Speech by Minister Jeff Radebe, Minister in the Presidency for Planning, Monitoring and Evaluation, Chairperson of the National Planning Commission, on the occasion of the Dialogue on Government Interventions to Achieve Economic Opportunities for Entrepreneurs, Emperors Palace, 06 September 2016
Thank you Mr. Programme Director; Industry experts, delegates, members of the business community, and various media houses here present, ladies and gentlemen, I greet you!
As stated in the National Development Plan, South Africa needs to create 11 million jobs by 2030 to achieve full employment. This, ladies and gentlemen, will not be possible if we do not support the small business sector. Government is fully aware of this and it was for this reason that the Department of Small Business Development was established. The central role of a thriving small business sector in the achievement of the NDP goals cannot be over emphasised. For instance, 47% of South Africa’s workforce is employed by the small business sector with about 7, 3 million people. Furthermore, this sector contributes 42% to the country’s GDP. Small business is big business!!!
Indeed many strong economies were built on the back of a strong small business sector. In South Africa, we have devised a lot of support for small business across government in line with the stated objectives in the NDP. This support takes many forms, from grants, tax breaks and preferential procurement built into various incentives and legislations. However, we have various rules and practices which can disadvantage small business such as red tape and in particular lack of adherence to the payment period, which is 30 days from receipt of a valid invoice. In this regard, small businesses remain vulnerable and disadvantaged against realising the potential to contribute to growth and employment.
Ladies and gentlemen,
I am here to say to the small business community, government is aware of your frustrations and understands your plight. You are a very important stakeholder in the fight against the triple challenges of unemployment, poverty and inequality. We will continue to put measures in place to ensure a more favourable environment for your sector to thrive.
In terms of the Public Finance Management Act, Municipal Finance Management Act and Treasury Regulations, it is a very serious offense not to pay suppliers within the stipulated timeframe of 30 days. Government has, over the years, augmented these legislative requirements with other measures such as Instruction Notes and further reporting requirements.
The Treasury Regulations for departments, and constitutional institutions, public entities, Parliament and provincial legislatures, issued in terms of the Public Finance Management Act, 1999 National Treasury Republic of South Africa March 2001 is succinct on the 30 day period and declares as follows:
“8.2.3 Unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from the date of a statement which reflects all invoices, payments and credits and, in the case of civil claims, from the date of settlement or court judgement.
8.2.4 Where creditors have not been settled within the period prescribed in paragraph 8.2.3, a report must be forwarded to the EXCO and to the relevant treasury stating reasons for the non-compliance.”
Since Accounting Officers sign performance agreements with the Executive Authorities, it is very important that the reports forwarded to EXCO result in serious consequences where those neglecting their duties are charged and penalised.
The matter has further been elevated to the highest level of leadership in government, with reports on progress being tabled at the meetings of the Forum of South African Directors-General. Government has indeed adopted a very tough stance on this issue and non-compliance by errant departments will not be tolerated any longer.
On 17 April 2015, government announced the establishment of a Special Unit in the Department of Planning Monitoring and Evaluation (DPME) to tackle the problem of non-payment of suppliers within the required 30 days. The DPME Special Unit operates in a trilateral cooperation with National Treasury and the Department of Public Service and Administration (DPSA). The DPME is also working with the Department of Small Business Development, in particular the Small Enterprise Development Agency (SEDA) on payment of suppliers.
Since its establishment, the Special Unit has attended to and resolved hundreds of queries on non-payment and facilitated payment to suppliers of over R168 million. The spotlight that has been put on this issue has resulted in improved level of compliance and the peer pressure that is exerted through various forums in government has seen many departments put measures in place to improve compliance.
According to the records of the parliamentary hearings on the 30 day payment policy and the challenges faced by various business entities, the following excerpt summarises one typical experience on the impact of non-compliance on the 30 Day period:
“Ms Sindisiwe Mbenje, Director, All Connections, had experienced various challenges in getting payment from government. She had started her business in catering, and it had taken 120 days to get a payment of R2 500 in 2008, before she got into the training in water reticulation and waste management business. At present, there were some municipalities she no longer did business with because when she claimed her money, she was victimised and excluded from future business. While governments wanted to build small businesses, it was also destroying them through late payment for services provided. When a company was not paid in over 120 days, it affected the business and family and everything connected to it. The 30-day payment to her was still very long -- small suppliers should be paid within 14 days. There were government departments that did that, and some municipalities paid 50% as a forward payment when one got a contract.”
Whilst the 30 day period is a general guide on the limits, it is clear that it is desirable that payments must in fact be done within a few days of the receipt of invoices to enable optimal running of businesses.
Some of the challenges facing the Special Unit relates to systematic issues, non- adherence to Supply Chain Processes, poor financial management, contractual disagreements, lack of documented processes (Standard Operating Procedures), bad culture in the public sector, subcontracting matters, lack of capacity and so on and so forth.
However, as of June 2016, the number of legitimate invoices paid after 30 days were 17 668 to the value of R340 million. This figure is high compared to June 2015, where 13 803 invoices to the value of R224 million were paid after 30 days.
Of serious concern is the number of invoices older than 30 days that remain unpaid. In this regard, as at June 2016, national departments had a total of 12 870 invoices to the value of R62 million. Compared to June 2015 the total number of invoices older than 30 days that remain unpaid were 4 543 to the value of R410 million.
Ladies and gentlemen,
Let me state upfront that this problem is not unique to South Africa. Neither is it unique to the public sector. The private sector is just as guilty. Government has taken extraordinary measures to address this issue because of its adverse impact on the small business sector and the economy as a whole. The DPME has also been documenting good practices from departments that are doing well to share with the rest of government. Some pockets of excellence that were identified through our monitoring programmes include instances where some departments are paying suppliers within 4 days. These good practices have been shared with other departments to encourage them to do the same. The unit has received letters of gratitude from suppliers that were paid after its intervention. This is a demonstration of government’s resolve to addressing the plight of small business.
The DPME is further monitoring annually via the Management Performance Assessment Tool (MPAT), whether national and provincial departments have the required invoice tracking and reporting systems in place and whether investigations and appropriate actions are initiated where invoices are not paid within 30 days.
We have seen a consistent improvement in the setting up of systems to enable the adherence to the 30 day payment, the pace of the improvement is however still not adequate at this moment. Some testimonies of gratitude as a consequence of the strides we are making on the 30 day payment policy signifies the fact that whilst challenges abound, some positive results yielded inspire further action.
Tshego Motaung from Babereki Consulting Engineers had this to say:
“We really appreciate what your leg of government has done for us. We are at loss of words to tell you how thankful we are”
Ofentse Ribane of Elt-Pro Transcriptions had the following to say:
“We are very grateful for the great service that you have done us”.
And lastly, Simthembile Bantubani from Mayibuye Africa also expressed gratitude to the improvement in such payments:
“On behalf of my company I would like to take this opportunity to thank the department for resolving this matter. I wish and hope that there has been lessons learnt by the municipality with regards to the matter and that no small business should suffer the same fate we did as other small businesses cannot last for this long without payments”.
These testimonies inspires us to do even better, as we know too well the consequences of delayed or non-payment of procured services could mean such businesses could face liquidation. We are the first to concede that much is as yet to be done to ensure all departments in all three spheres of government and State Owned Enterprises adhere to the 30 day payment policy.
Whilst these are encouraging developments, we are cognizant that others are depressing. I am also acutely aware that there are some of you gathered here today, that have not had a good experience in your dealings with government institutions. To you, I say it is not government policy not to honour financial obligations, and measures are afoot to intensify our efforts in this area. This includes the review of legislative frameworks by the National Treasury and the creation of debt forums by provinces to facilitate sharing of good practice and address systemic issues.
The DPME special Unit together with its partners is rolling out a targeted support programme to the identified struggling departments. This intervention is in a form of visits and includes conducting inspections at the identified departments to understand and address the challenges that lead to non-payment or late payments of suppliers. During these visits, the entire value chain of payment of invoices is assessed, blockages are identified and departments are assisted in putting improvement measures. The visits are also meant to share best practices and obtaining commitment from Chief Financial Officers and Accounting Officers on improved compliance with payment of invoices.
In addition, as part of government’s collaborative efforts, my department and the National Treasury have devoted more resources to the efforts of addressing the challenges of payment of suppliers. To this end, a walk-in centre has been established at the National Treasury offices to attend to the suppliers’ queries. Queries from suppliers are being shared between the two departments. A number of measures that have already been implemented by the Office of the Chief Procurement Officer, such as the Central Suppliers Database will go a long way in eradicating blockages in the payment processes by departments. The increased focus on payment of suppliers has also brought to the fore many other issues that are plaguing the small business community, such as access to funding, the need for support and the often difficult business environment within which they operate.
In the process of attending to the queries on payment of suppliers, the DPME Unit has come across very unscrupulous practices by big business. There are numerous cases where government institutions have duly paid the invoices but the main contractor refuses to pay the sub-contractor money due to them. We have also noticed with great concern governments’ flagrant abuse of the Office of the State Attorney instead of committing to finding amicable solutions to disputed invoices before they waste the taxpayers’ money in the legal processes. Ladies and gentlemen, these practices are not in line our values of a caring government and will not be tolerated.
Part of the strategy to support suppliers that do business with the state, ladies and gentlemen, is to educate them about government’s procurement and payment processes. This will help them to highlight instances of abuse and corruption in the payment process. Government has committed itself to rooting out any corrupt practices that are meant to take advantage of small businesses.
I call upon members of the business community here present to report any instances where they have been asked for bribery to expedite their payments. Any officials who are found guilty of any transgressions will face the full might of the law. Notwithstanding the vulnerable position that service providers find themselves in, they should not allow themselves to be partners in the commission of crime.
In conclusion, I want to once more reiterate the critical role of small business in the development of our economy and to assure you that, government will be exploring other ways in which the current efforts can be strengthened. Your contribution in this regard is always welcome.
My department, in collaboration with the Department of Small Business Department, will be conducting a study to understand the impact of non-payment on the small business community, and the economy as a whole. This study will help us to respond appropriately to the challenges facing the sector. Again your contribution in this regard will be crucial as it will be informed by real sector experiences.
Government will continue to use platforms such as this one to engage with the business sector. We will welcome any contributions by the small business community that will assist government to improve its responsiveness to the challenges on payment of suppliers. We will continue to search for solutions and tighten the noose around corrupt officials. I call on you to partner with government as we work towards the attainment of the goals of a prosperous nation as enshrined in the Constitution and our socio-economic blueprint the NDP.
There are many ways in which civil society can contribute towards attaining the goals stated in the NDP. The organisers of this conference, All Africa Events Confex have in their own ways contributed in this regard as the role of small business is critical to the attainment of the NDP objectives against the trio challenges of poverty, unemployment and inequality.
I would like to express our gratitude as government to Ms Augustine Masilela Chuene and her team, for this contribution towards a better comprehension of the challenges faced by the private sector in general and the small business sector in particular, in the context of government procurement. Our aims remain the resolution of all bottlenecks impeding a mushrooming small business sector.
Others such as Dorah’s Dancers in Soweto have come up with very creative artistic ways to inculcate the message of our concerted efforts towards the realisation of the NDP’s objectives. Everyone has a role to play to make South Africa a better place and small businesses are a major sector in this regard. That is why we have dedicated this conference session on unblocking the bottle necks occasioned by delayed payments in all procured goods and services by government. It is our view that government must play a Developmental State role of leveraging business against the backdrop of the trio challenges enlisted in the NDP, hence delayed payments run against such policy objectives.
TOGETHER, WE MOVE SOUTH AFRICA FORWARD.
I THANK YOU!
