Growing small and medium businesses is a vital component for a thriving economy. They create jobs, promote competition and are often catalysts for innovation.
But the ANC government, despite South Africa’s ailing economy and unemployment crises, does not have effective policy solutions to help them to survive, grow and employ more South Africans.
Recent research by the Small Business Institute revealed that South Africa’s formal small business sector is much smaller than previously thought.
It found there are only about 250 000 formal small and medium enterprises, firms employing fewer than 200 people.
The survival rate of small businesses in South Africa is also among the lowest in the world. So South Africa needs a radical plan to unleash their potential.
The Democratic Alliance (DA) has a six-point plan to achieve this by growing the economy in order to achieve a job in every home.
First, a DA national government would introduce an overtly pro-small business policy approach. Growing the number and success rate of small businesses is the key to reducing unemployment and increasing our labour absorption rate. This starts with improving government and private sector advocacy of small business development.
As such, soon after assuming office, the DA would convene a business Convention for a Democratic South Africa (Codesa), which, in contrast to President Cyril Ramaphosa’s jobs summit (which was dominated by big businesses and trade unions), would include representatives of both big and small business, unions and civil society, who would be charged with identifying and agreeing on a few key policy initiatives to reignite the economy. This would also include easing visa requirements for people who want to start businesses in South Africa.
Second, the DA would ease the cost of doing business and cut red tape. According to the ease of doing businesses index, associated with an environment in which businesses can grow, South Africa ranks 82nd in the world. This means that 81 countries are performing better than we are and are more competitive.
The City of Cape Town ranks the best in country in this regard because of innovative DA governance and interventions. For example, because of the Western Cape’s red-tape reduction and ease of doing business strategies, R1-billion has been saved since 2011. Another example is Cape Town’s business support project, which assisted 588 small and medium-sized enterprises in 2017-2018 alone.
Third, the DA would improve cash flow by implementing a temporary amnesty on tax penalties for small businesses and by ensuring that the government and big business pay suppliers within 21 days.
Cash flow is one of the biggest challenges facing any business. This is especially true for small and medium businesses, for whom prompt payment by customers, both government and private sector, is crucial if they are to survive and grow.
Fourth, the DA would improve funding and related assistance for small businesses. Funding in South Africa is not geared towards small business and banks, in particular, are criticised for unfriendly funding practices.
Government attempts to plug this “market failure” have not proved successful either. The DA would consolidate the various small enterprise funds that currently exist to have a more focused fund. It would also formalise and regulate investors and the venture capital sector, as well as simplifying the Income Tax Act’s Section 12J regulations and formalise equity crowdfunding for start-ups and growing small businesses. The DA would also introduce tax incentives for small investors, under R100 000.
Fifth, the DA would provide targeted support for micro-entrepreneurs in the informal economy. South Africa has a significant informal economy. The DA’s approach is to recognise that it is happening organically in a country where economic activity is relatively scarce. As such, we must ensure that we foster this sector and support the job creation potential that it offers.
Finally, the DA would focus on instilling an entrepreneurial mindset and expanding support and incentives for youth-owned businesses and co-operatives. South Africans should be encouraged and incentivised to start new businesses. It is a practical expression of an individual’s ambition to convert their talents into an income-producing activity and should be encouraged and supported with mentorship and access to resources.
The DA’s six-point plan would make a big difference in unleashing small businesses, helping them to flourish, grow and employ more South Africans. This plan, with the party’s other economic policies, could make a job in every home a reality.
Geordin Hill-Lewis MP is the Democratic Alliance’s spokesperson on trade and industry.