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A new report by the Global Entrepreneurship Monitor (GEM) has outlined a number of ways that the South African government can help small and medium enterprises (SMEs).
Several of these recommendations also apply to startups of course, so what can the government do to improve matters.
Create a one-stop shop for government interaction
The time taken to complete business-starting procedures has doubled since 2015 due to red tape and bureaucracy, the report noted.
It added that small business owners tend to handle all government-related processes themselves in a bid to save cash, such as the Department of Labour and SARS. Aside from making these processes, you know… faster… what else can be done?
“Government interaction for small businesses should be streamlined through a variety of easy to subscribe to packages that include setting up the legal entity through which to operate a business, as well as all licensing requirements from local municipalities, labour and SARS registrations,” the monitor suggested.
Speaking of streamlined government dealings, the report also called for a central website which pools together all the important information about starting up a business (e.g. business registration, HR legislation, insurance etc).
Implement a revision on taxes
The report found that if a startup runs behind on tax payments, it became “extremely difficult” to recover from the situation. It thus called for a review of taxes in this regard.
“SARS tends to be inflexible and not willing to accommodate repayment structures that are suitable for small businesses,” the report said.
The report also called for the implementation of tax breaks on those investing in new businesses below a certain size to encourage angel investment.
Make retrenchment/termination “less onerous” for small businesses
“Legislation around the hiring and firing of staff scares many small businesses off from hiring staff. Once companies hire staff, it is very difficult and expensive to let them go if the business cannot afford them or if they prove to be unproductive,” the monitor found.
It also noted that small businesses rarely have the necessary resources to deliver long-term training or mentorship.
Incentivise high-tech entrepreneurial ventures, support inventors
The report called on the government to deliver “fiscal and other incentives” for high-tech startups, while also pushing for the establishment of “science and technology parks”.
It also suggested that the government “improve commercialisation of IP from universities” and support inventors in bringing their product to the market.
Exempt certain ventures from BEE requirements
The report noted that “innovation-based businesses and Gazelles” were still responsible for the majority of net new jobs in an economy, calling for special exemptions to be made.
“Government must create a special dispensation for these two categories of enterprise, exempting them from BEE requirements, providing special funding vehicles and funding for business development services,” the report concluded.
Create hubs with centralised resources
The monitor called for clusters or business hubs to be formed so that startups can be helped in a “more protected and supportive” environment.
The report said that this was doubly important in rural and semi-rural areas, where poor infrastructure represents a big obstacle.
“Centralised resources should be provided – for example in the USA, most large cities have community kitchens where small food businesses can rent space by the hour to produce food in a food safety-certified facility,” it noted.
Investigate/support new funding models
The report argued for the creation of new funding models, “possibly” backed by the government. The monitor said this would help entrepreneurs receive seed capital without the requirements imposed on it by banks.
“Commercial banks are often not best placed to assess the risks associated with SMEs. Any new funding model should be run as a public/private initiative where results and accountability play a major role,” the report elaborated.
Other funding solutions mooted in the report include more attention for micro-funding models, a database of funders and government funding for all small businesses (i.e. not just black-owned businesses).