By Anna Majavu
Analysts say the government’s new draft funding policy for SMMEs and co-operatives is peripheral, thin on details and will not make a meaningful impact on the small business sector. The government released the second draft of the new funding policy on 3 May. According to the National Development Plan (NDP), the small business sector is supposed to create 90% of the government’s target of 11 million new jobs by 2030.
But Ubuntunomics owner and sustainability practitioner Sibusiso Nyathi told Vutivi News that in order to achieve that, South Africa’s central investment strategy would have to prioritise SMMEs. Instead, it prioritises investment in finance, insurance, real estate and business services, transport and logistics, manufacturing, mining and quarrying, electricity, gas, and water – sectors that small businesses often lack the muscle to break into. This meant that the new SMME funding policy and the investment strategy were at odds, said Nyathi.
“There has to be policy coherence and the government has to balance two sometimes competing interests between its various ministries, with only one central plan informing the direction and investment philosophy,” said Nyathi. He added that giving responsibility to SMMEs to create 90% of all jobs by 2030 should also have meant a major role in crafting the funding policy for National Treasury and the SA Reserve Bank (SARB). This could have included establishing “a differentiated interest rate regime, with a lower interest rate for SMME’s vs large corporations”, and a monitoring tool to see how many SMME loan applications were being rejected by banks so that they could reduce interest rates further for SMMEs, Nyathi added.
“The regulator of commercial banking, SARB, should also be responsible in monitoring the share increase of loans to SMMEs, setting a target of 65% of loans as an encouragement to the banking sector to increase the supply of capital to SMMEs,” he said. Overall, the new funding policy also failed to mention government financiers such as the Industrial Development Corporation which offered a 3% interest repayment rate, much lower than the commercial bank rates, and would not achieve its objectives, Nyathi said.
Prof. Owen Skae, Director of the Rhodes University Business School, said the policy would “really result in no meaningful impact”. “As so often with government policies, they say the right things and look good on paper, but essentially there is nothing new here that is going to result in the seismic shift required to effect the change to unlock the small-scale sector,” Skae told Vutivi News. He said the new draft policy was “thin on detail regarding implementation” and also failed to address exactly what kinds of red tape needed to be eliminated and who would make that happen.
Independent political analyst Dr. Dale McKinley said the policy continued the “disastrous” government inclination to rely predominantly on the private sector, in this case, the banks. “We already know about all the problems with privatisation and yet the government is doubling down on this,” said McKinley, adding that setting up committees to work with banks would likely not change the way that commercial banks operated.
“Instead of it being a project that has very clear deliverables, clear budgets and is driven by the public sector in conjunction with the SMMEs, as well as communities and others who are directly involved, the co-operatives get left aside and we have a situation that reinforces the predominant focus on medium-sized enterprises as opposed to the small and micro enterprises and co-operatives, who really need help,” said McKinley. The original story by Vutivi News on the draft policy can be accessed here: