If You Want Burgeoning Economic Growth, Neglect Small Business at Your Peril

If there is a lesson to take from Finance Minister Enoch Godongwana’s Medium-Term Budget Policy Statement, it is that South Africa needs to get on with serious institutional reform.

But where will the spur for such reform come from? The ANC appears incapable of change, arguing in favour of fossil fuels and holding onto failing state-owned enterprises, lest it be called out for ‘privatising’.

Perhaps it is time that citizens told their political representatives at party and parliamentary levels that South Africans will no longer tolerate indecisive, unclear, and underwhelming policies and government leaders who are unwilling to make tough decisions. The success of the country will depend on a deeper commitment to ensuring that leadership and policymaking in the country are placed in the hands of those who have the political will and an unwavering commitment to country versus party.

One of the most important engines of growth — small business — remains on the sidelines and appears uninteresting to policymakers.

The Small to Medium Enterprise (SMME) sector needs urgent attention. The SMME sector in South Africa employs over 50% of the country’s labour force and contributes about 34% to the nation’s GDP, according to a 2019 report by the International Finance Corporation (IFC). Although this sector has the potential to significantly contribute towards positive development; the public institutions that have been created to facilitate the growth of this sector are playing a frustrating and, in some cases, damaging role.

A study conducted by The Brenthurst Foundation between July and October this year found that many SMMEs lamented the policies and institutions that are designed to support them. This saw business owners express frustration about the arduous bureaucracy of registering a business and complying with the necessary laws. Moreover, poor communication from SMME institutions limits the owners’ access to information and hinders them from knowing the available resources that could assist them with growing their businesses or keeping them afloat. Even when business owners somehow manage to access resources and information about access to finances, they experience delays between application outcomes and receiving funds.

The worsening situation with rolling blackouts adds further insult to injury. Many small businesses are struggling to survive due to the rising costs of keeping the lights on. As a result, business owners have had to retrench employees, become solo operators, or make the painful decision to close their business. The fact that rolling blackouts cost the economy R899-million a day is felt very deeply and personally by owners and employees of SMMEs, especially since there are very few avenues that they can turn to for reprieve.

Demand better

The potholes in the SMME industry are evidence that it will take a persistent and conscientious public to hold policymakers and institutions accountable. This means that the public must ask questions and demand answers from their policymakers. It means that when institutions are failing and when the confidence in institutional representatives is waning, the public must demand the exit of ineffective leaders. It means that as a country, South Africans must now dictate the standard of living they desire and ruthlessly protect and defend those standards.

The world over, there are plenty of examples of institutions that have been restored because the policymakers and citizenry decided that it was untenable to continue in a perpetual state of crisis.

In 1984, Vietnam’s GDP per capita stood at $577. The country was emerging from hundreds of years of conflict and a complex history of occupation and colonisation. However, from 1986, the country’s leadership committed to policies that focused on fostering economic growth. The leadership ardently ensured that businesses — foreign and local — could be established without having to navigate unnecessary obstacles. Furthermore, the country’s policymakers released their grip on state-owned enterprises — choosing instead to allow businesses to grow through free-market policies in service of socialist ends. Today, Vietnam’s GDP per capita has tripled to over $3,288.

The lesson to draw from Vietnam is that businesses can drive an economy if the policies and institutions in place are committed to creating an enabling environment. This means ensuring that businesses can easily be formalised, whilst applications to access state grants and financial support are neither frustrating nor are they riddled with obstructive red tape.

Institutional reform is about making decisions that ease the process of accessing and engaging public institutions. It is about having personnel that can communicate and advise the public. It is also about providing user-friendly platforms which enable people to interface with the relevant documentation and information to ensure compliance. This includes creating awareness amongst the general public through easily digestible checklists and information.

Singapore’s economy in 1965 stood at $516 per capita. Today, the GDP stands at a staggering $67,831 per capita. What contributed to Singapore’s success since 1965 is the high standard it placed on public institutions and public servants. Corruption of any form is rooted out through a zero-tolerance approach. There is a commitment to a meritocracy among public servants such that there is pride and purpose among those serving the public. The 2022 Corruption Perceptions Index, published by Transparency International, ranked Singapore fifth out of 180 countries, the highest of any Asian country.

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What happened in Singapore was a mindset shift in the way they thought about public institutions. The Singaporean policymakers and leaders established not only an economic growth agenda but a mindset transformation agenda. They promoted pride, competency, and effectiveness in their institutions.

Higher standards and public trust

Although Singapore’s high GDP comes with massive wealth inequality — a characteristic shared with South Africa; there is a lesson to be drawn about the meaning of public institutions and the tough standards that must be imposed on those who choose to work for the public. In a society that is trying to overcome a dark history of inequality, and a contemporary history of ineffective institutions, it can only be a commitment to high standards (and strict enforcement thereof) which would produce a working system.

Of course, there are many complexities surrounding the restoration of public institutions in South Africa. However, the greatest of all challenges that the public and leaders need to focus on is restoration of public trust and national pride. This can come from imposing strict performance standards on institutions with consequences that are enforced without politicisation — unlike the kind of politicisation seen with institutions such as Transnet.

A state is only as strong as its institutions. Every weak institution comes from allowing cracks to form in the behaviour and performance of the people manning the institutions. If South Africa is to recover, it must not only embark on gathering the necessary finances to reform public institutions, but it should also commit to a long-term strategy to restore public trust and national pride.

This article originally appeared on the Daily Maverick

Photo: iStock