SMMEs require enabling environment to thrive
YOU MAY BE forgiven for thinking that the paragraph below was extracted from President Cyril Ramaphosa’s State of the Nation Address (Sona) or might appear in Finance Minister Tito Mboweni’s Budget speech tomorrow:
“Small, medium and micro-enterprises (SMMEs) represent an important vehicle to address the challenges of job creation, economic growth and equity in our country.
“Throughout the world one finds that SMMEs are playing a critical role in absorbing labour, penetrating new markets and generally expanding economies in creative and innovative ways.
“We are of the view that – with the appropriate enabling environment – SMMEs in this country can follow these examples and make an indelible mark on this economy.”
These sentiments appeared in the introduction to the government’s White Paper from 1995: The National Strategy for the Development and Promotion of Small Business in South Africa. Fast forward to 2019. We’re still working from the same strategy and we’re still waiting for the “appropriate enabling environment”.
On the eve of the Budget, Mboweni might be relieved to hear that we will not ask him to put more money into SME support.
Small Business Development Minister Lindiwe Zulu has stated that there is already some targeted R15.5 billion floating around in various departments. That support should be mapped, so we know what money is going where; to how many different programmes; whether any of their mandates or functions are duplicated; where gaps persist; how well staffed the initiatives are; where success has been achieved and how that is measured.
It’s fairly clear that these programmes are either not doing what they should be doing, are insufficiently resourced in some way, or – as we have repeatedly said – the interventions are not evidence-based and are therefore likely to miss the mark.
We know this because of what SMEs – black or white-owned, male or female-led – tell us about the constraints they face starting, running and growing their businesses.
It’s a common refrain: It’s difficult to access markets; find affordable premises; acquire the right skills and managerial expertise; afford broadband and appropriate technology. They want lower costs and risks; a more even playing field (which means lighter regulation for SMEs, not necessarily market inquiries and forced divestiture); and far less red tape, including more flexible labour laws, easier ways to register their businesses, obtain licences, pay taxes and access affordable finance.
Some 74 percent of businesses surveyed report red tape on the increase in South Africa. On average, a small business owner spends nine working days (approximately 75 hours) each month dealing with red tape. This equates to 4 percent of turnover for small businesses with R5 million and as much as 8 percent of turnover for firms with less.
Opportunity costs are even higher; every minute he/she spends in a queue or filling out a form, our entrepreneurs are not making, marketing, selling, or innovating.
Reforming existing regulations to make them less complicated and complex and more conducive to business formation and growth across all sectors should be a national priority.
To do this, Zulu should give effect to all provisions contained in Section 18 of the National Small Business Act, specifically, the issuance of guidelines to government on the promotion of small business, including procedures for the review of the effect of existing and new legislation on small business and procedures for consultation with stakeholders on new or proposed legislation affecting small business. We need our cabinet to Think Small First.
We applaud Zulu for releasing new definitions for what constitute SMMEs. Each department and government agency now needs to apply those same definitions to their programmes. At present these vary wildly.
Both the public and private sector actors, who love to back start-ups and initiate incubators, should shift their support to medium-sized businesses. These are the businesses which made it past our 70 percent failure rate in the first two years and which, internationally, are the ones creating the most jobs on the planet.
We need jobs in South Africa, not just survivalist micro-businesses, or family businesses not pursuing expansion.
The government is not the proximate cause of growth and employment. That role falls to the private sector and to investment and entrepreneurship responding to market forces.
The remit of government should be about maintaining policy stability and fiscal responsibility. A functioning local government – where business chambers and policy come together – is essential.
Stable, transparent and effective government is critical to sustained economic growth and employment. Without it, we cannot have an enabling environment for SMEs. Oh, and Big Business and Big Government, pay your bills on time!