Call-in plan to force state to pay its bills
Deal with the Treasury may see political will go all the way down the line, from SOEs to municipalities
SMALL businesses have been over a barrel in their dealings with the state for far too long, says the Black Business Council, which represents many of them.
Under the leadership of “new” CEO Mohale Ralebitso, 44, who was appointed in October last year, it has signed a memorandum of understanding with the National Treasury to set up a walk-in payment call centre for government suppliers that get paid late or not at all for their goods and services.
This has affected 90% of their members and driven many of them to the wall, he says.
Treasury chief procurement officer Kenneth Brown told parliament that the estimated cost to the economy was R100-billion.
Instead of wasting valuable time and resources banging their heads against the closed doors, incompetence and arrogant attitudes of state officials who caused their problems in the first place, they can now e-mail the Treasury to facilitate payment within 30 days.
“If you haven’t been paid and the only people who can help you are those who owe you the money, then the same capacity limitations will manifest when you’re trying to collect,” says Ralebitso. “So it was necessary to extend the oversight of the chief procurement officer’s office so they can intervene.”
Council secretary-general Gregory Mofokeng says the cause of late and non-payments is a lack of planning and capacity in government departments, municipalities and state-owned enterprises.
“At the start of the financial year they have their procurement plans and they are given money to support those plans. But down the road priorities change and the money is not spent on what it’s supposed to be spent.”
Planning and capacity constraints may be easier to fix than a lack of political will, however.
“It’s a reflection of government’s political will to resolve the issue that the chief procurement officer has been given the expanded capacity to exercise oversight and run diagnostics on what the root causes are,” says Ralebitso, who graduated with a BA honours degree from Queens College City University of New York before completing a senior executive programme run by the Harvard Business School and the University of the Witwatersrand.
“We now need this political will to cascade down.”
Says Mofokeng: “It’s very rare to find a company that is paid on time when they’re doing business with government. Large numbers have gone out of business because of this.”
The impact has been devastating, he says.
“People invest everything in their businesses — their houses, whatever assets they have. When they don’t get paid, all of this is at risk. Too often they’ve lost everything as a result.”
The knock-on effect on communities as a result of infrastructure projects not being finished has been “huge”, he says.
A senior executive at Absa and Old Mutual Emerging Markets before being persuaded to head the council, Ralebitso knows all about the “value destruction” that takes place when a business collapses, loans cannot be repaid and assets are lost.
“It takes experienced entrepreneurs out of the game because if they now have a bad credit record they are precluded from re-entering. Their ability to become active again in the economy, which requires leverage, is limited. Their potential as a customer to other businesses is reduced.”
Not to mention the impact on “ordinary workers”, many of whom have taken out loans for houses, become active players in the economy and, of course, have families to support.
Small businesses, commentators and the auditor-general have been flagging the crisis for years, which raises the question why so little has been done.
Ralebitso, who says the failure to pay state suppliers strikes at the very heart of empowerment, blames the legacy of apartheid.
“We’ve all underestimated the scale of transformation and change management necessary to make of ourselves an effective state,” he says.
“We have a state that for a long time wasn’t built to service so many competing needs. Fiscal constraints have prevented government from dealing with the imbalances of the past.”
Others might point to corruption, incompetence and a couldn’t-care-less attitude.
“We’re not discounting that,” he says.
A feature of the crisis has been the “victimisation” of individual businesses that try to secure payment owing to them.
“We’ve seen a lot of that,” says Mofokeng. “The reason people don’t willingly come forward to complain is the fear of being victimised as a company, so that the public sector won’t touch you because when they owe you money you have a tendency to complain too much.”
The call-centre initiative will ensure that entrepreneurs don’t have face-to-face interaction with officials.
“They won’t be dependent on the goodwill of those who owe them money,” says Ralebitso.
“We’ve said let’s institutionalise this so we can protect our budding entrepreneurs.”
A recent report puts South Africa well below other developing countries in terms of entrepreneurship. The culture of late or nonpayment by the state has a lot to do with this, he says.
“It has created a muted appetite in the economy for entrepreneurship.
“If you know of 20 or 30 cases where people have failed because of a contextual issue such as this, why should you take the risk? You’d rather stay in employment.”
Another reason is that corporates are doing too little to provide employees with the skills and exposure that would help them start businesses of their own. And they don’t incorporate those that do into their supply chains.
“Entrepreneurship typically happens where people have built up expertise and relationship networks in a particular sector and then go out into the economy to expand in an area where they have experience,” says Ralebitso.
“We’re nowhere near the likes of Germany, for example, where this kind of thing is a given.”
Ralebitso says the problem of nonpayment will be drastically compounded by a sovereign credit rating downgrade. It will be “devastating” for Black Business Council members and the communities from which they are drawn, he says.
But he refuses to criticise the political leadership that has brought the country to this point.
“We shouldn’t forget it’s the same leadership which is responsible for some of the breakthroughs we’re enjoying.” Breakthroughs? “The work between government, the private sector and labour is a significant breakthrough,” he says.
Is he concerned, then, about ongoing threats to Finance Minister Pravin Gordhan, who has spearheaded this breakthrough?
“We have called for the finance minister to be treated fairly and for that institution to continue to be respected. But we must be careful what we ask for. When reports of Nkandla and other things come out we want the rule of law to prevail. When issues are raised about people in the Treasury we can’t have a double standard and say that some of those issues shouldn’t be ventilated.
“We can absolutely have a view about them being ventilated properly so as not to disrupt the country’s progress, but the rule of law must prevail.”
Predictions that the rand will collapse to R20 to the dollar if Gordhan is dismissed “frighten the hell out of me”, he says.
“But what this says to me is that we must really be cautious that we don’t create a cult of personality to the point where our fortunes are dependent on what does or does not happen with a single person.”
He rejects criticism that the council — whose influential vicepresident, Sandile Zungu, is a long-standing friend and supporter of President Jacob Zuma — is reluctant to hold the government to account.
“We’re just not combative about these things but we’re as firm as they come. Our engagements have been robust. We don’t always agree. The difference is we understand what democracy means: you contest firmly but if you don’t get your way you don’t throw your toys and walk away and label. And damage the goodwill you’ll need down the line to get things done.”
The reason people don’t come forward to complain is the fear of being victimised Our engagements have been robust. We don’t always agree If you don’t get your way you don’t throw your toys and walk away