OPINION: Joint effort needed for SME sector turnaround
By Nazeem Martin
JOHANNESBURG - Now IS the time for the government, the private sector and civil society to work on a concerted national approach to help businesses survive the years of economic recovery that lie ahead.
The variety of government and private sector rescue packages for small businesses hammered by the pandemic contain the seeds of that co-operation and also, perhaps, lay the foundations for building a thriving small business sector, as well as a national rescue plan for small businesses during future emergencies and crises.
What is now clear is that we need a longer-term focus. This was seen initially as a short-term crisis, and rescue packages were tailored to help small businesses avoid closure and retain their staff until they could trade their way back into profitability.
Instead we have a more severe crisis, and a long economic recovery period looms, which means that more businesses will need more help over the medium to longer term. The alternative is the permanent loss of hundreds of thousands, and possibly millions, of jobs.
Without a doubt, small businesses are going to be central to any economic recovery and we, at the Sukuma Fund, see three small-business scenarios for South Africa's post-Covid-19 response.
The first is for the country to continue as before the pandemic with little change in policy, frameworks or the other instruments that existed to support SMEs.escue funds such as Sukuma and the other private interventions complete their initial mandate and wind down operations. Business as usual is not an option.
A second scenario is that we await a government-led co-ordinated response marshalling the various inputs on the economy into an executable plan – a single coherent response. While this would be ideal, business leaders who designed a detailed economic recovery plan are frustrated by the apparent lack of government action on their proposals.
A third scenario is that the private sector acts to implement what lies within its control to drive a response to the post-Covid-19 reality. These actions would provide momentum for additional measures involving a joint public and private sector effort with significant government involvement.
It is time for the private sector to take the lead. The extent of business closures and job losses following the lockdowns, and actions needed to get the recovery going, are highlighted in the detailed plan put forward by Business for SA (B4SA) last month.
A McKinsey survey showed that before the pandemic SMEs comprised 98.5 percent of all South Africa’s businesses and contributed 39 percent of gross domestic product. Arguably, no other sector can drive growth and tackle the record high unemployment rate of 30 percent and rising that we now face. But the sector has also been hardest hit with hundreds of thousands of jobs lost. There is no quick fix for losses on this scale, and we need to plan for a longer term rescue mission.The private sector – and those with philanthropic heft – can and should respond by pulling the levers which they can.
In the third scenario, entities such as Sukuma and others in private sector could tackle the following key areas:
- Enable flexible and easier access to finance for surviving SMEs or those who have shut their doors with a viable chance at returning to business.
- Ease of access to training, mentorship and information to enable doing business and accessing support.
- Even more active support from corporate South Africa in enabling SMEs to engage with big business and offering more favourable terms. including prompt payment to assist with cash flow.
A concerted “buy local” campaign, for which the seeds have already been sown.
Many of these response proposals are already on the table as in the widely supported B4SA plan
Sukuma, however, can provide practical testament to the efficacy of a more flexible approach to stress-relief financing as its own statistics show. As at August 17, it had committed R681 million in soft loans to 1 224 SMEs, along with 3 432 non-repayable grants of R25 000 each.
That financing approach is estimated to have saved nearly 31 000 jobs at an estimated cost of less than R25 000 per job saved. And, if each job benefits another four people, this approach has impacted the lives of a further 120 000 people.
The low bar that Sukuma set to allow SMEs to access funding and the favourable repayment terms provide the basis for a longer-term model.
The Sukuma “pay-it-forward” approach in which repaid loans over the next four years are then used to assist other SMEs on similar favourable terms, we believe, is also an important ingredient in a sustainable model for the future which can be adopted more widely.A Sukuma-type model, which also includes successes and lessons learnt from similar private sector and government-backed rescue initiatives, could lay the basis for a more ambitious government-backed fund to accelerate recovery in the small business sector. This could lead to an evolution of the existing R200 billion loan guarantee scheme which, by some estimates, would need to scale up to R1 trillion over the next three years.
If estimates of the jobs saved in Sukuma’s approach are accurate, it is clear that if the vast resources allocated to the loan guarantee scheme, and elsewhere, are applied with similar efficacy that millions of jobs can be saved or revived. All need not be lost if we act swiftly and with resolve.
Nazeem Martin is chairperson of the Sukuma Relief Fund and chairperson of Business Partners.