The Move by the DA to introduce a law leading to the establishment of a Small and Medium Enterprises Ombudsman is a welcome development, to be supported by all of those committed to the progress of this important sector.
An important function of the SME Ombudsman will be to resolve disputes around contractual agreements and late or non-payment of amounts owed and payable within the 30-day period.
Globally, the culture of late payment has been shown to have a detrimental impact on small- and medium-sized businesses. A 2017 report by Sage Pay revealed that its impact on SMEs amounted to R25billion globally. It also found that, due to late payments, 28% of the surveyed businesses struggled to pay bonuses, 34% paid their suppliers late and 28% delayed investing in their own businesses.
These impediments also disadvantaged SMEs when it came to enjoying benefits such as early payment discounts offered by suppliers. Most importantly, much-needed job creation was undermined when SMEs were forced to delay investing in their own expansion.
It estimated that SMEs generate half the country’s gross domestic product and nearly 60% of its employment - an important contribution in a country with almost 10 million citizens unemployed. Eradicating the negative trend of late payment is therefore the key to boosting this invaluable sector.
However, if various reports are anything to go by, South Africa - especially the public sector - is experiencing an unfortunate situation, in that breaching the 30-day payment rule has become the norm rather than the exception.
Research published by Xero Accounting Services earlier this year showed that getting paid was the number one financial challenge for half of our small businesses, resulting in both increased stress and reduced productivity.
The research also revealed that, on average, these businesses spent 10.4hours a month on debt recovery. This was a hugely inefficient allocation of resources, wasting time that could be spent more effectively in developing growth strategies and delivering quality customer service.
The research further showed that limited capital to mitigate any shortfall which would result in cash-flow issues, would at best stifle growth and at worst threaten the survival of these businesses.
This is a serious indictment on the part of the government, in a country where it is estimated that 60% of SMEs provide goods and services to the public sector.
It was revealed in Parliament earlier this year that more than 100000 invoices from SMEs, worth R7.7billion, remained unpaid by public institutions, including government departments and state-owned entities. The culprits included the Transport Department (Prasa, R1.12bn), Public Works (Property Management and Trading Entity, R1.06bn), the Water and Sanitation Department (R968million), Transnet (R788m) and Denel (R688m).
This is despite existing administrative provisions and public statements by government leaders expressing commitment to supporting SMEs as an important contributor to job creation.
For example, in his capacity as a former minister in the Presidency, Jeff Radebe continually emphasised the fact that the National Development Plan, which aimed to create 11 million jobs by 2030, was linked to the growth and development of this sector.
In his medium-term budget policy statement last year, then-finance minister Malusi Gigaba also highlighted the importance of the government paying invoices to small suppliers within 30 days. He said government officials who failed to meet the 30-day payment rule would be charged with financial misconduct.
“Large enterprises and the government should make paying suppliers and service providers on time a priority, to help foster a job-creating small business sector.”
It can be seen that the prevailing scenario in the country has made the establishment of an SME Ombudsman even more imperative.
In doing so, South Africa could learn from the various ombudsman models implemented in countries such as Australia and the US states of Indiana and Pennsylvania, where the model offered a free and accessible dispute resolution mechanism between state institutions and SMEs, and SMEs and big corporates.
In these countries and states, the ombudsman plays a broader role, including undertaking research into legislation, policies affecting small- and medium-size businesses, as well as promoting best practice in dealing with such businesses. In order to effectively discharge these responsibilities, it is important that the ombudsman is independent and has the power to both investigate cases reported by affected parties and to initiate his/her own investigations to redress situations adversely affecting such businesses.
While the ombudsman must co-operate with the ministry of small enterprise development, in order to remain independent, he or she must report to Parliament. This will engage the minister in implementing recommendations from investigations.
Ido Lekota
Independent media practitioner