Deputy Minister Nokuzola Capa: Small Business Development Dept Budget Vote 2020/21

24 Jul 2020

Address by the Deputy Minister of Small Business Development, Ms Nokuzola Capa (MP), on the occasion of delivering budget vote 36 on Small Business Development

Honourable Speaker
Ministers and Deputy Ministers
Minister Ntshavheni in her absentia
Chairperson of the Portfolio Committee on Small Business Development, Ms Violet Siwela, and Honourable Members of our Portfolio Committee
Honourable members of Parliament
Officials of the Department led by our Acting DG, Mr. Lindokuhle Mkhumane
The Chairperson of the Board of SEDA and board members
The Acting CEO- SEDA
The Chairperson of the Board of SEFA and board members
The Acting CEO-SEFA
Representatives of the organised business formations, cooperatives movement, academia and other partner institutions
Our special guests: Entrepreneurs, SMMEs and members of Cooperatives
Ladies and gentlemen,

Fellow South Africans

Umhlaba utshintshile, siphila kwixesha enlizima, Covid-19 has disrupted our normal way of doing business.

The new normal has been ushered by COVID-19 into all aspects of business operations and governance. The Department of Small Business Development is no exception. 

Earlier this year, our Excellency, President Cyril Ramaphosa declared a State of Disaster and all South Africans had to immediately adjust their way of living. Subsequently lockdown was introduced as a measure to curb the spread of Coronavirus pandemic. This, without doubt, has saved many lives. But the lockdown meant that we needed to start doing business differently and introduce technology based initiatives in order to continue serving our people.

The fourth industrial revolution was no longer a debate but a realistic way of life. In the last few months we have seen innovative young people creating Apps, coming up with IT solutions such as database management and customer relationship management systems. The Department of Small Business Development introduced the National SMME database (smmesa.gov.za) as a means to ensure that all active enterprises in the country are registered in order to access government support and services. To date approximately 195 000 SMMEs across all sectors of the economy have registered and most of them have applied for different support programmes offered by the Department of Small Business Development. This database is an interactive tool that will also assist us in curbing double dipping whilst positioning us to introduce bespoke e-commerce platforms for online marketing and trading.

Honourable Speaker, today’s session is critical to the SMMEs and Cooperatives who are waiting to hear how much we have budgeted to support their enterprises and initiatives. I therefore would like to start by tabling our budget for the 2020/21 financial year and outline our plans with specific amounts per programme.

The Department of Small Business Development is allocated R2.4 billion for the 2020/21 financial year which was reduced during the Special Adjustment Budget process by R67 million to R2.3 billion and it is allocated as follows:  

  • Transfers and subsidies consume 90.3% or R2.1 billion whilst operations are provided 9.7% or R227.7 million of the allocated resources.  The R2.1 billion of transfers and subsidies provide for:
    • Seda’s allocation of R859.1 million, which is 40.7% of the transfers and subsidies.
    • Sefa’s allocation of R1.2 billion, which is 54.7% of the transfers and subsidies

The Department administers the remaining R98.5 million through the incentives that are internally administered by the department which include the Cooperatives Incentive Scheme (R63.7 million), Black Business Supplier Development Programme (R13.7 million), Craft Customised Sector Programme (R11.1 million) and National Informal Business Upliftment Scheme (R9.8 million).     

Honourable Members, from sefa’s total budget allocation, an amount of R246 million does not form part of Budget Vote 36, as yet. It is transferred through the Budget Vote on the dtic as sefa is a subsidiary of the IDC. The Department took a strategic decision to utilize the infrastructure and capacity of sefa in implementing financial support interventions hence the allocation of R1.2 billion of our budget to them. We know they are not perfect but we will work with them in ensuring that we achieve the intended end outcomes which is the provision of affordable finance to SMMEs and Cooperatives.

From the budget of R859.1 million allocated to Seda,

  • R160.3 million will go to the Seda Technology Programme,
  • R16.2 million is allocated to the Capacity Building Programme for Economic Development, and
  • R682.6 million is allocate to the agency to ensure that the entity has branches throughout the country that are supporting small enterprises and Cooperatives to access non-financial support services.

PARTNERSHIPS

Honourable Members, DSBD is mandated to promote and develop entrepreneurship, cooperatives and small businesses, has a critical role to play within this mode

and has to increase its footprint in the small business space to the benefit of SMMEs and Cooperatives, in particular, those that are located in townships and rural areas.

DSBD has developed an SMME Support Plan for the 2019 - 2024, which is in line with the sixth administration priorities and is a perfect fit for escalation to the District Development Model (DDM). The Plan consists of Nine key deliverables that will be implemented and coordinated by DSBD within the Model as follows:

  • SheTradesZA is a platform that serves as a unique opportunity for women entrepreneurs in the SMME sector to participate in the global value chains and markets.
  • 100 Thousand Young Entrepreneurs, this is a coordinated initiative to support youth entrepreneurship together with the NYDA, sector departments and the private sector.

The purpose of the partnership is to collaborate under the banner of the Presidential Youth Employment Intervention to fund 1000 Youth Owned Businesses in 100 Days, as announced by the President during the State of the Nation Address of 13 February 2020.

The Grant Funding Programme was designed to provide young entrepreneurs with an opportunity to access both financial support to enable them to establish or grow their businesses.  The programme focuses on young entrepreneurs who are at intentional, promising and new stages of enterprise development.  Young people whose business ideas qualify for the Programme, depending on their individual needs, will also undergo some of the NYDA’s non- financial support services, including; mentorship, business consultancy services, market linkages, business management training Programme and youth co-operative development programme. The NYDA has 1000 funding-ready businesses that can be supported for a high impact quick win.  The programme has an estimated budget of R50 million. With the COVID 19 Lockdown starting on 26 March 2020 much of the operational activity surrounding the implementation slowed down, however the process of reactivating the project is gathering pace.

  • SMME Expansion, Scale Up, this initiative coordinates efforts to support small and medium enterprises to scale-up/ expand their businesses and survive beyond their first 5 years through access to working capital, and markets for goods and services.
  • Township and rural entrepreneurship programme is a dedicated programme to transform and integrate opportunities in townships and rural areas into productive business ventures. The focus is to create platforms which provide the business support infrastructure and regulatory environment that enables entrepreneurs to thrive.
  • Incubation and digital hubs: Business and technology incubation centres that offer enterprises business and technology management skills, support and platforms for a minimum 3-year period.
  • Cooperatives Development programme, this initiative is aimed at supporting cooperatives as enterprises that are income and profit generating that contribute to economic growth, and employment creation.   The driving ethos is that cooperatives are enterprises/ businesses and must be supported to become sustainable and competitive.
  • Informal business initiative is aimed at supporting informal businesses with compliance support, business skills development, business infrastructure, and technical support.
  • SMME Products, is an initiative to coordinate and direct the buy local campaign to be impactful by target a minimum number of enterprises that should benefit from the initiative.  The intention is to set a minimum number of enterprises that must benefit from the Buy Local drive.
  • The Start-up Nation initiative seeks to promote innovation that can have a ripple effect on the national economy.

The DSBD is the custodian of the SMME plan which has been captured above. DSBD will develop an approach that ensures SMMEs and Cooperatives play a critical role in the District Development initiatives. DSBD deployees will be the key champions and drivers of the DSBD objectives.  SEFA will provide the required financial backing for supporting SMME and Cooperatives participation in District plans at local levels.  SEDA will provide non-financial support for small businesses and cooperatives. SEDA is also the driver of the business ecosystem facilitation model.

The Built environment led by Department of Human Settlements and The National School Nutrition Programme (NSNP) led by Department of Social Development have a critical role to play in the District Development Model. 

Adequate infrastructure is a prerequisite for sustainable economic growth and social development which lays a foundation for improving the quality of life. The absence of accessible, affordable and reliable infrastructure has continuously resulted in people in townships and rural areas paying heavily in time, money and health. The majority of government building projects involve construction of new buildings, extensions to buildings or major refurbishments to existing buildings. 

In addition, the school nutrition programme is a social protection instrument aimed at alleviating poverty and hunger by providing a meal to the learners within the school setting. This has an opportunity to boost local economies by reinvesting resources into the communities of the children these programmes are serving. In this way, school nutrition programmes provide an opportunity for national governments to invest in the long term development of both children and the greater economic development of the community.

The DSBD will roll out Covid-19 relief packages and these will be aligned to specific initiatives that emerged from the plans as developed and outlined in the forums and other structures operating within the DDM framework.

In an attempt to integrate and provide seamless services to SMMEs and Cooperatives, the Department has adopted and approved a One Stop Model which is also aligned to the District Model and also facilitates revitalisation of township and rural economies. This model which is also called Co-location, it is defined as follows:

A process of bringing into a single property- under one roof of services intended for business development and support by various entities. A Co-location point is a single access facility to information and business support services for small and medium enterprises and co-operatives in a certain geographical area. A co-location process and an establishment of a co-location point will lead to an ideal one stop shop.

The Department and its entities has established a number of Co-location points in various municipalities using the footprint of seda offices. We have also partnered with other entities such as NYDA, NEF and IDC to Co-locate and provide a single access facility for business development and support.

Honourable Speaker

It is worth noting that small businesses are the biggest casualty of both the COVID-19 pandemic as well as the good measures like lockdown, social distancing, etc. that are taken to prevent the further spread of the pandemic. Since the announcement of the lockdown in particular, our department has been inundated with an unprecedented number of calls from the informal, micro, small and medium enterprises as well as cooperatives seeking financial and non-financial support.

In response to the plight of these entrepreneurs, led by the Development Finance work stream in the department, the following instruments were developed and some implemented as follows: 

SMME DEBT RELIEF FACILITY

For SMME Debt Relief Facility we had mobilised R530 million. This is a soft loan funding aimed at keeping existing businesses afloat during the COVID-19 pandemic whilst averting loss of jobs in the economy. This facility is assisting the majority of SMMEs and Cooperatives who are experiencing severe reduction in demand and subsequent reduction in revenues due to the pandemic. Due to budgetary constraints, the facility offers working capital only – strictly direct costs which should be auditable to a maximum of R500 000. Those that applied were assisted with utilities bills, rental payments and some with salaries and this is just before we could finalize our agreement with the UIF to assist all those that needed payroll assistance. Unfortunately, the budget we had was not sufficient to cover the demand as the total value of application was just over R5 billion meaning that we had a deficit of R4,4 billion. We have committed to pay all claims that are with us by the end of this month as we have to start implementing measures that will drive economic recovery.

Honourable Members

South Africa has a high SMMEs mortality rate in relative terms. The Global Entrepreneurship Monitor (2020), has revealed that the country’s average business discontinuance rate is higher than the established business ownership or formation rate. This implies that there are more SMMEs that are ceasing to operate or closing down and fewer new business formations.

The situation is expected to deteriorate further due to the prevailing difficult economic conditions brought about by the COVID-19 pandemic. Consequently, the majority of the SMMEs and Cooperatives are expected to experience business challenges that will lead to the reduction in business volume. This has the potential of pushing most of the SMMEs and Cooperatives out of business. This could mean job losses and closure of businesses on the part of these entrepreneurs as they do not have adequate cash reserves to sustain their businesses.

As the Department of Small Business Development we had introduced the Business Growth and Resilience facility with a total budget of R300 million to provide local manufacturers and suppliers with an opportunity to upscale production in order to better respond to COVID-19 needs.  This facility funded the production, supply of health care and related products that are utilized to combat the spread of COVID-19 pandemic, as well as local manufacturing and supply of various essential products including food products.

The facility offers working capital (only direct costs) i.e. stock, bridging finance, purchase order finance and capital equipment finance.

Having said that, Honourable Members, we had to reprioritise our spending as the demand for the Relief Fund rapidly increased, so we speedily suspended the Business growth and resilience scheme and we are now finalising the Business Viability Programme.

The Business Viability Programme is aimed at supporting SMMEs to overcome both financial and non-financial constraints that are negatively affecting their business activities. The primary purpose of the Programme is to ensure that SMMEs and Cooperatives are commercially and financially viable and contribute meaningfully to economic transformation and job creation.  

Furthermore, as a measure to continue supporting SMMEs and Cooperatives, we implemented a restructuring process for loans funded by sefa whereby a payment moratorium/holiday will be given to sefa funded SMMEs and Cooperatives for a period of a maximum of six months to reduce the instalment burden of loan obligations on clients during the COVID-19 period (if COVID-19 pandemic goes beyond the six months period, re-evaluation of the moratorium will be made). The payment holiday will result in deferments of Capital or both Capital and Interest and the interest accrued will not be capitalised into the loan facility over the proposed maximum period of 6-month.

In addition, we have also provided Micro Finance institutions and Retail Financial Intermediaries with a payment holiday totalling over R30 million.

Honourable Speaker, the Department has formulated a support plan to resuscitate township and rural economies through a range of programmes geared towards encouraging entrepreneurship and assisting informal businesses.

These programmes are anchored on the Department’s Township and Rural Entrepreneurship Programme which was approved by Cabinet on the 4th of March 2020.

The primary objective for these programmes is to support opportunities for self-employment and job-creation at economic entry level whilst improving the circulation of money in townships and rural areas. The intent is to create opportunities for some informal businesses to be intermediary step to formal economy and get as many people as possible into the tax net. In particular, the Department has put in place measures that would realise the potential of spaza shops, general dealers, small hardware stores and spares shops, sole proprietors and artisanry businesses to serve as centres for locally manufactured goods and services. We want to strengthen informal businesses as local convenient and service centres for access to basic goods and services. Most importantly, it is our intention to facilitate dedicated support programmes to make informal businesses profitable, successful and recognized in the formal economy.

Specific support that is being offered to informal businesses:

  • Purchasing power (bulk buying)
  • Access to working capital investment and revolving credit through Khula Credit Guarantee Scheme
  • Business knowledge
  • Occupational health and safety standards
  • Legal compliance

A variety of dedicated informal business support programmes has been launched by the Department. Essentially, our aim in respect of this segment entails getting the informal businesses accounted for in the formal economy by facilitating their registration with SARS and where necessary with CIPC and UIF with dedicated support using Unemployed Accounting & Business Graduates and small law firms.

RECENTLY LAUNCHED INFORMAL SECTOR PROGRAMMES

Honourable Members, we have recently launched Township and rural entrepreneurship programmes as follows:

  1. Spaza Shop Support Programme:  It’s a cash flow facility in the form of credit guarantee administered via the commercial banks that enabled SA’s spaza shop owners with a valid operating permit to buy stock at accredited wholesalers with a R175 million budget
  2. Clothing & Textiles Support Programme: an initiative focusing on skills enhancements and upgrading machinery and equipment of informal clothing and textile manufacturers with R 105 million budget.
  3. Bakeries & Confectionaries Support Programme: To provide access to markets through spaza shops, school nutrition schemes, hospitals, military & other social relief programmes. This will be in the form of working capital investment that includes bulk buying facility on pre-approved products through pre-selected wholesalers, which would be leveraged on the Spaza & General Dealers Support Facility with R 100 million budget.
  4. Automotive Aftermarket Support Programme: A credit guarantee facility in the form of supplier guarantee to informal autobody repairers and mechanics to purchase stock and other relevant equipment in execution of their business activities with R 225 million budget.

NON-PAYMENT OF SMMEs

Honourable Members, It must be noted that liquidity challenges of SMMEs due to late payments were exacerbated with lockdown. Having a dedicated team working to design interventions with the most effective immediate impact and that are futuristic in nature to build a national culture of “ubuntu” towards our SMME and Cooperatives suppliers in realising their importance in growing and building a sustainable economy in South Africa for all that create employment and foster competitiveness and growth is important. Driven by the need to ensure effectiveness and cost efficiency it is important to understand the root course why previous interventions such as the SMME hotline at seda that was later moved to the Presidency was not effective.  The ineffectiveness of these interventions were grounded in the lack of authority to enforce.  The “authority” to enforce lies with legislation, at this point in time the Public Finance Management Act (PFMA) and the (Municipal Finance Management Act) which is the mandate of National Treasury.  Progress was made, as of 4 June 2020 all queries related to the non-payment of invoices can be lodged at the following e-mail address “30daysqueries@treasury.gov.za”.  A dedicated team in the office of the chief procurement office (OCPO) deals with queries lodged and the good news is that there is already an improvement of around 20% with national departments.  Given provisions in the MFMA to improve enforcement at a municipal level, we are convinced to also see a meaningful enhancement of prompt payment in this area as well.   The Department of Planning Monitoring and Evaluation will remain responsible for the monitoring and evaluation.  But our work is far from complete.  Currently we are only dealing with 30-day payment obligations for national and provincial departments which represents less than a quarter of total government spend.  We need to cast our net wider to also capture our State Owned Entities.

I want to thank the CEO initiative who requested large business to pay SMME suppliers during the hard lockdown within a month.  This can however not be a once off initiative it needs to be embedded in the culture of doing business in South Africa.  My plea is that business will take on the challenge, like us in government, and work towards the development of a prompt payment code to SMME suppliers.  From our side we can work on enforcement measure which will come to a cost to our already stressed budget allocations but if that is what needs to be done to preserve the sustainability of our SMMEs then that is what will do.

LEGAL

Honourable Members, we remain committed to table the Small Enterprise Ombudsman Services Bill to provide a less costly dispute resolution mechanism.

South African small enterprises lose billions of rands annually due to late and non-payment by both government and the private sector. This has resulted in some small enterprises closing down because they have no appropriate mechanism to use to resolve disputes. Going to court is still a prohibitive proposition for small enterprises, even where there are large amounts involved. The process is cumbersome, time consuming and, of course, expensive. The establishment of the Small Enterprise Ombuds Service aims to provide a less costly dispute resolution mechanism to consider and dispose of complaints by small enterprises.

CONCLUSION

The total budget required to successfully implement all the developed instruments is estimated at R9.7 billion although I presented a R2.3 billion budget.

For the 2020/21, the Portfolio reprioritised an additional R413.5 million sourced DSBD (R213.5 million) and sefa (R213.5 million).  Most of the budget to fund these interventions especially those targeted at township and rural areas based enterprises is reprioritised from the Township Entrepreneurship Fund which is the fund that was designed to serve the same objectives as these newly developed interventions

I am confident that you will all support Budget Vote 36 as it is about our SMMEs and Cooperatives which are integral to the recovery of our economy.

Ndiyabulela,

Enquiries:
Moira Mogomotsi
Cell: 082 384 2771
Email: media@dsbd.gov.za

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