Where does small business fit into SA’s budget policy?

Is South Africa’s National Treasury trying to bury a pledge that President Jacob Zuma made in February that 30% of state procurement would be set aside for small businesses?

The Minister of Small Business Development Lindiwe Zulu said in her budget vote speech in May that she expected the National Treasury to release a practice note on the set-aside by September this year.

But the practice note, which would detail to supply chain officials in the public sector how the set-aside would function, has not been released yet.

No mention in speech

And yesterday during his medium-term budget policy statement in Parliament the Minister of Finance Nhlanhla Nene detailed improvements to the state procurement system in his speech, but did not mention the set-aside.

While the National Treasury has in the past expressed its opposition to set-asides — arguing that they are unconstitutional and risk inflating government spending — there are signs that it is willing to consider a set-aside under certain conditions.

In his speech yesterday Nene however said the National Treasury would make further enhancements that support small businesses in the area of electronic bids, quotations and technologies will be implemented in 2016/17.

Tender documents will also be made user-friendly and easy to comprehend.

Read more: Entries open for 2015 South African Small Business Awards

It may be that the National Treasury is now shoring up the procurement system before giving the okay to any set-aside. Nene said a Procurement Bill is being developed to rationalise the more-than 80 legal instruments and instruction notes that currently apply.

ePortal a boost

The National Treasury is instead focusing its attention on an electronic portal, which makes it more affordable for small businesses to tender for government contracts, reduces procurement costs for the state and improves transparency.

Nene said yesterday that up to October 15 the state had already posted over 2 000 tenders worth R28-billion (US$2-billion) on its eTender portal, which was launched in April.

This is still a fraction of the over R500-billion a year that the government spends on the procurement of goods and services.

Added to this Nene said more than 20 000 suppliers have registered on the treasury’s central supplier database, with 9 500 having been verified since 1 September. The database helps reduce duplication for both the supplier and government.

Read more: How the SA government is trying to seed more startups

He urged suppliers to register before March 31 next year, when it becomes compulsory for state-owned enterprises and national and provincial departments to use the database.

Suppliers with limited access to the internet can access the database via district offices, Thusong Service Centres, Small Enterprise Development Agency (Seda) branches and the Post Office, a treasury official said last month.

Last month at the launch of the database Nene said he expected about 250 000 suppliers to register within in the next six months.

“Reform of supply chain management will remain a central priority, to generate short and medium term savings, but more importantly to bring value for money, and to combat corruption,” he said.

Gauteng going it alone?

Meanwhile in what seems to be a contravention to the Public Finance Management Act (PFMA), the Gauteng Provincial Government has committed to giving qualifying township-based businesses all provincial government contracts that are under R500 000.

Read more: Awards to recognise South Africa’s top township entrepreneurs

Gauteng MEC for Economic Development, Environment, Agriculture and Rural Development Lebogang Maile said last week that the provincial government had taken a decision that 30% of its budget will be spent on township entrepreneurs.

His department has launched a campaign to register 10 000 township enterprises with a turnover of less than R1-million.

Yet both the provincial and national government fall under the PFMA, which puts into question whether the Gauteng provincial government can go ahead with any set-aside without the necessary national legislation being put in place.
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The hold-up in the set-aside won’t please the Department of Small Business Development, which an opposition party MP Toby Chance noted last week had missed all four of its performance targets for the year.

Electronic is better

Procurement set-asides for small businesses may sound like a great idea — and a number of countries including the US and Brazil use them.

But as a number of papers argue (the most recent paper by J Mark Clapp of the Florida Institute of Technology) they can also drive up procurement costs.

Read more: Why we really need to take South Africa’s informal entrepreneurs more seriously

Clapp argues that they also encourage firms to stay small so that they can take advantage of the preferential treatment that keeps them from realising the benefits of continued growth.

The experience in Chile (where the country’s e-portal celebrated 12 years in August) and Korea with e-procurement (see this story) suggests that perhaps before rushing into any set-aside South Africa should prioritise e-procurement.

Unlike set-asides e-procurement doesn’t risk driving up spending or lowering quality of goods or services. With economic growth having been cut from two percent to 1.5% the government must be cautious about any move that will lead to wasted state resources.

Image by Chris Eason via Flickr

This article originally appeared on Small Business Insight, a Burn Media publishing partner, with the headline ‘Is SME set-aside still on cards for South Africa?’. Stephen Timm writes on small business and is presently in Cape Town, South Africa. Click here to sign up to his monthly newsletter. Follow him on Twitter at @Smallbinsight and on Facebook.