Business Beyond Covid
KGANKI MATABANE: Inclusive strategy needed to get small businesses back on their feet
Additional lending and cutting of red tape can promote growth and curb job losses
In the Business Beyond Covid series, CEOs and other business leaders and experts in their sectors look to the future after Covid-19. What effect has the pandemic and resulting lockdown had on their industries and the SA economy as a whole? Which parts will bounce back first and which will never be the same again? Most importantly, they try to answer the question: where to from here?
There have been various economic recovery strategies and plans released over recent weeks and months, with the word “inclusive” being a common thread. Inclusive, by definition, means no part or group is left out. Is this possible?
In formulating its proposals and recommendations, Business for SA (B4SA) has carefully analysed each business sector with respect to their immediate and near-term economic and employment contribution, as well as future growth potential. This resulted in a ranking of high-impact sectors, from about 50 subsectors. The sector deep dives cover: small, medium and micro enterprises (SMMEs); energy and water; mining; construction; manufacturing; transport; agriculture; wholesale and retail; financial services; telecommunications; as well as tourism and leisure.
Increased infrastructure development — a key enabler to deliver inclusive growth — is the recurring conclusion across the recovery plans released. This surely means all sectors of our business sphere, our people, society and geographic locations must be included in any economic reset.
It is acknowledged that the SMME sector is critical to enable the delivery of products and services to all sectors and consumers. It is therefore essential that SA’s SMME sector is an integral part of this catchphrase, “inclusiveness”.
The term “SMME sector” is in fact a misnomer as it includes many different types of businesses, from those operating in the micro informal economy, which are largely subsistence based, to the larger formal, small- and medium-sized businesses. Our recommendation for improving SMME sustainability and stimulating entrepreneurship takes cognisance of this: there is simply no “one size fits all” solution.
Our analysis found that parts of the informal sector have proved resilient during the past few months. Many of these microenterprises adapt quickly — partly because they are largely outside the regulatory net.
Those businesses that have been worst hit are the formal sector SMMEs, many of which are in the trade, hospitality and accommodation sectors, which will take a while to recover. With no savings buffer, reduced consumer spending and little opportunity to access additional credit lines, many of these businesses will close down and won’t reopen.
B4SA’s analysis shows that the effect of Covid-19 on job losses will result in 380,000-440,000 formal-sector SMME jobs being lost, with a further 600,000-700,000 informal-sector SMME jobs at risk. This calamity is forecast over the next three to 12 months and does not take into account the recently reintroduced alcohol ban, which impacts heavily on this sector’s entire value chain, with tens of thousands of jobs lost and billions of rand lost in revenue and taxation.
Our view is that the financial assistance provided is insufficient relative to the need: 30%-50% of SMMEs have applied for government relief, and 68% of those that applied were unsuccessful, while 71% of SMMEs will require further funding post-lockdown. As at the end of June 2020, about R10.6bn had been lent to nearly 7,500 businesses under the loan guarantee scheme. However, there is recognition that this scheme needs to be tailored further to become more relevant to SMME needs. The increase in liquidations — up 10.7% in 2019 over 2018 — had risen even more alarmingly in the first quarter of 2020, by 53%.
The extended lockdown has had, and will continue to have, a negative effect on SMMEs, particularly given the contraction in consumer and business spend. There are many surveys that show that not all government departments (national, regional and local), state-owned enterprises and businesses are paying SMMEs on time, which is a cause for concern.
The SMME industry faces four main structural constraints: a costly and difficult regulatory framework; a lack of skills; the challenge of accessing credit and markets; and crime and corruption. To tackle this situation, proposed priority actions must include supporting additional lending to SMMEs via banks and nonbank lenders, simplifying application processes and using appropriate measures to assess credit worthiness.
Reducing red tape is an imperative to accelerate growth. We must identify, amend or simplify the top regulatory implementation challenges to SMME growth to ensure lower costs and improved ease of doing business.
It is not enough to simply help stop the cash crunch — we also need to help world-class SMMEs capitalise on areas of competitive advantage. Business model adaptation, export acceleration and the development of onshore digital skills and jobs (software, artificial intelligence and digital skills) should be accelerated via the creation of centres of excellence.
B4SA acknowledges that broad-based BEE is key to inclusive growth and we are fully committed to accelerated and sustainable BEE. The pace and depth of BEE to date has been insufficient, leading to a narrow base of beneficiaries. We urgently need full and equitable participation by a broad base of black people in all aspects of the economy. An emphasis on those who are most disadvantaged (women, youth, disabled, rural and poor) is critical.
A collaborative, partnership approach between business, the government, organised labour and other social partners must be a precondition, as businesses’ ability to transform rapidly will be enhanced by the government creating the enabling conditions for inclusive growth. Corruption and maladministration will continue to undermine BEE and inclusive growth unless decisively addressed, including a zero-tolerance policy.
Finally, a mechanism to clearly measure economic transformation must be implemented urgently. Business must work with social partners to ensure a transparent measurement system and assess progress annually. Specifically, a socio-economic regulatory assessment process must be introduced, which considers the effect on economic development and SMMEs.
An inclusive economic revival strategy will only work if we work together to boost the viability of this vibrant and vital sector.
• Matabane is CEO of the Black Business Council.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.