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Entrepreneurs do not belong in ghetto of a new ministry by Stephen Timm

April 30, 2014

THERE are few people who do not believe that boosting the small-business sector is vital if South Africa is to create more jobs and grow the economy. But creating a small-business ministry is not the answer.

Earlier this month, African National Congress (ANC) secretary-general Gwede Mantashe revealed that a standalone ministry for small businesses could be announced soon after next week’s elections.

For years, small businesses have been complaining of a lack of support from the government. This has led many in the small-business sector to believe that what is needed is a dedicated ministry.

Yet another ministry may have the effect of increasing the level of bureaucracy that small businesses face.

It is also likely to be headed by a very junior minister, who might run the risk of being sidelined by other ministers.

India, which has one of the most bloated cabinets in the world, is such an example, according to Milagrow Business & Knowledge Solutions, which consults on the small-business sector there.

Even with all its good intentions, politics gets in the way. The South African government has saved millions of rand and improved co-ordination by, in 2012, merging three small business funding bodies to form the Small Enterprise Finance Agency. Yet it placed the agency under the Department of Economic Development, while the Small Enterprise Development Agency falls under the Department of Trade and Industry.

This has created confusion among business owners and reduced co-ordination in the government. Some feel that a small business ministry may help to improve co-ordination, especially because the programmes and policies that affect small business are spread across such a wide range of departments — from the Departments of Labour to Justice, Tourism, and Trade and Industry.

But one need only look at the Department of Women, Children and People with Disabilities, introduced in 2009 by President Jacob Zuma, to understand the risk of having a department that plays a largely co-ordinating role, to be grouped together with other ministries. Part of the function of the ministry was previously undertaken by the Office on the Status of Disabled Persons in the deputy president’s office.

These days, leaders from the disabled sector complain that the creation of a separate ministry for people with disabilities has created a silo response to disability challenges, instead of a fully integrated one.

Indeed, Disabled People South Africa chairman Muzi Nkosi once raised concern over the ability of one department to monitor another department when it came to meeting disability equity targets.

The risk here is that small business support will also be thrown into a silo, instead of continuing to be an important function of every government department, and that a new small-business ministry will find it difficult to get its way over bigger, more established ministries.

But there are those who argue that those countries that have small-business ministries have stronger small-business sectors — something that is largely based on speculation, especially as the small-business sectors in many countries are stronger than South Africa’s.

Lawrence Mavundla from the Black Business Council (BBC) — one of the main driving forces behind the idea of setting up a small-business ministry — claims those countries that have ministries, including India, Indonesia, the UK, Australia and Zimbabwe, have more successful small-business support policies. But there is little or no basis to these assumptions, for how does one determine whether a country can owe its strong small-business sector to a ministry or not?

For instance, India, which has a small-business ministry, has a vibrant small business sector but very poor government support in comparison to other emerging countries. Added to this, the number of countries that have such ministries is small — just a handful of Commonwealth members and two European Union members, Malta and Luxembourg. Some countries, such as Malaysia and Brazil, have purposely shied away from standalone ministries for small businesses.

After a number of years of discussion, Brazil last year appointed a small-business secretary whose office falls under the presidency. The secretary performs a largely co-ordinating role concerning support programmes and policies, while also overseeing the formulation of new policies.

In Malaysia, the responsibility for coordinating small-business programmes and policies is undertaken by the government’s small business agency, SME Corp, and the National SME Development Council, which is headed by Prime Minister Najib Razak.

Wolfgang Thomas, who helped draft South Africa’s 1995 White Paper on Small Business, backs the Brazilian example. At the time of drafting the paper, Thomas advised against setting up a separate ministry for small business, arguing then that it risked deepening the division between large and small firms — when what was really needed (and still is) are strong bonds between the two.

Thomas, who is also a member of the governance committee of Stellenbosch University’s Centre for Corporate Governance in Africa, believes a body based in the Presidency could offer more overarching support than a ministry could.

Such a body could fall under the office of Deputy President Kgalema Motlanthe, in a similar manner to the Office on the Status of Disabled Persons.

Small-business policy analyst Septi Bukula, of Osiba Research, backs the Malaysian example. Bukula, who was one of four experts who carried out a small-business review for the Department of Trade and Industry, presented in 2011, believes that the formation of a small-business ministry risks “ghettoising” small businesses.

South Africa, he says, needs something similar to Malaysia’s National SME Development Council, which includes representatives of various institutions and departments involved with small-business support.

Bukula believes such a co-ordinating council could be held in the Presidency and could include representatives from the Departments of Trade and Industry, Economic Development, and Science and Technology, as well as the various agencies that support small business.

The examples of Malaysia and Brazil may offer a solution that might not only be more affordable, but which could also tackle the problem of co-ordination head on without creating unnecessary layers of bureaucracy.

The call for a small-business ministry appears to be just another cheap election trick — this one in particular to satisfy the growing Black Business Council lobby group, which first made an appeal for a smallbusiness ministry to Zuma in October 2012.

In the end, the government must rely on smarter partnerships with those in the private sector if it is to reach not only a greater number of business owners, but also to encourage more entrepreneurs to create the jobs the country badly needs. You do not need a new ministry to achieve that.

Indeed, the Department of Trade and Industry’s incubator support programme, which provides incentives to big businesses and organisations to roll out incubators, is one such example where the government appears to be getting it right.

Together with others, the government can do more.

• Timm is a journalist and researcher who writes on small business. You can read his blog

Source: Business Day


From → Analysis, Economy

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