Business Day: JOHN DLUDLU: Preparing SMEs for life after Covid-19

Department of small business development data shows only a small number of small and medium-sized enterprises have received funding

On June 3, department of small business development representatives appeared before parliament’s portfolio committees to confirm what’s long been feared about the government’s response to saving small firms: only a fraction of the multitude of small and medium-sized enterprises (SMEs) were in line for the billions in relief announced by the government and private sector.

According to the department’s numbers, only 1,501 SMEs have been approved for funding, mainly in the form of debt relief as growth and resilient funding (working capital assistance) was put on hold. This amounts to R530m, about R30m above the initial amount committed by the government. As expected, the MPs were less than impressed by this modest progress report. But most watchers of the SME space are not surprised.

After all, the hard lockdown to slow the spread of the disease decimated fragile SMEs still reeling from the weight of credit downgrades, the recession, red tape and late payments by the government and large companies. Our website was jammed with frustrated messages from business owners about the rigmarole they had to go through to access the billions worth of help supposedly available.

According to calculations of young entrepreneurs Makhosazana Luthuli and Miles Kubheka in a paper titled “Beyond the Curve”, as much as R35bn was available to assist SMEs — informal and formal — from public- and private-sector sources. This is true in theory at least. In practice, the story is different.

Curiously, though, the approvals and commitment levels of the private sector appear higher than that. It’s significant to mention that this is the case also with funds to non-clients — in other words, new applicants for these special Covid-related funds.

The primary reason for this tardy, ineffectual response is simple: the lack of a commonly agreed data set about the shape, size and complexion of the SME segment of the economy (both formal and informal, survivalist micro enterprises employing two or three people, and freelancers). This crisis has only been deepened by Covid-19 and requires a collaborative solution soon after the crisis.

Faced with this lack of data, the government has sought, rather clumsily, to use the Covid-19 assistance measures to also fix the problem of the absence of databases and to sift out non-SA business owners.

As well as the impossible paperwork required — a luxury for an SME owner — the problem is that the “solutions are developed by people who are not close to the challenges faced by SMEs. Most SMEs aren’t able to navigate the maze,” Kubheka and Luthuli conclude in a depressing tone. “The SMEs are still broken and unable to access life-saving relief.”

Of course, life would be vastly different if big business, state-owned entities and the government just settled outstanding invoices to SMEs on time and, where feasible, paid SME suppliers half of the invoice in advance during the restricted economy. Now more than ever, this should be done.

In the medium to long term, though, the question is what policymakers should do speed up a recovery. South Africans will learn more details on June 24 about how the government plans to finance the R500bn stimulus package and early signs of the impact of this socioeconomic relief.

Still, two things are clear from the public sector point of view: first, the money is woefully inadequate, and second the state’s capacity to spend the available resources is sorely lacking. However, it would be criminally negligent for the government to allocate more money without strengthening its spending capacity. The lessons of the past two months cannot be ignored. A partnership with the private sector appears an obvious place to start.

In the latest edition of a series of issue papers dealing with Covid-19, consultancy firm McKinsey & Company is suggesting some concrete steps for governments to engineer a credible recovery of SMEs. These include easing access to help; that in maximising the impact of government response measures governments should create an “SME nerve centre” to serve as a single orchestrator; activating the full ecosystem; and that ensuring all efforts are aligned with the overarching goals policymakers should direct their focus to delivering three foundational interventions that are of highest relevance to SMEs — access to local demand, support for internationalisation and enhancement of productivity; and that governments should replan for the next normal.

On the last point, the McKinsey partners make some embarrassingly obvious points that are often missing from SA’s policy-making discourse: that is, prioritise sectors that have been worst hit but easy to recover; support high-performing firms with better-than-average potential to scale up and innovate; and promote a culture of entrepreneurship aimed at enhancing business creation in priority industries, increasing the number of high-quality jobs, and improving the socio-economic resilience and competitiveness of SMEs.

As with the task of saving lives, it seems increasingly inevitable that governments and policymakers will have to account fully for how they handled the task of saving livelihoods after the world has learnt to live with this pandemic in the short term in the absence of a vaccine.

• Dludlu, a former Sowetan editor, is CEO of the Small Business Institute.

by Business Day – https://www.businesslive.co.za/bd/opinion/columnists/2020-06-16-john-dludlu-preparing-smes-for-life-after-covid-19/