ICT SMEs must not be side-lined in Debt Relief Fund
Small, micro and medium enterprises (SMMEs) operating in the ICT sector are urging the Department of Small Business Development not to undermine the impact of the coronavirus (COVID-19) pandemic on the sector when allocating the newly-launched Debt Relief Fund to small businesses.
President Cyril Ramaphosa on Monday announced a three-week nation-wide lockdown restricting travel, leisure, work, churchgoing and other aspects of life.
Companies are forced to reconcile with the economic bloodbath the spread of the pandemic will have on their bottom line, with small businesses expected to take the biggest blow.
The deadly pandemic, which originated in China’s central city of Wuhan in December, has gripped nations across the globe, claiming the lives of over 19 000 people, with an infection rate of over 428 000 and recoveries at more than 109 000, at the time of publication.
In SA, COVID-19 cases now stand at 709 people, with no deaths so far.
This week, the Department of Small Business Development announced the establishment of the Debt Relief Fund, aimed at providing relief on existing debts and repayments, to assist SMMEs during the period of the COVID-19 State of Disaster.
For SMMEs to be eligible for assistance under the fund, they should be able to demonstrate a direct link to the impact, or potential impact of COVID-19 on their business operations.
Addressing the media on Monday, small business development ministerKhumbudzo Ntshavheni noted the department has requested support from the MECs responsible for economic development in all provinces, to ensure the widest reach of SMME support.
“Government understands that SMMEs will be affected on two levels: as businesses when the economy slows down, and as suppliers of products and services during this period. To mitigate the impact during the expected economic slowdown, the department is finalising the SMME Support Intervention, comprising of Debt Relief Fund and Business Growth/Resilience Facility,” she explained.
This facility will also assist entities to acquire raw material, pay labour and other operational costs, with all interventions structured to match the patterns of the SMMEs’ cash flows, and extent of the impact suffered, added Ntshavheni.
Avoid red tape
Leon Rolls, president of Progressive Blacks in ICT, expressed his concerns, saying the funding allocation processes should not discriminate against ICT businesses, or be ensnared in red tape.
“The ICT sector is not taken seriously in SA. I really do not see any start-up in the ICT space benefiting from this relief. The current funding agencies do not fund ICT because it is not understood; during this time it will not be any different, we will continue to be ignored.
“Government will have meetings upon meetings to discuss policies and legislation around the distribution of the fund, government employees will be on lockdown and unable to work remotely.”
One indication that the process is expected to result in failure, he adds, is that ICT SMMEs are still owed hundreds of millions for services rendered to government; money which should be “paid immediately” before the lockdown takes place.
The Department of Small Business Development has requested small companies to enrol at www.smmesa.gov.za. However, this morning, the site was down, with visitors advised: "We are performing a critical update and will resume the service shortly.”
According to the department, the SMME SA database will be used, based on the need to track, monitor and strengthen the impact of business development support by both government and the private sector, during this period and beyond.
While there was no mention of where the funds will come from, speculation is rife that it will be sourced from the disaster relief fund.
Non-existent allocation process
Tsepo Headbush, co-founder of online peer-to-peer enterprise lender Bright On Capital, is sceptical of the allocation process of the Debt Relief Fund and the time frames provided.
“The process of allocating funding and sifting potential winners from losers is very difficult. The timeframes required to provide the necessary support do not allow for a robust evaluation process.
“As such, it is likely the investment decision will be sub-optimal, resulting in the destruction of value, which possibly cannot be avoided when trying to protect the local tech ecosystem,” explains Headbush.
He is of the view that like most small businesses, tech start-ups will need to tightly manage their cash flows to sustain their operations, at least in the short-term.
“Unfortunately, very few tech start-ups are highly solvent or well-capitalised,” he asserts.
Arthur Goldstuck, head of World Wide Worx, believes small businesses are understandably sceptical, as there is no indication at this stage, of how the funding distribution will work.
“Government has not previously demonstrated great capacity or understanding in addressing the needs of small business. It also has little appreciation of digitalisation, which goes far beyond merely digitising paper.
“The initial implementation of the Web site was woefully inadequate, and the fact that it is effectively under construction a day later, suggests the plan itself is still under construction, which is a concern.”
All previous funds and interventions aimed at assisting small businesses in this country needed extensive administrative resources, of the kind one would typically only find in medium and large businesses, adds Goldstuck.
“If it requires dedicated resources in order to apply for resources, it will be self-defeating,” he continues.
Enterprise small business software solutions company Sage says it has been receiving many queries from distressed SMMEs and start-ups asking what they can do to survive this extreme disruption of the economy.
“Many small businesses in South Africa were already reeling from the recession and a volatile exchange rate before the coronavirus hit,” notes Pieter Bensch, executive VP at Sage Africa and Middle East.
“We urge government to be bold and move fast. We recognise the importance of managing public funds responsibly, but it’s also critical to ensure SMMEs can access help such as debt relief before it’s too late. We cannot afford undue red tape or delay.”