SONA 2015 aftermath and the parallel universe outside Parliament

On Friday morning South Africa woke up to the realisation that the national project of a new democracy based on defending the Constitution, the Bill of Rights and the rule of law against its enemies is in danger of imploding. If Karl Popper were alive today he would have added a new chapter to his book The Open Society and its Enemies. Following his identification of Plato, Hegel, Marx and their residue as the enemies of freedom, Popper would have found an equally dangerous enemy in Jacob Zuma, our President in name only. Thursday's State of the Nation in Parliament was the clearest evidence yet that Zuma and the network of cronies he's built around him will stop at nothing to cling to power, at the expense of institutions designed to protect us from oppression and rule by cleptocracy.

                  " Bring back the signal!"
The media, fellow MPs and numerous commentators have documented Thursday's outrageous scenes in the House of Assembly so I will not attempt to repeat them here. Suffice to say that from the moment the scrambling device was detected before the sitting began, to the DA's walkout and Speaker Mbete's calling Julius Malema a cockroach at an ANC rally yesterday, the foundations of South Africa's democracy were steadily and relentlessly attacked by forces within the ANC that sacrificed them beneath the defence, at all costs, of Zuma and his corrupt patronage network.

So it was with a heavy heart that I attended the post SONA panel discussion, hosted by the Open Society Foundation of SA, on Friday morning at 6 Spin St just a few steps from Parliament. Ranjeni Munusamy from the Daily Maverick was almost in tears as she recounted her witnessing of events from the press gallery the evening before. Economist Iraj Abedian tried to find an optimistic note amidst the chaos, while UCT's Professor Anthony Butler told of the permanent state of crisis that has befallen our country. Questions from the floor added to the feeling of despair, with virtually no-one finding signs that the ANC is ready admit its denialism of the wounds inflicted on the country and seek another course.

I sat there, laptop open with one ear listening to the discussion, adding finishing touches to a speech I was due to give later that morning at the launch of a small business accelerator in Salt River. When I arrived at the function I discarded most of what I had written, and instead spoke of the importance of every citizen of South Africa standing up and speaking out against the threats mounting up to attack our democracy. Partially sticking to my script towards the end of my speech, though, I had to take note of my audience, who appeared to be living in a parallel universe to the one I had lived through some eighteen hours earlier.

Here were forty or so entrepreneurs, investors, mentors, bureaucrats and other fellow travellers making a valiant effort to plant the newest seed in Cape Town's entrepreneurial ecosystem. Platform 9 is the brainchild of Catherine Young from Thinkroom, based in Centurion, who with support from Microsoft aims to kick-start, mentor and support up to 100 young business owners. They have rented premises on two floors of a renovated warehouse and kitted them out with workspace, internet connectivity and access to human networks, the basic building blocks of every embryonic tech start-up.

Here is what I would have said had events the previous evening not intervened:

Good afternoon, thank you for inviting me to speak at the lauch of Platform 9. 

I chatted with a senior executive from Liberty Group at Mining Indaba on Tuesday. A while ago she took a sabbatical to study development economics, and spent time in Bangladesh and India where she learned about Fools Money.

Fools Money is money that people – individuals, like you and me – invest in start-up and emerging businesses purely based on trust. No business plan, no guarantees, no collateral. Just trust that they will get their money back.

It seems to contradict that old proverb, “a fool and his money are soon parted”.  The irreverent but highly readable Fool.com, operated by the Motley Fool, coined the term “foolanthropy” to refer to its take on philanthropy. But fools money is not philanthropy – it is based on the business principle of lending for a return.

In Bangladesh, the Grameen Bank is the best known institution for providing micro loans, using both fools money and capital raised from issuing corporate bonds. Its impairment rate is a jaw-droppingly low 3% and its interest rates just a few percentage points above the bank rate. A far cry from South Africa.

What is the environment for small business finance in South Africa? By all accounts, not very healthy.

The recently released 2014 Global Entrepreneurship Monitor report paints a bleak picture of South Africa's entrepreneurial ecosystem. Start-ups are down 30% compared to last year and African countries to the north are leaving us far behind in their wake.

We don’t have an equivalent of Grameen Bank in SA. Banks are notoriously hesitant to loan to small business. I met a senior executive of one of the Big Four banks recently and he told me why: they can’t risk depositor’s money on investments which have a high probability of going bang.

Government’s attempts to finance start-ups and emerging businesses have been pretty ineffective.

In July the Parliamentary Portfolio Committee invited SEFA, the Small Enterprise Finance Agency, to present its five year plan to us. By 2018 it expects to have lent money to some 80 000 SMMEs. That sounds promising. But here’s the catch: in doing so it expects to create only 120 000 jobs.

That’s one and a half jobs created per business financed. You can hardly call them businesses, then. These are survivalist loans, lent through micro-finance intermediaries charging 30% interest rates. They have to charge these rates to cover their 30-40% impairment rate.

SEFA’s larger loans, in the R50 000 to R5 million range, number only in their hundreds. It’s hardly making an impact on job creation.

Part of the problem is that financial support very rarely comes with non-financial support, such as the sorts of services Platform 9 intends offering its clients.

This is a priority for the Department of Small Business Development as it belatedly begins implementing policies to support small businesses in South Africa. 

To address this challenge, the DA will soon be outlining details of our policy initiative for government and business to establish a National Venture Capital Fund.

This fund will be a high-touch lending vehicle for start-ups and emerging businesses. It will replace SEFA and be placed in the hands of professional fund and loan management at arms length from government. It will consolidate small business support services currently offered by local, provincial and national government through such agencies as the Small Enterprise Development Agency, SEDA, and a multitude of now largely ineffective local economic development offices in municipalities.

It will also incentivise, through tax incentives, an army of business mentors to emerge from the comfort of retirement and work environments to contribute their skills and expertise towards the thousands of aspirant entrepreneurs without the networks or resources to kick start their businesses.

This would be one of the most effective initiatives the Department of Small Business Development could champion in the immediate future.

The challenge for this department is to be the true voice for small business in government. Minister Lindiwe Zulu’s colleagues in Trade and Industry, Labour and Economic Development are all anti-business, whatever their public pronouncements about the need for a partnership between government and business.

Calls for such a partnership have been made for over twenty years but they ring hollow. The moment business speaks out against the ANC on policy matters it is slapped down for being unpatriotic, or selfishly defending "white minority capitalism". This kind of talk is counter-productive and is indicative of the ANC’s shoring up support from its allies, Cosatu and the SACP, whose agenda is laid out in the National Democratic Revolution, not the National Development Plan.

If I am veering towards political territory and far from the business agenda I make no apology. Business and government, sadly, occupy parallel universes and until this changes we will not see progress in the small business landscape or the wider economy.

Platform 9 is the private sector, in the form of small and big business working in unison, doing something constructive to support entrepreneurs in the tech space in Cape Town. This city is emerging as South Africa's hotspot for tech start-ups and long may this continue. 

Thank you again, Catherine, Warren and your colleagues, for being at the vanguard of small business development. Let this be a rallying cry for others to follow your lead.