If Minister Lindiwe Zulu's approach and attitude are to be believed, then South Africa might just have a shot at achieving its 2030 National Development Plan goals. The Minister appeared to hit the right notes for SMMEs on issues such as access to opportunities, with 30% procurement set-asides allocated for SMMEs and a promise to compel government departments to pay SMMEs within 30 days or face punishment.
She also announced the migration of the Small Enterprise Finance Agency (SEFA) to her Department, which will afford better oversight of the funding of SMMEs.
The Ministry of Small Business & Development has an enormous task ahead of it. It has been identified as being the government catalyst for the creation of some 8 - 11 million jobs and employment opportunities. The Minister acknowledged that many of these would need to come from the procurement sector - Government and private - as well as from easier and more equitable access to finance and funding.
The obsession with price as a determinant for successful government tender bids, has to date, seen many SMMEs competing on an equal footing with big business, more easily able to out-price and out-bid them. By setting aside a ring-fenced 30% procurement slice for SMMEs, the criteria in this sector can be measured against development necessity above price (which will still be a determining but not necessarily deciding, factor). It would be better still, if an additional stimulus for SMMEs were to enable SMMEs to deliver the requested services based on their capacity. Either way, we believe this deliberate effort to provide procurement opportunities to SMMEs will attract more entrepreneurs to take the plunge to enter the market, resulting in the overall growth of a focused entrepreneurship 'culture' - the new currency for a progressive South Africa.
However, on reflection, the aspect of access to finance does not seem to have been adequately addressed by the Minister. She continues to believe the solution lies solely in government financed development funds. This is a strategic drawback. Government development funders on their own, are ill equipped to provide the funding necessary to grow entrepreneurial levels in South Africa from the current 6% to the desired 15%, required by emerging economies.
While we applaud the Minister's continued drive to have government pay SMMEs within 30 days, that effort only assures that government will not be the reason why SMMEs cash-flow fails. It has nothing to do with their overall success. What SMMEs actually need, is for the Minister to leverage her good office and induce private sector funding and support of SMMEs. Primary lending institutions will not readily fund SMMEs - mostly due to the high level of risk associated with funding SMMEs, who generally lack collateral.
We strongly believe the Minister should explore ways in which government can mitigate these risks on behalf of the private sector funding institutions. For example, the Minister can advocate that government departments who contract SMMEs should cede the payment of that contracted service to a private institution that provides funding to the SMME to service said contract. This would give the private sector real incentive to fund SMMEs, as they would be assured that once government pays for the service it will have loans paid out through the cession. When private institutions are assured of repayment of their loans, they will be more open to extending loans to SMMEs and there will be more funders who will come on board to provide funding to SMMEs. A win-win situation for all in the value chain.
While academically, the Minister is heading in the right direction, we believe she needs to cultivate a deeper and closer working relationship with the private sector to bolster the slim R3.5bn budget she has been allocated to achieving her mandate. The private sector remains her best tool for facilitating SMMEs to deliver the desired annual 800,000 jobs. The Ministry of Small Business Development is by definition about growing the private sector and therefore it is imperative the Minister invests more in working with the private sector to develop private sector instruments that facilitate business growth, beginning with access to opportunities, access to funding and even basic business training.
