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SME support: a good start, but we need more

John Dludlu, CEO of the Small Business Institute, on the Covid-19 relief fund for small businesses.

Small Business Institute CEO John Dludlu expands on the debt-relief fund, the state of SMEs, the duration of support measures, and how much further government should go.

NOMPU SIZIBA: SMEs are the lifeblood of most economies around the world and, with many countries going on lockdown to curb the spread of the coronavirus, the unintended consequence is the shuttering of small businesses and the laying off of workers, with uncertainty as to whether they’ll survive on the other side of the shutdown.

Yesterday the small business ministry expanded further on the type of support that it would be giving to SMEs in light of the impending shutdown here in South Africa, come Friday morning. This will include tax referrals and targeted funding for distressed businesses. The department is particularly keen to assist companies related to the medical and hygiene fields and food production, among others, willing to offer them funding to assist with cash flow at a rate of prime ‑5%.

Well, to share their view on whether these and other measures announced by the President on Sunday night will make the necessary dent, I’m joined on the line by John Dludlu, the CEO of the Small Business Institute. Thanks very much for joining us, John. The small business ministry has set up this debt-relief fund, which all small businesses under stress can tap on. What’s your understanding of what they’re offering and the parameters around who can apply?

JOHN DLUDLU: Nompu, thanks very much for inviting us and giving us the opportunity. Before I answer your question about how we understand these measures, let’s cover the state of SMEs in our country today. Already they are in a recession with depression. They’re having to cope with red tape, late payments and, of course, in the last few months we’ve gone through power outages because of the limited energy supply in our country.

A year ago we did a study, as the Small Business Institute, to just find out how this space looks, how the SME space is looking. We found the following. We found that there were 267 959 formally registered businesses in the country, and of those 98.5% registered themselves as small SMEs. That means that the other 1% or so are [classified as] big business, the JSE-listed companies, the state-owned enterprises, as well as government departments. SMEs contribute only 28% to employment – that’s 3.9%.

Now, let’s put it in human figures – there are 3.9 million people who are at risk right now, going through red tape, 29 days a month on compliance, with issues ……and who are ….. start to drive by late payments, Eskom, big business, as well as government departments.

So, when we talk about this intervention that was announced yesterday by the Minister of Small Business, we welcome that of course. We can’t say it’s insufficient, therefore please take it back. But half a billion rand is not enough. We are calling for two things.

The first one is we appreciate [that] government provided enough clarity and transparency about the quantum of the support for the SME space, and for the rest of the economy. In other words, Treasury must announce how much it has, the small business minister must announce how much she has, everyone that supports SMEs, like the IDC and other agencies of government, must put that on the table. We must know upfront, so that our economic operators, especially the SME segment of the economy, can know how much they have in support for us.

The second element of this is, we need to know the duration of the support measures.

We hear that coronavirus may be with us for another 18 months. The measures announced today are about a few months. So what happens after a few months? The minister did say that they will review after a few months. But what you need is preferably let’s [stretch] this over a year to be ……

If you go back to 2008/9, to the global financial crisis, the countries that emerged on the other side of the crisis successfully, did two things differently. They overreacted from a fiscal and monetary policy point of view.

The second thing that they did, they acted with speed, and then there was coordinated action. That’s what is required now, so that there’s transparency in the economy. The economic operators can plan their lives for the next one year, let’s say.

NOMPU SIZIBA: The problem, of course, in all of the things that you’ve just said, is that the government definitely doesn’t have fiscal room, and this is something that we know well. They have been threatening to give us some package, but it just isn’t forthcoming as yet.

JOHN DLUDLU: That’s very true, and we are sympathetic to government. We are also sympathetic to the minister that we can’t expect in one week for her to have all the details. That’s why we understand the fact that the quotas have to be set up and given a few days, and the first few days are going to be teething problems. That we understand.

However, we really have to pull out all our bazookas now. And we have to do two things. We have to save lives. And I think, as far as lives are concerned, we have our story in order as a country. The lockdown that starts tomorrow night is adequate under the circumstances. However, I don’t think from an economic support point of view, or supporting our livelihoods now and for the future, that we have done enough.

We need more. This is a good start, but we need more.

NOMPU SIZIBA: So, basically the SBI’s critique of this whole situation is that things should have been done a long time ago. The government should have intervened in the SME sector way before Covid-19, because now it makes a sector even more vulnerable than it’s been before.

JOHN DLUDLU: Yes. We have three very specific things that we’re asking for. For example, last week we had the central bank cutting rates by 100 basis points. Our expectation and our call was for 200 basis points. Now that we know we are here, we don’t have to wait for another Monetary Policy Committee meeting, we need to cut rates.

We welcome what the bank did this morning, starting to buy bonds.

But all of these measures didn’t have to come today – they should have come a week ago, at least. The petrol price is dropping next week. We don’t have to wait till next week. Let us drop it now, so that we provide immediate relief. We’ve been campaigning for the last two, three years for big business, as well as the government sector – and they don’t assist companies to pay their suppliers on time. “On time” is maybe in one month after submission of the invoice. Can you please just pay them within seven days now? It is so imperative. Let’s go all we have, and then let’s provide enough transparency and say, as a country, “This is what you can afford”. This is no time to analyse and keep an eye on what happens, how the measure is being received. You really have to act now.

NOMPU SIZIBA: Yes.

JOHN DLUDLU: Let me make just one last point. The other point is, it would be pointless to have all the support measures, even if it was R10 billion, R100 billion, ploughed into the economy now, if this cannot be addressed because it has become difficult. You need so many things, you need so many documents. The speed the money goes back into the economy is very important. If you increase the social grants, for example, you double that. That shoots back into the economy immediately.

But if you’re asking SMEs which are …… 90 compliance issues, they’re asking them to provide 100 000 documents to register for access to this support measure, then we’d be defeating the purpose of the support measures.

NOMPU SIZIBA: John, we’re going to leave it there, but yes, it sounds like there’s a lot that government still has yet to do because every so often Mr Ramaphosa will tell us that the situation in terms of processing SMEs and businesses in general has improved. He talks about the one-stop shop and all of that. But clearly, from what you’re saying, that’s not the case as yet. Thanks very much for your time.

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These unintended consequences will be far worse than the disease itself. South Africa’s economy was on the skids already, and this will be the final blow. We are looking at a depression, deliberately brought about by means of futile measures that have no hope whatsoever of stopping the pandemic – how do you isolate 5 million people who live in informal settlements and share communal toilets and washbasins? Deliberately destroying the economy on the basis of mass hysteria is the worst possible thing one can do.

All these measure promised will not happen. Phoned the UIF office today to apply for our staff we can’t pay for the R3,500 per person aid. After waiting half the morning to get the call answered get told they are going to shut down today and we can call back on 20 April… Great support closing offices that is supposed to help – what absolute lies get told to the public. Every person applying for UIF must get their bank to stamp forms but the banks turned everyone away today to come back another time. Processes that don’t work will destroy all SMEs especially if the 21 days is not the end of the lockdown

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