Minister Khumbudzo Ntshavheni: Small Business Development Dept Buget Vote 2020/21 NCOP

28 Jul 2020

Address by the Minister for Small Business Development, Hon Khumbudzo Ntshavheni (MP), on the occasion of the debate of budget vote 36 on Small Business Development (NCOP virtual sitting)

Honourable Chairperson
Deputy Minister Hon Pinky Moloi
Chairperson of the Select Committee, Hon Mandla Rayi
Honourable members
MECs/ for Economic Development:  Hon Thabo Mokone (Limpopo) and Hon Mosenogi (North West), Hon Dube-Ncube (KZN) and Hon Mvoko (EC)
The acting Director-General, Mr Mkhumane

Ladies and gentlemen,

This era can best be described through the words of Charles Dickens in the Tale of Two Cities, when he wrote:

“…It was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair…, we had nothing before us, we were all going direct to Heaven, we were all going direct the other way…”

Fellow South Africans

These aptly describes this era as the time of extreme opposites without any in-betweens and the choice to come out on top is all within our means. Like the saying goes, never let a good crisis go to waste.

In his address to the nation on the 21st April 2020, His Excellency, President Cyril Ramaphosa committed us “not merely to return our economy to where it was before the coronavirus, but to forge a new economy in a new global reality…Our economic strategy going forward is to restructure the economy and achieve inclusive growth”. Specific to the mandate for the Department Small Business Development, the President has directed us to promote localisation and industrialisation, to strengthen the informal sector and “to forge a compact for radical economic transformation that advances the economic position of women, youth and persons with disabilities, and that makes our cities, towns and villages and rural areas vibrant centres of economic activity. 

Honourable members, the Budget we are tabling today seeks to deliver on the clear directives from our State President. Our priorities are five-fold:

First, we have reprioritised the implementation of the Township and Rural Entrepreneurship programme;

Second, our programme to strengthen the informal businesses is based on dedicated schemes;

Third, localisation is focused on create markets for South African SMMEs and cooperatives produced products and services to drive industrialisation through targeted import substitution and supporting utilisation of local skills and services in the infrastructure build program

Fourth, ensure business viability of enterprises including cooperatives by supporting re-entry and restructuring of small enterprises into the new normal and new operating models; and

Fifth, drive precise transformation targets for women and youth empowerment, including race as ordered by the high court. From the onset, we must acknowledge that our strategies for supporting entrepreneurs with disabilities are still yielding nothing to ride home about. 

The budget for the 2020/21 financial year to deliver on these five broad priorities is allocated follows:

We must point out that the Department of Small Business Development was initially allocated R2.4 billion for the 2020/21 financial year which was reduced during the Special Adjustment Budget by R67 million to R2.3 billion.

  • 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 budgets 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.

From the R1.2 billion allocated to SEFA:

Instrument

Budget allocation

Debt Relief

R141 million

Business Growth

R20 million

Tshisanyama and cooked food

R50 million

Spaza Shops Support Programme

R138.5 million

Bakeries and confectionaries

R100 million

Autobody repairers and mechanics

R225 million

Personal Care Service

R90 million

Clothing, Textile and Leather

R105 million

Fruit and vegetable Hawkers

R135 million

Small Enterprise Manufacturing Programme

 

R150 million

Total

R1.2 billion

Township and Rural Entrepreneurship Programme is part of the commitments we made in the 2019/20 financial year, when we tabled our maiden budget vote and it was part of delivering on the undertakings of the State President to resuscitate the township economies. Last year we committed ourselves to a dedicated programme to transform and integrate opportunities in townships and rural areas into productive business ventures. I must indicate that Cabinet approved a 5-year programme under this initiative and our view is that opportunities created by the Covid-19 pandemic creates conducive environment for township and village enterprises to thrive when people are required to minimise travelling to avoid the spread of the virus. Through this programme, the Department in partnership with its two agencies (SEFA and SEDA) it is implementing the following schemes:

  1. Autobody Repairers and Mechanics Scheme
  2. Bakeries and Confectioneries Support Scheme
  3. Butcheries Support
  4. Tshisanyama and cooked food  Support

Through the Autobody Repairers and Mechanics, we intend to supporting 15,000 motor mechanics, panel beaters, auto fitment centres and auto spares shops in our townships and villages as follows: EC= 2055; FS = 885; GP =3045; KZN = 3095; Lim = 1800; MP = 1320; NC = 436; NW = 1095; and WC = 1620. This work to ensure that mechanics and panel beaters in townships and villages are assisted to can qualify to service vehicles that are covered by insurance companies. In addition, these businesses are being assisted to ensure improved quality of service to their clients whilst assisting them with improved business and financial management for the profitability of their businesses. In addition, last financial year we commenced with discussions with the Minister of Police on the possibility of servicing SAPS vehicles through young motor mechanics, panel beaters and fitment centres in the townships and villages. In this financial year, we should conclude the necessary agreement and thus provide a lucrative market for these entrepreneurs and boost our initiative to support 100 thousand young entrepreneurs. We are already processing applications under this scheme. Last year we implemented the Small Business and Innovation Fund which was mainly targeting innovative youth entrepreneurs and through this instrument, we were able to approve support to 2372 enterprises to the tune of R409 million that managed to create/sustain 14496 jobs.

The Department is also supporting Bakeries and Confectioneries with a target of 3500 across the country. It must be noted that many of the bakeries in townships and villages are mostly owned by cooperatives and our work is aimed at ensuring that the school feeding schemes, hospitals and Social Development food parcels source their bread from these bakeries as these will imply increasing government spending in businesses as part of boosting the township and village economy. Similarly, we are already processing applications under the Scheme.

Next week, the Department will launch the scheme to support 10, 000 Butcheries that are based in the townships and villages. This scheme is linked to the work we are doing with the Department of Agriculture, Land Reform and Rural Development to ensure that both the smallholder farmers, subsistence farmers and feedlots become suppliers to the beneficiaries of this scheme.  Of this target, EC=1370; FS = 590; GP =2030; KZN = 1990, Lim = 1200; MP = 880; NC = 290; NWest = 730 and WC = 1080.

Similarly, next week the Department will launch the support scheme for Personal Care Services although it will be limited to support those in the hair and beauty care services including hairdressers, nail technicians, make-up artists and body massage. This will support those who operate from their homes, salons/ spas – including those who rent chairs, and those in mobile services. Our target is 5000 enterprises. Through this scheme, we will also create a market for the hair and beauty products manufactured by SMMEs and cooperatives to be sold to participants of the scheme as part of ensuring that the Rand-circulates more within the SMME sector.

Honourable members.

The informal business initiative part of those programmes we announced in the 2019/20 financial year, through which we committed to support informal businesses with compliance, business skills development, business infrastructure, and technical support. We are honoured to report that progress made since our last announcement and that the Covid-19 pandemic has propelled its implementation through dedicated and focused schemes such as the:

  1. Spaza and General Dealers Support Scheme
  2. Fruit and Vegetable Vendors Support
  3. Tshisanyamas and Cooked Food Support

Spaza Shop Support Programme seeks to support 25, 000 spazas and general dealers with a budget of R175 million and the department has already processing more than 9000 applications. This programme provides spazashops and general dealers with the bulk buying facility through accredited wholesalers whilst assisting owners to access the mostly illusive bank credit via commercial banks. We are also honoured to report that in the not so distant future, these spazashops and general dealers will become stores where SASSA grants can be redeemed and hopefully also beneficiaries of NSFAS can also purchase their necessities. Our commitment is to make the spazashops and general dealers in our townships and villages the convenient shopping facilities of choice. I must also indicate to the honourable members that the scheme has enabled the department to ensure that more that 40 products manufactured by SMMEs and cooperatives including Magwa Tea from the Eastern Cape and Midi Tea from Limpopo amongst are listed in participating wholesalers. The spazashops and general dealers are disaggregated as follows: EC = 3200; FS = 1480; GP = 5370; KZN = 5000; Lim = 2690; MP = 2110: NC = 840; NW = 1840 and WC = 2470.

The Department will next week launch the Tshisanyama and Cooked Food support that targets to support 10, 000 outlets who can be Tshisanyama, micro restaurants including those who cook and sell in the open (popularly known as vho-Mamakhura in Limpopo), the kasi-style take-aways – including the ones who make kota or sphatlo in our streets. For us, streets are economic spaces that from time in memorial our people have irked a living – and we are committed to make those businesses sustainable businesses whilst improving the environmental health and food safety conditions under which they operate.

We will also launch the Fruit and Vegetable Vendors Support through which 40, 000 vendors are target beneficiaries and similarly the scheme will create market for smallholder and subsistence crop and fruit farmers.

We appreciate the partnership of NEDBANK and Standard Bank in the implementation of both the township and informal business support initiatives. This partnership will go a long way in ensuring the previously excluded entrepreneurs from the bank/ formal credit system are able to access bank credit in future as their government has created a path for them to build a credit profile without the burden of lack of security.

SMME Database

The Covid-19 pandemic has also assisted us to fast-track the implementation of the SMME Database, now known as SMME SA platform - https://smmesa.gov.za - which we announced last year. In addition to being used by SMMEs including inform and micro businesses to apply for support online. The platform is also assisting us to improve traceability of support provided to SMMEs and Co-operatives. SMMESA is an interactive tool that will also assist us in curbing double dipping whilst positioning us to introduce trade exchange for SMMEs in the e-commerce field to latch-on as part of deepening online trading. The same database has been linked with SARS, CIPC and we are in the process of linking it with other organisations which include UIF and Centralised Supplier Database. This database once complete will also serve as a one-stop platform. To date over 200,000 SMMEs across all sectors of the economy have registered and use the platform. We are indebted to the continued support from the European Union on the work we continue to do on the platform including the next phases of linking SMMESA to the global value chains through both the EU platform, the International Trade Centre and we should also be able to link to the Africa Medical Supplies platform that is spearheaded by our President in his capacity as Chairperson of the African Union.

Localisation/ Industrialisation

Our localisation programme builds on the SMME products initiative we announced last year and the commitment by His Excellency the State President that we shall designate 1000- products and services for SMME and cooperative manufacturing and performance with at least 250 of those aimed at government consumption. As already indicated, we have commenced with the identification of these products and services, including those we are actively supporting to list with wholesalers for both the spazashop and personal care markets. In addition, we are confident of the engagements we are having with sister departments be they SAPS, Defence and Military Veterans, Employment and Labour, Higher Educations and Science and Innovation in terms of creating either the necessary markets for the products and services from SMMEs and Cooperatives or the funding and training partnerships which have enabled some of the implementations of the localisation initiatives. We are also committed to ensure that South Africans become conscious consumers of products, whether they be clothing we wear, toilet papers we use as we relieve ourselves, the food we eat and we are confident that in soon we shall all proudly consume predominantly that which is made in South `Africa.  Our Clothing, Textile and Leather support scheme and the broader manufacturing support scheme are focused on creating not only a productive economy but anchor the economic recovery of South Africa. Working with some major retailers we have identified a number of products that are being imported which can be manufactured locally as part of the import replacement strategy, which is even acknowledged at a way to go by big business. We believe we have the skills and capacity to empower our small businesses to produce the right quality and quantity and we have lined up those institutions that will help SMMEs and Co-operatives.

We will continue to fund these activities through the Blended Finance programme that we announced last year. Last year I committed before this house that we will start utilising blended finance model to support our small businesses especially those that can create 10 or more jobs. I am glad to announce that even though we started in the middle of the financial year we were able to approve 48 enterprises to the tune of R292 450 399 in the process creating/maintaining 1873 jobs. We have continued to implement the blended finance model even for our informal interventions where for example we provide a combination of a grant and credit/supplier guarantee scheme. We will continue with this programme as it is very critical in strengthening SMMEs and Co-operatives capital structures increasing their chances of sustainability.

Honourable Chairperson

It is worth noting that small businesses are the biggest casualty of both the COVID-19 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 the following instruments were implemented to assist, albeit the budget was completely disproportional/ unmatched to the demand.

SMME DEBT RELIEF FACILITY

For SMME Debt Relief Facility we mobilised R530 million. This was 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 were 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 R350 000. Those who 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. We have committed to pay all claims that are with us by the end of this month, as we start implementing measures that will drive economic recovery. In total, we were able to assist only 1497 thereby preserving 21, 421 jobs.

Honourable Members

Covid-19 has changed the way we do business and therefore as a department we have to support SMMEs and Co-operatives to move to a new normal. We are launching a scheme called Business Viability Programme which 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. Some of the interventions will include business turnaround interventions including business rescue for those businesses whose business models are stronger to survive in the new normal.

NON-PAYMENT OF SMMEs

Honourable Members,

It must be noted that liquidity challenges of SMMEs due to late payments were exacerbated with lockdown. 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 that there is already an improvement of around 20% with national departments

I want to thank the CEO initiative and Business 4 South Africa who mobilised 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. 

LEGISLATION

Honourable Members, we remain committed to table the Small Enterprise Ombudsman Services Bill to provide a less costly dispute resolution and arbitration mechanism. South African small enterprises lose billions of Rands annually due to late and non-payment by both government and the private sector. During the lockdown, if government and big business had just paid the amounts due to SMMEs on time, the bulk of the demands for support would have been delayed. The non-payment has resulted in some small enterprises closing down because they have no appropriate, effective and efficient mechanism to use to resolve disputes such as non-payment. 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. We firmly believe that the Small Enterprise Ombuds Service remains a necessity even in the new normal.

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. Our journey to economic recovery has not even started, yet we know the path will be odious but our brevity is our actions. 

iNkomu