Xolani Qubeka: new BEE codes will compel private sector to transform faster

The new Small Business Ministry is already making a difference in developing emerging small businesses, according Xolani Qubeka, CEO of the small business institute and secretary general of the Black Business Council. He says the new Black Economic empowerment codes will compel the private sector to transform at a much faster rate. Qubeka also warns entrepreneurs, saying they should not wait for hand-outs but instead focus on the sectors they intend to grow in. – Tim Modise

Mr Xolani Qubeka thanks very much for talking to us here on the Transformation section. We appreciate it.

Good morning and thanks for the invitation.

The Government has made a number of pronouncements in recent times – BBBEE codes and the industrialisation policy. It’s a number of things and of course, we have the major National Development Plan as well. Yet, we hear small businesses in the country complaining about lack of support from the Government and from formal businesses/established corporates in South Africa. Where do you think the problem lies?

Firstly, this is an historical problem. We know that issues relating to SMME support is not just a South African issue. What we have in South Africa is that through creation of the new Minister of Small Business Development, our policies regarding SMME’s have been scattered around with every component of Government doing its own thing. Obviously, one commends Government for having agreed to set up the Ministry of Small Business Development because it is demonstrable that Government realises the importance of SMME development in the country. It is also responsive to the National Development Plan where it expected that by 2030, if we do all the right things regarding SMME development, almost 90 percent of the economy would comprise of SMME’s. For me, that’s a starting point where we as a country, know that we have a problem. Therefore, the Ministry, which is probably only one year old has been on consultative programs to ensure that whatever changes occur in the sphere of SMME development, occurs based on a firm understanding of the issues and challenges. For example, what is best practice, internationally? How then, can we best position ourselves as a Government? The ministry further understands that if we as a country were to realise those goals (of the National Development Plan) then it needs to be business unusual when it comes to SMME development, to the extent that the ministry is anticipating coming up with a national SMME policy master plan for South Africa. That would enable us to move SMME development from the periphery of the economy to the epicentre of the economy. That means there needed to be a lot of realignment from a South African economic perspective, to make sure that there is drastic change in the manner in which SMME development is perceived and practiced.

We talk about all of these things, including the establishment of the new Ministry for the small businesses, but what difference do they make, really? It appears to many people (even me) that what we need at this time is economic growth. We are not realising that growth. Yet, we’re talking about the particular support and mechanisms that must be found to support the SMME’s. What is wrong with the economy? Why is it not growing at the rate it should grow to create opportunities for entrepreneurs, small business people, and opportunities for those who are seeking employment, as well as growing in such a way that it can improve the quality of lives of South Africans?

We all agree that perhaps economic growth is stagnant, but it does not mean that no procurement is currently happening. There’s a lot of procurement. When the Minister of Finance pronounces (in his Capital Budget)…when the private sector procures (the mines, for example), the mines alone procure in excess of R80bn capital in goods annually, so it means there’s expenditure. That expenditure may not necessarily be linked to economic growth but it links to economic activity and that’s what we need to focus on, because there is pipeline of work. Government is procuring. The private sector is procuring. The major beneficiaries overseas have not been black SMME’s, in particular and that’s what we need to deal with, within the milieu of economy stagnation. Purchasing is happening. We need to be able to open new avenues. We need to open the supply chain to new entrants. We need to ensure that there is sustainable market access for SMME’s and that’s really, what we need to deal with because we’re not going to wait for the economy to grow for us to procure. Enterprise development therefore says, “On current expenditure, how do we benefit and grow small businesses?” Really, that’s the elephant currently in the room. For example; recently, the R53bn contract to Alstom via Alstom partnership with local black-owned enterprises to create Anglo Zimela. Within the context of that contract. There is a ‘set-aside’ of about R3bn for localisation, products, and companies, which need to manufacture it, in South Africa. What it means is that in order for SMME’s who are able to position themselves, they need to make sure that they’re operationally ready or they’re put into a program where they can benefit from that R3bn. That’s where enterprise development comes in. Transnet on the other hand, is another R5bn tender for building locomotives. Again, there’s a huge ‘set aside’ for SMME’s. President Zuma, in his SONA, pronounced a set-aside for SMME’s, which is a minimum of 30 percent across all Government entities. There’s a huge spend in that respect. SAA has an annual procurement bill of R20bn. They’ve now set aside 50 percent of that R20bn, which is R10bn. They’ve signed an MOU with DTI. Last week, they had this summit where every single department of SAA was present to present all the opportunities there, which will be halved. In other words, a ‘set aside’ of 50 percent from jet fuel up to cleaning the planes and logistics, etcetera. There are those massive opportunities, which are available.

These big organisations, as much as they are state-owned enterprises, they also talk about efficiencies. If you have ‘set asides’ as you’ve explained them, it sounds to me as though you’ll be adding extra burdens to the core structure of these particular companies. Therefore, they will end up operating inefficiently as they try to source material services from the small enterprises.

Well, it’s an incorrect assumption because what you’re saying is that you’re equating efficiencies to SMME or black SMME’, and I think it’s a misconception. The way enterprise development is approached… For instance, SAA is not saying they will wake up tomorrow and procure that 50 percent. They would then be engaging on a capacity and capability-building process to say, “Slowly, we’ll build companies. We’ll hand-hold companies”. That’s where the enterprise development perspective comes in; where companies, which are already in that sector (providing those services), will become capacitated. They will bridge the capability gap over those companies. Even though recently, they would get one percent of that, over time through handholding by these entities, they would eventually become efficient suppliers. We need to understand that from a historical perspective.

It sounds as though you’re telling me that relatively satisfied with the way things are progressing in the country and yet, the picture out there with many of the smaller businesspeople is that they are being excluded from the mainstream economy, because it’s not only the state-owned enterprises that can create these opportunities. What about the bigger, private sector companies, for instance? What’s their role in giving business to the emerging companies?

We must also realise that there is a starting point. We’re not going to change history in one day. Yes, there’s a lot of frustration but there’s has to be a lot of patience as well because within the milieu of SMME’s, there are thousands of people who would not benefit because they are excluded. They will not benefit because firstly, they are not ready. Secondly, they may be knocking on the wrong doors because they don’t have the necessary skills and capacity. Let me give you an example. We have a person registering a CC. In that CC, the person says, “I’m in construction. I’m in catering” and other things. Now, you can see there’s no basis. This person is not specialised. People who want to succeed are people who are going to be focused on a long-term basis. Remember, every company that is listed on the Stock Exchange, started small but people had specific core competencies that they need to build. Unfortunately, not everyone who is an SMME will survive but those that are focused and patient will get the necessary support. Coming to the private sector, the private sector has realised that the game has changed. It’s no longer a tick box with the old codes where they would simply say, “BBC, we want to support you. If we give you so much, will it assist us with the tick box?” That has changed because that is really, what wasted a lot of resources. What the private sector is looking to commit now is there ED spend, which is about three percent of the net profit, after tax. I had a meeting with the German Chamber of Commerce where they are saying, “Our German companies are putting their ED funds together, but what we are looking for is…

ED funds, meaning enterprise development funds.

Yes. “We are looking for start-ups”, because these are manufacturing companies, “Who we’ll put through the mill on a long-term basis to make sure that they can bridge the capability gap so that they can be our future manufacturers”. That is beginning to sink. One of the reasons why Government now says they’re not really, focusing on broad based groupings (and they’re saying they’re giving it a low scoring) is precisely because ownership in itself is no longer a viable option. The viable option is on enterprise and supply development and procurement, because that’s where the companies will score 40 percent – by investing and creating new companies that would benefit in their supply chain. There is a lot of commitment. Companies like Anglo American through Anglo Zimele as an example with an excellent enterprise development program, which has been there for over ten years; they’ve developed their own black-owned suppliers who have been growing into their suppliers. Those are the genuine initiatives that we require, but it will require people (even ourselves, as black businesses and small businesses) to also, take ourselves seriously and make sure that we know what we want and we know the sectors we want to participate in, because the opportunities are now going to be there. There’s 30 percent, which President Zuma has pronounced. The Minister of Small Business…as we’re speaking now, he has been working with Treasury to say that in order for us to implement, we need a practice note, which will ensure that we set aside part of the triple PFA that inhibits us from having these ‘set asides’.

Well, many things are going on. Some are very confusing, I must say. For an emerging businessperson they say, “How do you engage with what sounds like a lot of red tape or the bureaucracy?” Be that as it may; given where the situation is now with the new codes and the new Ministry, do you believe that we are on the right trajectory now, that we will see more and more small enterprises grow to become part of the mainstream economy, going forward?

I’m very confident because I’m part of the narrative. I’m part of the action and I would not be involved unless I knew that this is a game changer. For me, it is a game changer. There’s a parallel program of the black industrialists already through IDC. The Department of Economic Development in the Budget Speech: in the Budget vote, they set aside R23bn for that, specifically. However, there are subcommittees that are working now on the model, the funding, and market access, but part of that program is to set aside resources and support that would enable these black companies to grow quite significantly.

Will we see economic growth that shows that indeed, this approach is working? Will that have an impact on the country’s economic growth rate?

Certainly, for me. Most companies (and even Government) are now switching manufacturing companies to manufacturing in South Africa, which is local content. For example, they are now designating other products. For example, there was a designation a month ago, by DTI on the transformers at Eskom to manufacture it in South Africa as part of 100 percent local content. What does it mean? It means that within the context of black industrialists and enterprise development, we must begin to see those companies emerging. This is not a fly-by-night program. It is a long-term program, to build sustainable businesses. I am hopeful. People need to be focused. People need to find their niche and when they do, we’ll fund and support. We’ll open those doors because there won’t be an excuse as long as people are production ready or at least, have the potential to do so.

Xolani Qubeka, thanks very much for talking to us.

It was my pleasure. Thank you.

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