Business

A capable state to support small business

2019-03-21 14:19

The state needs to ‘think small first’ and to remove obstacles for SMMEs, writes Sipho Nkosi

President Cyril Ramaphosa has placed inclusive growth, transformation and job creation at the centre of the government’s agenda.

One of the key enablers of this vision is a capable state envisaged in the National Development Plan (NDP).

The Small Business Institute welcomes the opportunity to make proposals on behalf of the small and medium enterprise (SMME's) segment about how to better support this all-important part of our economy.

The NDP expresses an important aspiration: That is, by 2030, 90% of all jobs should be created by small, medium and micro enterprises (SMMEs).

This would put us in the same category as progressive economies that have managed to credibly address unemployment, poverty and inequality.

In our country, however, we have a peculiar situation. According to South Africa’s first baseline study on SMMEs, 98.5% of all registered businesses in the country were SMMEs and yet they created only 28% of jobs; 60% to 70% is the international norm.

The CEO Initiative’s Small, Medium Enterprise (SME) Fund calculates that to achieve the NDP target of 6% unemployment and 11 million jobs by 2030, South Africa needs 49 000 SMEs growing at a rate of 20% a year.

Read:It's in our interest to support start-ups. Here's why (and how). 

And yet, medium-size enterprises, which create the most jobs, are neglected by policy and private sector initiatives in favour of start-ups and incubators.

We have only 17 397 medium-size firms in South Africa. These have increased from 15 257 in 2011, but far too slowly.

Consequently, we are nowhere near achieving the NDP aspirations.

Numbers from the trade and industry department show an even more concerning story: More than 70% of new businesses fail in less than two years.

Research from the Enterprise Observatory of SA highlights data from the South African Revenue Service showing that 31 companies with taxable income of less than R10 million shut their doors each week.

Minister of Small Business Development Lindiwe Zulu has said there is about R15.5 billion available in the government SMME support of various kinds.

This does not include the SA SME Fund and what commercial banks and development finance institutions provide this segment of the economy.

The preceding statistics show that South Africa is a country of big things (big government and big business); our SMMEs are not properly supported to play a role as job creators and contributors to GDP and tax income; and, chillingly, maybe funding isn’t necessarily the problem but access to it might be a critical constraint.

We also have to question whether “support” is sufficiently mindful of the need to reduce barriers to entry, to growth and to employment.

What then is to be done?

This year, as part of the continuation of our baseline study, we will explore the characteristics of SMMEs – race, age, gender, types of enterprises, contribution to GDP and employment; their distribution – provincial, sector and industry, formal, emerging formal, self-employed and informal – industry dynamics and operating constraints.

A key component of the study is to conduct road shows and town hall meetings throughout the provinces to consult with – and hear – the challenges and aspirations of SME owners.

Another important component is the study’s high-level Advisory Panel, a brains trust of top-level business leaders and government policymakers, including leading international experts who will explore and develop fresh, modern, market-driven solutions for SMEs in areas such as finance, markets and competition, and redesign the support framework for SMMEs and the business environment.

Big business and the government are invited to join this endeavour so that future interventions are based on facts and evidence to better ensure targeted success

This work is part of our contribution to the spirit of Thuma Mina.

In May, it will have been five years since the creation of the small business development department. It was in part created in response to calls from black business organisations in the hope that a dedicated department would alleviate their plight.

In this time the profile of SMMEs, as a segment, has been raised with new definitions for what constitute SMMEs. Each department and government agency now needs to apply the same definitions to its programmes.

Five years down the line, however, the lot of small business has yet to improve manifestly.

Minister of Small Business Development Lindiwe Zulu has said there is about R15.5 billion available in the government SMME support of various kinds.This does not include the SA SME Fund and what commercial banks and development finance institutions provide this segment of the economy.

We still have a long way to go. State departments and state-owned enterprises continue to stifle SMMEs by requiring them to spend up to 75 hours a month and 8% of turnover addressing layers of regulation; cash flow is strangled by late payments; and our local business chamber members are discouraged by the many dysfunctional municipalities which reject their offers of collaboration.

Ideally, we need the cabinet to “think small first”.

To do this, the minister should give effect to all provisions contained in section 18 of the National Small Business Act, specifically, the issuance of guidelines to government on the promotion of small businesses.

These include procedures for the review of the effect of existing and new legislation on SMMEs and procedures for consultation with stakeholders on new or proposed legislation affecting small business.

Coordinating the work of ministerial peers isn’t an easy thing. We are aware of instances where the department’s coordinating efforts have been stymied by turf wars by other state departments.

We are nervous that aggregating all economic-related functions under a single supereconomic ministry would subordinate support for the SMME segment.

Instead, our humble view and proposal is that we should rethink our approach to SMMEs.

We propose that instead of insisting that small businesses are a stand-alone sector rather than a component of every sector in the country, the work should ideally be housed within a reconfigured presidency to direct and oversee the work of all state departments and agencies and to ensure that the “think small first” mantra is embedded across the state, removing obstacles for SMMEs to start, run and grow becomesa national priority.

We believe the conversation about new ministries is an ideal opportunity to place SMMEs at the centre of our growth and job creation efforts.

Nkosi is chairperson of the Small Business Institute

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August 18 2019