South Africa: Small business’ ability to create jobs limited by red tape, says Black Business Council

By Xolisa Phillip
Posted on Thursday, 12 May 2022 15:23

Job seekers wait beside a road for casual work offered by passing motorists in Eikenhof, south of Johannesburg, South Africa, March 3, 2022. REUTERS/Siphiwe Sibeko

South Africa’s plan to create 11 million jobs by 2030 through empowering the small business sector via targeted procurement, better access to funding, and cutting red tape, remains elusive, according to Black Business Council (BBC) CEO Kganki Matabane.

The 11-million jobs target is set in the National Development Plan (NDP), South Africa’s blueprint economic document, which not only details the country’s problems, but also proposes solutions, such as using small businesses as a vehicle to generate new employment.

South Africa’s official unemployment rate rose to 35.3% in the fourth quarter of 2021, according to Statistics South Africa’s (Stats SA’s) Quarterly Labour Force Survey (QLFS) published in March 2022. This is the highest rate recorded since Stats SA began compiling and publishing QLFS figures in 2008.

“The NDP says by 2030 we need to create more than 10 million jobs. We are now in 2022, and far from that. It doesn’t even look like there’s someone in government tracking that [NDP jobs goal],” says Matabane.

“In the last six months, things have become worse, especially for those doing business with the state, because of procurement regulations,” he says.

The problem is people have to go to the banks and apply to qualify.

“State-owned companies and government departments are not procuring [goods and services] because of the uncertainty created by the [Constitutional Court] ruling on the [preferential procurement] regulations.”

The court of last instance on constitutional matters declared the preferential procurement regulations of 2017 – a regulation that required companies tendering for public procurement projects to meet certain pre-qualification criteria – invalid.

This was because the regulations were found to be inconsistent with the Preferential Procurement Policy Framework Act (PPPFA) and the section of the South African constitution requiring public procurement to be fair, equitable, transparent, competitive and cost-effective.

“There is an impasse. Most of the state’s procurement has come to a standstill. Small businesses that depend on government [procurement] don’t know what to do,” says Matabane.

On access to funding, Matabane says: “The problem is people have to go to the banks and apply to qualify. If people have not been trading for almost two years, some will not qualify for any assistance from the banks.”

The BBC has proposed blended funding, a mix of loans with favourable repayment terms and lower interest rates and grants, as an alternative to traditional financing.

“You don’t need a loan if you don’t know how to repay it and if you are still trying to recover. Most of the small business people have retrenched employees, are behind on payments or have been kicked out of premises because of failure to pay rentals,” says Matabane.

Red tape

A few weeks ago, a BBC delegation that included Matabane met with the minister of small business about the plight of the sector, particularly issues around red tape.

“There’s no clarity on what the plan is to deal with red tape,” says Matabane. “The president appointed Sipho Nkosi to head a team that will help resolve red tape issues faced by small businesses. Once we understand what Sipho Nkosi’s role is, that will also help.”

The other big problem is that there is [a dearth of small business] credit data.

The BBC has suggested one-stop-shop mobile trucks that will go to townships and villages to rollout tax, company, and employee registration services.

Small businesses also have to deal with the unavailability of short-term unsecured financing from big institutions, including banks, says Darlene Menzies, the chief innovation officer at Finfind, which matches small businesses to funders. Menzies also chairs the board of Kula, a fintech company that caters to the informal sector and micro enterprises in townships.

Although the unsecured financing is available from fintechs and smaller lenders, “the problem is that money comes at a premium”, says Menzies.

“The other big problem is that there is [a dearth of small business] credit data. It’s difficult for a lender to ascertain a small business […] credit [behaviour]. It creates high risk, and that’s why the money is expensive,” she says.

Informal traders and micro-enterprises have their own unique set of challenges. One of these is the lack of digital wallet payments, such as M-Pesa, in South Africa. No such payment mechanism has taken off in the country, making it a laggard among its peers on the continent.

“If you lend money to a trader, it’s very easy for them to repay you when it’s done on the phone. That’s not available in this country because it’s not as widely used,” says Menzies.

Menzies notes a drastic drop in employment among small businesses at the onset of Covid-19. “There was a huge layoff of staff – permanent, part-time, and casual. As businesses recover, employment is starting up again, but a lot of that is re-employment.”

Cost-saving measures

At Burgess Plumbing, a mid-sized enterprise on the East Rand of Gauteng that has been in operation since 1978, management (50%) and staff (30%) took salary cuts while also instituting wide-ranging cost-saving measures to survive the Covid-19 turbulence.

Chris Burgess, who founded the business at the back of his father’s house in Edenvale and grew it to a 110-staff operation, says he is relieved the firm did not have to fire employees. However, Burgess concedes that staff morale has suffered. “This is our year of rebuilding, refocusing, [and] getting the morale back,” he says.

We are not fighting for small business for the sake of it – we have a crisis of unemployment.

Plumbing was among the essential services that were permitted to operate irrespective of lockdown levels. Burgess says this helped the business trade and generate turnover. “From a turnover perspective, we must have dropped 25%, but within that we were able to make ends meet.”

Although no direct government support came to the business, Burgess Plumbing made use of the state’s Temporary Employee/Employer Relief Scheme to top up staff salaries.

Burgess says the business has reinstated full salary payments and this year implemented a 4% across-the-board pay increase. “I can see a positive movement in the economy. There are a lot of opportunities. I think people are fearful of this possible fifth wave.”

For his part, Matabane says: “If we have a fifth wave [of Covid-19 infections], it might cause problems because we may have to reintroduce some of the [lockdown] restrictions.

“We are not fighting for small business for the sake of it – we have a crisis of unemployment. All of us know that if we want to deal decisively with unemployment, we need to support small businesses,” he says.

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