In May 25 2014, President Jacob Zuma announced the new Small Business Ministry (SBM), headed up by Lindiwe Zulu. The goal of this ministry was to ensure the development of small businesses and provide dedicated and focused support to a sector that faces serious challenges.
The common threats that plague small, medium and micro enterprises (SMMEs) were to be addressed — issues such as legal and regulatory difficulties, lack of access to markets and procurement, challenges around finance and credit, low skill levels and limited effective support were placed front and centre on the ministry’s agenda.
It has now been a year since the department was established and the question that begs answering is: has the department made a difference for SMMEs so far, and does it show any signs of bringing about effective change to the economy?
“The ministry has been only recently established so I think it is still too early to judge its success,” says Dr Adrian Saville, chief information officer of Cannon Asset Managers and chief strategist of Citadel. “However, it would be good to see a clear statement of what the ministry intends to undertake, including timelines. The projects do not have to be spectacular; rather, they need to be fully achievable in a relatively short space of time.”
The department’s first budget speech took place in May 2015, with Zulu making all the right noises. However, it remains to be seen whether or not the SBM will realise its potential and create a significant impact. There is the risk that it could just add further legislative confusion to the mix or that it will remain as it is today: noisy, but ineffective.
“Many government departments — at local, provincial and national levels — develop policies, laws and regulations which create an environment that may or may not be conducive to SMME formation and growth,” says Nazeem Martin, managing director at Business/Partners. “The new ministry could champion the cause of SMMEs and ensure synchronisation between policies, laws and regulations of the different government departments so they, at worst, do not add further layers of bureaucratic red tape which impede SMME formation and growth.”
There needs to be definitive action taken on the SMME frontier. Small businesses face significant regulatory challenges that place them under unnecessary pressure, especially those that don’t have the resources to manage these demands effectively. For the economy to experience the benefits of flourishing small firms there needs to be deep change and meaningful legislation.
The Small Business Project’s SME Growth Index 2014 found that 78% of small business owners were finding the business climate increasingly hostile for their growth, 61% believed that the regulatory burden has increased and 75% found the amount of red tape on the rise. This has to change, and the SBM must lead the charge.
“I believe that the SBM’s top priorities are to address the issue of red tape and the regulatory burden, to address the development and promotion of entrepreneurial and business skills and to find a way of creating a safety net for new start-ups,” says Saville. “One of the key roles of the ministry is to reduce these barriers and to facilitate the creation and development of as many businesses as possible.”
The value of SMMEs to the economy cannot be emphasised enough. Not only is it highlighted in the often quoted — but rarely achieved — National Development Plan 2030, but the Global Entrepreneurship Monitor (GEM) emphasises the value of SMMEs to South Africa’s economy quite clearly in the 2014 report. The same report also shows that government policies and regulations play a crucial role in creating an enabling business environment and that an urgent review is long overdue.
According to GEM, the new ministry must “in collaboration with experts in the field, formulate an informed SMME policy approach that explicitly acknowledges the different support requirements of different types of businesses within the SMME sector”.
“It is widely acknowledged that SMMEs are the drivers of job creation and economic growth — two things that are crucial for South Africa,” says Thomas Hoeppli, economic research analyst at the South African Institute of Professional Accountants. “Supporting and promoting SMMEs is a challenging task, though, because these businesses are very diverse in terms of their size, activities, challenges, locations and more. It is important to have a voice for all of these businesses — the SBM — to lobby for them and create a positive environment for their development and growth.”
To date the small business sector hasn’t received the levels of dedicated support and attention that it needs, in spite of the fact that it makes a huge contribution to the GDP and employment.
“According to The Banking Association South Africa, SMMEs make up 91% of formalised business, provide employment to about 60% of the labour force and their total economic output accounts for approximately 34% of GPD in South Africa,” says Vikeshni Vandayar, governance and legal specialist at the Centre for Corporate Governance. “SMMEs collectively play a significant role in the overall growth of the South African economy. As such, the need for SMMEs to not only survive, but grow, is of utmost importance.”
In her recent budget speech, Zulu did mention that the ministry had identified opportunities for co-operatives and small enterprises and the implementation of a 30% target for public procurement by SMMEs and co-operatives. However, questions remain around the effectiveness of the SBM so far and whether or not it serves the SMME population as a whole.
“The minister’s directive to ensure that SMMEs are paid in 30 days and that 30% of procurement requirements are set aside for small businesses will go a long way to eventually realising the potential that the ministry can have,” says Sivu Maqungo, chief executive of Opentenders.
“The concern, however, is that the minister’s media presence seems to be dominated by matters other than the promotion of the small business, and this possibly leads to the impression of a distracted ministry.”
Zulu also emphasised in her budget speech the value of black-owned businesses and the steps being taken to support them going forward.
“It is necessary that special attention be paid to black people in South Africa due to the historical disadvantage this group suffered and which continues to affect them, as they still constitute the core unemployed in South Africa,” says Maqungo. “This does not mean that white-owned SMMEs should be ignored. The growth of entrepreneurship in South Africa and the future sustainability of our economic survival must target all would-be entrepreneurs, regardless of skin colour.”
Saville agrees: “It is imperative that we get a population of small businesses flourishing in South Africa to solve our unemployment crisis. Putting conditions on the nature of ownership at this stage, while a critical goal, reduces the number of ways in which we can resolve this crisis. With 5.5 million people unemployed and a further 2.4 million discouraged, we simply do not have the luxury of being concerned about the race of business owners. And I would add that the same holds true for nationality. However, in the longer term, if this process does not give rise to a mass of black-owned business and lead to significant changes in the ownership structure of capital in South Africa, then we will have failed.”
“The imbalances created by the previous regime will take a number of years to balance,” says Hoeppli. “However, each business idea or SMME should be looked at individually and its potential evaluated. Resources are scarce — both for financial and non-financial support — and should be used where the highest impact can be created. If an SMME has been identified as a high-potential business that can contribute to GDP growth and create a number of jobs, particularly in a rural area, then this business should be promoted and supported, irrespective of the colour of the owner.”
Another challenge that the SMB will have to overcome is that of entrepreneurial mind-set. According to GEM, entrepreneurial activity in South Africa dropped by almost 34% from 2013 to 2014 and out of the 71% of people who started their own businesses, 28% did so because they had no choice.
Hoeppli believes one of the main challenges facing the SBM is the mind-set of many South Africans. He says a vibrant SMME sector requires people who see entrepreneurship as a choice, and a prestigious one at that.
“For many South Africans, there is a certain prestige attached to working for a large business in the corporate world,” he says.
“Becoming an entrepreneur is often not the first choice, but rather a Plan B. Moreover, people generally have a fear of failure, and being employed rather than self-employed is the safe option. We can learn from other countries; in the United States failure is seen as a learning curve. Here people tend to look down on it.”
In Chile entrepreneurs are given an almost golden ticket to success, with entrepreneurial activity encouraged and supported through the Start-Up Chile programme. It offers seed capital, free office space and fast-tracked paperwork, among other things, to entrepreneurs, including foreigners. The SBM could do worse than to bring some of these measures into the beleaguered local SMME sector.
“If we can tap into successful models, then we will be able to bring about rapid change to South Africa’s SMME sector and achieve the economic growth and social inclusion that we so desperately need,” says Saville.
“Building a business is hard work and it takes effort every single day, and the same can be said of the task of establishing an environment in which businesses can thrive with maximum social and economic impact.”
The ministry has declined to comment on this piece, making it hard to assess the next steps planned by the minister, but it looks like the SMME sector is willing to give the SBM a chance. There is hope that it will support SMMEs and make useful strides in eliminating the challenges that consistently face South African business owners, especially the much-hated layers of red tape.
“The ministry is making the correct utterances and, should it follow up with concerted action, it will certainly be taking major strides in supporting the goals outlined in the NDP,” says Maqungo.
“This ministry will need to move beyond well-meaning statements to action, and to monitoring that other government departments do in fact implement steps to make doing business that much easier.”