KGANKI MATABANE: Ramaphosa must address the plight of SMMEs

Globally, small enterprise development and promotion has taken prominence due to the higher potential they have to reduce unemployment and spur economic growth.

In a country such as SA that is grappling with lacklustre economic growth and an unemployment rate of almost 35% (under the expanded definition, which includes discouraged jobseekers, the rate is a shocking 47%, and youth unemployment is a catastrophic 74.8%), SMMEs can play an effective role in contributing towards addressing these challenges.

According to the most recent data from the Small Business Development Agency, the relative contribution SMMEs have made towards total revenue generated in the formal sector is about 37.4%. A large proportion of South Africans live by managing or working in the SMME sector.

According to the National Development Plan, of the 11-million new jobs that are targeted by 2030, 90% are expected to come from the SMME sector. To achieve this goal it is essential that government creates and maintains a more conducive environment in which these businesses can thrive.

However, that has not been the case. Government procurement has been stifling the growth of many SMMEs by failing to pay their invoices in time. Late or nonpayment of invoices by clients (mainly government) is noted as one of the main contributors to the failure of small businesses across the country.

The National Treasury’s 2020/2021 annual report on non-compliance with payment of suppliers’ invoices within 30 days indicated that at the end of the 2020/2021 financial year invoices to the value of R4.1bn had been paid after 30 days from the date of receipt by national departments, and invoices older than 30 days and not paid at the end of the financial year amounted to R415m. At a provincial level, late payments amounted to R25.9bn, and those not paid at financial year end totalled R5.3bn.

This has many adverse effects, not only on the sector, but also on the economy at large. First, business owners have had to take time that could have been spent coming up with growth strategies and managing business operations to spend on chasing payments. We are also an ecosystem, and the efficient operation of one business has an impact on the operation of another. Some of these SMMEs have not been able to pay their own suppliers due to lack of cash flow.

It can also result in an increase in the debt burden of some small business owners when they have to borrow from Peter to pay Paul, creating a debt cycle. Business owners also struggle to pay other expenses such as employees’ salaries and rent. In the worst-case scenario, some end up closing their doors, leading to a loss of income not only for themselves but also for many families across the country, thereby contributing to the unemployment rate.  

Late or nonpayment of invoices by government can also result in business owners being unable to obtain tax clearance certificates, and therefore prevent them from applying for new tenders to do more business. This also creates an ethical dilemma in businesses conduct through some departments deliberately delaying payments to create an environment in which it becomes the norm that to be able to have your invoice paid on time you need to pay someone a bribe so they process your invoice speedily.

Out of the seven reasons cited for non-compliance, five are within the ambit of government departments to correct. Despite departments having taken steps to conduct a root-cause analysis of reasons and provide recommendations to remedy the causes, implementation plans lack timelines that can be used to ensure solutions are implemented with speed and accountability.

We suggest that going forward there should be consequences for departments that don’t comply with the payment policy, as well as those that don’t implement plans within the prescribed period.

The government should seriously consider the following and the president should incorporate them in his state of the nation address:

• A timeline of six months for all government departments and state-owned companies to settle outstanding debts, with monthly update reporting provided to the president by all affected ministers;
• Change the validity of tax clearance certificates for SMMEs to allow them to continue trading while late payments are sorted out;
• Fully implement the Public Audit Act and hold officials accountable for the late payment of invoices; and
• The National Treasury should take responsibility away from state entities that have not paid within six months, pay the SMMEs involved directly and deduct the funds from departmental budgets. 

The small business sector is expected to continue playing a pivotal role in contributing towards inclusive growth, wealth creation and structural economic transformation in the country. It is therefore essential that this issue is prioritised by the government as part of its bid to grow the SA economy by creating a conducive business environment for SMMEs across the country. 

• Matabane is CEO of the Black Business Council.