Business, labour and state too big to create work for the small man

Jobs summit failed to come up with the big ideas on small business and how to get this crucial sector going

President Cyril Ramaphosa admits SA will not achieve the unemployment target in the National Development Plan “unless we do something extraordinary”. And yet, by outsourcing such a fundamentally important project as the jobs summit to the National Economic Development and Labour Council (Nedlac) and its by-invitation-only participants, the president has condemned it to the ordinary.

Where were the big ideas? Where were the best and the brightest minds from SA, the continent, the world? Where was the hard discussion about the future of work, AI (artificial intelligence) and the sharing economy? Where was the understanding — humbling as it may be — that big government, big labour and big business have too many vested interests and are too far removed from what it takes to create a job in a market economy?

Instead, we’re told that among other things, the government will “identify existing interventions across government and the private sector and create a coherent platform to enhance access and co-ordination of SMME [small and medium enterprises] support.” Isn’t this what the department of small business development was meant to be doing these past four years?

Many of the summit’s proposals noted in the 84-page agreement (which, by its length, invites people not to read it) are extremely wellintentioned, and some may succeed in having an effect. The main point of departure is that we’re not short on small-scale, imaginative interventions but the solution actually requires a larger-scale fundamental shift in government policy and mindset. The paucity of vision about how we tackle the gushing wound of unemployment makes it difficult to praise bandaid solutions, particularly when there was no voice for the unemployed in the room and no voice for the segment of the economy most likely to create jobs for them: SMMEs.

The Small Business Institute’s research shows that 98.5% of the economy — of all formal, formally employing business — are SMMEs. So while the agreement has a good number of pages devoted to discussions about how to support them, the assumptions underpinning the ideas are based on erroneous facts.

The department of trade and industry’s estimates that 2.8-million SMMEs contribute 60% of SA’s employment guide the interventions. It’s possible that this figure includes some back-of-amatchbox calculation in respect of the informal sector (no details about the calculations were offered), but research we released in July, using National Treasury and SA Revenue Service data, confirmed that only 267,959 formal SMME companies provide formal employment. While they are the majority of companies in the economy, they only account for 28% of jobs.

A single-minded approach to making it easy for SMMEs to start, run and grow to create the millions of jobs we need would be extraordinary. It doesn’t have to be complicated.

In the UK, as part of its government’s growth initiative, the Red Tape Challenge crowd-sourced thousands of responses through a focused webbased campaign, slashing a record number of regulations, yielding a £10bn cumulative net saving to business between 2010 and 2015.

The South Korean government reduced data usage costs and offers young entrepreneurs the free use of dormant or unused public patents; and they are exempted from income tax for three years. Estonia offers an online service to register a business in three hours (it takes 47 days in SA).

The minister of small business development refreshingly acknowledges that red tape has encumbered small businesses in SA, yet the jobs summit agreement refers only three times to red tape, offering no plan to tackle it.

Small business owners can spend nine working days (equivalent to 75 hours) a month dealing with unnecessary forms and bureaucracy. This can equate to 8% of turnover. It is one of the most frequently cited reasons for early-stage business failure.

Regulatory reform must be retrospective and proactive and it is within the minister’s power to act proactively by focusing on regulatory governance. She could immediately table guidelines for giving force to section 18 of the Small Business Act. This would require every cabinet minister to “think small first” by assessing the effect of any law or regulation or policy on SMEs. The EU considers SMEs “prime customers” for business regulation and red tape.

Late payments to small companies came up at the summit, with the government recommitting to paying invoices within 30 days and Business Leadership SA urging its members to do so. Far more constructively, and on the same day, the UK government announced plans to pay SME suppliers within five days to alleviate the cash flow trouble which it estimates causes 50,000 SMEs to fail each year.

The UK government also proposes that corporates appoint independent directors to oversee prompt and fair payment, promote innovative technology to help small companies manage their payments processes, and work with their supply chains to identify best and worst practices in payment behaviour.

Another glaring omission in the jobs summit agreement is any suggestion that SA’s labour legislation undergo review. In the face of the sharing economy and artificial intelligence, the nature of work requires a new flexibility.

One example of how far SA lags behind the times is our fixation on the notion of “permanent” jobs. Section 189 of the Labour Relations Act Amendments stipulates that after three months a temporary job becomes permanent. Internationally the trend is 12 months before job protection applies. Germany is now looking to extend “temporary” work from 12 to 18 months.

In 2011, 25% of manufacturing companies employing 10 to 49 employees and based in Gauteng that were sampled in the SME Growth index employed temporary workers. That fell to 6% in 2017.

Labour laws need to be efficient, flexible and responsive. The world of work is changing and the gig economy is fast translating into an increasingly dynamic workforce. Internationally, temporary workers are acknowledged as “agency workers” or independent contractors. Yet in this country “temporary work” is seen as unattractive and pejorative.

Unless and until the government is able to reverse its antipathy to business, acknowledge the dynamic forces of entrepreneurial innovation and accept the disciplining forces of the free market and competition, SA will never achieve transformative, inclusive economic growth.

The government remains wedded to certain cornerstones of policy and expanding them rather than reducing its role in the economy. Rethinking this approach could dramatically change the business environment.

Without an ideological acceptance that SA needs enterprises and that they need all the freedom required to start, run and grow, there is little chance of solving the unemployment crisis. Interventions are required that nurture SMEs to allow them to do what they do best: create jobs.