SONA 2021: SMME PERSPECTIVE - What is SONA 2021 saying about small enterprises? 23 February 2021 - EDSE
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SONA 2021: SMME
PERSPECTIVE
What is SONA 2021 saying about small enterprises?
23 February 2021CONTENTS COVID 19 RELIEF MEASURES PRIORITY 1: A MASSIVE ROLLOUT OF INFRASTRUCTURE PRIORITY 2: A MASSIVE INCREASE IN LOCAL PRODUCTION PRIORITY 3: AN EMPLOYMENT STIMULUS TO CREATE JOBS AND SUPPORT LIVELIHOODS PRIORITY 4: RAPIDLY EXPAND ENERGY GENERATION CAPACITY OTHER LINKAGES ISSUES FOR CONSIDERATION
SONA 2021 Reporting on progress made in the implementation of the recovery plan” and government’s action plan to “restore growth and create jobs”. The President tabled the Economic Reconstruction and Recovery Plan in October 2020 in light of the damage caused by the COVID 19 pandemic. The 2021 SONA is based on the four priority interventions that were identified in the Recovery Plan, namely; 1. A massive rollout of infrastructure throughout the country 2. A massive increase in local production 3. An employment stimulus to create jobs and support livelihoods, 4. Rapid expansion of our energy generation capacity.
COVID 19 RELIEF MEASURES - Debt Relief “More than R1.3 billion has been provided in support mainly for small- and medium-sized businesses.” SMME Debt Relief : Sefa approved 1 497 or 4 per cent from a total of 35 865 applications that the entity received. The entity reports that 14 451 or 40 per cent of the 35 865 applications were complete. sefa approved loans to the value of R513 million for 1 497 complete applications. In a January 2021 media statement, the Minister of the Department of Small business Development reported that of that R513 million amount, R316 million or close to 62% of the relief scheme has been disbursed to SMMEs.
COVID 19 RELIEF MEASURES LGS SONA 2021 reported that; “Around R18.9 billion in loans have been approved for 13,000 businesses through the loan guarantee scheme.” Loan guarantee Scheme : In May 2020 during hard lockdown, government together with commercial banks launched the R200 billion rand loan- guarantee scheme to provide relief to businesses that were hit hard by the COVID pandemic. The Banking Association of South Africa (BASA), reports that by the 16th of January 2021, “the scheme received 48 366 applications for loans, of which 27% were approved by banks and were taken-up by the applicants.”
COVID 19 RELIEF MEASURES -LGS BASA adds that, the scheme “has not achieved all it set out to do” . The uptake for the scheme is significantly low especially given an “expected increase in financial pressure on small enterprises, especially those in the hotel and tourism sector due to restrictions on their businesses under the adjusted level three lockdown regulations.” Business owners remain reluctant to incur more debt, due to the challenges presented by uncertain business conditions and a weak economic outlook and inconsistent policy and regulation, These hamper business owners’ ability to generate sustainable income, which they need to repay the loans.
COVID 19 RELIEF MEASURES -LGS BASA also notes that “the scheme does not extend grants or equity to companies in financial difficulties nor assist those that are in distress for reasons other than those related to the pandemic. Only the Reserve Bank and National Treasury can make any changes to the operations and criteria of the scheme.” SONA 2021 seems to be alive to these financial support challenges. The President announced that going forward; National Treasury “will work with its partners and stakeholders on improvements to the loan guarantee scheme so that it better addresses the realities of SMMEs and other businesses as they strive to recover.”
Priority 1: A massive rollout of infrastructure We have now developed an infrastructure investment project pipeline worth R340 billion in network industries such as energy, water, transport and telecommunications. Rural and township SMMES need access to economic infrastructure in order to access information, and markets where they can sell goods and service and access financial support. Department set itself a target of establishing 12 product markets over a period of three years (four per year) where small businesses will trade their products.
Priority 2: A massive increase in local
production
Create a larger market for small businesses and designate 1,000 locally
produced products that must be procured from SMMEs.
Cabinet approved the SMME Focused Localisation Policy Framework,
which identified the 1,000 products.
Four master plans that have been completed and signed to date – which
are part of the social compact between labour, business, government and
communities – have already had an impact in their respective industries.
Ease of Doing Business: Facilitating investment by increasing the ease of
doing business, including by making it easier to start a business. In the past
year, more than 125,000 new companies have been registered through the
BizPortal platform, completing their registration in just a matter of hours from
the comfort of their homes or offices. We are making it easier for business to
do business.Priority 2: A massive increase in local
production cont…
the Ford Motor Company announced a R16 billion investment to expand
their manufacturing facility in Tshwane for the next generation Ford Ranger
bakkie.
This investment will support the growth of around 12 small and medium
enterprises in automotive component manufacturing.
Nearly half of the procurement spend on construction of the bulk
earthworks and top structure at the Tshwane Special Economic Zone during
this phase is expected to be allocated for SMMEs, an amount equal to R1.7
billion in procurement opportunities.Localisation Challenges Local Content Verification The advertisement of designated tenders without local content requirements Lack of proper evaluation of bids/tenders in line with the local content requirements by some organs of state, The manipulation of the bid price to meet local content requirements, Illicit importation of products, which are supposed to be manufactured in South African in line with the local content policy. The lengthy time it takes to adjudicate tenders and place orders, sometimes negatively affects the operation and profitability of local manufacturers Complaints about non-manufacturing bidders who are given inflated prices by manufacturers who also bid for the same tenders .
Localisation Challenges Expert Riaan Werner van Wyk conducted a study challenges to localisation in South Africa: A case study of the molecular diagnostics and reagents sector The size of the local market is restrictive and too small if only relied upon by local manufacturers. Competing with low cost products from China and other Asian countries on the basis of price presents a great challenge to local firms and would just not be sustainable in the long run. Research conducted at universities is not commercially driven; the majority of this work is blue-sky research” aimed at publishing in academic journals.
WTO Commitments World Trade Organisation (WTO) opposes the use of localisation measures. According to the WTO trade relations investment measures, South Africa cannot “impose localisation on the private sector”. Dr Rob Davies noted that, government has “to use other tools like working together with Proudly South Africa, the private sector and manufacturing sector to engage them on the implementation and also pursue more retailers to come on board too.”
Priority 3: An employment stimulus to create jobs and support livelihoods National Youth Development Agency and the Department of Small Business Development would provide grant funding and business support to 1,000 young entrepreneurs. This provides a firm foundation for our efforts to support 15,000 start-ups by 2024. One of the nine key deliverables coordinated by the Department together with the National Youth Development Agency located within the SMME Support Plan’s District Development Model (DDM), which is part of the sixth administrations priority areas .
Priority 3: An employment stimulus to
create jobs and support livelihoods
Province Number Amount Percentages
Eastern Cape 149 R6 220 293 15%
Gender Amount Percentages
Free State 113 R4 533 574 11%
Gauteng 231 R10 127 518 24%
Male 578 58% KZN 152 R5 885 843 14%
Limpopo 115 R5 156 041 12%
Mpumalanga 152 R7 258 907 17%
Female 422 42% North West 27 R943 665 2%
Northern Cape 24 R1 017 514 2%
Western Cape 37 R1 545 077 4%
Total 1 000 100%
Total 1 000 R42 688 432 100%Priority 4: Rapidly expand energy
generation capacity
2The President announced that;
Government will soon be initiating the procurement of an additional 11,800 megawatts of
power from renewable energy, natural gas, battery storage and coal in line with the
Integrated Resource Plan 2019.
According to CSIR experts, Esther Mkhwebane and Stanely Simelane the formal renewable
energy procurement programme known as the “Renewable Energy Independent Power
Producer Procurement Programme” (REIPPPP) carries opportunities for local businesses
such as small, medium and micro-enterprises (SMMEs) who can offer professional and
auxiliary services in the renewable energy value chain. In addition, the REIPPPP economic
development rules requires IPPs to commit to a certain percentage of their revenues to
enterprise development.
Nonetheless, SMMEs have not optimally benefitted from the REIPPP programme due to a
number of reasons which include, capacity building, inaccessible information and
financial challenges among others .Other linkages Small Scale farmers : Support for black small-scale farmers is being stepped up, with a large beverage producer committing to expand their procurement sharply. We are also pursuing programmes to assist smallholder and emerging farmers with market access, to develop skills across the entire agricultural value chain and increase the number of commercial black farmers. Automotive Industry: The Ford Motor Company announced a R16 billion investment to expand their manufacturing facility in Tshwane for the next generation Ford Ranger bakkie. This investment will support the growth of around 12 small and medium enterprises in automotive component manufacturing. Spectrum Licencing: The process for the licensing of high demand spectrum is at an advanced stage. The Mobile Network is a highly concentrated industry dominated by Vodacom (>50%), MTN (~35%) and Cell-C (~12%) resulting in high prices, Telkom mobile & others comprise less than 3% of the market share. Continental Trade The AfCFTA provides a platform for the South African businesses to expand into markets across the continent, and for South Africa to position itself as a gateway to the continent.
Other linkages Tackling Crime : Crime and violence continues to undermine people’s sense of safety and security. Tackling crime is central to the success of our recovery…Task teams have been set up in a number of provinces to deal with extortion and violence on sites of economic activity. In 2020 there media there were media reports of business owners being threatened to pay protection money in return for the safety of businesses and property. Criminals were reportedly using extortionist methods to get rental income from spaza shops to crèches, hawkers and even landlords with granny flats to earn an income. In 2018 SME South Africa reported that “economic crime in South Africa is now at the highest level over the past decade. South African organisations that have experienced economic crime are now at a staggering 77%, followed in second place by Kenya (75%), and thirdly France (71%). The global average is 49%.”
Issues for Consideration – Debt Relief The PC could ask the Department and sefa the following; What are the implications of the of lower than expected uptake on the SMME demand for financial assisted. What is the Department going to do with the unspent funds What role did delays play in delays in disbursements
Issues for Consideration – Debt Relief The President also reported that ; When reports started to surface last year about possible fraud and corruption in the procurement of COVID-related goods and services, we acted decisively to put a stop to these practices, to investigate all allegations and to act against those responsible. To what extent was the Department and its entities affected by fraud and corruption in the procurement of COVID-related goods and services On internal controls : what measures did the Department and its entities put in place to prevent fraud and corruption The PC could ask the BASA and the Banks to brief the Committee on the LGS including the criteria used to provide assistance.
Issues for consideration - A massive rollout of infrastructure The Economic Recovery Plan and the SONA highlight the importance of infrastructure development in the economic recovery, economic growth and creation of jobs. Notwithstanding the impact of COVID 19 on the economy, the PC on Small Business Development could request a briefing on the following; a) The Department’s strategy and the role its entities can play to ensure that SMMEs take advantage of the value chain opportunities that the R340 billion investment energy, water, transport and telecommunications is availing. b) Progress on establishing product markets and the Infrastructure challenges that are blocking the Department from providing the SMMEs in rural and township areas, with the necessary infrastructure “to create marketplaces where small enterprises trade their products”, as well as the way forward in this regard.
Issues for consideration -A massive increase in local production The PC could request an annual briefing by the Department Brand South Africa and the DTIC on the briefing on the current state of local content verification process for SMMEs and enforcement in the public and private sector. This should include progress on the; Department’s outcome indicator mechanisms to assess the percentage of government departments and entities complying with the 30% procurement spend for SMMEs and Co-operatives, as well as; • Annual Trend Analysis on the 30% public procurement target The PC could request briefing by the Department and Brand South Africa Buy Local campaign and its impact to date on SMMEs
Issues for consideration -A massive increase in local production The PC could also host a conference or a symposium on the impact of the country’s localisation on SMMEs : challenges and success. The PC could also hold a symposium on local content and verification monitoring the implementation of local content policy . The PC could also invite South African Bureau of Standard (SABS), South African Revenue Services (SARS), Law Enforcement Agencies, Industry Associations and Unions in - The PC could also call a joint briefing with Portfolio Committee on Trade and Industry on The African Continental Free Trade Area (AfCFTA) and SMMEs and access to larger domestic and Continental Markets.
Issues for consideration - A massive increase in local production The PC could also request that the Department, and its entities, the Small Enterprise Finance Agency (sefa) as well as the Small Enterprise Development Agency (Seda), brief the Committee on their state of readiness for the opening of fifth phase of the Independent Power Producers (IPP). The presentation could include a strategy for supporting small-scale independent power producers, particularly black-owned businesses and farmers, so that SMMEs can also benefit from this renewable energy project. e) Hold joint meetings and oversight visits with the Portfolio Committee on Mineral Resources and Energy to oversee and scrutinise the work of the Department of Mineral Resources and Energy in relation to small-scale IPPs. f) The PC together with the Select Committee and the PC on Communication and Digital Technologies could request a briefing by the Departments of Small Businesses and Communication and Digital Technologies implications of Spectrum Licensing on small industry players.
Issues for consideration - An
employment stimulus
The PC could request a briefing from both the NYDA and the DSBD on the
success and lesson learnt from the grant funding and business support to
1000 young entrepreneurs.
The PC on SBD could conduct a virtual oversight to assess the impact of the
grant funding on the young beneficiaries.Issues for consideration - Rapidly
expand energy generation capacity
The president also stated that to address the energy shortfall, government
will issue a request for proposals for 2,600 megawatts from wind and solar
energy as part of Bid Window 5. What role can the Department and its
entities play to support SMMEs and help them benefit from Window 5.
The PC could request a briefing by the Department and its entities as well
as the Department of Mineral Resources and Energy on a strategy for
supporting small-scale independent power producers, particularly black-
owned businesses and farmers, so that SMMEs can also benefit from this
renewable energy project.CONCLUSION In conduction oversight over the work of the Department and its entities, key focus areas could be based on the promotion of SMMEs and cooperatives in respect of; PRIORITY 1: INFRASTRUCTURE DEVELOPMENT PRIORITY 2: LOCAL PRODUCTION PRIORITY 3: CREATION OF JOBS AND SUPPORT LIVELIHOODS PRIORITY 4: RAPIDLY EXPAND ENERGY GENERATION CAPACITY
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