R10bn fund for SMEs must prioritise businesses with scale

President Cyril Ramaphosa, in his State of the Nation Address (Sona) on Thursday, announced several initiatives to support the recovery of small- and medium-sized enterprises (SMEs), after the events of the last few years battered the sector.

Ramaphosa revealed that government, working with the SA SME Fund, will establish a R10 billion fund aimed at supporting SMME (small, medium and micro-sized enterprise) growth.

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The majority of the funds are expected to come from the private sector, but the president did say that government is investigating the feasibility of contributing R2.5 billion to the fund.

He also announced a plan to provide R1.4 billion in financing to the Small Enterprise Finance Agency (Sefa), which will go towards assisting 90 000 entrepreneurs.

Plans to assist businesses with their transition to alternative power generation, via the bounce-back loan scheme that government introduced in 2022 to assist businesses with their recovery from the pandemic, were also announced in Sona.

While welcoming the government’s plans to support the sector, financial commentator Michelle Austin says it does little help to throw money at a problem if the economic environment does not allow for growth.

She tells Moneyweb that to drive real impact, there needs to be a proper vetting of beneficiaries, to ensure that the financial support is directed to businesses that have greater growth potential.

“I would say first priority needs to be given to businesses with high growth potential and that have a good, solid plan and government structures.”

An entrepreneur just starting out, or a micro or even a medium-sized enterprise, won’t necessarily be able to achieve the desired impact, she says. “We should … concentrate on those high-growth potential companies or individuals who can bring about change and then further are able to invest in the infrastructure, or give back to the fund in a shorter space of time so that there is more to go around.”

The funds that are set to be made available to business owners are likely to be distributed under state of disaster conditions, depending on how quickly the relevant stakeholders can get the ball rolling.

State of disaster

Less than a year after lifting the last national state of disaster, implemented to combat the Covid-19 pandemic, the president on Thursday declared a national state of disaster to deal with the country’s electricity crisis.

It is not clear how the implementation of related regulations will affect the distribution of the above-mentioned funds to businesses.

Concerns have however been raised that the declaration of a state of disaster may present the perfect conditions for corrupt activity to take place, as was the case during the peak of the pandemic.

For Business Unity South Africa (Busa) CEO Cas Coovadia it is also unclear how the legislation will solve the country’s electricity woes.

“We welcome the concentration in this Sona on the energy crisis, however we are not convinced that declaring a state of disaster will help address the crisis,” he said in a statement on Friday.

“It must be seen as a low point in the life of our society that mismanagement and lack of governance has created circumstances in which a state of disaster has to be declared.”

Lessons from Covid crisis

Raymond Parsons, an economist at North-West University Business School, fears that similar misdeeds reported in relation to the Covid-19 pandemic disaster period may resurface if government doesn’t implement the necessary safeguards.

“It remains important that South Africa learns the lessons around the handling of the Covid-19 crisis. Safeguards are needed to prevent corruption and the intended role of the Auditor-General is welcome.

“It is also important that a national state of disaster to deal with electricity crisis be seen as a temporary solution and that an exit strategy is already being planned,” says Parsons. “Timelines must be set and enforced, with consequences if they are not met. Implementation and accountability are paramount.

“To rebuild business confidence political leadership must therefore ensure that, in the aftermath of the Sona, words will be backed by credible action.”

Inospace – the owner of serviced logistics parks – believes that instead of providing assistance to help small businesses to migrate from the national grid on loan terms, government should provide the financing without conditions.

“Solar tax relief is better than nothing, but this won’t help small businesses survive or bounce back,” says Inospace chief operating officer Jacques Weber. 

“We thus call on the government to immediately provide unconditional financial assistance to SMEs whose businesses are at an enormous risk of being annihilated by unending load shedding,” says Weber.

“While load shedding persists, thousands of SMEs are staring down the barrel, contemplating shedding jobs, lowering production or possibly winding up,” he adds.

“The SME segment of the economy does not have the means to get off the grid through costly alternative power solutions.”

This article originally appeared on Moneyweb and was republished with permission.
Read the original article here.

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