SME fail­ure has to be ad­dressed

The Star Early Edition - - LETTERS - Sfiso Memela

SOUTH Africa is awash with job­less peo­ple with un­em­ploy­ment cur­rently es­ti­mated at 40% by Stats SA, of which 52% are youths.

This we all agree is un­ten­able and po­ten­tially dis­as­trous for the sta­bil­ity of the coun­try.

There is con­sen­sus across the spec­trum that the ma­jor­ity of new jobs will come from the SMEs sec­tor.

Gov­ern­ment has been pres­surised enor­mously to sup­port SME de­vel­op­ment to a point that a spe­cific min­istry for small busi­ness was set up by the fifth ad­min­is­tra­tion in the hope that it would fo­cus on the many chal­lenges per­pet­u­ally stag­nat­ing SME growth.

In 2007, a study by SEDA – a DTI sub­sidiary – indi­cated that SA has 75% SME fail­ure, which is the high­est in­ter­na­tion­ally.

At such a stag­ger­ing rate of fail­ure, if SMEs are to cre­ate 6 mil­lion jobs by 2025, we would need to pro­duce about 6 mil­lion new start-ups and be­lieve that 25% of those will suc­ceed.

SME chal­lenges range from a num­ber of is­sues eg the cost of do­ing busi­ness (just get­ting an en­tity reg­is­tered is costly and takes un­nec­es­sar­ily long), to ac­cess­ing cap­i­tal at a speed that en­ables th­ese en­trepreneurs to lock in op­por­tu­ni­ties be­fore they move on.

But, the big­gest ele­phant in the room in terms of stum­bling blocks is poor pay­ment of SMEs by gov­ern­ment, or com­pa­nies to which they are sub-con­tracted, which in turn are con­tracted to gov­ern­ment.

PFMA pre­vents up­front pay­ments for ser­vices not yet ren­dered – there­fore no de­posits are al­lowed.

The op­po­site side of the coin is that SMEs must be given much more favourable pay­ment terms which could even be less than 30 days.

Such a move would as­sist their cash flow po­si­tion. Rais­ing trade fi­nance is quite dif­fi­cult and very ex­pen­sive in SA, quite of­ten gov­ern­ment is un­will­ing to agree to ces­sion of pay­ment which is of­ten a re­quire­ment by fun­ders. In in­stances of de­layed pay­ments, SMEs are un­able to pass the in­ter­est charge on to gov­ern­ment, fur­ther com­pound­ing their prof­itabil­ity.

The sta­bil­ity and growth of SMEs will re­main a pipe dream if gov­ern­ment does not look at its own ad­verse role in this prob­lem.

In ad­di­tion, gov­ern­ment must cre­ate space for SMEs sub-con­tracted to main gov­ern­ment con­trac­tors to gain di­rect ac­cess when they are not be­ing paid for ser­vices ren­dered.

The cur­rent SEDA in­ter­ven­tion is only geared to­wards di­rect con­trac­tors, leav­ing sub-con­trac­tors ex­posed to in­dus­try vul­tures more pow­er­ful than they are, and quite of­ten re­liant on po­lit­i­cal con­nec­tions to re­but any claims smaller com­pa­nies raise against



There­fore, I sug­gest that gov­ern­ment must ca­pac­i­tate the Cen­tral Sup­plier Data­base (CSD) as an in­stru­ment to deal with is­sues af­flict­ing sub-con­trac­tors. CSD is in­de­pen­dent and well po­si­tioned to ad­dress such mat­ters. Sub-con­trac­tors who can prove their claims must be al­lowed to ap­proach CSD di­rectly so that in­voices un­paid can be de­ducted di­rectly from the con­trac­tor’s next pay­ment. Con­trac­tors must be al­lowed to dis­pute claims within 10 busi­ness days, fail­ing which funds are re­leased to the claimant. Cen­tu­rion

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