DARYL SWANEPOEL: Think small for a big impact

Small, medium and micro enterprises (SMMEs) are undoubtedly the lifeblood of SA’s economy. Indeed, President Cyril Ramaphosa has asserted that “the growth of our economy will be sustained by small businesses, as in the case of many countries”. They represent more than 98% of businesses, employ 50%-60% of the country’s workforce, and contribute 39% to GDP.

But the SMME sector also appears to be the most vulnerable in a global crisis. Over the past 18 months the Covid-19 pandemic has done more than just worsen longstanding challenges the sector was already facing. 

The number of SMMEs in SA declined by 11% (or 290,000) year on year, from 2.65-million to 2.36-million in the third quarter of 2020. Of this contraction, 232,000 occurred in the second quarter and a further 58,000 closed for business in the third quarter, despite the general economic rebound during those three months. Furthermore, of all jobs lost in the economy 90% were in the SMME sector.

To turn this catastrophe around, the main barriers to recovery and growth must be removed, starting with red tape and bureaucracy. They strangle businesses’ capacity to compete by causing unnecessary costs and delays, and put the brakes on new businesses.

Many SMMEs lack the resources and information to deal with the issues arising from regulations. Current policies need to be consolidated and only those rules and regulations that are necessary must be kept and properly implemented. Furthermore, the introduction of user-friendly information technologies such as e-government services will streamline and integrate systems, allowing communication to a wider audience.

Bribery and corruption are also contributing on a vast scale to destroying SMMEs and the economy. While graft is a two-way street — some businesses contribute to the scourge by participating with some government officials in corruption — many small enterprises are backed into a corner. They coerced, and sometimes blackmailed, into either paying a bribe for an opportunity or losing the business.

To tackle this issue credible and accountable institutional systems and incentives need to be put in place —  and these systems need to reach the level of local government.

The late auditor-general Kimi Makwetu said in 2018 of the sorry state of local government that “on average almost 60% of the revenue shown in the books will never find its way into the bank account”. This is due on one hand to a deep-seated skills deficiency and on the other to the hiring of employees solely on political grounds. The result: officials in positions that they are simply not qualified for.

With such rampant corruption and incompetence unchecked — and the risk that it they are therefore seen as a matter of course — it is inevitable that there is a growing mistrust of official institutions and an escalating resistance to paying rates and taxes. That has negative consequences for building infrastructure, service delivery, funding grants, and prioritising small businesses for payment.

As the bedrock of government, municipalities need to be reliable and trustworthy. They need to be capacitated with highly skilled, apolitical personnel, and that speaks to the present failure at municipal level.

The education disconnect also needs to be tackled at its foundation: in the schools and colleges. Students are not being taught the content and skills required to be employable in the practical world of business. There is scant focus on the most sought-after skills in SA: science, technology, engineering and mathematics. Failing to deal with these issues will see unemployment continue to soar beyond its current record-setting rate.

While the education and skills deficit is a substantive part of the unemployment problem, it is by no means the only contributor. Monopoly by big companies, especially the multinationals, precludes fair competition and denies small businesses the opportunity to reach wider markets.

The focus is on turnkey projects that neglect the township economy, which further cuts off that sector’s circulation in the greater economy. Public policymakers need to look at breaking down these projects into bite-sized chunks to widen the spectrum of businesses that can be pulled in.

Another contributor is the exploitation of illegal immigrants, who have lower wage demands, at the expense of local workers. Illegal immigrants often don’t pay tax and send large portions of their wages back to their families in their home countries. This is a drain on the rand, stalls growth and increases unemployment.

In SA there is too much focus on redistribution. While social grants are a key element of individual and social wellbeing given relentless unemployment, poverty and the health crisis compounded now by the pandemic, they need to be dispensed effectively and equally if they are to have the desired goal of social welfare.

The concern is that some grants pose a risk to fiscal sustainability by undermining the incentive to work, save or invest. A solution would be to move from handing out survival grants, which can create dependence and stifle economic liberation, to empowerment grants — using those funds to create a business environment that serves as an incubation centre.

Under the appropriate conditions the SMME sector can be a dynamic, transformational force. Though there is still much to be done to create these conditions, and despite the hardships, small-business owners remain optimistic. We should be prepared to offer them all the assistance we can afford.

• Swanepoel is CEO of the Inclusive Society Institute, a research organisation.