Thursday, 16 February 2017

Unpublished letter to Mail & Guardian - Zulu's department should not get more money until it proves it can use if effectively

I sent this letter to Mail & Guardian on Monday and was disappointed to see they did not publish it in today's edition.

Dear Sir

Minister of Small Business Development Lindiwe Zulu laments her department is under-funded (Zulu laments inadequate budget, M&G 3 Feb). 

It is true the Department receives a very small proportion of total government spending. The 2016/17 national expenditure ceiling was R1,15 trillion of which R1,3 billion went to the Department - a paltry 0,1%. This is roughly 114 times less than the Department of Social Development receives, mainly to pay out monthly grants to 17 million recipients. 

This could be interpreted to mean government devotes a vastly greater proportion of its resources to welfare measures and re-distribution than it does to supporting and sustaining enterprise and job creation by small businesses, which the Minister correctly points out are expected to create 90% of new jobs between now and 2030.

The Minister's budget is also just 25% of total government spending on small businesses and co-operatives across all government departments. In other words, Minister Zulu only controls a quarter of the national budget spent on what should be her prerogative to spend.

A neutral observer would think it logical to devote more money to enterprise support and incentives. But this can only be justified if the impact of such spending is measured and outcomes quantified positively. Sadly in the case of this department, no such positive impact or outcomes are available. The department measures its performance by activities. So if more small businesses and co-ops are supported, this is supposed to be a good thing in itself.

Until her department gets a grip on how the money it receives translates into new businesses established and jobs created, business growth in turnover and profits over time, SME contribution to GDP, taxes paid and other tangible measures, Treasury is right to deprive it of further funds. 

Just two statistics are worth quoting to make the point: 88% of co-ops funded by the Department have failed; while 73% of direct loans made by the Small Enterprise Finance Agency have to be written off because the beneficiaries don't pay them back.


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