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SA: Lindiwe Zulu: Address by Minister of Small Business Development, during the achievements of the Department of Small Business Development, GCIS Centre, Pretoria (12/12/2017)

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SA: Lindiwe Zulu: Address by Minister of Small Business Development, during the achievements of the Department of Small Business Development, GCIS Centre, Pretoria (12/12/2017)

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Minister of Small Business Development Lindiwe Zulu

13th December 2017

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Thank you for honouring our invitation to this media briefing during which we want share some of our proudest moments or key achievements in 2017 as well as some of the key challenges we encountered and measures we have put in place to resolve these going forward.

Introduction

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Before doing so, I’d like to remind you of the context, or differently put our strategic and operating environment.

8 July 2017 marked three-years since President Zuma signed Proclamation No. 43 which brought into being of the Department of Small Business Development. 

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By establishing the Department of Small Business Development, this African National Congress (ANC) Led government demonstrated its unwavering commitment to place SMMEs and Cooperatives at the centre stage. Government is convinced that through small business and cooperatives development, we will be able to unlock economic opportunities and thus achieve inclusive economic growth and sustainable employment for the historically marginalised.

Throughout the year we have largely been kept busy by interacting with our stakeholders; whether through organised forums, visiting manufacturing plants; townships and rural areas and through addressing engagements where we better understand the plight of our people and their operating conditions. We have done this specifically to understand the felt needs on the ground to ensure that our programmes and projects are targeted and direct.

With Regards to Legislation:

The process for the review of the National Small Business Act (Act No. 102 of 1996), read with the National Small Business Act (Act No. 26 of 2003) and the National Small Business Amendment Act (Act No. 29 of 2004) is currently underway. During the 2016/17 financial year, we conducted provincial consultations across the nine provinces, including two national consultations to solicit inputs from stakeholders. We will by the end of 2018/2019 financial year amend the Act to not only revise the definition but also to provide for other areas of revisions and amendments to the Act. The proposed amendments to the Cooperatives Amendment Act are currently underway. In conjunction with the CIPC we have engaged on stakeholder consultations through public awareness to popularise the act. 

You would recall that the revised BBBEE Codes are being implemented through which there is a focus on Enterprise Development and Supplier Development especially for SMMEs. We have started working actively with the DTI to ensure that the Enterprise and development programmes produce the required quality. We are obviously looking a different pieces of legislation and policies that impact on SMMEs and Cooperatives so as to influence these processes.

We have been engaging with our stakeholders to look at the type of interventions that are necessary to ameliorate the impact of the downgrade on this vulnerable sector. In this regard the University of Pretoria has just completed research which we commissioned on SMME Business Rescue strategy. The study is directing us to focus on the retention and turnaround of SMMEs before they reach a stage of liquidation.

Consistent with the spirit of cooperative governance and intergovernmental relations, the department participated in eighty-four (84) Integrated Development Plans (IDP) assessments in partnership with three provinces – North West, Eastern Cape and Free State. All these efforts together seek to promote policy and planning coherence for the optimal development of small businesses and co-operatives through developing and implementing appropriate policies, legislation and strategies.

You would note that I have been consistently been pushing for coordination at all spheres of government and we recently co-hosted the Innaugural National Local Economic Development Summit with the Department of Cooperative Governance and Traditional Affairs (COGTA) in a bid to enhance synergy and coordination between all spheres of government. A key outcome of the conference was to place Local Economic Development at the centre of the Back to Basics Programme and we continue to engage with Local Government in this regard.

We pursue this goal because the democratic state has a responsibility to provide bold, imaginative and effective strategies towards creating new jobs and expanding access to a better life for all.

The fact is, twenty-three years after the dawn of our democracy, the participation of black people in the country’s economy still leaves much to be desired. For this reason, the ANC-led government made a commitment to set the country on a path of radical socio-economic transformation in order to accelerate our onslaught on the triple challenges of poverty, inequality and unemployment.

It is in our national interests to do whatever it takes to promote access to economic opportunities for all historically marginalised people of our country. Hence, in order to give practical meaning to the pledge we made during our struggle for liberation, we will never consider our mission complete and our liberation achieved if the people of our country are still not freed from economic exclusion and deprivation.

The current phase of our transition requires that we urgently focus on decisive action to grow the economy and create employment. Our collective responsibility is to mobilise the whole of government, civil society, private sector and the entire nation’s resources in pursuit of this goal.

The time is now for us to intensify our efforts that are aimed at changing the faces and that hands which own the architecture economic mainstream of our country. 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.

Small Business Development Portfolio

Coordinating the services and resources available for SMMEs and Cooperatives across the public sector is our core business. As charity starts at home, we ushered in the Small Business Development Portfolio Strategic Approach since the beginning of the 2016/17 financial year to coordinate, with clear roles and respsonsibilities, the work of the Department, the Small Enterprisie Development Agency (seda) and the Small Enterprise Financn Agency ( sefa).

2017 was indeed a momentous year for the Small Business Development Portfolio. It was a year in which we collectively registered significant progress, and it was also a year in which we confronted some major challenges. We scored some decisive achievements despite the sluggish economic performance of the last two years.

The current economic climate remains unfavourable to businesses in general, but particularly harsh to the small business sector given their strong reliance on disposal cash for their survival.  These conditions have led to the demise of some small businesses, in the large informal business sector in particular.

Relative to the opportunities and challenges relevant to the delivery of the mandate of the Department of Small Business Development and the Small Business Development Portfolio, the following macro-economic conditions need to be noted in assessing its performance. Since 2014: Q3, South Africa’s gross domestic product (GDP) has been on a steady decline:

  • From 2.2% (2014: Q3) to 1.6% (2014: Q4);
  • further to 1.3% (2015: Q4);
  • 0.2% (2016: Q3); and,
  • Only recently experiencing a growth of 2.0% (2017: Q3).

In other words the National Development Plan’s (NDP) expectations that we will deliver our mandate such that by 2030 there would be an environment wherein the SMME sector will generate between 60-80% 0f the GDP and ninety percent (90%) of the 11 million jobs, is being seriously challenged against the backdrop of a haemorrhaging economy.

Thus, the contributions of South Africa’s small, medium, micro and cooperative enterprises to the economy must be read in the context I have provided.

DSBD Mandate

My department shoulders a responsibility to lead an integrated approach to the promotion and development of small businesses and cooperatives. We do this through a focus on the economic and legislative drivers that stimulate entrepreneurship in order to contribute to radical economic transformation.

SMMEs and Cooperatives can be the main drivers of economic growth, poverty reduction, and job creation. This has been proven globally that SMMEs are the heartbeat of stable, growing and better performing economies such as China, India, Germany, amongst others, and greater source of job creation, economic empowerment and transformation. Chile for example had a remarkable resurgence in economic activity attributable to new entrepreneurial initiatives in the last three years.

Data suggests the existence of some 2.175m privately owned businesses in SA, 2.15m of which are SMEs; and, of these 1.5m are not VAT or CIT registered and can therefore be classified as informal; 150 000 are medium size businesses; 450 000 are small businesses; 1.3m are micro enterprises.

The contribution of small and medium enterprises in South Africa is estimated to be between 42 and 47 percent, naturally we want to see a significant growth in the contribution of SMMEs to our GDP. It is possible for the contribution of small businesses to the Gross Domestic Product to increase to between 60-80% and to account for 90% of the 11 million new jobs envisaged by the NDP by 2030.

Indications are that the small business sector is beginning to take its rightful place as the engine for our economy. This has among other been confirmed by the landmark 2016 tax collection success in which SARS broke through the R1 Trillion Rand ceiling. The tax authority has reported that more than 18 000 new SMMEs had for the first time submitted tax returns. Naturally, growth in future revenue is dependent on us up-scaling government interventions coupled with sharpened awareness for more people to be involved in entrepreneurship, start-ups, SMMEs and Cooperatives. If more and more of such new SMMEs are tax compliant and productive, they in turn can make a greater contribution to our ailing revenue.

Achievements

Policy Coherence

As one of the key responsibilities of a national department is to create an enabling policy, legislative and regulatory environment, we for the first time introduced a Policy and Research function in 2016/17. The knowledge gained and evidence gathered through our research agenda enabled us to understand our environment much better and to more effective champion the cause of SMMEs and Cooperatives.

It enabled us more authoritatively claim our space as the thought leaders. This thought leadership is not necessarily vested in ourselves, but we have a greater sense of who is out there holding the fort on the critical points of the SMME Ecosystem, who we can call upon in our policy and programme development

For example, in May we hosted our 2nd Annual Stakeholder Breakfast at the University of the Western Cape. We were encouraged to hear the topics and findings of several doctoral and Masters students on aspects of entrepreneurship and enterprise development. In October 2017, I hosted the inaugural Round Table with the academic community. A key outcome of this well-attended event was a recommendation to make entrepreneurship mandatory in relevant curricula.

Another pivot of the ecosystem that we unlocked was that of Business Advisory Services. Together with some partners, such as the Services SETA, we hosted the inaugural International Conference on Business Advising.

Business Advising is the third fastest growing career in developing economies, after careers in the ICT value chain and call centres. The reason for this is that not only do we have a growing cohort of young entrepreneurs globally, but research has confirmed that businesses connected to an Advisor, grows faster. Thus government has established agencies to provide Business Advisory services; and, generally SMME programme funding makes provision for this service knowing that the return of this investment manifests in more sustainable SMMEs creating jobs and contributing to GDP.

Given the impact of mentorship and coaching, Seda ran a coaching and mentorship programme at three locations in KwaZulu-Natal assisting 90 businesses, which resulted in an overall increase in turnover of R1 829 502 260 for companies in this programme and 1281 new jobs created.

A key resolution of this International Conference on Business Advising is an appeal to the department, from the community of Business Advisors, to lead the professionalization and registration of Business Advisors.

The coaching intervention resulted in 220 new jobs created and an aggregated turnover improvement of 282%. The training of the mentors was conducted during the second quarter where 53 people attended 41 Mentors and 12 Business Advisors.

A high impact and much appreciated policy decision, which translated into an enabling set of regulations, is the 30% set-aside policy for SMMES. The revised 2017 Regulations of the Public Procurement Preferential Framework Act (PPPFA) now compels the public sector to procure a minimum of 30% of their goods and services from SMMEs. While National Treasury is the custodian of this Act, we worked together on crafting and popularising these regulations.  Currently we monitor progress and already between 1 April to 30 November 2017, 81 out of 184 national and provincial departments procured between 60 to 100% of their goods and services from SMMEs and only 22 departments have not yet reached the 30% target.

291 enterprises were supported through the Black Business Supplier Development Programme (BBSDP) and 88 cooperatives through the Cooperatives Incentives Scheme (CIS). The department also trained 178 cooperatives that will be supported financially through the Cooperatives Incentives Scheme.

In addition, the department supported 502 informal businesses with either approved business infrastructure or business skills. We trained 178 cooperatives in the following provinces: Western Cape (44 cooperatives), Eastern Cape (94 cooperatives) and Gauteng (40 cooperatives).

SMMEs are now playing in the digitisation space and our experience in the recent months through various engagements that we have hosted and participated in GovTech, 22 on Sloane a digital Hub, and Demo Africa to support innovative technology start-ups. Some of our SMMEs have also participated in the Telecon World 2017 in South Korea hosted by the International Telecommunications Union; we enabled the participation of 5 SMMES one of which received a global award for the most innovative ICT business model. This is line with the ICT Strategy recently adopted by Cabinet as well achieving the elements of the 4th Industrialisation Revolution.

Access to Financial and Non-Financial Resources

The needs of small businesses differ at different stages of the life cycle of the business. Meaning the ecosystem needs to manifest differently for a start up business as to how it needs to works for a small business ready to transition into a medium-sized business.

The National Gazelles Programme is one of our department’s Flagship programmes implemented by Seda. It is a 10-year programme that aims to accelerate the growth of 40 high potential small businesses each year.

This year, we saw our National Gazelles programme making a visible impact in the lives and businesses of the first cohort of 40 Gazelles.  Just over 71% of the businesses of the programme increased their performance by 15% resulting in a R51 Million increase in Business Value. As part of Mandela Month, we handed over a truck to Gridbow Engineers in Midrand. This Gazelle is now operating in various parts of Africa. We have also handed over numerous equipment to various Gazelles throughout the year.

Two weeks ago, we launched the second cohort of the National Gazelles and conferred awards on the top forty (40) 2017 National Gazelles. This brings under this programme 80 companies, many of which are a promising pipeline for the Black Industrialist Programme.

It is humbling to note that Sefa has supported almost 37 000 SMMEs and Co-operatives for the period under review, resulting in over 42,000 jobs facilitated and sustained.  Compared to the performance expected for the 2017/18 financial year, sefa has already funded 96% of the targeted SMMEs and achieved 72% of the expected job facilitation and strengthening.

Seda’s flagship Incubation Programme currently comprises of 57 incubators in sectors such as agro -processing, construction, renewable energy, essential oils. The increase from last year’s number of incubators is primarily due to the establishment of rapid incubators at the Technical and Vocational Education Training (TVET) colleges, where students are put through programmes that compliment their technical skills with entrepreneurial skills.

What is also encouraging is the support our Incubation Programme continues to receive from other countries, most notably in 2016/17 and 2017/18 France and Denmark respectively.  The portfolio of Seda supported incubators for the past three years created an average of 2000 new jobs annually.

The Rapid Incubation programme focuses on an 18-month incubation model allowing student graduates an entrepreneurial platform to commercialise their vocational skills and move them from “job seekers to job creators”. The programme seeks to utilise the skills of TVET graduates to encourage and promote an entrepreneurship culture and providing the student incubates with the necessary tools and techniques to establish their own businesses, and thus contributing to economic growth and job creation in economically depressed areas. The Rapid Incubation programme is the first incubation programme in South Africa to offer seed funding to the incubatees through structured pitching sessions.

The Motheo Centre for Entrepreneurship (CfE) Rapid Incubator, was launched in Bloemfontein in September 2017, the Centre boasts a well-structured Innovation Space that will drive the ideation phase for youth start-ups at the new Centre. The Centre’s focus specialization areas are Graphic Design, Clothing and Textile, Jewelry Manufacturing and Welding.

Eleven incubatees from the Information, Communication and Technology incubators received R 699 000 from the Department of Trade and Industry to participate in the third largest technological event in the world, the 37th Gulf Information Technology Exhibition (GITEX) Technology Week in Dubai on 8 – 12 October 2017. Nine of the companies going to GITEX are black owned, three are women owned and all of these SMMEs are youth owned.

Our agency, Small Enterprise Finance Agency (sefa) has supported almost 37 000 SMMEs and Co-operatives during this year. The direct result of this support is a little over 42,000 jobs facilitated and sustained.  sefa has already funded 96% of the targeted SMMEs and achieved 72% of the expected job facilitation and strengthening.

sefa continues to prioritise women, youth and people with disabilities as part of addressing historic injustices suffered by vulnerable groups. In the period under review, out of a total of R481 million already disbursed, 42% has gone to women and 13% has benefited the youth. sefa has proactively approved two facilities worth R50 million specifically to benefit entrepreneurs with disabilities. This R50 million facility is managed in collaboration with other strategic partners that include the Department of Public Works and a number of Disability Associations in South Africa. Such collaboration ensures that people with disabilities not only access funding, but also the much needed business support and market access.

sefa has made noticeable strides in ensuring that credit reaches informal and microenterprises in our priority provinces. In this calendar year, sefa approved a combined R80 million to two Microfinance Intermediaries to support informal and microenterprises in three previously unserved Provinces of the Eastern Cape, Northwest and the Northern Cape.

Over a period of five years, this approval will benefit approximately 84,000 informal and microenterprises, over 90% of whom will be women and youth.

A further 1,000 youth entrepreneurs in the Northwest and Free State Provinces will benefit from a facility of R20.1 million cofounded by sefa, Coca Cola Beverages South Africa (CCBSA) and the Free State Department of Economic, Small Business Development, Tourism and Environmental Affairs (DESTEA).

sefa has approved a R30 million facility to provide credit to about 1,000 informal businesses in East London, Port Elizabeth, Mthatha and Mt. Frere and their surroundings under the “Informal and Microenterprise Development Programme” (IMEDP) in the Eastern Cape.

Seda continues to focus on key sectors that are critical to South Africa’s socio economic development goals. The organisation has partnered with a number of stakeholders and this has resulted in the successful establishment of initiatives such as a macadamia nut industry in the Eastern Cape which benefits a number of villages, an ostrich abattoir in HaartsWater in the Northern Cape, linking cooperatives with opportunities in a sugar producing company in Kwa-Zulu Natal and a maize growing project in the North West province that will supply a global brewing company. These are a few examples of how we can collectively revitalise agriculture and agro processing and in the process move our beautiful country forward.

Seda is also part of a public-private partnership programme relating to entrepreneurship in schools, being implemented by Primestars, a part of Primedia. Through this programme 14 279 Learners and 800 educators gained exposure to entrepreneurship, and the methodology of starting a business.

Access to Opportunities and Markets

As part of the Department’s mandate to support people with disabilities, Minister handed over business equipment to disabled entrepreneurs in Welkom, Free State. This was done in partnership with the private sector as part of strengthening public–private partnerships.

In October, I led a delegation of thirty SMMEs and cooperatives to the 14th China International Small and Medium Enterprises Fair (CISMEF) Guangzhou city, China. This is part of our efforts to unlock international markets for local small businesses and cooperatives.

Through Seda’s trade facilitation and export development programme, hundreds of SMMEs and Co-operatives were given training relating to export orientation and development, and seventeen small enterprises were supported to exhibit their products at CISMEF. Additionally, some SMME’s also participated in shows in Torino, Moscow, Nigeria and Dubai. I am pleased to indicate that several of the SMMEs have already clinched deals in China at and subsequent to CISMEF

During this year’s Global Entrepreneurship Week, I officially launched 22 on Sloane, an incubation hub that supports emerging young entrepreneurs into the mainstream economy. This gave local SMMES an opportunity to interact with global icons like Virgin CEO, Richard Branson. During the same occasion, Minister also launched the South African chapter of the Global Entrepreneurship Network (GEN).

In an endeavor to leverage other stakeholders funds earmarked for SMMEs and Co-operatives support, together with National Treasury, we have partnered with the European Union (EU) to support the Employment Promotion programme for small businesses.

Medium to Long Term Plans

Recognizing the urgent need to provide long-term small business and cooperatives development support, the Department will continue to provide policy direction, coordinate and consolidate research on the small business sector and encourage integrated planning in the small business and cooperatives sector.

The Department together with its agencies will continue to develop and improve initiatives and strategies to support small businesses and cooperatives in order to fulfill the mandate of the Department and to make meaningful impact on reducing poverty, inequality and unemployment.

Our agencies will continue to strengthen and foster closer working relationship in order to implement an integrated service delivery model, which will in turn result in a sustainable client journey

I thank you.

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