THEBE MABANGA
THE process of reviving South Africa’s economy following the devastation of COVID-19 offers the country an opportunity to focus on Small Medium and Micro Enterprises as drivers of growth.
But without economic reform and a commitment by both government and the private sector, growth and job-creation driven by SMMEs will remain a pipe dream.
President Cyril Ramaphosa’s Reconstruction and Recovery Plan offers much for small business, especially if government and large private sector companies play their part, because a thriving SMME base requires large customers — government and private companies — to offer contracts and tenders and pay small businesses on time.
Since becoming a democracy, South Africa has promised much but delivered very little by way of assisting small and medium sized businesses.
It is now time to match words with policy and action.
Qualifying Small Enterprises, or those that make R5 million a year and Emerging Medium Enterprises, those above the R50 million revenue mark, need and deserve more support.
A key weakness of the South African economy is that it is biased towards large businesses and is characterised by concentrated ownership patterns and dominated by large suppliers whether its Eskom in electricity and transport in logistics or Sasol in chemicals and fuels, even negotiating rentals at a mall favours bigger player who is an anchor tenant rather than a small florist or biltong merchant.
“We welcome the plan – better late than never,” says John Dludlu, CEO of the Small Business Institute (SBI).
“We hope the time it took to finalise it is no indication of the pace it will take to implement it.”
The plan has time frames that range from the next six month to 12 months, and slightly beyond.
Dludlu says the SBI welcomes the recognition of small and medium-sized enterprises (SMEs) and co-operatives as co-engines of the reshape the economy.
“Without thriving SMEs – both formal and informal ones – we’re doomed to repeat the pre-Covid history of low, jobless growth,” says Dludlu.
The recovery plans relies heavily on the New Development Plan (NDP) which envisages, amongst other goals, that SMEs should be generating 90% of new jobs by 2030.
South Africa has gradually been improving the environment for small business as shown by the country’s improvement in the World Bank Ease of Doing Business Index, where measures such as setting up a business with a bank account and tax clearance can now be done in a few days.
But many challenges remain.
Areas such as the application of zoning permits and water licences, even prospecting and mining licences, still take an inordinately long time and government has been urged to reduce these from period of up to 18 months to weeks if not days in some instances.
Studies such as the Global Entrepreneurship Monitor show that Total Early Stage Entrepreneurship Activity, or involvement of starting up a business by a working age adult, stood at 10.77% in 2019, below the regional average 12.98% and well below the 14.92% enjoyed by middle-income countries, most notably in Asia.
Too few people start businesses in SA, and those who do, are survivalist entrepreneurs escaping the country’s high unemployment rate.
“Amongst the good things to have come out of this pandemic is the spirit of solidarity and the commitment to SMEs – both in words and in actions – by the private sector as well as government,” says Dludlu.
But he laments the failure of the R200 billion Loan Guarantee Scheme, which had an uptake of less than 20% – mostly prime customers – and did not reach many of the intended beneficiaries.
The failure is the latest illustration of how SA fails its small businesses.
Just as the SA Reserve Bank tweaked the conditions to allow a longer payment holiday from three t six months and remove the R300 million revenue threshold of who should apply, there is no reason government cannot relax the condition even further and even turn potions of the loans into grants to keep small businesses afloat.
Dludlu notes that what has succeeded during COVID-19 has been grants rather than loans, whether to small business or to individuals and has urged these to be maintained.
In a ground-breaking review of about 200 papers, studies and surveys on the impact of COVID on SMMEs, the SBI found that as many as 55 000 small businesses may not make it through the pandemic.
Many of the economic reforms that government has been urged to undertake will benefit small businesses.
From resolving load-shedding to managing the cost of water and electricity, to reducing the cost of data and telecommunications by auctioning the spectrum and addressing rail and port fees for importing and exporting companies, this is all geared towards reducing the cost of doing business.
This makes it all the more urgent that the reforms be speedily implemented.
Dludlu notes that the private sector has a crucial role to play in supporting SMMEs.
“We are also urging the private sector to keep up the momentum of campaigns such as paying SMEs on time,” he says.
Government must also use its Development Finance Institute to better support SMME.
At the start of the COVID-19 pandemic, the National Empowerment Fund announced a R200 million fund dedicated to SMMEs that supplied COVID emergency supplies as well as food and medication.
The Industrial Development Corporation (IDC) with a much bigger balance sheet set up a R300 million relief fund for companies that make less than R50 million in revenue.
The funding can be in the form of a revolve credit facility, working capital as well as asset based finance.
DFI must now gear up to take an even greater risk to assist SMMEs in distress post-COVID.
One area that has proven elusive for small business has been that of infrastructure.
Large projects tend to be awarded to large companies with SMMEs benefiting only as subcontractors.
The SBI has urged government to “think small, first” in project preparation for the infrastructure programme.
“Projects must be packaged in sizes that are chewable for SMMEs and co-operatives, not biased toward big business and multinationals,” says Dludlu.
A related area that government has not properly implemented has been the Industrial Policy Action Plan now under its third minister in Trade and Industry Minister Ebrahim Patel after having an earlier version developed by Mandisi Mpahlwa and overseen in various iterations for a decade by Rob Davies.
Apart from frequently arguing that it needs more resources to implement properly, IPAP has never really delivered much for small businesses.
It is time for proper implementation or a total redesign geared at smaller players.
Dludlu says he lastly welcomes the plan to revitalise small town economies by investing in their infrastructure small roads, dams, and branch railway lines and creating localised job opportunities in the process.
(COMPILED BY INSIDE POLITICS STAFF)
