Eco­nomic re­al­i­ties must drive re­quired small busi­ness sup­port

I quickly ac­cepted an in­vite to at­tend the State of the Na­tion Ad­dress (SONA) be­cause like all South Africans, I ex­pected some fire­works from this year’s in­stal­ment. I was also in­ter­ested in how the pres­i­dent would deal with the is­sue of elec­tric­ity and w

Finweek English Edition - - OPINION - BY ANDILE KHU­MALO

devel­op­ment f inance in­sti­tu­tions to sup­port en­trepreneurs and SMMEs. It was re­ported that the Na­tional Youth Devel­op­ment Agency ( NYDA) had dis­bursed a mea­gre R25m to 765 youthowned mi­cro en­ter­prises in the last fi­nan­cial year.

The pres­i­dent then made ref­er­ence to the NYDA, Industrial Devel­op­ment Cor­po­ra­tion (IDC) and Small En­ter­prise Fi­nance Agency (SEFA) R2.7bn Youth Fund part­ner­ship, with SEFA putting up R1.7bn of the fund­ing and the IDC con­tribut­ing R1bn. This part­ner­ship was ini­tially an­nounced in Au­gust 2014.

The fact that the NYDA has dis­bursed an av­er­age of R33 000 per SMME is nowhere close to ad­e­quate sup­port and is no rea­son for cel­e­bra­tion. Set­ting up a R2.7bn fund is one thing. Dis­burs­ing th­ese funds to de­serv­ing and qual­i­fy­ing busi­nesses is an­other. It’s been six months since the launch of the part­ner­ship be­tween the NYDA, SEFA and IDC. I ex­pected a more de­tailed up­date on progress made by this fund, not just a re­gur­gi­ta­tion re­gard­ing its estab­lish­ment.

Any­one who has met SEFA CEO Thakhani Makhu­vha will tell you about a man who is pas­sion­ate about his job. He is clear about the role of SEFA in a de­vel­op­men­tal econ­omy and doesn’t try to com­pete with banks and other lenders. He stresses the “greater than nor­mal risk” that SEFA takes on in pro­vid­ing en­trepreneurs with loans rang­ing from R500 to R5m in value. Most of his ap­pli­cants have no se­cu­rity and his or­gan­i­sa­tion does not mind that. There is, how­ever, one re­quire­ment: the busi­ness must be ‘sus­tain­able’.

The avail­abil­ity of cap­i­tal for small busi­nesses is not, in it­self, enough to sup­port en­trepreneurs and SMMEs – es­pe­cially in the cur­rent tough eco­nomic times that the pres­i­dent so ac­cu­rately cap­tured in the open­ing re­marks of his ad­dress.

It is no se­cret how much pres­sure the South African con­sumer has been un­der in re­cent times. A tough 2014 saw our GDP grow by a de­press­ing 1.4% and the spec­tac­u­lar fail­ure of African Bank, the largest un­se­cured lender in the coun­try, as con­sumers strug­gled to ser­vice debts raised to f und con­sump­tion. Un­til re­cently in­fla­tion has hov­ered just un­der the 6% mark, the rand has re­mained weak against ma­jor cur­ren­cies, and the min­ing in­dus­try has had a tor­rid three years with the lat­est threat com­ing from ex­tended labour strife. Com­mod­ity prices have also plum­meted to record lows.

The re­al­ity is that most SMMEs have not been able to cre­ate ‘sus­tain­able busi­nesses’ in re­cent times, and re­quire some risk cap­i­tal to help re-ig­nite or sus­tain their strug­gling busi­nesses.

Even with the pres­i­dent’s pledge for gov­ern­ment to set aside 30% of cer­tain cat­e­gories of state pro­cure­ment for pur­chas­ing from SMMEs, co­op­er­a­tives, town­ship and ru­ral en­ter­prises, eco­nomic times will re­main tough. There won’t be too many ‘sus­tain­able small busi­nesses’ out there in this eco­nomic cli­mate. There will be many who are strug­gling to pay salaries, ful­fil or­ders and who may be forced to re­trench work­ers – th­ese are the SMMEs that re­quire sup­port now.

Pol­i­cy­mak­ers must cre­ate in­ter­ven­tions that are driven by the eco­nomic re­al­i­ties small busi­nesses op­er­ate in, not ide­al­is­tic no­tions. What we need is holis­tic sup­port for small busi­nesses experiencing a tough trad­ing en­vi­ron­ment in a slow econ­omy, and ini­tia­tives to en­sure they trade through this cli­mate – per­haps that way, we will get out of this slump with ‘sus­tain­able’ busi­nesses to be proud of.

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