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the dti Presentation to the Select Committee

on Economic Development

INTEGRATED STARTEGY AND REVIEW OF GOVERNMENT SUPPORT TO SMMEs

Mojalefa Mohoto

CD: Enterprise Development

Contacts: 071 605 8812/mmohoto@thedti.gov.za

PRESENTATION STRUCTURE

1. Policy and Strategy Perspective

2. Purpose of the review

3. Review focus and scope

4. Review results

5. Key recommendations

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Policy PerspectivePolicy Perspective• After the political transformation of 1994, government adopted the White

Paper on the National Strategy for the Development and Promotion of Small Business in South Africa (1995)

• The National Small Business Act, 102 of 1996 enacted to provide for the establishment of support institutions-then Ntsika, National Small Business Advisory Council, with Khula Established through the provisions of the Companies Act

• In 1999 A mid Term Evaluation of the Strategy undertaken to review progress made on the implementation

• In 2004, the Department of Trade and Industry led a Ten Year Review on the status of small enterprise support in South Africa.

• This led to the rationalization of the support institutions through the amendment of the NSBA to form Seda

• Based on the 2004 review, cabinet approved the Integrated Strategy on the Promotion of Entrepreneurship and Small enterprises

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Policy Perspective-Cont.Policy Perspective-Cont.• The Integrated Small Enterprise Development Strategy presents the way

forward for small-enterprise development in South Africa over ten years (i.e. 2005 to 2014).

• Yearly reviews of the state of small business in South Africa will provide us timely feedback while the five-yearly impact reviews will reveal what progress we are making over time and what adjustments are necessary (Minister’s foreword).

• In 2011 the dti commissioned a review of the strategy to identify weaknesses the upshot of which is the fact that South African SMMEs are also less than dynamic, with a majority of enterprises remaining in the nascent and 'infant business' phases (less than 3.5 years in existence.

• With review concluded, the remaining challenge is how do we coherently implement the findings in order to realise a “step change” in enterprise development and support.

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SMALL BUSINESS SEGMENTATION AND DIFFERENTIATION ON NEEDS

Driver Category Non-financial support services

Nature of Demand noted

Financial Support Sources

Characteristics No. of enterprises

Opportunity driven, Entrepreneurial

Necessity driven, survival

N.B. Estimates shows that the are approx. 4m unregistered informal micros

Medium Regulatory compliance, incubation-quality control and productivity and franchising and market intelligence.

•Medium – long term debt & equity finance• over R250K•Asset base, working capital, property finance, etc.

•Corporate•Banks, financial institutions •Private equity/ venture capitalist•Sefa, IDC, NEF, other DFI's

•Up to 200 employees•Turn over >R25m per annum •Developed technical & business skills

Aprox. 300K

Small Technical diagnostic, business mgt training/incubation, mentorship and access 2 markets

•Short – medium term debt•Asset base & working capital finance• up to R80K

•Own resources•Banks & corporate•Sefa & provincial DFI's

• up to 50 employees• turn over < R25m per annum• developed technical/ limited bus. skills

Aprox. 500K

Micro Business start advice, information, registration, & business planning

•Short tern loans•Up to R 10K•Working capital finance

•Own & family resources•Micro lenders & banks provincial DFI’s

Up to 5 employees•Turn over < R 150K per annum• Some technical and very limited bus. skills

Aprox.1.5 m

Survivalist Business start advice and information

•Short term loans•Up to R3k •Stock purchase finance

•Own and family resources•Micro lenders

• Individual self employment • turn over < R50K per annum• Limited bus. & technical skills

Approx 3m

Strategic Pillar 1:

Increase supply for financial andnon-financial support services

Reduce small enterprise regulatory constraints

Creating demand for small enterprise products and services

Strategic Pillar 3: Strategic Pillar 2:

Collaborative approaches;

Streamline resources from the public sector and crowd-in private sector resources

New Policy Directives; •Public sector procurement strategy as a lever for increased demand • BBBEE codes of good practice as a lever for increased demand

Establish a regulatory impact

assessment framework and Business Environment monitoring mechanism

Strategic Actions

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SUMMARY OF SEDA’S EXPENDITURE BASKET

Micro, Very small, Small and Medium sized enterprises

Medium sized EnterprisesBusiness

AssociationsSeven basic Services:- Business registrations- Business planning- Market Access- Access to finance- Cooperatives support- Training and mentoring - Access to technology

EICs(50)

seda Branches (42)

seda Provincial Offices (9)

seda National Office

Sector Programs:- Small Scale Mining (DMR)- Construction (DPW)- Agribusiness (DOAF)- Mining and beneficiation (DME)- Tourism and cultural industries (DOAC+NDOT)Partnership Programmes-Technology Stations and Incubators-Special Projects

Information, referrals and adviceAssessmentsCounseling Data capturing on small enterprises, service providers and market opportunities

Delivery of servicesIdentification of opportunities and business linkages for small enterprisesEstablishing partnerships in small enterprise development and support Development, support and monitoring of enterprise information centres

Co-ordination, facilitation and supportfunds disbursement and administration,Marketing and stakeholder relations,Service provider identification,Vetting and monitoring of Branches Information centre identification and support,Network performance management

Design and manage network system, coordinate marketing and reporting, provides network technical support facilitates network partnership agreements

80%

20%

REVIEW PURPOSE

To conduct an assessment of current SMME and cooperative support programmes and make recommendations on ways to improve:

1.Coordination and rationalisation – across spheres of government, departments, institutions and programmes

2.Accessibility, responsiveness and transaction costs.

3.Overall efficiency and effectiveness

4.Monitoring and evaluation practices

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2. Review focus and scope

3. Review approach and methodology

4. Review results

1. Purpose of the review

5. Key recommendations

REVIEW FOCUS AND SCOPEGuided by the 3 pillars of the Integrated Small Business Strategy:

1. Increasing the supply of financial and non-financial support.

2. Creating demand for SMME products and services

3. Reducing regulatory constraints.

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PROGRAMME AREAS COVERED

Increasing access to financial support• Debt, equity and venture capital• Credit indemnity • Incentives and grants

Increasing access to non-financial support• Incubation and technology transfer• Mentorship and capacity building• Technology stations and advice

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…Continued from previous slide

Creating demand for SMME products and services• Public and private sector procurement• Expediting payment to SMMEs • Export promotion

Regulatory impact• Current government initiatives• New initiatives

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2. Review focus and scope

4. Review results

1. Purpose of the review

5. Key recommendations

SMALL BUSINESS POLICY

• Policy formulation within government fragmented

• The role of provincial and local government not clear

• Issues with institutional mandates and political directives

• The resource conundrum

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SMALL BUSINESS SUPPORT PRACTICE

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GENERAL POLICY & PROGRAMME IMPLEMENTATION ISSUES

• Lack of long-range planning

• Weak coordination and integration of support

• Weak monitoring and evaluation of support

• Weak human resource capacity

• Operational inflexibility (red tape/turnaround)

• Paucity of small business information

SMALL BUSINESS SUPPORT PRACTICE

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INCREASING THE SUPPLY OF NON-FINANCIALSUPPORT

• Inadequate business incubation programmes

• Lack of mentorship programmes

• Lack of technology transfer and manufacturing advice

• Access to quick and affordable legal process

• General management and capacity building support

SMALL BUSINESS SUPPORT PRACTICE

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INCREASING DEMAND FOR SMME GOODS & SERVICES

• Improving the local business environment

• Encouraging break-out and business diversification

• Strengthening access to public sector procurement

• Building market access into private sector value chains

SMALL BUSINESS SUPPORT PRACTICE

REDUCING REGULATORY CONTRAINTS

• Preventing negative regulation ex-ante

• Building capacity to formulate better regulation

• Reducing the burden of existing regulation

• Simplifying access procedures and requirements

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THE SMALL BUSINESS MARKET

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• Entrepreneurial capacity

• Support for young entrepreneurs

• Targeting students and employed persons

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5. Key recommendations

2. Review focus and scope

3. Review approach and methodology

4. Review results

1. Purpose of the review

RETHINK SMALL BUSINESS POLICY

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RETHINK POLICY (1)

Key recommendation: Strengthen the small business

leadership capacity, through capacitating the National Small

Business Advisory Council to cover the work of key

departments and agencies with SMME development

responsibility, to:

1. Ensuring long-range planning

2. Ensuring coordination, integration & monitoring and

evaluation of support

4. Ensuring quality SMME research

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RETHINK POLICY (2): Subsidiarity and mandates

Key recommendation: Review the National Small

Business Amendment Act (2004) to:

1. Clearly define the SMME support role for provincial

and local government

2. Review institutional mandates, especially that of

Seda (re: coordination, research, regulatory

environment, sector focus / alignment with industrial

policy)

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Key recommendations:

1. Establish a clear programme for rolling out of more

incubators; and encourage / incentivise involvement of

other private sector actors in incubation

2. Establish a dedicated SMME research capacity, preferably

within Stats SA and develop a national small business

research programme

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RETHINK PRACTICE (1): Increasing non-financial support

Key recommendations: (Continued)

3. Undertake a mandate-resource review of key institutions

and close resource gaps

4. Review Small Claims Court system to increase amounts

handled by these Courts thereby providing SMMEs with

access to quick and affordable justice

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RETHINK PRACTICE (1): Increasing non-financial support

Key recommendations:

1. Encourage targeted procurement for SMMES

2. Work with various bodies such as SA Supplier Diversity Council

and partner to encourage greater synergy between private sector

supplier diversity initiatives and dti funding mechanisms

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RETHINK PRACTICE (3) : Increasing demand

Key recommendation

1. Develop and deliver a national educational programme on regulatory

impact assessment and regulatory simplification, targeting relevant

government personnel, in all three spheres of government

2. Roll out the dti / COGTA Red Tape Reduction initiative nationally,

after the completion of the pilot phase.

3. Require agencies to review their procedures and access

requirements and develop and implement simplification measures

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RETHINK PRACTICE (4): Reducing regulatory constraints

Key recommendations

1. Establish a limited-duration team to craft an integrated national

strategy to fostering entrepreneurship throughout society

2. Re-look and expand the activities of NYDA to enhance the support of

young entrepreneurs

3. Develop and implement dedicated entrepreneurship promotional

campaigns and start-up support packages targeted at encouraging

employed persons and graduates to start their own businesses

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RETHINK THE SMALL BUSINESS MARKET

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Key recommendations

1. Engage with business formations to fashion out national private sector-

led SMME support initiatives in the areas of business incubation

programme

2. Establish a Chamber Support programme within the dti to strengthen the

capacity of national sector associations to deliver support services

(information, advocacy) to their SMME members. Over time delegate

certain basic functions to Sector Associations

RETHINK PARTNERSHIP (2)

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Key focus areas:

1. Government wide action plan (long range planning)

2. Rollout/scale up the incubation programme

3. Entrepreneurship Development Strategy

4. Informal Sector Strategy

5. Chamber support guidelines

6. Business Linkages programme

7. Rollout the red tape reduction programme including the agency

turnaround

IMPLIMENTATION PLAN

THANK YOU

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