John Dludlu, CEO of the Small Business Institute, on enabling SMEs to flourish


Q: Do you think small businesses in SA have weathered the COVID-19 storm? 
A: The few small businesses that were still standing by the time government relaxed lockdown rules were faced with challenge upon challenge afterwards. As they were about to recover from COVID – after being poorly supported – they were hit by the July 2021 mayhem in KwaZulu-Natal and parts of Gauteng. But the most devastating blow has been from rolling energy blackouts from Eskom, which have come amid the return of the inflation monster and the hawkish stance by the Reserve Bank, which have seen interest rates rising fast.

Worst, the cost-of-living crisis has affected small businesses more than it has larger companies. International policy responses were more varied, considered, multi-pronged and longer-term than those of SA. Many have incorporated forward-thinking structural reforms and improvements both to e-governance and digital support for SMMEs. Being a small business owner in SA requires a lot of tenacity to weather different storms. Generally, though, they are really resilient.

Q: What effect is the ongoing Eskom crisis having on SMEs?
A: Small-business owners are telling us that they’re shelving plans to hire new employees and any expansion plans. This, of course, means talk of economic recovery is wishful thinking, especially in light of the fact that 98% of business is made up of small business – the segment that, according to the NDP, is supposed to generate 90% of all jobs by 2030. Load shedding is undermining everything we are trying to achieve as a country – from growth to jobs and poverty reduction. The investment drive by the president is being hobbled by uncertainty arising from unreliable power supply.

We urge government to speed up the implementation of the plans it announced in July, especially those relating to stabilising Eskom. If we’re serious about inclusive growth, we need to urgently tackle the Eskom crisis – otherwise we should forget about creating jobs, and our long-suffering small businesses will continue dying in numbers.

Small businesses should have the opportunity to be part of resolving the Eskom crisis, and be part of the recovery plan – not just big business. Partnering with smaller firms would assist Eskom to have access to creative, innovative and sustainable ideas, and allow small businesses to grow and give opportunities to create jobs. Hopefully, the appointment of the new board will yield the desired results of stabilising Eskom.

Q: Which African nation do you believe has the blend right when it comes to small-business policy?
A: Rwanda. It’s far easier to start and run a business there. For example, Rwanda has bounded from 143rd to 29th in the Ease of Doing Business survey, in part because of its work to ease regulatory burdens by reducing the time required to obtain a registration certificate; easing the process of acquiring construction permits; eliminating the fee for obtaining a freehold title; and making the transfer of property easier by eliminating the requirements of obtaining a tax-clearance certificate. They have also made the process of acquiring credit more flexible; VAT is now filed quarterly; they have instituted an electronic filing system; and payments required per year have fallen, while the time spent filing taxes each year has dropped from 168 hours to 113.

In a small business, regulatory compliance consumes one of the two most-scarce resources – either money for a service provider, or the time the business owner should have spent growing the business.

Q: What are the most pressing issues that need to be addressed to spark stimulation of the small-business sector in SA? 
A: Make it easier to start a business. Provide support during the first three years. Figures by the Department of Trade, Industry and Competition suggest as many as 70% of small businesses die within the first two years. And let’s stop sponsoring accidental entrepreneurs. We need more job creators, more productive businesses, and better growth prospects for those that already exist, coupled with a stable, honest and effective government.

SA needs an enabling environment that supports flourishing innovative entrepreneurship, thriving small businesses and a private sector that will drive employment. That means government working in strong partnership with the private sector. Every decision made by government has to be weighed against its economic consequence. Digging our economy out of a pothole means the way policies, laws and regulations are designed has to change.

The Small Business Institute (SBI) has been advocating for all government departments to ‘think small first’. Every minister should be a Minister of Small Business, as this is a segment of the economy and not a sector. Every sector has small businesses operating in the space. We call for an impact assessment on small businesses before any regulations are implemented. With a ‘think small first’ approach, the government can test the impact of its actions on SMEs and job creation. It can ease entry with pro-competitive legislation and ease the burden of laws written with big business in mind. The mindset should be entrenched in all layers of government.

Q: Timeous payment of SMEs is a universal problem. What are your thoughts on this?
A: In November 2021, the CEOs of more than 50 of SA’s largest corporations committed to paying their SMME suppliers within 30 days as a matter of policy; the public sector, however, wasn’t party to this effort. That said, Treasury recognises that more needs to be done. It has suggested that the 30-day payment policy be included in the performance agreements of accounting directors-general, CFOs and other officials working in this area, and that disciplinary action be taken against those who fail to comply, and who undermine the systems of internal control. Accounting officers should also be required to ensure the information to be submitted to the relevant department is duly signed off and submitted within these time frames.

Clearly ‘naming and shaming’ the culprits hasn’t worked. Of course, Treasury shouldn’t stop monitoring, but the ‘naming and faming’ and ‘naming and shaming’ should accompany punitive measures. Imposed interest payments shouldn’t be ruled out. If SA is serious about ensuring that SMMEs contribute 90% of all jobs by 2030, then those standing in the way of this should be dealt with decisively. Criminalising this violation should not be ruled out either. Similarly, the political heads of offending departments shouldn’t be spared censure.

Q: On the subject of money, financing of SMEs is another bone of contention, not so?
A: I don’t really think so. My view is that SMEs don’t have all the information they require to access funding. As we saw during COVID-19, most owners are not funding-ready. This is why programmes such as the Business Partners’ financial bootcamps are important. That is also why we support them.

For instance, the SBI hosted a webinar in July where we spoke about reflections on supporting SMEs during COVID-19. Many lessons can be learnt from managing this crisis. We realised that SMEs are not funding-ready and don’t have their paperwork in order – or know how to do so – and SMEs need to be educated on funding readiness.

They need to know where to find funding for their specific endeavours. A centralised forum is required for small-business owners to find all information on funding and support initiatives that are available from different role players. A consolidation of efforts is required to phase out duplication and strengthen initiatives that are already implemented and successful in supporting SMEs with financing their businesses.

Q: How successful have government initiatives been in reducing SME red tape?
A: So far, not really. But hope is that the new efforts, including appointing our chairman Sipho Nkosi to co-ordinate government’s initiatives, will move the dial. Hopefully, the authorities listen attentively to the voices of business. Importantly, if we cut red tape for small businesses we will make it far easier for the bigger segment to operate and succeed.

Other countries have been more successful. In the UK, they held the Red Tape Challenge. Run over the 2011 to 2014 period as part of government’s growth agenda, crowd-sourced ideas were adopted and saved more than £1.2 billion, freeing up the private sector to invest in their businesses or hire more employees. Out of 21 000 statutory rules and regulations (excluding tax and national security), more than 2  200 were scrapped or improved. The SBI applauds the instinct that suggestions should come from those who are burdened by the regulations; not those in government who, never having run businesses themselves, issued them in the first place.

Q: It has been often said that if every SME in the country could employ one extra person, this would go a long way to solving the current jobs crisis. What is the single-biggest stumbling block to this currently? 
A: We don’t treat our small-business owners as rock stars of the economy. We need to throw support at them so that they contribute – like in other countries – around 70% of all jobs. In our country that figure is low. In President Cyril Ramaphosa’s last address, he acknowledged that it’s not the job of government to create jobs but that of the private sector. We need an enabling environment for small businesses to start, run and grow so they can be free to do what they do best and create the jobs we so desperately need in SA.

Q: How, ideally, should large companies be going about including additional small businesses in their supply chains?
A: They need to simplify ESD programmes, and start optimising this by collaborating without colluding or breaking competition law. Right now, they are competing unnecessarily.

Q: Another oft-quoted mantra is that SMEs should be throwing more resources at technology. Do you agree?
A: Not really. During COVID-19, however, we saw how technology could be an advantage especially for small-business owners. Technological developments and innovative applications of programmes available to anyone with a smartphone accelerated over the COVID period. Many business owners were able to pivot their businesses to do things differently, and new tech-enabled businesses were developed or grew significantly because of the lockdown.

Q: Do you think entrepreneurship should be a mandatory school subject in SA?
A: No. Entrepreneurship is a calling, not a profession. It cannot – and should not – be taught.

By Patrick Farrell