ANNEX B

D E PA RT M E N T O F T R A D E A N D I N D U S T RY,
REPUBLIC OF SOUTH AFRICA/
M I N I S T RY F O R F O R E I G N A F FA I R S ,
FINLAND

INSTITUTIO N AL AND
IM PLEM ENTATIO N SUPPO RT IN SMM E
DEVELO PM E NT IN RSA

Programme Document (final draft)

Helsinki
June 30, 2005
TABLE OF CONTENTS

1. PRESENT SITUATION 1
1.1 Government and sectoral policies 1
1.2 Background studies 1
1.3 Problems to be addressed 4
1.3.1 Macroeconomic Aspects 4
1.3.2 Specific Problems to be Addressed 6
1.3.3 Core Problem 6
2. DEFINITION OF THE INTERVENTION 8
2.1 Overall Objectives 8
2.2 Programme Purpose 8
2.3 Components 9
2.3.1 Technical assistance component 9
2.3.2 Funding Component 10
2.4 Stakeholders and beneficiaries 10
3. ASSUMPTIONS AND RISKS 12

4. COMPATIBILITY AND SUSTAINABILITY 13

4.1 Compatibility with the strategic goals for Finnish development
cooperation 13
4.2 Policy environment 14
4.3 Economic and financial feasibility 16
4.4 Institutional capacity 16
4.4.1 Implementing Agency 16
4.4.2 Local Consultants in the SMME sector 17
4.5 Socio-cultural aspects 17
4.6 Participation and ownership 18
4.7 Gender 18
4.8 Environment 19
4.9 Appropriate technology 20
5. ORGANISATION 20
5.1 Implementing Agency 20
5.2 Executing Agency 21
5.3 Supervision and decision-making 21
5.3.1 Funding and financial management 22
5.3.2 Sub-contracting and procurement 23
5.4 Tentative timetable 23
6. INCEPTION PHASE 23

7. MONITORING AND REPORTING 24

7.1 Performance monitoring 24
7.2 Reporting 25
7.3 Baseline Studies 25
8. EVALUATION 25

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9. Budget 26

LIST OF FIGURES, TABLES AND ANNEXES

Figure 1.1 Problem Tree 7

Table 1.1 Estimated % sectoral contribution to GDP by size-class, 2002 3

Table 1.2 Contribution of SMMEs to private sector employment by sector, 2002 3
Table 2.2 Stakeholders of the Programme 11
Table 2.3 Immediate Beneficiaries 11
Table 9.1 Budget Summary 26

Annex 1 Logical Framework

Annex 2 TA tentative budget
Annex 3 Job Description
Annex 4 List of Documents

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PROGRAMME FACT SHEET

Programme Title INSTITUTIONAL AND IMPLEMENTATION SUPPORT IN SMME

DEVELOPMENT IN RSA
Programme Number

Sector Trade and industry

Sub-Sector Small and medium size enterprise development
Focus Poverty reduction, employment generation
Geographical Coverage and Programme Site Republic of South Africa, 9 provinces, 285 local municipalities;
Pretoria

Duration 4 years
Starting Date ##
Financing
Total EUR 12 300 000
Ministry for Foreign Affairs, Finland EUR 6.000.000
Partner Country, SEDA's total budget ZAR 2005-2008: 50 000 000 (EUR: 6 300 000)

Intended Beneficiaries Small, Medium and Micro enterprises, prospective entrepreneurs,

service providers to entrepreneurs; Local authorities (provincial,
regional, and municipal); Small Enterprise Development Agency,
Godisa Trust, Khula Trust,

Purpose By end of the Programme, quality business support services will be

available in all provinces of RSA, and the outreach is expanded from
the centres to smaller towns enabling existing and prospective
entrepreneurs to obtain necessary information

Overall Objective An enabling environment is created for SMMEs, which is conducive

to entrepreneurship in rural and urban areas

Institutional Framework
Executing Agency Enterprise Development Unit, Department of Trade and Industry
Implementing Agency Small Enterprise Development Agency (SEDA)
Support Services Restricted tendering
Competent Authorities Department of Trade and Industry, Government of the Republic of
South Africa
Unit for Southern Africa, Department for Africa and the Middle East,
Ministry for Foreign Affairs, Government of Finland

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ABBREVIATIONS

AGOA African Growth and Opportunities Act

BEE Black economic empowerment
[Link] Black Economic Empowerment Commission
BRAIN Business Referral and Information Network
CBD Central Business District
CBO Community-based organisation
CCs Close corporations
CFA Institute of Commercial Financial Accountants, SA
CGIC Credit Guarantee and Insurance Corporation
CSIR Council for Scientific and Industrial Research
D.G. Director-General
DBSA Development Bank of Southern Africa
DPLG Department of Provincial and Local Government
DTI Department of Trade and Industry
EMIA Export Marketing and Investment Assistance Scheme
EU European Union
EUR euro
FET Further Education and Training
GDP Gross Domestic Product
GTZ Gesellschaft für Technische Zusammenarbeit
HDI Historically Disadvantaged Individuals
HRD Human Resource Development
HSRC Human Sciences Research Council
IDC Industrial Development Corporation
ICT Information and Communication Technology
LBSC Local Business Service Centre
LED Local Economic Development
LIP Local Industrial Park
MAC Manufacturing Advice Centre
MFA Ministry for Foreign Affairs, Finland
NAFCOC National African Chamber of Commerce
NAMAC National Manufacturing Advice Centre
NGO Non-governmental organisation
NPI National Productivity Institute
NRF National Research Foundation
NSBC National Small business Council
PD Programme Document
PDI Previously disadvantaged individual
RSA Republic of South Africa
SABS South African Bureau of Standards
SADC Southern African Development Community
SAR South African rand
SARB South African Reserve Bank
SAWEN South African Women Entrepreneur Network
SB Small business
SBDC Small business Development Corporation
SEDA Small Enterprise Development Agency

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SETA Sector Education and Training Agency
SMEDP Small/Medium-Enterprise Development Programme
SMEs Small and medium enterprises
SMME Small, medium and micro-Enterprises
SPF Sector Partnership Fund
SSA Statistics South Africa
TAC Tender Advice Centre
TEBA The Employment Bureau of Africa
TIDP Trade and Investment Development Programme
TIPS Trade and Industrial Policy Strategies
TOR Terms of Reference

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 DEPARTMENT OF TRADE AND INDUSTRY, ENTERPRISE DEVELOPMENT UNIT
PROGRAMME DOCUMENT (June 30, 2005)

EXECUTIVE SUMMARY

Both the Government of Finland (GoF) and the South African Department of Trade and
Industry (dti) views the formation of a single Small Enterprise Development Agency (SEDA)
for South Africa, as critically important to assist with the development of the important small
enterprise sector in SA.

The overall objective for this programme is to create an enabling environment for SMME's
which is conducive to entrepreneurship in rural and urban areas. The programme purpose is
that by the end of the programme targeted quality business support services will be available
through SEDA in all provinces of SA and the outreach is expanded from the centres to smaller
towns.

The assistance will be offered firstly on a strategic level to assist SEDA with clarification of
its role and objectives. This is critically important since all nine of South Africa’s Provincial
governments have been servicing Small Enterprises to some degree, and needs to understand
SEDA’s role and National Mandate. Also, on this level, clarification of the planned national
structure as well as products and services is very important, since it will form the basis of the
rollout of SEDA throughout South Africa. Secondly, the assistance is offered on a
management level to assist SEDA in capacitating and training its Executive and Senior
Management, and to expose them to other best practises overseas, and in particular in Finland.
This proposal aims to focus on ensuring that the Management Teams are equipped for their
very important roles. On operational level, this proposal aims to assist SEDA in setting up
regional and local structures of delivery, and to assist with the training and empowering of
delivery staff. Also on this level, the proposal aims to assist with the design and
implementation of effective monitoring systems, and to bring expertise to SEDA in the design
and implementation of such monitoring systems.

The programme has a technical assistance as well as funding components and programme will
follow the following methodology:
 A Technical Advisor will be recruited in Finland, who shall represent a body of
knowledge and expertise to assist SEDA in attaining the objectives. This Technical
Advisor will be available for at least two of the four years that this project is
planned for.
 A dedicated team will be formed within SEDA to drive the process and which will
supply the resources required to carry out the project. This team will report to the
CEO of SEDA, and its activities will be managed by governance structures.
 The total budget of SEDA during the years 2005-2008 will be approximately
50MZAR. Finnish contribution will be 6MEUR, of which Technical Assistance will
be maximum 800 000 EUR. SEDA has budgeted the required contributions, whilst
the Finnish contribution will be transferred as and when required.
 During the inception phase programme will develop a model for programme and
sector level indicators based monitoring. Progress report will be based on the
designed indicators. SEDA shall monitor the implementation of the activities and
report to the Consultative Group, GoF and the dti.
 SEDA’s Administrative and Financial Systems will be used, and the Finnish funds,
together with interest thereon, will be tracked separately.

The duration of the programme is 4 years, starting on November 2005 and ending on
November 2009.

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1. PRESENT SITUATION

1.1 Government and sectoral policies

Immediately after South Africa’s first democratic elections, the government was faced with
responding to the enormous legacy of apartheid on the one hand, and the massive public
expectations of economic and social transformation on the other. Its response during this first
period, 1994 – 1999, was to focus on putting in place overarching macro-economic policy and
sectoral policies to facilitate post-apartheid institutional development and economic and social
services delivery. As with all other sectors, within the SMME sector, emphasis was placed on
policy and institution development. The National Small Business Strategy and the Small
Business Act were developed to create an enabling environment for the successful
development and promotion of the SMME sector. Other policies developed by government
include the Skills Development Act designed to enable technical and business skills that
would enable entrepreneurs to start their own businesses.

Following the second democratic elections in 1999, government policies shifted emphasis
significantly from its earlier focus on macro policy and institution development to the micro
level, both in economic and spatial terms. Thus, development programmes would now be
undertaken within an integrated, focused and cross-governmental manner within priority rural
and urban development nodes. Accordingly, SMME development became focused within
these development nodes.

After the 2004 elections, government announced its desire for accelerated SMME
development, and announced the development of the Integrated Small Business Development
Strategy (ISBDS) designed in a holistic manner to small business development. The
consolidation of delivery institutions and the creation of specific financial and non-financial
products to underpin broad-based social and economic transformation have been announced
and the establishment of the Small Enterprise Development Agency (SEDA), an institution
that will provide integrated non-financial services, is underway. This development would in
turn become a key part of government’s desire to integrate the "first" and "second"
economies, and to drive employment creation and sustainable economic growth and
development. The Extended Public Works Programme (EPWP) has been launched and is
expected to have critical contributions to SMME development, employment creation and
poverty alleviation.

1.2 Background studies

Since the adoption of the Small Business Development and Promotion Strategy, the
promulgation of the Small Business Act and the establishment of the implementing
institutions, studies have been conducted in different economic sectors on good practices to
develop and promote SMMEs. In addition, these implementing institutions have been
evaluated and these reports provide important lessons that form a foundation for the
finalisation of the Integrated Small Business Development Strategy. The lessons thus far
learnt are:

 Sharpening the focus of policy so that it is more defined and based on reliable
information.
 Integrating small business development and black economic empowerment.
 Poverty alleviation can be a result of successful small business development.

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 Streamlining the institutional framework for small business development.

 Differentiating between sectors.
 An integrated approach should be applied between small businesses and their local
economies.
 Appropriate response to entrepreneurs with special needs.
 Collaboration with local governments in developing small businesses.

Overall, there are a number of cultural, systemic and process-related issues that must be
addressed to make the SMME development system fully effective and customer-oriented. The
designed Programme addresses these deficiencies.

Over the past years the dti and other relevant agencies have conducted a number of studies
evaluating the implementation of the national SMME strategy (c.f. The Integrated Small
Business Development Strategy In South Africa, 2004 – 2014. Draft October 2003). Lessons
learned from these studies can be broadly captured into the following categories:

 The largely generic approach towards entrepreneurial development has not been
effective. The need for a segmentation of the market with differentiated services
instruments, and delivery concepts has become evident. There is a recognised need to
segment the market into the broad categories of survival micro-enterprises, micro–small
enterprises and small–medium enterprises, as well as to take into account differences of
sector involvement (and need), geographic location (urban/rural) and technological
sophistication)
 The dti’s coordination function through its Centre for Small Business Promotion
(CSBP)/Enterprise Development Division remained largely ineffective.
 Regulatory constraints on small businesses hampered development of the sector. More
flexibility for tax and labour legislation compliance requirements has been called for.
 The support institutions do not have enough outreach and have limited operational
capacity. Principles of need and empowerment demand that relatively greater efforts are
made to reach particularly disadvantaged SMMEs, like those in rural areas, run by
women and the unemployed.
 The magnitude of local and regional differences calls for a more grassroots approach.
 Numerous parallel and sometimes overlapping donor-funded programmes have created
confusion on the market due to their own donor-specific requirements for release of
funding and their often short-term nature. The dti has challenged the donors to provide
all future support in line with the IMS objectives, through various delivery mechanisms
and even in collaboration with the private sector.

These lessons have been taken into consideration in the design of SME development
cooperation between South Africa and Finland. For example, information and training support
to SMMEs will be undertaken in partnership with local governments.

A further study of relevance is the Ntsika Enterprise Promotion Agency and the dti annual
publication called the ‘State of Small Business Development in South Africa’. This
publication provides statistics on all activities of SMMEs. The tables below provide
information on the contribution made by SMMEs to South Africa’s GDP and its share of total
private sector employment.

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Table Present situation.1 Estimated % sectoral contribution to GDP by size-class,

2002

Sector Micro Small Medium Large Total

Agriculture, forestry and fishing 3.4 9.2 43.8 43.6 100

Mining and quarrying 1.6 1.9 2.8 93.7 100

Manufacturing 4.9 7.5 21.2 66.3 100

Construction 2.8 32.5 14.7 50.0 100

Trade, catering and accommodation 4.2 24.6 12.1 59.1 100

Transport, storage and 8.8 19.1 20.2 51.9 100

communication

Community, social and other

personal services and finance and
business services 15.7 13.9 2.6 67.8 100

Total 5.9 14.8 15.4 63.9 100

Source: Ntsika, 2002 State of Small Business Development in South Africa

Table Present situation.2 Contribution of SMMEs to private sector employment by

sector, 2002

Sector % of total
employment in
sector

Agriculture, forestry and fishing 81.5

Mining and quarrying 21.3

Manufacturing 55.2

Construction 84.8

Wholesale Trade 72.0

Retail Trade (including motor trade) 89.5

Catering and accommodation 76.6

Transport, storage and communication 65.6

Finance and business services 69.4

Community, social and other personal services 68.4

Total 68.2
Source: Ntsika 2002 State of Small Business Development in South Africa

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In order to develop country sectoral strategies, a number of studies have been carried out by
the dti, e.g. clothing and textile, and metals and metallurgical. Similar studies need to be
undertaken in other industrial sectors as well.

Institutions that provide support services to SMMEs publish annual reports that provide the
public with information on their programmes and their outreach. In this regard, the 2002
annual reports of Ntsika Enterprise Promotion Agency and Khula Enterprise Finance provide
information on financial and non-financial support services provided to SMMEs, viz.

A number of international and domestic donors have been involved in the development of the
SMME sector. All such donors work with the dti through the department’s co-ordinating
mechanism to ensure that their contributions are streamlined and overlaps managed.

President Thabo Mbeki’s address to the first joint sitting of the third democratic parliament on
May 21, 2004 outlined a number of priority plans for government. SMME development
featured high in these plans and the following areas were identified

 The comprehensive review of the regulatory framework that impacts the SMME sector
with a view to facilitate its future growth and development.
 Merger of Ntsika and the National Manufacturing Advisory Centres to create a unified
enterprise development agency for non-financial services.
 Interaction with the financial institutions to implement the provisions in the Financial
Services Charter relevant to the development of small and medium enterprises.
 Re-establishment of the Agricultural Credit Schemes to provide capital for the
agricultural sector.
 Speeding up of the process of skills development.
 Launching of the Expanded Public Works Programme in all provinces. This
programme presents opportunities particularly for SMMEs in the construction sector.
 Establishment of the Apex Fund dedicated to the extension of micro-credit.
 Finalisation of government strategy for the development and extension of financial
and non-financial support to cooperative enterprises.

All these plans were announced by the President with specified time frames, a clear indication
that there is commitment to seeing these implemented in the short-term. In this regard, it is the
responsibility of the dti to implement and co-ordinate these activities with other role-players,
the consequence of which may be the review and re-design of concerned ISBDS programmes.
Significantly then, the development and design of the ISBDS programme is occurring at an
appropriate time given all these related development, and it is expected that the programme
will respond more appropriately to the current needs of the South African government.

1.3 Problems to be addressed

1.3.1 Macroeconomic Aspects

At the macro-economic level, there are a number of issues that the government, through the
dti, is addressing. South Africa has one of the highest income inequalities in the world
reflecting severely unequal distribution of wealth based primarily on racial lines. The
unemployment rate in South Africa is estimated at 36%, constituting approximately of
6,5 million people. Virtually all (97%) of the unemployed are from previously disadvantaged
groups. Over 60% of the unemployed live in urban areas. There are an estimated 1,6 million

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(3.7% of the population) entrepreneurs in South Africa, of which 1,1 million are in the
informal sector. Based on the information from Ntsika Enterprise Development Agency, small
businesses represent 98% of the total number of firms in South Africa. They employ 55% of
the country’s labour force and contribute 42% to total remuneration. Small businesses
contribute about 35% to the GDP of South Africa. They also contribute more than 40% of
GDP in four of the eight major economic sectors: agriculture, construction, trade, and
transport.

The South African government is committed to the growth and development of the SMME
sector and as such, has employed a range of policy instruments in pursuit of this objective.
The National Small Business Act was enacted in 1996 and holds that the growth of the SME
sector is fundamental to the development of the South African economy. Not only is the sector
considered critical to the reversal of economic inequality created by apartheid but also it is an
important factor in reversing the growing phenomena of jobless growth through the sector’s
labour absorptive capacity.

Black Economic Empowerment and Small-Medium Enterprise Development Strategies are an

integral part of the economic policies, which are expected to reach throughout the South
African societal fabric including rural and poor areas of the country. These crosscutting
strategies will play a crucial part in achieving employment and equity. While the BEE strategy
has been published, the revised SME strategy is still being developed.

The Department of Trade and Industry has a leadership role in the government’s Economic
and Employment cluster. Through the Integrated Manufacturing Strategy the dti seeks to
contribute to the goals and objectives of the Micro-economic Reform Strategy through
championing competitiveness within the government in a way that supports equity, providing
customised services and products in prioritised sectors developed in partnership with
stakeholders and providing more accessible and efficient broad-based services across the
economy. The dti’s key objectives for the medium-term (four to five year):

 To provide an environment conductive to the promotion of higher levels of

investment, for both foreign direct investments and domestic investments,
 to increase access for South African products in international markets,
 to create a fair, competitive and efficient market place in South Africa for domestic
and foreign businesses and consumers.

The national level strategic objectives towards which the Department will contribute are:

 growth in output
 increased employment
 SMME growth
 Black Economic Empowerment (BEE)
 geographic spread both within South Africa to rural areas and regionally within Africa
 increased level of investments in South Africa, both domestically and from abroad
 export growth
 future competitiveness
 increased participation of women in enterprises.

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1.3.2 Specific Problems to be Addressed

The dti and the other stakeholders have identified a number of specific problems related to
the SMME sector. On the other hand, there are problems, which are related to the strategies
and policies, and on the other hand problems, which are related to the delivery of services to
the entrepreneurs. The problems to be addressed are presented in the next page, Figure 1.1
(Probleme Tree).

There are two critical missing links, a two-way information collection and dissemination
system does not exist, and hence the SMME support policies and strategies are not coherent.
Without regular and comprehensive information collection and reliable baseline data, strategy
and policy work is difficult. It also means that the impact of SMMEs on the national,
provincial and local economy cannot yet be measured.

There are failing links between different government departments, and links with local
governments have not been fully implemented. Better links between them would benefit all,
and it would ultimately lead to improved strategies and continuity. This would shift emphasis
from strategies to better implementation.

Since the SMME related services to entrepreneurs are not available from one service point the
SMMEs and authorities experience difficulties in finding service providers. Improving the
situation would ultimately lead to better Enabling environment for SMMEs.

Replicable differentiated SMME Business Development models do not exist. This has led to a
situation where services have not been differentiated based on the size of enterprises and
hence the development programmes available have not been very effective.

There are still insufficient links between SMME support and training organizations, and
proper mentors are hard to find. This has contributed, which lead to poor entrepreneurship
skills and to poor perception of entrepreneurship.

The current SMME strategies and guidelines fail to address environmental issues.
Environmental issues should be built to be an integral part of the business development
framework and plans. If environmental issues are not addressed, it might be difficult to
change the course later.

Agribusiness and agro-processing sector is not fully engaged in the development of SMME
sector. This should receive adequate attention.

1.3.3 Core Problem

After 10 years of development efforts, the enabling environment has not yet been created
for effective and sustainable SMME development. There still exists a complex web of
problems that is limiting the success of development policies devised so far; additionally,
many of these problems have been addressed primarily at a strategic level without effective
implementation. Moreover, problems related to the availability of information, training,
mentorship, and benchmarking of various services, must be solved.

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Figure Present situation.1 Problem Tree

Lack of reliable structured base- The impact of SMMEs on the na- Discontinuity in policies and Failing links between different
line data tional, provincial and local econ- strategies to support SMMEs gvt departments
omy cannot be measured, yet

Two-way information collection Linking with local governments

and dissemination systems Emphasis has been on strate- has not been fully implemented
missing gies, implementation needs
strengthening

SMMEs and authorities experi-

Services to entrepreneurs are ence difficulties in finding service
not available from one service providers
point

Enabling environment not yet SMME development is still at

Environmental issues not taken created for sustainable strategic level, not in full Agri and food sector not fully
into regard in SMME sector SMMEs implementation engaged in the development of
SMME sector

Insufficient risk-financing instru- Poor entrepreneurship skills Rural areas losing increasingly
ments to micro-enterprises Programmes not effective due to and perception of human resources and services,
lacking segmentation approach entrepreneurship and employment opportunities

Risk financing instruments are

being developed by the bank Inadequate mentorship skills
Lack of differentiated services Potential entrepreneurs migrate
sector but kept secret
according to size of enterprises to urban centers

Market information difficult to Insufficient links between

access Replicable differentiated SMME SMME support and training Cultural and social obstacles
Business Development models organisations confronted by potential entre-
do not exist preneurs

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2. DEFINITION OF THE INTERVENTION

2.1 Overall Objectives

The Overall Objective for the Programme is derived from The Integrated Small Business
Development Strategy (ISBDS). Over the period 2004–2014 the Integrated Small Business
Development Strategy shall pursue the following objectives:

- Increase the contribution of small business to the growth of the South African
economy
- Create an enabling environment for small enterprises, which levels the playing field
between big business and small business, reduces the disparities between urban and
rural businesses, and is conducive to entrepreneurship
- Create sustainable long-term jobs for women and men in the small business sector
- Ensure previously disadvantaged individuals, women, people with disabilities, and
young women and men are equitably represented in the small business sector
- Increase the competitiveness of the small businesses sector so that it is better able to
take advantages of opportunities emerging in national, African and international
markets
- Improve communication between government and the small business community

The Overall Objective (by 2014) for this Programme is:

An enabling environment is created for SMMEs, which is conducive to

entrepreneurship in rural and urban areas,

The indicators for achievement of the overall objectives are:

 Continuity in support policies and strategies

 Policy revisions are based on reliable information on SMME sector
 Employment opportunities generated by the sector increase 2 % annually
 By 2014, no major market failures occur

The indicators need to be further developed during the Programme. The work on the
indicators will be part of the Programme. The need for the indicator development is foreseen
in the Strategy (ISBDS).

2.2 Programme Purpose

The main focus of the proposed Programme is in supporting the dti and its implementing
organisations, and provincial and local authorities and organisations and SMMEs to set up a
well-functioning and sustainable SMME support structure and, more generally, to contribute
to the implementation of the small business strategy.

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Programme purpose (2009):

By end of the Programme, targeted quality business support services will be

available through SEDA in all provinces of RSA, and the outreach is expanded
from the centres to smaller towns.

The Quality here includes a broad array of aspects. The services must be delivered by
qualified providers. The information distributed must be accurate and lead to improved and
sustainable business. The sustainability means financial, environmental, social, cultural, and
technical sustainability of the operations of the SMMEs. It also means that the SMME
agencies’ and service providers’ operations and institutions are financially, environmentally,
socially and culturally sustainable. The sustainability of the agencies ensures continuity of the
support services. The support services will carry both financing and non-financing
information thus enabling existing and prospective entrepreneurs to obtain all the necessary
information to able to establish and operate sustainable businesses.

The corresponding indicators are1:

 By 2008, all major strategies and structures are in place and the implementation of the
strategies is focused and accelerated
 By 2008, SMME support services are established as designed in SEDA business plans
 The SMME support services meet the demand by existing and prospective
entrepreneurs
 The support services meet the quality requirements
 By 2007, national and local level indicators regarding the SMME sector development
are in place and monitored
 By 2006, strategies and implementation are linked with those of the relevant other
government departments

2.3 Components

 The Programme includes two Components that are interlinked. The Components are i)
technical assistance component and ii) funding component.

2.3.1 Technical assistance component

The TA component consists of one long-term adviser for a period of 24+4 months: first a
continuous assignment of 24 months after which there is an option of four months over the
remaining two years of the co-operation. The adviser is financed directly by a grant from the
Government of Finland.

The main task of the adviser is to provide management consulting services to the CEO and
other senior management of SEDA in the following fields:
(a) assisting in strategic planning and operational management of the Agency and issues
related to the start-up phase
(b) assisting in setting up a performance-based monitoring system for SEDA activities.
(c) supporting in monitoring and reporting on the activities of SEDA
1
Due to the nature of the programme these indicators are only indicative. The indicators will be based on the
implementation of the SEDA business plans.

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(d) provide inputs to the product and methodological development in

(e) devising a reporting pattern on the SEDA activities to the GoF.

More detailed terms-of-reference have been prepared and are presented in Annex 3.

2.3.2 Funding Component

The operational work to support SMME development in South Africa will be implemented
through providing core funding ("budget support") to SEDA. The funding will support SEDA
in the implementation of its business and annual work plans. Funding will be disbursed in
annual payments based on meeting the agreed performance criteria.

2.4 Stakeholders and beneficiaries

The direct beneficiaries of the programme are the Small Enterprise Development Agency and
the dti. The agency will become the centre of excellence in SMME development in South
Africa.

While strengthening SEDA, the indirect beneficiary will be the South African SMME sector.
It is understood that individual enterprises will be able to access better quality and more
appropriate support services. As stated in a number of policy documents, this will have a
profound impact on the social and economic development in South Africa, particularly among
the previously disadvantaged groups.

Those beneficiaries include the owners as well as the existing and future employees and their
families of the participating firms. They will be able to improve their capabilities, which will
make them more competitive and create new opportunities for them in the economy.
Industries have multi-faceted value chains through which also other sectors can benefit from
increased sourcing of raw materials, production coordination, sales and distribution
opportunities, and so on. Businesses that operate in for example storage, transportation,
wholesaling, and retailing will benefit from growth in other sectors. The local business
community at large will benefit as entrepreneurship becomes more prevalent and local
economy grows. Similarly, locally based business service providers such as training
organizations are beneficiaries as they will be able to sharpen the focus of their curricula and
thereby become more competitive and able to attract new students or customers. It is expected
that in the medium term local banks and other funding organizations will benefit as the
companies grow and become more bankable and need financing for growth. Similarly, the
local population will benefit as increased employment opportunities become available and the
availability of good quality products improves.

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Table Definition of the intervention .3 Stakeholders of the Programme

Stakeholder Role
National Treasury Donor coordination, receive and monitor of use of
funds.
Department of Trade and Industry Executing agency
SEDA (integrated Ntsika and NAMAC) Implementing agency
Khula Enterprise Finance and the South Provide SMMEs supported by this programme with
African Micro-Finance Agency financial services for their enterprises.
Provincial Government Programming and implementation of SMME support
Local Government (284 municipalities) Programming and implementation of SMME support
SEDA branches and other SEDA delivery Intermediaries to provide service to entrepreneurs.
structures
SMMEs Receive support services e.g. training
Communities Employment; jobs created by SMMEs
Households Access to basic services, employment

Immediate beneficiaries

The following organisations or groups of people will directly benefit from the programme

Table Definition of the intervention .4 Immediate Beneficiaries

Beneficiary Benefit
SMME Improved business performance
Information on business
Small Enterprise Development Agency Improved institutional performance
Khula Enterprise Finance Administration fees for the management of the
fund
Impact on SMME’s
Service Providers who will provide services to Income from participation in the program
the programme Up-skilling of the Service provider
Godisa Trust Support in the incubator program
Achievement of program impact

Stakeholders

The following organisations or groups of people will be affected or may be affected by the
Programme

 Department of Trade and Industry

 National Treasury
 Provincial Government
 Local Government
 Communities
 Households

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3. ASSUMPTIONS AND RISKS

It is assumed that the Small Enterprise Development Agency will be established. SEDA must
be in place and operational at the time when the proposed Programme is scheduled to begin.
The SEDA was established by an act of Parliament in December 2004.

The successful implementation of the Programme requires high-level political support and
that enthusiastic Programme champions are identified who ensure that any obstacles will be
overcome and pressure kept on in Programme activities. There needs to be a generally
positive attitude toward SMME development also in local level so that grassroots activities
prove successful and productive or effective strategies can be employed to effect local
attitudes. Fairly large groups of companies need to be identified in various sub-sectors, which
are interested and willing to participate in the joint effort to improve conditions in the
industry, and that the owners/managers are progressive, keen and motivated to develop the
operations of their firms. Extensive screening and research must be done to identify a
sufficient pool of suitable companies. To be successful, the SEDA must be able to undertake
intensive interventions at the firm level, which will allow the owners/managers make a
difference in their businesses. It is necessary that links between government departments at
national, provincial and local levels can be established. It is also required that pro-SMME
government policies will continue.

Public-public and public-private partnerships with a large number of organizations will need
to be created to extend service delivery to all areas in the country. Sufficient amount of
capable and willing mentors need to be identified to take full advantage of the experiences of
others, which entrepreneurs can convert into useful plans and strategies in their businesses.

A continuing restructuring of the institutional SMME development framework would hinder

effective implementation of the Programme and make achieving sustainable results more
difficult. As business secrecy is common in the current culture among entrepreneurs and
discussing one’s business information is not generally done, there is a risk that identifying a
sufficiently large group of companies, a critical mass to create meaningful business linkages,
is hard to do.

A number of assumptions have been made in designing this Programme. Some of these salient
assumption and success factors are presented below.

 Government of South Africa continues to provide support to the SMME sector. This
programme is based on the commitment that the government has shown, through a
number of policies, to create an enabling environment for thriving SMMEs. Should
this commitment decline or disappear, the success of this Programme would be
adversely affected.
 SMMEs are willing to receive government support to improve their businesses.
 Experienced service providers are available to provide services during the
implementation of the Programme.
 Personnel in SEDA, MACs, LBSCs and other institutions involved in the
implementation of the Programme are retained throughout the Programme. The
turnover of staff should be at reasonable level. This is important to ensure that there is
continuity in service provision to SMMEs. Personnel of these institutions will be
trained to ensure that they are well equipped to implement the Programme. This

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training will contribute to their Programme design and implementation. Given the
skills shortage in South Africa, training provided to these staff will lead to them being
attractive for recruitment by the private sector. Failure to retain Programme staff will
result in significant delays in the implementation and therefore risk the Programme
success.
 In line with the ISBDS, this Programme attempts to provide integrated support to
SMMEs. It is crucial that firms that receive business support services from the
Programme are also able to access required financial support.

The macroeconomic development in South Africa poses a risk for the success for the SMMEs
and the programme. If any adverse development were to take place, it would endanger to
success of the programme in two ways: i) client SMME would face financial difficulties and
ii) fiscal constraints could lower the contribution from the South African government to the
SEDA.

4. COMPATIBILITY AND SUSTAINABILITY

4.1 Compatibility with the strategic goals for Finnish development cooperation

The current policy objectives of the Finnish development cooperation are defined in four
documents: Decision-in-Principle on Finland’s Development Cooperation (1996), Finland’s
Policy on Relations with Developing Countries (1998), Decision-in-Principle:
Operationalization of Development Policy Objectives in Finland’s International Development
Cooperation (2001), and Development Policy – Government Resolution (2004).

The Government Resolution (5.2.2004) is the primary policy tool, which is used in the
programming of the Finnish development cooperation. The interpretation is that Development
policy refers to coherent activity in all sectors of international cooperation and national policy
that have an impact on the status of developing countries, including security, human rights,
trade, environment, agriculture and forestry, education, health and social, immigration, and
information society policies. Therefore, this proposed Programme is fully compliant with the
Finnish strategies.

The main principles of the new Finnish development policy are:

 Commitment to the values and goals of the UN Millennium Declaration
 Broad national commitment and coherence in all policy areas
 Commitment to a rights-based approach. This means that the realisation of the rights
of the individual as defined by international human rights agreements is taken as the
starting point in Finland’s development policy.
 The principle of sustainable development
 The concept of comprehensive financing for development
 Partnerships for development. Partnerships based on participation by the public and
private sectors and civil society, both at the national level and internationally, are
important for development.
 Respect for the integrity and responsibility of the developing countries and their
people. States themselves bear responsibility for their own development. Finland’s
contributions are directed towards supporting each country’s own efforts.

The objectives of the proposed Programme that are derived from the South African SMME
strategies and policies are compatible with these principles. The South African strategy for

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SMME lacks principles regarding environmental protection and environmental sustainability.

Good governance as such is not mentioned either. Since the Programme mainly supports the
South African government to implement its SMME strategy, these concerns of environment
and good governance have been included in the lover level objectives (purpose and results) of
the Programme.

4.2 Policy environment

1994 – First steps

After the democratisation of South Africa in 1994, the Government of South Africa adopted
many social and economic strategies and policies designed to move the historically
disadvantaged communities into the mainstream of the economy. The Department of Trade
and Industry (dti), is the government department tasked with the responsibility of devising
strategies and implementing programmes to promote economic growth and job creation. One
of the strategies adopted to encourage this objective is the National Small Business
Development and Promotion Strategy. Some of the key objectives of this strategy are to:

 Create an enabling environment for the promotion, establishment and development of

small, medium and micro-enterprises (SMMEs)
 Re-dress the apartheid legacy of black business disempowerment
 Support the advancement of women in all business sectors
 Create long-term jobs, and
 Stimulate economic growth and development.

Accordingly, the National Small Business Act was promulgated in 1996 to provide for the
creation of the institutional framework to implement the strategy on the development and
promotion of SMMEs. In this regard, Ntsika Enterprise Promotion Agency was established to
provide non-financial support services to the SMME sector and Khula Enterprise Finance was
established to provide financial services to this sector.

While it is internationally recognised and accepted that the Small, Medium and Micro
Enterprises (SMMEs) sector is critical for the achievement of economic growth and job
creation, in South Africa it is estimated that 57% of all employment is within the SMME
sector and that this sector accounts for approximately 41% of the Gross Domestic Product
(Ntsika 1999 The State of Small Business in South Africa). In South Africa, also, this sector is
recognised as a mechanism for bringing the historically disadvantaged communities into the
mainstream of the economy.

Post 1999
Following the second democratic elections in 1999, South Africa continued to experience high
levels of poverty, especially in rural and the peripheral urban areas that are populated by the
black South Africans. Programmes to increase the performance, efficiency and
competitiveness of the public and private sectors exacerbated this situation as significant
numbers of workers, especially the un- and semi-skilled, experienced retrenchment, and
returned to the rural areas with little hope for any form of further employment. One of the
consequences of this paradoxical development was diminishing income for many families that
relied on income from migrant labour. An already dire unemployment and poverty situation
therefore was exacerbated and unemployment and poverty remains highest amongst the

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country’s black rural communities who also form the vast majority of the country’s rural
people.

It therefore is no surprise that reducing unemployment and poverty and the economic
mainstreaming of the historically disadvantaged communities remains high on the agenda of
government. In this regard, policy instruments that are expected to accelerate job creation and
poverty alleviation were adopted. These include the Black Economic Empowerment Strategy,
the Broad-based BEE Act, the National Empowerment Act, the Integrated Manufacturing
Strategy (IMS) and the Microeconomic Reform Strategy. In all these policy instruments there
are cross-cutting objectives such as the development of SMMEs, women-owned businesses
and competitive enterprises, and economic growth and empowerment of the black
communities.

These policy instruments are also intended to develop and implement a focussed and coherent
deracialisation of the South African economy. Accordingly a number of sectors such as the
mining, financial services and information communication and technology have developed
sector charters that are designed to redress the apartheid legacy of the systematic exclusion of
the majority of South Africans from full participation in the economy.

Moreover, in 1999 President Mbeki also committed government to five years of focussed,
integrated and cross-government programmes to achieve a high impact in specified rural and
urban development nodes, and transformed Cabinet’s work processes from independent
Ministries to clustered sectors, e.g. the Economic and Employment cluster, the Social Services
cluster and the Social Justice cluster.

In 2003 government also developed a Microeconomic Reform Strategy that sets out a work
programme for addressing priority microeconomic interventions over the following few years,
and defines structural changes South Africa seeks to achieve within the economy by 2014.
These desired changes to be implemented across government through the Economic and
Employment cluster include:

 The achievement of high levels of growth

 Rapidly increasing employment
 Greater social and economic equity and integration, built on improved skills levels
 Broader ownership of productive assets
 Appropriate urban and rural development strategies
 Improved access to basic services and infrastructure for those engaged in economic
activities.

the dti has now also developed an Integrated Manufacturing Strategy (IMS) which will
contribute to the goals of the overarching strategy by aiming to achieve accelerated growth,
employment and equity through developing high value adding, knowledge-intensive
integrated manufacturing sector built on South Africa’s full potential. Under the IMS, sub-
sectoral strategies are being developed initially for the metals and minerals, tourism,
automotive and transport, crafts, chemical and biotechnology and knowledge-intensive
services.

All these policy instruments are expected to make a significant contribution to the
development and promotion of SMMEs. The dti is simultaneously embarking on a review of

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the institutional framework for the implementation of the Small Business Act. In this regard,
Ntsika Enterprise Promotion Agency and NAMAC are being integrated into one institution to
be called Small Enterprise Development Agency.

4.3 Economic and financial feasibility

The establishment of SEDA, supported by the Programme, is aimed at cost reductions,

removing overlaps and more efficient service delivery in general. Consolidation will
contribute to an effective coordination and streamlining of SMME development efforts,
thereby reducing costs that result from multiple overlapping functions and activities. There is
a need for improving the SMME support systems and related information flows and
availability.

A sustainable SMME support structure needs to ensure that the SMME development system is
effective and services offered of such a high quality that a reasonable fee could be charged for
the services. A full cost fee may not possible immediately, but one of the goals must be that
the revenue collected via service charges will increase with time. To be able to collect fees is
also a good yardstick for the level of quality provided. The agency restructuring is expected to
have multiplier effects on the small business environment by improving the information flow
between businesses and government and private business support and service organizations.
Individual SMME interventions must be cost-effectively implemented and it is expected that
the achieved lessons learned will flow and be rolled out into other industry sectors and
geographical areas in South Africa. The Programme will extensively take advantage of local
business development services thereby assisting in market creation for and growth of such
services thereby not distorting the existing market.

4.4 Institutional capacity

4.4.1 Implementing Agency

The Ntsika Enterprise Development Agency was established in 1995 and the NAMAC Trust
in 1997. Ntsika and NAMAC were merged to one organisation in 2004 to become the Small
Business Development Agency (SEDA). It will be the Implementing Agency responsible
for the Programme. The experience accumulated in these two organisations over the 10 years
period is considerable. Jointly the two organisations can be considered fully capable to
implement this Programme. Both organisations have received technical assistance through
ODA Programmes.

The current combined staff of the two organisations is 290. Ntsika employs 63 staff members
whilst NAMAC employs 60 staff members at the head office and c.170 in the MAC centres in
the provinces. The level of education of the staff is high.

Because performance based monitoring is not present, it is not possible to analyse in detail the
institutions’ efficiency in delivering the services. It is assumed that there is still scope for
improvement regarding the efficiency and effectiveness of the programmes. It is assumed that
when the merger has been effected, reorganisation of duties will lead to temporary slack and
slow-down of the implementation of the programmes.

This Programme will contribute to the strengthening of SEDA’s monitoring and evaluation
systems. It is envisaged that technical assistance will be utilised to support identified areas so

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that SEDA’s capacity to effectively and efficiently implement this Programme and other
SMME development Programme is strengthened.

4.4.2 Local Consultants in the SMME sector

When the National Small Business Strategy was adopted in 1995 and the implementation of
the strategy started, there were very few competent consultants in this sector. This was due to
the fact that it was the first time that South Africa focused on the sector. Since then, there are a
number of consultants who have focused their services in the SMME sector. These are
however focused on providing services to the implementing institutions rather than direct
services to firms. Whilst the number of consultants providing services to SMME institutions
has increased, experience in these institutions is that the majority of them do not have
sufficient experience to provide quality services. There are still only a handful of consultants
who are experienced in providing services directly to firms. This may be a result of limited
capacity by firms to pay market rates to consultants. Note should be taken that market
consultant rates in South Africa are relatively higher than many developing and developed
countries. This is directly a result of the historical policies of apartheid where investment in
training and education was only for the few. This has led to limited supply of qualified skilled
personnel in all fields; hence, the high rates for services rendered.

4.5 Socio-cultural aspects

The political, social and economic policies and programmes of the apartheid regime have had
dramatic consequences for South Africa. These policies and programmes racialised and
tribalised South Africa in fundamental manners. Critical in this regard, rural and urban slums
designed for occupation by the black majority, were isolated, fragmented and far from the
"white" urban and rural suburbs.

Education and training for the black majority was designed to ensure their permanent mental
and economic subjugation. Blacks were never intended to be independent thinkers or to be
economic and social entrepreneurs. Those who were fortunate to find jobs were to be
permanently in employment. Blacks were also to be permanent consumers of goods and
services owned and operated by their white masters. They were never to build their own
enterprises.

Migrant labour and influx control policies also left marks that will take time to delete from the
South African mind and landscape. For example:

 Rural areas today are expected to carry the considerable burden and social and
economic cost of those "retired" by enterprises in "white" South Africa
 Rural households are mainly headed by women since over more than one hundred
years men were recruited to work in the mines, factories and farms of "white" South
Africa
 Urban black townships comprise of a minority of settled black households, a majority
of post-1994 black households, unlocked by democracy from the prisons of the
bantustans and rural slums, living mainly in squatter camps, and a large number of
hostels and compounds, relics of the forced migrant labour system, that are occupied
by single men and their urban partners, and
 A domestic worker population that remains black, women, poorly trained and poorly
paid.

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Thus, while black men bore the brunt of the jackboot of apartheid, women bore the burden of
building and maintaining families in this apparently hopeless maze of apartheid policies and
police.

In all of this, the apartheid regime sought a single outcome for blacks: a population that is
mentally, spatially, socially, politically, culturally and economically shackled, subjugated,
isolated, racially and tribally divided from and against each other, unskilled and uneducated,
with disintegrated families, without memory, and without hope and confidence in themselves
and in their future.

The legacy of these apartheid policies is a society faced with profound inequalities based on
race, ethnicity and to a significant extent, on gender. It is this reality – the two-nation society
as dubbed by President Mbeki – that confounded the democratic government in 1994. It is this
reality it believed required a systematic, progressive and sustainable solution that would last
for the long-term. Thus the gradual approach visible in the first steps it took with its emphasis
on macro-economic viability and institution building, followed by its nodal development
programme, and now, in 2004, its emphasis on broad-based accelerated services delivery.

4.6 Participation and ownership

A participatory approach was implemented in preparing this Programme document. dti staff
was continuously involved in decision-making on the pillars of the Programme. They also
provided important support to the team accessing information that was crucial for the
preparation of this document. Throughout the preparation of the document, dti staff provided
guidance and led the team in its work, an indication that they appreciate that they own the
programme.

In addition, management of NAMAC and Ntsika Enterprise Promotion Agency were also
consulted. Their experiences on current SMME development programmes were taken into
consideration. Their existing management and administrative systems were also analysed to
ensure that the Programme design is harmonious with existing systems. These institutions
provided some critical input on the design and the funding structure of the Programme.

The team also held meetings with some potential service providers to determine capacity and
interest to provide services to the Programme. Some SMMEs in selected sectors were also
interviewed to confirm the problem statement and determine required support services. All
these informed the design of this Programme.

Funding will complement budget funding from the South African budget. Therefore, were the
priorities of the South African government to switch to other sectors, the performance criteria
would not be met and additional funding not disbursed.

4.7 Gender

The Constitution of the Republic of South Africa of 1996 commits the nation to the
development of a non-racist, non-sexist and inclusive society that restores and upholds the
human dignity of its people. In order to implement its policies, the government has taken
significant steps to empower women and to ensure that they play a substantial role in politics,
society, culture and the economy. Consequently, South Africa now ranks among the highest

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nations with its number of women representatives at all three levels of the legislature and
executive.

The country’s economic policies have also given specific attention to the development and
promotion of women entrepreneurs, and economic sectoral empowerment charters - e.g. for
the mining, finance, and information and communications technology sectors - provide
specific measures that require the participation of women in equity, ownership and control,
employment, preferential procurement and enterprise development.

The National Small Business Strategy also places emphasis on women-owned enterprises, and
a number of programmes such as the Technology for Women in Business and the South
African Women Entrepreneurs Network have been implemented to promote participation of
women in business.

It is acknowledged that when women are empowered in these manners, and are economically
independent, they invest their returns in their families, resulting in better provision of basic
services and poverty alleviation for their families. Moreover, when women are active and
empowered, their confidence increases and they are able to make informed decisions about
their actions. This in turn has important implications for addressing South Africa’s HIV/AIDS
epidemic and environmental concerns at community level.

Despite these notable structural achievements of South Africa, there are still few women who
own and manage sustainable enterprises. Women are still poorly represented in economic
decision-making forums. In economic sectors such as mining, financial services and
information communication and technology women are hardly represented. Many women
who engage in business operate in the informal sector and these enterprises are mainly for
family livelihood rather than building of sustainable enterprises.

It is also noted that the achievements of including women in decision-making positions have
so far been in the political arena. This is an indication that although there are political
commitments by the South African government to empower women and ensure their
participation is mainstreamed at all level, the socially constructed roles of women remain in
practice. This is the case even with potential service providers and most of the SMMEs.

This programme will place specific emphasis on the promotion and development of women
entrepreneurs and will thus contribute to poverty alleviation and behavioural change with
regard to HIV/AIDS and environmental awareness.

4.8 Environment

Discussion on the environment and sustainability in strategy and policy papers regarding
SMME sector is centred at creating an enabling environment for small businesses.
Sustainability is seen mostly as financial and economic sustainability as well as organisational
sustainability. Environment is mostly referred to in the context of "regulatory environment"
or "business environment".

The "green environment" and environmental controls are recognised at the policy and strategy
level. However, the approach to environmental protection and environmental regulations is
seen as an adaptation process and awareness building rather than imposing controls. Health
regulations, quality controls, environmental controls are a challenge for the stakeholders in

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SMME development requiring entrepreneurial training and staff sensitising "to live with the
regulations" and "rather than the abolition of regulations". Simplification of regulations is also
important in this regard.

It is true that the whole SMME sector is only emerging but if the environmental protection in
SMME is left only at the level of awareness building and the adaptation to regulations, the
course might be difficult to change later when the SMME sector is more established.
Incremental costs of environmental protection in the prices of products should be foreseen.
The international markets require environmentally "sound" products. In some products,
environmental certification is almost mandatory. Therefore, it is suggested that the service
providers at all levels develop their environmental policies, and environmental guidelines.

The Programme should assist the SEDA to develop its environmental policy and
environmental guidelines. Sub-sector specific guidelines could then be developed by other
relevant stakeholder organisations. Dissemination of environmental information should be
included in the information disseminated through the service provider networks.

4.9 Appropriate technology

The Republic of South Africa is quite advanced in the use as well as development of
technology applications in various industry sectors. Generally, technology is relatively easily
available and prevalent in South Africa. Hence, the Programme should make a concerted
effort to encourage the use of technology and new business applications, which will allow
more rapid productivity improvement within participating organizations. Strive to use new
and advanced technologies is important for achieving the full benefits from the Programme.

In all industry sub-sectors, as well as within the advisory and information service framework,
the use of computer-based applications needs to be encouraged and supported, whether it be
about installing a new accounting and financial management system, specific database
applications, or even more generic office applications. Technology training needs to be an
important part of the training component of the Programme so that the organizations can
move technologically to the next level.

5. ORGANISATION

5.1 Implementing Agency

The Ntsika Enterprise Development Agency was established under the 1995 White Paper to
provide business development services to the small business sector. Specifically, Ntsika aims
to:
• Expand, co-ordinate and monitor provision of training, advice and counselling to small
business
• Support the service providers providing business development services
• Consult with any organ of government or a service provider to facilitate access by
small businesses to:
• Business advice and counselling services
• Inputs such as raw materials and products
• Outputs such as international and national markets
• Strengthen the capacity of small business service providers and small businesses to
compete successfully in the economy

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The NAMAC Trust was established in 1997 through collaborative efforts by the dti, CSIR
and the NPI. It has three main programmes in support of small business development
focussing on manufacturing and franchise support.

Ntsika and NAMAC were merged to one organisation in 2004 to become the Small Business
Development Agency (SEDA) and it will be the Implementing Agency responsible for the
Programme.

The establishment of one central SMME agency was foreseen already in 1995 White Paper,
working under the dti but operating separately from the dti. The agency would consist of
autonomous operational units or subsidiaries each headed by a chief executive officer. The
agency would be a non-profit organisation with a Board of Directors including the chief
executive officers of all the operational units as executive directors and including a Chief
Director from the dti. The Small Business Development Agency has been made up of the
following operational units:

• A coordination unit for one stop enterprise service centres (National Manufacturing
Advice Centre)
• A unit to coordinate sector support programmes (National Manufacturing Advice
Centre)
• A small enterprise export support and procurement support programmes (Ntsika
Enterprise Development Agency)
• A training and information Unit
• A local economic development Unit and
• A coordination unit for incubators (physical and virtual)
• A programme design and administration unit
• A community Public Private Partnership Unit (CPPP)

Each of these units will be funded differently in line with its own business plans but the
overall management responsibility will lie with the chief executive of the Agency and the
Board.

5.2 Executing Agency

Enterprise Development Unit (EDU), in The Enterprise and Industry Development Division
of The Department of Trade and Industry - the dti, will be the Executing Agency.

The dti EDU is responsible for all policies related to the small business sector and all small
business support programmes. The dti governs all organisations receiving funds for small
business support. Funding will be based on agreed upon terms of reference and a shareholder
compact and agreements based on verifiable indicators. The funding for small business
support will continue to be channelled through the dti.

5.3 Supervision and decision-making

The Programme shall establish a broad-based Consultative Group (CG). The CG shall have
the representation of the following organisations:

 the dti/Enterprise Development Unit (chair)

 Embassy of Finland

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 SEDA
 GODISA Trust

Any other organisation may be invited to the CG as external, non-voting members, in the
discretion of SEDA, GoF and the dti .

The SEDA management and technical assistance expert will develop the draft Terms of
Reference for the CG during the first month of the implementation. The CG will adopt the
TOR in its first meeting. The dti Enterprise Development Unit calls upon the CG. The CG
TOR shall include at least submission of annual work plans and progress reports to the joint
meeting of GoF (Embassy of Finland) and the dti, supervision of the implementation,
facilitating implementation, and reporting to government on important issues and lessons
learned during the implementation. The CG shall meet at least quarterly. The CG may approve
minor changes to the annual wok plan, and adjustments to the budget allocation within the
annual approved budget.

The joint meeting of GoF (Embassy of Finland) and the dti meets annually, preferably in
March to approve the progress reports and to decide on the disbursements of the GoF grant.

5.3.1 Funding and financial management

This Programme Document together with the financing agreement will form the basis for
establishment of the Programme. The funding provided by the Government of Finland will be
divided into two parts:

 Budget support
 Contract with the TA service provider

Budget support is not earmarked funds for the implementation of this Programme unless the
new SEDA financial management regulations require that.

The Programme Document and the financing agreement comprise the documents, which will
be submitted to the Treasury for its approval of the Programme and opening of an account for
the Programme in Treasury. When the Programme becomes operational, the Treasury will
transfer the funds received from Finland to the dti to be further deposited to the Programme
specific account. The dti exercises control and supervision of the Programme account.
Control is based on performance reporting and disbursements will be based on annual
performance reporting. The dti will be liable to report to the Treasury.

For the purpose of the financing agreement, this document provides the basis for the funding
period and the funding amount. The financing agreement will stipulate specifically at least the
following:

 The total amount of funding

 The duration of the Programme and timing
 The agreement on the procedures for unused funds at the end of the Programme

SEDA’s financial management unit will be responsible for the accounting and bookkeeping of
both the Finnish and RSA contribution. Once disbursed, there will be no separation of the
funds provided by the programme from the funds provided by the dti.

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The Management Consultant service provider will be responsible for the accounting and
bookkeeping for the international TA cost.

Financial reports will be prepared in Rand and in EUR. The reporting is quarterly and
annually. The financial year is 1st April to 31st March. The annual budgets will be prepared
accordingly.

The Finnish financing will be determined annually; meaning that funds will be replenished
based on the performance based reporting on the rate of achieving the agreed results. The
SEDA auditors will audit the Programme accounts annually as described in the statutes
establishing SEDA.

5.3.2 Sub-contracting and procurement

SEDA will sub-contract national service providers to carry out those tasks which have been
approved in the work plans to be sub-contracted. The Management Consultant will assist the
SEDA to prepare the Terms of Reference for each task to be sub-contracted as requested by
the management and described in the TA terms-of-reference.

Selection of consultants and procurement is based on SEDA guidelines. It is strongly

encouraged that procurement of goods and services will be on cost-quality basis, and procured
through competitive bidding.

5.4 Tentative timetable

The appropriate time to start the implementation would be on November 2005. The
Programme will start with a 3-month Inception (Pre-Implementation) period (c.f. chapter 6).
The duration of the Programme will be 4 years. At the end of the Inception period, the
Programme shall submit the CG the final plan of operations for the whole Programme
duration, and a detailed work plan for the 1st year.

The Technical Advise Component will last 2 years and the International Technical Adviser
will support the implementation for 2 years. There is a possibility that additional four person
months will be reserved for the expert for short-term mission during the remaining two years
of the programme.

6. INCEPTION PHASE

The first three months of the intervention shall be an inception phase when more detailed
modalities for planning, operations and monitoring will be worked out. The main issue is to
develop modalities for performance-based monitoring and building collaborative structures
with relevant institutions in South Africa and abroad. These activities will be commenced
simultaneously with setting up the logistics and practical arrangements for the adviser
working at the SEDA headquarters.

The SEDA management team and the technical adviser will prepare an Inception report for
submission to the dti and Ministry for Foreign Affairs of Finland. This report will present –
but not be limited to – the adviser's work plan for the assignment period, institutional and
organisational arrangements and other issues as presented below.

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The first activity in the TA component is to decide on modalities and procedures for the CTA
for working with the senior management of SEDA and establishing linkages with respective
partners at the dti as well. It is crucial that the CTA becomes an integral part of the
management while maintaining the position of an adviser of non-permanent status.

The performance monitoring system (c.f. chapter 7.1 below) and reporting procedures (c.f.
chapter 7.2 below) will be developed and approved during the inception phase. In addition,
the logical framework will be finalised based on the SEDA work plan during the inception
phase.

It is estimated that at the same time working logistics (office space, IT, etc.) will be arranged
at the SEDA headquarters in Pretoria.

7. MONITORING AND REPORTING

7.1 Performance monitoring

The dti has recognised the need for developing measurable goals and targets for key support
strategies and programmes. Clear goals and targets can be measured with qualitative and
quantitative performance indicators (development indicators). Indicators based monitoring
system will be developed in the inception phase. This system covers SEDA activities at all
levels of operations. Monitoring is not an end in itself but provides information on impacts on
SEDA operations. Monitoring system should be integrated with operational and financial
planning and reporting of SEDA.

Funding to SEDA from both the GoF and the dti will be based on the SEDA meeting the pre-
established performance criteria. The institutional arrangements for disbursing the funding to
SEDA from the dti will be established by the two institutions separately. The core funding to
SEDA from the GoF will be based on annual performance review. The support as such will
not be directed to any specific activities but rather outcomes. During the inception phase the
CTA and the SEDA management will prepare a draft performance assessment framework for
discussion in a consultative group meeting and approval by the GoF and the dti.

It is understood that the performance assessment framework will be based on the shareholder
compact between the dti and SEDA as much as possible. More detailed performance criteria
need to be based on SEDA annual work plans and budgets.

The performance assessment framework set annual performance targets for SEDA. The grant
from the GoF will be disbursed in annual payments based on the performance assessment and
budget forecasts of the SEDA. The first payment will be decided separately in consultation
between GoF and the dti.

The technical adviser together with management from SEDA and the dti will prepare a
framework for performance assessment together with performance indicators for the first
budget year ending March 31, 2006. These indicators need to be finalised during the first two
months after the adviser has taken his position.

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7.2 Reporting

The format and the contents of the monitoring reports will be according to the guidelines
issued by the dti and finalised during the inception phase of the programme (cf. chapter
above).

The following shall, however, be observed in the progress reporting:

1) The SEDA shall monitor the effectiveness of the Programme by

using the designed indicators. The progress reports shall be based on the use of the
indicators to report the achievement of the results.

2) The implementation of the activities shall be monitored by

SEDA, and reported to the CG. The implementation shall be reported in comparison with
the work plans.

3) In order to consider the achieved development impacts of the

programme, it should be possible to categorise data and records by different kinds of
variables, such as gender, age groups, poverty class, size of beneficiary enterprise,
location and sub-sector.

The technical adviser, together with SEDA management, shall present a reporting format for
the use of the Finnish grant.

The adviser will prepare the reporting on the TA component and it covers the activities and
funds flow. The adviser will share the reporting with the SEDA management.

The reporting on the funding component will be prepared by SEDA and submitted well in
advance of the annual consultative group meeting.

The reporting procedures are to be presented during the inception phase of the Programme for
approval by GoF and the dti

7.3 Baseline Studies

In the inception phase it shall be insured that there is enough baseline information about
socioeconomic factors. If needed the Management Consultancy will support the SEDA in
carrying out needed socioeconomic baseline studies, e.g. gender analysis and the poverty
analysis, which covers the scope of this Programme only.

8. EVALUATION

It is foreseen that the dti will carry out a mid-term evaluation of the new strategy. The ex-post
evaluation of this Programme in 2009 may be too early. However, the evaluation will cover
even this Programme. The evaluation report shall be distributed to the Government of
Finland, too. The mid-term evaluation of this 4-year Programme shall take place during the
second half of the 2nd year of implementation. The evaluation shall be a joint evaluation by
RSA and Finland.

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9. BUDGET

Out of the total GoF funding of 6 million euros, 800 000 euros is reserved for the technical
assistance component. The unit costs for fees are all inclusive rates. This TA will be
contracted through restricted bidding or open call procedure. The balance is budget support
through the Treasury to the dti and further to SEDA.

The grant covers the following costs of the TA personnel:

- consultant fee
- accommodation
- travel (domestic and international)
- transportation
- other reimbursable items (e.g. schooling for dependents) as
needed and described in standard consultant agreements.

The SEDA will provide office space, computers and telecommunication facilities for the
expert.

Table 9.1. Budget Summary

€ rand (approx.) 7,95

Core funding 5 200 000 41 340 000 87 %
Technical assistance 800 000 6 360 000 13 %
Total 6 000 000 47 700 000 100 %
N.B. rand figures are only for informative purposes

Tentative TA Component budget is in Annex 2. SEDA's budget can be found from a separate
document.

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ANNEXES
Annex 1: Logical framework
Annex 2: TA tentative budget
Annex 3: Job description for the management consultant
Annex 4: List of other documentation available

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Annex 1 Logical Framework

To be finalised during inception phase

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Annex 2 TA Tentative Budget

annual annual
units costs, €

units à € 2006 2007 2008 2009 2006 2007 2008 2009

Reservation for fees
and contingency 596 480 234 120 234 120 64 120 64 120

Travel, international units 16 1 200 19 200 4 8 2 2 4 800 9 600 2 400 2 400

Moving logistics units 2 5 000 10 000 1 1 5 000 5 000

Accomodation, l/t months 24 1 500 36 000 12 12 18 000 18 000

Schooling months 44 1 500 66 000 22 22 33 000 33 000

Vehicle units 1 20 000 20 000 1 20 000

Accomodation, s/t days 120 200 24 000 60 60 12 000 12 000

Per diems days 120 52 3 120 60 60 3 120

Travel, local lump sum/m 28 750 21 000 12 12 2 2 9 000 9 000 1 500 1 500

Office costs lump sum/m 28 150 4 200 12 12 2 2 1 800 1 800 300 300

Total 800 000 325 720 310 520 80 320 83 440

N.B. figures are only for informative purposes

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Annex 3 Job Description

Chief Technical Adviser  Management Consultant

1. Background
The Government of the Republic of South Africa and the Government of Finland (GoF) are
implementing a support programme for the development of small, micro and medium size
enterprise SMME sector in South Africa. The programme consists of two components: i)
technical assistance (TA component) component and ii) performance based core funding to the
Small Enterprise Development Agency (SEDA, funding component). The overall duration of
the co-operation is 4 years, 20052009.

The TA component consists of one long-term adviser for a period of 24+4 months: first a
continuous assignment of 24 months after which there is an option of four months over the
remaining two years of the co-operation.

2. Tasks
The main task of the adviser is to provide management consulting services to the CEO and
other senior management of SEDA in the following fields.
(f) assisting in strategic planning and operational management of the Agency and in
particular in issues related to the start-up phase and merging of the two predecessor
institutions (NAMAC and Ntiska).

(g) in consultation with appropriate bodies at the dti, assisting in setting up a performance-
based monitoring system for SEDA activities. This is to be used in the detailed
implementation of the shareholders compact between the dti and SEDA. It will also
form a basis for the performance-based funding component from the GoF. The latter is
subject to approval of the CG as described separately in the Programme document.

(h) supporting in monitoring and reporting on the activities of SEDA annually and as
requested by either the dti, GoF or the CG.

(i) provide inputs to the product and methodological development in SEDA related to
knowledge management, strategic planning and sectoral interventions. This will also
include participation in the socio-economic baseline studies.

(j) devising a reporting pattern on the SEDA activities to the GoF. This reporting is to be
based on the standard SEDA-to-dti reporting to the largest extent possible.

Other tasks may be designated by the CEO or the consultative group. Nevertheless, it is
understood that the tasks of the adviser are mainly confined to the institutional development at
SEDA and s/he is not expected to participate in recurrent operational management of the
agency.

The adviser reports to the CEO of SEDA with some administrative and financial reporting
related to the use of grant funds to the GoF.
The CTA is located at the SEDA headquarters in Pretoria with occasional travel in the country.
Occasional duty trips abroad may be required.

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3. Requirements
The adviser is required to have
- at least a post graduate degree (at least Master's) in appropriate field or an MBA from a well
respected institution
- relevant professional experience of at least 5 years in organisational development
- previous professional experience from non-OECD countries
- fluency in written and spoken English
- good interpersonal communication skills, and
- demonstrated ability to work in multinational teams.
It is further advantage if the adviser has
- previous experience in small enterprise development, particularly in developing country
context
- setting up performance-based monitoring systems
- previous work experience from South Africa or the region
- working knowledge of any other official language of South Africa, and
- knowledge on the official development policies of South Africa and Finland.

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Annex 4 List of Documents

 SEDA's Budget / Work plan , the document will be available when it is finalised.
 National Small Business Act, 1996.
 White Paper On National Strategy For The Development And Promotion Of Small
Business In South Africa, Cape Town, 20 March 1995 (Wpa/1995 Notice 213 Of 1995)
 Accelerating Growth And Development: The Contribution Of An Integrated
Manufacturing Strategy
 Development Policy, Government Resolution 5.2.2004, Ministry For Foreign Affairs Of
Finland
 Broad-Based Black Economic Empowerment Act [No. 53 of 2003]
 Financing sources: [Link]

 Small Medium Enterprise Development Programme

 Skills Support Programme
 Import Finance
 Export Marketing and Investment Scheme
 Bridging Finance Scheme
 Sector Partnership Fund
 Finance for the expansion of the Manufacturing Sector
 Techno-Industry Development Finance
 Finance for Textile, Clothing, Leather and Footwear Industries
 Entrepreneurial Mining and Beneficiation Scheme
 Agro-Industries Development Finance
 Tourism Development Finance
 Micro Credit Outlets (KhulaStart)
 Regional equity funds
 Individual Guarantee, Credit Guarantee Scheme
 Standard Scheme, Credit Guarantee Scheme
 Emerging Entrepreneur Scheme, Credit Guarantee Scheme
 Empowerment Scheme, Credit Guarantee Scheme
 Institutional Guarantee, Credit Guarantee Scheme
 Technology Transfer Guarantee Fund, Credit Guarantee Scheme
 Danida Business to Business Programme, Credit Guarantee Scheme
 Kwa Zulu Rehabilitation Trust Fund, Credit Guarantee Scheme
 The Land Reform Credit Facility

 Limpopo Agricultural Development Programme, Programme Document. 9/2002.

 Annual Report, 2003. Ntsika
 Procurement and Business Linkages, 2002. Ntsika
 State of Small Business Development in South Africa, 2002. Ntsika
 Close Corporations: Setting up and running a CC, 2001. Zebra Press
 The Economics of Small, Medium, and Micro Enterprises in South Africa, 2002. TIPS

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 Market Assessment to Establish the need for Business Development Services in

Nelspruit, 2004. BMI Foodback(gtz financing)
 SA Construction Industry Status Report 2004. Construction Industry Development
Board.

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