Address by the Minister of Small Business Development, Ms Lindiwe Zulu (Mp), on the occasion of delivering the budget vote 31 on Small Business Development in the National Assembly
Chairperson
Ministers
Deputy Minister Thabethe,
Deputy Ministers
Honourable Chairperson and Members of Portfolio Committee on Small Business Development
Director General of my Department, Prof Edith Vries
SEFA and SEDA Board Members and CEOs
Organised business formations
Our special guests
Compatriots
I stand before you, inspired by the people of South Africa who in 1955, at the Congress of the People declared that "South Africa belongs to all who live in it, black and white.” Further and relevant to South Africa's economic transformation plan and the mandate of Department of Small Business Development the delegates of the Congress in their wisdom and wish for South Africa further declared "The people shall share in the country’s wealth".
Fast forward, sixty one years later, we are 22 years in freedom and democracy, we have a constitution we should be proud of and political power we should be exercising without fear or favour. We are guided by the provisions of the Constitution and the Bill of Rights and the dynamics that define our vibrant multi-party democracy.
The clarion call, "The People shall share in the country’s wealth" should today resonate not only with a wealthy minority taking into account our high level of inequality but also the millions trapped in poverty, unemployment and inequality. The black population, I may venture to say, is still generations behind the wealthy white owners of the economy of South Africa. Their legal participation in the economy is a mere 22 years.
Chairperson
While the past still haunts us, I remain inspired by the citizens, who despite the socio economic challenges, their past differences, race, gender and status in society, have bought into government initiatives and plans to change the lives of the majority.
I am, in particular inspired by the Informal Businesses, Small and Medium Enterprises, Cooperatives, Entrepreneurs, the young and old who, with or without government support, have continued to live in the spirit of Vukuzenzele! Who despite the slow pace of Economic Transformation, despite challenges of starting, running and sustaining their businesses, remain resolute and hopeful of the success and growth of their businesses. I salute you.
To those we have assisted and made a difference to your operations, shine so you can be a living example. To those we have not managed to reach, we have our sights on you.
Chairperson, Honourable Members we are all aware that SMMEs and Cooperatives can be the main drivers of economic growth, poverty reduction, and job creation. This has been proven globally that SMMEs are the heartbeat of stable, growing and better performing economies such as China, India, Germany, amongst others, and greater source of job creation, economic empowerment and transformation. Chile for example had a remarkable resurgence in economic activity thanks to new entrepreneurial initiatives in the last three years.
In an article by Jose Filomeno de Sousa dos Santos, written for the World Economic Forum, August 2015, he writes "Africa grew despite the global recession and it shows no sign of abating. The continent is on course to achieve economic growth of around 4.5% this year, a rate higher than predicted for the economies of the world. Amazingly, this is set against a backdrop of a Eurozone crises, low growth and stagnant wages in the West and a slow growth in China. Africa's economic expansion is nothing short of remarkable.
There's is something unique about what is happening on the continent now.
This time, the heart of the story is the boom in small and medium-sized enterprises SMEs. Today these small and growing businesses create around 80% of the regions employment, establishing a new middle class and fuelling demand for new goods and services. The scale of this transformation should not be underestimated".
Chairperson
Honourable Members, South Africa is in Africa and therefore cannot afford to ignore these facts. Opportunities to share experiences, innovation, enterprise development, new solutions and learn from SMMEs and Cooperatives with the rest of the continent can only enrich our own support systems towards ensuring success and possibly opening up market opportunities. The success of SMMEs in South Africa can also be tied to the African markets. Africa is open for business and opportunities exist for SMMEs, Entrepreneurs and innovators.
As we celebrate Africa Month, I appeal to local SMMEs to connect more with the continent, acquaint themselves with the continental models and markets and tailor solutions for African markets.
Evidence confirms the untapped potential of the sector, as observed in the Goldman Sachs 2015 report on Small business which states, "the South African economy can grow by 5% over the next five years if government and the private sector invest R12 billion in three hundred thousand Small businesses".
The country’s Nine-Point plan clearly identifies 'Unlocking the Potential of SMMEs, Cooperatives, township and rural enterprises’ as key to economic development and empowerment of Township and Rural Communities. President Jacob Zuma's initiative of bringing government, private sector and labour bodes well for the country and brings into sharp focus the importance of SMMES.
The recent announcement by the State President on the establishment of a fund to support small business, especially black entrepreneurs shows the commitment to growing the economy. Business further announced that they have pledged R1,6 billion. The Deputy President expressed hope that the fund could go into double digits. The fund must in the final analysis respond to the felt needs and plight of SMMEs. The Department and organised business formations must be part of shaping the design and implementation mechanisms of the fund. National economies are a product of consensus between economic players.
Indications are that the small business sector is beginning to take its rightful place as the engine for our economy. This has recently been confirmed by the landmark 2016 tax collection success in which SARS broke through the R1 Trillion Rand ceiling. The tax authority has reported that more than 18 000 new SMMEs had for the first time submitted tax returns. Naturally, growth in future revenue is dependent on us upscaling government interventions coupled with sharpened awareness for more people to be involved in entrepreneurship, start-ups, SMMEs and Cooperatives.
I have called on National and provincial authorities to strengthen cooperative governance. I have also consistently invited MECs responsible for economic and small business development to join me in my engagements in provinces and municipalities and we are beginning to see the concrete manifestations of these efforts.
I have met with the Gauteng and Free State MECs for Economic Development, Lebogang Maile and Sam Mashinini. In Gauteng we learnt that the MEC’s department profiled 65 townships, which informed their Township Revitalisation Strategy. In the Free State, I learnt that they aligned their strategy to the Nine-Point Plan announced by the President in 2015.
We would like to take this time to thank those who have walked with us on this path. We acknowledge the role of the Black Business Council and its affiliate, NAFCOC, who immediately joined hands with us when we were established. We also have travelled with a consortium of the AHI, SACCI and BUSA, whose support has been tremendous. We also acknowledge tireless individuals, like Xolani Qubeka, Carl Lotter, Mam’ Rose and others who share our zeal for the advancement and success of this sector. We also commend corporates who have opened their value chains to emerging suppliers. Enterprise development is an obligation for all of us.
We also take this opportunity to thank all departments that continue to support SMMEs and Cooperatives. Sadly, timely payment to SMMEs remains a challenge.
Reflection on the past two years
Chairperson, occasions such as these are moments to reflect on the road travelled, to account in line with the commitments we made and to ponder the long distance that still lies ahead.
Programme review and alignment to Mandate
As promised in last year’s budget speech we have completed the Programme Review. The review sought to align inherited programmes to our mandate and to ensure that they respond to the challenges confronting small businesses. The recommendations ranged from up-scaling, mainstreaming, discontinuing and transferring. These recommendations were then interrogated by the department, which then took the appropriate action. The implementation process is on-going.
Access to Financial and Non-Financial Support
According to 2015 Public Sector Review of Supply Chain Management, the public sector spends over R500 billion on goods and services and construction works. Given the enormous opportunity for small businesses and cooperatives to access this market, our Department is committed to take advantage of this public spend to increase the demand for goods and services produced by small businesses and co-operatives. Consistent with this undertaking, we have signed transversal agreements with the Departments of Public Enterprises, Tourism and Social Development to access small business opportunities. In addition, we have also entered into agreements with the Manufacturing, Engineering and Related Service SETA (MERSETA) and the Agricultural SETA to assist informal and micro-businesses in the field of manufacturing and agricultural businesses.
Chairperson, you will recall that last year we announced that we were working with Treasury for the issuing of Practice Notes to implement the 30% set-aside public procurement programme. It has been established that the implementation of this transformative policy shift will require an amendment to the Preferential Procurement Policy Framework Act (PPPFA). Since this legislative review will take a longer time to complete, National Treasury, announced in December 2015, their intent to amend the PPPFA regulations of 2011 to open more opportunity. We urge National Treasury to honour this commitment.
We also made a commitment to increase the value and quality of funding for small businesses. SEFA has since its inception, increased its total approvals to R3.6 billion and disbursed into the economy over R3.2 billion to over 200 thousand small businesses. For the financial year 2015/16 alone, SEFA approved R1.1 billion of loan facilities and disbursed R1.08 billion to 45 263 SMMEs and co-operatives through its various loan distribution channels.
Sixty-one youth-owned enterprises have been funded to the tune of R17.9 million through the Cooperatives Incentive Scheme, while R35.9 million has gone to 117 women enterprises. R45.2 million has funded Three Hundred and Twenty Five (325) women-owned enterprises through the Black Business Support Development Programme. We will be monitoring these initiatives through appropriate monitoring and evaluation mechanisms.
During the 2015/16 financial year, 249 women, spread across all nine provinces, received a month long, formal seta-accredited training programme through the Bavumile Skills Development Programme. The programme is designed to increase their expertise in production processes in the creative and craft markets.
The department has entered into a Memorandum of Understanding (MOU) with the Government of the Netherlands to promote cooperation in the area of co-operatives development. One of the focus areas is to provide technical assistance with regard to the structuring of co-operative models that will improve production efficiencies and economic viability within co-operatives.
The first co-operative to be based on this concept, is the New Generation Co-operative that was launched during the visit of Prime Minister Mark Rutte to SA. What makes this cooperative concept unique is that it incorporates members across the value chain, which makes it an ideal tool to fast track growth and development. All processes are in place to ensure operationalisation of this first new generation co-operative, which will be the torch bearer for the roll-out of more new generation co-operatives in early 2016.
Please join me in welcoming a few of the farmers who have signed the MOU to usher in this New Generation Cooperative. We have with us today members of the New Generation Cooperative Mr Piet Prinsloo- from ZZ2 whose contribution in this partnership will be mentorship as well as Mr Thomas Sadiki and Ms Shonisani Ndou.
Two special Programmes were launched since the 2015 Budget Vote, namely the National Gazelles and Finfind. The National Gazelles Programme, as one of our flagships was launched in September 2015. The first 40 National Gazelles and the remaining 160 have been selected from 507 qualifying entrants who had successfully completed the application process. They come from key sectors such as manufacturing, ICT, energy and the green economy; health and bio-sciences, and energy. The importance of the Gazelles programme is that it is post start-up. South Africa has, for the past few years, concentrated on start-ups but, it must be clear, that a strategy; whether for small businesses or cooperatives, must provide support at every phase of the SMME pipeline. Post Start-up support is crucial because it talks to sustainability.
We will be introducing the 40 National Gazelles to the nation shortly, and also begin the process of identifying the next group of growth-oriented small enterprises under the National Gazelles programme.
Please help me to congratulate the 40 Gazelles who have been selected to pilot the exciting National Gazelles Programme. Some of them are with us here today. We wish them well and trust that they will seize the opportunity and stay the 3-year journey of intensive business support and invite the private sector to take an interest in and to support these young people.
Finfind, is an online portal that has proved to be a much-needed resource for entrepreneurs seeking access to finance. This can be seen in the 11,665 users who accessed the portal during the first five months from the launch on 31 March 2016. The data from the utilisation gives us a sense of the emerging trends in respect of prevalent sectors, reasons for requesting finance and the top lenders.
Access to Markets
The ‘Women-in-Maize’ programme is another of our Flagships and a concrete example of the benefits of a partnership between government and the private sector. Working together with the South African Breweries-Miller (SAB-Miller) and the Agriculture Research Council (ARC), the project seeks to empower 5 000 women maize farming cooperatives in the next five years. The initiative will increase the inclusion of black women-owned co-operatives in SAB’s supply chain; develop skills of women farmers; improve food security; and stimulate local economies by increasing procurement from local suppliers. I wish to take this opportunity to invite you to join me on 26 May at eKangala in Gauteng to witness the first harvest. We have an director from SAB Miller Mr. Monwabisi Fandeso and participating farmers Ms Lindiwe Masilela, Ms Jabulile Mphela, Ms Elizabeth Pico and Ms Ntombi Yende.
Red Tape Reduction
We remain seized with the task of easing regulatory and bureaucratic burdens on the shoulders of small businesses. We must proceed from the premise that good policies, laws and regulations are conducive to a competitive economy. However, some policies or compliance processes may have the unintended consequences of weakening the business ecosystem.
During the 2015/16 financial year, the DSBD continued with the roll-out of red tape reduction guidelines at municipal level with 81 municipalities. We established a partnership with the International Labour Organisation (ILO) to assess the implementation of the guidelines within four municipalities in Kwa-Zulu Natal and Free State provinces. Our goal is to ease and ultimately reduce the cost of doing business.
Last year, we made a commitment in this House that we would continue to work with local and foreign traders who are operating in the informal sector to ensure peaceful and competitive co-existence. I am pleased to announce that, working with all stakeholders, I recently witnessed the signing of a cooperation agreement between South African Spaza and Tuckshop Association (SASTA) led by Mrs Rose Nkosi and Township Business Development South Africa (TBDSA) led by Mr Abbas Mkhize.
The department and its partners are implementing the National Informal Business Upliftment Strategy, which hinges on three pillars
- Building capacity of our local traders;
- Promote partnerships between locals and foreign nationals; and,
- Ensuring an effective regulatory environment, e.g. by-laws enforcement, addressing of migration issues, etc.
We are confident that the implementation of these measures will bring peace and produce better outputs from the sector.
We have registered significant progress on the implementation of the Informal Trader Upliftment Programme which was successfully implemented country-wide. 1037 informal traders and their organisations have received training and infrastructure support. We will be upscaling this programme going forward and this year we will support 7000 informal traders.
2016 budget commitments and priorities
Since the start of the 2016 Budget Vote season, this House heard Ministers commit to advancing the rise of small business through their mandates and budgets and we have heard of success stories from Ministers of Human Settlements, Science and Technology, Trade and Industry, Telecommunications and Postal Services and Agriculture, Forestry and Fisheries to name a few. Of importance, is that these departments have prioritized the development of SMMEs and cooperatives. Work needs to be done to create an overarching framework to deliver integrated support to SMME that will coordinate all of our efforts for the development of this sector. We must have a scientific approach to tracking development. In pursuit of this, the department has created policy and research function in the department headed by a Deputy Director-General that is going to have this role, among other functions. This is a very significant development in ensuring that my department plays its coordinating role. We will be engaging with other role-players in this sector to ensure success of this intervention.
The department has been allocated R1.3 billion for the 2016/17 financial year. Of this allocation 17 percent goes to administration and personnel. The remainder, which is 83 percent goes to the core business of the department, strengthening our small businesses and cooperatives. The Black Business Supplier Development is allocated R245 million and for cooperatives incentive scheme we have allocated R75 million. For National Informal Business Upliftment Scheme the allocation is R96 million and the Enterprise Incubation Programme is allocated R46 million. For the Craft sector we have allocated R10 million.
For SEDA we have allocated R634 million of which R140 million will go to Technology Support Programme, and R13 million to capacity building. SEFA has been allocated a budget of R213 million for the current financial year.
Access to Finance
Consistent with the undertakings we made last year, SEFA will over the Medium-Term Expenditure Framework approve a further R3,4 billion of loan financing facilities to SMMEs and Co-operatives. During this period, SEFA will fund 157 000 SMMEs and Co-operatives.
SEFA is determined to expand access to credit and finance to informal and micro-enterprise sector. We will increase the level of economic activity of survivalist, informal and micro-enterprises, particularly those operating in rural and peri-urban areas, through the provision of access to credit, finance and business support.
Chairperson, the Emerging Enterprise Development Programme will provide support to Women, Youth and People with Disabilities in order to increase their capacity to access economic opportunities and enhance their competitiveness. The programme offers a cost-sharing grant to a maximum of two hundred thousand rand (R200 000) to eligible applicants. The grant may be used to acquire machinery, equipment, tools, raw materials and commercial vehicles.
The intent is to enable SMMEs to access opportunities in state-owned companies through the transversal agreements we have with other government departments. For example, in the agreement DSBD has with the Department of Public Enterprises small businesses will be able to access opportunities within State-Owned Companies (SOCs), through enterprise development hubs.
The Business Rescue Strategy will be implemented for small businesses in distress, which will help to reduce the mortality rate. The department is working with SEFA on the modalities of developing and implementing the strategy. As an initial investment, R84 million has been set aside for this initiative.
The Department is also working with the National Youth Development Agency and the SA Business Resources Institute (SABRI) to develop youth-owned cooperative micro franchises in the catering sector of the Western Cape Flats region, including Phillipi, Khayelitsha, Delft, Strandfontein, Manenberg, Gugulethu, Nyanga and Saldanha on the West Coast.
Secondly, the Franchise Association of South Africa (FASA) secured funding from the Jobs Fund which will be used in partnership with other funding institutions to address the funding challenges that limit participation by historically marginalised groups. FASA is also in the process of developing and launching a franchise qualification intended to build the capacity of franchisors, franchisees, professionals and employees in the franchising industry. The qualification is intended to support role players in the industry towards credible performance support.
FASA has also finalised the Franchise Code of Good Practice which will be monitored through the National Consumer Commission. In order to enhance its advocacy role for the transformation of the industry, the department and SEFA are represented in the FASA executive committee.
We are implementing the Enterprise Incubation Programme (EIP) as a pilot programme during this financial year. The objective is to support the establishment of new business incubators and for the growth and expansion of existing incubators. It will offer incubation for small businesses and co-operatives with potential but limited technical and business skills and expertise, to be mentored so that they can take advantage of market opportunities.
We have many examples of the impact of financing provided by SEFA.
- One example is Thabo Vuyo Sikukula, an East London resident and owner of WP Timber, a pine wood door manufacturing business. He approached SEFA for funding of R 5000 000 to help finance the 100% purchase of WP Timber Products CC for a total value of R 7 250 000. The remaining R 3 750 000 was funded by Masisizane Fund, an incubator owned by Old Mutual Investments Limited.
- In acquiring the business, the existing jobs of 136 women employees were retained and five (5) additional jobs have been created.
- The business has for the past four years been turning over R 21 million per annum and has now increased its revenues to an average R 2 million a month, projected to be totalling R 24 million per annum.
The Small Enterprise Development Agency (Seda) continues to demonstrate remarkable success in assisting potential and existing small enterprises and cooperatives. The agency’s client journey model, which is long-term and outcomes oriented has resulted in about 74% of assisted clients indicating that their turnover had increased following Seda’s interventions and 51% indicating that they now employ more people. Seda partners with numerous organisations that offer complimentary services, both in financial and non-financial support, and this enables the entity to provide a comprehensive support service to small enterprises and cooperatives.
Ten thousand, six-hundred and seventy nine (10 679) clients that received Seda interventions during the 2015/2016 financial year, together with the ones from previous years who continue to receive support, have created a pool of entrepreneurs that can make a contribution to the country’s socio economic growth. Cooperative support efforts resulted in 166 primary and 40 secondary cooperatives receiving support through Seda’s unit for cooperatives and community, public private partnership programmes.
The Department and Seda hosted the inaugural Southern African Business Incubation Conference, with the Deputy President delivering the keynote address. The main objective of the conference is for SEDA to lead a dialogue on aligning the incubation ecosystem in the country.
As at the end of March 2016, the 57 Seda-supported incubators housed 2,492 small enterprises, and created 2,331 permanent jobs during the 2015/2016 financial year. The sectors that contributed the most to this performance are the labour absorbing sectors of Agriculture, Construction and Manufacturing. In an effort to strike a balance between high-technology, innovation focused incubators and job-creating incubators, Seda is remodelling some of its incubators in high-technology sectors such as ICT, Chemicals, Bioscience, and renewable energy.
Legislative Programme
Between January and February 2016, we conducted the first round of provincial stakeholder consultations on the amendment of the National Small Business Act of 1996, as amended. The next round of consultations will take place between June and September 2016. These consultations will create a platform for inputs from inter alia, Business Associations, Private Sector, Universities, Practitioners, Small Business Organisations, National Government and National Agencies. By the end of this financial year, we would have made significant progress on proposed amendments to existing legislation.
Recognising that the economy and the operating environment has undergone significant changes, and in some instances has become more complex, the envisaged outcome of the review is a conducive legislative and policy environment that supports the growth and development of small businesses and cooperatives.
The regulations for the implementation of Co-operatives Amendment Act No. 6 of 2013 have been finalised should be proclaimed within the next 6-months. Chairperson, you will be pleased to know that the Amendment Act provides for a differential dispensation for primary co-operatives that lowers the cost of doing business for small primary co-operatives, in particular. It encourages small businesses to form co-operatives that will enable them to benefit from shared services. It allows for the organic growth of the co-operative movements based on their own needs and requirements to form a national apex co-operative to represent the needs of all co-operatives in South Africa. Principles of good governance have also been developed for co-operatives so as to better serve the needs of their members.
Conclusion
South Africa continues to be a player in the creation of knowledge on entrepreneurship on a global scale. Having hosted two previous international conferences on entrepreneurship and small business I am pleased to inform the House that in March next year we will host the Global Entrepreneurship Congress (GEC) in Johannesburg.
This year’s International Cooperatives Day will be co-hosted with the Mpumalanga Provincial Government from the 1st to the 2nd of July.
I am also happy to announce to you that I will be interacting with Small Business organisations tomorrow at the University of the Western Cape. Further interactions will be held with academia, traditional leaders and sector based business organisations. These interactions will inform the national integrated business strategy.
We remain determined and committed to build viable and thriving small businesses and cooperatives. We have no illusions about the enormity of the tasks that lie ahead. Like true entrepreneurs, we do not adopt a defeatist posture in the face of daunting challenges. True entrepreneurs are not quitters. They remain resolute and determined for they know that obstacles in the way of progress are never insurmountable. Whatever they do, their inner voices keep telling them: “I know I can make it!”
Chairperson, my task as the Executive Authority for small business development has been eased by the support of many around me.
Firstly, I must acknowledge my Cabinet colleagues for their support. Colleagues, thank you for your advice to me and the leadership you provided to your departments to support small businesses.
Deputy Minister, Elizabeth Thabethe, thank you for your support and the experience that you have generously shared.
The Members of the Provincial Legislatures responsible for economic development, the MECs, thank you for your collegiality and for showing that the cooperative governance we aspire to, is possible.
Chairperson of the Portfolio Committee on Small Business Development, Sis Ruth Bhengu and Committee Members, thank you for your patience over the past two-years, while we were establishing our department, for your collective passion to see the delivery of our mandate to the people of South Africa and for your guidance.
We have been encouraged by the media interest in small business development and I want to express my sincere appreciation to the progressive media houses and teams for their coverage of our work and opinion pieces.
I must express my sincere appreciation to the Director-General, Prof Edith Vries and the entire department, the people who work closest to me for their dedication and commitment in order to keep up with my diary, your hours have shaped a “new normal” for the public service .
My family, the people who are closest to me, who I go back to after long and sometimes tough days. Thank you for surrounding me with your unconditional love and support. Know that I do not take your love and support for granted.
Chairperson, I herewith present Budget Vote 31 on Small Business Development for 2016/17.
Together we move the South African economy forward through small businesses and cooperatives development.
I thank you
