Small business got no govt support -why not Minister Mboweni?  

Today saw the Minister deliver the most crucial Medium-term Budget Policy Speech (MTBPS) in years, on the back of skyrocketing debt that is expected to reach 60% of GDP if no intervention is made.  And it may bear some harsh realities for all South Africans.

Some conservative estimates suggest Mzansi’s economy will struggle to top the 1% mark over the next 12 months.

Tuesday’s unemployment figures reflect an 11-year high of 29.1%, with joblessness amongst the youth well over 50%.  If job creation is a strategic imperative for South Africa and the SME sector is responsible for 60% of jobs, then surely we should be spending more to stimulate this part of the economy?

“Whilst we welcome many of the measures that Minister Mboweni announced today he seems to once again have ignored the productive part of the economy being the SME business owners who together account for over 50% of employment and over 50% of GDP in SA,” says Karl Westvig, CEO of Retail Capital, a leading SME funder that’s provided over R3 billion to over 22 000 SMEs.  “We believe more should be done & more funding should be directed towards them to support the economy and job creation.”

The staggering figures released yesterday estimate the number of insolvencies have increased by 43,3% in the three months ended August 2019 compared to the same period last year.

“There isn’t enough being done by the government to stimulate the SME sector and in turn create jobs,” says “Our unemployment crisis coupled with the total number of liquidations increasing by 10,5% in the first nine months of 2019 compared to last year, is a clear sign that it’s time for Government to be bold and deliver,” Westvig says.

“Much fanfare has surrounded the CEO SME Fund Initiative, but the total value is a paltry R1.24 billion  in a R5 trillion economy, and where government has a budget of R1.4 trillion. That represents 0.1% of the annual budget,” exclaims Karl.

The private sector, through banks and non-bank financial services companies, lend an estimated R500 billion to SMEs. Most of this is skewed to existing businesses who already have a strong balance sheet and assets that can be used as security. According to the recent Finfind study, the SME funding gap is between R86 billion and R346 billion.

Non-bank financial-services businesses that lend to smaller, unsecured businesses or start-ups have an exposure more like R5 billion.

“From experience, for every R170 000 lent to an SME, a job is created. Simple maths, if the R1.5 billion is advanced, then 9 000 jobs can be created. A drop in the ocean, when we have a jobless rate closer to 6.65 million people. According to The Southern Africa Labour and Development Research Unit (SALDRU), the median salary in South Africa is R3 300 and each job supports around 3,5 people in a household,” says Westvig.

“If we could target one million new jobs, a fund of R170 billon should be established. If our government was serious, they could make 25% of that available as guarantees or grant funding. The private sector could fund the 75%, using the 25% from government as first-loss security, allowing it to raise cheaper funding from asset managers. With this as an incentive, the private sector would innovate to deliver funding at reasonable rates, through new channels and support the growth in the SME sector,” he says.

There are other ways for Government to stimulate SME growth – reduce the tax burden, the red-tape and provide a Small Business Grant.

“On registering a new business, tax registration, opening a bank account and a credit-bureau check, each entrepreneur could qualify for a once-off grant, say R10 000.  There would be no restrictions as to what it be used for – it could be for stock purchases, a deposit for premises or any other purpose. The failure rate, or misuse of the funds, would probably run at a high rate of over 65%, but the 35% who do use it to create a productive business, would probably each employ three people, be formal, registered businesses and thereby contribute to GDP and job creation,” explains Westvig.

“For R10 billion, 100 000 new businesses could be created and supported, 35 000 of them would be viable and growing. More importantly it would create jobs for four people (including the entrepreneur), meaning 140 000 newly-employed individuals. A grant with a simple but serious registration process would be a welcome injection to support innovation and self-employment. Think of this as the “Msanzi” account for SMEs with an opening grant,” Westvig concludes.

The time for Government to be bold is now.  Over to you Mboweni.

Article by Karl Westvig

Since 2011, we have provided businesses with innovative, flexible and convenient alternatives to traditional business loans. Business owners still identify access to working capital as the single biggest challenge that they are faced with. Being responsible for 50% of the country’s GDP and contributing to over 65% of employment, we are devoted to partnering with small to medium-sized businesses to grow the South African economy. This is where we can help and we are proud to have partnered with more than 22,000 SMEs in providing funding of more than R3bn to date. Start growing your business with Business Funding and Asset Finance today. Get in touch to learn more.