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Ramaphosa’s promise to SMEs falls flat

Andrew McGregor
By Andrew McGregor
Managing Director, Who Owns Whom

Andrew McGregor is the Managing Director of Who Owns Whom, an independent research organisation

Posted on Thursday, 13 June 2019 10:22

Supporters of the Democratic Alliance picket demanding job opportunities ahead of the country's May 8 election in Pietermaritzburg, South Africa, April 17, 2019. Reuters/Rogan Ward

Despite president Cyril Ramaphosa reaffirming government’s commitment to promote small and medium-sized enterprises (SMEs) and create jobs, efforts to support SMEs in South Africa are uncoordinated and largely ineffective.

In fact, the recently published Tourism Amendment Bill appears to contradict the president’s commitment and is a startling example of the incongruity between the words and actions of the State. The proposed restriction of the duration of short-term hospitality rentals appears to be aimed at the Airbnb industry which is dominated by small private owners.

I must disclose that my family has a holiday home in Arniston in the Western Cape where the local community’s income from fishing has dwindled due to overfishing by factory ships. The community has now turned to tourism to supplement their income. A small, 100% women- and black-owned, local hospitality business manages the Airbnb rentals on our home and several others, and it employs seven people. The proposed law will reduce the income of members of a marginalised community.

The Who Owns Whom report on The Accommodation Industry shows that 74% of the industry (by revenue) is foreign-owned, indicating that this proposed law will effectively benefit foreign hotel chains at the expense of poor South Africans.

Research commissioned by the Small Business Institute shows that while 98.5% of South African businesses are SMEs, they only provide 28% of jobs. In contrast the percentage of SMEs in the European Union (EU) is similar at 99% but they employ 66% of the workforce. The EU takes the SME sector seriously and its Sixth Framework Programme has spent R34bn ($2.3bn) to support research and innovation for the sector.

Some years back Who Owns Whom approached a small business fund for an investment to fast track our African research rollout, but found that the lending conditions where no different from the mainstream banks and they criticised our business plan for lacking enough empirical research, when that was one of the key reasons for seeking the funds.

Who Owns Whom chair and businesswoman Maureen Mphatsoe had a similarly poor experience when she invested in a small retail business and applied for equipment funding, initially from the Department of Trade and Industry.

  • “After a long-drawn process that took over a year, the application was then transferred to the “new” small business department. A follow-up with the director-general there revealed the file got lost. No assistance whatsoever was received ever. The lack of funds curtailed expansion investment, and due to unfavourable prospects under the circumstances and associated sustainability risks, I chose to divest and reduce exposure by closing five of the eight outlets with the consequent loss of 15 jobs, and selling the balance (at a loss),” she explains.

The recently created CEOs Initiative’s SA SME Fund was launched amid much fanfare and with the president in attendance, but its mandate curiously precludes the funding of start-ups and is also limited to ‘new industries’, meaning that small businesses which, say, get a contract to build a school, cannot knock on the fund’s door for bridging finance.

There are however many laudable private sector initiatives.

  • Nestlé South Africa’s enterprise development programme invests R250,000 ($17,000) per micro-distributor to cover the cost of a pick-up truck or bakkie, stock of Nestlé products and cash safes. By 2020, 200 micro-distributors will become an extension of Nestlé’s distribution network, operating in townships and rural areas.
  • Anglo Zimele and Old Mutual’s Masisizane Fund are also doing good work while hundreds of unemployed youth graduate with certified diplomas in information technology from the Vodacom Youth Academy every year.
  • 94 learners recently completed a skills and enterprise development programme initiated by Comair.

These are just some examples of the tens of thousands of South African companies which have effective small business development initiatives and learnership programmes, and are supporting small suppliers in addition to meeting their tax obligations to the state.

SMEs don’t only need funding – they need access to market to grow and become sustainable.

One of the objectives of the ministry of small business development was to coordinate efforts to support small business across government. Perhaps the new minister Khumbudzo Ntshavheni will bring progress and turn talk into action.

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