Billions wasted: Bernstein blasts SA’s Small Business flop, pushes private sector fix

Ann Bernstein, Executive Director of the Center for Development and Enterprise, critiques South Africa's Small Business Development Department and its lack of measurable impact. She argues that billions of rand are being wasted on ineffective government-run programs, calling for a shift towards private sector involvement in small business support. Bernstein also highlights the need for regulatory reform, advocating for an SME test to assess the impact of laws on small firms and increased transparency in government spending. She stresses that small businesses must be seen as vital to the broader economy, driving growth and job creation..Sign up for your early morning brew of the BizNews Insider to keep you up to speed with the content that matters. The newsletter will land in your inbox at 5:30am weekdays. Register here..Support South Africa's bastion of independent journalism, offering balanced insights on investments, business, and the political economy, by joining BizNews Premium. Register here..If you prefer WhatsApp for updates, sign up to the BizNews channel here..Watch here.Listen here.Highlights from the interview ___STEADY_PAYWALL___.In the interview, Ann Bernstein, Executive Director of the Center for Development and Enterprise, discusses the inefficacy of South Africa's Small Business Development Department, which has been in existence since 2014. Bernstein emphasises the department's lack of measurable impact, with billions of rand being spent on small business support without clear outcomes. She questions the efficacy of government officials—many of whom lack small business experience—managing public funds and promoting the sector. Bernstein advocates for the private sector to take the lead, suggesting that the government redirect a significant portion of the small business support funds to private ventures, which could better manage and report on the effectiveness of their investments..She also highlights the need for regulatory reform, specifically targeting labour laws and collective bargaining agreements that disproportionately impact small businesses. Bernstein proposes introducing an SME test to assess the impact of regulations on small firms and calls for more transparency in how the government spends on small business development. She argues that small businesses must be viewed as part of the broader economy and not in isolation, with an emphasis on innovation, growth, and job creation..The discussion concludes with Bernstein advocating for transparency and accountability in government spending, suggesting that the government should report annually on the effectiveness of its small business programs and eliminate ineffective regulations to create a more conducive environment for small business growth..Edited transcript of the interview.Bronwyn Nielsen (00:01.476):With me now is Ann Bernstein, Executive Director of the Center for Development and Enterprise. Ann, thanks so much for your time. I was listening to SAFM and Ashraf Garda's show, and I was captivated by an interview you had with him regarding the South African Small Business Ministry. You discussed the recommendation that the South African Small Business Ministry be shut down due to the lack of progress in the small business development environment, and that the private sector should be allowed to lead the charge. Can I take you back to that thinking? Specifically, regarding the lack of evidence around the progress and traction that the Small Business Ministry in South Africa is having?.Ann Bernstein (00:59.229):It's great to be with you, and thank you for the opportunity. We've just released a report on this; it's the eighth in our series on priorities for the new government and the urgent actions that need to be taken. This one focuses on small business in general. To answer your question, we first need to ask ourselves: Whatever made us think that officials—most of whom have no experience running small businesses—are the ideal people to manage public money and promote a dynamic, innovative small business sector? This is the wrong approach. We need to question it..Now, the Small Business Development Department has been in existence since 2014. But when you look at the numbers, it's very hard to see what has actually been achieved. It's important to understand that small business funding is not just confined to the Small Business Department; it's spread across various government departments. But our main argument is that this is the wrong concept..In 2018, 2019, and 2021, we did some research across three years. We commissioned a highly respected research firm to assess how much money is being spent on small business promotion, support, and development. They came back shocked, estimating that it's around six billion rand a year. But we think that's an undercount. There's no clear information on the criteria used to select which small businesses are supported, and more importantly, we don't know what happens after the government spends that money. Do these businesses grow? Do they thrive? Do they employ more people? We have no idea, and that makes it an incredible waste of resources..Ann Bernstein (03:21.455):Six billion rand a year, at least..Bronwyn Nielsen (03:27.514):As you said, the Small Business Department has been around since 2014. But again, it's that lack of measurability, the lack of accountability. If you can measure something, you can manage it. And that's what stood out to me during your conversation with Ashraf. There's absolutely no way to measure the effectiveness of this department, which has to be the starting point to say it's not working..Ann Bernstein (04:00.967):Absolutely. There are some numbers, but most experts would argue that they're not entirely reliable. The growth in the number of small businesses has been slow, especially after COVID decimated the sector. In fact, the government's own Small Business Development Plan in 2022 acknowledged that small businesses have low survival rates, and inefficient support is one of the contributing factors. I would put it differently, though. We know things are not going well, and the government, or rather the department, acknowledges that..You have to think about small business differently as well. To fix the small business sector, you need to fix the economy for all businesses. Infrastructure, crime, regulatory issues, logistics—all these things affect both small and large businesses. A thriving economy requires dynamic small businesses that grow into bigger businesses. We don't want lots of small businesses that never evolve. We're looking for innovation, dynamism, and growth. All our big companies started small, after all. So, we need to think about this as an integrated part of our economy, not as a separate entity called "small business.".Bronwyn Nielsen (05:49.242):Hmm, yeah..Ann Bernstein (05:53.469):So, having said that, there are some things that are more challenging for small businesses compared to giant corporations. For example, in South Africa, collective bargaining between big businesses and unions is a common practice. However, the problem is that the Minister of Labour and Employment extends these agreements to every business, even those not involved in the negotiations..We argue that this is a terrible approach, and it should be changed immediately. Let big companies negotiate their terms, but don't extend these agreements to small firms, new businesses, startups, or rural businesses. That's just one example of a regulation that hinders small businesses..Globally, there are examples from countries like Argentina and India where deregulation has made a significant difference. But in South Africa, we talk a lot about "red tape" without specifying what it actually means. We keep talking about it, but there's no meaningful action. What we're suggesting is twofold: First, introduce an SME test—where we examine every regulation and its impact on small businesses, particularly those with fewer than 20 employees. Secondly, be transparent about it. Every year, the government should report on which regulations have been removed, why, and what impact that has had..Ann Bernstein (07:52.177):You could immediately implement this transparency and accountability system..Ann Bernstein (09:00.85):Yes, certainly for labour law regulations and collective bargaining. We have a draft proposal that outlines how this could be done. It could be implemented tomorrow. The broader process of deregulation would take a bit more time, but it could still be done quickly, within a year. We're not advocating for zero regulations—there are important things like health and safety—but we could make significant progress in a year if we were serious about it..We could also make it more interactive by allowing small businesses to send in feedback on which regulations are hindering them, allowing us to investigate the issues. This would move us away from rhetoric and lead to real, actionable change..And this ties in with another big recommendation: if the state spends at least 18 billion rand over three years on small business, why not give half of that to the private sector? Let the private sector compete for that money in a transparent, open process. We need to get private venture capital, NGOs, banks, and others who understand how to manage money into the small business sector. They should report annually on how they're using the money and the outcomes of their investments..Ann Bernstein (11:24.391):We're not just interested in how many firms you support. What we care about is whether they're growing, employing more people, and surviving over the long term. It's about measurable impact, not just vague numbers..At the same time, we should ask public sector entities funding small businesses to report annually on whether the businesses they support are growing, becoming more substantial, and employing more people. We need to move away from broad, unquantifiable claims and focus on tangible results..Bronwyn Nielsen (12:24.673):Exactly. This could be done tomorrow..Ann Bernstein (12:52.121):Yes, the changes to labour law and collective bargaining could be implemented tomorrow. As for deregulation, while it would take some time to work through all the necessary details, we could still make rapid progress if we were serious. There's a lot of potential here, and accountability and transparency are key to making it work..Bronwyn Nielsen (13:10.308):Just to understand the current ecosystem—having listened to prior conversations of yours—it seems there's a proliferation of agencies within the ecosystem that are supposed to support small businesses. Can you unpack this for me?.Ann Bernstein (13:36.733):We found that there are about 300 agencies at the national, provincial, and local levels that claim to support small business. These agencies cover a broad range of services, but when it comes to funding, there are only about 28 agencies directly involved in providing financial support. However, despite all this activity, we're not seeing a real impact on the economy. Think about all the people employed and the six billion rand a year being spent—yet we're not seeing tangible results. We need to ask ourselves: What are we doing with this money? How do we ensure it's being used effectively? And who are the best people to manage this money? These are tough questions, but they need to be asked..Bronwyn Nielsen (14:58.362):Just looking at those 300 agencies, and then pulling out the 28 that fund businesses, are there criteria that need to be met before you can become one of these agencies? What track record do you need? I'm particularly interested in the "middleman" agencies, which I'm sure you've examined extensively. Why isn't the money being directly deployed to the small businesses from a sustainability perspective, rather than funneled through this middleman structure?.Ann Bernstein (15:38.045):Most of these agencies are government entities, such as those in the Department of Agriculture, which support agricultural development or emerging black farmers. However, there's no clear set of criteria for these agencies, nor is there adequate reporting on their impact..This issue is common not just in government, but also in the corporate world. Companies often report on inputs—how many small firms or NGOs they've supported—but rarely talk about the outcomes. Did the help actually make a difference? Did the businesses grow?.Bronwyn Nielsen (16:46.154):Exactly. Did they grow? Are they becoming more substantial businesses in the broader ecosystem? As you said, small businesses need to be given the chance to grow into bigger businesses that employ more people and drive economic growth..Ann Bernstein (17:10.941):Exactly. We have no idea how public money is being spent, but we do know there are countless regulations and obstacles for small businesses trying to succeed. We believe this is the wrong approach. We need to deregulate the economy and take meaningful action, not just talk about it. By introducing things like the SME test and annual reporting on regulatory changes, we can start making real progress..The goal is to ensure that money is being spent effectively, and that small businesses are given the tools to grow into medium and larger businesses that drive job creation and economic growth. This should be done in the private sector, where expertise exists, and we can hold entities accountable for their impact..Bronwyn Nielsen (19:10.766):Here's an interesting point: as you mentioned, take nine billion rand (half of the 18 billion) and let the private sector take on the task of supporting small businesses. Compare that with the other nine billion that stays in the public sector. It's a compelling way to approach the issue..I look forward to continuing this conversation at the BizNews 7 conference in Hermanus, which is happening from the 10th to the 14th of March. Many people in the audience will be listening closely to what you have to say, as you're one of the key commentators and experts when it comes to business growth and development in South Africa..I've been speaking to Ann Bernstein, Executive Director of the Center for Development and Enterprise..Ann Bernstein (20:11.431):Thank you very much..Bronwyn Nielsen (20:13.848):And thank you so much. I really appreciate your time..Read also:.BN Briefing: Cyril's suicidal foreign policy, SA Small Business Department blows R6bn a yearRamaphosa new plan for VAT hike to resolve budget standoffNeil de Beer – Enoch's "balls & nuts", Mchunu vs Kriel, the "walking dead" Shaik, Shamila's failures – and the Shivambu & Duduzile purges…

Billions wasted: Bernstein blasts SA’s Small Business flop, pushes private sector fix

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