SMEs need a finance target plan to succeed long term
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.