The private sector does not only consist of big business. To realise inclusive growth, Small, Medium and Micro Enterprises (SMMEs) need to be at the centre of government’s plans to address unemployment, inequality, and poverty. This is especially important as government is seized with efforts to create a meaningful social compact in South Africa.
Regrettably, government has tended to view the private sector as a homogeneous group and frequently only engages “big business”, which is only one part of the private sector. As such, for the President and government at large, big business has been preferred in advocating for issues affecting the entire private sector. This is clearly reflected in how big business is heavily represented in various government structures and committees, such as the National Economic Development and Labour Council (NEDLAC) and is consulted, if not relied upon, to address issues affecting all private sector players in the country.
Absence of small business voices
Quite clearly, there is a notable absence of small business voices in these government structures. This is rather problematic given that the SMME sector is an important contributor to the economy and job creation. According to StatsSA, “small businesses have, without much fanfare, slowly taken over more of the turnover pie. In 2013, small businesses generated 16% of total turnover in the formal business sector, expanding to 22% in 2019. The contribution of large business waned over the same period, from 75% to 68%”. In addition, small businesses, coupled with the informal sector, are currently the largest low-skilled employment creators in South Africa.
The blame, however, should not be directed at big business. Understandably big business must look after its own interests in a middle-income economy that still underperforms. Instead, government, and in particular the Department of Small Business Development (DSBD), has failed to execute its mandate which would ensure that the small business sector plays a prominent role in the South African economy. The department was established to lead and coordinate the promotion and development of SMME’s and ensure an enabling legislative and policy environment to support their growth and sustainability. It has spectacularly failed on this score.
For example, the DSBD failed to advocate for and implement measures to cushion small businesses from the adverse effects of Covid-19. In the first hard lockdown of 2020, despite consultations with the ‘private sector’, the small business sector was left in the cold regarding the development and would be economic and social impact of government’s Covid-19 regulations. The relief measures and funds put in place to assist existing SMME’s to keep them afloat during the Covid-19 pandemic were ineffective due to stringent qualification measures that were blind to the realities faced by small business on the ground.
For instance, in March 2021, National Treasury announced that government’s loan guarantee scheme of R200-billion, which was initiated to help struggling businesses get through the Covid-19 pandemic had failed to reach even a 10% disbursement target, as it only managed to advance R18.16-billion in loans to small and medium-sized businesses. At the time, it was stated that this poor disbursement was due to banks insisting on personal surety from business owners before granting them loans, even though loans were government guaranteed. Other business owners complained about the scheme’s administrative problems; reasons for banks turning down loan applications were apparently not explained, rejected business owners were then allegedly offered more expensive loans by banks, and the scheme was poorly advertised.
2020 research from the Small Enterprise Development Agency (SEDA) showed that SMME’s in South Africa declined by 11% year on year from 2.6 million to 2.3 million in quarter three of 2020. The sector’s employment also contracted by some 1.5 million jobs. Since that time, South Africa’s small business sector has remained wounded. Research from SEDA also showed that in 2020, SMMEs accounted for 68% of all jobs in South Africa.
It is thus important that SMMEs drive the conversation about addressing the challenges hampering job creation, as it employs the majority of the country’s workforce. Currently, SMMEs in South Africa face daunting hurdles. Several of them are worth restating and ought to be urgently addressed by the Presidential Red Tape Task Team. These include the removal of heavy compliance burdens, high barriers to entry, limited access to low-cost finance, stringent requirements for funding applications and scarce business opportunities.
Government needs to recognise that the SMME sector is the backbone of South Africa’s economy, and the sector’s performance and recovery will determine how effectively the country addresses unemployment, low growth and poverty. Thus, it is important that when the President speaks of the private sector playing a lead in job creation, he has the SMME sector in mind and not just big business. Furthermore, government should not diminish its role in leading job creation efforts.
Written by Calvin Matlou and Siseko Maposa_ Published on News24