Why SA’s small firms have ignored state’s helping hand

One problem with the government’s supposed R500bn Covid relief package is that it never was even close to R500bn in reality. A more puzzling and disturbing problem is that even the measures that were put in place to try to keep firms alive and enable them to hold on to staff through the lockdown have seen only limited take-up. Support measures for firms through the tax system, the unemployment insurance system and the banking system were among the biggest line items in the package, together accounting — at least in theory — for close to R300bn. Yet much of that simply hasn’t flowed. So why have firms not taken up what help was on offer? And does that mean the damage to economic capacity and employment will be even worse than we expect?

The R200bn loan guarantee scheme has been in the headlines this week, with only R14bn in loans advanced so far, to 10,000 small and medium-sized businesses, and talks between the government, the banks and the Reserve Bank on what’s gone wrong and how to fix it. As of August 1, fewer than 37,000 firms had applied. It would be easy to blame the banks and their regulators for imposing criteria so tight that almost 40% of the firms didn’t meet them. But with the average loan said to be running at about R1.5m, even if everyone had got their loan it wouldn’t be even close to the initial R100bn target.

Part of the trouble was that by the time the government and the banks managed to negotiate the scheme and launch it, it was more than six weeks into the lockdown. By that time, fortunately, the banks had gone ahead and helped their customers with payment holidays and debt relief on hundreds of billions of rands of debt. Clearly, many are reluctant to burden themselves with more debt — which says a lot about firms’ anxious outlook on the economy.

Even more puzzling is the apparent flop of a tax measure, supposedly worth R15bn, which was supposed to encourage firms to retain and pay workers during the lockdown and was part of the R70bn of tax measures the government announced to buffer firms from the impact of Covid-19.

The five-year-old Employment Tax Incentive (originally dubbed the wage subsidy) has proved to be a low-cost and simple way for the government to create jobs for young first-time workers by getting firms to hire them. As the crisis began, the Treasury upped the incentive by R750 a month and expanded it for three months to cover all workers earning less than R6,500, not just newly hired youth. Yet the latest revenue figures suggest take-up by firms has been minimal.

One reason may be that the scheme has generally been poorly marketed and its extension for the crisis was inexplicably low-key. Another, more disturbing, one may be that firms, especially smaller ones, tend to be quite scared of the South African Revenue Service and reluctant to claim any credits or refunds that might draw the taxman’s attention. And perhaps most disturbing is the possibility that many firms that might have claimed have already shut down.

The one relief measure that has more or less succeeded, after much sweat and tears on the part of business and labour leaders, is the R40bn Unemployment Insurance Fund Covid-Ters scheme. Late as they were, the UIF payouts have provided a flow of income to distressed employees and a cash-flow benefit to distressed employers. The concern is that now that the benefit has ended for most sectors and most workers, retrenchments might be just beginning. Which is why the pressure is on to extend and expand the scheme.

Plans for an economic recovery are important, but the immediate priority has to be to keep firms alive so that SA doesn’t lose more jobs. More innovative and agile thinking is clearly needed.

One reason is the scheme has generally been poorly marketed