The creation earlier this year of the Department of Small Business Development (DSBD) indicates that government has accepted the fact that SME development and growth is the most efficient means of creating employment at the pace required to reduce both our unemployment rate and the burden of social grants on the fiscus.
This strategy is backed up by a comprehensive survey of almost 1 000 SMEs, conducted by the South African Institute of Chartered Accountants (SAICA) in August 2014, to canvass grass-roots opinions on the state of South Africa's SME sector and to formulate suggestions that might be helpful to the DSBD as it considers policy and strategy.
When analysing the data from the survey, one fact that is immediately apparent is that the number of people employed by an SME increases significantly with size and with the age of the business.
Taking this into consideration, it seems apparent that the DSBD would do well to encourage job-creation by focusing its aid and interventions on existing SMEs with a proven track record, encouraging them to grow both turnover and staff. Internationally SMEs struggle to access the cash to grow. It would seem that if government simply paid SMEs on time this could be a massive - and possibly the most important - step to stimulating growth in the sector.
Smaller companies in particular are vulnerable to this cash flow risk; until a business has had the time and turnover to build substantial reserves, getting paid on time is crucial to its liquidity. It is not surprising then that 70% of SMEs shy away from doing any business at all with government. It's simply too dangerous for their cash flow. Asked to rate various sectors according to how quickly they settled invoices, SMEs rated other small businesses as the fastest payers, followed by large and medium business - but finishing a very late third were parastatals and government departments at all levels: municipal, provincial and national.
Government quite rightly wants to use the State Procurement System to stimulate transformation and SME growth, and has built incentives into its tender procedures for BEE-compliant SMEs. This is not a matter of principle or politics; SMEs need uninterrupted cash flow if they are to remain liquid and grow from small, to medium, to large businesses - with additional employment opportunities at every growth spurt. To enter into contracts with government departments, to expend resources in fulfilling those contracts, and then have to wait months for payment, could cripple or even sink many small businesses.
A quick win for the DSBD that would stimulate job creation via the SME sector would be to ensure that every government department and parastatal develops payment procedures that ensure SMEs get paid on time - preferably, on delivery. An SME that knows it can rely on prompt payments is in a much better position when contemplating borrowing for growth, or hiring more staff. This is an intervention for the DSBD that would reduce the growth risks for SMEs and could open up the Government procurement opportunity to those to whom it is intended. Other incentives SMEs cited for government and the DSBD's attention were tax reform to stimulate SME growth, tax reform to reward employment, and a relaxation of Labour laws as they pertain to SMEs.
