The news around President Cyril Ramaphosa signing the National Small Enterprise Amendment Bill into law has been widely welcomed, writes Viresh Harduth, vice-president: small segment at Sage Africa & Middle East.
This development promises to streamline access to financial and non-financial assistance for small and medium businesses (SMBs) as well as offer smaller businesses better protection from unfair commercial practices.
The newly signed Act aims to reduce red tape and bureaucratic challenges for SMBs, levelling the playing field with larger organisations, including big businesses and public sector entities. This comes at a crucial time, with a break from load-shedding and expected interest rate cuts boosting business confidence.
The Act is poised to foster a more inclusive economy, creating more opportunities for SMMEs and cooperatives, which in turn should enhance job creation and economic diversity.
Despite contributing 40% to South Africa’s GDP and providing 87% of employment opportunities, SMBs have historically been underrepresented in government policymaking. It’s encouraging to see a renewed focus on supporting and growing this sector through interventions such as the new Act.
Providing critical support for SMBs
By providing a more supportive and predictable business environment, the Act aims to encourage innovation and growth within the SMB sector. This could lead to increased competitiveness, job creation, and overall economic development. However, the speed and quality of the implementation of the Act’s provisions will determine how effective it is in meeting its objectives.
One of the key components of the Act is the merger of the Cooperative Banks Development Agency (CBDA), the Small Enterprise Development Agency (SEDA), and the Small Enterprise Finance Agency (SEFA) to create the Small Enterprise Development Finance Agency (SEDFA).
This consolidation will provide SMBs with a single point of entry to seek financing and other assistance. Such a move is particularly important given that 42% of SMBs cite financial pressures and cash flow issues as significant challenges, according to Sage’s recent SBBO report.
Combining these agencies will be a complex task that could take months or even years and is essential to ensure that the services the existing agencies provide are not disrupted during the transition.
The report additionally states that 51% of SMBs globally stated rising operational costs, highlighting the importance of reducing red tape and improving access to affordable financing. In South Africa, where economic disparities are pronounced, the ability of SEDFA to deliver streamlined support will be vital to ensuring that SMBs can overcome these barriers and thrive.
Addressing unfair practices
SMBs are likely to support the establishment of a Small Business Ombudsman under the Act, as it aims to ensure fair treatment by larger businesses and government entities. The Ombud would address common challenges such as late payments and unfair contract terms—issues that smaller businesses often lack the resources to contest in court. By providing a dedicated channel for dispute resolution, the Ombud could help level the playing field.
The Act also empowers the Small Business Minister to declare certain practices as unfair, but careful implementation will be essential to protect SMBs without stifling healthy market competition.
Bridging the digital divide
Digital transformation is no longer optional for SMBs. Globally, 70% of SMBs expect revenue growth, and 67% plan workforce expansions in the next six months, driven largely by investments in digital tools and AI. If South African SMBs are to follow this trajectory, they need both the resources and the skills to embrace digitalisation.
As SMBs increasingly adopt digital tools to drive efficiency and growth, the Act must also address the skills gaps that prevent many businesses from fully leveraging technology. While 85% of SMBs globally view technology as central to achieving their business goals, South Africa lags behind, with only 78% of local SMBs recognising digital technology as important.
This digital lag is compounded by a lack of skilled talent. Globally, 33% of SMBs call for enhanced training opportunities to address digital skills shortages. South African SMBs would benefit greatly from targeted skills development programmes to help them unlock the full potential of digital transformation. By investing in training initiatives, the government can ensure that SMBs are equipped to compete in an increasingly digital economy.
Levelling the playing field
It is also essential for the government to accelerate the structural reforms of Operation Vulindlela in lockstep with the implementation of the Act to unlock the full potential of the SMB sector. As important as the new Act is, challenges such as logistics bottlenecks and poor local government performance continue to constrain the growth of SMBs.
South African SMBs have shown remarkable resilience, with 78% expressing confidence in their future success despite the challenges they face. However, this optimism must be matched with tangible support to ensure their sustainability.
Creating a more enabling environment for SMBs in South Africa will help ensure their sustainability, which in turn can contribute significantly to the country’s economic growth. By addressing financial constraints, bridging digital skills gaps, and ensuring fair treatment through the Ombud Service, the new Act has the potential to transform the SMB landscape in South Africa.
The National Small Enterprise Amendment Bill represents a major step forward in empowering South African SMBs. With effective implementation, it could address many of the challenges facing this vital sector. By fostering a more inclusive and supportive business environment, the Act can help unlock the full potential of SMBs, driving economic growth, job creation, and innovation across the country.