Small Business and Race in a Time of Plague

Businesses can Save South Africa, rational

It is of course absurd that government support for small business during the Covid-19 lock-down should be determined by the business-owner’s race. Epidemics are great levellers in that the highest and the lowest are equally vulnerable and every single member of society faces terrible personal danger. Unfortunately, in the Alice-in-Wonderland world that is South African small business policy, it is entirely plausible that assistance will be race-based.

Early last week, a document circulated on social media showed that one of the qualifying criteria for small business relief was that it should be ‘51 percent black owned’. The document was latterly disowned by a spokesperson for the Department of Small Business Development who argued that it was a ‘draft… still under revision (and) not meant to be shared with the public’. At a briefing on last Tuesday’s Interministerial Meeting, small business minister Khumbudzo Ntshavheni, tried to put the matter to rest when she confirmed that reports were ‘fake news’.

However, suspicions linger. Minister Ntshavehni continued to insist that criteria included ‘demographic and geographic spread that is representative’. She argues that this means supporting ‘companies that benefit women, young people and people with disabilities’. In the meantime, minister of tourism, Mmamoloko Kubayi-Ngubane, has said that her department’s R200 million relief fund would be disbursed in such a way as to ‘strike a balance between youth, women and the BEE codes’.

There is a note of scorn in some of the commentary on the matter. It is simply irresponsible, perhaps criminal, it has been suggested, to repeat fake news and create the perception that the South African government discriminates on the basis of race. But, of course, in small business it does, it has done so for a long time and, as the lockdown loomed, was incapable of categorically stating that ascriptive demographic criteria – and race in particular – would not be a criterion in determining the type and quantity of assistance small enterprises would receive.

This should not be too surprising. Since at least the Public Procurement Preference Policy Act of 2000, black- and white-owned SMEs have been officially treated differently. That was the legislation which allowed a ten or twenty percent price advantage (depending on contract size) to all black firms doing business with government. A profusion of funding and other support mechanisms have been invented and reinvented over the years, all supposedly in pursuit of the socially desirable objective of creating a self-sustaining mass of black-owned and managed enterprises.

Even the corporate sector has fallen in line. The R1.4 billion South African SME Fund, launched last year by the CEO’s Initiative in response to President Ramaphosa’s appeal, is based on racial criteria. Fifty percent of the funding is intended to go to ‘black SMEs’, twenty-five percent to enterprises owned by ‘Indians and coloureds’ while the remaining twenty-five percent is to be spent ‘at the fund manager’s discretion’.

The idea that there may be virtues in having a thriving small business ‘sector’ irrespective of the demographics of the owner has been side-lined. When government ministers speak of small enterprise, they invariably mean ‘black-owned small business’.

This in turn reflects a fundamental confusion of social and economic policy. ‘Small business’ is all too often taken to mean ‘survivalist’ enterprises, located in the informal sector. Not unexpectedly, in a country with South Africa’s history and structural inequality, these are activities overwhelmingly conducted by black people. At this level, small business is simply a way of partly meeting basic needs and therefore a substitute for government’s inability to formulate and implement job-friendly policies. It should go without saying that actions to support the survivalists during the Covid-19 lockdown are a moral imperative.

However, free services and income support for survivalists do not address the real small business issue. Even at the level of the investments the corporate sector’s SME fund seeks to make, motives remain mixed. There are all too few voices advocating small business development on the grounds of its own intrinsic virtues and the contribution these could make to the economy. Small enterprises are nimble and explore niches (including new technologies) which complacent corporates may not even know about. At the same time, the costs of failure (to the economy) are minute. A healthy economy would see a constant churn of small enterprises coming and going with only a small percentage becoming established and growing over time.

A racial policy, based on a confused mix of nationalist ideology and patronage, is a disgraceful waste of the potential of small enterprise. This time of plague seems to be showing that our policy makers either don’t know or don’t care.

David Christianson was commissioned by the Institute of Race Relations to write this article.