‘SMEs are rock stars of our economy’: Why it is so urgent to cut the red tape

Government needs to cut the red tape standing in the way of SMEs for the simple reason that we are facing a global recession that is likely to affect South Africa’s economy. Therefore, we need to strengthen our economy from within and SMEs will play a critical role as the country navigates these uncertain times.

The World Bank’s latest projections indicate that the per-capita income growth in emerging markets and developing economies will average 2.8% over the next two years, a full percentage point lower than the 2010–2019 average.

“The untapped potential of SMEs in the country is astounding, but the red tape placed on them is even more startling. In South Africa we would not stand for our national teams playing with their hands tied behind their backs. However, we allow millions of SMEs to be held back from reaching their full potential due to all the red tape,” Alan Shannon, executive for small business services and private clients, says.

“The sheer volume of legal compliance, regulations, policies, licensing and permitting that business owners must deal with can easily add up to multiple days of compliance tasks every year, time that could instead be spent on building the business.”

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SMEs cannot afford lawyers to help with red tape

Shannon says while bigger businesses can afford to hire an army of compliance officers and lawyers to jump through the hoops, SMEs cannot because they cannot afford to and therefore the current process in place needs urgent review.

According to the World Trade Report, SMEs in economies such as South Africa account for a jaw-dropping 60% of gross domestic product (GDP) and 70% of employment. “When SMEs employ the majority of South Africans, every effort must be made to remove the barriers hindering their development. Unemployment, poverty and the impact of a global recession can be alleviated only through the active support of smaller-business owners.”

Shannon says SMEs drive economic growth by providing goods and services to consumers and businesses, thereby increasing the flow of money across value chains. “These businesses play a significant role in innovation, leading to new products, services and processes that drive economic prosperity.”

The hurdles for independent green-energy suppliers are incredible examples of clear opportunities being hindered, Shannon says. “A step in the right direction is an announcement in the recent State of The Nation Address (SONA) about National Treasury’s intention to work on adjustments to the bounce-back loan scheme to help small businesses invest in solar equipment and allow banks and development-focused finance institutions to borrow directly from the scheme to facilitate the leasing of solar panels.”

The decisions and announcements regarding regulatory restrictions and even load shedding must be watched with greater scrutiny than ever before, as it will either encourage or deter new entrepreneurs and investors, Shannon says.

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Making it simpler to do business

“Collectively we have a vested interest in new players entering markets and making it simpler to do business. Fundamentally, SMEs help to diversify the South African economy by offering a wide range of goods and services, reducing the country’s dependence on a few large industries and creating a more resilient foundation for economic success.”

He quotes the CEO of the Small Business Institute, John Dludlu, who says: “Cut down the red tape. These SMEs are the rock stars of our economy. We should treat them as such.”

SMEs are also a vital path to entrepreneurship, which provides opportunities for self-driven South Africans to start and grow their own businesses. According to Shannon this results in a more dynamic and competitive nation, leading to increased efficiency and productivity.

“However, government and the private sector have an additional role to play by providing access to financing to accelerate the success of enterprises and create jobs. One of the main reasons that Nedbank Small Business Services clients give when applying for funding, is the need to retain staff in a challenging economy or buy essential equipment from generators to vehicles.”

He says these are valid business imperatives that weigh heavy on the minds of business owners. Taking time to fill out countless complicated forms cannot be a day-long priority.

“To support SMEs and help them reach their full potential, government and the private sector must work together to provide resources and remove obstacles. This should include financial support, access to mentorship and training programmes and a reduction in regulatory barriers that limit the growth of SMEs.”

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Good news about red tape

Shannon says a ray of light in SONA 2023 was the president’s reaffirmed commitment to The Red Tape Reduction Team, which works with various departments to find easier ways to do business.

Amendments to the Businesses Act to reduce regulatory impediments for SMEs and co-operatives to make it easier for entrepreneurs to start businesses, will be finalised this year. “The National Development Plan’s vision is for SMEs to provide 90% of employment in South Africa by 2030 and therefore we must provide a simple and empowering path for thousands of new entrepreneurs and businesses to enter the marketplace.”

South Africa can benefit from more dynamic, innovative and competitive businesses by providing them with a supportive environment. And when we remove the red tape, we can get the economy back in the black.