Busa’s acting CEO unpacks South Africa’s SME issues

Cas Coovadia discusses Sona’s mentions of youth entrepreneur funding, SME inclusion in infrastructure development, Eskom, and the release of spectrum.

 

MELITTA NGALONKULU: Welcome to the weekly podcast ‘Small Business Conversations with Melitta’. Today we have acting CEO of Business Unity South Africa Cas Coovadia to unpack the [recent] State of the Nation Address (Sona).

Hi Cas, it’s great to have you on the show. So what are the key things that the business community expected to hear from Sona?

CAS COOVADIA: The president [Cyril Ramaphosa] had asked for our [the business community’s) recommendations, and we had sent him recommendations, and what we had said is that the critical issue for this country at the moment is investment and growth. We need to do everything possible to create an environment to attract investment, both local and global, [and] put our country onto a sustainable growth path so that businesses can grow and we can employ people. In that way, we start increasing our tax revenue, we start addressing our fiscal deficit and so on.

We also indicated that one of the other aspects of the fiscal deficit is to reduce public expenditure. We asked him to say something about that and the whole energy crisis – besides getting Eskom right, just to get the instruments in place to enable the next traunch of renewables to get on stream, to enable self-generation, so that we can relieve the grid a little bit.

And then we asked him to refer to issues related to the structure of the economy, and we need to make some fundamental interventions to ensure that we have a competitive economy. We [need to] have an economy that enables the entrance of small and medium enterprises and emerging professionals, because we need to get as many people in the country as possible into the formal economy, so that that can enable the growth of the economy itself.

And finally, we asked him to say something about law and order in our country: that we need to be far more urgent about putting into place the necessary capacity to ensure that our citizens and businesses are safe and feel safe. Because at the moment, there seems to be a complete breakdown in law and order. So those are the things we put to him. And if one looks at the Sona, I think that he did, for the first time in our view, acknowledge that we have a serious crisis in the country.

Inclusive growth

CAS COOVADIA: He said that the Sona is all about inclusive growth. So he acknowledges that growth is at the centre of the debate and the … priority that we need to address. He made some good announcements on telling the minister of minerals and energy to actually enable the Integrated Resource Plan, to enable self-generation, [and] to get the next traunch of renewables going. And we wait for the minister to actually do that urgently, because if we are able to do that, then some of that energy generated by the private sector can be put into the grid, and then that enables Eskom to take off the grid some of the power plants that need serious maintenance and they can then maintain them and repair them properly and get them back onto the grid. We’re going to have to mothball some power plants soon and so we need more energy, sustainable energy, to get onto the grid.

Implementation details lacking

CAS COOVADIA: He referred to a number of initiatives related to youth entrepreneurship; to small and medium enterprises [SMEs]. I think what was lacking is more detail on just how are we going to get rid of the red tape that is still there to actually register [and] licence businesses. How do we actually get institutions that are funded by the government, by the taxpayer, that are supposed to, to actually build the managerial and non-financial capacities of particularly small businesses?

How do those become more efficient? Because it’s not just finance – it’s also [about] building the managerial and other capacities of small businesses, non-financial capacity, and developing markets for the small business.

So I think we made some progress in the Sona. We now need to look at, in more detail and some time frame, [what] the president also said … that within the next month he will make public performance agreements with his ministers. We would like to see, as part of the performance agreements, time frames and milestones to implement what he announced in the Sona.

Youth entrepreneur funding

MELITTA NGALONKULU: Cas, the president announced that the NYDA [South African National Youth Development Agency] would be funding 1 000 entrepreneurs in 90 days. How different is this initiative from what the NYDA is supposed to be doing on a daily basis?

CAS COOVADIA: I think that what we need to look at is: is the NYDA itself operating efficiently and does it have the capacity to do this?

It’s not just a question of funding enterprises, it’s a question of wraparound services for enterprises, particularly youth entrepreneurs and small and [medium] enterprises, that include building the capacity to manage businesses, building the capacity to manage staff, creating and ensuring that there are markets for the goods that they produce. And all of that needs to be considered and all of that needs to be facilitated. Otherwise what you are doing is setting people up for failure.

And I think that what we need to actually look at is why in our country we are not developing small and medium enterprises and new enterprises to the extent that we have the potential to develop them so that they can participate in the economy.

And some of the issues are that it’s extremely difficult to start a business … to license a business. You have to go through numerous processes. We need to simplify the registration of businesses and it is those sorts of issues that need to be looked at.

On the one hand, [we] want to start these small and medium businesses; you want to get youth into a business. And on the other hand, you have all sorts of legislation and regulation that make it difficult for businesses to actually be profitable, to prosper, to actually grow.

And so we need to address the fundamental underlying issues that are creating a situation in our country where we are not promoting entrepreneurship because of all these hurdles, [and] deal with those hurdles between the public and private sector; the public sector looking at the non-financial service for entrepreneurs the private sector looking at financial services for entrepreneurs. And it’s not just debt finance from banks, it’s also the creation of a venture capital market and services for entrepreneurs, because no entrepreneur can survive and ensure that [their] business is successful only with debt finance – you need venture capital as well. And our venture capital services in this country for small enterprises [are] virtually non-existent.

So there’s a whole range of issues that need to be looked at in implementing what the president talked about in his Sona. We need to see how the public and private sector work together to do that.

SME inclusion in infrastructure development

MELITTA NGALONKULU: How can SMEs be better included in the value chain of the upcoming infrastructure developments that were mentioned at Sona?

CAS COOVADIA: It depends on how these things are structured. So I think SMEs can be included as part of the value chain. I think we also need to be realistic. A small and medium enterprise is not going to have the capacity or the resources to manage major projects and major contracts when they start.

But we need to ensure that our procurement laws and the interaction between business and government is such that larger businesses that currently have the capacity to manage the larger projects and contracts are incentivised to actually include SMEs in the value chains so that SMEs are able to do some parts of those projects, and of the infrastructure projects.

They go through those and they develop through those and over a period of time they then manage more and they are able to, over a period of time, take on bigger projects.

It’s not a case of whether SMEs will be involved in these – it’s a case of being realistic about what part of the value chain SMEs can address, how do we actually ensure that the bigger contractors are incentivised to utilise SMEs, and what sort of support government is prepared to give to actually enable those SMEs to participate.

Electricity impacts

MELITTA NGALONKULU: Power cuts are crippling small businesses. Would you say that the government is taking its impact on small businesses seriously?

CAS COOVADIA: I think even before Sona, initiatives had started – I mean the appointment of Eskom’s CEO; the CEO is starting to work and beginning to make some decisions. [On Eskom, Ramaphosa] firstly acknowledged that there would be load shedding, as the CEO has been saying. It’s no good promising to citizens and to businesses that we will ensure that there is no load shedding and then suddenly you have load shedding. So at least businesses can plan for this, if the load shedding schedule is consistent and accurate.

I think Eskom and what [its] CEO is trying to do is moving in the right direction. But I think we need to be practical and pragmatic about this. He’s taking on an organisation that is severely damaged across a broad range of areas. And so to actually get this organisation right, he’s going to have to address the operational side of it, the governance side of it, the funding side of it, the restructuring side of it. And these are all big issues in their own right.

Government as shareholder needs to put an appropriate [Eskom] board into place, with an appropriately qualified and capable chairperson and they need to do that urgently. Then they need to give the CEO and his team the space to take the hard decisions they need to take, with strategic oversight from the board.

And government to a certain extent needs to get out of the way because some hard decisions need to be taken.

This is a long-term issue. It’s not a short-term issue. So long as the CEO shows the capability to address the hard issues, communicates to the public regularly – as I think he is doing – and creates certainty in whatever we’re doing, so that public and businesses can plan, that’s the best we can do under the circumstances and we’ve got to work with that.

Spectrum update

MELITTA NGALONKULU: Do you feel like the issue of data was addressed enough?

CAS COOVADIA: Well, again, the president said spectrum will be released. As businesses, we have been pushing the government for the last two years to release spectrum. I don’t know why it’s taken so long.

There is now a roadmap from Icasa [the Independent Communications Authority of South Africa] to release the spectrum, but we believe they need to move much quicker on that. They need to get some auctions for spectrum going sooner rather than later. Because you know, we talk about 4IR and we talk about all of those things, [but] we can’t actually take advantage of all that if we don’t have available data, and at competitive prices.

Data in this country is pretty expensive and so we hope that Nersa [the National Energy Regulator of South Africa] will move with speed. The decision had been taken to release spectrum, finally. We hope that Nersa moves with speed to put into place the necessary regulations to get the auctions for spectrum going and we get more data on stream – and at competitive prices.

MELITTA NGALONKULU: That was Cas Coovadia, the acting CEO of Business Unity South Africa.

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