Improve the market for SMMEs and SA won’t need as many grants

If done correctly, small, micro and macro enterprises (SMMEs) could be the ideal solution to alleviating poverty, unemployment and reviving the economy while lowering the need for short-term unaffordable solutions such as social relief grants, economists said.

Figures by Statistics SA show that 32.6% of the population was unemployed in the first quarter of 2021, with nearly half being those aged between 15-34 years.

More than half of the population (55.5%) was living in poverty, while 25% of South Africans experienced food poverty, the World Bank’s DataBank survey found.

The dire situation among South Africans has left millions to line up for the R350 Covid-19 social relief grants which were re-introduced by government last month to support those with no jobs during the pandemic.

This means R26.7 billion has been allocated to the South African Social Security Agency (SASSA) to roll out the grants for the next eight months, until March 2022. Over five million social relief grant applications were received by 11 August, with SASSA stating that high levels of unemployment were driving those aged between 20 and 24 to apply.

Grants a stepping stone but not a solution

Research by NIDS-CRAM found that the R350 relief grants reduced the number of households with income below the poverty line from 20.6% to 18.8% between the period of March and June 2020.

Despite this, grants were a short-term solution which, although it might be able to feed the hungry, could damage the already strained economy in the long run due to its unaffordability, said economist Professor Bonke Dumisa.

With the social relief grant also available to asylum seekers and special permit holders, Dumisa warns that this could have an extremely negative long term effect, similar to what was seen in the United Kingdom in the lead up to Brexit.

“While grants do help to get people on their feet, I do not really think they are a long-term solution to anything. In fact, that is one of the reasons why the UK had a problem with its fellow members of the European Union and ended up leaving because everyone was moving to the UK to access their dole system which partially destroyed the UK economy.”

“In the UK however, they could sustain it for a long time. Here in South Africa, where we are in a situation where we have effective unemployment rate, it is totally unsustainable,” he said.

Aside from the unaffordability, R350 per month was just not enough, said University of Johannesburg (UJ) economist Dr Peter Baur.

“Social grants lead to a dual-economy scenario. It keeps people calm, but it is not enough because they realise themselves that the oil price goes up… food price inflation is sitting at 5% to 6% and the cost of food goes up far higher than other goods.

Successful SMMEs a more viable solution than grants

While SMMEs were the hardest hit during the lockdown periods, government has, however, allocated R40 billion to this sector for the current financial year.

SMMEs and the informal sector were the areas which absorbed most of the unemployed, putting them in a better place than being completely jobless, said Baur.

“It acts as a safety net. Whether the formal sector cannot create enough jobs, the informal sector is making a contribution, which is predominantly made up of SMMEs. Not all of them are registered but SMMEs are a huge job creation opportunity in South Africa.”

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“SMMEs are a better option than the grants, for people, but grants are a better option for government to support people.”

But global statistics show that out of 100 SMMEs which have started this year, only 80% will make it to the end of the year. A small 20% will survive until the fifth year, said Dumisa.

South Africans, meanwhile, are hamstrung by issues such as lack of education, poor work ethic, and a non-supportive environment, he said.

“South Africans don’t support each other, which is why businesses in the townships have been taken over by Pakistanis and Somalians… The whole issue of dealing with unemployment cannot just be a political solution but we need a social solution. The problems in South Africa are significant and they are economic, political but also mental and social. We need to use all those things together to find a solution.”

SMMEs continue to face challenges

Despite the economy reopening following the third wave of infections, the sector still found some enterprises closing, said CEO of accounting firm Osidon, Hennie Ferreira.

“The situation has not lifted and hasn’t changed yet. The struggling economy, with the last wave we got, seems to be the same story, sadly. Once again, unless there is serious economic reform, the path and trajectory will continue until the foreseeable future.”

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To turn the sector around, certain legislative red tape which hinder smooth operations should be scrapped, said Ferreira.

One of the biggest stumbling blocks is the labour legislation, which he says is the most restrictive in the world and results in small business owners to be hesitant to employ more people, he said.

“For a small business to get rid of an employee who is not doing their job is a challenge. The CCMA are cut throat with SMMEs, which should only apply to larger companies. The same labour practices and rules are applied to SMMEs as with larger corporates. If you change the labour framework to one which is business friendly to smaller businesses, people will be willing to employ people very quickly,” said Ferreira.

 rorisangk@citizen.co.za