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Presentation to the Select Committee onTrade and International Relations

REVIEW OF GOVERNMENT SUPPORT TO SMMEs

08 FEBRUARY 201208 FEBRUARY 2012

Mr Sipho Zikode:DDG-EEDDMr Sipho Zikode:DDG-EEDD

Mr Mojalefa Mohoto: Chief Director:EDMr Mojalefa Mohoto: Chief Director:ED

PRESENTATION STRUCTURE

1. Purpose of the review

2. Review focus and scope

3. Review approach and methodology

4. Review results

5. Key recommendations

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REVIEW PURPOSE

To conduct an assessment of current SMME and co-operative 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.

And informed by:

1. The Ministers’ call for a short list of key recommendations

2. The DG’s call for a “step-change” in SMME promotion

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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 transfer and advice

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…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

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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 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

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…continued from the previous slide

Data was collected through:

• Extensive national and international literature review

• Stakeholder interviews (institutions and programmes)

• Telephonic interviews with SMMEs

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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

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

• 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 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 THE SUPPLY OF FINANCIAL SUPPORT

• Paucity of SMME financing data

• Impact of SMME credit information asymmetries

• Lack of risk capital

SMALL BUSINESS SUPPORT PRACTICE

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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

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

• Businesses targeted by support programmes

• Support for young entrepreneurs

• Targeting students and employed persons

FORGING PARTNERSHIPS

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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

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SUMMARY OF KEY RECOMMENDATIONS

1.Rethink small business policy

2.Rethink small business development practice

3.Rethink the small business market

4.Rethink partnerships with various actors

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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RETHINK SMME DEVELOPMENT PRACTICE

Key recommendations:

1. Establish a clear programme for rolling out of more

incubators; and encourage / incentivise involvement of

other 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. Stimulate angel investment in SMMEs (through various

means i.e. tax incentives, matching funds from DFIs and

building angel investor networks)

2. Dedicate substantial financial resources to scale-up

microfinance activities in partnership

with international financial institutions

and private sector partners

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RETHINK PRACTICE (2): Increasing financial support

Key recommendations:

1. 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

2. 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

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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 / DCOG 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

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RETHINK THE SMALL BUSINESS MARKET

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

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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RETHINK PARTNERSHIPS

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RETHINK PARTNERSHIP (1)

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Key recommendations

1. 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

2. 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

RETHINK PARTNERSHIP (2)

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Key recommendations

1. 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).

2. 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

RETHINK PARTNERSHIP (3)

THANK YOU

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