EDITORIAL: Paying SMEs on time now an even more urgent issue

Small business in most countries is the engine of economic growth, creating thousands of jobs.

Yet the sector is vulnerable and plagued by difficulties, especially in such a highly concentrated economy such as SA where barriers to entry into markets are high and the red tape imposed on starting a business is onerous.

No wonder then that the government has devoted a lot of effort over the past few decades to stimulating and supporting the sector. Initially, most of this assistance was channelled through the department of trade & industry and through its agencies dedicated to the financing and support of small and medium-sized enterprises (SMEs). It has not only been a question of funding but also of technical and management support and providing basic training on the prerequisites of running a business.

Specialised hubs have been created to nurture small businesses, and big companies have been urged to implement supplier development programmes to foster their growth, allowing them to feed into their supply chains.

In 2014 a dedicated department of small business development was created to promote entrepreneurship and to integrate the government’s approach to the sector.

However, as one arm of the government has been trying to lift small businesses, other arms have been contributing to their demise by failing to pay invoices within the 30-day period which the Treasury has made mandatory through the Public Finance Management Act. This has had a devastating effect on cash flows and resulted in many small businesses having to close shop over the years.

The survival rate of small and medium-sized businesses is in any case very low and they can ill-afford such delays.

The situation has not improved. This week in a presentation to parliament’s standing committee on appropriations, the Public Service Commission noted that in some months last year invoices older than 30 days and not paid for nine months reached as high as R1.4bn, with the number of invoices remaining unpaid for this period reaching nearly 3,000. By December, there were 1,115 invoices worth R673m in this category.

By the end of December the three main transgressing departments with unpaid invoices over R500,000 were water & sanitation with 513 invoices unpaid worth R539m; agriculture with 71 invoices worth R76.8m; and public works with 485 invoices unpaid worth R48.2m.

Public Service Commission deputy director-general Irene Mathenjwa rightfully described the situation as a “national disgrace”.

Just as disturbing were her comments about how the all-pervasive corruption in the government has even crept into the payment of invoices. According to her account, it is not unknown for officials to demand “brown envelopes” — kickbacks — in order for them to release the payment of money owed. Mathenjwa also referred to the “stubbornness” of departments when dealing with the problem of non-payment, which she attributed to poor management.

There is no reason to believe that what has been a long-standing problem for the government has miraculously been addressed just because the country has been hit by the Covid-19 pandemic. Yet at the same time the government is digging deep into its resources, coming up with a R500bn stimulus package for Covid-19 expenditure and to help businesses to survive the crisis.

The package includes a R200bn credit guarantee insurance scheme for businesses with an annual turnover of less than R300m. This will be a joint project between major banks, the Treasury and the Reserve Bank and will assist medium-sized businesses with operational costs such as salaries, rent and the payment of suppliers. It is expected that the scheme will support more than 700,000 firms and more than 3-million employees.

All these actions are laudable and necessary but what is also needed is for suppliers to be paid in time. We hope that attention at this critical time is being given to wiping out the backlog of non-payment and to ensuring that suppliers get their due as soon as possible.