ATC141030: The Budgetary Review and Recommendations Report of the Portfolio Committee on Small Business Development, dated 29 October 2014
Social Development
The Budgetary Review and Recommendations
Report of the Portfolio Committee on Small Business Development, dated 29
October 2014
The Portfolio
Committee on Small Business Development, having considered the performance and
submission to the National Treasury for the medium term period of the
Department of Small Business Development, reports as follows:
1.
Introduction
For some years even
before 1994, the end of the apartheid, the lives of the majority of ordinary
South Africans especially Blacks have relied on the Small Medium Micro
Enterprises (SMMEs) sector particularlyin the informal sector. Their incomes
and work have been secured in this sector. This sector shows the potential to
reduce unemployment and poverty rates and create a fairer distribution of
income. Hence this sector has become a focal point for South Africa because of
the critical and important role it is perceived to play for economic and social
development.
Currently, South
Africa is characterised by two economies, that is, the first and second
economies.
Bulk of the informal sector falls under the second
economy.
The two economies are totally distinct from each other. The
first economy is modern, integrated with the global economy and possesses much
of the countrys wealth.
Whilst the second economy is
underdeveloped, isolatedfrom the first and global economies and contributes
little compared to its potential to the countrys wealth.
Meanwhile, the
majority of poor South Africans are concentrated in second economy in order to
generate their incomes. In addition, the Survey of Employers and Self Employed
conducted by Statistics South Africa in 2013 revealed that about 69.2 percent
of the participants in this sector participated because of unemployment. This
means that the majorityof thenational labour force rely on the informal sector
to earn their living. Therefore, the informal sector is an important source of
jobs for many groups.
Importantly, aside
from creating jobs, there are other benefits accrued in expanding this sector
through broadening the base of new and existing businesses, these includebenefits
such as the reduction of economic concentration, higher levels of competition,
and increased opportunities for Broad Base Black Economic Empowerment. There
are real obstacles ( as identified in National Development Plan) to creating an
environment that can lead to the realisation of the afore-said benefits, these
include
amongst others, policy
environment that traditionally favours concentration and large corporations,
and distortions created by apartheid in ownership and access to land, capital
and skills for the majority of population. Thus, SMMEs and Cooperatives can
also play a pivotal role in changing apartheid legacy patterns of business
ownership.
It is against this
background that the current government deems the development of SMMEs and
Cooperatives as the panaceafor employment, poverty reduction and fairer
distribution of income, and to radically transform the economy as far as
business ownership patterns are concerned. To crystallise its commitment in the
development of Small Business and Cooperative as a tool for radical economic
transformation, the current government administration has established a
dedicated department that will pursue such in July 2014 after the President
signed the Proclamation which establishedthe Department of Small Business
Development.
1.1
Mandate of the Committee
The mandate of the Portfolio
Committee on Small Business Development (the Committee) as derived from the
Constitution is to maintain oversight over the Department of Small Business
Development. The committee executes its mandate by doing the following:
·
to monitor the financial and
non-financial performance of the Department and its entities to ensure that
national objectives are met;
·
to process and pass
legislations; and
·
to
facilitate public participation relating to issues of oversight and legislation.
As an integral part
of Committee oversight role, Section 5 of the Money Bills Amendment Procedure
and Related Matters
Act,
requires the National
Assembly, through its committees, to annually assess the performance of each
national department. A committee must submit a report of this assessment known
as a Budgetary Review and Recommendation Report (BRRR).
1.2. Mandate of the Department
The mandate of the
Department of Small Business Development (the Department) is informed by the
Resolution of the 53
rd
Congress of ANC and the 2014 ANC Election
Manifesto. Furthermore, the mandate isderived from the different pieces of legislations
and policies such as the White Paper on National Strategy for the Development
and Promotion of Small Business, National Small Business Act, the Co-operatives
Act, theNational Development Plan (NDP), the New Growth Path and the Industrial
Policy Action Plan. Flowing from above, the Department is mandated to lead an
integrated approach to the promotion and development of small business and
cooperatives through a focus on the economic and legislative drivers that
stimulate entrepreneurship to contribute to radical economic transformation.
1.3
.Purpose
of the Budget Review
and Recommendation Report
The primary purpose
of the BRRR is to annually assess the performance of the Department with
reference to:
1.
the
medium term estimates of expenditure of the department,
2.
its
strategic priorities and measurable objectives, as tabled with the national
assembly with national budget,
3.
the
expenditure report relating to the Department, in this case Quarter 1 and 2 expenditure
reports, and
4.
financial
statements and annual report of the Department.
Subsequently, the committee is required to
make recommendations on the forward use of resources to address the
implementation of policy priorities and services as these may require
additional, reduction or re-configuration of resources for the Department. Those
recommendations have to be submitted to the Minister of Finance and the
Minister of the Department of Small Business Development. This gives effect to
Parliaments constitutional powers to amend the budget in line with the fiscal
framework.
It is worth highlighting
upfront that this Department will not
have all pertinent documentation highlighted above which are necessary for
constructing the BRRR, such as annual financial statements, annual report and
medium term estimates expenditure tabled with the national budget since the
Department was only established in July 2014. However, the draft strategic plan
and proposed Medium Term Estimates and half yearly expenditure will be used as
the basis to construct the BRRR and inform efficient and effective forward use
of resources. Furthermore, the previous performance of the Department will be
extracted from the annual report of the Department of Trade and Industry since
the programme that migrated from the DTI to form the Department was budgeted for
inthe DTI in the previous financial years.
1.4. Previous BRRR (recommendation and responses by the Ministers)
It should be noted
that the Committee has been newly established in this current financial
year,
therefore it does not have the previous BRRR. However,
since the function of the Department was a programme in the DTI, the DTIs
previous BRRR will be used as the basis for this BRRR. The previous DTIs BRRR recommendedto
the National Assembly to request the Minister of Finance and Minister of DTI to
ensure that
the Co-operative Development
Agency
, the Broad-Based Black Economic Empowerment Commission
,
the
Co-operative Tribunal
,the
National Trust Fund
on Indigenous Knowledge, and the National Council on Indigenous Knowledge are
adequately funded for the 2014/15 financial years and over the MTEF period to
ensure that these bodies are able to fulfil their mandates. It is worth noting
that this recommendation is not only a recommendation from the previous DTIs BRRR
but is the only recommendation found relevant to the Department of Small Business
Development.
1.5. Process or steps followed in
developing the Report (Methodology)
Ideally, this report is a culmination of interaction with different
stakeholders that play a role in assessing the financial and non-financial
performance of the Department such as the briefing by the Auditor-General on
his opinion with regard to audit outcomes of the Department, as well as by the Department
of Performance Monitoring and Evaluation. In addition, lessons from oversight
visits and hearing from stakeholders are used to argue for reduction or
addition or reconfiguration of resources and departmental programmes.
Notwithstanding the above, this report has taken into consideration the
best lessons learnt from the Committees interaction with institutions that
provide support to SMMEs and Cooperatives since it was constituted after the May
2014 general elections. These interactions enabled the Committee to
assess
theimpact of both financial services and non-financial services to SMMEs and
Cooperatives as well as the effectiveness of programmes which were designed by
the DTItodevelop SMMEs and Cooperatives. The Committee engaged with
organisations that represent and provide support services to SMMEs and
Cooperatives. The purpose of this exercise was to understand the state of SMMEs
and Cooperatives in South Africa and to allow the affected groups to speak for
themselves so that recommendations of the Committee on the BRRR could also take
into consideration issues raised by SMMEs and Cooperatives from a felt need
perspective.
Moreover, the Committee
invited a student that had conducted research for her Masters Degree on the
mortality rate of Cooperatives in Limpopo.
Entities and organisations with an interest in the development of SMMEs
and Cooperatives were also invited to share their experiences with the
Committee.These include Statistics South Africa, Pick n Pay, AHI and Ithala
Development Bank.
TheCommitteeadoptedthis
approach in order to get different views about the situation of SMMEs and
Cooperatives including support services as well possible solutions. Emanating
from those interactions, the following challenges were identified as obstacles
in the growth and development of SMMEs and Cooperatives:
i.
Access to finance
ii.
Access to market;
iii.
Lack of adequate
infrastructure to enable smooth operations especially in townships, informal
settlements and rural areas;
iv.
Fragmented services offered
by different services providers;
v.
High interests charged by
intermediaries;
vi.
Financial services of the DFIs
that are not addressing the developmental conditions of SMMEs and Cooperatives;
vii.
Inadequate training;
viii.
Red tape;
ix.
Non-paymentand late payment of
invoices by government departments and the private sector;
x.
Cumbersome and complicated
processes of establishing businesses;
xi.
Lack of focus of services to
informal traders and street vendors and by-laws of municipalities affecting
informal traders;
xii.
Mushrooming of Township
Malls and Rural Malls and vigorous entry of foreign nationals in the space of
spaza shops that result with marginalisation of local people;
xiii.
Government policies that
prevent access to market and retard growth to SMMEs and Cooperatives;
xiv.
Lack of adequate incentives to attract investment in under-developed
areas;
xv.
Lack of a database of the informal sector SMMEs;
xvi.
Lack of technology use by SMMEs and Cooperatives;
xvii.
Lack of entrepreneurial culture;
xviii.
Supply chains are closed to small businesses; and
xix.
Lack of a working relationship between the South African Bureau of
Standards (SABS) and SMMEs and Cooperatives.
This was an important
exercise in assisting the Committee to get a better understanding of the nature
of challenges experienced by SMMEs and Cooperatives so as to make
recommendations in the Budget Review Recommendations Report that would enable
the Department to respond to the felt needs.
Furthermore, the Committee held a strategic workshop with the Department
in preparation for this report which subsequently led to the Department
completing and presenting its Draft Strategic Plan and Annual Performance Plans
to the Committee, and proposed Medium Estimated Expenditure for 2015/16.
Lastly,
a delegation of four members representing
the Committee attended the SMMEs National Policy Colloquium organised by the
Small Business Development Institute in partnership with the Department. The
colloquium was attended by SMMEs and Cooperatives, organisations representing
different sectors in small business, including research institutions, financial
and professional services as well as Development Finance Institutions.
The limitation of this report is that it has not been able to look
backwards as it was supposed to due to lack of available information as
alluded
in the previous paragraphs, unlike other departments
who have been in operation over a longer period.
1.6 Outline of the report
This BRRR consists of five sections.
Section 1 briefly overviews the mandate of
the Committee and the Department, the purpose of this report and the methodology
followed in preparing this report, as well as the limitations of the report.
Section 2 sets out the key policy focus areas
for the Department. This includes an overview of the relevant national
prioritiesemanating from government policies and plans such as National
Development Plan, the Medium Term Strategic Framework and State of Nation Address
which the Department has to contribute towards achievement of. Thereafter, an
overview ofthe Draft Strategic Plan will be highlighted with the aim of
assessing whether or not it addresses the broader government priorities and
plans emanating from the afore-said policies and plans.
Section 3 assesses the Departmentsfinancial
performance against its allocation (budget allocation from the DTIs Broadened
Participation Programme which the Department migrated with). The report comparesthe
Departments budgeted and actual expenditure as at 31 September 2014 which will
be assessed and considers the 2015/16 MTEF programme allocation, in terms of
the economic classification and per sub-programme.
Section 4 discusses the Committees
perspective with regard to draft strategic plans presented by the Department during
this BRRR process in terms of their mandates, strategic objectives and core
issues previously identified by the Committee. In addition, the financial and
non-financial performance and their additional forward-looking budgetary and/or
performance requirements are assessed. This section is divided into governance
and funding.
Section 5, draws recommendations based on
the deliberations informed by the assessment of the Department in each of the
sections as discussed above. These recommendations are categorised into two:
Funding recommendations and Governance related recommendations.
2
Overview of the Strategic and Operational environment
The plans and objectives of the Department are determined largely by the
environment in which it operates. The environment in which the Department has
to operate has been enabledby active policies and plans that the current
government has adopted since taking office in May 2014. The National
Development Plan has been adopted as the guiding and living policy document concerning
the current government planning, hence government plans and strategies have to
be aligned with the NDP. Thus, all strategic plans and annual performance plans
of the organs of the state have to be streamlined to align with the broader
government plans (NDP and MTSF).These plans and strategies are annually
reviewed during the State of Nation Address, after which the Department and its
entities are expected to align their annual performance plans. Flowing from
this, the next paragraphs will focus on policy areas from the NDP that are
relevant to the Department.
2.1
National
Development Plan
In its 53
rd
National Conference, the ANC resolved to take the lead in mobilising and
uniting all South Africans around a common vision of economic transformation
that puts South Africa first. Since, the National Development Plan is a living
and dynamic document and articulates a vision which is broadly in line with
that of the ANC objective to create a national democratic society, the 53
rd
National Conference resolved to use the NDP as a common basis for this
mobilisation.
The NDP has highlighted a number of key issues that are related to the
Mandate of the Department, and there are interalia:
Economic transformation:
This means the
broadening of opportunities for all South Africans, particularly for previous
historically disadvantaged people. In order to realise this, there is a need
for creating more employment, reducing poverty and inequality, and raising the
standards of living and education through broadening ownership and control of
capital accumulation; as well as equity in ownership of assets, income distribution
and access to management, professions and skilled jobs.
Amongst other possible solutions proposed in the NDP to transform
ownership of the economy is the creation of an enabling environment for small
micro and medium enterprises (SMMEs) and entrepreneurs to thrive. This includes
inculcating the spirit of entrepreneurship in schools, lowering the cost of
doing business in the economy, and reducing barriers to entry in various value
chains.
Small businesses support job
creation and redress skewed ownership:
It is postulated that small businesses will play an
essential role in employment creation. This is due to their buoyancy in job
creation in the period between September 2002 and September 2005 compared to
large businesses in the formal sector excluding agriculture (Mgxaji, 2008). The
NDP estimates that about 90% of jobs will be created by SMMEs by 2030. Other
than creating employment and contributing to economic growth, SMMEs will play a
key role in redressing the distortions created by apartheid in ownership,
access to land, capital and skills for the majority of the South Africans.
The above explanation clearly shows the important role that can be
played by small businesses in tackling the triple challenges of employment,
poverty and inequality in our country. It is therefore in that spirit that the
NDP proposed key support measures to small business development which are;
Public and private procurement
: It is proposed that the government must make
government procurement opportunities more accessible to small businesses, streamline
tender processes so as to improve transparency and get rid of corruption which
has to be accompanied by the commitment to 30 day payment to smaller suppliers.
Moreover, there is a need to leveragethe Local Procurement Accord to promote
stronger buyer-supplier relations and deeper localisation.
Regulatory environment:
a comprehensive regulatory review for small businesses
to assess whether special conditions are required. This includes regulations in
relation to business registration, tax, labour and local government.
Access to debt and equity finance:
This has to do withexamining
the role of the state in easing access to finance by start-ups and emerging
businesses. A risk-sharing agreement between the lender and the borrower should
be created as start-ups are particularly in need of financial support and are
least able to access it. Moreover, there is an urgent need to consider reformingthe
mandates and operations of the DFIs in line with initiatives already
undertaken, and upgrade the skills of those providing business advice and
services. Further work needs to be done in finding the right blend of grant and
loan finance and what repayment terms and interest rates are most likely to
lead to new business formation and success. There is also an urgent need to
explore the role of venture capital in stimulating new venture creation.
Small business support services:
There is a need toconsolidate
,
strengthen and streamline these support services. The size of the
business, its geographical location and the sector in which it operates will
determine the kind of assistance
,needs
and support
interventions required.
Thus, support
interventions should be sub - divided, based on whether small firms are
start-ups or multiple start-ups; survivalist businesses, high growth
businesses, very high potential or high impact businesses; and new industries
or new technology businesses.
Enterprises with the highest potential are those owned or led by
entrepreneurs who have previously started businesses successfully.The state
will have to create an environment with strong markets for these businesses to
buy and sell, thus making it simple to start more of those businesses. This
group of entrepreneurs is an important identified target market for an
incentive system. In addition, another focus is on those entrepreneurs who have
failed before. This is due to the fact that they will potentially find it
difficult to start businesses again as credit access and so on becomes
challenging. Thus, this clearly shows that the government must change its one-
size fits-all support programmes.
Further, public-private partnershipsneed to be
considered, where the private sector is incentivised to provide small
businesses with support, with increased payment contingent on successful
incubation of small businesses.
Address the skills gap:
by providing training for school leavers and
unemployed youth with a focus on skills development; develop skills for
students currently in school with focus on grooming an entrepreneurship
attitude; and promote skills development for new sectors with a focus on high-technology
skills advancement.
2.2
Medium
Term Strategic Framework (MTSF)
Following the adoption of the NDP, Cabinet decided in 2013 that the
2014-2019 MTSF should form the first five-year implementation phase of the NDP
and mandated work to begin on aligning the plans of state organs with the NDP
vision and goals. Since the May 2014 elections, the MTSF has been aligned to
the national governing partys election manifesto. The MTSF is the result of an
intensive planning process involving all three spheres of government.
It provides a framework for prioritising and sequencing government
programmes and development initiatives for the next five years.
Importantly, the NDP provides the
framework for achieving the radical socio-economic agenda set out in the
governing partys election manifesto. It recognises the need for a capable and
developmental state, a thriving business sector and strong civil society
institutions with shared and complementary responsibilities. It identifies
decent work, education and the capacity of the state as particularly important
priorities. It also highlights the need to improve the quality of
administration of many government activities.
Thus, for the next five years the MTSF
has prioritised achieving radical socio economic transformation through decent
employment through inclusive growth. These focus areas will be an integral part
in achieving set targets aiming ata radically socio-economic transformation.
The Department of Small Business Development has been assigned to champion some
of the priorities. The following are the focus areas and priorities that are
relevant to the Department of Small Business Development:
Expanded
opportunities for historically excluded and vulnerable groups, smallbusinesses
and cooperatives
The government needs to ensure that the
historically excluded and vulnerable groups, in particular the youth, black
women and people with disabilities, have increased access to economic
opportunities. The government will continue to broaden the base of black
economic empowerment, for example through promoting more employee and community
share ownership, with a particular emphasis on empowering youth, women and
people with disabilities. There will be an emphasis on promoting black
industrialists and enterprises in the productive economy.
The Department whichis responsible for small business development will
identify the institutional and regulatory changes required to accelerate the growth
of the small business sector and raise its contribution to job creation. The Governmentwill
also strengthen support for cooperatives, particularly in marketing and supply
activities, to enable small scale producers to enter formal value chains and
take advantage of economies of scale (Medium Term Strategic Framework, 2014)
Local business incubators, industrial
and retail sites, marketing agencies, cooperative support programmes and access
to finance are amongst the key measures required to promote small enterprise
growth, reduce market concentration and expand decent work opportunities.
Key targets for the MTSF include:
An increase in the GDP
growth rate from 2.5% in 2012 to 5% in 2019
An increase in the rate
of investment to 25% of GDP in 2019
The share in household
income of the poorest 60% of households rising from 5.6% in
2011/12 to 10%
in 2019
A decrease in the
official unemployment rate from 25% in the first quarter of 2013 to
14% in 2020
2.3 Draft Strategic Plan of the
Department
During the BRRR process, the Department presented its Draft Strategic
Plan for 2014-2019. The Draft Strategic Plan highlighted the strategic
objectives of the Department for the period concernedand targets for each year.
Ideally, the strategic objectives are informed by the government strategic sector
or cluster priorities as derived from MTSF, focus sector policy areas emanating
from policy documents such as the NDP and a situational analysis of the sector.
Strategic
objectives should state clearly what the government institution/department
intends doing (or producing) to achieve its strategic outcomes oriented goals which
are aligned to the vision, mission and mandate of the Department. The
objectives should generally be stated in the form of an output statement,
although in exceptional circumstances government institutions might specify
them in relation to inputs and activities or outcomes. Each objective should be
written as a performance statement that is SMART (Specific, Measurable,
Attainable, Realistic & Time-bound) and must set a performance target that the
institution can achieve by the end of the period (five years) of the Strategic
Plan.
Nonetheless, the
Department has flagged the following as its strategic objectives:
To facilitate the
development and growth of small businesses and co-operatives to contribute to
inclusive and shared economic growth and job creation through public and
private sector procurement;
To facilitate radical
economic transformation through increased participation of small businesses and
cooperatives in the mainstream economy;
To advocate for a conducive
regulatory environment for small businesses and co-operatives to enable access
to finance, investment, trade and market access in an equitable and sustainable
manner;
To facilitate partnerships
with all spheres of government as well as the private sector to ensure mutual
cooperation that will benefit small businesses and co-operatives
;
and
To
facilitate access to
adequate infrastructure and incentives that are designed to attract investment
to underdeveloped communities and reduce costs of doing business by small
businesses and cooperatives.
In order to achieve
the afore-said strategic objectives, the Department has set to its priorities
for both 2014/15 MTEF and MTSF. These strategic priorities are formulated after
considering broad government priorities, cluster priorities and sector
priorities emanating from different government policy documents which were
mentioned earlier. The following are the Departmental priories.
Short term
priorities (2014/15 MTEF)
Skills, training and capacity building (LED, business
development support, technology transfer, innovation and entrepreneurship);
Finalise incentives and access to finance;
Public sector procurement (set-asides programme);
Private sector procurement opportunities (supplier
development programme, revitalization of mining towns); and
Develop
new policies, review existing policies
;and
introduce
strategies, i.e. roll-out of key interventions.
Long term Priorities (MTSF)
National survey (periodic and reliable statistics);
Design training programmes to address skills gaps
including sector specific interventions;
Develop key domestic and international markets;
Decentralize business development services to include
economic profiling and market access; and
Develop
and review the regulatory environment.
In pursuing the
above-mentioned strategic objectives, its
goal is to achieve the following ultimate outcomes aiming to better the lives
of the poor South Africans:
Incentive programmes aimed at creating new businesses,
which will increase the potential for new jobs;
Public and private sector procurement geared towards
improving market access
(including
growth and development) for black small enterprises and co-operatives (e.g.
fixing of potholes);
Increased culture of entrepreneurship aimed at
increasing the number of new innovate and sustainable business ventures that
will contribute to
job creation;
Creating a simplified policy and regulatory
environment for SMMEs and Co-operatives development to eradicate poverty,
inequality and unemployment;
Through the Export Development Programme companies
will improve their ability to export and reduce the costs and risks involved in
penetrating foreign markets;
The provision of technical and business development
services to the targeted groups (youth, women and people with disabilities)
will result in
upgraded skills, improved quality of
products, access to local and international markets, enhanced and sustainable
enterprises as well as increased employment; and
Enhanced support to informal businesses, rural and
township enterprises will increase their competitiveness, resulting in
sustainable enterprises and retention of existing jobs.
The Department has
organised itself into five programmes which are interalia:
·
Programme
1: Administration
-
This programme will comprise of support services to
the department such as a Chief Information Office, Human Resources, Legal
Services, Corporate Governance and Ethics, Auxiliary Services and a unit to
execute the marketing and communications of the department.
·
Programme
2: Customise Intervention Programmes
:
The
key focus will be striving to improve the quality of
financial and non-financial support services to SMMEs and cooperatives.
Specific programmes will include the support of informal activities through the
implementation of the National Informal Business Upliftment Strategy (NIBUS),
which will provide subsistence for people who are economically marginalised. In
addition to this, the depth on supporting market access initiatives.
·
Programme
3: Cooperatives
:
The
department will be implementing a new support model
for cooperatives, including implementation of the Co-operatives Act and the
establishment of a Cooperatives Development Agency and Tribunal, and developing
and providing financial incentives.
·
Programme
4:Research, Policy and Intergovernmental:
Evaluation of existing policies enshrined in
legislation affecting National Small Business, Cooperatives, Youth Enterprise
Development, Women Empowerment and National Informal Strategies with a view to
enhance policies in line with the mandate of the Department. The conclusion of
transversal agreements with other Government Departments to enhance
implementation of Departmental strategies will need to be effected. Part of the
research to be conducted and policy adjustments to be made will focus on Red Tape
reduction.
·
Programme
5: Enterprise Development and Entrepreneurship
:
Programmes
will be introduced to ensure increased access to
employment and entrepreneurship for high-impact businesses as well as marginalised
groups, focusing on skills development, franchising, technology transfer and incubation,
aimed at advancing support for the emerging and smaller enterprises.
Flowing from the above, an analysis of
whether the strategic objectives addressed sector priorities, sector policy
focus areas and sector situational analysis; and whether in overall, the
strategic plan is aligned to the Departmental vision, mission and mandate
will be dealt on the section which deals with
Committee Observation (Section 4). Subsequently, areas which the Committee felt
were omitted or unnecessary, duplicated and irrelevant will be highlightedwith
the aim of drawing recommendations
3.
Financial
Performance Assessment
As
alluded
in the introduction that the Department was officially established in July 2014
following the signing of Proclamation by the President. Immediately after its
establishment, the Broadening Participation Programme of the DTI has migrated
to the new Department to pursue its planned programmes. Importantly, not all
the sub-subprogrammes of sub-programmes whichconstitutethe Broadening
Participation Programme migrated to form the Department, other sub-sub programmes
such as Broad- Base Black Economic Empowerment (BBBEE), Support Programme for
Industrial Innovation(SPII), Incubation and Technology and Human Resources for
Industry Programme (THRIP) have remained with the DTI. Only the Enterprise
Development sub-programme moved to the Department in its entirety. Thus, the
budget for 2014/15 is extracted from the R1 billion appropriated for Broadening
Participation Programme of DTI tabled during the National Budget.
Instead of dwelling
on reviewing the financial performance of the Department, the bulk of the time
will be spent on unpacking the funding proposal for the Department. The
financial performance assessment will only focus on the first two quarters of
this financial year, whereby the Department has started to use funds which were
moved from the DTI. Thus, the following table will unpack the Departments
financial performance for first two quarters of 2014/15 financial year and
consider the funding proposal for 2015/16 MTF.
3.1. Quarterly Financial Performance
Table
1: Overview of 2014/15 Expenditure and 2015/16 Medium Term
Estimates
|
|||||||||
Programme
|
2011/12
|
2012/13
|
2013/14
|
2014/15
|
|
|
2015/16
|
2016/17
|
2017/18
|
|
Outcomes
|
Outcomes
|
Outcomes
|
Main
|
Adjusted
|
Outcomes
|
Medium
Term Estimates
|
|
|
Administration
|
|
|
|
|
|
|
161
|
177
|
195
|
Customise
Intervention Programmes
|
|
|
|
|
|
|
112
|
123
|
136
|
Cooperatives
|
|
|
|
|
|
|
111
|
122
|
134
|
Research
Policy and intergovernmental Relations
|
|
|
|
|
|
|
26
|
29
|
32
|
Enterprise
Development and Entrepreneurship
|
|
|
|
|
|
|
1148
|
1263
|
1389
|
Total
|
|
|
|
|
|
|
1558
|
1714
|
1886
|
Broadening
Participation
|
887.5
|
929.7
|
1010.3
|
710
|
33
|
743
|
|
|
|
The above table
reveals that when the Department was established following the Proclamation by
the President, it had an allocation of R710 million which was initially
allocated for the Broadening Participation programme of the DTI. An additional
amount of R33 million was allocated to the Department by National Treasury,
which then increased the Departmental budget to R743 million.From the total
allocation of R743 million, the Department has spent R420 million of which mostwas
in the form of transfer payments (R402 million) and for the Compensation of Employees
(R14 million). The actual achievements that the Department has recorded
following the spending of more than half of its budget include amongst others, an
increased number of SMMEs created through SEDA Technology Programme (STP) to 83
compared to the 75 that was initially targeted, establishing about 43
incubators supported through STP, and a significant increase in the number of
SMMEs approved for assistance by SEDA through STP exceeding the target of 240
by more than 500 percent to 1576. Importantly, deducing from the above spending
trends, this means that if the Department continues spending on the current
rate, it will overspend by about R11.8 million at the end of the 2014/15financial
year. Items that will significantly contribute to the projected overspending
include Compensation of Employees and Goods and Services by about R8.9 million
and R2.9 million respectively.
3.2 Funding Proposal for 2015/16 MTEF
The Department has
proposed an allocation of R5 158 billion over the MTEF which is due toa
proposed allocation of R1 558 billion (2015/16), R1 714 billion
(2016/17) and R1 886 billion (2017/18). About 75.9 percent of the proposed
budget of R5 158 billion will be transferred to departmental entities and
the
remainder(
about 15 percent) used to pay salaries.
Programmes that are expected to share a significant amount of the proposed
budget over the MTEF include Enterprise Development and Entrepreneurship as
well as Administration, and they are estimated to consume a budget of about 74 percent
and 10 percent of the budget allocation respectively over the MTEF. The least
budgeted programmes include, Cooperatives and Research Policy and
Intergovernmental Relations with an estimated share of allocation of about 2
percent and 7 percent respectively over the MTEF.
In a nutshell, it is
clear from the above explanation that the majority of proposed budget will be
channelled to the departmental entities which render services on behalf of the
Department in order to achieve its mandate.
Flowing from the
above, the next step is to get an understanding of how the budget is proposed
to be allocated in the departmental programmes and what are those items that
contribute a significant share of the programme budgets.
3.2.1 Allocation per programme level
Table 1 shows that
Programme 1
Administration will receive
an amount of R534 million over the MTEF. Over the financial years of MTEF, the
programme is budgeted to receive an amount of R161 million (2015/16), R177
million (2016/15) and R196 million (2017/18). About R 267 million (50 percent)
of the proposed allocation to this programme will be used to fund compensation
of employees, while R256 million (48 percent) will be used to buy goods and
services for this programme. The fact that Compensation of Employees has a
significant share of proposed budget for this
programme,
comes without a surprise since this programme is more labour intensive, ranging
from all personnel of the Ministry, Office of the Director General up to Corporate
Services. However, the share of compensation of employees for this programme
should not be significant when it is compared to the total budget for
Compensation of Employees for the Department because this programme is not a
core-function of the Department instead
it is just a supporting function.
Programme 2:
Customise
Intervention Programmes is budgeted an amount of R371 million over the three
years of MTEF. For the financial years of MTEF this programme is budgeted an
amount R112 million (2015/16), R 123 million (2016/17) and R135 million (2017/18).
The significant amount of budget will be spent on Compensation of Employees,
amounting to R198 million (50 percent) over the MTEF. Of which an amount of R95
million (26 percent) and R77 million (21 percent) has been budgeted for
Transfer Payments and Goods and Services.
Programme 3
: Cooperatives is set
to receive an amount of R366 million over the MTEF.
For the
financial years of MTEF, this programme has been budgeted to receive an amount
of R110 million, R121 million and R133 million for 2015/16.
2016/17 and 2017/18 respectively.
About 54 percent (R199
million) will be transferred to Departmental Entities, particularly,
Cooperative Development Agency and Cooperatives; of which R114 million (31
percent) will compensate employees. Importantly, there are two matters of
concern to the allocation proposed for this programme, firstly, its total share
to the proposed budget of R 5188 billion over the MTEF and secondly, the
significant spending budgeted for Compensation of Employees and Transfers.
Firstly, the total
share of this programme to the total budget requested over the MTEF amounts to
R367 million (7 percent) of R5 188 billion which is lower than the
proposed budget for Programme 1: Administration, which renders a support
function to the Department. The development of Cooperatives is one of the
core-functions of the Department as
alluded
in the
previous paragraphs. It was previously mentioned that the Resolution of 53
rd
National Conference of the ANC, National Development Plan, the ANC 2014 Manifesto
and the MTSF have prioritised the development of Cooperatives as one of the tools
for economic transformation. Therefore, this has to share a significant amount
of the proposed budget in order to achieve its objectives.
Secondly, the fact
that both Transfer Payments and Compensation of Employees share a significant
amount of the budget proposed to be allocated for this programme is confusing.
This is due to the fact that once an Agency/Entity is
created,
it means that much of the planned work /programmes that could have been
performed by the Department is executed by that particular Agency or Entity. So,
the Department just monitors the implementation of such planned
work/programmes. This analogy has to be translated into the budget in the sense
that, when the budget set to be transferred to entities increases, the budget
for compensation of employees in the Department should decrease.
Programme 4:
Research, Policy and
Intergovernmental Relations is budgeted an amount of R87 million over the MTEF.
Over the financial years of the MTEF, this programme is budgeted an amount of
R26 million (2015/16), R29 million (206/17) and R32 million (2017/18). Of the
budgeted amount of R87 million, a significant budget will be spent on
Compensation of employees amounting to R72 million (84 percent) over the MTEF.
This is in tandem with the functions of this programme since it is labour
intensive. In order to achieve the set targets of this programme, professional
personnel will have to be hired, who are experts in research to different
fields of study. Taking into consideration the scarcity of skills in South
Africa, personnel that will be employed in this programme will not come cheap.
The Department will have to hire them with special notches following the
guidelines from Department of Public Administration of remuneration of scarce
skills.
Programme 5:
Enterprise
Development and Entrepreneurship is budgeted an amount of R3.8 billion over the
MTEF. Of the proposed budgeted amount of R3.8 billion, R1.1 billion, R1.3
billion and R1.4 billion will be spent in 2015/16, 2016/17 and 2017/18
financial years respectively. A significant share of this proposed budget, R3
.7
billion(
94.5 percent) will be transferred to departmental
entities in particular the Small Enterprise Development Agency (SEDA). Interestingly,
the Compensation of Employees share an insignificant amount of R119 million
(3.1 percent) over the MTEF. This programme is one of the core-function
programmes as per the mandate of the Department. Thus, this means that its core
function will be delivered by the agency and not by the Department.
4. Observation of the Committee
The Committee welcomed and commended the
strategic plan of the Department. The Strategic objectives proposed in the
Departmental Strategic Plan have been found to align with the mandate, vision
and mission statement of the Department. In addition, strategic objectives are
set to achieve the focus policy areas relevant to the Department. Furthermore,
the strategic plans in the form of set targets and outcomes were found to align
with the strategic objectives of the Department. Lastly, the proposed resources
to fund the execution of strategic plans are alignedwith the set targets.
It is however clear that there are still some
gaps with regard to understanding the needs of the target market in order to
determine the relevant support provision leading to the need to conduct
research to increase this understanding. In addition,
taking
into consideration that informal traders and street vendors are still subjected
to inhumane conditions, the Department should have included Human Dignity as
one of its values to demonstrate its understanding of its target groups (poor
people). Lastly, The Department has not included People Centred and People
Driven development approach as a guiding value in responding to the felt needs
of South Africans.It is also not in line in terms of keepingwith the principles
of community development that requires development processes to allow peoples
experiences to influence interventions needed, rather than imposing on people
interventions that are based on the perceived needs.
4.1 Governance
In his Medium Budget Policy Statement, the Minister of Finance put an
emphasis on savings and reprioritisation of expenditure. This is due to the
limited budget that the country operates upon, which has to fund productive
investment expenditure, service delivery and service the countrys debt. In
line with that he encouraged the government departments to reconsider
transferring funds to entities and instead build the internal capacity.
Flowing from that thereis a need to consider the current funds budgeted
to be transferred to departmental entities. This is due to the fact that there
is quite a substantial amount of money that is lost in this value chain before
it reaches the target. The costs of running these entities are quite significant
although their impact is not clearly felt. Thus, it is suggested that a
scientific study be conducted to evaluate their impact, relevance and
contribution to the Departmental Mandate, Vision and Mission as well as the
possibility of locating these services under one roof or in the LEDs of
Municipalities so as to reduce costs and also make them more accessible.
The Committee
raised some concerns in the slow progress in the migration of programs from
both DTI and the Department of Economic Development (EDD). This slow progress
of migration creates challenges of fast - tracking the development of effective
programmes which is directly linked to solutions to socio-economic challenges.
Moreover, this delays the scientific research that needs to be undertaken to
determine their effectiveness and alignment to the Departmental mandate.
Programmes such as Incubation Support Programmes (ISP) and Small Enterprise
Finance Agency (SEFA) are aligned to the departmental strategic objective and
they can be used to achieve those strategic objectives. Furthermore, the NDP
which is a springboard for the establishment of the department, has highlighted
debt equity and finance, and the
public-private
partnership whereby the private sector is incentivised to provide small
businesses with support, with increased payment contingent on success
(incubation).
The signing of transversal agreements serves as the
integral part of the Departmental strategy to execute some of its tasks in
order to achieve its overarching ultimate goals of job creation, poverty
reduction and fairer distribution of income. With regards to the signing of
transversal agreements, the Committee raised concerns that agreements signed
should reflect the understanding of both parties entered into such agreements,
to ensure that it is of mutual benefit to both parties. For example a
transversal agreement between a departmental and municipality should reflect
both department and municipal priorities. The motive behind is to have a mutual
understanding of how to execute the planned activities and to safeguard that no
priorities take precedence over others.
The Committee also raised concerns with regard to the migrating of
functions that were not performing well in the DTI to the Department. This came
as a challenge for the Department because it has to be embedded with those
non-performing functionswhich were inherited from the DTI.
The Committee
observed that the performance indicators of the Department are focusing more on
the number of SMMEs and Cooperatives that would have been assisted as a tool of
measurement without looking at the impact of SMMEs and Cooperatives on job
creation and poverty reduction. The Department also tends to generalise on
youth unemployment and fails to specifically identify the youth that is mostly
affected by unemployment and poverty. This would be vital in bringing services
closer to thehighest levels of unemployment. The Departmentalso needs to relate
the process of SMMEs and Cooperatives development to skills training that
focuses on skills that are needed to provide services.
Key to the success is
the ability to research the market and develop a marketing mix at business
level with an active role played by the government to address the
uncontrollable factors of marketing. The Department of Small Business
Development has not included the establishment of a marketing unit within itsstructure
to navigate the public procurement and lead the process of opening that market
for SMMEs and Cooperatives.This is a blind spot to thatpart of the Department.
The functions of that unit would also include facilitating training that
relates to identified markets so as to absorb the unemployable youth due to
lack of skills required to tap into existing market opportunities. That should
also be done taking into consideration that a relationship needs to be
facilitated between government departments, State Owned Enterprises, big
businesses
,SMMEs
and Cooperatives.
4.2. Funding
Emanating from Section 3, it is clear that there is an urgent need to
consider the transfer payments to the Departmental Entities. The majority of the
budget is transferred to these entities but there is little oversight conducted
on these entities. In most cases, the oversight is conducted in the Department
rather than them. This calls for an in- depth analysis and deliberations that
will lead to a better approach to monitor the prudent use of public fundsby
those entities. If it is better and more convenient to monitor the prudent use
of public funds at a Departmental level, whichwill then mean that the
Department will have to consider performing those functions that are relegated
to entities.
Furthermore, it is concerning that in most cases, both compensation of
employees and transfer payments share a significant budget in some programmes,
for example Cooperative in this case. This is a sign of duplication of
resources that could have better been used elsewhere for the betterment of the
lives of the South African citizens.
Moreover, the least share of the budget by the programmes which are directly
linked to the mandate of the Department is a matter of concern. Substantial
resources have to be allocated in programmes that are the core-functions of the
Department not to support function programmes. In this case an example is given
in Section 3 under Programme 3 Cooperatives.
5. Recommendations
The
Portfolio Committee on Small Business Development recommends the following:
5.1.
Funding Recommendations
The Department should:
1.
Be allocated the proposed funds;
2.
Consider reviewing its transfer payments to
identify savings going forward;
3.
Allocate more resources to core-functional
programmes (Cooperatives, and Enterprise Development and Entrepreneurship); and
4.
Develop a guiding document on how will it
administer loans and grants to finance SMMEs and Cooperatives.
5.2.
Governance recommendation
The Department should:
1.
Ensure that all necessary functions which are aligned
with the mandate of the Department which are still located in other Departments
are migrated to the Department;
2.
Conduct research on needs analysis of the target
market (poor communities) in order to tailor-make and streamline the relevant
support provisions that will respond positively in tackling the triple
challenges of unemployment, poverty and inequality;
3.
Conduct a scientific study to assess the
effectiveness and efficiency of the departmental entities and programmes which
migrated from the DTI in order to align them with the mandate of the Department;
4.
Reconfigure Programme 4 in order to accommodate
the Market Research Unitso as to
conduct market research for SMMES and Cooperatives, especially those
that are at an initial stage of development. To also identify the market and
assist SMMEs and Cooperatives to access the public procurement market and sort
out the uncontrollable factors that affect SMMEs and Cooperative as part of
creating an enabling environment for the development and growth of SMMEs and
Cooperatives;
5.
Submit a more detailed organogram stipulating
roles and skills needed for each role and also explain how the budgeted amount
for compensation of employees relates to the organogram of the Department;
6.
Ensure all Transversal Agreements are presented
to the Committee prior to and after signing by the Department for monitoring
purposes; and
7.
Include the regulatory environment to its short term priorities.
Report
to be considered.
Documents
No related documents