Ministry could rewrite our economic future

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IOL SME oped AP SMES generate 90% of new jobs in South Africa and employ 60% of the labour force. File photo: Eric Risberg

Without doubt, SMEs also deserve representation at ministerial level, provided such representation is meaningful and empowering, says Catherine Wijnberg.

Cape Town - It might have been tempting in the run-up to the elections to dismiss ANC secretary-general Gwede Mantashe’s suggestion of a minister for small and medium-sized enterprises (SMEs) as political showboating that would simply produce more growth-inhibiting bureaucracy.

But if you consider that small, medium and micro enterprises contribute 40 percent of the national GDP, generate around 90 percent of new jobs, and employ 60 percent of the labour force, it is clear 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 fewer than 10 employees.

Still, it is far from reaching its full potential, owing to numerous tough constraints, most of which can only be addressed effectively at national government level.

To optimise the impact of SMEs, the government must simply do more to help the sector. Without doubt, SMEs also deserve representation at ministerial level, provided such representation is meaningful and empowering.

Ideally, a new ministry’s mandate would go to the heart of the many SME growth inhibitors, such as the burden of regulatory compliance and administrative complexities and costs. Particularly obstructive is the need to deal with multiple tax structures – from income tax and VAT to UIF, PAYE, SDL and workmen’s compensation – as well as rigid labour legislation, punitive bankruptcy laws that discourage entrepreneurship, and time-consuming and costly processes relating to company registrations and filing patents.

The challenges facing SMEs are formidable. Should the sector begin to enjoy strategic support at national level, however, this debate can finally shift to the more constructive territory of solution-finding.

The starting point should be an SME ministry with a clearly defined strategy and a mandate focused on catalysing growth, with the skills and influence to introduce reforms across government departments.

Other ministries have strategic contributions to make that include simplifying the tax regime, drafting a modern immigration policy, ensuring faster company registrations, and more flexible labour legislation.

Although the vast majority of all new jobs are created in this sector, the effort and cost of complying with labour legislation inhibits growth and job creation.

An SME ministry should consider an exemption of labour legislation for businesses below a certain size, apart from those labour laws related to health and safety. If global best practice is followed, workers’ rights need not be infringed.

Equally important is the streamlining of existing business registrations and the licensing of intellectual property, patents and trademarks. The Ease of Doing Business 2014 report says it takes 19 days, on average, to register a new firm in South Africa. This should be reduced to bring us in line with leading emerging markets. Consideration should also be given to tax exemption for smaller enterprises or those earning up to a certain turnover or less.

Such ventures would be relieved of an oppressive administrative burdens, well as benefit from improved cash flow in their formative years, when most new businesses fail.

The SME sector, which employs over 9 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 the founder of SME growth accelerator Fetola.

** The views expressed here are not necessarily those of Independent Newspapers.

Cape Argus



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