Hundreds of millions of rands in public funds have been wasted as key government development funders lurch from crisis to crisis, stalling the disbursement of crucial money.
The National Empowerment Fund’s chief executive, Sydney Maree, has been suspended — less than a month into his job — while Khula and Ntsika Enterprise Promotion Agency , the two main agencies formed to boost small and medium enterprises, are under renewed political attack as ineffectual. The National Development Agency (NDA) is under the curatorship of the Ministry of Social Development after suspending its second chief executive, Delani Mthembu, in three years.
Committed to finding more creative ways than social grants to fight poverty, the government has put significant funds into development agencies — but the returns have in the main been minimal (see table).
This has culminated in calls for some of the agencies to be closed because of their inability to fulfil their mandates of developing entrepreneurs and effectively reducing the national poverty rate.
Three core problems have emerged: corruption and mismanagement; disruptive changes in leadership; and changes in raison d’être or mandates. Agencies are stuck in perpetual restructuring.
With a budget this year of about R200-million, the NDA has been under pressure to disburse these funds to needy communities.
Director of strategy Thami ka Plaatjie said the NDA was starting to sharpen its focus. He said it would scale down funding for some non-core projects such as crèches, which were being funded by other government departments.
While the crisis-ridden NDA has made most headlines, political pressure on Khula and Ntsika is building. Minister of Trade and Industry Mandisi Mpahlwa warned in his budget speech last month that government agencies that were not delivering should not expect support from the government.
Ntsika is the first to feel the pinch, with a merger with the National Association of Manufacturers Advice Centres planned before the end of the year.
The African National Congress Youth League has called for the dissolution of Khula and Ntsika, arguing that the role played by developmental funding has been dismal. “Both Ntsika and Khula and other statutory bodies such as the Industrial Development Corporation have thus far failed to provide innovative leadership and strategies in real terms to integrate many small business aspirants,” the league said in a discussion document drafted for its forthcoming congress.
Ntsika was set up to provide non-financial support and business development services to small, medium and micro-enterprises (SMMEs). According to an Ntsika training consultant, the agency has come under fire after the collapse of a numerous projects it helped set up.
Khula was formed after a 1995 conference on the state of SMMEs in South Africa. The agency has not been effectively partnered by the banking sector and is now acting as an effective lending institution instead of a loan guarantor.
Xola Sithole was appointed at the end of last year to fix the institution. In his assessment to Parliament last month, it was clear Khula still has a long way to go. Operating expenses are running at twice that of core revenue. A significant percentage of businesses supported by Khula have gone bankrupt.
Trade and Industry Director General Alistair Ruiters said this week that “to say that [Khula] has been turned around is premature. But Xola Sithole has a clear understanding of the organisation’s weaknesses.”
Barrie Terblanche, editor of small business publication Big News, said Khula lost millions because it mistook business development for poverty relief.
“In some instances they were helping provide finance to ultra-poor, unskilled people who had no prospect of success. Where they have been successful is where Khula has subsidised viable businesses. The mistaken belief was that survivalist business is the same as growable business.”
Terblanche says Ntsika faltered because its founding mission was faulty. “The premise was that if you can’t find work, then start a business — without appreciating that it is 100 times more difficult to run a business than to find work.”
The latest agency in crisis is the National Empowerment Fund (NEF), relaunched at the beginning of June. It had seemed the fund finally had the funding and product mix necessary to stimulate black empowerment, reported the Financial Mail. With an asset base of R4-billion, it planned to provide loans of between R250 000 and R1-million, growing to R10-million for bigger deals.
“Investigations at the NEF are proceeding,” said Ruiters, but “they mean nothing for the institution’s effectiveness. The board, which spent a lot of time rethinking the institution, is very active in implementing the changes.”
Though it regularly comes in for a drubbing, the Umsobomvu Youth Fund appears to be doing the best job of the bunch. It has managed to spend R470-million of its R1-billion core funding on a range of interesting projects and businesses.
But it did not escape ANC Youth League censure — the fund could be doing a lot more, the league said. It also came in for criticism from opposition political parties last year when it donated R2-million to the ICC Cricket World Cup.