BRIEFING TO PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT

1. BRIEFING TO PORTFOLIO COMMITTEE ON SMALL BUSINESS DEVELOPMENT PROGRESS MADE ON THE IMPLEMENTATION OF THE 30% PROCUREMENT POLICY FOR SMMES AND COOPERATIVES 12 AUGUST 2015 Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

2. INTRODUCTION • The government has prioritised the development of SMMEs and cooperatives (see SONA 2015) • While a dedicated department has been established , each department has to develop its own sector support programme as guided by the overarching SMME policy by DSBD • Section 2(p) of the Electronic Communications Act (no.36 of 2005): develop and promote SMMEs and cooperatives • As at 2014, there was no reliable baseline data to inform the ICT SMME sector support programme, hence a generalised and blanket approach Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

3. PROGRESS TO DATE • DTPS engaged on a data collection drive to: • Understand the ICT SMME sector, • Track the developments/trends • Monitor the ICT SMMEs performance for timely intervention Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

4. ICT SMMES ENVIROMMENT: PRELIMINARY BASELINE REPORT • Data collection methods (1) Scoping gazette • Published on 29 July 2014, Government Notice no. 37878, Request For Information (RFI) on: • the Nature of business, years of operation, Partnerships (local and/or global), Number of employees, Annual Turnover and the specific Challenges they face. •  The primary objective of this exercise: • to comprehensively understand the ICT SMMEs to move from a blanket approach of understanding SMMEs so as to reflect the uniqueness of each sector of the economy, thereby applying sector-unique intervention for maximum impact Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

5. ICT SMMES ENVIROMMENT: PRELIMINARY BASELINE REPORT • (1) Scoping gazette • 92 written submissions received covering 4 sectors: broadcasting, Telecommunications & IT, Postal services, Electronics manufacturing and Other: Training, Research and Development Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

6. ICT SMMES ENVIROMMENT: PRELIMINARY BASELINE REPORT • (2) ICT Workshop (23-24 March 2015) • To supplement the information collected through the scoping gazette, • Over 250 delegates attended the workshop (industry, government, public entity and • Issues discussed at the workshop: • Market issues effecting ICT SMMEs. • Turning South Africa from being a net importer of ICT products. • Transformation of the ICT sector for SMMEs benefits. • Unlocking the potential of electronics manufacturing. • Improving measures for supporting ICT SMMEs. • Subcontracting issues. • Measures for ICT SMME maturity. • Leveraging on public entities in the ICT sector to spur SMME growth. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

7. ICT SMMES ENVIROMMENT: (A PRELIMINARY BASELINE REPORT) • (3) Meetings and voluntary information • Post the workshop engagement with individuals and broader ICT companies both within and outside SME and public entities continued, to understand: • The ICT business value chain and where ICT SMMEs are actively participating, the challenges thereof, • How to leverage on public entities within the DTPS for SMME development, • Urgent interventions while the department is still mooting the nature of support to be provided, • These engagements helped in cultivating the understanding of the ICT business environment and the position of ICT SMMEs therein, but also in initial mapping out of areas of intervention by the department. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

8. ICT SMMES ENVIROMMENT: (A PRELIMINARY BASELINE REPORT) • (4) Desktop research • Additional information, tracking the trends within the industry was obtained through desktop research, • International benchmarks with Asia Pacific rim countries (China, Hong Kong, Japan, Malaysia, Singapore and South Korea, Taiwan. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

9. ICT SMMES ENVIROMMENT: (A PRELIMINARY BASELINE REPORT) • The data, including international benchmarks, revealed the need for government to support the sector, • However, while The ICT industry offers a diverse value chain which has the potential for SME growth. That said, it may be difficult to expect SMMEs to participate across the value chain given the capital and infrastructure intensive nature of the ICT business in general. For this purpose, government needs to identify areas to grow SMMEs penetration and confidence. These areas should be less: • risky, • capital and infrastructure intensive, • technical compliant • but with immense impact in terms of employment and transformation. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

10. ICT SMMES ENVIROMMENT: (A PRELIMINARY BASELINE REPORT) • This baseline report may not be exhaustive nor accurate given the limited number of responses. • A lot of information/data, therefore still need to be collected about ICT SMMEs in South Africa. • But it provides a base and operating data from which decision can be made on the nature of intervention to be made to unlock the potential of ICT SMMEs so as to: • bolster economic development, • advance the transformation of the industry and create employment particularly for the youth. • Lessons from the pacific-rim countries has shown, the ability to track the trends, monitor the sector’s performance relative to the economy is dependent on regular collection of data. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

11. PECULIAR CHALLENGES FACING ICT SMMES: A SYNOPSIS • ICT SMEs averages 7 years, therefore no business maturity • Registration issues (accreditation?) and compliance costs, • Funding • Equipment affordability • Little support from DFIs (PIC, IDC) • Access to long term contract, (as they only survive on household clients) = limited customer base • High telecoms costs Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

12. SYNOPSIS OF PECULIAR CHALLENGES FACING ICT SMMES • Affordability of spectrum • Lack of support from local government • Poor monitoring mechanism to root out illegal operators, • Costs of equipment (imported) • High costs to entry • Long procurement process • Untransformed industry • Lack of capacity and limited know-how Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

13. SYNOPSIS OF PECULIAR CHALLENGES FACING ICT SMMES continues… • High electricity rates and unreliable power supply (Blackouts, not crime, the biggest fear of SMEs – Standard Bank Survey) • High taxes • Burdensome/onerous regulatory environment and compliance • Lack of design capability (IP) • Note: These challenges underline the need for urgent support Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

14. OBJECTIVES OF THE SUPPORT • Transformation of the ICT industry • Job creation, particularly for the unemployed youths • Economic growth and inclusive economic participation • Drive innovation • Empowerment of women Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

15. PROPOSED NATURE OF SUPPORT • Considering: • Declining public funding, • Existence of SME funding institutions (SEDA, USAASA), • The need to avoid duplication • DTPS’ limited capacity to manage funds • The support should primarily be non-financial with the following pillars: • Reducing regulatory burden and bureaucracy • Guaranteeing market access • Preferential procurement/set-asides • Leveraging on ICT public entities • Facilitating access to funding and financial services through relevant entities (SEDA, PIC, USAASA) • Access to infrastructure technology and/or equipment • Capacity building, training and information Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

16. PROJECTS TO BE SUPPORTED • Noting the limited resources (financial and human, skills and infrastructure), the programme will cover ICT SME projects secondarily supporting the primary sectors of: • (Broadcasting), • Telecommunications & IT, • Postal services, • Electronics Manufacturing, • Training, Research and Development • These projects may include: • Electronics Manufacturing: Making cables, printing labels, pre-forming components, • Infrastructure deployment: • Construction of sites (including low-power sites) • Assembling of technical equipment • Installation of cables • Infrastructure maintenance • Installation of VSAT terminals • Content production Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

17. PROJECTS TO BE SUPPORTED Continue… • These projects may include: • small scale warehousing and distribution, • installation, maintenance and support, • research and design of ICT products (studio design), • ICT SMMEs business and products promotion and facilitates market access Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

18. LEVERAGING ON PUBLIC ENTITIES • Cyril Ramaphosa: “SOEs can spark radical economic transformation – “These enterprises command significant resources and hold great potential for employment creation, infrastructure growth, technology development and small enterprise promotion,” he said. “Together, they constitute a vital pillar of a vibrant mixed economy,” he added. “They must stimulate, support and enhance private investment and expansion.” • Frost & Sullivan: • Government's ICT spend is estimated this to reach $707.6 million in 2019, after reaching a total of $615.9 million in 2014, according to latest research by. • departments across the public sector are planning to introduce e-government services with the objective of improving ICT infrastructure in SA. "To achieve this, there will be an increased investment in software licences, specialised computer services, system advisers, and system development.“ • managed services, combined with fixed and non-cellular connectivity, accounted for 73.1% of ICT investments in 2014. • "ICT spend will centre around updating IT hardware and data centres and on supporting systems integration, especially within the health, education and administrative departments." Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

19. MEASURABLE OUTCOMES OF THE PROGRAMME • ICT SMMEs accounting for ..% of the business establishment by... • ...% of the ICT industry owned by HDIs • ICT SMMEs accounting for...% of the ICT industry employment by... • ICT SMMEs accounting to...% of the contributed by ICT SMMEs to GDP • ..% of the industry owned and control by women by... • ...% of ICT SMMEs reaching maturity • Reducing early death of ICT SMMEs by..% by... Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

20. ACTIVITIES & TIMELINES Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

21. COMMITTEE’S SPECIFIC BRIEFINGS Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

22. EXISTING OPPORTUNITIES FOR SMMES AND COOPERATIVES • Electronics Manufacturing: Making cables, printing labels, pre-forming components, • Infrastructure deployment: • Construction of sites (including low-power sites) • Assembling of technical equipment • Installation of cables • Infrastructure maintenance • Installation of VSAT terminals • Content production Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

23. DTPS IN THE IMPLEMENTATION OF THE 30% PROCUREMENT POLICY • The draft support programme will be aligned to the 30% Procurement Policy, • Set-asides will further be prescribed Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

24. PROGRESS IN SIGNING TRANSVERSAL AGREEMENT WITH DSBD • Meeting held on 5 August 2015 which agreed on the scope covering the following areas: • Capacity-building programme • Incubator model to accelerate ICT SMME development • Access to funding by ICT SMMEs • Addressing the SMME bottlenecks in the public sector (legislations, payments, administrative) Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

25. AGREEMENT MADE WITH DSBD • We agreed that: (1) The DTPS will develop a sector specific programme as guided by the DSBD’s overarching policy and guidelines (2) The Departments will continuously work together, and where possible synchronise programmes (3) DTPS will not (initially) implement financial support, but tap into DSBD’s supplier development fund located at SEFA (4) given the peculiar challenges in the ICT environment, normal procurement may not yield results as ICT SMME development vehicle, therefore, embedded an ICT Specific incubator model has to be developed as per DSBD guidelines Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

26. CONCLUSIONS • Like any enterprise development, ICT SMMEs development ED is a long-term game, • Entrepreneurship isn’t easy, it is a culture that has to be cultivated, lived, nurtured, instilled and sustained, • To transform the ICT industry in the long term requires long-term investment, • Though the tender system may accelerate economic participation in the short term, it may not necessarily result in ICT Entrepreneurship in the long term. Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development

27. THANK YOU Making South Africa a Global Leader in Harnessing ICTs for Socio-economic Development