OPINION | Bribery and corruption: The other threat that could destroy SA's small businesses

Mncedisi Xego
Mncedisi Xego
  • Covid-19 and lack of access to finance have been flagged as major threats to small businesses in SA and are well publicised.
  • But, says Mncedisi Xego, corruption and bribery also cut off entrepreneurs' access and sap their income. 
  • Xego calls for tools and support for honest officials, as well as educational campaigns for entrepreneurs.

Some barriers to small, medium and micro enterprise growth – lack of access to finance and markets – have been much publicised.

But in addition to these, corruption and bribery have been flagged by many small business owners as a major business growth impediment.

These business owners cite the cruelty of the demand side of corruption, which either shuts them out of opportunities, or forces them to part with their hard-earned money, hampering their chances of becoming self-sufficient and sustainable.

Our business landscape generally sees two distinct types of corruption: grand corruption, which involves large sums of money and collusive dealings amongst senior managers and politically exposed persons ('PEPs') or highly influential individuals; and the repressive demand-side of corruption, perpetuated by those who demand and accept bribes, especially from SMMEs.

With regards to grand corruption, besides the obvious extensive economic damage, the undermining of governance and the negative impact on the lives of citizens robbed of service delivery, the involvement of highly influential individuals inflicts the most damage, as it gives corruption a veneer of acceptability and renders it a norm.

The alleged widespread looting of Covid-19 resources aptly demonstrates this, as well as the unfair competition that SMMEs face.

Given that this corruption is currently receiving a great deal of attention, focus is on the demand-side of corruption and its impact on SMMEs.

Small business owners may fall victim to many scams, but one such scheme allegedly involves eliciting 'bribes' from companies, supposedly in order to swing tender awards in their favour.

The bribe, in addition to being corrupt simply by virtue of being a bribe, is also a scam.

Anecdotally, a friend mentioned receiving a phone call from an individual who claimed that they were an official working for another Metro, who offered to influence an award in favour of their company if they were prepared to pay a "facilitation fee".

My friend, not interested in corruptly procuring work, refused to pay the fee. But to his surprise, they were awarded the work regardless. Go figure.

Over the years, we have heard many stories of hard-working, honest and competent SMME owners who lost opportunities because they refused to pay bribes, with ruthless behaviour intended to instil both fear and compliance.

Unfortunately, this raises the question of whether the opportunities then ended up with businesses that did pay bribes, and whether these were qualified to do the work.

To rub salt into the wound, there is also the question of whether a particularly unscrupulous official might blacklist SMMEs that refuse to pay bribes.

The most painful anecdotes we hear are heartbreaking stories where bribes have been demanded, calculated as a percentage of the tended value – way in excess of the profit margin charged by these SMMEs.

This means that for all intents and purposes, the business in question is hijacked – a very denigrating prospect indeed, considering that some of these owners left their jobs in the pursuit of self-reliance.

While many SMME owners will tell you in no uncertain terms that paying a bribe is both immoral and unlawful, many also believe, rightly or wrongly, that bribery and corruption is so rife and normalised that one really only has two choices: close shop or toe the line.

There also does not appear to be a widespread belief that whistleblowing is a feasible option, for fear of reprisals.

The demand-side of corruption creates a toxic quadrilateral-kite like relationship, with the SMME sitting right at the bottom, the buyer (i.e. employer) and the financier on the sidelines, with the bribe-taking official at the apex.

At worst, the official extracts almost all the economic value of the transaction, leaving all the other parties worse off: the financier will in all probability not be paid, the buyer might end up paying for inferior service or product – all in haste for the official to cash-in, and the business owner will be left with all sorts of debts to pay.

In extreme cases, employees, other creditors and the taxman remain unpaid. A vicious cycle indeed.

As the saying goes, the road to hell is paved with good intentions. SMME owners who succumb to these transactions would rationalise that the situation is a temporary one, i.e. to attain the much-needed track record to access better opportunities and finance. They will profess their intention to kick the habit as soon as their goal is achieved.

Sadly, though, kicking the habit is rare, and bribery and corruption becomes the norm.

Even though it is true that the SMME owners that pay bribes are no helpless victims, that they have a distinct ability to distinguish between right and wrong, it is equally true that the pressure placed on these SMMEs has made it much more difficult to make the right choices. And the more entrenched corruption becomes, the more this pattern will continue.

As it is, entrepreneurship is a treacherous sea with all sorts of dangers lurking everywhere.

There is, too, a real challenge for honest and ethical officials, who bemoan a lack of tools and support to root out bribery and corruption.

A senior official in a provincial government department once remarked that even though they can sense and smell corruption, they cannot act arbitrarily.

There is a need for widespread campaigns to alert SMMEs to the dangers of bribery and corruption. Prevention is always better than cure. The campaigns must include regular interactions with SMME owners to discuss and find innovative ways to fight corruption. It must be made patently clear, in word and action, that corruption is not tolerated.

Business owners must feel confident that action will be taken and that they will be protected when they report corruption. To this end, effective and independently managed anonymous tips programmes should become the norm. These must be supplemented with other anti-bribery and corruption mechanisms like lifestyle audits and staff rotation. Needless to say, the law must take its course.

While it is generally accepted that the cost of corruption and bribery is prohibitive for businesses, the economy and the citizenry, this has as yet to be quantified adequately. For the SMME sector, there is no doubt that corruption and bribery tarnishes its image and unfortunately further escalates the high risk already associated with the sector. This pushes away investors and makes access to finance much more difficult. It also impairs our ability to attract our best innovative minds to the entrepreneurial space.

As we rebuild our economy from the severe Covid-19 impacts, let there be a renewed focus on stemming the tide of corruption and bribery to create an equitable, competitive business environment, where every SMME owner would have a fair shot at economic prosperity regardless of their station in life.

This is justice worth pursuing for SMMEs and we dare not give up. In the pursuit of this goal, let us be reminded of Martin Luther King Jr's famous words: "The arc of the moral universe is long, but it bends toward justice".

Mncedisi Xego is an SMME Finance and Development Specialist and Founder and CEO of Royal Fields Finance. He writes in his personal capacity and views expressed are his own. 

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