It is undeniable that the business landscape is evolving, which means the way business is now done needs to change. Black Business Council CEO Kganki Matabane speaks on what it is that township and rural economies need to do differently to attract new business and how the environment needs to change to counter some of their challenges.
MELITTA NGALONKULU: Hello, and welcome to the Small Business Conversations podcast, Episode 6. My name is Melitta Ngalonkulu. In this week’s episode, we discuss the growing demand to maximise the potential of South Africa’s township economies, which is estimated to be worth billions [of rand] – even though there are few records to quantify the amount of money really moving within the industry. If you have set foot in a township, you will know that they are full of diverse economic activities, ranging from spaza shops to street vendors, hair salons, and shebeens, as well as minibus taxis. These are largely micro-enterprises with low capital and a low skills base. However, a proper business model is needed to ensure their growth.
The CEO of the Black Business Council, Kganki Matabane, is joining us today to speak on the challenges faced by these communities, and how they can gain new markets while adjusting their business models in order to accommodate the changes which come with Covid-19. Thank you so much Kganki, for joining us.
KGANKI MATABANE: Thank you very much.
MELITTA NGALONKULU: What are some of the common consistent barriers to entry for small- and medium enterprises and township economies that hinder them from gaining new markets?
KGANKI MATABANE: There are two main issues that are actually hindering small businesses and township businesses from thriving. The first one is access to the markets. The second one is access to funding. And we also have another one, the inability to coordinate bulk buying.
By access to funding, I’m talking about where some of these companies want to expand but they don’t have their balance sheets – and then they don’t have ability to go and raise funds. Most of the interventions from our government and financial institutions aren’t necessarily geared for small businesses.
Hence I think, as the Black Business Council, we’ve been calling for an establishment of a black bank, because we feel that the black bank should be run by black people and be owned by black people. In that way it will be able to understand the needs of small businesses in the township and rural economy.
Access to markets talks to the challenges that small businesses have in accessing procurement opportunities in big companies, and also in government. Most of them don’t necessarily have the ability to get that, because big companies do business with people that they know. And the government legislation, like the Preferential Procurement Policy Framework Act, the PPPFA, still favours big businesses instead of favouring small businesses.
Then the other challenge is an inability to coordinate bulk buying. If you look at the shops that are owned by Pakistanis in both the townships and the rural areas, they’re able to offer customers cheaper or more affordable goods and services because they are able to buy in bulk; when you buy in bulk you’re able to take advantage of scale.
What most of the township and rural economy businesses do is they go and buy as individuals, and then they lose the economy-of-scale advantage.
MELITTA NGALONKULU: Covid-19 is changing how we do business. Would you say the township and rural economies are prepared for this shift, and have they been equipped well enough for their businesses not to collapse?
KGANKI MATABANE: I don’t think they are ready. I agree fully with you that Covid-19 has done what most companies were not able to do. It has forced companies to leapfrog to the fourth industrial revolution, or 4IR. Companies are actually forcing people to work virtually, to interact virtually by using all these other virtual meeting places. Most companies, even big companies, had been struggling to hire video conferencing, but then virtual meeting companies made it much, much cheaper and easier for companies to adapt and adopt ICT (information and communications technology) and 4IR.
The challenge for the township and small businesses is that data is expensive. So serious consideration is needed to reduce the cost of data. If you, for example, go to other countries on the continent, even Europe and others, you’ll find that the amount that we pay for data in South Africa is probably double or triple what people in Europe and people in other parts of the continent pay – for example, Nigeria. So there’s a need to ask government to fight for the reduction of data prices.
The second issue is ICT infrastructure. Most of the advanced ICT infrastructure is in the urban areas, specifically in the big metros. So, if you go to townships like Soweto and the ones in the rural areas and the informal settlements, you’re going to find that there’s no infrastructure for ICT.
Most of the rural areas are still on 2G, and the country is actually moving to 5G.
They have still have not even been on 3G or 4G. If you want, for example, to download a document in the local areas, you can’t – because the speed is just not there. So you’ve got an issue with the speed, you’ve got an issue with cost. That is a barrier for small businesses taking advantage of 4IR, which has been accelerated by Covid-19.
MELITTA NGALONKULU: Kganki, with the rise of Covid-19, it’s evident that businesses, now more than ever, need to take advantage of the Fourth Industrial Revolution. So how can township entrepreneurs leverage this to operate as business owners in the sector?
KGANKI MATABANE: I think what is needed more training for the entrepreneurs because, if you look at most of them, they don’t necessarily have the correct education to enable them to take advantage of 4IR. For example, one of the banks has launched a system that allows people to pay for their services using cards. So, if you take an example from most of the township-economy businesses – like the salons, small restaurants, spaza shops, people who are selling at the taxi ranks and on the street corners – most of them still depend on cash, which then limits their ability to expand and trade more as most people don’t carry cash now.
So I think they need some education to be able to adapt to the new ways of working and the new ways of communicating. For example, you will need an accounting system that will be able to talk to the card machine that they use, so that everything becomes automated. Once someone buys, it goes to the income statement, it calculates the tax that needs to be paid – and then everything gets done. So you then reduce the need for manual intervention for everything. That will make even compliance by rural and township businesses much, much easier. But I think it’s an education issue to say ICT and 4IR are here to stay, and that we just need to adapt or die.
MELITTA NGALONKULU: Lastly, Kganki, would you say that for SMEs to be regulated in township economies is actually a priority?
KGANKI MATABANE: I think it depends. But currently, I think the challenge for small businesses is that they want to spend a lot of their time doing actual business, not doing administration.
So we’ve been calling for government to re-look at the regulatory environment because most small businesses are struggling with compliance, mainly because of access.
If you are in a rural area, for example, for you to access the tax registration place, you probably have to go to a bigger town. You have to spend a lot of money and, if you don’t have a car of your own, you have to use public transport just to go and register for tax. It can take you the whole day.
We’ve been calling for government to decentralise their services and create centres all over the country that will give access to all their services. We call them ‘one-stop shops’. So, for example, if you go to a place, you need to then go and register for tax, register for UIF, register the company there, in that type of one-stop shop.
And those one-stop shops can even be mobile. That is, on day one you’ll be at rural area number one; day two at number two, and so on. So the small businesses then can spend a lot of time doing the business that they’re supposed to do.
When we come, for example, to the taxi industry. I think the challenge there is because they are not regulated, it’s a bit difficult for government to regulate them – unlike the buses and the trains, which are subsidised. It’s easier to regulate them. If company A has 10 taxis, and receives so much money per month, you have to regulate it so that it can pay tax and pay all those other things that are due, and register the employees for workman’s compensation, UIF, and so on. The issue, I think, is access and the cost of compliance. Most small businesses have to travel a lot to go and try to comply. I don’t think most of them have an issue with actually complying, but would rather spend a lot of time doing their actual business.
MELITTA NGALONKULU: Thank you so much, Kganki. That was the CEO of the Black Business Council, Kganki Matabane, providing listeners and township entrepreneurs with the necessary information on how they can leverage new markets.
In the next episode of the Small Business Conversations with me, Melitta Ngalonkulu, we talk to Theo Baloyi, founder of Bathu Shoes on how to build a solid brand while many businesses are closing shop.
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