Business Times: ‘Bounce Back’ billions on offer

New and improved helping hand extended to SMEs battered by riots, floods and global pandemics

A R15bn credit guarantee scheme from National Treasury has come into effect to help small and medium businesses recover from the ravages of Covid-19, the July 2021 riots and recent flooding in KwaZulu-Natal has been welcomed as a good step, but is it enough and has it come too late to be of real help to them.

Economists believe timing is a more critical issue than the actual amount, saying these types of schemes are most effective if launched immediately after a crisis. Furthermore they say the bureaucracy and complexity that surround these aid schemes also make it difficult for small business owners to access them.   .

Treasury announced in a statement early this week that the “Bounce Bank Support Scheme”  –  first signalled by Finance Minister Enoch Godongwana in February’s budget –  had come into effect, adding its purpose was to “provide additional funding to qualifying businesses in order to grow the South African economy and to facilitate job creation”.

“The Scheme is expected to facilitate the recovery and bounce back of businesses beyond the Covid-19 pandemic lockdowns. The Scheme will also help those businesses recovering from the July 2021 civil unrest in KwaZulu-Natal and Gauteng, as well as the current on-going flood related disaster.”

Treasury also said that in June 2020, a separate Covid-19 Loan Guarantee Scheme was established to “help ease financial pressures experienced by qualifying businesses negatively affected by low economic activity following lockdown restrictions to reduce the spread of Covid-19”.

“ The Guarantee Scheme formed part of a package of regulatory and direct support measures which provided significant financial support and helped preserve many jobs and kept businesses afloat. The Bounce Back Support Scheme benefits from lessons learnt from the 2020 Loan Guarantee Scheme to provide for greater take-up including by Development Finance Institutions (DFIs) and non-bank Small and Medium Enterprise (SME) finance providers. “

It said this latest scheme consisted of a loan guarantee mechanism of R15bn and a smaller equity linked scheme which will be facilitated by National Treasury and development finance institutions. The smaller equity linked scheme will be introduced later in the year as a complementary tool of R5bn.

In terms of the “Bounce Back Support Scheme” ,businesses with a maximum turnover of R100m an annum will be able eligible to access the scheme. The max loan amount will be set at R10m per business  and a minimum loan of R10,000. Treasury said the loans are to be “granted at a preferential capped rate (repo plus 6.5%)”and that “government and lenders (participating banks, DFIs and non-bank SME finance providers) are sharing the risk of non-repayment of these loans with government taking the first 20.5% of losses”.

It said businesses will be required to repay the loan over a period of up to five years after any deferred interest period agreed to by the lenders.

The scheme comes at a time when SA’s economy is under significant pressure because of  global and local events.

A report by the PwC on the South African Economic Outlook released this week said the Purchasing Managers’ Index indicator over the year ahead had worsened significantly in March compared with February  due to the disruptions in supply chains caused by????.

“This deteriorated year-ahead perspective, combined with recent load-shedding trends and the adverse impact of flooding in KwaZulu-Natal, has weakened our overall economic outlook for the country. We now expect local economic growth to slow from 4.9% last year to 1.8% in 2022 under our baseline scenario”.

Stanlib chief economist Kevin Lings said he isn’t “ critical of the total value allocated to this scheme” as the amounts allocated can always be adjusted according to the demand that comes through.

But he says what is critical is “how timeous they are and clearly given how many businesses failed during the Covid lockdown this is a little late in terms of dealing with the impact of Covid”.

Lings says this is demonstrated in the 1.8-million jobs lost in the wake of the pandemic, adding that a lot of them came from small businesses permanently shutting their doors.

“Many small businesses have already failed and gone out of business and it is very difficult for  these businesses to re-establish themselves. The timing of this type of assistance is critical as to the impact. It’s a little too late, a lot of restaurants  have already failed, a lot of tourism related industries have failed. Not all of those businesses can be revitalised. Some businesses can be revitalised so this does not mean it is without merit and some businesses no doubt will be looking to access any assistance to get re-established or maybe they are in business and really struggling and could do with some financial support.  But to make the biggest impact, you would want these types of measures to be driven harder during the worst of Covid lockdowns and at the time when businesses would have actually been failing.”

He said the same applies to the July 2021 violence and unrest, which occurred almost a year ago. Any support would be most needed was in the immediate aftermath.

But even with the correct timing, such as when government brought out initial assistance through its 2020 Loan Guarantee Scheme in the wake of the pandemic, there was very little uptake, said Lings, who believes the complexity and bureaucracy around accessing these types of schemes may be a contributing factor.

But John Dludlu, CEO of the Small Business Institute, said this latest version “appears to have taken into account previous failures” and that “the inclusion of commercial, non-traditional financiers and development finance institutions is helpful given the capacity challenges faced by the state”.

Dludlu said a  “key lesson from past interventions is that simplicity is key to how many businesses will take up the scheme”.

“The SME ecosystem has been advocating for something like this especially the ‘first loss’ element in financial assistance. Hopefully, SMEs, especially those with high growth potential, will utilise this scheme. After all, the country’s job crisis can only be resolved by  thriving small businesses. We look forward to the equity scheme which is planned for later in the year.”

Pan African Investment & Research chief economist Iraj Abedian says the credit guarantee scheme is the “right way to go”, but that it also “depends if you want to see the glass half full or half empty”.

“Is it too little in proportion to the damage that has been done and the needs of SMEs, of course.  Can the government afford more, no?”

Abedian says another problem lies with SA’s banking system, adding that the country’s banks are not especially good at “assessing who is an eligible small business” or “who is taking a chance”.

Abedian says the criteria the big banks use for small business loans are the same ones they apply to  “big business with big balance sheets and  SMEs don’t have that”, which makes it very difficult for small companies to access finance even under normal circumstances.

As for how to include the informal business sector, Abedian says this is extremely difficult and almost impossible to do because there is no data available.

Azar Jammine, chief economist and director at Econometrix, says the amount earmarked for the scheme is not an “insignificant amount” but there could an argument made that it could be slightly bigger than that.

He also believes the amount should be affordable for Treasury, which has a contingency reserve in place in every budgeted year, to cater for events such as the July 2021 riots and the floods.

Asked for comment on the latest scheme from National Treasury, BUSA CEO Cas Coovadia believes the assistance a business needs must be assessed on an individual business basis and must be sustainable.

“Having said that, we would assume the National Treasury has set an upper limit because of budgetary constraints. This assistance must be provided within the limits of what the country can afford”.

Coovadia says would need support to rebuild infrastructure, employee support, managing insurance claims and other necessary support to rehabilitate the business.

Palesa Phili, CEO of the Durban Chamber of Commerce and Industry NPC is optimistic that the funds will provide relief and help to resume operations. Phili says  small businesses are dependent on cash flow to run their daily operations. However many of these businesses are not insured against disasters, which poses a challenge because Kwazulu-Natal is prone to natural disasters.

Phili adds it is critical for the government to work with businesses to ensure funds are fairly and transparently allocated.  ​

by Business Times –

Nick Wilson and Dineo Faku