With proper support, small business could be a major engine of growth
Help is at last on the way for small businesses affected by the riots that took place in KwaZulu-Natal and Gauteng. This is largely thanks to a R38.9bn Covid-19 pandemic and unrest support package unveiled by finance minister Tito Mboweni on July 28. In the short term, this financial assistance will provide a stimulus that helps the economy to recover.
Of this assistance, R2.3bn will be set aside to support uninsured small businesses, which will have to make applications from the state-owned insurance company Sasria. It is encouraging that the uninsured market has not been forgotten. This market consists of business owners who have lost everything. If they are willing to put in the work, they now have a chance to rebuild and recover.
The pace of their recovery will heavily depend on how quickly they can receive the funds and how quickly we steer our economy back towards a path of recovery.
The only concern I have, though, is that a substantial chunk of the R2.3bn may be eaten up by the admin costs of rolling out the relief, resulting in very little of the funds getting into the hands of owners of uninsured businesses.
To believe in the medium to long term, our country must have a plan to mobilise funding for SMMEs and open up supply chains and various markets of our economy to small businesses, where they can participate as manufacturers, suppliers and distributors. The shortage of funding for SMMEs is one of the most prevalent obstacles holding back SMMEs from expanding and reaching their growth potential.
Research shows that the success rate of SMMEs improves if they have access to funding and markets. When small businesses are integrated into supply chains through off-take contracts, they tend to have low rates of default on their loans.
A recent study by the Shell Foundation and Omidyar Network found that small business financiers that provided technical assistance to SMMEs in emerging markets helped these businesses to grow their revenues by 44% while at the same time increasing the average internal rate of return.
I also believe that South Africans have to take a lead in investing in their country’s economy as there will be no saviours coming from other parts of the world to save them.
This also means that they need to go back to the basics and commit to implementing long-term plans such as the National Development Plan (NDP).
The NDP, a developmental blueprint originally unveiled a decade ago, envisaged SMMEs making a huge contribution to SA’s economy and employment.
The NDP projected that, if all its recommendations were implemented, our economy could grow at 5% annually up to 2030, with 60%-80% of economic value generated by SMMEs and expanding businesses.
The NDP envisaged 90% (9.9-million) of 11-million new jobs could be generated by SMMEs, helping to reduce the unemployment rate to 6%.
Though the NDP’s targets are very ambitious, they are within our reach if our country is able to be disciplined and consistent with implementation.
To ensure that the SMMEs contribute meaningfully to the NDP’s objectives, the department of small business development (DSBD) will have to marshal its two key agencies, the Small Enterprise Finance Agency and the Small Enterprise Development Agency to assist SMMEs to reach their growth potential.
Given the NDP’s stated goal of increasing the contribution of SMMEs to the economy, there is a strong case for reinvigorating the “Buy South African” campaign. This campaign can act as a lynchpin for restructuring and transforming the supply chains of our economy to integrate townships, rural areas and millions of unemployed young people.
I am pleased to see that the DSBD is taking steps to incentivise and encourage participation of SMMEs in local manufacturing. In this regard, the department has collaborated with major retailers to compile a list of 1,000 products that have been earmarked for production by local SMMEs.
If the localisation strategy is implemented, these products could find their way onto the shelves of local retailers, thereby ensuring that goods manufactured by local SMMEs are purchased by South African shoppers.
I am confident that in the not too distant future our economy will turn the corner and return to the pre-Covid-19 growth levels, whereby SMMEs are powering its growth.
We must have a plan to open up supply chains and various markets to small businesses