The third wave of Covid-19 infections gripping SA is likely to cause long-lasting damage to the small, medium and micro enterprise (SMME) sector if an effective policy response is not implemented to soften the blow and help it recover from the ravages of the pandemic.
SMMEs are in the eye of the Covid-19 storm, having already borne the brunt of the pandemic during the first and second waves, which compelled the government to introduce successive lockdowns to curb the spread of the deadly bug. As a result, the virus has not only taken lives, it has also made thousands of SMMEs go bust, resulting in extensive job losses.
According to the 2020 third-quarter SMME Quarterly Update, published in March by the Small Enterprise Development Agency, 290,000 SMMEs closed down in the second and third quarters of 2020, cutting the number of SMMEs in SA to 2.36-million from 2.65-million.
The report reveals that these business closures translated to a 1.5-million contraction in employment, with the SMME sector accounting for 90% of jobs lost following the implementation of Covid-19 restrictions.
That we lost so many SMMEs can be attributed to an underwhelming policy response that failed to rescue SMMEs from the pandemic.
To begin with, the financial support the government provided to the sector was a drop in the ocean and had little impact in countering the fallout from Covid-19. If anything, it exposed huge underinvestment in SMME support in SA. This has been the case for years, including underfunding of entrepreneurship advancement and SMME development. This trend is unlikely to change given the government’s stretched purse.
In a bid to stave off business closures triggered by the pandemic, the department of small business development launched an SMME relief scheme that was initially allocated R200m, but the budget was later increased to R513m because of high application volumes from cash-strapped SMMEs, many of which were forced to close or downscale their operations in compliance with lockdown restrictions.
Only 4.17% of the 35,865 applications that were received for the facility were approved, implying that 1,497 SMMEs accessed the R513m. In a close-out report for the scheme prepared by the Small Enterprise Finance Agency (Sefa), which managed the funds, the agency is blunt in its assessment that the facility was insufficiently funded and was therefore extensively over-subscribed. Sefa concluded that if the scheme was opened to all applicants a budget of R12.3bn would be needed, with each applicant receiving on average R343,000.
The SMMEs whose applications were not considered due to the scheme’s oversubscription were advised to approach the department of employment & labour and apply to the Temporary Employer/Employee Relief Scheme (Ters), which provided relief to workers who had lost their incomes during the implementation of strict Covid-19 restrictions.
The government could be forced to implement more relief schemes if it does not fast-track the rollout of the vaccination programme to keep the virus at bay and shield the SMME sector from further damage. Based on Sefa’s R12.3bn estimate, it is clear the government could be compelled to dig deep into its coffers to implement a larger relief programme should our country fail to contain the pandemic.
The problem of underfunding is not new. It dates back to the days when SMME development was a responsibility of the department of trade & industry, long before the department of small business development was established in 2014 to champion the upliftment of job-creating small businesses, start-ups and co-operatives.
However, the department has made little impact since its inception. In SA, entrepreneurs are better off plying their trade in the corporate sector and rising through the ranks to build wealth. The path to wealth creation is different in other major African economies, where wealth is largely accumulated using entrepreneurship as a vehicle, rather than climbing the corporate ladder.
SA’s heavy reliance on corporate employment was confirmed in the first edition of the African Wealth Report titled “The Art of Creating Wealth”, released in August last year. The report, compiled by Intellidex and sponsored by Standard Bank, found that most dollar millionaires in Africa amassed wealth through entrepreneurship. In SA, wealth was largely built through executive careers and investing in equities. But in Ghana, Kenya and Nigeria the way to wealth creation is primarily by starting your own business. Across many African countries the real estate industry is the main wealth creator.
With unemployment rising and the economy still hamstrung by Covid, SA needs to do more to encourage its citizens to embrace entrepreneurship as a vehicle for wealth creation. To do so the government, backed by the private sector, will have to expand support for SMMEs by making funding available and opening up markets for small businesses to ensure their future sustainability.
• Ntingi is founder of GetBiz.
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