Why Pravin’s measures for small firms, like Sally Williams Nougat, may flop
THE Sally Williams website says “our nougat is made entirely by hand in small batches to guarantee the perfect nougat experience”.
That’s not entirely true. For one thing, perfection is hard to attain. For another, these days there are machines involved.
At a factory in Sandton’s Linbro Park where the irresistible cuboids are produced, there is evidence of growing automation. Two bright blue robots with ultra-sharp blades cut sticky slabs of nougat into precise shapes.
Then more machines sort and wrap the candy before it is boxed and ready for shipment to grocery counters around the world. Roughly half will find its way onto the shelves of international retailers like Harrods, Selfridges and Tesco.
Mark Sack — he took over the business from his then motherin-law, the original Sally Williams — is sanguine about the intrusion of machines.
“This stuff’s not easy to cut. We’re cutting the nougat using high-frequency sound waves.”
We lean closer to the glass where we can see that the blade is a rapidly vibrating blur. This is, to borrow the cliché, cuttingedge stuff.
He points to the giant copper pots where the mixtures are stirred manually as evidence that the product is not entirely
The labour law is prohibitive . . . You can catch people stealing from you and you can’t fire them
automated. However, these days, machine operators are being hired to do the jobs that people used to do.
Sally Williams, although the largest nougat manufacturer in South Africa, is a medium-sized business employing 130 people.
Sack believes the workforce will grow, but not at the same rate as the business, as he seeks ever greater automation.
The grind of machines at Sally Williams is a perfect microcosm of what’s happening to small businesses across the country.
It is exactly the sort of business that Finance Minister Pravin Gordhan spoke about this week during his budget speech, when he pledged an extra R6.5-billion “to support small and medium enterprises”.
Gordhan announced two concessions for small businesses such as Sally Williams: changing turnover tax to “reduce the tax burden on micro-enterprises”, and introducing a “refundable tax compliance credit”.
Quite whether this will be enough to fix the gripes of small business owners is debatable.
All is not well at the bottom end of the business chain, despite the fact that the National Development Plan identifies this part of the economy as the best guarantor of growth and jobs. Sales are now starting to recover, but job growth remains stubbornly low.
In an auditorium at the Johannesburg Zoo, Neil Rankin, a Stellenbosch professor, reels off statistics that explain the “jobless growth” problem besetting small business in the country.
He is presenting the annual growth index for small businesses compiled by the Small Business Project (SBP).
The index is based on in-depth interviews with 500 small business operators and is the country’s chief source of detailed information on them.
The problems are many: for one thing, there are precious few new entrants into this sector of the economy with some three-quarters of the businesses at least 10 years old.
For another, 71% of those surveyed say that it had become “harder to operate a business” last year.
Lack of skills, burdensome regulation, poor economic conditions, lack of finance and cost of labour are identified as the major problems.
For producers such as Sally Williams, labour regulations are a major cause for concern.
Sack says: “The labour law is prohibitive. Hiring and firing is just impossible. You can catch people stealing from you, and you can’t fire them.”
Then “comes negotiation time”. Sack faces demands for a 50% increase. “It makes me think twice about the manner of scaling up,” he says. Machines do not make wage demands.
Rankin says smaller firms simply can’t afford to have their managers sit in two-week Commission for Conciliation, Mediation and Arbitration hearings that are compulsory regardless of the merits of the case.
This frequently leaves these companies with no senior manager for a prolonged period, on average 10 days a year.
Also, he says, collective bargaining deals between large businesses and trade unions can put small operations out of business. He describes these agreements as “a collusion between larger firms and the employees in those firms to set wages that small firms can’t pay.”
“That’s a very effective way to get rid of competition.”
Added to this is the regulatory burden. Many complain of debilitating red tape and the slow pace with which state agencies, such as the South African Revenue Service, deal with tax returns and claims.
The SBP report says: “In 2013, each firm on the panel spent an average of 75 hours a month dealing with red tape, the equivalent of eight working days.” This was higher for business-service companies, which spent 99 hours a month on red tape.
Completing registration processes to open new businesses took 60 to 90 days.
“The time required to start a new business in South Africa is far greater than previous research had suggested,” says Chris Darroll, CE of SBP.
On the wall of her boardroom in Saxonwold, Johannesburg, is a poster that brags of a “redtape study” SBP did for Rwanda in 2005.
“We gave them a long list of red tape standing in the way of business. They said ‘thank you’, we are going to implement this. “They did it all within six months.”
A similar study was done for SA’s government in 2007, but Darroll says little came of it.