P resentation to the Select Committee on Trade and International Relations

1. Presentation to the Select Committee on Trade and International Relations REVIEW OF GOVERNMENT SUPPORT TO SMMEs 08 FEBRUARY 2012 Mr Sipho Zikode:DDG-EEDD Mr Mojalefa Mohoto: Chief Director:ED

2. PRESENTATION STRUCTURE • Purpose of the review • Review focus and scope • Review approach and methodology • Review results • Key recommendations

3. Review Purpose To conduct an assessment of current SMME and co-operative support programmes and make recommendations on ways to improve: • Coordination and rationalisation – across spheres of government departments, institutions and programmes • Accessibility, responsiveness and transaction costs. • Overall efficiency and effectiveness • Monitoring and evaluation practices

4. 1. Purpose of the review 2. Review focus and scope 3. Review approach and methodology 4. Review results 5. Key recommendations

5. Review focus and scope Guided by the 3 pillars of the Integrated Small Business Strategy: 1. Increasing the supply of financial and non-financial support. • Creating demand for SMME products and services • Reducing regulatory constraints. And informed by: • The Ministers’ call for a short list of key recommendations 2. The DG’s call for a “step-change” in SMME promotion

6. 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 transfer and advice

7. …Continued from previous slide Creating demand for SMME products and services • Public and private sector procurement (including the dti’s targeted procurement -10 products) • Expediting payment to SMMEs • Export promotion Regulatory impact • Current government initiatives • New initiatives

8. 1. Purpose of the review 2. Review focus and scope 3. Review approach and methodology 4. Review results 5. Key recommendations

9. Review approach and methodology The review: • Covered all three spheres of government (vertical) • Assessed programmes across departments and institutions (horizontal) • Explored areas of possible partnership between government and certain non-governmental actors

10. …continued from the previous slide Data was collected through: • Extensive national and international literature review • Stakeholder interviews (institutions and programmes) • Telephonic interviews with SMMEs

11. 1. Purpose of the review 2. Review focus and scope 3. Review approach and methodology 4. Review results 5. Key recommendations

12. 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

13. SMALL BUSINESS SUPPORT PRACTICE 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 • Paucity of small business information

14. Small Business Support Practice INCREASING THE SUPPLY OF NON-FINANCIAL SUPPORT • Inadequate business incubation programmes • Lack of mentorship programmes • Lack technology transfer and manufacturing advice • Access to quick and affordable legal process • General management and capacity building support

15. Small Business Support Practice INCREASING THE SUPPLY OF FINANCIAL SUPPORT • Paucity of SMME financing data • Impact of SMME credit information asymmetries • Lack of risk capital

16. Small Business Support Practice INCREASING THE SUPPLY OF FINANCIAL SUPPORT (CONTINUED) • Underdevelopment of microfinance • Impact of late payment on SMMEs • Limited use of innovative SMME financing models • Limited scale of public sector support programmes

17. Small Business Support Practice 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

18. 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

19. THE SMALL BUSINESS MARKET • Entrepreneurial capacity • Businesses targeted by support programmes • Support for young entrepreneurs • Targeting students and employed persons

20. FORGING PARTNERSHIPS

21. 1. Purpose of the review 2. Review focus and scope 3. Review approach and methodology 4. Review results 5. Key recommendations

22. SUMMARY OF KEY RECOMMENDATIONS • Rethink small business policy • Rethink small business development practice • Rethink the small business market • Rethink partnerships with various actors

23. RETHINK SMALL BUSINESS POLICY

24. 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: • Ensuring long-range planning • Ensuring coordination, integration & monitoring and evaluation of support 4. Ensuring quality SMME research

25. RETHINK POLICY (2): Subsidiarity and mandates Key recommendation: Review the National Small Business Amendment Act (2004) to: • Clearly define the SMME support role for provincial and local government • Review institutional mandates, especially that of Seda (re: coordination, research, regulatory environment, sector focus / alignment with industrial policy)

26. RETHINK SMMEDEVELOPMENT PRACTICE

27. RETHINK PRACTICE (1): Increasing non-financial support Key recommendations: • Establish a clear programme for rolling out of more incubators; and encourage / incentivise involvement of other actors in incubation • Establish a dedicated SMME research capacity, preferably within Stats SA and develop a national small business research programme

28. RETHINK PRACTICE (1): Increasing non-financial support Key recommendations: (Continued) • Undertake a mandate-resource review of key institutions and close resource gaps • Review Small Claims Court system to increase amounts handled by these Courts thereby providing SMMEs with access to quick and affordable justice

29. RETHINK PRACTICE (2): Increasing financial support Key recommendations: • Stimulate angel investment in SMMEs (through various means i.e. tax incentives, matching funds from DFIs and building angel investor networks) • Dedicate substantial financial resources to scale-up microfinance activities in partnership with international financial institutions and private sector partners

30. RETHINK PRACTICE (3) : Increasing demand Key recommendations: • Challenge the so-called ‘unconstitutional’ nature of set-asides for SMMEs and promote the application of set-asides for SMMEs in public procurement, including the implementation of the Ten Products Initiative • Give official recognition to the activities of the SA Supplier Diversity Council and partner with the Council to encourage greater synergy between private sector supplier diversity initiatives and dti funding mechanisms, especially BBSDP

31. RETHINK PRACTICE (4): Reducing regulatory constraints Key recommendation • Develop and deliver a national educational programme on regulatory impact assessment and regulatory simplification, targeting relevant government personnel, in all three spheres of government • Roll out the dti / DCOG Red Tape Reduction initiative nationally, after the completion of the pilot phase. • Require agencies to review their procedures and access requirements and develop and implement simplification measures

32. RETHINKTHE SMALL BUSINESS MARKET

33. RETHINK THE SMALL BUSINESS MARKET Key recommendations • Establish a limited-duration team to craft an integrated national strategy to fostering entrepreneurship throughout society • Re-look and expand the activities of NYDA to enhance the support young entrepreneurs • Develop and implement dedicated entrepreneurship promotional campaigns and start-up support packages targeted at encouraging employed persons and graduates to start their own businesses

34. RETHINK PARTNERSHIPS

35. RETHINK PARTNERSHIP (1)

36. RETHINK PARTNERSHIP (2) Key recommendations • Engage with BUSA and Institute of Business Advisers, respectively, to fashion out national private sector-led SMME support initiatives in the areas of business incubation and formulating a national programme to develop and accredit quality SMME advisers • Establish a Chamber Support Unit 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

37. RETHINK PARTNERSHIP (3) Key recommendations • Consider the possibility of creating an SMME Promotion Challenge Fund and fund innovative and high-impact project proposals from various actors (business, business membership organisations, academia). • Provide only core funding to SMME support agencies and get them to bid for the rest of their funding through submitting proposals for project funding

38. THANK YOU