Economy - It is already nearly impossible to operate an SMME, despite the country's need for employment and growth of the GDP. The SME Growth Index study lists the key concerns for business growth going forward in South Africa in the following order:
- State of municipal rates and services
- Regulations and red tape
SMME operators in South Africa that employ between 10 and 50 people are doing a whole lot better than the flea marketer, start-up and 1-man business that cannot get any assistance, answers or financing. These companies are the incubators of the economy in manufacturing, business services and tourism. The government, which regards them as having growth potential, is failing them in every step.
Whilst the financial institutions will gladly advance financing to employees (who then squander the financing on frivolous things such as drugs and alcohol) cause these shooting stars to jump through hoops in the hope they will get a meagre crumb when they are starving for a loaf. A loaf not only to feed them but also to offer to others and to help some even feed more.
Building legislation hampers growth
New legislation is brought in without consulting the SMME sector. An example of this is the new building regulation that calls for building drawings to be submitted and a plan number received for the approval process regarding all building work including fittings, finishes, furniture layouts and changes in work surfaces including floors. This stunts the SMME who would create a new visual or operational finish. It also stunts a SMME that starts out with whatever it can get its hands on in order adapt and change as the company grows.
SMME battle to get the necessary ingredients for their business without having to worry about the cake icing. No wonder the manufacturers are most negative about the business environment, with around 81% feeling that things have become more difficult. Being a previous manufacturer, I agree fully with them. I have had to adapt my business and this has led us to online marketing. It is cheaper for me to import goods than to manufacture them, but this leads to mass production and no control of my design and flooding of markets, as the Chinese reproduce the product that should have been my road to wealth.
The lack of a workforce has also made the SMME position more difficult. Where once you could employ an assistant with very little in the way of regulations, you are now bound from the moment you employ someone. The costs involved with employing assistants is not worth the help they offer especially where that help is unskilled and does not have a very good track record. The employees a SME will hire are often not reliable and have no training or basic knowledge as to why they are important to the company. The SMME will not impart this information, as it fears that the employee will cause unnecessary problems that will result in even more costs on a non-substantial budget.
Often the SMME, having hired an employee, will keep that employee no matter how useless he or she is, in fear of the firing procedure and the ramifications thereof. There is no real assistance for the SMME to turn to and that which is available comes at a cost. That employee eventually drains the company that is supporting two families on one person's efforts.
Admin, cash flow issues
For every 100 SMMEs that government/municipality contract through a 'tender' process, 95% fail, due to poor administration and payment from that government/municipal office. Those that do not fail from lack of funds fail due to the BBBEE process itself. The tenders are bound by the BBBEE process and often unskilled business owners, who have worked in the environment and now go out on their own, apply for such contracts.
Having seen how this process works from the point of view of an applicant I have to say that training is the greatest need there is in SA. The applicant that my office was supporting won several contracts, however due to greed and lack of knowledge the applicant was unable to continue. This and other such scenarios have robbed South Africa of several opportunities. The only SMMEs that survive either have a connection to the client, political backing or are those that show promise and are taken under the wing of a bigger private firm.
Employer's rights neglected
SMMEs are often bullied by organisations, such as MEIBC (Metal and Engineering Bargaining Council), with threats of legal action. This often happens where the company consists of the gardener, retired person/unemployed white, spouse and his kids who are carrying out a service or are manufacturing. The bullying further continues with the worker being advised of his rights whilst the employer is left in the dark as to what rights he or she may have and how to remedy the problem. The sole purpose is to put the company out of business and to stop a potential threat.
A few months later that employee is operating his or her 'own business' but with assistance from persons unknown and even later in the process they become the company that is handed a government contract.
No consideration is taken that workers could lose their current employment if the owner is fearful and closes down. The owner is further fearful of becoming successful as he or she has not been assisted or taught what to do in the situation. Legislation will put us out of business is a common fear of white-owned businesses.
VAT training needed
VAT is another of the hurdles an SMME must jump through and often frightening to the new business owner. VAT is a function of helping cash flow at the beginning when a company is making more taxable income than expenses, but SARS employees who threaten you if you do not comply do not understand this. Rather a new business should be offered a training seminar run by SARS on how to do your tax and then the various products SARS offers and for what benefit and reason it exists.
Red tape is consuming between some 3% and 6% of companies' turnover, depending on the sector. It also hits smaller firms particularly hard. Those employing less than 21 people are paying more than double - proportionate to their turnover - than those employing more than 40.
Overall, the sense is of an increasingly unwelcoming business climate, with serious implications for the ability of the SMME community to generate the wealth and jobs that international experience shows it is capable of.
By Heather Zynbad