Sunday, 6 September 2015

Is Sefa turning the corner?

As I sat in Parliament on Tuesday listening to Minster of Small Business Development Lindiwe Zulu attempting to chastise the DA for our supposed ‘anti-Africa’ motion to impeach Jacob Zuma (in fact, it was a ‘pro respecting the law and our constitution’ motion), I could not help but wonder why she spends her precious time on a matter so irrelevant to her core mission: helping small businesses thrive and create the jobs South Africa so desperately needs

While her speech-writers were wondering how to wriggle out of the plain fact that her government had blatantly ignored a court order by allowing Sudanese President Omar al-Bashir to escape from the AU summit in Sandton in June, I was in a constructive and in-depth meeting with the CEO and senior management of the Small Enterprise Finance Agency (Sefa) at their offices in Centurion. 
At the meeting I expressed my view that Sefa should be evaluated according to four criteria: accessibility, performance, scale and impact. Since its formation in 2012 it has been found wanting on all four counts. However, I came away with a renewed sense of hope that it is finally showing signs of turning the corner.

Sefa was transferred from the Department of Economic Development to the Department of Small Business Development in March 2015. Appearing before the Portfolio Committee in April, its Chairperson and CEO were sternly reprimanded for failing to adapt its mandate and strategy to that of its new home and were sent packing.

Since then, Sefa appears to have been working hard to address its structural problems which have seen it haemorrhaging hundreds of millions rands of taxpayers’ money on poor performing loans to small businesses and cooperatives.

This, at a time when the Gauteng Enterprise Propeller revealed its small business borrowers are in default to the tune of R100 million. Is there something systemically wrong with government loans too small business?

At the core of Sefa’s new strategy is a recognition that it needs to be self-sustaining and cannot forever rely on government handouts to survive. This entails developing financing solutions tailored to suit its varied market segments, better credit risk management to reduce loan impairments, and working with specialist intermediaries and service providers which complement Sefa’s offering.

Sefa is coming over to my view that only by pooling resources from the public and private sectors can South Africa hope to meet the challenge of creating 11 million jobs by 2030.

For Sefa, some of the key outputs of this re-think include:

·         Identifying “value-chain financing” as a way of extracting the most value out of scarce funding resources. In the agricultural sector, for example, this entails funding support for small growers, to the fresh produce market, to agri-processing, distribution and retail.
·         Establishing an enterprise development (ED) fund to assist companies wishing to get their BBBEE points but without the desire or expertise to establish an internal ED competency.
·         Creating Partnership Finance Value Chains which entails establishing a wholesale funding vehicle providing financial solutions to intermediaries offering a combination of financial and non-financial support.
·         Introducing structured finance products, including invoice discounting for small businesses for whom managing working capital and cash flow often presents a challenge.

This last point is particularly important. The PWC Emerging Companies survey, released last week, indicates that working capital is the most vital category of finance small businesses need to help them survive, let alone grow. The banks and micro-financiers demand punitive collateral or interest rates for these kinds of loans. So where do businesses turn to for assistance?

In the UK, 60% of firms use invoice discounting or factoring as a source of working capital but in South Africa it’s a fraction of that. At a recent meeting with a Cape Town-based company specialising in providing this kind of finance, I was told procurement legislation prevented companies from ceding their debtors books if their customer is a state institution. This means they cannot access working capital finance.

Sefa has the same problem, so can’t finance small businesses who do business with the state. Crazy, isn’t it!

This is a major stumbling block to government’s goal of obtaining 30% of state procurement from small enterprises. I will be raising the matter with the Treasury to see if the Public Finance Management Act and Municipal Finance Management Act need amending to accommodate cession of debtors’ books.

Another revealing admission came from my meeting: Sefa has taken a decision to divest of much of its property portfolio, including the township industrial parks which have long under-performed leaving tenants frustrated and demotivated. This is expected to be completed by the end of March 2016.

Another major issue to be addressed is the wasteful overlap between Sefa with other agencies, including the Industrial Development Corporation, the National Empowerment Fund, the National Youth Development Agency, the Technology Innovation Agency and the National Development Agency.

The proliferation of government departments has led to this unwieldy finance hydra. Cabinet would be well advised to bring out the chopper and reduce it to two agencies at most.



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