It would be churlish to entirely dismiss last Thursday’s state of the nation address. But the speech was disappointing as far as support to small business is concerned.
Last Thursday, President Cyril Ramaphosa reported that R1,3 billion worth of relief had been granted to businesses especially small firms, and that 13 000 companies had tapped the so-called R200 billion credit guarantee scheme – backed by the Reserve Bank and National Treasury – to the tune of R19 billion. Government seems to believe that further tweaks to the terms of the loan guarantee scheme will improve its attractiveness. Truth on the grounds suggests otherwise: there is just no appetite for further debt among small firms. Even before covid-19 hit our shores, small firms were in a fragile state thanks to pressures from late payments (by big business, state departments and state-owned enterprises), red tape, multiple credit rating downgrades and load shedding. Covid-19 merely worsened these adverse conditions. One of some 200 surveys suggested that as many as 55 000 small firms may not make it through the pandemic. In general small businesses were failed through stringent conditions attached to the relief measures by government. On Monday, the president appeared to be preparing the country for the tapering off of the economic relief measures. In his weekly diary, he wrote: “Important as these relief measures are now, we will not be able to sustain them indefinitely. We need to make sure that these relief measures provide a firm foundation for a broader recovery without driving the country deeper into debt. Unless we can bring our national debt down to sustainable levels no meaningful economic recovery will be possible. Our national consciousness must now move beyond the realm of relief into that of recovery, and we must all be part of this effort.” Most of the economic relief measures – such as deferred tax, unemployment and debt restructurings – have already been discontinued. Limited unemployment benefits have been extended till mid-March for companies that have been affected by the lockdown. Only the credit guarantee scheme remains in place. The special Covid-19 grant – a grant for anyone unemployed who is not receiving any other grant – has been extended for another three months. This is commendable. Without the social grants the country would have been plunged into a humanitarian crisis of hunger. However, it is a mistake for government to discontinue the economic relief measures. The reasons for their introductions are still there. For example, the country is still on alert level 3. Not only is there a curfew, but also sectors like the alcohol sale industry (bottle stores) are not permitted to work on weekends. This has a direct impact on wages of the employees in this sector. Importantly, the virus has not been defeated. It is mutating, and still killing people. The vaccination programme, the prerequisite to economic recovery, has only just begun. Also, most of the economic recovery plans – such as the infrastructure investment programme – have yet to take off. So, what has to be done? Government needs to trace the distressed small business which are still operating and offer them targeted assistance. Instead of further tweaks to the credit guarantee scheme, government should consider turning a portion of the programme into grant funding for small businesses. It is far more affordable to save existing businesses than to start new ones, and that’s where our focus ought to be. In other words, we should continue the twin task of saving lives and livelihoods. Only once herd immunity is achieved and the economy is safely reopened can we consider winding down assistance.
Dludlu is CEO of the Small Business Institute
