There is no denying the fact that COVID-19 has dealt a major blow to our economy and small businesses in particular. As the country mulls over President Cyril Maphosa’s economic reconstruction and recovery plan, which dwells on grand infrastructure projects and public employment programmes, this is also the time to consider the significance of small and medium enterprises in the plan to economic recovery. This is a call to support the small businesses at all levels of government and private institutions.
A 2018 study from the Small Business Institute (SIB) reveals that 98.5% of formal businesses in South Africa fall into the category of small and medium and micro-enterprises. They each employ between one and 250 people.
However, that was before COVID-19 came into the picture. The SIB estimates that our economy will lose many as 55 000 small businesses due to them not being able to keep afloat and therefore forced to shut down because of the pandemic. This will cause hundreds of thousands of job losses. In fact, we have already seen it happen as some businesses have and continue to struggle to recover from the economic setback caused by the pandemic.
At the beginning of the lockdown, this year government announced a loan guarantee scheme worth R200 billion, earmarked for business loans for struggling businesses. However, the South African SME Finance Association (SASFA) estimates that only R13 billion worth of funds from that scheme was successfully taken up by qualifying businesses at the end of August. Interestingly, the proportion of small and medium enterprises which successfully qualified for this scheme was less than 35% in May. Given the tremendous need for funding, one would be forgiven to assume or expect that small businesses would be more eager to grab this funding opportunity.
However, a closer look at the lack of uptake of the assistance loans points to a greater systematic problem over the access to funding for small businesses in the country.
There is no shortage of literature and personal testimonies, from local entrepreneurs, lamenting about how our government policies and finance institutions are very risk-averse and require significant time to understand their very complicated processes.
This is also confirmed by the Centre for Development Enterprise (CDE) which notes gaps in South Africa’s funding of small businesses. Factors such as exclusionary eligibility for funding qualification criteria, lack of accurate information, and time lags between application and disbursement of funding, all together contribute to the vulnerabilities of small business and adversely affects their uptake of funding opportunities.
There are too many onerous requirements to qualify for funding, especially for small businesses. This is not only time consuming but also discouraging to new small and medium entrepreneurs. Government and the private sector must work to improve the ease of accessing funding. This can be done through simplifying the financing eligibility criteria on established small businesses, processes, and information on funding requirements, and having faster turnaround times for applications.
The common feature to successful fast-growing economies, including African economies like Kenya, Ethiopia and Rwanda, has been the greater support and encouragement of small and medium enterprises. Small businesses have been the ones championing innovation and job creation, which has spurred on economic growth in those economies. Much of this is lacking in South Africa. That is despite us having an entire department dedicated to Small Business Development and also having well-capitalised financial institutions.
The fact there is no centralised system with information on the financing of small businesses is in itself a constrain to the growth potential grown of many small and medium enterprises. In this regard, the Inkatha Freedom Party (IFP) stands in support of all efforts aimed at addressing issues of access to funding and reduction of red tape. It is for this reason that the IFP also supports the recently proposed Township Economy Bill, mooted by the Gauteng Department of Economic Development, as it seeks to address the long-standing issue of no-funds being available for small businesses, especially those operating in our township economies.
Given South Africa’s pressing need to create a more inclusive, fair, labour absorbing economy, we must invest in small businesses as part of our economic recovery strategy.
The time for looking towards big business to drive the economy and create jobs has passed. We have looming unemployment and poverty challenge, and that requires unconventional and pragmatic policy responses. The sooner we accept and treat small businesses with the seriousness they deserve, the sooner we can improve our economic fortunes.
If our economy is to stand a chance at recovery, policy action must be directed at supporting small businesses so they can bring about the higher levels of innovation and generate jobs. I hope that, since the government plans to undertake massive infrastructure projects, the implementation thereof must involve local companies, supplying locally sourced materials and skills, in those projects, and they must be paid on time for the goods and services rendered.
The success of our economic recovery will depend on more effort being placed on creating a small and medium enterprise-friendly environment. This will encourage more citizens to be creators of their wealth and employment instead of them perpetually depending on the state to provide. What most entrepreneurs need is a hand up rather a handout.
Bonginkosi Dhlamini, Member of the Gauteng Provincial Legislature and Chairperson of IFP Gauteng.