From Grandstanding to Straight Talking

governance Entrepreneurship economy tax employment growth
Wednesday, 14 May, 2014 - 09:17

In this article, the author discusses the possibility of the establishment of a ministry for small business enterprises for South Africa, and how that ministry could contribute to the growth of small businesses in the country  

With the elections still fresh in our minds, it is tempting to dismiss the African National Congress (ANC) secretary general Gwede Mantashe's announcement of a small and medium-sized enterprises (SME) ministry as political showboating. Business owners and industry commentators can, perhaps, also be forgiven for rolling their eyes at the likelihood of more growth-inhibiting bureaucracy.
 
If, however, you consider that SMEs contribute around 40 percent of the national gross national product (GDP), generate about 90 percent of new jobs and employ 60 percent of South Africa's labour force, it is clear that this vibrant sector makes a definitive economic contribution. In fact, the latest labour market analysis, shows that in the past year alone, 51 percent of all jobs were created in businesses with less than 10 employees.
 
Still, it is far from reaching its full potential due to numerous tough constraints, most of which can only be effectively addressed at national government level. To optimise the impact of SMEs, government must simply do more to help the sector. Without a doubt, SMEs also deserve representation at ministerial level - provided that such representation is meaningful and empowering. Ideally, the new ministry's mandate would go to the heart of the many SME growth inhibitors, such as the burden of regulatory compliance and accompanying administrative complexities and costs.
 
Particularly obstructive is the need to deal with multiple tax structures - from income tax and Value Added Tax (VAT) to Unemployment Insurance Fund (UIF), Pay As You Earn (PAYE), Skills Development Levy (SDL) and workmen's compensation - as well as rigid labour legislation, punitive bankruptcy laws that discourage entrepreneurship, and time-consuming and expensive processes relating to company registrations and the filing of patents.
 
The challenges facing SMEs in South Africa are both formidable and well-reported. Should the sector now begin to enjoy strategic support at national level, however, this debate can finally shift to the more constructive territory of solution finding.
 
Integrated approach
 
The starting point should be an SME ministry with a clearly defined strategy and a mandate focused on catalysing growth. The new department must have the skills and influence needed to introduce reforms across government departments - from the South African Revenue Services (SARS) and the Companies and Intellectual Property Commission to the departments of labour, economic development, trade and industry, home affairs and others - to effect real transformation of the SME business context.
 
These ministries have strategic contributions to make that include, but are not limited to, the simplification of the tax regime, a modern immigrations policy, faster company registrations and more flexible labour legislation. South Africa's restrictive labour laws were largely devised through negotiated settlements with large corporates, and the onerous requirements tend to be inappropriate and out of reach for small, medium and micro firms.
 
Although the vast majority of all new jobs are created in this sector, the effort and cost of complying with current labour legislation inhibits growth and job creation. An SME ministry should consider an exemption from labour legislation for businesses below a certain size, apart from those labour laws related to health and safety. If global best practice is followed, this can be done without infringing on the rights of workers.
 
Equally important is the streamlining of existing business registrations and licencing of intellectual property, patents and trademarks. According to the ‘Ease of Doing Business 2014’ report, it takes 19 days on average to register a new firm in South Africa. An SME ministry must find ways to reduce this and bring South Africa in line with leading emerging markets.
 
Serious consideration should also be given to tax exemption for smaller enterprises, or those earning up to a certain turnover. Not only would such ventures be relieved of an oppressive administrative burden, but they would benefit from improved cashflow in their formative years, when most new businesses fail.
 
SME ministry must walk the talk
 
South Africa's largest companies only employ about 1.3 million people and are struggling to grow. Government already employs 2.7 million people and, from an economic sustainability perspective, should be looking to reduce this figure. The SME sector, which currently employs more than nine million people, is the only segment of the economy that can create jobs and drive economic growth at anywhere near the scale needed. An effective SME ministry that places the concerns of these firms at the top of the public sector agenda, and delivers the enabling environment within which SMEs can flourish, would not only walk the talk, but potentially rewrite South Africa's economic future.

- Catherine Wijnberg is founder of enterprise development agency, Fetola. This article first appeared in The Catalyst.

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