Minister Lindiwe Zulu: Small Business Development Dept Budget Vote 2015/16

20 May 2015

Deputy Minister Thabethe,
Ministers and Deputy Ministers,
Chairperson of Portfolio Committee on Small Business Development, Hon. Ruth Bhengu,
Members of the Portfolio Committee on Small Business Development
Chairpersons of SEDA and SEFA,
CEOs of SEDA and SEFA,
Acting Director General, Mr Lindokuhle Mkhumane,
Honourable Members,
Distinguished guests,
Ladies and gentlemen,

I join my comrades in paying tribute to Mme Ruth Mompati as we prepare for her last journey. A combatant and heroine of the liberation struggle and a proud member of the African National Congress until her death. Like many, I am a product of her discipline; the liberation of South Africa and empowerment of women.

Chairperson, Honourable Members and guests, after a year in office, we are confident we have a fuller grasp and understanding of our mandate. We shall lead and be the commanding voice for Small Business and Cooperatives within government.

Our Hawkish eyes will search and grab every opportunity presenting itself in support of growth and sustainability of SMMEs and Cooperatives.

We await the approval of the inclusion of “Cooperatives” in the name of the department to give confidence that Cooperatives are also at the centre of our work.

Chairperson, we stand before you as radical economic cadres of a nation at work, determined to transform the economic landscape of South Africa. We have no illusions about the enormity of the challenges that lie ahead. However, given the base from where we started, and the support we have enjoyed since inception, we have no reason to fail.

We are ready to give expression to clause three of the Freedom Charter; “The people shall share in the country’s wealth”.

Twenty years since our freedom, the participation of black people in the country’s economy still leaves much to be desired. Radical economic transformation is about turning this ugly picture on its head. We must intensify our efforts aimed at broadening participation in the mainstream of the economy. We see the development of Small Businesses and Cooperatives as catalysts for economic growth and job creation.
We are utilising small businesses and co-operatives as vehicles for the redistribution of the country’s wealth. We are reversing an economic injustice of almost four centuries.

Collectively, we must promote the understanding that the economic empowerment of black people is not synonymous with less economic efficiency and lower returns on investment. I reiterate my view that, overtime, we must engender the understanding that it is natural that an economy of any African country, as with South Africa, should, in its ownership, management and skills, reflect the active and meaningful participation of Africans in particular, and black people, in general.

Chairperson, despite the existing sources that point to the upward trend in the number of SMMEs registered since 2000, there is growing consensus that South Africa’s business activity rate, growth and sustainability are declining. South Africa still lags behind its BRICS peers.

In his State of the Nation Address, President Zuma declared that, “Small business is big business”. For the economic cluster in particular and government in general, this statement must serve as a clarion call to action and a bold assertion about the critical importance of small businesses and co-operatives in economic transformation, job creation and economic inclusion. The significant role of small businesses is underlined by the National Development Plan which envisages that the small business sector will create 90% of the expected 11 million jobs by 2030. Chairperson, by our calculations, Small businesses will have to contribute roughly 800 000 jobs per year until 2030.

As government, private sector and other relevant stakeholders we carry a responsibility to stimulate and support the growth and sustainability of the co-operative and small business sector. Together, we must address lack of business opportunities in both the public and private sectors.

On the Role of the private sector:
Let us also confront this unpalatable truth: Big companies have for a long time managed to crowd out small businesses through their financial muscle, cash reserves and economies of scale. For example, It is much easier for big companies to sell products at lower prices and in the process squeeze out small businesses when competing for government procurement opportunities, especially because government considers the lowest price over development considerations when procuring goods.

We must proceed from the premise that supporting small businesses and co-operatives is not a philanthropic gesture on the part of big business. In fact, it is in their interest to help grow and sustain small businesses. They are tied in a symbiotic relationship with small businesses. The diversification of supply chains assists big business to have a wider choice of suppliers from SMMEs and promotes innovation within the value chain. The growth and sustainability of big business therefore depends on a strong small business sector, both as consumers and suppliers. An inclusive economy that benefits all is also a guarantee for the social stability that is required for business to flourish.

We are therefore encouraged that the revised Broad Based Black Economic Empowerment Codes present added opportunity for small enterprises to access the supply chains of large organisations.

On Transversal agreements:
We have identified procurement opportunities for co-operatives and small enterprises and are currently negotiating transversal agreements with various departments to ensure access to these opportunities. The implementation of the 30% target for public procurement by SMMEs and Cooperatives will ensure increased participation by emerging enterprises in the mainstream economy.

We have made significant progress in negotiating Memoranda of Understanding with the Departments of Public Enterprises and the Department of Agriculture, Forestry and Fisheries. We believe these to be potentially game changing transversal agreements. We continue to engage other Government Departments in this regard.

On 30% Public Procurement (Set Asides):
As announced by the President during the 2015 State of the Nation Address, Government will set-aside 30% of appropriate categories of state procurement for purchasing from SMMEs and Co-operatives. We wish to announce that we are working with National Treasury and have set a target of September 2015 for the issuing of Practice Notes to implement the public procurement programme.

On Access to finance:
The non-payment of SMMEs and Cooperatives creates a barrier to business growth and ultimately to the growth of the economy. Cabinet agrees with us that late and non–payment of suppliers constitutes financial misconduct. We welcome the creation of a special unit by the Minister in the Presidency responsible for Planning, Monitoring and Evaluation that will monitor the implementation of the 30 day payment of SMMEs.

Small Businesses continue to face problems with accessing funding from the main commercial banks, based on our people not having adequate collateral, and a lengthy track record of running formal businesses. But, this a chicken and egg story, because without gaining access to capital, informal businesses will remain small and vulnerable, unable to develop the very track record and asset base the banks require.

In order to ensure access to funding for small businesses and co-operatives, the Small Enterprise Finance Agency (SEFA) has migrated to the department. This will ensure a more integrated approach towards extending support to SMMEs and co-operatives. From inception to date SEFA has approved loans in excess of R2billion to small enterprises.
Going forward we will assess the impact of this expenditure with a view to increasing additional financial support to our people.The Department is currently reviewing the guidelines for the Black Business Supplier Development Programme to ensure that it is aligned to our mandate. We will also develop a business rescue strategy aimed at supporting SMMEs and Co-operatives in financial distress. 

The Youth, Women and People with Disabilities’ Business Support Scheme has been conceptualized as a response to the specific challenges faced by enterprises owned by these targeted groups, especially at start-up level.

Women-owned enterprises and youth-owned enterprises have been allocated R30 million each in the current financial year. This funding instrument will assist enterprises to acquire critical assets and equipment required to grow and expand their business operations.

On Township and rural economies:
Government is aware that small businesses and co-operatives find it difficult to flourish in underdeveloped areas such as townships and rural communities due to lack of adequate investments in infrastructure and lack of appropriate policies to protect informal businesses.

Statistics SA’s “Survey of the employers and the self-employed (SESE)”, published on 14 August 2014, paints a disturbing picture. It points out that the informal sector accounts for between 5-6% of GDP and that it contributed 15,8% to total employment in 2014. Indeed, the Informal sector has for a long time, not enjoyed the full business support commensurate to its contribution to GDP and employment. Radical economic transformation requires that we integrate the informal sector into the mainstream economy without encumbering participants.

According to the survey, the informal sector provides jobs for one in every four employed persons in Limpopo and one in every five persons in Mpumalanga, Eastern Cape and KwaZulu-Natal.

Almost nine out of every ten people running informal businesses are African. In light of the recent spate of violence against some local and foreign shop owners, it is worthwhile to note that this statistic reinforces the view that the battle is among traders of African origin.

The harsh reality is that 79.0% of informal traders do not have a bank account; 96.8% had loans from friends/family for day-to-day operations; More than 95.0% have no credit facility, or asset finance or a mortgage loan for their business.

Government, in particular, local government, need to ensure that they enforce by-laws without disenfranchising informal traders who have not had infrastructure support. We shall be working with Metros, municipalities, the South African Local government Association (SALGA) and the National House of Traditional Leaders to review by-laws to be responsive to the local conditions in our townships and rural areas.

The department will expedite the implementation of the National Informal Business Upliftment Strategy (NIBUS), which seeks to create an enabling legal and regulatory environment; provide finance and non-financial support; promote intergovernmental relations to deliver to the sector; encourage the role of private sector and support of informal trader organizations. In partnership with the Wholesale and Retail SETA, we shall upscale the Informal Traders Upliftment Project (ITUP) where currently we are piloting the support of 1000 informal traders with skills and infrastructure nationally.

The first training was conducted in Gamalakhe, Port Sheptsone in April this year. R50 Million has been allocated for the roll-out of the Shared Economic Infrastructure Facility and support for informal businesses generally.

My department remains seized with the task of working with local and foreign nationals who are operating in the informal sector to find lasting solutions to the violence that gripped parts of the country in the last few months. The Task Team that I established on 26th January 2015, has made significant progress in this regard. We welcome the formation of the Provincial Task Teams in Limpopo and KwaZulu Natal and the initiatives towards that end in the Free State. We urge the remaining Provinces to follow suite. We now sit in the Inter-Ministerial Committee on Migration and we are now able to locate our work within the mandate the Inter-Ministerial Committee.

I have also taken note of the announcement by my colleague Minister Patel, on the market enquiry into parts of the retail sector by the Competition Commission. I welcome the enquiry because this sector can be a critical catalyst for the development of small businesses but in reality, the high levels of concentration of ownership and the growth the major retail chains limit access for ordinary South Africans to trade and to enter the mainstream economic space. I would urge the Competition Commission to look at the lease arrangements in shopping malls that clearly favour big companies and retailing in townships and tend to exclude black South Africans from running and owning shops and providing related services.

On Enterprise Development:

Youth development:
Our Mass Youth Enterprise Creation Programme (MYECP) is aimed at creating enterprise opportunities for youth-owned SMMEs and Cooperatives – committing government departments to earmark 30% of their procurement spend towards growing and expanding youth owned enterprises in their acquisition of goods and services in fulfilling their operational mandate.

In partnership with the Department of Energy, we are establishing Cooperatives for young people in rural Eastern Cape and Kwa-Zulu Natal who were trained in the installation, maintenance and repair of solar water heater geysers. These youth Cooperatives are now ready to participate in the growth of the renewable energy and green economy sectors. We intend to gradually massify this programme across the country.

Women development:
As a department, we have placed the issue of women empowerment high on our agenda. The Bavumile Skills Development Programme facilitates for many women to access formal training to improve the quality in their products. Participants are supported to either formalise their businesses or to access markets by participating in the national pavilions or supplying local markets i.e. schools etc. Deputy Minister Thabethe will elaborate further in this regard.

People with disabilities:
Previously, there were no dedicated programmes to support this important sector of our community. The Department will develop incentives and programmes that are directed to this sector working closely with relevant organisation.

The department is determined to transform the franchising sector through various measures and one of them is to develop more franchisors from township and rural communities. We have started a process of identifying and packaging successful and profitable businesses based in township and rural areas. Micro-franchising is still at its infancy stage in South Africa. The mainstream franchise market remains expensive and inaccessible to the majority of potential entrepreneurs.

Entrepreneurship schools:
As part of our efforts to inculcate a culture of entrepreneurship, we are establishing Centres for Entrepreneurship (CfE) programmes within the Technical and Vocational Education and Training (TVET) colleges working with the Department of Higher Education and Training. This programme seeks to increase the number of graduates who regard setting up their own business as a viable alternative to seeking employment.

We have already launched some centres in Gauteng, Western Cape and Mpumalanga. We are in the process of expanding the programme to other provinces.

Red Tape Reduction Programme:
Government also recognizes the need to review the policy and regulatory environment that continues to hinder the development, growth and competitiveness of small businesses. All spheres of government should institutionalise the guidelines aimed at reducing red tape at local government level.

To date, the Red Tape Reduction guidelines workshops have been conducted for 102 municipalities across the country in partnership with the Provincial Departments of Economic Development as well as District and Local municipalities. It is envisaged that during the 2015/16 financial year, the department will continue with the rollout to ensure inclusion of other municipalities.

Incubation Support:
Incubation has been identified as key to the development of a vibrant and growing small enterprise sector by the department. In this regard, we will pay particular attention to increasing SEDA’s incubator footprint, directing specific interventions to the small and medium enterprises’ segments, identifying and working with large-scale projects and cooperatives, and prioritising growth sectors of the economy.

Chairperson, through our agency, SEDA, we have made significant progress with regard to incubation support. The number of supported incubators continues to increase.
It is also encouraging to note that the sectoral profile of SEDA’s clients is in the priority sectors of service; agriculture and manufacturing sectors. The percentage of clients in the upper end of the small enterprises sector - those employing between 21 and 200 people, has increased from 1.3% to approximately 2.4%.

On The Gazelles:
In line with our differentiated programme offerings, we will be targeting, as part of our segmented support, high growth entities under the Gazelles programme. This programme was conceived by small business champion, Dr.Thami Mazwai, Dr David Phaho and our agency – SEDA.

Through this programme, 200 high potential businesses will be selected annually. A structured systematic blend of best practice support will be delivered to them. The best 40 of these 200 will be identified as the President’s Gazelles, being the most promising, high-potential entrepreneurs of the cohort: tomorrow’s industrialists. The roll-out of the programme started at the beginning of May and the launch will be in June this year.

On Co-operatives development:
One of the important instruments that the Department uses to advance the Cooperatives development and support is the Cooperative Incentive Scheme.

The CIS budget of R75 million shall be used to provide financial support to sectors such as agriculture, in the form of a grant to both start-up and existing small scale primary Cooperatives.

During the next few weeks I will sign the Cooperatives Amendment Act to be released for public comment.

On the Amendment of the National Small Business Act:
During the last quarter of this year, we will embark on stakeholder consultations with regard to the National Small Business Act. The amendment process seeks to address gaps and any possible areas of ambiguity.  More importantly, the Act needs to be aligned to the mandate of the new Department.

In conclusion

Township and Rural Economy Summit
My Department, in partnership with Provincial and Local Government structures will convene a Township and Rural Economy Summit later this year. This will be geared towards the creation of a Master plan or common framework for township and rural economic development.

Small Business Colloquium:
Last year my department in partnership with the Small Business Development Institute launched a consultative process through the National SMME Policy Colloquium.

The Colloquium sought to consult SMME stakeholders on possible Policy recommendations. I have taken note of the findings and will in short order, make proposals on potential partnerships.

Global Entrepreneurship Congress:
I am pleased to announce that our ongoing entrepreneurial revolution has been given renewed impetus by the announcement that the City of Johannesburg will host the 2017 Global Entrepreneurship Congress. This will be the first GEC to be held on the African Continent.

Our experience in the past year has shown us that there is a case for rationalizing the institutions that are providing support to small businesses and cooperatives. We need value for money.

Chairperson, I wish to thank the Portfolio Committee on Small Business Development led by Honourable Ruth Bhengu for exercising their oversight without fear or favour. We remain indebted to them for their continued counsel and support; Deputy Minister Thabethe for her support, institutional memory and leadership; my organisation, the African National Congress for providing guidance and leadership; the agencies of the department, our partners in the private sector and civil society, organised formations representing small businesses and co-operatives, staff in my department and most importantly my family for their unwavering support that makes it possible for me to serve my country.

I thank you