Supporting small businesses needed to fast-track economic recovery

As the saying goes, when you support a small business, you are not helping a corporate executive team buy a second or third vacation home. You are helping a child get dance lessons, another a team jersey, a parent to put food on the table and another to pay a mortgage, or a student to pay for much-needed education.

Supporting small, medium and micro-enterprises, or SMMEs, as they are known in our everyday jargon, is what is needed to fast-track economic recovery. South Africa desperately needs alignment of government policy, funding and other resources to support this underdeveloped segment of our economy.

There are various definitions of an SMME, though the Ministry of Small Business Development has published the official definition of what constitutes an SMME. This definition centres on the annual turnover and the number of employees that such an enterprise employs. Micro-enterprises employ up to ten employees, small businesses between ten and 50 employees and medium-sized enterprises employ up to 250 employees.

Turnover thresholds have been set for every sector in the economy. For an agricultural enterprise to qualify as a micro-enterprise, turnover must be less than R7 million. The turnover of a small enterprise must be between R7 million and R17 million. A medium-sized agricultural enterprise has an annual turnover of less than R35 million.

Irrespective of the exact number of staff or the turnover thresholds, these enterprises are the heartbeat of our economy, including in the township and rural areas. The more support that can be secured for them, the higher the likelihood of meaningful, sustainable, economic recovery, job creation and social upliftment over the medium to long term.

There are three critical elements that must be secured to encourage meaningful growth in this segment of the economy. Government policy can be developed to support these enterprises, e.g., through grants to qualifying beneficiaries. Support from the financial services sector is needed in the form of blended funding programmes. Real success would require genuine private- public partnerships. Intermediaries are needed that can identify and support the SMMEs.

There are a few government departments with advanced grant and support programmes to SMMEs. The Department of Agriculture, Land Reform and Rural Development, the Department of Small Business Development, as well as the Department of Trade, Industry and Competition, should play a leading role in the sustainable development of these enterprises. If done well, much can be gained in ensuring that rural and township economies, in particular, grow sustainably to help reduce poverty and improve living standards, which have been identified as key Sustainable Development Goals by the United Nations.

To date, the chief concern has not really been a shortage of budget allocations by the National Treasury to the departments responsible for economic development.

The general quality of the administration of grants, on one hand, and the perceived misallocation of grants, on the other, have proven to be the downfall of these departments. To be kind, it can be said that many of these departments have an unacceptable track record of implementation. If we agree that the track record of the central government departments has thus far been weak, it should follow that the provincial governments, except for the Western Cape, have an awful track record.

It is also safe to conclude that the private sector has been reluctant to participate in any blended funding programmes. Blended programmes are simply ones that provide funding support to qualifying SMMEs through a facility that is a combination of a government grant and a commercial loan from either a bank or a credit provider. There are few successful blended funding programmes. The reluctance of the private sector stems from the widely reported misappropriation of grant programmes and the unwillingness from our banks to expose themselves to reputational risk associated with much of the wrongdoing said to have taken place in the sector over the years. This is an unfortunate situation.

The Department of Agriculture, Land Reform and Rural Development announced several blended funding programmes in the past that have died a silent death due to a combination of the onerous qualification criteria, inability to find willing partners, and lack of cooperation between the department and blended funding partners such as the currently distressed Land Bank.

The Industrial Development Corporation (IDC), under the leadership of TP Nchocho, is now partnering with the department. The IDC has a strong track record of implementing its programmes, but the restricted mandate may hamper the broad-based allocation of the benefits under the programme to all participants in the agricultural sector. But at least the IDC can be trusted to ensure that the programme will be revived, and beneficiaries will receive needed support.

A major opportunity might lie in the emergence of confederations and intermediaries that can support government departments in identifying qualifying beneficiaries and distributing grants to them.

Organisations such as the South African United Business Confederation (SAUBC) and the South African Transformation and Emancipation Council (SATEC) are good examples of mobilisers of support for government policies to be amended and benefits to be provided to qualifying SMMEs. There is much to be learned from the passionate individuals spearheading these two organisations, especially in so far as making a difference in rural and township economies is concerned.

As a comprehensive business and economic federation, SAUBC can contribute meaningfully to sustainable economic development. This can be particularly so if it strategically draws out the likes of dynamic Export Councils, Industry Associations, Joint Action Groups, Corporations, while it also interacts with Government and Communities.

SATEC, on the other hand, can play a bigger role in mobilising full participation by emerging farmers in the food value chain while it also engages government, multinationals in the food value chain, as well as established farmers with a sound and sustainable food value chain transformation and economic empowerment programs. If done well, the positive ripple effects would contribute to poverty alleviation and skills development, ensuring that millions of vulnerable citizens, especially women and children, get to escape the poverty trap and experience better lives. Over time, the country’s rural economy would be lifted to compete shoulder-to-shoulder with the economies in towns, cities, and peri-urban spaces.

For any of the above to happen, South Africa must accept that applying the same methods over and over again while expecting better, different outcomes, should no longer be tolerated if the country is to recover for the benefit of all. Brave leadership, which also comes with open-mindedness instead of an obsessive hold on to failed, approaches, is needed if the efficacy of B-BEEE and cadre deployment -as we have come to know them - is to be honestly assessed and systemic corrections introduced to help carve a better path for sustainable economic recovery in which all will benefit.

Solly Moeng, DonValley Reputation Managers and?Bennie van Rooy, private and public sector executive.