Brian Benza
23 October 2007
Poor loan repayments and high operational costs are cripling CEDA at such a rate that the citizen empowerment driver is likely to go to the wall before the New Year. This grim picture is painted by the chairman of the Citizen Entrepreneurial Development Agency (CEDA), David Magang, in his annual report for 2006/2007 in which the small business sector comes in for special assessment.
Magang says it is regrettable that government has no clear-cut policy on the development of small and medium scale enterprises (SMEs) which are reeling from heavy losses resulting from low sales, as they cannot compete with established brands, making it very difficult for them to get a foothold in the market.
"Some of the financed enterprises had targeted government procurement and have found it difficult to penetrate this market due to onerous requirements from procuring entities," he says.
Cheaper imports have exacerbated the situation of the new entrepreneurs, rendering their businesses unviable and leading to high loan repayment defaults.
Consequently, CEDA faces a bleak future if there are no new initiatives to enhance revenue generation and balance the loan book.
The downward performance on the revenue side is expected to continue, while cash flow forecasts point to a deficit by January 2008.
"This is expected to be as CEDA charges below market interest rates, while management costs weigh down on the fund as these are sourced at market rates," Magang says.
Addressing a press conference last month, CEDA CEO Thapelo Matsheka said the agency was facing cash flow and viability problems, which could force it to make a request of P25 million in bridging finance to take it to the end of its financial year in March next year.
The citizen economic agency has exhausted funds amounting to P600 million it received from the fiscus in 2003.
CEDA's capacity for further loans, which are run on a revolving basis, has been crippled by the poor rate of repayment, while operational costs have also gobbled up about 13 percent of its budget.
As a possible remedy, the chairman says government should consider separating the agency's administration costs from the revolving fund. "We also believe that there is a need to enhance revenue generation measures," Magang says.
"There is also a need for a general review of the guidelines in order to ensure that they are not restrictive and to allow the board and management to continually review CEDA products and services."
Despite the seemingly unassailable challenges the agency is facing, its subsidiary the CEDA Venture Capital Fund(VCF) is performing well, with its initial capital of P200 million almost fully committed.
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