Statement in response to the SONA from the Small Business Institute
19 February 2018
It’s now or never – time to shift government from blocking to enhancing sustainable SMEs
A number of the President’s comments suggest that government will begin to examine the role it has played in holding back South Africa’s SMEs. This is not only welcome, but is vital if South Africa is to create jobs and enjoy inclusive growth and transformation.
Consider this snapshot of the past two years:
- In 2015 South Africa was ranked 60 places higher in the ‘Ease of doing business’ survey; our position has plummeted to 131st out of 190 countries;
- Entrepreneurial activities by 25 – 34 year olds, where unemployment is highest, fell by more than 40%;
- And as a direct indictment of government, the time taken to complete the procedures necessary to start a business in South Africa more than doubled since 2015 – a year after the advent of the Department of Small Business Development.
SBI also applauds the nascent efforts to begin prosecuting the corrupt officials in our society. The pervasive culture of corruption – at every layer of government – is devastating to individuals and SMEs, particularly at municipal level, where service delivery expectations are highest.
In response to SONA:
- Government should refer to SMEs as a segment rather than a ‘sector’ of our economy. Small businesses are diverse – they cover all industrial sectors and operate in all urban, regional and rural areas across South Africa. Small businesses grow organically; they are small before they become larger. Referring to our small businesses as a ‘sector’ implies that they will always remain small.
- Reviewing the structure and size of the state is overdue. This brings the Department of Small Business Development clearly under the spotlight. Do we need a junior, stand-alone department that silos small business development in our country? This runs contrary to the NDP calling for small business support to be consolidated and strengthened to achieve the vision that small businesses will drive employment growth in South Africa. After four years since the establishment of the Department of Small Business Development, with a cumulative budget in the region of R5.2-billion and a consistent year-on-year underachievement of its annual targets, there is still no coordinated effort – or evidence-based strategy – to drive government’s efforts to support this vital segment of our business community. The White Paper for Small Business Development published in 1995 remains as relevant today as it did 23 years ago.
- We therefore recommend that the Ministry of Small Business be collapsed into a small and effective advocacy office, positioned within the Office of the Presidency to heighten its role as champion of the small business community. Failing that, we would suggest it be housed in the Treasury. Recognising that small businesses are segment of our business community, essentially every Minister in the Cabinet should be a minister of small business since each undertakes its own initiatives to support small business development. A knowledgeable, streamlined Ministry for Small Business providing support to all other ministries and departments across all spheres of government will ensure a better, more consolidated and more coordinated effort to support small business growth in our country.
- In responding to the call to action towards growing small business, growing employment and growing the economy for all South Africans, the SBI will – in partnership with the SBP – soon be launching the first ever baseline study to be conducted on small, medium and micro businesses in South Africa. With funding drawn from the business community, our baseline study will provide the path-breaking evidence for more effective public policy dialogue to advance small business development and expansion; providing a vastly improved understanding of the business dynamics of small businesses operating across South Africa and the challenges they face in growing their enterprises and employing more people. Getting South Africa onto a high-growth trajectory demands that South Africa fundamentally changes its game plan and places small business centre stage of the fight against poverty, inequality and unemployment.
- The President said, “We will reduce the regulatory barriers for small businesses.” We know that the growing regulatory burden, coupled with regulatory uncertainty, has consistently been the single most important major impediment to small business growth over the past five years. Section 18 of the National Small Business Act provides government with the immediate legal mandate to ‘think small first’ by assessing – retrospectively and prospectively – the effect and application of legislation hampering small business (Section 18 (2) (b)). It is time to give effect to this important clause in the Act, never before implemented since the Act’s promulgation in 1996.
- We also recommend the establishment of a Red Tape Challenge, calling on business and government to join forces to cut red tape, along the lines that the UK government introduced. The UK government sent a call to all businesses to tackle unnecessary regulations with vigour and to report back on what was working and what was not. In the period of 5 years (2010-2015), this simple initiative produced a cumulative net saving in compliance costs to businesses in the region of £10-billion, freeing them up to get on with the business of being productive employment generators. Let us be one of the leading governments in modern history to reduce the overall burden of regulation, rather than increasing it and to make South Africa a good place to start, run and grow a business for the benefit of all our citizens. The SBI, in partnership with SBP, would welcome the opportunity to provide the practical advice to government to initiate a joint Red Tape Challenge.
The NDP targets a 90% contribution to GDP from SMEs by 2030. We have a lot to do to achieve this. We are more than willing to assist. #SendMe
Siki Mgabadeli, Director of Communications, 082.925.6469, firstname.lastname@example.org
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