'Stop thinking like government'

Professor Sharon Smulders of the South African Institute of Tax Professionals. (Supplied)

Professor Sharon Smulders of the South African Institute of Tax Professionals. (Supplied)

According to the Nedbank Small Business Index, a quarterly survey-based index launched in 2013, 57% of the small business owners who felt labour conditions were unfavourable also said that the current labour laws posed the greatest constraint to their business. 

Not to be outdone, the latest Global Entrepreneurship Monitor (GEM) report indicates that South Africa still has one of the lowest rates in entrepreneur activity in the world. Considering that small businesses have the potential to ignite the economy, something needs to change.

“While no country can claim to have found the ‘silver bullet’ for accelerating economic growth, our country could not have performed worse if it had tried,” says Catherine Wijnberg, founder of SMME growth accelerator Fetola. 

“With less than 30% of business start-ups getting past the starting block more must be done to make owning a business more attractive and a better investment for entrepreneurs.”

The National Development Plan envisages that about 90% of jobs will be created through small and expanding companies by 2030 and this is supported by the fact that the average return on assets (ROA) of 0.26 vs 0.04 shows that the small businesses are more resource efficient and have a greater dependence on labour. 

Unfortunately, the SMME is also less likely to have the capacity for a Human Resources (HR) professional or the expertise to navigate the punitive and restrictive labour laws in existence today. For Winjberg, this needs to be addressed with employment incentivised rather than penalised.

Andrew Brown, director at The Daily Buzz, suggests that: “SMMEs need to be excluded from industry bargaining council agreements and be able to set their own wage levels, be exempt from onerous labour relations procedures and scrap minimum wage levels in all industries.”

Interestingly, Gerrie van Biljoen, executive director of Business Partners, believes that the current laws open up opportunities for the SMMEs: “As larger companies move towards a sub-contracting model or close divisions to stay compliant, the SMME can step in and solve the problem and take opportunity by both hands.  It’s easy to get hooked on labour.”

Managing director at Novate Legal, Eugene Botha, says: “The rhetoric tends to be that South Africa’s Draconian labour laws hamper small businesses and prevent job creation, but in our experience this is not borne out by the facts. 

“They are far more hamstrung by high levels of regulation and compliance requirements such as tax regime, intellectual property and even the business registration process.”

“Many tax practitioners who serve this market confirm that the tax administration burden is hampering the potential growth of the business,” says Professor Sharon Smulders, head of tax technical for the South African Institute of Tax Professionals (SAIT). 

SAIT has also pointed out that the assistance and requirements imposed on SMMEs has been fragmented with no centralised ministry taking responsibility until now, with the introduction of the Small Business Ministry. However, is this freshly hatched SMME Ministry going to make a difference?

Daniel Marcus, the owner of two small businesse’s and a serial entrepreneur, and he is not convinced: “Quite often the current legislation stifles innovation and the entrepreneurial spirit, rather than promoting it and my fear is that the addition of yet another ministry will only add to that trend.”

Mari Lee, chief executive of Development Communication Solutions, says: “If government wants to start supporting small businesses they need to do an almost impossible thing: stop thinking like government.”

Current regulation and compliance requirements do not make investment into an SMME an attractive prospect and are limiting investment and growth. Hopefully the new ministry will grasp this trend and revitalise the SMME with incentives and support, building an industry that’s vital for the economic growth of the country.

This article has been made possible by the Mail & Guardian’s advertisers. Contents was sourced independently by the M&G’s supplements editorial team.