Address by the Minister of Small Business Development, Ms Lindiwe Zulu (MP), on the occasion of delivering Budget Vote 31 on Small Business Development, National Assembly
17 May 2018
Ministers and Deputy Ministers
Deputy Minister Mathale
Honourable Chairperson, Ms Ruth Bhengu, and Members of the Portfolio Committee on Small Business Development
Director General and officials of the Department
SEFA and SEDA Board Chairpersons, Board Members and CEOs
Representatives of the organised business formations, Cooperatives movement, academia and other partner institutions
Our special guests: Entrepreneurs, SMMEs and members of Cooperatives
I am honoured to deliver the fourth Budget Vote 31 on Small Business Development to this House today for consideration and approval.
I deliver this Budget Vote in a year when we are celebrating the centenary of President Rolihlahla Nelson Mandela and Ma Sisulu, with the understanding that “we are not merely honouring the past, we are building the future.”
The vision for that alternative future is expressed in the National Development Plan (NDP): Vision 2030. One of the specific targets of the NDP is to reduce unemployment to 6% by 2030 through the creation of 11 million jobs. The NDP projects that if we implement the full range of its recommendations, our economy will grow at 5% per annum, with 60-80% of this value being generated by SMMEs and expanding businesses, and that this sector will create 90%, or 9.9 million, of the 11 million new jobs we will boast by 2030.
The establishment and the mandate of the Department of Small Business Development (DSBD), “to lead and coordinate an integrated approach to the promotion and development of entrepreneurship, small businesses and co-operatives, and ensure an enabling legislative and policy environment to support their growth and sustainability”, is one of the most concrete manifestations of this NDP aspiration.
Chairperson, in line with the directive of the President that we must create hope based on concrete and practical actions that will boost the growth and transformation of the economy, create jobs and attract investment, I will commence my address with focussing on the Budget allocated to my Department and how this budget will be spent. I will demonstrate that our budget will seek to build on our successes and address the challenges, which continue to limit the participation of SMMEs and cooperatives in the mainstream economy.
These 2018/19 Budget commitments will be followed with a report on some of our achievements. We can confidently state that the entrepreneurs and cooperatives who have benefited from the investments by the Department and its entities, the Small Enterprise Development Agency (Seda) and the Small Enterprise Finance Agency (sefa), are brand ambassadors of what President Ramaphosa framed as a “greater sense of optimism among our people . . . (who) . . . are hopeful about the future.”
2018/19 being the 4th Budget Vote 31 allocation, we are proud to report that the Auditor General issued the department with an unqualified audit opinion for both the 2015/16 and 2016/17 financial years.
The Department of Small Business Development has been allocated R6.78 billion over the MTEF, spread as follows:
- 2018/19: R1. 48 billion
- 2019/20: R 2.57 billion
- 2020/21: R2.72 billion
The Department’s budget for the 2018/19 financial year is R1.48 billion, which has been allocated as follows:
- Transfers and subsidies consume 84.76% or R1.261 billion whilst operations are provided 15.24% or R226.8 million of the allocated resources. The R1.261 billion of transfers and subsidies provide for:
- Seda’s allocation of R769.4 million, which is 60.99% of the transfers and subsidies.
- The Department administers the remaining R492 million through the four (4) incentive schemes plus one (1) implemented by the Industrial Development Corporation (IDC).
- The four (4) DSBD incentive schemes are:
- Black Business Supplier Development Programme (BBSDP) allocated R270.9 million;
- Cooperatives Incentive Scheme (CIS) allocated R83.3 million;
- Enterprise Incubation Programme is allocated R54.7 million and,
- The National Informal Business Upliftment Scheme (NIBUS) which is allocated R73.1 million.
- The Customised Sector Programme administered by the IDC is allocated R10 million
- The Department’s R226.8 million operational budget provides for:
- Compensation of Employees (CoE) at 9.46% or R140.8 million
- Goods and Services at 5.39% or R80.2 million, and
- Capital Expenditure at 0.39% or R5.8 million.
Chairperson, I want to draw attention to the fact that 84.8% of our budget is allocated to serving SMMEs and Cooperatives and 15.2% to operational expenditure.
sefa’s total budget for the current financial year is R228.8 million. However, this amount does not form part of Budget Vote 31, as yet. It is transferred through the Budget Vote on Economic Development. Currently, sefa is a subsidiary of the IDC and the process of establishing sefa as an independent entity, with a developmental rather than a commercial focus, is in progress. In addition, National Treasury has issued a Draft Framework on Development Finance Institutions (DFIs) for inputs to which we have expressed the view that DFIs should have a broader mandate in servicing small businesses and cooperatives.
Additional budgets supporting the DSBD mandate
In the 2018 State of the Nation Address President Ramaphosa said: “Ultimately, the growth of our economy will be sustained by small businesses, as is the case in many countries. It is our shared responsibility to grow this vital sector of the economy.”
I want to thank my Cabinet colleagues for the multiple initiatives and programmes aimed at supporting SMMEs which they have announced in their Budget Votes.
Cabinet, in August 2017 adopted the 2018/19 Mandate Paper which will inform the budget priorities. It comprises seven (7) priorities and the first among these is “Job creation and small business development.” These pronouncements by my Colleagues demonstrate that we are indeed one government, working in unity to deliver our electoral mandate.
Chairperson, access to finance is one of the key constraints faced by entrepreneurs, be it a start-up or an existing SMME and cooperative wishing to diversify or explore a new opportunity.
Time and time again these starts-ups, young people, people living with disabilities and women in particular, tell us of their frustrations with banks and development finance institutions (DFIs), who refuse to support them because they are perceived as high-risk ventures, irrespective of the brilliance of their proposals or demonstrable potential to succeed.
Hence, we are pleased to announce two new streams of finance, in which we have the power to define the criteria and conditions, which I can assure this House will be more progressive and enabling.
Firstly, the sharp increase in our budget in the outer years of the MTEF, is attributed to the R2.1 billion SMME and Innovation Fund, as announced by the President and the Minister of Finance in February 2018. This Fund will build on best practices; and, will largely be directed at innovative start-ups with a reasonable prospect of success. We are finalising the implementation modalities with National Treasury and the Department of Science and Technology; and we are working towards announcing the operationalisation of the Fund during the third quarter with the first disbursements in 2019/20.
Secondly, in addition to our budget allocation, my department is leading the roll-out of the European Union (EU) funded “Employment Promotion through SMMEs Support Programme for South Africa,” a five-year 52 million Euros or approximately R800m at the time of signing partnership agreement, which we launched on 6 April 2018. In September 2018 we will announce the modalities of this fund. This fund represents a significant injection of resources, which we will deploy effectively to craft an alternative future for entrepreneurs and SMMEs in our country.
DSBD is mandated to unlock and mobilise resources for SMMEs and cooperatives through partnership agreements. We have successfully concluded several agreements, which the Deputy Minister will speak to.
Report on achievements and successes
Chairperson, I would like to bring your attention to some of our achievements and successes.
A core tenant of government’s small business policy is the provision of finance to start-up enterprises and those that struggle to get funding from commercial finance institutions. Since its establishment six years ago, sefa has financed 286 000 SMMEs and Co-operatives to the value of R5.5 billion and facilitated the creation and maintenance of 312 235 formal and informal sector jobs.
The provisional 2017/18 financial year loan performance indicators show that sefa disbursed R1.2 billion to 45 035 SMMEs and Co-operatives and facilitated 54 144 jobs. Integral to its mandate sefa has during the last 12 months provided targeted finance support to:
- 44 792 black-owned enterprises to the value of R836 million
- 9229 youth-owned enterprises to the value of R191 million
- 44 116 women-owned enterprises to the value of R403 million
The Black Business Supplier Development Programme (BBSDP) is another financial instrument which a cost-sharing grant mainly extended to expanding SMMEs. Since 2014/15, 2 558 SMMEs were supported to the value of R 1. 32 billion.
One of the BBSDP beneficiaries is KKF Steel CC, which was established in 2006 mainly serves private companies. Their key service offering includes manufacturing of steel door frames, combination doors, (chawl) doors, single and double sight light and steel tables earmarked for the low-cost housing projects. The corporation has also embarked on the manufacturing of steel window frames. It is wholly owned and directed by Mr Mohamed, a seasoned business person from a previously disadvantaged background. Through BBSDP we assisted this company to buy a 200 Ton Hydraulic bending press brake machine which enabled employment growth from 18 to 35.
In the four years since the establishment of the Department, more than 57.8% of our annual budget allocation is transferred to Seda. Hence, it is appropriate to report to this House on the value which has been derived from this investment.
Over the past four-years, key successes from services rendered through Seda, which has the largest network for small enterprise development and support in South Africa include:
- 318 215 people reached through promotional and marketing actions.
- 37 510 clients supported by the Seda branch network
- 10 109 clients supported by the Seda incubation network
Seda also has multi-year partnerships on supplier development and access to markets with a number of organisations in both the private and public sectors.
In both in developed and developing countries, business incubators and accelerators have been identified as strategic tools for helping to grow a country’s entrepreneurial base while reducing the high mortality of SMMEs.
Seda continues to lead in development support that enables incubation and technology transfer to small enterprises in the country. Currently there are 129 private and public funded incubators in the country. Of this network, DSBD and Seda supports 80 incubators which have benefitted 3690 clients and created 2592 new jobs in the past financial year.
Deputy Minister Mathale will speak to some of the models and success stories in our incubation support system.
Reflections on co-operatives
Since I became Minister in 2014, we have worked closely with stakeholders in the Cooperatives Movement to ensure that the significance of co-operative enterprises do not fade into the background or forgotten as we embark on this journey towards radical socio-economic transformation.
The President spelt out that his priority is that of jobs, jobs and more jobs and we believe that our focus on the growth and sustainability of co-operatives is a key lever to job creation across a diversity of sectors. Subsequently the department has revised the guidelines of one of its instruments the Cooperatives Incentive Scheme to enable government to support cooperatives that are in a cluster form, as they have bigger chance of success in this form.
As a Department, we have taken an inclusive approach towards the cooperatives movement. Leaders of the co-operatives movement, who are in the gallery, are working hard to turn-around the fortunes of this promising sector and have changed the narrative between themselves towards unifying the cooperatives movement. I am encouraged by the collaboration that we have forged with the leadership, guided by a shared vision, which is to reverse the high-mortality rate that has afflicted our primary co-operatives.
I have traversed the country and engaged with cooperatives in all provinces. I have witnessed an increase in the diversity and in the quality of products produced by cooperatives. For example, there are black-owned industrial co-operatives with a market presence in non-traditional sectors such as renewable energy, manufacturing and rail engineering, and some of these successful co-operatives are here with us today.
I want to recognise Ms. Vuyokazi Ndzonda and the work being done by Chesele Light Primary Co-operative, which has ventured into solar energy, as it represents innovation and cooperatives representativity in the renewable energy sector.
I also wish to encourage Karabo Nhlamolo Projects Co-operative to continue to carry the banner of Co-operatives in the Rail Engineering landscape; as well as Vuyo Maphela from Barui Dri Hoek, who is a member of the multi-award-winning cooperative in agriculture from North West Province.
Seda has become a partner many departments and the private sector in cooperatives development support. As a result, Seda has extended support to 912 cooperatives during the 2017/18 year.
An example is Seda’s role in a clustering programme of nine (9) livestock smallholder farmers resulting in R3 000 000.00 (Three Million Rand) funding secured from the Department of Rural Development and Land Affairs. In this initiative, Seda has trained the smallholders, which consist of 7 members each, for the establishment of a Central Karoo Merino Co-operative. The co-operative is now registered and a bank account has been opened.
Our priorities for the 2018/19 financial year have largely been shaped by the Programme of Action in response to the State of the Nation Address and our mandate
Legislative and Policy priorities
We will by November 2018 conclude the National Small Business Amendment Bill, which will among other provide for a new schedule supporting the definitions of SMMEs. It will further provide for the establishment of new entities and for the regulation of the business advising profession.
We have prepared a Presidential minute to facilitate the enactment of the 2013 Cooperative Development Amendment Act. This Act provides for a range of institutional arrangements, which will support the growth and sustainability of cooperatives. We will work with National Treasury to unlock the budgets to support the implementation of this Act.
President Ramaphosa reiterated in the State of the Nation Address that “Government will honour its undertaking to set aside at least 30 percent of public procurement to SMMEs, cooperatives and township and rural enterprises.”
Hence, the Department together with National Treasury, is determined to sharpen the monitoring and implementation of the 30% Set Aside policy for SMMES. The Public-Sector Supply Chain Review confirmed that in 2016/17 alone, government spent over R750 billion on the procurement of goods and services, as well as construction works. However, many, many SMME continue to complain that they are overlooked.
We hold the view that 30% is not the ceiling. Instead it is the minimum value of contracts which should be awarded to the SMMEs and Cooperatives. It is encouraging that there are many departments and a few provinces which have far exceeded the 30%.
DSBD has a responsibility to champion the interests of SMMEs and Cooperatives when new legislation is developed to ensure that this sector is not negatively affected. As a department we are ready to be the voice of this sector.
Hence, in the coming year we will deepen our analysis to understand exactly who the SMMEs are, that are benefitting from the 30% set aside policy; the relationships between where these SMMEs are based and in which provinces and municipalities they are awarded contracts; in which sectors are they included and excluded and the like. My department has a Memorandum of Agreement with National Treasury, and the Office of the Chief Procurement Officer in particular, which provides the platform for this analysis and amendments to the policy and implementation protocols, based on our findings.
The payment of suppliers within 30 days remains a challenge. As at September 2017, a total of 71 883 invoices to the value of R4.3bn were older than 30 days and not paid. While I am happy to report that in the 2017/18 financial year, my department is amongst those departments which paid 100% of its invoices within 30-days, there are many departments who are non-compliant, and we know who the major culprits are.
Between my Department, the Department of Planning, Monitoring and Evaluation (DPME) and National Treasury are putting our heads together, on stronger enforcement measures because we can no longer turn a blind eye to departments who are in flagrant violation of a policy decision and Treasury Regulations and who cause the collapse of SMMEs and cooperatives.
As you may recall that DSBD and Seda hosted the inaugural Southern African Business Incubation Conference (SABIC) in March 2016, under a theme “Incubation as a vehicle for Economic Prosperity in Africa” One of the resolutions was the development of a National Incubation Policy for South Africa. The policy framework is underway and will be presented at SABIC 2018. We will table the National Incubation Policy for South Africa by 31 March 2019 so as to provide policy coherence and guidelines for the growing network of business incubators in the country.
Further developments in support to the incubation ecosystem are in the partnerships with the private sector. Of these is the growing partnership with Growthwheel through which DSBD and Seda has acquired and refined a business toolbox that functions as a business decision and action monitoring system. This is currently being deployed in incubators in the DSBD and Seda supported network.
A multi-year agreement is being finalised through which ecosystem builders like business advisors, business mentors and Enterprise supplier consultants and local economic development practitioners would soon get access to Growthwheel via Seda and DSBD. This will benefit up to 5000 enterprise development support practitioners and more enterprises who will be able to access this system online.
The National Gazelles Programme, targeting high-potential and high-growth businesses remains one of our flagships of which we are extremely proud. Currently programme is supporting eighty (80) companies and will over the course of three years assist them to grow and access new markets whilst at the same time working on their internal processes so that they are sustainable in the longer-term.
The performance of the first cohort National Gazelles companies, that joined the programme in 2016 and as reported in March 2017, is as follows
- 68% (27) of the businesses increased their business performance by 17%, resulting in a R30 million increase in business value.
- 29% (11) of the businesses increased their business value by more than 25%.
- 71% (27) of the businesses increased their growth potential by 17%.
- 45% (17) of the businesses improved their cash flow by 10%.
My 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 nonfinancial support; promote intergovernmental relations to deliver to the sector; encourage the role of private sector and support of informal trader organizations. Since we started rolling out this instrument the department has supported more than 8000 informal businesses through financial and non-financial support. There have also been significant implementation challenges in this programme which are being resolved.
Ms Rosheda Muller, the Acting President of the South African Informal Traders Alliance (SAITA), our partnership with you in advancing the agenda of the informal economy is highly appreciated. While our processes are slow in responding to your expectations, our commitment is unwavering. We wish SAITA’s 2018 1st Elective Conference in June well; and encourage unity among informal business formations.
I want to thank all others who are working hard at forging unity among informal traders across the country, such as Ma’m Rose in Gauteng
The Basic Entrepreneurship Skills Development Programme implemented by Seda, is a training programme for enterprise support practitioners specialising in the informal sector. This programme, piloted in 16 sites, has reached 2208 informal companies since the beginning of the programme in 2016/17.
One of the success stories from this programme is Lucy Mimi Trading Projects, a recycling yard, that paid cash for scrap in Soweto, Gauteng. Through the BESD programme the business got access to a mentor and business management skills development training. The business grew to employ 10 people and acquired three vehicles.
DSBD is responsible for coordinating the entire public sector in the development of SMME’s and Cooperatives. To this end my Department has just concluded a very successful engagement with National, Provincial Departments and Local Government to harmonise the new schedules and definitions of SMME’s in order to ensure that there is uniformity across all spheres of government. These definitions will be published as regulations before the end of November 2018.
Furthermore, in line with the Plan of Action arising from the State of the Nation Address, my Department will deepen and refocus the work in the existing National Interdepartmental and Provincial Coordinating Committees on SMMES and Cooperatives, and our LED support programme with local and district municipalities.
The National LED Conference that we co-hosted with COGTA in November 2017, pronounced on key resolutions that we will implement in partnership with all spheres of government if we are to make a meaningful contribution in transforming the economy through the development of local economies.
Further evidence of this is our partnership with Telecommunications and Postal Services (DTPS) in ensuring that their SMME ICT strategy is implemented.
National Treasury has allocated in excess of R16.6 billion over the MTEF to a number of government departments for direct support to SMMEs and cooperatives. Our responsibility as DSBD is to provide the guidelines and build consensus around a uniform set of definitions and criteria as well as to monitor the impact of these investments in growth and sustainability of SMMEs and cooperatives.
We will change the narrative and no longer be comfortable with targets such as the “number of SMMEs supported.” Instead we will expect departments to state how many new businesses have been established and existing SMMEs have been sustained; and, the number of jobs created through the investment of public funds.
In terms of our coordination mandate, we will seek agreement on the reporting and monitoring protocols, which will include feedback by SMMEs and cooperatives, township and rural enterprises themselves on the impact of public investment on their businesses. In fact, we believe that the time has come for a Small Business and Cooperatives Phakisa. I will canvas the idea with my Cabinet Colleagues, and the Minister of Planning, Monitoring and Evaluation in particular.
Entrepreneurship development is high on the agenda of our government and the DSBD plans to accelerate culture of entrepreneurship in the country.
Our starting point is to influence the education system so that graduates would be see entrepreneurship as a career option and not be stuck in the mentality of seeking employment. To this effect, I would like to acknowledge the role played by the Department of Basic Education and the Department of Higher Education and Training in promoting entrepreneurship at school and tertiary levels. We need to continue to identify and support innovative ways to help founders start and scale new ventures not only in South Africa but across the African continent.
South Africa hosted the first Global Entrepreneurship Congress in Africa in March 2017. Since then, there has been significant development, traction and discourse on entrepreneurship development in South Africa and on continent.
We have in collaboration with the various organisations in the entrepreneurship ecosystem established structures such as the Global Entrepreneurship Network Africa and the South African chapter that seeks to carry the work of the Congress forward. One of these milestones is the launch of the 22 on Sloane Entrepreneurship Development Hub, housing not only the South Africa Start-ups, but businesses from across the African continent.
We are committed to improve the Entrepreneurship Development Ecosystem. The interface with the academic communities and the entrepreneurship centres are some of the efforts my department has been driving and we encourage others to join us in this exciting new journey.
Globally, there are systemic complexities in growing the SMME sector. South Africa has much to learn from countries on the continent which are faring far better than we are, such as Rwanda and Kenya, and countries elsewhere in the world who have mastered the challenges we are grappling with.
We believe that the youth entrepreneurs will be the flag carriers of the alternative future we are working towards. Hence, we are active participants in the President’s YES Programme and the forthcoming Jobs and Investment Summits.
I am extremely appreciative of:
- The role of the Portfolio committee and the wisdom of our Chairperson. You have strengthened our coordination efforts and helped to improve our Portfolio Approach to support our SMMEs and cooperatives
- Deputy Minister Mathale for hitting the ground running and for imbuing the Ministry with his calm yet commanding leadership
- The leadership of DG Vries and all staff members in my Department and the Ministry. I appreciate your continued pursuit for excellence.
- My family, for your support and patience, and forgiving me for missing significant family events, when I prioritised serving the people of our country above you. Thank you
Chairperson and Honourable Members, I present the 2018 Budget Vote 31 on Small Business Development for your approval.
I thank you.