In a paper released in August, entitled Transformation, Inclusive Growth and Competitiveness: Towards an Economic Strategy for South Africa, Finance Minister Tito Mboweni promised to renew his focus on taking small business growth in South Africa seriously - and it's been a hot topic ever since.
This policy paper talks to several strategic moves that will be put in place to effectively turn our economy around. For starters, it mentions reducing red tape by 25% over the next five years through revisiting the Red Tape Impact Assessment Bill, and introducing late payment penalties on government departments that are taking too long to pay small businesses for their services.
Interestingly, Mboweni also talks about lowering the barriers to entry and addressing distorted patterns of ownership through increased competition, and he proposes the following approaches to help realise this:
- Competition and market structure issues should be considered in the drafting of new legislation, policies and regulations;
- Development finance should be made more accessible to new entrants, with a small business and innovation fund being created for businesses currently in the ideation/start-up phase; and
- Government support, in the form of incentive programmes, being better communicated and simpler to apply for, especially for small business.
As this sector is a prime focus for Riversands Incubation Hub, we’ve seen many small businesses grow in spite of the state of the economy, and believe this is due to the fact that they are more agile and better able to weather tough times by spotting the rays of opportunity through the clouds.
Knowing this sector as well as we do, we believe there are several areas that should be taken into account in the finalisation and deployment of Mboweni’s plan.
- Create policy certainty and then take action! It is not government’s job to create or find entrepreneurs, but it is their responsibility to create the policies that help them thrive and offer clear communication about the roadmap to implementation – with this should come putting a deadline on paper and meeting it. We’re all a bit policy-fatigued. It’s time for us to see some action.Government has, for example, been talking about the release of more spectrum in the telecoms industry for quite some time and it is again mentioned in this plan. A decision needs to be made and policies need to be implemented.
- Cut the red tape According to theWorld Bank Doing Business Survey 2019, South Africa is ranked 134th out of 190 countries in terms of ease of starting a business, and most entrepreneurs will cite negative experiences with government as the reasons for this. Taxes, regulatory barriers, licensing and obscure, difficult, admin intensive processes are all named as barriers to entry. Sometimes, the best thing government can do to help support entrepreneurs is get out of the way.
- Open up Immigrants account for nearly a third of all new businesses opening in the US, and Riversands frequently plays host to trade commission delegates who are scouting for local entrepreneurial firms wanting to set up operations in other countries. So well do these delegates understand the value inherent to entrepreneurs that they actively find ways to simplify moving local businesses over. Our government needs to be a bit more inclusive, from a global perspective, creating more incentives that attract skilled professionals, as well as internationally experienced entrepreneurs to its shores. This would most certainly result in more seasoned start-up founders choosing South Africa, bringing with them the opportunity for skills transfer, international networks and high growth businesses that create jobs.
- Support capital providers With any start-up, the challenge is to survive and gain traction before the money runs out. Black-owned businesses are, in this space, especially vulnerable, as many of them start from a lower base with less investment capital and little or no collateral security, and access to capital providers can make or break it for all of them. Mboweni’s paper talks to simplifying access to finance and of course, we welcome this, but are we not running the risk of flooding the system with too much ‘easy money’ in the form of government grants? Will this not, in and of itself, create even more problems for government to manage?Either way, government needs to make becoming a capital provider more attractive, not less!
- Give the small business a (tax) break! If a small business gets behind on tax payments, it can be extremely difficult to recover. Government should consider offering repayment structures for small businesses so mistakes or bad management of tax don’t close them down.
- Work with what we have The fourth industrial revolution may be the flavour of the day, but that shouldn’t mean we should ignore existing industries to focus on launching high-tech businesses. Allowing for natural growth, rather than top-down solutions, will mean we build on existing industries with solid foundations. This should be the focus rather than constantly playing catch up by generating new industries from green field sites. 4IR will come but it needs to be a slow evolution, not a rushed job.
- Incentivise SMEs to resolve our social challenges Government is well placed to create an environment where companies that serve the public good can thrive but it should consider incentivising the creation of solutions to societal challenges. Healthcare and education are obvious sectors that would benefit most should an incentive programme be announced with one company, QualiHealth - a privately owned business that has found a way to provide high levels of health care at affordable rates - already proving that solution creation companies can thrive. You only need to look around and see that technology is empowering businesses to solve the most intractable problems, at scale – now imagine if we could unleash this power on our social challenges?
On the face of it, our government seems to have its heart in the right place, but this plan needs to be firmed up and followed up with action.Supporting growth of the SME sector will bring with it the results they intend, including addressing dire unemployment figures, but there are several important considerations that could mean the difference between small businesses making or breaking it in South Africa and should be taken into account.
* Jenny Retief is CEO of Riversands Incubation Hub. Views expressed are her own.