Treasury to take heed of what SMEs need to effect urgent economic reform

This is no ordinary year and this week will be no ordinary Budget Speech. Looking back on the Minister of Finance’s Address from last year, at the time we could have been fooled into thinking the worst had indeed passed. 

While we had entered into a technical recession, we had high hopes for economic growth, forecasting that we would expand by 0.9 percent and inflation would average 4.5 percent in 2020. But of course, we all know what transpired once the pandemic landed on local shores.

SME role-players present top 10 points that Minister Mboweni should include in the 2021 Budget

12 months later we find ourselves in a precarious situation. Our economy has contracted by 7%, we have lost many millions of jobs, countless sectors have imploded due to low demand and near-impossible operating conditions, and plenty of small businesses have closed down. This is by no stretch, business as usual.

“As Minister Tito Mboweni tables his 2021 Budget, sustainable growth and job creation must be high on his agenda if we are going to make any attempt of getting out of this quagmire, back onto a road of economic recovery,” says Karl Westvig, Retail Capital CEO.

Joined by leaders in the SME sector – Colin Timmis from Xero, Jonathan Smit from PayFast, Idan Jaan from Fundrr – Karl Westvig believes Government must take heed of 10 essential steps to unlock the opportunities that SMEs can create. Here he unpacks these points and highlights how SMEs can create jobs, contribute to the tax base and play their part in rebuilding our economy after being ravaged by Covid-19. It is among our only options.

1. Non-banks another life-line

SMEs contribute +- R1,5-trillion to our GDP, yet government puts a fraction of this back into the sector which doesn’t move the dial. More must be done to enable SMEs access to life-saving funding, and it starts by improving access to non-bank lenders. Link the funders and recipients in a more efficient way. Once funds are deployed, track them. Drive this by using technology and forgo manually uploading bank statements – this slows the entire process down.

2. Take a seat at the table

Beyond the big banks lies an ecosystem of key stakeholders who are heavily invested in SME stimulation and support. These role players – from lenders, payment service providers, and cloud-based accounting and training platforms – must work with the government to address a myriad of issues that SMEs face. Use their data and technology to help make evidence-based policy decisions and give them a seat at the table.

3. Billions unspent on millions of SMEs 

 Securing funding through access to the Department of Small Business loan scheme was massively under-whelming: Out of 30 000 applications, only a mere 1497 secured finance, leaving billions on the table. Providing SME financial literacy on unlocking funding, and going-to-market is critical to future uptake. Government’s laborious manual process must become digitised to prevent bottlenecks; the intentions are good but the execution is not. 

4. The Big Banks’ catch-22

The loan guarantee scheme was designed to help SMEs in distress, but the banks won’t fund distressed businesses – this is a fundamental catch-22 and is among the reasons for its epic failure. What’s more, applicants can only apply for funding through their bank. Not a third party. They need to put up personal surety, sign over their life, and take on all the risks. The government must open up the playing field and work with alternative lenders that fund SMEs in the R50 000 to R10-million turnover range.

5. Take off the commercial hat

Just a handful of people in government is trying to run a country of 60-million; the state cannot do everything on its own and must play to its strengths, and capacity. Undertake PPPs with independent role players in the SME ecosystem that wear the commercial hat; government can then focus on the pressing social and political mandate.

6. Your 30 days are up

Cash flow is a serious impediment to SME sustainability and success. Government – and big business – must commit to paying suppliers within 30 days. While this has been on the table for decades, it remains an issue that stunts SME growth, job creation, and tax contribution. We need less talk and more action.

7. Fast-track taxi regulation

The taxi industry brings R90-billion into the economy but isn’t formalised and doesn’t pay tax beyond fuel levies. Regulating this sector will make a significant difference to tax collections, especially when we are sitting with a deficit in the billions. 

8. Payments 2.0: from cash to card

Covid-19 triggered our need for contactless payments and unlocked the government’s opportunity of generating more revenue. Every informal vendor should be equipped with a card-based payment device, to cross the chasm from informal to formal, and affect tax collections.

9. Time to tech-up, Gov

If Covid-19 has taught us anything, it’s that we can digitise overnight. From offline to eCommerce, and cash to card, this shift has fast-tracked SMEs’ opportunities and propelled them into the future. Digitisation is the new normal and government must educate SMEs on how to make this critical transition by providing training on how to tech-up. Adopting it themselves will also go a long way. And lose the paper, it is 2021 after all.

10. Too little and too late?

While the TERS relief fund is back on the table, it is only going to provide temporary relief for less than one month, and only to certain sectors. By the time the details are all ironed out, the new extension of 15th March could be mere weeks if not days away. The government needs to relook how this life-line is rolled out, to whom, and for what period. Otherwise, it’ll just be another great initiative that wasn’t. 

“While the state and business must come together to address our economic malaise, we believe the real opportunity and hope lies with our SMEs. We all know small businesses have been earmarked to create 90% of all jobs by 2030 – this is just nine years away – but many are limping along, having suffered multiple Covid-19 casualties. Although a lot has been done to give our SMEs a leg up and a fighting chance, it is not nearly enough; our future really does rely on them,” concludes Westvig.

This article was written by Karl Westvig, CEO and founder of Retail Capital, a company focused on providing funding and assistance to local SMEs. 

Featured image: Karl Westvig, CEO and founder of Retail Capital (Supplied)