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Government proposes new mega agency for SMMEs and co-ops  

by Moipone Malefane
June 15, 2023
in Business
Reading Time: 3 mins read
A A
President Cyril Ramaphosa and small business minister Stella Ndadabeni-Abrahams

President Cyril Ramaphosa and small business minister Stella Ndadabeni-Abrahams

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By: Anna Majavu

Experts are divided on whether a planned merger of the Small Enterprise Development Agency (Seda), the Co-operative Banks Development Agency, and the Small Enterprise Financing Agency (Sefa), will benefit SMMEs. The government gazetted amendments to the National Small Enterprise Act this week, announcing plans for one new funding agency to cover all SMMEs and co-operatives – the Small Enterprise Development Finance Agency (Sedfa).

The National Small Enterprise Amendment Bill says the new agency will integrate the financial support currently provided by Sefa with the non-financial support that Seda offers, resulting in “the most efficient business advice, and investment and incubator support”. Rhodes Business School director Prof. Owen Skae told Vutivi News that the merger was a positive move. “It rationalises and streamlines the offerings of three into one. Mergers are never easy to navigate, so a strong board and executive team will be required to ensure it happens as planned,” said Skae.

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But Ubuntunomics owner and sustainability practitioner Sibusiso Nyathi said the merger would not change the main problem for SMMEs – that they sourced most of their funding from private banks, whose interest rates were too high and requirements for granting loans too strict. “The amendments are superficial and will be ineffective because South Africa does not have a state-owned commercial bank to drive SME growth, despite all the years of pontification,” said Nyathi. He added that the Small Business Development Department should be moved to the National Treasury, which should involve the SA Reserve Bank (SARB) in setting up a better financing environment for SMMEs.

21st-century innovations which were needed to drive competitiveness in SME finance, such as e-lending platforms, business-to-business lending, the use of alternative data sources for credit decisions, e-invoicing, or critical supply chain financing would even not be part of Sedfa’s work, said Nyathi. “These can only be achieved through close collaboration with private finance, National Treasury, and SARB. The above is what is desperately needed, not just an amalgamation of unworkable solutions emanating from merged entities,” said Nyathi. The executive director of economic think-tank TIPS, Saul Levin, also questioned the merger.

He said Sefa, which was established under the Industrial Development Corporation (IDC), would lose its IDC backing. “(Sedfa) will for many years have no credibility to raise funds from the market and will, therefore, be reliant on state funding until it is able to establish its credibility,” said Levin. Also, because Seda and Sefa had different functions, separate units providing financial and non-financial support to SMMEs would still need to exist in the new agency. Therefore, there might not even be any cost savings to the government in merging the agencies, he said.

“Small businesses themselves are therefore unlikely to see the benefit of the merger. Lastly, we saw with the establishment of Seda approximately 20 years ago, that the merger process saw some excellent programmes being shut down as the institution’s priorities shifted. The impact was the closing down of programmes that provided much-needed support to manufacturing firms,” Levin cautioned. All three experts agreed that the one positive aspect of the Bill was the new SMME Ombudsman’s Office. It would be able to provide relief to small businesses in a context where access to the courts was complex and expensive.

Tags: Co-operative Banks Development AgencySmall Enterprise Development AgencySmall Enterprise Financing Agency
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