.
  13. SEDAdoes contribute to some of government 12 outcomes though it was not specific,however it champions inclusive economic growth.
  14. Theformation of the new Department has opened opportunities for the staff toengage closer with the Minister on how to do things and the staff knows exactlywhat to do and the executives of the entity are working closely with those ofthe Department in terms of developing strategies.
  15. Onvacancy rate and culture change, the Committee learned that in the past, SEDA haddifferent target which were not aligned to those of the Department, and thecurrent target is 10%. Currently, SEDA is training people to be able to trainothers on business development. Poaching remains their biggest challengebecause banks and other institutions take people from them at higher salaries.
  16. Theprocess of appointing a Chief Executive Officer is work in progress since ithas come to a halt after the establishment of the new Department.
  17. Foreign companies that get support from SEDA are those that are operating legally in South Africa. There is no support given to spaza shops, whether they areforeign or locally owned. The Minister has appointed a task team to look at howsmall local businesses can learn to operate smarter.
  18. The Department have SAWEN, Isivande and Black Business Supplier Development Programme (BBSDP) with overlapping mandates and services offered. This arrangement creates an opportunity for double dipping of beneficiaries, whiles overlapping mandates makes it difficult to measure impact to each beneficiary for each programme. This creates duplication of resources.
  19. The Department has planned to continue rolling out red-tape reduction guideline in80 municipalities in 2015/16 financial year. It has been stated that it will beinstitutionalised in municipalities. This statement is concerning to theCommittee since it will be first time the Department plans to roll out red-tapereduction guidelines.
  20. Therewas no clear distinction between the definitions of upper end and Gazellebusinesses.
  21. The Strategic Plan for SEDA relates more on medium size enterprise whilst the Strategic Plan of SEFA is more on micro enterprise, therefore there is a mismatch of plans for these two critical institutions which are tasked for the development of SMMEs. This will indeed impact negatively in the development andpromotion of SMMEs and hence thereby job creation, reduction of poverty andinequality.
  22. Some of the programmes and entities that migrated to the Department are governed by legislations and policies that still reside in the previous departments for example the status of SEFA and its policy to use of intermediaries in whole sale lending.
  23. The Strategic plans of the Department and entities showed fragmented approach which indicated that the Department did not concentrate on integrated planning but rather on implementation of plans as they were from the previous departments.
  24. The Department does not have a research capacity.
  25. There are too many funds with overlapping mandates that caused double dipping whichmakes it difficult to assess the impact on employment growth, poverty andinequality reductions.
  26. Informalbusinesses are not adequately supported.

About The Author

Carl J Lotter is the CEO of the South African Small and Medium Enterprises Federation

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