INTERGRATED SMALL ENTERPRISE DEVELOPMENT STRATEGY AND IMPLEMENTATION UPDATE

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 1

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 2

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

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

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

STRATEGIC PROGRAMMES, CONT. OBJECTIVES OF THE PROGRAMME: NAME OF THE PROGRAMME: Creating Demand for Small Enterprise Products and Services Improving regulatory environment • Leveraging Public Procurement for SME through designated 10 products and services • Leveraging Private Sector Procurement for SME through Sector Codes • • • Regulatory reviews Review small enterprise definition Impact assessment PROGRAMME UPDATE: • 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. • 18 Incubation Centers • SEDA Technology Support Programme To provide technology transfer, support and upgrade to small enterprises • 22 Technical Assistance Projects • • 237 Enterprises Assisted 6

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 Western Cape -5 Samaf Pos -2 Khula Offices -2 Seda Tech Incubators -3 Seda Branch Offices -8 Enterprise Info Centres Gauteng -6 Samaf Pos -3 Khula Offices -5 Seda Tech Incubators -1 Seda Branch offices -24 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 North West -4 Samaf Pos -1 Khula Offices -1 Seda Tech Incubators -5 Seda Branch Offices -4 Enterprise Info Centres Limpopo -4 Samaf Pos -1 Khula Offices -1 Seda Tech Incubators -3 Seda Brach Offices -11 Enterprise Info Centres Eastern Cape -3 Samaf Pos -2 Khula Offices -2 Seda Tech Incubators -4 Seda Branch Offices -24 Enterprise Info 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 Free State -3 Samaf Pos -2 Khula Offices -O Seda Tech Incubators -6 Seda Branch offices -9 Enterprise Info Centres Infrastructure: A Joint Partnership btw the dti & provinces 7

SEDA Performance for the year 2006/7 8

SEDA Performance for the year 2006/7 9

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

KHULA PORTFOLIO PERFORMANCE 11

KHULA PORTFOLIO PERFORMANCE Khula: Improving Access to Loans in the range of R 10 K-R 3 m, with particular emphasis to facilities between R 10 K - R 250 k Portfolio Spread 44% White 32% female 56% Black 68% Male 12

KHULA NETWORK Delivery Channels Public Sector Channel Financial Institutions Channel Corporate Channel Government Departments and Donor Managed funds Commercial Banks Credit Indemnities State Owned Enterprises Managed Funds Financial Intermediaries Wholesale Retail Customer Support SME Funds Joint Ventures and Equity Funds KEY PRODUCTS AND SERVICES • Credit Indemnity Guarantees – Commercial bank • Wholesale finance- Financial Intermediaries • Managed Funds- Government Departments and private sector Property Portfolio Regional offices – Mentorship and deal flow facilitation 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 13

SAMAF NETWORK samaf Public Sector Channel Financial Institutions wholesale Group Savings/ Social Clubs Customer Support Channel Government Departments and Donor funded projects Mafisa SA Postal Services Financial Services Cooperatives loans and capacity building Micro-Finance Intermediaries loans Capacity Building Provincial Offices Savings Mobilization 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 14

ADDITIONAL FINANCIAL SUPPORT- IDC RISK CAPITAL PORTFOLIO ØThe Risk Capital Facility 2 was launched on 5 th March 2007 üThe EC (European Commission) have provided donor funding of ca. R 450 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. üTargeting 7, 200 new jobs , 86 companies & 3 niche funds ; 1306 HDP individuals and 15 broad based HDP groupings ØGeographical diversity / spread: üAt least 65% of investments outside Gauteng and Western Cape ØInvestment channel distribution ü 50% Direct, 30% Niche Funds, 20% Third Party ØLeverage effect - RCF to leverage 100% co-financing YEARS 2005 – 2006 – 2007 TOTAL NUMBEROF SME’s SUPPORTED 102 150 396 VALUE OF APPROVALS TO SME’s NUMBER OF JOBS CREATED OR TO BE CREATED 808, 829, 149 11, 605 1, 170, 745, 986 9, 358 2, 695, 675, 278 14333 15

ADDITIONAL FINANCIAL SUPPORT- NEF 16

COOPERATIVES DEVELOPMENT PERFORMANCE Strategic Responses Strengthening Supplier Networks ( Coops) • Training on Cooperatives and Formation: – – • 16 Coops Funded – 7 Cooperative Groups, Gauteng – 2 Cooperative Groups, Eastern Cape – 2 Cooperative Groups, KZN – – • 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. 2 Cooperative Groups, Limpopo 1 Cooperative Group, Mpumalanga 1 Cooperative Group, North West 1 Cooperative Group, Northern Cape Investment R 4 053 030 17

INSITUTIONAL ARRANGEMENTS Support institutions for strategy implementation • Department of Trade and Industry • Small Enterprise Development Agency • Dedicated government policy and national strategy development department • Research Agenda for the Small Enterprise Sector and annual performance reviews • Dedicated national non-financial support services Agency targeting Micro, Small, Medium enterprises through business support service network, incubation and technology transfer network • KHULA • Dedicated national SME finance Agency targeting the • South African Micro Finance • Dedicated national Micro-Finance Agency targeting the Apex Fund • The Enterprise Organisation loan size of R 10 000+ to R 3 000 using retail financial institutions and commercial banks as a spring board. loan size of R 10 000 using Financial Services Cooperatives, village banks and other approved microcredit outlets as a spring board. • Dedicated for business development administration incentives 18

INSITUTIONAL ARRANGEMENTS, CONT. Support institutions for strategy implementation CHALLENGES: • Small Enterprise Development Agency § Diverse interpretations of the seda mandate across provinces and tiers of government § Partnership funding and network co- SOLUTIONS: • 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. 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 • 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. 19

INSITUTIONAL ARRANGEMENTS, CONT. Support institutions for strategy implementation CHALLENGES: KHULA • • 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 SOLUTIONS: • 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. Sustainability of current Khula services portfolio and portfolio growth to match growing demand can only be possible through re-capitalization of Khula 20

INSITUTIONAL ARRANGEMENTS, CONT. Support institutions for strategy implementation CHALLENGES: SAMAF • 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 opportunities and development support initiatives at local level Inappropriate resourcing of the loan book, capacity building & technical support • SOLUTIONS: • Increase financial intermediaries to 50, annually increase value of disbursements by R 47 m for loans – Annually increase expenditure on capacity building by R 11 m – 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 21

BUDGET: financial and Non. Financial Services Adjusted Appropriatio n MTEF CHALLENGES 2005/06 2006/07 2007/08 2008/09 • Integrated national, provincial and local government budget framework for small enterprise development KHULA 99 883 34 090 73 495 69 932 • Integrated reporting on government spend on small enterprise development SAMAF Inception 130 000 83 999 88 093 SEDA 187 573 311 426 253 849 268 031 103 000 49 360 51 522 SEDA TECH • Strengthening the principle of coownership and co- financing the national grid of enterprise support dedicated service access points 22

Thank you 23