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Black Business Council throws R1bn lifeline to township economy

BUSINESS MAVERICK / 21 MAY 2020 - 14.55 / XOLISA PHILLIP

The Black Business Council is changing tack and adopting a multifaceted approach to transformation. So far, so good. The black business lobby has managed to stitch together a partnership with Ubank, which will provide much-needed funding to small businesses. The bigger goal is an overhaul of public procurement to shake up the uneven playing field.

A billion rand deployed to township-based small businesses in five years sounds like a generous sum. But it is not – the need far outstrips this sum.

Ordinarily, a township-based business is faced with structural barriers that include access both to market and funding, says the writer.

In recent weeks, the Black Business Council (BBC) and Ubank have concluded an agreement, whereby the latter will establish a R1-billion facility dedicated to funding South Africa’s township economy. The fund will deploy R250-million in capital a year to help township-based businesses with their funding needs.

Ordinarily, a township-based business is faced with structural barriers that include access both to market and funding. These cracks have been exacerbated by the Covid-19 crisis, which has exposed the schism between small and large businesses.

Some big manufacturing businesses have been able to navigate the uncertainties and the disruptions caused by the coronavirus outbreak with relative ease. In some instances, big businesses are thriving because they have been nimble enough to adapt their manufacturing facilities and processes to pump out masks and sanitisers.

Large business operations are able to leverage their balance sheets to access financing on favourable terms. Others can go for as long as six months without getting payments because they are well capitalised and have massive reserves.

That, in part, explains the gulf between small and large businesses. Admittedly, those big businesses whose balance sheets are debt-laden and are experiencing cash flow constraints are excluded from this assessment.

The point is that in times of crises, small businesses are the least likely to survive. And Covid-19 has brought this reality to bear.

It is also cold comfort that South Africa has one of the biggest failure rates of small businesses in the world. Furthermore, the country has one of the lowest rates of small business entrepreneurship uptake compared with its peers on the continent.

That almost puts paid to the National Development Plan’s projections that small business will be the main engine room for job creation by 2030.

The other frontiers where small businesses, particularly those which are black-owned, battle structural impediments are late invoice payments and the current legislative framework for public procurement. It is a minefield out there for small and micro-enterprises.

What makes matters worse is that such businesses do not seek large sums. In a typical scenario, a small business would require anywhere between R10,000 to R10-million, at the most, to continue operations and make orders successfully.

BBC CEO Kganki Matabane says the lobby group, which has now trained its eyes on policy advocacy, has adopted a multipronged approach to help small businesses overcome South Africa’s structural barriers.

The black business lobby scanned the environment to partner with a financial institution that would service this often-neglected segment of the market.

After a year and some months of negotiations, the BBC settled on Ubank, which caters to the lobby group’s core constituency. Covid-19 added urgency to the talks, which culminated in the R1bn funding facility being established.

In the current environment, most small businesses are unable to fulfil orders because funding has dried up.

What makes matters worse is that such businesses do not seek large sums. In a typical scenario, a small business would require anywhere between R10,000 to R10-million, at the most, to continue operations and make orders successfully.

The Ubank partnership is one of the ways in which the BBC wants to resolve the challenges of access to market and funding. However, the organisation won’t stop there because there is much groundwork to be done in other areas.

Matabane is hopeful the revamped Public Audit Act, which gives the auditor-general powers to take delinquent departments to task, will go a long way in helping to undo the culture of late invoice payments. This has long been the BBC’s battle cry and predates Matabane’s tenure as CEO.

In fact, this is the foremost threat to small businesses’ survival: late payments. It is also the BBC’s biggest frustration. The lobby group is in discussions with the Department of Small Business and the National Treasury about how to resolve this challenge.

One option is to use the Budget allocation process and set aside amounts owed. In such instances, National Treasury would make payments directly to parties owed. But there are legal considerations that have to be made. The discussions are ongoing.

Furthermore, the BBC is sharpening its pens to make inputs to the Public Procurement Bill published earlier this year. The Bill will replace the Preferential Procurement Policy Framework Act, which the BBC views as a hindrance to transformation.

The BBC wants the new legislation to be “utilised by the government to open the market for black people,” says Matabane.

The current framework has too many loopholes and has not created an enabling environment to level the playing field.

Instead of focusing on one thing and shouting from the sidelines, the BBC has decided to get into the ring and become an active participant in policy formulation and implementation. The black business lobby group has also cast the net wider in terms of solutions to the conundrums facing South Africa’s previously disadvantaged.

In that regard, it has taken an approach of “the more, the merrier”.

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LINK : https://www.dailymaverick.co.za/article/2020-05-21-black-business-council-throws-r1bn-lifeline-to-township-economy/?

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