BUSINESS MAVERICK OP-ED

Minister, cut the red tape and free small businesses

By John Dludlu 7 August 2019

Minister of Small Business Development Khumbudzo Ntshavheni. (Photo: Felix Dlangamandla / Netwerk24)

The newly appointed Minister of Small Business Development, Khumbudzo Ntshavheni, seems genuinely eager for the job. But enthusiasm is only a prerequisite; some actual policy implementation would be useful too.

It would be premature to pass judgment on our newly appointed Minister of Small Business Development, Khumbudzo Ntshavheni, based on a few post-appointment media remarks and her recent budget vote speech. Equally, it would be irresponsible for the organisation representing small and medium-sized enterprises (SMEs) at Business Unity SA not to point out where she might direct more attention to successfully promote small business.

Since her appointment a month ago, her remarks have shown that she is one of the few new ministers who seems genuinely eager for the job. This is despite the widespread speculation that her domain, one of the fifth administration’s creations, was to be folded into an uber economics ministry including trade and industry, economic development and other agencies of economic policy.

In media interviews, conducted days after her appointment, she appeared alive to the challenges facing SMEs: late payments, a maze of red tape and general survival issues related to the operating and policy environment. However, her ideas on cutting red tape require more fleshing out.

Soon after the post-inauguration State of the Nation Address, she signalled her priorities as minister looking after the segment of the economy that the National Development Plan (NDP) envisioned would create 90% of all new jobs by 2030. Tellingly though, she makes no mention of the NDP, the government’s official policy blueprint.

Her first major policy address was the budget vote for small business development. Linking her address to President Cyril Ramaphosa’s seven priorities over the next decade, she told MPs that: “Our work in this term of office will be directed at ensuring that SMMEs [small, medium and micro enterprises] and cooperatives contribute to the two goals of, first, growing our economy at a much faster rate than our population, and; second, a million more young people being in employment over the next 10 years.” This is considerably less than the NDP’s roughly nine million jobs envisioned as coming from SMEs, but far more realistic.

A few of her pronouncements require support from other agencies, notoriously difficult to muster, with a mandate to support SMEs. These include the plan to audit all government’s financial and non-financial support to SMEs and to sort out, once and for all, the late payment issue, which is a slow assassin of SMEs.

On the payments issues, we don’t need to reinvent the wheel. Other jurisdictions have done much that is worth emulating, such as requiring big businesses and state departments to declare payment terms (and making it a criminal offence for businesses not to do so).

Ntshavheni’s policy priorities include creating:

  • a one-stop shop facility to assist small businesses (a good idea, but the devil is in the detail);

  • a ministerial advisory panel (which should include people experienced in starting, running and growing a business); and

  • rolling out incubators across SA, with the maximum period of support raised to five years;

As well as:

  • tackling the abuse of cooperatives laws (we would suggest a review of the track record of cooperatives as well – according to the International Labour Organisation, there were more than 120,000 operating in SA in 2015, but only 1,000 were filing the legally-required annual financial statements);

  • introducing a new funding model (a combination of grants and loans) to crowd in private sector money to support small businesses;

  • enrolling 100,000 youths on an entrepreneurship programme; and

  • setting up an SME ombudsman (voted down in the last Parliament when the opposition DA proposed the concept).

The minister already holds the key to vigorously attack red tape, consistently cited – often above access to finance – by SMEs as their greatest challenge. Her single greatest weapon in the arsenal to do so requires no inter-ministerial cooperation: Section 18 of the National Small Business Act, already requires the consideration (and transparent regulatory impact assessment) of whether/how every policy document, law and regulation affects small business.

We would like to urge her to gazette this immediately to give effect to a tremendously powerful tool ignored by government for 24 years.

The blended finance model was first announced by the president. It aims to provide cheap loan finance. This grants-loan funding, which will be provided through the Small Enterprise Finance Agency (Sefa), is an attempt to increase the sustainability of start-ups which typically require lower gearing and “patient capital”. The grant portion will be up to R2.5-million per company.

This proposal merely serves to emphasise the need to ensure that late payments to SMEs become a thing of the past. The minister also announced that Sefa is bankrupt because the government owes 90% of its receivables to SMEs who can’t make their repayments.

The first beneficiaries of the blended funding model will be 100,000 young entrepreneurs who will be funded through the Small Business and Innovation Fund – a joint venture between her department and the science and technology department. Details of the criteria of accessing this fund – over and above the potential to employ a minimum of 10 people – are due this week.

Within the next six months, she will launch an SMME Business Index to “track the economic health of SMMEs” in SA. She says, “we will do this so that we can measure the impact of various SMME support programmes and interventions, be they government or the private sector. We cannot continue to spend resources without measuring and directing their impact.”

This is a vitally important point and it is long overdue, but as we have said before, SA has no proper baseline study of SMEs. This piece of research – currently being undertaken by the SBP – must provide the foundation for any other.

Even though it’s not yet clear how or whether her index will be developed, it is important that we establish what works, and what doesn’t work and why not, to avoid mistakes of the past. This is so especially taking into account a disclosure by the minister’s predecessor, Lindiwe Zulu, that government’s financial support of small businesses is in excess of R15-billion. That is not an insignificant amount.

Ntshavheni opened her speech with a touching story of a government failing small business.

Imagine being young South Africans in Delft or any other area of our country. You’re very entrepreneurial and approach your own government with a business concept for support… Other partners including my department responded and made undertakings, but the implementation was slower than snail mail. It took more than five years for members of the Braai Café [the company in question] to almost realise their vision. We failed them,” she told MPs, before committing that henceforth Braai Cafés “will be operational across the Cape Flats (within 100 days), with a vision to make them the first government-supported franchise outfit in our term of office.”

Stories like these Braai Cafés are common in the SME space, and it’s refreshing that the minister acknowledges their existence.

It is envisaged that the one-stop-shop platform for SMMEs – linked to the SMME database and accessible through walk-in services and social media – will enable small firms to access “both financial and non-financial support” and track the support.

Ntshavheni says, “Ours is a vision wherein an SMME that is assisted to develop a business proposal by Seda [the Small Enterprise Development Agency] will exit with funding from either Sefa, the National Empowerment Fund and even the Industrial Development Corporation, at a minimum.”

She hopes a common funding application template among development finance institutions will improve access to funding and be adopted by commercial banks. It would be good to apply this approach to develop a common invoicing template and perhaps a one-stop-shop for invoice processing to minimise both this red tape and delay.

This is an ambitious but laudable and achievable agenda. We’d like to see her follow through her commitment to adopt a consensual and collaborative approach with other non-state actors. This approach is working well at the Private-Public Growth Initiative in which we are active participants and where we continually remind policy-makers that SMEs are not a sector of the economy, but a segment operating across all economic sectors.

Finally, the minster has, in us, a willing and capable partner to advance the cause of SME-led, transformative growth. We would urge her to adopt a fundamental approach to her work: the single greatest “intervention” she can make is to create the environment to unleash entrepreneurial dynamism and innovation. Government funding can help, but it is not government’s job to create businesses or employment; it is government’s job to free businesses to start, run, grow and create jobs with a minimum of constraints. BM

Dludlu is executive for strategy and public affairs at the Small Business Institute. Business Maverick editor Tim Cohen’s wife, Jennifer Cohen, also works for the SBI.

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