BUSISIWE MAVUSO: Plans to save small businesses amid high inflation and red tape need boost
POSTED ON: August 30, 2022 IN by Admin
I fear for the small business sector having to withstand the harsh effects of the high inflationary cycle while dealing with the overburdening regulatory and labour relations environment.
The rising cost of living will hit the poor the hardest, and measures to address their plight are high on the political agenda. But the SMME sector’s plight should be ratcheted up higher on the political agenda.
Small businesses struggled to survive the Covid-19 lockdowns. A November 2020 study by Finfind found that 42.7% of businesses had to close and those that are still standing are probably ill equipped for the further pain that the high levels of inflation will bring. Apart from their own operating costs increasing, fewer customers will be able to afford their products or services at higher prices, squeezing their profits.
The department of small business development (DSBD) has a set of measures to rejuvenate the sector, many of which are incorporated in the National Integrated Small Enterprise Development master plan, but many are still to be implemented. BLSA had a positive meeting with the department earlier this year, including the minister, Stella Ndabeni-Abrahams, and director-general Lindokuhle Mkhumane, in which we looked at areas of potential collaboration.
The department has numerous initiatives planned to improve SMME funding, which it has identified as the main constraint to their development. What was impressive was the recognition of the research required to make the funding effective. The department says, “The informal sector needs to be mapped through a collaborative approach involving role players such as local government, business formations and informal enterprises with a view to design fit-for-purpose funding instruments.” The funding should “enable informal enterprises to grow and smoothly transition from the informal to the formal sector and contribute meaningfully to tax revenue, eradication of unemployment and poverty alleviation”.
That’s spot on. Small businesses have the greatest potential to address SA’s problems of poverty and inequality. Integrating the informal sector into the mainstream economy has numerous benefits — apart from improving the SMMEs’ growth potential and access to formal funding. As they grow they will start paying taxes, generating more revenue for the state. But the most important benefit is the jobs they would create.
Mapping the informal sector, though, as valuable as that exercise would be, is a huge undertaking that will take time and other measures to improve access to credit are encapsulated in the SMMEs and Co-operatives Funding Policy. The department says SA SMMEs have unmet financing needs ranging from R86bn to R346bn and it wants to integrate development finance institutions, the private sector and NGOs through the establishment of an “SA Access to Finance Forum” in which all stakeholders in the SMME development space can co-operate and develop concrete, practical solutions for improving access to finance.
Other important initiatives to improve the plight of SMMEs include reducing red tape and accelerating government payments to service providers. The department is piloting a “municipal red tape reduction dashboard” in three municipalities. It targets many municipal processes that involve SMME application processes and others. If successful it will be extended to 226 municipalities.
There has been progress on accelerating payments to service providers, with public works and infrastructure minister Patricia de Lille announcing last week that, largely through a centralised tracking system, 1,686 or 95.4% of invoices were processed within 30 days for the week of August 12-19 — a dramatic improvement from 2019 when payments were late on more than 2,000 invoices per week. The next phase is to cut that payment period to just 15 days, which will significantly improve the cash flow of SMMEs.
The department states there were 3.3-million micro and informal businesses in SA in 2020. The International Finance Corporation estimates that SMMEs constitute more than 90% of all formal business in the country, employ 50% to 60% of the workforce and contribute 34% of GDP.
I’ve often pointed out that in the right economic conditions, if SMMEs grew enough to need an extra employee, the effect on unemployment would be significant. But we don’t only want most of them to grow “a bit”, we also want a sizeable percentage of them to flourish and become big businesses, hiring more and more people and paying more and more tax to enable government to provide better services to those in need. And then a percentage of those, we hope, will become global businesses with unlimited scope for expansion.
What we need to do is create an environment that makes that scenario potentially possible, no matter how ambitious it may sound given the bleak economic conditions.
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