Business Maverick

Webinar Q&A: The effects of Covid-19 on South Africa SMMEs

By Ruan Jooste 2 April 2020
Caption
A general view of shop owners wearing masks on Day Four of National Lockdown on March 30, 2020 in Pretoria, South Africa. (Photo: Gallo Images/Alet Pretorius)

In a Webinar on 1 April, host Ray Mahlaka discussed the various effects that the spread of COVID-19 in South African might have on small businesses with guests John Dludlu, CEO of the Small Business Institute, and Bongiwe Gangeni, Deputy CEO for Retail and Businesses Banking at Absa, sponsor of the discussion. But the devil remains in the detail. Here are some of the answers to questions that Maverick Insiders asked during the webinar.

It is a scary and lonely place out there for small and medium-sized businesses in South Africa. Not only are they already facing a sluggish economy and are trading in an environment strangled by red tape, but the COVID-19 21-day lockdown and Moody’s recent downgrade does not bode well for their future prospects either. And the possibility of extending the isolation period beyond that have business owners shaking in their boots. 

Here are some of the top queries: 

  1. Very few people have an understanding of what is out there – what are the true requirements for the government’s SMME fund, what exactly is the Rupert fund offering versus Oppenheimer fund. How long does it take before business owners will qualify for relief?

Dludlu says SMMEs need more information from the government and the private sector.  

“Over the past week we’ve been inundated with requests for more information about how to access the economic support measures that the government and the private sector have announced,” he says. 

That mainly entails the R500-million-odd support for debt relief from the Minister of Small Business Development, debt Restructuring options offered by the Small Enterprise Finance Agency (SEFA), and other government growth and resilience funding facilities, Dludlu says. 

 The donations from the Motsepe, Oppenheimer and Rupert families have also attracted great interest, but the SBI, like all of us, awaits the specifics. Dludlu said that Business Partners will be distributing the Rupert donation to SMMEs in what sounds like grants for smaller businesses and low-or no-interest loans to those who can resume profitable businesses within a year. 

“Unfortunately, information has been trickling down slowly and SMMEs say their applications for help filed on the government website have not even received an acknowledgement. We call for patience from business owners.  All new systems are bound to encounter teething problems in the beginning and we want the government to be sure it is giving our money to actual businesses in need.”

Furthermore, to government, Dludlu asks, “Please let’s work as hard as we can to ensure that we’ve all the information on hand; we have call centre operators to assist with enquiries; and more importantly, we simplify access requirements. We shouldn’t have to elaborate on details that in the end stop the money from reaching intended beneficiaries – the job-creating SMMEs.

“Let’s forego the red tape; already our SMME owners are spending as much as nine working days on compliance requirements each month. It doesn’t have to be overly onerous, just efficient,” he adds.

The SBI has put together a webpage to start coordinating all the information and initiatives announced and how to access them here. 

Small Business Development Minister Khumbudzo Ntshavheni has also confirmed the relief measures were underway, saying reference numbers for fund allocations are expected to begin on 1 April – but also acknowledging the risk of multiple applications clogging the system.

More details can also be obtained at Business Maverick here:

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2. Do you have to be registered for VAT to get relief as a small business? Is SARS going to consider some relief for VAT as they did for PAYE?

Nobody has to be registered as a value-added tax (VAT) vendor to qualify for relief, however, there has been no relief specifically outlined for late VAT payments by vendors. Interest will be imposed on any VAT payments made after their due dates, regardless of the vendors’ VAT turnover. The 10% late payment penalties and 20% underestimation penalties are percentage-based penalties in the Tax Agreement Act. The percentage-based penalties, however, may be remitted in exceptional circumstances, if the taxpayer was “incapable of complying with the relevant obligation” in a tax statute. Given the COVID-19 pandemic, it will probably constitute exceptional circumstances for any requests for remission of percentage-based penalties and interest in the Tax Administration Act. Nevertheless, any requests for remission of penalties and interest will be on a case-by-case basis. 

3. What’s meant by small businesses? Who actually qualifies for the relief measures? Do so proprietors form part of the programme? 

Gageni says, unfortunately, no universal definition of an SMME exists in both government and the private sector spaces in South Africa,  which has the potential to complicate matters, however, Absa has not limited its debt relief measures in terms of any form of criteria like annual turnover. 

She says all eligible customers in need of short-term liquidity relief will qualify for the programme and can also apply for any of Absa’s other credit products. These relief measures apply to Absa’s corporate, wealth, business bank, private bank and retail customers. 

Business Partners Limited, who will be administering the R1- billion funding for the Ruperts and Remgro will have distinct and separate financing programmes available for both sole proprietors and formalised SMMEs to ensure widespread support. 

Other banks and funding platforms, however, may be more specific in their criteria.  

4. What is the worst-case scenario post the COVID-19 shutdown period in terms of economic growth, jobless figures and the environment SMMES will have to operate in? 

The worst-case scenario is that the general economy – now reeling from a downgrade and retailers unable to pay suppliers or landlords – struggles to rebound. It’s not just going to have a direct impact on SMMEs, but bigger businesses who buy from SMMEs will also suffer the consequences, says Dludlu.

“We are also concerned that the funds earmarked for SMMEs don’t reach them on time – many have already closed their doors and retrenched; that some many of the 3.9-million people currently employed by formal SMMEs don’t return to work, let alone those working in the informal sector; that the 266 000-odd formally registered employing SMEs don’t survive COVID-19, nor do informal businesses.”

“Of course for entrepreneurs, many will find new opportunities and many will again hire people and pay their taxes, but starting again could be a challenge too far.”

“Plainly speaking, this is a nightmare. In a country with 40% unemployment and 55% youth unemployment, failure to adequately respond to this crisis could turn the 1994 breakthrough into a social explosion.  

But we do have to applaud the President for choosing to protect the health of his citizens despite concerns for the economy. It is a brave thing to do. It is the humane thing to do.”

  1. What’s an adequate response? Is enough being done to cushion the blow? How long will relief measures continue? What counselling and support is available to small businesses owners and their employees?

Dludlu suggests that:

  • Let’s cut interest rates by another 2% – and not wait for another MPC meeting 
  • Drop the petrol price now, not in two weeks
  • Let’s do our best to put a moratorium on retrenchments for now and postpone VAT payments to help cover salaries
  • Let’s create a one-stop-shop for all of the government’s economic support measures and divert all other money in government departments (once estimated in Parliament to be R15.5 billion) and agencies designed to support SMEs to the DSBD Fund.
  • Let’s stand with our foreign counterparts like the Ethiopian president Abiy Ahmed asking the G-20 to help finance Africa’s recovery so we can avoid turning to the IMF. We don’t need to reinvent the wheel – let’s just look at other countries that responded effectively to the 2009 GFC: they acted with speed to stimulate the economy and save livelihoods. 

Gangeni says that Absa’s customers should continue to communicate with their bankers and their suppliers about their difficulties.

“The programme is testament to our commitment to finding real, customer-focused solutions, in a time of great uncertainty for everyone,” she says.  

State departments are also providing much assistance for employees and the self-employed, in accessing UIF and tax incentives.

 More details were promised on 3 April on how the Oppenheimer donation of R1-billion will be channelled to the employees of SMMEs, but it looks like banks will be administering interest-free loans on their behalf.

Gangeni says that a lot more can be done, yes, but a lot of assistance is already available and business owners and employees need to find out what is readily available and offered by the private sector.

 The SBI says the most critical steps needed is for the economic cluster, led by the minister of finance, to communicate all the economic support measures – the quantum and the duration with great haste and put a stop to the fragmented piecemeal announcements.

“Simultaneously let’s address all those who are trying to abuse the system and swindle our people. It’s time some people are donning orange overalls,” says Dludlu.

The SBI says There’s much more that the government could have done over the past decade to shore up small businesses, which make up 98.5% of the firms in the economy. The biggest letdown has been the failure to implement section 18 of the Small Business Act. This would have required all ministers, legislators and policymakers to ‘think small first’ before enacting new rules, which can end up becoming more strangling red tape.

They suggest that Parliament should consider holding the executive in contempt since they never implemented that section in law.

But this is no time for blame apportioning. As the President said on Monday, let’s fix the mistakes that have been made to date.

“Post the Coronavirus outbreak, the government clearly cannot respond the same way it has in the past regarding the support of small business through policy formation,” says Dludlu. “We cannot be an afterthought.” BM

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