The Citizen Entrepreneurship Development Agency (CEDA)’s annual general meeting this week heard, from the Chairman’s report, that the group is facing a downward performance on revenue which, if not dealt with, will continue into the future.
The report says among the challenges faced by CEDA as it pushes forward are balancing of the CEDA loan book, investing in viable businesses through the CEDA Venture Capital Fund (VCF), and encouraging banks to collect under the Credit Guarantee Scheme in order to reduce the number of claims coming through.
The cash flow forecast for CEDA Main Fund indicates that the fund will move into a deficit by January next year. This is to be expected as CEDA charges below market interest rates, says he report.
The need for further funding of venture capital is expected to increase due to the citizen economic empowerment initiatives, privatization, expansion of the resources sector and significant regional economic activity.
According to this report, the CEDA Credit Guarantee Scheme has, since its inception in October 2003, guaranteed 262 projects amounting to P83 million. This is over and above the initial 104 under the old scheme, says the report.
To date, both schemes have guaranteed a total of 366 projects amounting to P95 million. For the year ended 31st March 2007, the report says 43 projects were guaranteed compared to 90 projects in the year before. It is stated that the decline in the number of projects guaranteed had been due to the suspension of two participating financial institutions in the last financial year.
Whilst the participation of all registered commercial banks in the scheme brings in encouraging signs, the report highlights that the financial performance of the scheme continues to deteriorate, led by low premiums, increased provisions and a burdensome administration cost. For the financial year 2006/07, the report pointed out that the scheme increased its losses by over P1 million whilst the balance sheet reflects that liabilities have outgrown asserts, raising issues of going concern.
The report highlights that the competition from the established brands have made it difficult for local manufacturers to get a foothold into the market resulting in low sales and hence accumulated losses. Some of the financed enterprises have targeted government procumbent and had found it difficult to penetrate the market due to onerous requirements from procuring entities. The manufacturing sector is expected to struggle more in 2008 as the SADC FTA comes into place and as the drive to liberalize the economy through the World Trade Organization intensifies
It is the company’s hope that the current review on the CEDA scheme together with the subsidiary funds will lead the way in addressing the challenges of the scheme.
The report also highlights a lack of support for SMMEs from government agencies in terms of the current procumbent. It is expected that the citizen economic empowerment study will recommend measures which will encourage meaningful participation of citizens and the developments of SMMEs.
It is CEDA’s view that the conclusion of the study of the CEDA review by the government, which is being delayed at the moment, is of paramount importance for the survival of the scheme.
According to the report, one of the areas which need particular attention relates to the structural difficulties of the CEDA scheme, especially the lack of an equity component in the main line CEDA scheme which management believes would encourage equity participation by locals in foreign firms. This would encourage skills transfers and would be a quicker way to empower citizens, says the report.
CEDA believes that there is a need to separate administration costs of running the scheme from the revolving fund so as to enhance revenue generation measures such as the introduction of appeals fees, administration fees, and increase of promoters’ share of training and mentoring costs. The report emphasizes that there is a need for a general review of the guidelines in order to ensure that they are not restrictive and allow the Board and management to continually review CEDA products and services.