By Anna Majavu
President Cyril Ramaphosa must announce major new funding streams for different informal and small businesses, including informal traders and taxis, in his State of the Nation Address (Sona) on Thursday if the sector is to survive. Economist Duma Gqubule said that Ramaphosa was swept up in an illusory vision of an SMME sector comprising gleaming tech start-ups and was failing to provide any meaningful support to informal businesses, which made up the bulk of the SMME sector.
“Government policy targets the SMMEs we wish we had, rather than the SMMEs that we do have. High-tech businesses are a minority that will not necessarily employ people, so they need to focus more on providing support to the businesses that we currently have” Gqubule told Vutivi News. Ramaphosa delivered on a promise he made in last year’s Sona of a new loan guarantee for SMME’s affected by the Covid-19 pandemic, the July 2021 unrest in Gauteng and KwaZulu-Natal, and the April 2022 floods, launching an R15 billion credit guarantee scheme in May last year.
But Gqubule said this scheme would “be a monumental flop just like the government’s R200 billion 2020 Covid-19 loan guaranteed scheme”, which could not be accessed by most of the SMME sector as they were not eligible. He recommended that the government instead impose lending quotas on the banks of about five percent to black SMMEs as a priority sector, as was the case in China. “What we are seeing is racism and politely, market failure in the provision of credit to black SMMEs” who barely accessed any finance, he said.
This would also tide over black SMMEs when they were paid late by big businesses, state-owned enterprises, and government departments – a very long-standing problem that caused a business collapse in the sector, said Small Business Institution CEO John Dludlu. Dludlu added that Ramaphosa must factor into his speech that “this year’s Sona finds us in a really difficult state where we have also not recovered from Covid, the mayhem that hit small businesses in 2021, and the floods”.
Another urgent priority for Ramaphosa should be to incorporate small business taxis into a public transport system. “Taxis are an affront to human dignity. We need to formalise the entire taxi industry. Taxis borrow at 27% interest from the banks and we should have a state subsidised finance system for them,” he said. Gqubule’s final recommendation was that the government institute a funding stream for the informal business sector.
About three million informal traders made up 26% of all employed people in South Africa but were still “routinely harassed by the police and local government and have no access to finance”, he said. The government urgently needed to provide proper financial and non-financial services to informal businesses, which may include a new ring-fenced pool of money to provide infrastructure for informal traders.