SMEs need a fi­nance tar­get plan to suc­ceed long term

The Star Early Edition - - OPINION & ANALYSIS - Tommy Stry­dom Tommy Stry­dom is the act­ing chief ex­ec­u­tive of Iny­atsi Con­struc­tion.

AC­CORD­ING to the ANC pol­icy doc­u­ment on ac­ti­vat­ing small busi­nesses and co-op­er­a­tives, many black en­trepreneurs would be more suc­cess­ful if they had some form of tar­geted fi­nan­cial sup­port, such as tax breaks and im­proved mar­ket ac­cess.

Sup­ply chains in the pub­lic and pri­vate sec­tors can be opened up to small- and medium-sized black busi­nesses to reach this tar­get.

A tar­geted pro­gramme to as­sist black en­trepreneurs set up small busi­nesses and co-op­er­a­tives will fill a gap in the as­sis­tance cur­rently of­fered. While cur­rent ef­forts to sup­port black en­trepreneurs are valu­able, it is im­por­tant to con­sider ac­cess to the com­plete range of ser­vices they need to be suc­cess­ful.

Gov­ern­ments should cre­ate in­cen­tives for big busi­nesses to help small and medium en­ter­prises gain a com­pet­i­tive ad­van­tage. Good deals in in­sur­ance and the fi­nan­cial mar­kets, for in­stance, are only avail­able to en­trepreneurs with an es­tab­lished rep­u­ta­tion and sound fi­nan­cial foot­ing. There­fore, the gov­ern­ments should en­sure that projects run cash pos­i­tive to en­able small and medium en­ter­prises (SMEs) to meet their com­mit­ments and build a track record.

SMEs do not have large cash re­serves and need to be paid reg­u­larly and on time to en­sure their fi­nan­cial sta­bil­ity.

Black SMEs are ef­fi­cient be­cause they have a very low over­head struc­ture. But they can­not get the same credit or pric­ing as large busi­nesses and there­fore are un­able to get good deals from es­tab­lished busi­nesses.

Part­ner­ships

The best way to pro­mote black SMEs is to in­volve them in pub­lic/pri­vate part­ner­ships, where the ex­per­tise of the pri­vate sec­tor is in­cor­po­rated into in­fra­struc­ture projects tra­di­tion­ally car­ried out as pub­lic projects, mak­ing them more ef­fi­cient. SMEs of­ten have the re­quired skills for a project and their em­ploy­ees ben­e­fit di­rectly from their suc­cess.

Suc­cess­ful SMEs can use the op­por­tu­nity of­fered by the con­struc­tion of in­fra­struc­ture to in­vest in African coun­tries.

SMEs can also mo­bilise large num­bers of work­ers, in turn spread­ing the wealth and op­por­tu­nity much wider than or­gan­ised busi­ness. There­fore, it is im­por­tant to en­sure op­por­tu­ni­ties for SMEs and black en­trepreneurs to learn the skills of ten­der­ing and pro­cure­ment.

Gov­ern­ments are the big­gest in­vestors in in­fra­struc­ture, so they are key to un­lock­ing the busi­ness po­ten­tial of SMEs. On the other hand, pri­vate sec­tor fund­ing ac­counts for a large por­tion of the funds en­ter­ing de­vel­op­ing coun­tries in Africa from de­vel­oped coun­tries.

Ac­cess to pub­lic pro­cure­ment con­tracts can re­duce the fail­ure rate of SMEs. Gov­ern­ments must en­sure that pol­icy and pro­ce­dures al­low them to en­ter the mar­ket, by ad­her­ing to the prin­ci­ples of the New African Con­tract that is less rigid than tra­di­tional con­tracts.

The New African Con­tract can as­sist the in­dus­try over­come chal­lenges, such as a lack of ca­pac­ity in gov­ern­ment and pro­fes­sional struc­tures tasked to im­ple­ment in­fra­struc­ture projects, which lead to the sub­stan­dard qual­ity of prod­ucts and a drop in in­fra­struc­ture de­vel­op­ment.

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