The MEC responsible for the Free State Department of Small Business Development, Tourism and Environmental Affairs (Destea), Makalo Mohale, tells OFM News that the FDC is going after the assets of businesses indebted to the entity running into the hundreds of millions at this stage. Mohale further explains that a task team has been established to ensure that the entity returns to some resemblance of financial stability.

According to Mohale, the task team consists of representatives from various provincial departments. This is due to the fact that in some of the instances where businesses were unable to pay back the FDC, this was done via the involvement of other departments where cessions amounting to R100 million were made in favour of the FDC.  Mohale says when it was time for payments to be made, those cessions were ignored. Cessions are defined as the formal giving up of property, rights, or territory by the state. The MEC says they are looking at those cessions first.

OFM News recently reported that the FDC has a new board – as of December 2021. Mohale said the FDC management recently presented their turnaround strategy to the executive committee (EXCO) of the province. The strategy entails ensuring that the entity has sufficient liquidity, by recouping money owed to it by local businesses indebted to it, as explained above.

Previously the Auditor-General of South Africa, Tsakani Maluleke, said without a board, the entity cannot improve its financial standing, which according to her report on the audit outcomes of provincial and national departments released in December 2021, is in a state of disarray.

The AG report alluded to issues with the Chief Executive Officer position at the entity, but did not delve into said issues whatsoever. Makalo says "the FDC has always had a CEO to date. It is only the board that was affected by changes. The board has a responsibility to implement the strategy," he explained.

Maluleke and company highlighted some of the revenue challenges that are negatively impacting the FDC presently. For one, the entity earns revenue by leasing out the commercial and residential properties it owns in the province, and also by charging interest on the loans it offers to small, medium and micro enterprises. The entity allegedly doesn’t receive many financial grants from Destea because it is meant to be self-sustaining, but it isn’t. In order to improve its cash flow, the FDC needs to recover its long-outstanding debt from tenants and loan recipients - 96% of which has been deemed irrecoverable. A part of this debt was paid to a billing and collection service provider procured by the FDC.

However, this service provider ended up going into voluntary liquidation, and now owes the FDC over R100 million of the funds recovered.  “The entity should also use its in-house legal department to recover the long-outstanding debts owed by tenants, instead of paying external parties to do so,” said the AG. The cessions Mohale refers to are presumably linked to this unnamed service provider.

OFM News