SME failure has to be addressed
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
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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