OPINION: Rescue SMEs now or we all lose
IOL - OPINION / 11 APRIL 2020 - 17.43 / JAYESH NAIR
JOHANNESBURG - Almost overnight, the Covid-19 pandemic has completely changed our world. For the small medium enterprise (SME) sector, this is the biggest crisis they have faced.
Usually vibrant and brimming with hard-working, optimistic entrepreneurs, the sector now finds itself unable to absorb the Covid-19 body blow. It now faces a challenge far greater than any experienced to date. For decades, the government – supported by big business to varying degrees – has both acknowledged and supported our SMEs for the valuable role they play in providing employment and driving the economy.
The Finfind 2017 report found that high-growth SMEs generated 86percent of new jobs, even though they only represented 11 percent of total businesses. At the best of times, SMEs are well placed to create labour-absorbing growth. We dare not let them fail.
Broad Based Black Economic Empowerment (B-BBEE) was specifically designed to support previously disadvantaged black businesses so that they can actively and meaningfully participate in our formal economy, and to bolster our SME sector in general. In this regard, nothing has changed.
Central to the B-BBEE codes is the Enterprise and Supplier Development (ESD) pillar, which requires large corporates to contribute 3 percent of their net profits after tax towards the upliftment of qualifying enterprises and beneficiaries on an annual basis.
The law exists. The framework exists. What we need now is a fresh, new approach. Here is why.
Incubation models, for example, in which potential entrepreneurs were plied with all sorts of business training and where a lucky few received funding, have generally not had great success. The success stories are very few and very far between.
If we are to seriously maintain even a semblance of economic stability and stem unemployment and poverty in South Africa, particularly during the time of the Covid-19 crisis, then a new wave of innovation and creativity is necessary. The ESD landscape that has become predictable and stale and only mildly impactful to SMEs over the years needs a shake-up if it is to help small businesses that now face an almost unprecedented challenge.
We have a choice. We may stand by and watch this crisis happen; or we can stand up, act decisively and make a difference.
One possible solution is that additional points, call them Covid bonus points, be allocated to large corporates to count towards their B-BBEE scorecards for any initiative contributing to fighting the Covid crisis.
In addition, if procurement criteria could be temporarily relaxed, corporates could be encouraged to “pay it forward” by releasing their ESD contributions before their financial year-ends, to make available money that is desperately needed right now.
This would give SMEs the funding to actively take part in combating the virus. Small business deliveries and sanitation operations for hospitals, clinics, taxis and depots are among the many services they could offer.
Benefits of this approach would likely include:
Large corporates maintain – and possibly improve – their BEE ratings over the next year
ESD budgets are not reduced at a time when the money is most needed
The small business sector does not collapse overnight
The decades of resources and hard investment channelled to black-owned businesses to create sustainable black suppliers for large corporates is not lost
ESD contributions can change from being a grudge purchase, “an additional tax” or “just another cost of doing business in South Africa” to becoming the mechanism to save our small-business sector and ultimately our economy
Small businesses not being reliant on “hand-outs” and “bail-outs”, but continuing to provide valuable goods and services to large corporates willing and able to continue to procure from them
It’s critical that the B-BBEE codes be updated to reflect current realities. They can be an indispensable tool for supporting an SME sector that we have long recognised as key to stimulating economic growth, transformation and job creation in our country. COVID-19 provides us with a unique opportunity to bring stakeholders together in creative new ways.
I urge the government and the relevant ministries to seriously consider alternative measures to advance ESD contributions to initiatives for containing Covid-19, and supporting South African citizens and businesses adversely affected by the crisis.
One thing is certain. The way we’ve done things until now cannot be the way we do things in the future.
SMEs are brutally exposed to the worst economic storms of the pandemic. We must act – creatively and urgently – to ensure their survival. The only question that remains is: When this storm eventually passes, how do we want to be remembered.
Jayesh Nair is an advisor to Supplier Development Initiatives (SDI) specialising in supplier development. He holds a degree from Wits and an MBA from GIBS.