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Late payments ‘horror story’ for small businesses

About 900 black industrialists received financial support totalling R44 billion over the past six years that the black industrialist programme under the department of trade, industry and competition has been running. The programme defines black industrialists as black individuals who are directly involved in the creation, ownership, management and operation of a business.

The bulk of the R44 billion consisted of loans that were to be paid back at interest rates below market rates.

“Some of the money was equity – where the Industrial Development Corporation [IDC], for example, took a small shareholding in a company to inject capital – and some of it comprised grants, where the department made money available to a black industrialist as a contribution to building their capital base,” says Trade, Industry and Competition Minister Ebrahim Patel.

The department works together with the IDC and the National Empowerment Fund to provide loans and grants to black businesses. This year, R6 billion has been set aside to finance the programme, though Patel adds that government has offered much more support than what has been budgeted for.

We’ve decided that all targets must be evidence-based, so the research project we’re looking at now will give us a much better sense of what the ratio of budget is for a successful company. When we simply chase numbers and those companies fold, we may have ticked the box, but we’ve achieved nothing.

Patel says his team is trying to shift the focus of BEE from the original aim of simply addressing historical race-based discrimination.

“We’re trying to change our story to one of how we can use the entrepreneurial energy of black South Africans to grow the economy. From now on, our focus won’t be on what we put in – it will be on how we can get the maximum out for the economy. The kind of projects we back will increasingly reflect that.”

About 70 000 jobs are said to have been created by businesses that are owned and controlled by black entrepreneurs. There are reportedly 337 000 black entrepreneurs in the formal economy and 1.3 million in the informal sector. In general, black entrepreneurs have injected R160 billion into the economy over a 12-year period.

UNSTABLE POWER SUPPLY STIFLES GROWTH

Government has admitted that an unreliable electricity supply will stifle the growth of businesses and the economy at large.

Speaking on Wednesday at the Black Industrialists and Exporters Conference, which aims to gauge the progress of the black industrialist programme, President Cyril Ramaphosa said:

In particular, we need to act decisively and urgently to end the load shedding that’s causing such damage to our economy and such disruption to our society. Like all other actors in the economy, black industrialists simply can’t grow without a reliable supply of affordable energy. We’ve done much over the past four years to transform the country’s energy landscape and bring new generation capacity online.

His comments came as South Africa experiences the worst round of load shedding since 2020, as well as the destruction of public infrastructure, including the rail network and the country’s ports.

Ramaphosa also encouraged delegates to have a frank discussion about impediments to the expansion of black business, not just from government, but from the private sector as well.

“I invite you to also talk about how government embarks on processes that, for instance, prevent and even destroy your growth. I know for a fact that one of the issues you want to raise – and you must raise it – is that, when you transact with government, we’re able to give you opportunities, but at the same time, we destroy you by not paying you on time or not paying you at all. We need to talk about that frankly and openly, as we’re making efforts to solve this problem of nonpayment or late payment by government,” said Ramaphosa.

LATE PAYMENTS A BIG PROBLEM

The president’s words came three years after he had made a commitment that government would pay suppliers within 30 days.

On Friday, National Treasury said there was a 63% improvement in the number of invoices older than 30 days and not paid at the end of the 2021/2022 financial year, which amounted to 134 invoices to the value of R5 million, when compared with 358 invoices to the value of R426 million reported at the end of the 2020/2021 financial year.

As long ago as May 2010, Treasury emphasised this requirement, stressing that noncompliance could be grounds for charges of financial misconduct.

Gloria Serobe, Wiphold’s co-founder and executive director, who is also a member of the new broad-based BEE advisory council, said on the sidelines of the conference that 12 years down the line, late payments were still a big issue.

It’s a horror story. People have been liquidated because of late payments. For suppliers to say they’d rather not accept government business for that reason is a sad story. It’s a complex issue because one has to deal with bureaucracy anyway. But there are all manner of [reasons for suppliers going insolvent because they weren’t paid on time]: either there’s a cut that’s required or they need to pay somebody.

HOPING FOR HELP

Despite the challenges, many delegates at the conference were not deterred by government’s shortcomings and remained hopeful about the future of their businesses. Others, however, said their situations were perilous.

A clothing manufacturer from KwaZulu-Natal who owns a small cut, make and trim factory, said her main challenges were inexperienced workers and that her small company, with a turnover of about R1 million a year, did not have the means to offer proper training to them while producing garments to meet the demands of her clients.

“We small factories employ people from the streets who don’t have experience. Experienced workers are comfortable in big factories that offer a package, which I can’t compete with. Design schools aren’t giving us the skills that one can plug and play. I can’t put a person with a clothing design qualification on a machine. They can sew, but not at the speed that optimises my factory, where we run a fast production line.”

LARGE BUSINESSES ALSO SUFFER

Not only small and medium-sized enterprises were seeking government’s attention and assistance, but established organisations as well, such as the Lion Match group, which has been in existence for about 100 years and employs hundreds of workers.

Executive director Zain Abdoola said the company, which has a 75% share of the domestic market, had seen a 10% dip on average in the demand for matches due to electrification, cheaper imports and low tariffs on imports that had negatively affected its business.

Abdoola said a rise in input costs such as electricity and water, and persistent load shedding, had affected production and machinery. On the other hand, load shedding had increased the demand for matches a bit.

“We need higher tariffs for imports to sustain our company because we’ve been driven by greatly increased costs these past couple of years. We need that to be challenged and to be taken to a level where we can compete in the market,” he said.

He explained how the company had nearly shut its doors five years ago over a labour dispute.

He said:

It’s becoming harder and harder to maintain our factory because it goes through the full process of splints of the cardboard manufacturing to the final product.

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