Moses Maboi is frustrated. He owns Katlego Global Logistics, a small freight forwarding company. It had a turnover of R34m last year but he thinks it could have been R100m if he'd had access to decent line of credit.
Maboi is a relatively successful businessman - his company has been running for nine years, has three branches and employs 21 people. In 2003 he was one of the winners at Gauteng's Exporter of the Year awards.
Yet, like many entrepreneurs, Maboi feels government's small business plans are all talk and little action. He tried for years to access finance through one of government's schemes, but gave up two years ago, saying that 60% of his time was being wasted on the search for funding.
Other government policies also make his life difficult: it took him three months to fire an employee whom he caught stealing from customers. In the end he had to pay the employee to go away. Maboi says he now spends 40% of his time dealing with labour regulations.
Maboi is not alone. Despite much government rhetoric on the importance of small business, the reality for entrepreneurs is hostile. The 2006 SA Global Entrepreneurship Monitor (GEM) shows Maboi's frustration over business regulations is not an isolated case. It found regulations created a "huge administrative burden" and pushed up the cost of starting a business. Though developing countries are generally more entrepreneurial than developed ones, SA's level of entrepreneurship is below that of Norway and Denmark (see graph on pg 36).
This is not good news. Government sees the development of a vibrant small and medium-sized business sector as a key element of its Accelerated & Shared Growth Initiative for SA (AsgiSA) to grow the economy at 6%/year by 2014.
The main value of small businesses is that they tend to be more labour-absorbing than large firms. Also important is that small businesses offer a more stable employment platform - if a mine closes, 20 000 people may become unemployed, whereas a lot of small businesses would have to go under to cause the same jobs devastation.
Small firms also tend to be more innovative in product development and organisational behaviour, and so drive the development of technology.
"Globally, the next big thing has tended to come from small firms," says Standard Bank chief economist Goolam Ballim. "It seems it is their hunger to grow and expand that spawns innovation."
It is becoming ever more important for government to get small business strategy right. Though the economy has been booming, it has failed to create many jobs as large firms have become far more capital- and skills-intensive. The latest quarterly employment survey, released this week, showed a paltry 17 000 jobs were created in the first quarter of this year - a significant shortfall in the pace of job creation required if government is to meet the AsgiSA target of halving unemployment by 2014.
This all provides good reasons for government to promote small business and it is trying to do that through initiatives ranging from finance to tax incentives. But it is not working.
A 2006 survey of small and medium enterprises (SMEs), conducted by technology consultancy World Wide Worx, found that only 3% of respondents said government support programmes had a high impact on their businesses, and 92% said it had a low impact. This indicates that few small businesses know about government's policies. World Wide Worx MD Arthur Goldstuck is finalising findings for the 2007 survey but says it confirms the 2006 results.
GEM found SA was falling behind other countries when it came to creating a positive environment for small business. "SA's position in the GEM rankings has deteriorated over time, despite improved macro economic conditions in the country."
Pan-A frican Holdings CEO Iraj Abedian says SA's lack of progress in small business development is symptomatic of its failure to diversify the economy. He estimates that if it weren't for the expansion in tourism over the past 10 years, 60%-70% of the current small business crop wouldn't exist.
Government tells a different story. It points to the number of small, micro and medium-sized businesses - there are between 1,8m and 2,5m. The department of trade & industry (DTI) says this represents a 7%/year growth rate for the past 10 years.
But don't read too much into that figure. "Only 0,5% of small businesses create jobs. The rest more or less break even," says Eric Wood, a professor at the UCT Graduate School of Business.
Apart from providing funding directly, government has also tried to improve funding provision by private institutions. The financial sector charter, to which banks and insurance companies adhere, commits banks to spending R5bn on black-owned small businesses by 2008. The DTI's empowerment codes encourage the support of small businesses, whether white or black, by making them count towards scorecard points if larger companies procure from them.
The Industrial Development Corp (IDC) will finance only companies that have a contract in hand. So when Maboi signed a deal with the US government to transport vehicles from SA to Afghanistan, he went to the IDC for funding. It refused, saying it didn't fund arms transfers.
That was the one of the last times Maboi went to a state financier. He got the vehicles to Afghanistan using his own money.
His business has a R200 000 credit facility with Nedbank - but this is not enough for a business that is bringing in between R2m and R5m in cash each month. Without having access to a line of credit, he has to fund Katlego out of its cash flows. So he pays his suppliers in 30 days, but waits 60 days for payments from his customers. Without finance, his growth is limited. "We are almost self-funding," Maboi says.
One of the frustrations is that entrepreneurs find themselves passed between Khula, the National Empowerment Fund, the IDC and Umsobomvu before finding the right agency.
The coalface of government's small business efforts is the DTI. And it says it is doing a good job. "The support [for small businesses] has been increasing over the past few years," says DTI deputy director-general Lionel October.
He says the department, through its various funding agencies, has provided more than R2bn in finance for small businesses. Its businesses advisory wing, the Small Enterprise Development Agency, now has 40 offices around the country.
October says there are other initiatives on the cards, like the plan to set up a "government market" that will give small enterprises a chance to tender for state jobs, and the possibility of turning Khula into a retail bank that will provide credit lines. He defends government's record while admitting that labour reform remains a tough nut to crack (see Q&A, left).
Government's programmes should be given another chance before being judged on their effectiveness, says Mike Herrington of the UCT Graduate School of Business, which compiles the GEM report. "Overall, we are moving in the right direction."
He points to government's drawing up of its Integrated Small-Enterprise Development Strategy, which sets out how to tackle obstacles to business development, including easing access to finance, providing advice on how to run a business and reducing the regulatory burden.
Where government has much more direct control is over regulations and tax policy. The AsgiSA plan also has government commit itself to easing the administrative burden of running a small business through the possible amendment of tax and labour regulations.
On tax reform, more has been done - on paper at least.
Another key partner in government's small business strategy is national treasury, which oversees tax policy. In 2005, some significant changes to tax law were introduced by finance minister Trevor Manuel in an effort to encourage small businesses.
Micro-enterprises with a net income of up to R35 000/year were exempted entirely. Those earning up to R250 000 pay a flat rate of just 10%. There was also significant encouragement for small businesses to invest in their growth: companies with a turnover of R14m/year can write off all manufacturing capital investments completely in the first year, and other investments in three years. That means their taxable earnings are reduced considerably.
Yet commentators say the tax regime has done little to encourage small businesses. "I don't think the incentives are there to attract people into starting their own businesses," says Ernst & Young tax expert Rob Stretch.
Nina Keyser, a senior associate of law firm Webber Wentzel Bowens, says the one clear area where government could act is Vat - a major burden on small businesses. Currently, companies with a turnover of less than R300 000/year are exempt from paying Vat - a threshold that has not been adjusted for years. She argues it should be lifted to R1m. Vat compliance is administratively heavy - it requires nine separate registration requirements involving various government departments, as well as the processing of regular returns. One government official quips: "I wouldn't go into business, just because of the onerousness of Vat compliance."
Stretch says compliance is almost self-regulating - companies have to be registered in order to claim Vat credits, so as soon as the benefits of registration outweigh the costs of administration, it is rational to register.
The SA Revenue Service has, however, introduced some initiatives to ease the red tape involved in Vat compliance and plans more. But Sars is also positioning itself for a much more aggressive approach to small business taxation after its recent, surprisingly successful tax amnesty process. The deadline for application was extended by a month to June 30, after 275 000 applications were received, three times the number initially expected. After this, it would make sense for Sars to communicate much more with small businesses about the incentives available to them.
Maboi, however, is not holding his breath. He is focusing on running his businesses as well as he can with what little support is available to him. "We will just concentrate on running the company," he says.
