Howard Barrell
OVER A BARREL
Looking to a bureaucrat to stimulate entrepreneurial activity is rather like asking a journalist to forget his or her sense of superficiality. It is about as well-directed an expectation as striking to persuade your employer to create more jobs, or calling on millions to hate capitalism in order to attract capitalist investment. It is – not to put too fine a point on it – unlikely to produce the desired outcome.
It was not surprising, therefore, to hear Alec Erwin, Minister of Trade and Industry, recognising this week that the government has had little success with promoting the development of small- and medium-sized enterprises.
A bureaucratic cast of mind has seemed to dominate many of the government’s attempts to stimulate the sector. The institutions set up for the purpose have, yes, enjoyed a degree of autonomy from the government. But their upper reaches have tended to be well-populated by lesser members of the African National Congress nomenklatura. Some of them have brought fractious organisational habits with them. And small-business promotion has been discussed, planned, workshopped, sequenced, academicised, conferenced, summited presidentially and – this week in a special gathering of notables in the chamber of the National Council of Provinces (NCOP) in Cape Town – parliamentised into a state of near stupor.
If – and it is if, I am afraid – any small-businessperson attended any of these meetings, he or she could be forgiven for feeling something of an oddity, because that is precisely what he or she would have been.
What small-businessperson can afford the time or money to sit and waffle for between one and three days?
The politicians gathered in the NCOP this week thrive on waffle and, generally speaking, they were not disappointed. The speeches from Erwin and his new director general, Alistair Ruiters, were, however, refreshing in their candour. Not enough had been done to promote small entrepreneurs, they said, and what had been done had in some instances been misdirected. These shortcomings had to be vigorously corrected in the shortest possible space of time.
“It will be impossible,” said Erwin, “to create the employment that we need or the redistribution of income that is vital to our future if we are not able to make the small, micro and medium enterprises sector the largest and most dynamic in our economy.”
And Ruiters conceded what many of us had long suspected: “We have learned in government we don’t have all the answers.”
How, then, is South Africa to tend to this sector of the economy so that it grows by leaps and bounds in the next 20 years and, in the process, provides employment or self-employment to many of the millions of South Africans now without jobs? It will not be easy.
For a start, a small-business strategy has to overcome an unfortunate inheritance. A central feature of white domination in South Africa was that it systematically deprived black people of forms of wealth – such as freehold land – which they might otherwise have been able to mortgage to raise capital for, say, a venture into manufacturing. The result is threefold: small enterprises are underdeveloped among black South Africans; so, too, is a culture of entrepreneurship; and millions of black people still lack what Erwin called “the key to finance – collateral”.
Khula, a government agency, makes wholesale funds available to banks and NGOs for onward lending to small enterprises.
But the absence of collateral among many black entrepreneurs has confronted banks with a sort of cultural problem. Banks, in Erwin’s words, “don’t know how to evaluate risk for black-owned small, micro and medium enterprises. They are unfamiliar with the sociology and economies of black business.”
Add to this a further problem. The trend in banking is away from maintaining branch structures in areas where account- holders have, or deal daily, in small amounts of money. Retail banking at the less well-off end of the market is just not as profitable as it used to be.
And this, in the South African case, means banks are closing down branches in outlying areas catering mainly to a black clientele. Witness the closure of two banks in Yeoville, Johannesburg, recently.
Developing a vigorous small-business strategy in a situation in which many of the entrepreneurs you are trying to foster cannot access the banking sector is a nigh impossible task.
The government, NGOs and banks will have to find solutions that overcome the impediments to access if we are to develop a vibrant micro-enterprise sector and, I dare say, to prosper as a country.
Officials from the Department of Trade and Industry say banks’ uptake of Khula funds for small business has improved markedly over the past year.
A few weeks ago Ruiters announced a further R100-million for Khula, bringing its capitalisation to just over R400- million. But this is peanuts, when compared to the scale of the need out there for access to money to make a go of things.
The government appears willing to bypass the banks, if necessary. Erwin has hinted at more direct state involvement in making capital available to small entrepreneurs in future.
The major mea culpa from Erwin and Ruiters on small-business was to admit that trade and industry, and its aligned agencies, had not been sufficiently proactive in seeking out small entrepreneurs and offering them services. Provinces and local government could also contribute a lot by fostering conditions for business in their areas, often by merely lifting restrictions.
The bureaucrats have much to answer for. But they are such soft targets.
Perhaps we need to focus now on our bankers. Erwin has floated the idea of introducing a legal obligation on banks and other financial institutions to satisfy community reinvestment obligations. He will need to tread warily on this. But we can surely expect our banks to respond creatively to ideas and culturally innovative criteria to advance a strategy on which the prosperity – perhaps even the survival – of the majority of us may well depend.