How Boosting Small Businesses Can Help South Africa Reach its Transformation Objectives
By: Busisiwe Ngwenya, Compliance Director: Broad-Based Black Economic Empowerment Commission
When President Cyril Ramaphosa released his “stimulus and recovery plan” on 21 September, small business was – again – mentioned in the mix of interventions aimed at reigniting our economy.
There’s no doubt the economy needs rejuvenation; not only do we find ourselves in a recession, but our unemployment levels have been unacceptably high for more than a decade.
That boosting small business is a crucial step towards growing the South African – and any – economy has become a bit of a cliche, but it does not take away from the fact that the evidence underlines the truth of the idea.
Supporting our SMEs
Across the world entrepreneurship is acknowledged as a driver for economic growth. Earlier this year the Organisation for Economic Co operation and Development (OECD) released research showing that, on average across the OECD countries, small and medium-sized enterprises (SMEs) account for about 70% of total employment and generate between 50% and 60% of value added to an economy. This the organisation published in Opportunities for All – A Framework for Policy Action on Inclusive Growth, in May.
It is also clear that we in South Africa can do a lot more to aid SMEs.
In July the Small Business Institute reported that we have 250 000 formal small, micro- and medium-sized enterprises, and that these make up 98.5% of the economy. Unfortunately, they provide only 28% of the jobs.
We have to change this. We have to get the economy growing so that more South Africans have work and incomes. Neither the government nor the private sector can do this alone – we all need to pull together to ensure many, many more people, and particularly black people, are brought into the mainstream economy. Doing so will benefit us all by extending the marketplace and providing new goods and services.
Meeting the objectives of B-BBEE
We at the Broad-Based Black Economic Empowerment Commission (B-BBEE Commission) are doing our part in making sure transforming the South African economy benefits the widest swathe of people possible. If transformation is not broad-based – as it wasn’t in the first decade of black economic empowerment – all we will do is continue to create a new, black elite.
The B-BBEE Commission has two roles. On the one hand, we are here to help South African companies interpret and properly implement transformation legislation, notably the Broad-Based Black Economic Empowerment Act. We offer free, confidential advisory services in this regard. On the other, in accordance with the Act as amended in 2013, we have the power to investigate empowerment deals to ensure they reflect the letter and spirit of the law.
The B-BBEE Amendment Act makes it a criminal offence to engage in fronting, which it defines as any act that, even indirectly, undermines or frustrates the Act’s objectives. We use this approach against those who try to circumvent and deliberately break the law, as well as repeat offenders.
To properly transform South Africa’s economy, we need to make sure those who own the economy are reflective of the country’s demographics. One of the easiest ways to do this is to improve opportunities for SMEs.
Take any multinational and you will find a small company in its history – today’s small business is tomorrow’s economic giant. Proper broad-based black economic empowerment should be part and parcel of any large company’s budgeting, and not just because it is a legal requirement.
Earlier this year we released statistics on the state of transformation for 2017 that show we have regressed in terms of black ownership of JSE-listed companies, from 32.75% in 2016 to 27% last year. Also, on average, South African companies are not meeting 50% of the targets for management control, skills development, and enterprise and supplier development. These are the aspects of transformation the Department of Trade and Industry has identified as integral to boosting SMEs and so improving the economy.
The role of corporates
All South Africans need to pull together to grow the South African economy. None of us will survive economically unless we do this, and reverse our unacceptably high unemployment statistics. The question is: Are we using all the levers available to us to drive transformation?
SMEs are generally more flexible and creative than larger companies. Big business must look at ways to develop the people who run SMEs, to allow them to grow their skills and experience.
That’s why the amended B-BBEE Act has provided for enterprise and development as a lever for at least 51% black-owned SMEs to overcome structural barriers to their participating in the mainstream economy.
The B-BEE Act is expressly aimed at boosting black-owned SMEs by requiring that both public and private entities assist black-owned supplier SMEs with financial and non-financial assistance, and to ensure they have the means to retain their employees so that they continually meet the target of 50% black employees.
Black-owned SMEs have responsibilities, too. They need to bring something to the table, and be strategic about the skills their principals acquire. They also need to be able to show how the relationship with the bigger partner can help them grow.
The good news is that more and more big companies are coming to the B-BBEE Commission to check that their schemes and deals meet our country’s transformation requirements.
Where we can see that entities’ deals or schemes, while not meeting requirements, are seated in the desire to meet the legislated requirements, we give companies time to rectify the situation, and guidance in doing so. However, we have also used our investigative powers to refer any matter we have investigated that may involve the commission of a criminal offence to the National Prosecuting Authority or a relevant division of the South African Police Service for criminal investigation.
Large companies must look at the way they are transferring skills to their smaller black-owned suppliers. In the end these smaller companies need to be able to stand alone, and grow. We need to open up markets that are now closed to small business and allow new entrants into the South African economy.
Big companies need not fear that they are mentoring themselves out of the market. There is always something that sets each company apart, and companies can also be strategic. Instead of importing goods, why not help a small business manufacture them in South Africa?
That would open up a new market, eliminate import taxes and grow the economy. Helping a SME doesn’t have to mean handing over an entire value chain. We will know we have triumphed when we no longer have to talk B-BBEE at all, because the economy is inclusive. That is where we want to be, and the sooner the better; for all of us.