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Now more than ever, there are tangible reasons to believe that Africa’s time is now as major firms invest in African brands, from music and art to fashion
The record-breaking rate of new company registrations over the last year can either be seen as a clarion call for help or the start of a significant post-pandemic recovery that could truly change SA’s economic road map.
In August the Companies and Intellectual Property Commission (CIPC) reported that a record 510,000 companies were registered in 2020 in the midst of our first year of the Covid-19 pandemic — a 32% leap over new company registrations in 2019.
For some the leap in registrations is yet another indicator of the economic desperation endured by millions of South Africans in the wake of the job losses caused by the pandemic, which have resulted in a chilling record 34% unemployment rate.
CIPC commissioner Rory Voller observed that the company registrar saw a similar surge in 2008/2009 as the global financial crisis unfolded, and that the new surge indicates that South Africans are having to desperately make plans to support themselves. “Many lost their jobs or found themselves working reduced hours or doing part-time work. We have noticed when this happens that people start forming their own companies in order to generate an income,” Voller said in a Moneyweb article.
But there is another way of looking at it too — as a phenomenon that speaks to the SA spirit of entrepreneurship and how ordinary people come up with solutions that could help the country dig itself out of the abyss we are in. This is the essence of what the Siyabuya! movement believes gives SA hope and confidence that we can come back stronger.
These small businesses, should they take hold, could be the true engine of the economy. A report by consultancy McKinsey notes that before the pandemic, 98.5% of all SA’s companies were small and medium enterprises (SMEs) and that they contributed 39% of GDP. They were also among the hardest hit by the lockdowns, so it does not seem absurd to have a “glass half-full” view on the CIPC registrations — maybe they do fuel the fires of hope.
While the red tape involved in registering a company has been reduced significantly thanks to lobbying and some pragmatic policy decisions over the last 18 months, it is not a trivial exercise. The fact that so many have trodden this road indicates a desire to operate in the formal economy. We could also see this as an iceberg tip reflecting a larger submerged base of economic activity in the informal sector, which has also been decimated.
Those entrepreneurs who have started the process of formalising their endeavours are ripe for nurturing. At the start of the pandemic, a serious impediment to existing small businesses tapping into state-backed start-up funding and other private sector initiatives like the R1bn Sukuma Rescue Fund for small business — set up by the Rupert family and Remgro — was their inability to tick the formal requirements, which also makes the surge in CIPC registrations significant now.
Now is the time for the government to act with agility and deftness. New finance minister Enoch Godongwana’s commitment to creating jobs for the youth in place of a basic income guarantee is commendable in its intention but will likely fail on practicality.
As we have seen repeatedly, the government is not good at creating jobs. It should be good at creating the environment and the stimuli to ensure jobs are being created by entrepreneurs. In this, it has been granted a potential post-Covid gift in the mushrooming of new company registrations.
Ensuring that even half of these get into the economy, begin trading and survive will make more inroads in reducing unemployment than any government job-creation scheme could. To highlight this, in 2019 SMME Quarterly reported that 2.5-million SMEs accounted for the employment of nearly 11-million people (or nearly 66% of all who were employed at the time). That’s over four jobs per entity.
Get the small-business engine moving again and we will finally start to whittle down that nightmare unemployment number. Covid-19 has taught us many lessons. Not least among them is the power of the private sector working with common purpose with the state. Look at what we are starting to achieve through such partnerships with the Covid vaccine rollout.
Now imagine what we could achieve by creating similar common purpose between state and private business to breathe life back into small business, with the state enabling actions that are largely reflected in the president’s economic recovery plan, such as Business For SA’s accelerated economic recovery strategy.
However, as is too often the case, we are skilled at describing the problem and describing the solution. We are less effective at actually doing it. So let’s unlock opportunities and incentives for big business — and even the smaller businesses that survived the worst of the pandemic — to help bring these emerging new businesses to life, assisting them with skills, with contracts, with cash flow from prompt payments, and so on.
The state could provide material incentives to established businesses that do this, but even if it can’t, this is a case of a rising tide floating all ships if ever there was one. So, again, we are left with several decisions: is our glass half-full or half-empty? Do we continue to talk, or do we start to act?
We must decide now, because there’s sure to be no appetite for debate among the South Africans whose hopes and aspirations lie behind the 500,000 new businesses registered in 2020.
• Dr Mazwai is a former newspaper editor and member of the Siyabuya! expert panel. He headed a small business task team for the National Planning Commission, served on the council of the National Small Business Advisory Committee, and was special adviser to the small business development minister.
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Published by Arena Holdings and distributed with the Financial Mail on the last Thursday of every month except December and January.