Integrated Small Enterprise Development Strategy Update

1. INTERGRATED SMALL ENTERPRISE DEVELOPMENT STRATEGY AND IMPLEMENTATION UPDATE Presentation to the Portfolio Committee on Trade and Industry, May 2007, Deputy Director General, EIDD:Lionel October, E-mail: lionelo@thedti.gov.za Tel: 012 394 1732 Fax: 012 394 2732

2. Outline Strategic Approach Strategic Programmes Distribution Spread of Support Infrastructure SEDA Performance KHULA Portfolio Performance NEF Portfolio Performance Additional Financial Support - IDC Risk Capital Portfolio Cooperatives Development Performance Institutional Arrangements BUDGET: Financial and Non-financial

3. THE STRATEGIC APPROACH Strategic Pillars for the SMME Strategy Strategic Pillar 1: Strategic Pillar 2: Strategic Pillar 3: Creating demand for small enterprise products and services Reduce small enterprise regulatory constraints Increase Supply for financial and non-financial support services Foundation (4): RESEARCH, INFORMATION, MONITORING & EVALUATION FOUNDATION:RESEARCH, INFORMATION, MONITORING & EVALUATION

4. STRATEGIC PROGRAMMES NAME OF THE PROGRAMME: OBJECTIVES OF THE PROGRAMME: PROGRAMME UPDATE: Strengthen National Network for Small Business Development Support Services Establish SEDA Network to integrate all government SMME related activities into a single support mechanism • 102 Information Enterprise Centres offices • 47 Seda- own Offices • seda network continuously provide the noted services Improving Small Enterprise competencies and delivery capacity • Business Development Support: • Provision of information; • Advisory Services; • Exporter development programme • Mentorship • Supplier development; and • Skills Development Dedicated Micro-finance retail network • 8 SAMAF -own provincial offices • 38 SAMAF Financial Intermediaries through, which SAMAF lends Establishment of SAMAF

5. STRATEGIC PROGRAMMES, CONT. NAME OF THE PROGRAMME: OBJECTIVES OF THE PROGRAMME: PROGRAMME UPDATE: Dedicated SME retail Finance channel Strategy shift from Khula Wholesale to Khula retail towards SME bank • Business case being completed with recommendations • Being refined for submission and approval by cabinet. Strengthening Cooperatives Enterprise Networks Development ofCooperatives Strategy Providing necessary support incentives • Incentives have been reviewed and are to be launched by the department very soon Revise the incentives to be more accessible to small enterprises.

6. STRATEGIC PROGRAMMES, CONT. OBJECTIVES OF THE PROGRAMME: NAME OF THE PROGRAMME: PROGRAMME UPDATE: Creating Demand for Small Enterprise Products and Services • Leveraging Public Procurement for SME through designated 10 products and services • Leveraging Private Sector Procurement for SME through Sector Codes • 10 products identified awaiting cabinet approval • Sector Codes to be gazetted under section 9 of the BEE Act. • Reviews done by presidency, treasury and the dti. • Sector Departments to deal with recommendations on their areas of work. Improving regulatory environment • Regulatory reviews • Review small enterprise definition • Impact assessment • To provide technology transfer, support and upgrade to small enterprises • 18 Incubation Centers • 22 Technical Assistance Projects • 237 Enterprises Assisted SEDA Technology Support Programme

7. Distribution Spread of Support Infrastructure • National Network: Integrating access to financial and non-financial support services • 102 IEC offices ( seda Partnership Outreach network) • 47 Seda- own Offices • 13 Khula Mentorship Offices • 13 Retail finance partners through which Khula lends • 8 Samaf -own provincial offices • 38 Samaf Financial Intermediaries through which Samaf lends • 18 Incubation Centres • Mpumalanga • -4 Samaf Pos • 1 Khula Offices • 2 Seda Tech Incubators • 5 Seda Branch Offices • Kwa Zulu Natal • 5 Samaf Pos • 1 Khula Offices • 2 Seda Tech Incubators • 1 Seda Branch Offices • 9 Enterprise Info Centres • Northern Cape • - Samaf office only not fully set up • 1 Khula Office not fully set up • Seda Tech Incubators, Technology • Transfer projects only • 5 Seda Branch Offices • 1 Enterprise Info Centre • Limpopo • -4 Samaf Pos • 1 Khula Offices • 1 Seda Tech Incubators • 3 Seda Brach Offices • 11 Enterprise Info Centres • Western Cape • -5 Samaf Pos • 2 Khula Offices • 2 Seda Tech Incubators • 3 Seda Branch Offices • 8 Enterprise Info Centres • Free State • -3 Samaf Pos • 2 Khula Offices • O Seda Tech Incubators • 6 Seda Branch offices • 9 Enterprise Info Centres • North West • -4 Samaf Pos • 1 Khula Offices • 1 Seda Tech Incubators • 5 Seda Branch Offices • 4 Enterprise Info Centres • Gauteng • -6 Samaf Pos • 3 Khula Offices • 5 Seda Tech Incubators • 1Seda Branch offices • 24 Enterprise Info Centres • Eastern Cape • -3 Samaf Pos • 2 Khula Offices • 2 Seda Tech Incubators • 4 Seda Branch Offices • 24 Enterprise Info Centres Infrastructure: A Joint Partnership btw the dti & provinces

8. SEDA Performance for the year 2006/7

9. SEDA Performance for the year 2006/7

10. SEDA NETWORK Financial Institutions Partnership Public-Private Sector Partnerships - Specialist support Services Customer Support Partnership Network Technology Support Private Sector Enterprise Development Initiatives Deal Flow for Financial support Provincial Offices Enterprise Information Centres Special Programmes –National and Provincial Departments SedaTechnology Pre and Post Financial Support Branch Offices Mobile Units Special Projects-Local Government LED Other DTI Agencies and Donor Agencies Incubators • KEY PRODUCTS AND SERVICES DELIVERED • Business support information and company registrations; • Business Analysis and Advisory Services; • Exporter development programme • Mentorship • Supplier development; and • Skills Development

11. KHULA PORTFOLIO PERFORMANCE

12. KHULA PORTFOLIO PERFORMANCE Khula: Improving Access to Loans in the range of R10K-R3m, with particular emphasis to facilities between R10K - R250k

13. KHULA NETWORK Delivery Channels Public Sector Channel Financial Institutions Channel Corporate Channel Customer Support Property Portfolio Government Departments and Donor Managed funds Commercial Banks Credit Indemnities SME Funds Regional offices – Mentorship and deal flow facilitation Joint Ventures and Equity Funds State Owned Enterprises Managed Funds Financial Intermediaries Wholesale Retail Retail & Industrial Properties YEAR 2006 The industrial portfolio comprises of hives (a building divided into small units and let to informal entrepreneurs for ‘start-up’ businesses); factories (free standing units ranging from small to large) and industrial parks. Retail – Small Units 47% Factories – Industrial Units 52% Total 96% occupancy by small Enterprises out of 69 Properties • KEY PRODUCTS AND SERVICES • Credit Indemnity Guarantees – Commercial bank • Wholesale finance- Financial Intermediaries • Managed Funds- Government Departments and private • sector

14. SAMAF NETWORK samaf Group Savings/ Social Clubs Public Sector Channel Financial Institutions wholesale Channel Customer Support Government Departments and Donor funded projects Financial Services Cooperatives loans and capacity building Capacity Building Provincial Offices Savings Mobilization Mafisa SA Postal Services Micro-Finance Intermediaries loans Out-reach support KEY PRODUCTS AND SERVICES DELIVERED Capacity Building Funds – Grant support Savings Mobilization Fund – Grant support Poverty relief funds – Loan support Micro-enterprise on lending Fund – Loan support

15. ADDITIONAL FINANCIAL SUPPORT- IDC RISK CAPITAL PORTFOLIO • The Risk Capital Facility 2 was launched on 5th March 2007 • The EC (European Commission) have provided donor funding of ca. R450 million over the next three years for the facilitation of (B-BBEE), in the SME (small and medium sized enterprise) sector with a focus on the creation of employment opportunities in predominantly underdeveloped regions. • Targeting 7,200 new jobs , 86 companies & 3 niche funds ; 1306 HDP individuals and 15 broad based HDP groupings • Geographical diversity / spread: • At least 65% of investments outside Gauteng and Western Cape • Investment channel distribution • 50% Direct, 30% Niche Funds, 20% Third Party • Leverage effect - RCF to leverage 100% co-financing

16. ADDITIONAL FINANCIAL SUPPORT- NEF

17. COOPERATIVES DEVELOPMENT PERFORMANCE Strategic Responses Strengthening Supplier Networks ( Coops) Training on Cooperatives and Formation: All nine provinces. All Local Economic Development (LED’s) involving 500 people Community Development Worker’s involving 240 people and 88 Multi-Purpose Community Centres. 16 Coops Funded 7 Cooperative Groups, Gauteng 2 Cooperative Groups, Eastern Cape 2 Cooperative Groups, KZN 2 Cooperative Groups, Limpopo 1 Cooperative Group, Mpumalanga 1 Cooperative Group, North West 1 Cooperative Group, Northern Cape Investment R4053030

18. INSITUTIONAL ARRANGEMENTS Support institutions for strategy implementation • Dedicated government policy and national strategy development department • Research Agenda for the Small Enterprise Sector and annual performance reviews • Department of Trade and Industry • Dedicated national non-financial support services Agency targeting Micro, Small, Medium enterprises through business support service network, incubation and technology transfer network • Small Enterprise Development Agency • Dedicated national SME finance Agency targeting the loan size of R10 000+ to R3 000 000 using retail financial institutions and commercial banks as a spring board. • KHULA • Dedicated national Micro-Finance Agency targeting the loan size of R10 000 using Financial Services Cooperatives, village banks and other approved micro-credit outlets as a spring board. • South African Micro Finance • Apex Fund • Dedicated for business development incentives administration • The Enterprise Organisation

19. INSITUTIONAL ARRANGEMENTS, CONT. Support institutions for strategy implementation SOLUTIONS: CHALLENGES: • Small Enterprise Development Agency • The dti would undertake implementation audit for Seda to resolve, amongst other things, the diverse interpretation of the mandate. • The dti to engage provinces on joint funding for Seda support services. • To design aggressive recruitment mechanism and provide appropriate training. • capacity building within the existing Seda programmes • draft guideline to provide inter-departmental programme coordination. • leverage private sector. • Diverse interpretations of the seda mandate across provinces and tiers of government • Partnership funding and network co-ownership model not adopted across tiers of government and respective departments • Scarce and expensive skills required • A limited pool of usable service providers ( concentrated in urban areas) • No clear guidelines for inter-departmental programmes co-ordination and cooperation • Dependency on state funding

20. INSITUTIONAL ARRANGEMENTS, CONT. Support institutions for strategy implementation SOLUTIONS: CHALLENGES: KHULA • Provide Khula retail model to lend directly to SME. • Re-capitalize Khula in order to grow the portfolio and contribute towards the challenges of the second economy with respect to funding. • Direct channel for SME lending is a necessary state approach if government wants to crowd –in private sector markets to risk perceived small business sector • Sustainability of current Khula services portfolio and portfolio growth to match growing demand can only be possible through re-capitalization of Khula

21. INSITUTIONAL ARRANGEMENTS, CONT. Support institutions for strategy implementation SOLUTIONS: CHALLENGES: SAMAF • Increase financial intermediaries to 50, annually increase value of disbursements by • R47m for loans • Annually increase expenditure on capacity building by R11m • Savings mobilization current year targets- 15000 savers and 9000 micro-enterprises borrowers • Implement set milestones and targets as set out in the SAMAF / MAFISA integrated service delivery plan • Ongoing training support to financial intermediaries • Acquisition of robust IT/MIS integrated reporting system • Establishment of the regulatory body in partnership with National Treasury • Annual major consultative conference with stakeholders and industry • Capacity constraints at intermediary level • Low levels of Corporate Governance compliance and Prudential regulations at intermediary level • Limitations on robust reporting requirements • Programme linkages with local economic opportunitiesand development support initiatives at local level • Inappropriate resourcing of the loan book, capacity building & technical support

22. BUDGET: financial and Non-Financial Services • CHALLENGES • Integrated national, provincial and local government budget framework for small enterprise development • Integrated reporting on government spend on small enterprise development • Strengthening the principle of co-ownership and co- financing the national grid of enterprise support dedicated service access points

23. Thank you