Are you happy with the performance of the state's funding agencies?
There has been a lot of uninformed criticism of them. Support for the agencies has been increasing over the past few years. Khula Enterprise Finance has had its annual budget increased from R300m to R800m.
Khula has come in for particularly sharp criticism. It has been said that there are not enough skills inside Khula to distribute the funding. Is this true?
Khula is a wholesale institution. It is not a direct lender. It does not make loans directly to the public. It provides guarantees to banks for the loans they make to fund small businesses. The skills issues do not arise because it is being done through the four major banks.
Is it enough just to provide guarantees? What about working capital financing?
There is a proposal that we turn Khula into a retail bank. This will see Khula provide direct funding to the public and not just acting as a wholesale institution.
Does government have the skills to go into retail banking?
Of course we've got the skills. We have two or three institutions that are doing it already. We have the Industrial Development Corp [IDC], which is lending about a R1bn/year to small businesses. The National Empowerment Fund has spent every cent that government has given it, which is about R300m. Half of this amount goes to small black businesses. We have 600 highly skilled staff at the IDC who can easily be transferred to Khula to handle financing.
So are there no grounds for criticism?
Well, on the one hand people say the agencies are not lending enough money, but then we get criticised for thinking about turning Khula into a retail bank. The real debate is about the depth of the support available to small businesses. The state has provided over R2bn in support for small businesses but we are not reaching the full target market. Most of these loans are from R500 000 upwards. There are few loans between R10 000 and R250 000. This is a gap banks are not funding and even government is not reaching this target.
What are you doing about this gap?
We are thinking about buying a small retail bank or setting up our own bank to cater for the lower end of the market.
How successful has government been in creating a small business sector?
Small businesses have been growing at an impressive rate of about 7%/year, which is higher than the current GDP growth rate. There is a robust and dynamic small business sector emerging in SA.
What about the regulatory burden on small businesses?
The two main burdens on small businesses are labour laws and tax. The tax issue has been cleared up considerably in terms of Vat processing.
And the labour laws?
On the labour side there has not been much progress. Do you suspend the rights of employees in small businesses? In a sense this debate is a much harder one.
So there is little chance that this will be resolved soon?
I don't think so, but what has happened in the interim is that some bargaining councils have exempted small businesses from their decisions.
What do you see as the biggest problem facing start-up businesses?
The biggest problem for small business is a lack of demand for goods and services from them. We are looking at setting up a government market to bring them into the state's supply chain. Government must buy more from small businesses. It's no use getting a loan and not getting a contract.
Do you think government will succeed in creating a vibrant small businesses sector?
The small business sector has doubled in the past 10 years. That's impressive growth by any standard. These businesses are slowly starting to get into the supply chain of big companies. The codes on [black economic] empowerment have already led to larger retailers like Woolworths and Edcon committing to buying more goods from small black-owned businesses.
