When Will Government Stop Strangling Small Business?
When Will Government Create The Enabling Environment For Small Business Job Creation, Minister Ntshavheni?
On youth day, while being interviewed by Newzroom Afrika, Minister in the Presidency Khumbudzo Ntshavheni said that it is not the government’s responsibility to create jobs, only an enabling environment for businesses to create jobs. While this is true, and it reflects something President Ramaphosa himself has previously said, the obvious question is when will the government create the enabling environment? Because it doesn’t exist.
First, does the government understand what an enabling environment looks like. Simply speaking, an enabling environment is one where government doesn’t impose artificial costs and put up artificial barriers for entrepreneurs who want to start businesses and create jobs. The minister is correct that around the world, small and micro businesses create most jobs, but this is precisely the type of business being suffocated by this government.
To see this, choose any industry. Think of the first 20 steps that would be required to go from idea to execution. Now, how many of those include applying for some government license? Seeking permission? Just consider one business that would help with something the minister agrees is an issue preventing business formation: lack of funding. The other day I was thinking about how nice it would be if we as ordinary South Africans could buy shares in small businesses on some online platform like the ones that exist for JSE-listed shares (e.g. the Easyquities platform).
But the Companies Act and the Financial Sector Conduct Authority (FSCA) make this difficult, if not impossible. Firstly, each business listed on the platform would have to make a public offer via an audited and comprehensive prospectus. The costs of this could potentially exceed the money you want to raise (it could be more than R100,000 in some cases).
Secondly, the platform would have to be licensed under the FSCA as a financial intermediary. It is likely that such a platform would be considered high risk and would likely fail to be registered. But if you just think about this as a rational person, of course it’s risky to invest in any business, but what is the alternative use of your money? What if the alternate use of your money is gambling on the lotto or our many online gambling platforms?
Which is not a slight against online gambling platforms. If they didn’t exist, people would still risk their money. Under apartheid we had (and still have) many forms of informal gambling including mchayina, dice, spin-spin (for younger people), cards etc. The point is, if people want to risk their money, the government cannot stop them. But such risk-taking could benefit small and micro businesses.
Similarly, commercial raffles are illegal in this country (you can conduct a raffle for charitable purposes under strictly regulated conditions), and these could be another way businesses fund themselves. Imagine I want to start a business, but my friends and family don’t have the money to support me, but they can donate some items they don’t use any more like old guitars, old books etc. for a raffle.
Stokvels are another way to fund businesses through credit without having to rely on banks. But again, credit is highly regulated in this country. You must seek registration with the National Credit Regulator (NCR) if you are lending to businesses with a turnover of less than R1 million per year. You might also have to seek FSCA registration depending on the nature of the stokvel and its other investments. Registration with the National Stokvel Association of South Africa (NASASA) is required for any stokvel with member contributions above R100,000.
All of this is to say, even the funding problem the government acknowledges as a barrier to small business requires the removal of regulatory barriers to be solved. Otherwise, we must wait for the government to provide the funding. The minister says they plan to increase funding over the next few years, but this will not do any good if the funding is subject to the stringent requirements of the funding that is available, government regulations require funded entities to comply with the current regulations so even the funding issue is actually a regulation issue in disguise.
There are many other regulations. This country has a lot of scope for small-scale backroom niche or specialty manufacturing (just like the home-based car mechanics). But apart from the regulations including zoning regulations, there are the labour laws. If I want to hire five unemployed youth to sew clothes for my online boutique, I will have to pay minimum wage and comply with all other labour laws including the Labour Relations Act even if I am just starting out, the same goes for similar businesses e.g. making my own fruit juice, craft beer or anything that can be produced at home.
If not for government meddling, the possibilities of entrepreneurship are endless. - especially in the internet age. You can go online and buy cheap light manufacturing equipment in China (you will experience another government barrier in the form of tariffs) and start your business. The President and ministers merely repeating the right words does not remove the barriers faced by entrepreneurs and it’s cynical to keep repeating a mantra of ‘government cannot create jobs’ and ‘go start businesses’ while simultaneously doing everything possible to make it harder for young people to start those businesses.
Mpiyakhe Dhlamini is a libertarian, writer, programmer and an Associate of the Free Market Foundation.
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