Impact of key policies on SMMEs

By Moipone Malefane

Our country has made some strides in supporting the sustainable growth of small businesses, but challenges remain that can affect their ability to upscale effectively.

Here’s an analysis of the key policies and how they impact the scaling of small businesses in our country.

1. Government Support Programmes

The Small Enterprise Development Agency (Seda) is a government agency that provides support services to small businesses, including financial assistance, advice and training. Seda also offers mentorship and support in navigating regulatory challenges. While this initiative helps businesses scale, there is a bottleneck in terms of resource distribution, and not all businesses have access to these services.

The Department of Trade, Industry and Competition supports small businesses through incentives like the Black Industrialists Programme and Incubation Support Programme. They are intended to increase the capacity and competitiveness of small businesses, especially those owned by previously disadvantaged individuals. However, some businesses face difficulties in meeting the criteria and requirements for these programmes.

2. Access to Finance

Funding Programmes: Government has created various funding programmes, such as the Small Enterprise Finance Agency (Sefa), to provide access to finance for small businesses. However, they still struggle to access capital due to stringent loan requirements, high interest rates and an often-limited understanding of the financial products available.

Lack of Collateral: One of the major obstacles for small businesses looking to scale is the lack of collateral to secure loans. This is particularly true for businesses in rural areas or those without significant capital investment, making it difficult to expand operations or invest in new technologies.

3. Regulatory Environment

Bureaucracy and Red Tape: Small businesses often cite complex bureaucracy and regulatory hurdles as major barriers to growth. While there have been efforts to streamline procedures (e.g. online company registration), issues like tax compliance, local government regulations and labour laws still create obstacles for SMMEs that want to expand quickly.

Labour Laws: While laws protect workers, they can be a challenge for small businesses looking to scale. High costs of labor and stringent labour laws (e.g. minimum wage requirements and dismissal protections) may deter employers from hiring additional workers, which slows down the growth of their businesses.

4. Tax Policies and Incentives

Tax Breaks: Government has offered some incentives for small businesses, such as the Small Business Corporation Tax rate, which offers a reduced tax rate for qualifying small businesses. However, these tax breaks are often not widely utilised due to a lack of awareness or difficulty in qualifying.

Value Added Tax: Small businesses that exceed the VAT registration threshold of R1 million in annual turnover are required to register for VAT. This can place an administrative burden on businesses that are still in the early stages of scaling and may divert resources from growth initiatives.

5. Market Access and Infrastructure

Access to Markets: Small businesses often face challenges in accessing larger markets due to a lack of marketing, branding and distribution channels. The government has introduced initiatives such as the Cooperative Incentive Scheme and market linkages through trade fairs and platforms, but these are often insufficient or not easily accessible.

Infrastructure Challenges: Inadequate infrastructure, particularly in rural areas, also hampers small businesses’ growth. Poor roads, unreliable electricity supply and limited internet access in certain areas create operational inefficiencies that limit the ability of small businesses to grow and compete on a larger scale.

6. Entrepreneurial Culture and Skills Development

Education and Skills Training: There are various programmes aimed at improving the entrepreneurial skills of small business owners, such as business incubators and training programmes. However, a large skills gap still exists, particularly in sectors like technology, management and marketing, which are crucial for scaling a business.

Entrepreneurial Culture: While our country has a growing entrepreneurial culture, challenges such as limited access to mentorship, market information and networks persist. This can create barriers to scaling, as businesses may not have the guidance or resources needed to transition from a small startup to a larger enterprise.

7. Support for Specific Sectors

There are targeted policies to support certain sectors, such as agriculture, technology and manufacturing. For example, the agri-parks initiative supports small-scale farmers and agribusinesses by providing them with infrastructure, market access and training. However, the success of such sector-specific policies varies, and businesses in sectors not prioritised by the government, may not benefit as much.

The country’s policies provide a supportive framework for small businesses, but challenges such as limited access to finance, high operational costs, complex regulations and infrastructure gaps still hinder the sustainable growth of these businesses.

While various government programmes facilitate growth, many small businesses still struggle to access the full benefits of these initiatives.

To further enable scaling, there needs to be a more comprehensive and accessible approach to funding, simplified regulations, better market access and stronger entrepreneurial support systems.