Friday, 1 February 2019

Opinion piece in Business Live - why the Department of Small Business Development is still floundering

Today's edition of Business Live published my opinion piece which sums up why the Department of Small Business Development has failed SA.

You can read it here or the text version below.

These pages have carried a running commentary on the performance of the Department of Small Business Development since its proclamation in July 2014. Heralded by special interest groups as an overdue and bold move to boost government procurement from black-owned SMEs, derided by anti-interventionist types as evidence of more government bloat, it has been a punching bag in our politico-economic dialogue ever since.

Most recently, special advisor to Minister Lindiwe Zulu, Thami Mazwai, (“A mischievous attack”, 31st January) rebutted a call by the Small Business’s Initiative’s Bernard Swanepoel to do away with the department and said Parliament’s portfolio committee “have not questioned the need for the department”. Only the ANC members support its continued existence, with most opposition MPs including the DA calling for its closure.

The new minister and the portfolio committee got off to a bad start. First, Minister Zulu's background didn't fit the demands of the job. She had virtually no experience in business, no trusted advisors to draw on to guide her, and was unable to manage the formation of her department and avoid a wholesale shift of ineffective DTI functionaries into her domain.

In the first meeting of the portfolio committee, when I raised the issue of the “trust deficit” between government and business, Minister Zulu remained silent while her deputy Elizabeth Thabethe and committee chair Ruth Bhengu insisted, despite abundant evidence to the contrary, that relations were fine.

In our first one-on-one meeting I urged Minister Zulu to use her honeymoon period to tackle urgent issues lying outside her immediate brief, including relaxing labour regulations for small business. To her credit she did just that, challenging the unions to take a fresh look at their impact on job creation. She was immediately howled down by her Cosatu allies and never raised the matter again.

As a proponent of the ANC’s nebulous radical economic transformation ideology, Minister Zulu drew flack and admiration in equal measure, but was unable to persuade those who mattered that she should be taken seriously. Her appointment as Chair of the ANC’s International Relations Committee a year ago points to how her real interests lie outside of the realm of business.

Poor leadership and turf-wars with Ministers Davies and Patel over the department’s scope resulted in three acting directors general before a permanent one was appointed on a three year contract, which has now expired, and a department organogram which the Department of Public Service and Administration is yet to approve. A replacement DG is on hold, evidence that the government review ordered by President Ramaphosa will recommend the department be scrapped or merged into a new super ministry of economic affairs.

The portfolio committee, meanwhile, devoted much of its early business to calling for the department’s name to include “cooperatives”.  Members and ANC members in particular seemed to think that small business development was more about poverty alleviation than job creation and wealth creation. Wealth, to them, was a dirty word, with their focus determinedly on redistributing the economy rather than growing it.

It is an indictment of the department that the Cooperative Incentive Scheme, inherited from the DTI, has failed to stem the 90% failure rate of coops in South Africa while pouring upwards of R200 million into grants under its watch.

The department is yet to release the Auditor General’s forensic report into corruption by its officials who have allegedly syphoned off money in cahoots with service providers for years. For Dr Mazwai to call Swanepoel’s reference to corruption in the department “mischievous and opportunistic” is disingenuous as there is ample evidence this practice has continued under Minister Zulu’s watch.

Its flagship National Gazelles Programme for supposedly high-flying SMEs, coincidentally created by Dr Mazwai, has hardly shot the lights out as intended, with the planned third cohort intake being scrapped. Only one gazelle has been accepted into the Black Industrialists Programme.

The Small Enterprise Finance Agency is haemorrhaging cash, with a stubbornly high 70% impairment rate on its direct loan book. The Small Enterprise Development Agency continues to measure its performance based on activities not outcomes, and has not conducted any longitudinal analyses on its clients to establish long-term impact.

In October the department gazetted new definitions of small, micro and medium enterprises for comment but further wholesale changes are required to the National Small Business Act of 2004 to bring it up to date. The Cooperatives Amendment Act was gazetted in 2013 but has not been implemented and is already obsolescent.

The committee had two opportunities to pass legislation to improve the prospects of small business and level the playing field with government and big business. ANC members of the committee declared both these DA private member’s bills, the Red Tape Impact Assessment Bill tabled in 2016 and the Small Enterprises Ombud Service Bill tabled in 2018, as “undesirable”.

The provisions of these bills will eventually find their way into government legislation for which the ANC will take the credit. Minister Zulu is now singing the praises of her “red tape reduction strategy” but has admitted it will not be ready until late 2019 at the earliest – four wasted years. Meanwhile the DA-controlled Western Cape has been rolling out its “from red tape to red carpet” policy since 2013 with R1 billion in government cost reductions achieved so far.

In November the department said it had a dispute resolution mechanism in the wings, mimicking the DA’s Ombud Service Bill, but it will require a new or amended act to bring it into being and there is no government timetable outlined for this to happen.

Both DA bills could already be on the statute book. A wasted opportunity, with partisan politics trumping legislative pragmatism.

In the intervening years since July 2014 the economy has shrunk in per capita terms, unemployment has swelled from 25% to close to 28% (or 37% using the expanded definition) while small businesses are struggling with higher administered prices, over-regulation and restrictive labour laws. The department’s impact has been so minimal in tackling these crucial issues that I referred to Minister Zulu in my 2017 budget speech as the “invisible minister”.

Government regularly pays lip service to small business, claiming it to be the backbone of the economy. The fact that at the Jobs Summit and Investment Conference last year representatives of small business were hardly present gives the lie to this claim. As the DA and others have pointed out repeatedly, provisions in the National Small Business Act for a National Small Business Advisory Council have been ignored. This should act as a counter-weight to the heavy hand of Nedlac, which is dominated by big government, big unions and big business. Yet another opportunity lost.

John Dludlu made some prescient observations about government’s uncoordinated and fragmented approach to the small business segment (“Oliphant did not trumpet yet another fund”, BD 16th January). The Department of Labour’s new R2 billion start-up fund was conceived apparently oblivious of the R2,1 billion fund to be jointly managed by the Small Business and Science and Technology Departments to stimulate and support start-ups.

Central government funding for small business amounts to approximately R5 billion a year, of which the department responsible for the segment controls only one third. It has little to show for this expenditure.

When it comes to small business, the government review and executive appointments thereafter must achieve several things: streamline functions to achieve unity of purpose, strategy and action; capable, experienced and business-friendly people in place, ready to provide leadership and fight the hard battles that lie ahead; and demonstrate an understanding that small, medium and large enterprises work best when allowed to compete and collaborate openly with minimal government interference and regulation.


If this is how things emerge post the 2019 election, we may avoid another five wasted years.

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