Public-private participation in supporting SMME development

Public-private participation in supporting SMME development

by | Jun 30, 2022 | Blogs

Over the past years, the South African economy has witnessed a year-on-year decline in economic growth and gross domestic product (GDP) growth. In the pre-COVID period in 2018, GDP growth had fallen to 0.8%, while in 2019, this fell to 0.2%, accompanied by a technical recession, and this is in comparison to the average GDP growth of 4.3% between 2000 and 2008[1]. The economy shrank when COVID-19 hit the economy. To add to this burden, South Africa faced a civil disorder (July unrest) while on level three lockdown. The pressures of tighter COVID-19 lockdown restrictions, a spate of civil disorder, and several other headwinds contributed to real GDP slumping by 1,5%[2]. During and pre-COVID, the SMME domain was characterized by, inter alia, low productivity and growth, low levels of innovation, excessive red tape, delayed payments, and exclusion from value chains.

SMMEs provide most job opportunities and contribute significantly to the South African economy. To resolve the current high unemployment rate, decrease inequalities and alleviate poverty, there is a need to create a sustainable and supportive environment that supports the growth, development, and sustainability of SMMEs. Thus, SMME development is critical in mitigating some of the economic challenges faced by the country.

With the current global crisis resulting from the war in Ukraine, lockdowns in China and supply-chain disruptions, stagflation is likely to hamper economic growth. In this case, a global recession will be hard to avoid. Hence, it is urgent to promote SMME development because SMMEs are an economy’s lifeblood and serve as the economy’s backbone. SMMEs, when given the right platform to operate in and are fully supported, not only can they keep the economy going, but they can also lead the way in innovation, thus promoting industrialization.

It is high time that the public and the private sectors join hands in supporting the growth, development, and sustainability of SMMEs. Gone are the days when corporates employ Enterprise and Supplier Development (ESD) strategies as a “box-ticking” exercise to gain compliance points quickly, but it is time to drive the impact of the ESD strategies in promoting SMME development. Sustainable economies require competitive, commercially viable enterprises connected to local and regional market opportunities, underlined by a focus on both the supply and demand sides and the creation of a partnership-driven enabling ecosystem for SMME development.

ESD is one of the most powerful mechanisms to support market access, capacity-building, revenue growth and sustainability for SMMEs. As an element of the broader B-BBEE legislative framework, it accounts for a significant proportion of the total spending on small business development services and financial support. As such, ESD strategies that focus on capacity-building and scaling of suppliers, supply chain access, and revenue generation for new entrants can have an enormous impact on mitigating the currently high failure rate of small businesses.

Enabling an environment that tends to support and develop SMMEs is crucial as local government, local industry, corporates, enabling partners, donors and provincial government should join forces in formulating ESD programmes that genuinely support SMMEs. These programmes should include scaling existing entrepreneurs through improving their competitiveness, nurturing entrepreneurial talent through activities such as mentoring, establishing a supportive partnership framework with SMMEs to enable success as well as aligning and re-designing small business structures if necessary to promote commercial viability and guarantee long-term strategic value add to the market.

It is important to note that it is not only the role of the government to promote SMME development, but both the government and the private sector should join forces. The private sector needs not only to focus on ESD from a compliance angle but on the impact of ESD programmes on SMME Development.

[1] See Industrial Development Corporation ‘Economic Trends: Key trends in the South African Economy’ Department of Research and Information, December 2013

[2]See Statistics South Africa. The third wave of COVID and civil disorder pummel the economy as GDP falls by 1,5%. https://www.statssa.gov.za/?p=15008

 

A further R88 billion was allocated to Eskom to pay off its debt. Still no joy for SMMEs?

A further R88 billion was allocated to Eskom to pay off its debt. Still no joy for SMMEs?

by | Mar 3, 2022 | Blog

Finance Minister Enoch Godongwana has stated that Eskom’s debt problem requires “fiscal intervention” and there is a need for the state-owned entity to meet certain conditions [1]. Over the past decade, Eskom has accumulated a staggering debt of R392-billion, resulting in Eskom’s failure to maintain its aging coal-fired power stations and 14 years of load-shedding, thereby hindering South Africa’s economic growth rate [2]. For more than a decade, the South African government has spent time fixing Eskom instead of fixing the electricity supply problem.

To date, Eskom has been provided with R136-billion to pay off its debt with a further R88-billion until 2025/26. But what does this dependency syndrome mean for SMMEs? Are we going to continue singing the same chorus? This is not the first time the South African government comes to Eskom’s rescue, and it is likely not the last. And yet SMMEs continue to struggle to operate due to the problems at Eskom.

SMMEs are the backbone of the South African economy – they provide the majority of job opportunities and contribute significantly to the GDP. To resolve the current high rate of unemployment, decrease inequalities and alleviate poverty, there is a need to create a sustainable and supportive environment that supports the growth, development and sustainability of SMMEs. However, the uncertainty of Eskom’s electricity supply makes it difficult for businesses to operate effectively and efficiently.

While the allocation of R88 billion is a positive step in reducing the current Eskom debt, it does not necessarily mean that Eskom will change the way in which its operations are handled. If it is business as usual for Eskom, then we are bound to experience load shedding again. Most small business owners cannot afford to purchase generators to keep the lights on during rolling blackouts. For most SMMEs, two or three hours without electricity negatively impacts the operations of the business and thereby results in loss of revenue.

The “tough love” approach – as mentioned by the Finance Minister – can help ease the burden of load shedding. Once an entity stops relying on a bailout from the government, it tends to have improved operations and well-managed allocation of resources, which tends to enhance the reliability of the electricity supply. This is a clear indication that Eskom needs to take responsibility and take steps towards cost containment, sale of its assets, and implementing operational improvements to reduce some of the challenges which the entity is currently facing. Without these measures, there is a risk that Eskom will continue having rising overheads, budget overruns, corruption[3], and financing costs, further increasing its current debt. In turn, Eskom’s dependency syndrome will have a negative ripple effect on the growth, development, and sustainability of SMMEs.

In solving Eskom’s problems and promoting economic growth, some have promoted the notion that Eskom should be privatized. Will this work or not? Some believe that this will increase efficiency in the sector by introducing competition, while others think that this will increase the cost of electricity. How this will play out for SMMEs remains to be seen.

References

[1] Budget Speech. (2022). 2022/23 budget speech by Minister of Finance Enoch Godongwana. https://www.gov.za/speeches/minister-enoch-godonwana-2022-budget-speech-23-feb-2022-0000

[2] Derby, R.(2022). Budget 2022: Finance minister calls on Eskom to sell assets to solve its debt issues. https://mg.co.za/business/2022-02-23-budget-2022-finance-minister-calls-on-eskom-to-sell-assets-to-solve-its-debt-issues/

[3] Global Markets. (2020). Are Eskom’s Troubles Impacting The South African Economy? https://www.fxcm.com/za/insights/eskom-troubles-impacting-south-african-economy/