Budget Vote of R2.3 Billion: Will cooperatives see any of it?

Small Business Development Budget Vote of 2.3 Billion: Will cooperatives see any of it?

By S Mkwanazi | ACI-SA Associate Fellow | 25 July 2020

The Department of Small Business Development (DSBD) tabled a R2.3 billion budget vote and which had to be welcomed by both the public and entrepreneurs out of no options. This taxpayers money is meant to be invested in programmes that will grow the taxbase in creating jobs, supporting small businesses and cooperatives. While the department has been doing its best to deliver programmes that are relevant for both SMMEs and Small businesses, corruption and irregularities in funding processes, and procurement deals not only have sabotaged the department’s agenda but have collapsed its strategies. Some may argue that the department is able to implement programmes and other forms of support through its agencies. This is only true to some extent. The department’s programmes are dependent on the actions and behaviours of other government departments, divisions, units and public entities. The behaviour of the private sector also has a direct effect on the department's programmes. However, the department is not and cannot be exempted from having to play a strong and central role in using the current budget to create a business climate in which small businesses and cooperatives can thrive. 

Research shows that the biggest obstacles for growth of small businesses in South Africa are lack of education and training resulting in poor management leading to subsequent failures, dominance of big monopolies and corruption. Small businesses led by tenderpreneurs and recently "covidpreneurs" seem to be not directly affected by these challenges, and appear to have their own way around the government procurement systems. Again the support of businesses that support lifestyles of individuals rather than collectives is the reason the small business sector is on its knees in South Africa. Cooperatives have proven to be more resilient than most forms of businesses, capable of creating a climate where others or member enterprises can thrive and have demonstrated to be innovative around the globe. In South Africa too cooperatives still remain the absolute hope for a budget like the one of DSBD. Investing in permanent structures that focus on the education and training for cooperatives is important for the development of alternative market systems, for quality production or services, ensuring effective governance and market access aligned to 4IR. 

Cooperatives unlike other enterprises in the small business category are responsible for the livelihoods of the general public expanded through cooperative worker membership. The success of cooperatives improves the standard of living and the quality of life in many communities while for example (recently) covid-preneurs and tender-preneurs have shown yet again an interest to selfishy improve their own lives alone. It is also concerning that while the Department has R63.7 million allocated for the cooperatives incentive scheme these funds remain inaccessible. The department has chosen for many years to disinvest from the continuous development of cooperatives, and provision of adequate training, support and assistance that is based on proper consultation with the cooperative sector. These tendencies have for too long been reducing the chances of cooperatives to thrive and the subsequent lack of reservations in government procurement for cooperatives is the reason cooperatives continue to to spiral down the route of failure.

Another point raised by Deputy Minister Capa was that of big monopolies that are taking over every corner of South Africa, including in villages and squatter camps. However, it is actually concerning that the department is only seeing this problem in these recent times when malls mushroomed in every township at the demise of general dealers while the department was watching. The same department and DTI continue to fuel this dominion by not passing or proposing policy that protects small businesses from the heartless monopolies. If DSBD is to address this, it ought to support retail cooperatives and make it a requirement for malls to reserve space for local brands or cooperative supermarkets and retailers. The very people the deputy minister is talking about are pushed to the margins of the economy in all spaces. Even the new makeshift programmes focusing on seamstresses and mechanics will not yield the intended results but frustration to the business models of these self-employed individuals - there is lots of practical and research evidence about why such programmes will not work. If these programmes are to work; cooperative systems that enable them to source supplies together, achieve scale or support each other as they wish and attract new clients must be formed. This would help avoid a situation where these informal entrepreneurs, as they are called, sell on the streets while unknown people are operating big stores in air conditioned malls right in the townships - by these programmes the department neglects the question of skills, infrastructure and market access. These self employed people do not want government grant funding but market access, cooperative systems, infrastructure and protection from monopolies.

Corruption continues to kill the entrepreneurial spirit of millions of South Africans. The trust in government is very low amongst ordinary South Africans. Small businesses and cooperatives depend on government spending to generate revenue after all it is taxpayers who are footing these bills. When businesses are at work they pay taxes and the government can spend even more - but when excessively big contracts are channelled to a few people linked to the government - the social contract that exists between ordinary citizens and government breaks like it is already in South Africa. The budget vote could have addressed the issue of corruption more explicitly. But instead has been focused on other things like the 30 days payment period, while having a systematic way to curb corruption is more important. For example in the recent RFI (Request for Information) for supplying masks cooperatives in the textile sector responded but none of them got contracted. But some multi-purpose PTY LTD which provide everything from civil engineering to catering were issued contracts to supply masks. This demoralises the honest, hardworking entrepreneurs and leaders of cooperatives who have an interest in manufacturing and developing legitimate industries.  Fighting corruption must be a big programme of DSBD. Such a programme would look into anonymous reporting, follow up and have a central portal that registers concerns of women led cooperatives which often are taken advantage of. If the DSBD is serious about creating a good small business climate will fight corruption toe-to-toe.

The DSBD needs to reprioritise research on cooperatives if the cooperatives are to see any of the budgeted R2.3 billion. Investing without proper research coming from the cooperative sector itself will compromise any results that the cooperatives budget could potentially achieve. In all the partnerships mentioned on the budget vote none of them address the question of research and using evidence to make interventions. One of the tragic mistakes that the department is making for not using research is thinking that cooperatives are a bad investment. This view is supported by mostly misinformed research and by the promotion of the Silicon Valley type of entrepreneurship. It is fine to aspire to build a nation of creative SV entrepreneurs but under conditions of abject poverty and inequality prioritising cooperatives is not a choice but a must.

Cooperatives are able to give all citizens an economic and social chance creating a climate where most people in poor communities can feel valued. But one man businesses are unable to keep up with this since they are only driven by investment. It is therefore compulsory to ensure that SEFA provides grant funding to cooperatives and that SEDA facilitates procurement access for cooperative enterprises. But also cooperatives must be vetted and audited for full compliance. Currently the South African small business climate is ailing and degenerating fast, and more people discouraged to engage in business due to corruption, lack of skills and intimidation by big monopolies. Only cooperatives remain resilient and adaptive even in most challenging times - it is for this reason that the DSBD has to re-prioritise cooperatives if the interest is to create a thriving small business economy in South Africa that is not in the shadows of big monopolies.

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