These days you'll be hard pressed to find anyone who doesn't believe that boosting the small business sector is vital if one wants to create more jobs and economic growth But setting up a small business ministry is probably not the solution.
Earlier in April in South Africa ANC secretary-general Gwede Mantashe revealed that a stand-alone ministry for small businesses could be unveiled soon after South Africa's national elections which take place on May 7 .
Small businesses have been complaining about a lack of support from the government for years. It's why many in the sector mistakenly believe that what’s needed is a dedicated ministry for the sector, but they are wrong. Here are five reasons why:
1: Could introduce more red tape
Another ministry may simply increase the level of bureaucracy that small businesses face, particularly as it is near impossible to house all programmes and policies that affect the sector under one ministry - as these span a range of ministries - from trade and industry to justice, tourism, labour, as well as others. Even one of South Africa's leading entrepreneurs believes it will add to red tape.
2: Risks pushing up public wage bill
South Africa already has one of the largest cabinet's in the world relative to its population (with over 60 ministers and deputy ministers) and a public sector wage bill that is one of the highest in the world. Last year the Finance and Fiscal Commission, which is mandated to report on the government's finances, sounded a warning against the rising wage bill, which now makes up 40% of government spending. Can the country really afford yet another ministry?
3: Likely to be headed by junior minister
Should it come into being, a small business ministry is more than likely to be headed by a junior minister, who might run the risk of being sidelined by other ministers in the cabinet. India (with present Minister of Micro, Small and Medium Enterprises KH Muniyappa pictured left) 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. In short the ministry risks not being seen as something serious - particularly with the word "small" tagged onto its name. This may affect the way that particularly those from big business (locally and overseas) see small firms: as not such a big deal.
4: Small firms' issues risk being placed into a silo
Given that programmes and policies that affect small business are spread across such a wide range of departments, perhaps a small business ministry may then best help to improve co-ordination. But the experience of those with disabilities of the Woman, Children and People with Disabilities ministry introduced in 2009 by President Jacob Zuma reveals otherwise. Previously part of the function of the ministry was undertaken by the Office on the Status of Disabled Persons in the Deputy President’s office. Today those from the disabilities sector complain that the creation of a separate ministry has resulted in a silo response to disability challenges, instead of a fully integrated one. Others in the sector raise concern over the ability of one department to monitor another department when it comes to meeting the government's own disability equity targets. Similarly, small business support too may be thrown into a silo. A new small business ministry will also find it difficult to get its way over bigger, more established ministries.
5: There's no evidence it's worked in other countries
Then there are those that argue that those countries which have small business ministries have stronger small business sectors – something which is largely based on speculation, especially as the small business sectors in many countries are stronger than in South Africa. But there is little if 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. And just a small number of countries have such ministries – mostly just a handful of Commonwealth members (such as Australia, Canada, India and Zimbabwe) and two EU members – Malta and Luxembourg.
What then is the solution for South Africa's small business woes if an SME ministry isn't the answer?
Read the follow-up to this blog article next week to find out why Brazil and Malaysia may hold some important lessons for South Africa on how to improve co-ordination and support to the small business sector.
Stephen Timm is a