Government’s Failure Forced SMEs to Adapt

Published: 23 February 2021

It will go down in all our memories as a day we will never forget: millions of South Africans sat glued to their screens, watching President Cyril Ramaphosa announce that we were all under house arrest.

Of course, it was for our own good. In the months and weeks leading to that moment we had seen unnerving images of overcrowded hospitals in Italy. Could this be a warning, a premonition of sorts, of what awaited us when local community transmissions of Covid-19 started?

And then came the videos of Italians and Spaniards singing on their balconies, trying to regain some kind of human connection while under lockdown.

Fast forward a few weeks and there we were, listening to President Cyril Ramaphosa say that the day had indeed come that a democratic South Africa would be shut down. Everyone, except essential service providers, would be required to stay home.

The military had been deployed – an eerie silence betrayed the rushed, panicky decisions that would be made in the days and weeks that followed.

Would our healthcare sector collapse? How many of us would lose our lives or loved ones? What would this mean for livelihoods, for jobs, for businesses, for our economy? The voices for and against such a nationwide shutdown were loud, but the decision had been made – level five lockdown.

Businesses hastily communicated with their staff. How much money was there in the bank? How long could the business sustain itself? At what point would jobs be at risk? Who was going to be retrenched? It was unnerving at best and terrifying at worst.

On April 23, 2020 News 24 wrote: “President Cyril Ramphosa’s Tuesday night announcement of a R500 billion Covid-19 social and economic recovery plan has been roundly welcomed, but questions remain about how it will be implemented and whether this will happen with minimal opportunity for corruption.”

The day before, Business Day wrote: “The R500bn stimulus package to keep SA’s economy going during the Covid-19 pandemic has been hailed as a brilliant idea by business because, at its core, are measures aimed at rescuing small and medium enterprises (SMEs).

“If there is no deliberate effort to rescue and support our SMEs, we are heading towards economic collapse,” Business Leadership SA CEO Busi Mavuso told Business Day.

She said about 70% of small businesses employ about 6-million people and that they had been “greatly impacted” by the outbreak of coronavirus that has infected 3,465 and killed 58 people in SA.

SMEs affected by the coronavirus lockdown have had to apply to the special Covid-19 relief fund administered by the Unemployment Insurance Fund (UIF) to stay afloat.”

Further down the article, the newspaper quoted Violet Siwela, chair of the portfolio committee on small business development. “[She] said the additional R2bn for SMEs will go a long way in providing much-needed relief to the “most vulnerable but yet so important sector of the economy”.

We know what they say, hindsight is the best sight, or rather – and quite appropriately – hindsight is 2020. Although, if we are honest, we all had the foresight to predict that despite saying the right things, despite unveiling grand plans, that government would lose credibility in how it handled the crisis’ impact on SMEs.

This is not to take a deliberately pessimistic view on the country. On the contrary, Retail Capital holds a markedly positive outlook for the country in general and the SME sector in particular. However, this is despite, not because of the government and its interventions.

We remember the National Development Plan. That document waxes lyrically about the value and importance of the SME sector and why it needs to be nurtured to give this country and its economy the best possible chance to unlock its full potential. It’s all rhetoric, because if it were followed through properly, we would not have a situation where the private sector only has itself to lean on.

Let’s go back to the famous Covid-19 relief for SMEs.

A grand total of R14,5-billion had been disbursed to SMEs by October 2020 – that’s out of a potential R200bn. But, this money predominantly went to bigger, established companies in the range of R100-million to R500-million turnover.

Retail Capital has a unique and very important vantage point because of the nature of our business and the companies we assist. Of the businesses on our books that fall into the sub-R10-million turnover a year category, not one got a single cent from the government’s much-touted relief plan.

The reason is very simple – while the entire exercise had a veneer of having SME’s best interests at heart, in practice it was a way to protect the banks’ balance sheets. Why? Because the onerous conditions meant the scheme could not support distressed businesses.

At the risk of stating the obvious, in what other state would many businesses be during a global pandemic, other than distressed? And to make matters worse, many of us have heard about small business owners in developed countries waking up with money deposited into their accounts – real, tangible support.

Ours was a political exercise.

If the government and its ministers and directors general took the SME sector seriously, even outside of catastrophes such as a global pandemic, the amount invested in small businesses would not hover in the low billions. A billion rand may sound like a lot of money, but then consider that when the economy is moving, it pushes about R5-trillion. SMEs make up about 30% of this GDP figure, meaning the sector is worth R1,5-trillion. It is being treated like an afterthought.

What could they do, then, you may ask? Simply put – imagine a scenario where R5-billion is set aside to make a real difference. Each new startup in the country is given a R20,000 grant. If only 20% of these businesses go on to flourish and grow, the programme would be paid back many times over in terms of growth, new jobs and a vibrant SME sector.

It’s these types of ideas that indicate a willingness to do something of substance, and not just a government that pays lip service twice a year during the budget speech and every now and then with a grand economic plan.

Retail Capital is proudly South African. We love the country and its people. We believe fervently in the SME sector’s potential – or otherwise we wouldn’t be in the business we are in. Providing funding for small businesses because we believe in them.

One could talk for days about the impact that government’s failed support for SMEs had on men and women at the coal face. We know what happened. Jobs were lost and businesses closed doors.

However, there is another side to the story. We were reminded once more of the need to stand on our own feet, something South Africans seem to do almost instinctively. It is this resilience that has seen us navigate seemingly insurmountable challenges as a country.

Despite the absence of a central safety net, many SMEs pivoted, some doing 180 degree turns on a penny, and kept their businesses afloat. Teams were rallied and the battle cry was one of clarity of purpose. There are many businesses today that are better off because of having to think fast, and adapt even faster.

Retail Capital fed more than R500-million into the economy during the lockdown through direct disbursements and payment holidays, and the results are astounding. At the time of writing this, most sectors are net-net at 90% of pre-Covid levels. Believe it or not, others are operating at levels better than pre-Covid days.

And so, while the government failed us by not living up to its promise, it also gifted us with the knowledge that we are a tough people, a nation of go-getters and problem solvers. It’s not all rosy yet, but the seeds have been planted and the few sprouts that have emerged carry immense promise.