Busisiwe Mavuso | Small businesses could be creating millions of jobs in SA, so why aren’t they?

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An interesting statistic from the Small Enterprise Development Agency’s SMME Quarterly Update for January to March last year is that SMMEs employed 9.8-million people – that’s 64% of total employment across the economy. This is why the small business sector is often referred to as the engine of employment creation.

Small businesses were severely ravaged by the Covid lockdown restrictions – the report states that the number of SMMEs dropped 11% from the previous year to 2.33 million. But imagine if just half of those small businesses were in a position that enabled them to hire just one extra person – 1.3-million jobs would be created.

The harsh realities of our misfiring economy, lack of electricity supply and high regulatory burdens mean it’s likely that only a handful will today be in such a position that they need to or indeed want to hire. But it does serve to illustrate the massive potential that small businesses hold to drive economic growth and create jobs. Interestingly, the SMME Quarterly states that while the contraction in SMME employment in 2020 had been deep, it recovered in Q12021 by 633,000 jobs.

Another thing it illustrates is why organised business pushes government so hard to accelerate implementation of the economic reforms designed to eliminate inefficiencies in our economy. These are just a handful that prevent businesses of all sizes from developing to their full potential: the inadequate energy supply with loadshedding regularly interrupting operations; a dysfunctional rail and ports system that prevents companies from exporting their products; and the inability of municipalities across the country to process business approval applications in any sort of reasonable time frame. Small businesses are also at the mercy of collective bargaining council wage agreements, often having to implement them without any input into the process.

No reform is going to enable a single-store clothing retailer in Soweto to suddenly expand into a city-wide or province-wide chain of stores, just as it isn’t going to immediately double a JSE-listed company’s revenue. What the reforms will do when they are implemented successfully is to remove constraints to full operations, such as Transnet’s inability to export the quantities of coal demanded by miners while coal prices are at elevated levels. They will also eliminate numerous costs associated with adapting to the current inefficiencies – generators will no longer be needed and their running costs will be no more once we have a stable electricity supply. Such costs make a big difference to SMMEs.

The overall goal of the reforms is to create an operating environment that enables businesses to reach their optimal potential.

While the lower costs will benefit small businesses directly on the bottom line, the other benefits will take time to filter through. Not all businesses will necessarily be able to take advantage of the improved conditions but those with innovative and forward-thinking management almost certainly will. Competition will force others to follow or be left behind and the momentum starts building as businesses expand and start hiring, fuelling wider economic growth.

A  problem for South Africa with its historic missteps and numerous immediate and urgent priorities is that once implemented, the reforms will take time for the benefits to be felt in terms of a faster growing economy and a declining unemployment rate.

The one important reform we have successfully implemented is to auction extra spectrum to telecommunications companies. The immediate benefit is the R14.4bn they paid for it – that goes  directly to the fiscus. But the wider benefits to the economy will still take a while to flow through.

First, the winning bidders have to upgrade their infrastructure. That in itself is expected to inject about R10bn into the economy over the next two years. Only after they’ve recouped that expenditure are we likely to see the intended benefit of lower data costs for consumers flowing through.

Another perfect example is the time it takes an efficient independent power producer to get new energy onto the grid. Bid window four of the renewable energy programme opened in April 2015, but unfortunately that was the same month Brian Molefe was appointed CEO of Eskom and the Zondo Commission highlighted he appeared to answer to the Gupta family (whose interests lay elsewhere). The result was that, after the winning IPPs were announced, Eskom refused to sign the power purchase agreemFin24 columnists (news24.com)ents and the renewable energy process stalled for three years.

Only three years later, soon after Jeff Radebe was appointed energy minister in February 2018, did the fourth-round bid window winners reach financial close and, despite the challenges thrown up by the Covid lockdowns, it took most of the 19 winning bidders less than two years to build their plants and to supply Eskom.

Eskom states that the grid urgently needs between 4,000MW to 6,000MW of new capacity to stabilise supply. That’s why the postponements to the financial close of bid window five are so alarming. Originally scheduled for end-April, the deadline for financial close was extended to end-September. That is likely to delay bid window six’s launch and so on, pushing the date we finally reach energy security further and further into the future.

The sooner all these reforms are implemented and the economy is functioning efficiently, the sooner we will have an environment that is conducive for businesses of all sizes to grow and as a result they will need to start hiring. We have no time to waste.

*Busisiwe Mavuso is the CEO of BLSA. This article first appeared in Fin24.

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