Speaking of transparency in the same sentence as tendering to government; surely not? Chartered accountant [CA(SA)] Julius Mojapelo, Senior Executive for the Public Sector, at the South African Institute of Chartered Accountants (SAICA) sets the record straight.
There are many Small, Medium and Micro Enterprises (SMMEs) doing honest deals with government, through a legal, transparent process of procurement and Tendering.
But the truth is that by far the majority of SMMEs steer well clear of government even though BBBEE and tendering rules favour them. As important as it is for tender processes to be above board for SMMEs who find these processes onerous enough, SMMEs generally don’t look for business from Government at any level for a much more critical (to them) reason. They do not on average get paid on time by public institutions.
And as a result, over 80% of SMMEs don’t do business with government at any level.
This was among the findings of the 2016 SMME Insights Survey conducted by SAICA, which is the most recent research on the topic by the institution.
The SMME Insights Survey is a substantive study, which has been conducted annually since 2014. The average turnover of these enterprises is R10.9 million, with a third employing between six and 49 people. These companies are, according to the National Development Plan, the country’s only hope of reducing unemployment and poverty and of boosting our failing levels of gross domestic product.
Related: How To Make A Success of Tendering
Among the survey’s critical conclusions is that SMMEs (and by extension our country) could flourish if the tender process was simplified and made more transparent, and if government and big business paid their accounts on or before 30 days.
Public finance management capacity building
In the light of the low uptake by SMMEs in tendering for government contracts and the often bemoaned slow payment by government it is heartening to learn that SAICA is working with government to improve public finance management capacity.
But what, exactly, is being done?
“Providing public finance management capacity building support is a priority at SAICA,” says Mojapelo. “This involves collaboration with public sector institutions to help them improve financial management systems and processes to ensure sustainable service delivery.” Paying SMMEs on time would be one of the outcomes.
“SAICA is also educating SMMEs and SAICA members who interact with SMMEs on the process of doing business with government. This makes it easier for SMMEs to tender for contracts.”
But with slow payment by government a concern for many SMMEs is Mojapelo optimistic about a turnaround? “I see signs of government’s commitment to turning the situation around, through recent legislation and measures,” he confides.
“Among them,” explains Mojapelo, “Treasury Regulations 8.2.3 states that, unless determined otherwise in a contract or other agreement, all payments due to creditors must be settled within 30 days from receipt of an invoice or, in the case of civil claims, from the date of settlement or court judgement.”
“Specifically; these measures include establishing a dedicated call centre within National Treasury to assist institutions and affected suppliers in resolving non-payment of suppliers/creditors appointed through the supply chain management process.”
Tellingly, National Treasury will provide quarterly reports to parliament regarding the non-payment of creditors within 30 days, and make the reports public.
While this is a step in the right direction, SMMEs remain unconvinced about doing business with government. The proof of the pudding it seems will only emerge in the eating.
Facilitating payment of long standing government debtors
Mojapelo sympathises with the plight of SMMEs, struggling to get payment from government.
“The Small Enterprise Development Agency payment assistance hotline is a very important platform that SMMEs can use to facilitate payment of long outstanding payments from public sector institutions (www.seda-smme.co.za),” says Mojapelo.
And current legislation protects SMMEs in instances of slow payment.
“Should entities fail to comply with the 30 days payment terms, this will result in non-compliance with the Public Finance Management Act and Treasury Regulations,” explains Mojapelo.
In the words of Lindiwe Zulu, Minister of Small Business Development in a budget speech earlier this year, “National Treasury has gazetted the revised Preferential Procurement Regulations in January 2017, which encourages Government and its entities to procure at least 30% of goods and services from SMMEs and Cooperatives.”
But, as the Minister observed, “The contribution of SMMEs to the South African economy is far below its potential.”
“According to the Quarterly Financial Statistics Report, the private sector earned a total of R2.3 trillion in the last quarter of 2016. Large businesses…contributed 60% to this total, followed by small and medium businesses at 40%.”
“We need to do better and match the global average which shows that small businesses share higher levels of participation in various economies. This is possible if we heed the President’s directive to set aside 30% of government procurement budget of around R600 billion towards SMMEs and Cooperatives.”
SMMEs might be tempted to reply to Minister Zulu that “the contribution of government to encourage SMME involvement by paying its bills on time is also far below its potential.”
The ball, it seems, is firmly in government’s court. There is no chicken and egg situation here. If government pays on time SMMEs will engage in droves.
The continued growth of SMMEs rests on government’s commitment to delivering on tender and payment policy. Everyone’s a winner when we create jobs through transparent tenders, fairly awarded, and where work is paid on time.
SMMEs wanting to report slow payment by government may call 0860 766 3729.
Improve Your Cash Flow: Manage Your VAT
Viresh Harduth, Vice President: New Customer Acquisition (Small & Medium Businesses) for Sage Africa & Middle East on the increase in VAT in South Africa and how it affects your business.
If you went shopping on 1 April, you likely encountered aisles and aisles of products with no price tags as retailers updated their shelf pricing to reflect the new VAT rate. As a consumer, this was probably a slight inconvenience because you didn’t know how much something cost until you had to pay.
Yet, as a small business owner, the VAT increase was more than a slight inconvenience. Not only did you have to update your systems and train your teams but you likely had to spend money printing new price tags and ensuring you were compliant – this was, after all, the biggest tax change in 25 years.
The VAT increase will also impact your cash flow because you will need to pay more money to SARS. But now that the dust has settled, Small & Medium Businesses have an opportunity to review their operations and uncover ways to improve their cash flow and offset the higher VAT payments.
Here are five ideas to free up cash that are easy to implement and don’t require major changes to your business:
- Negotiate extended payment terms with suppliers. When you receive an invoice, you generally have 30 days to pay. Try to negotiate longer payment terms with your suppliers – like 60 days – so that you have cash in the bank for longer.
- Enforce your own payment terms for customers. The time between issuing invoices and waiting to get paid is a danger zone for small businesses, especially when you need to pay VAT to SARS. Reduce your payment terms for customers from one month to 14 days, for example, and stick to it. Send regular reminders on overdue accounts and follow up on the phone.
- Incentivise customers to pay earlier. Offer various payment methods that make it easier for customers to settle their accounts sooner. Issue invoices promptly and offer discounts for early – and full – payment. This will also increase loyalty.
- Reduce stock on hand. If you have surplus stock, it means you haven’t aligned your stock with your sales, which ties up available cash. Stock management is as important as financial management. Knowing what’s in your stock room – and bank account – at all times, is crucial to maximise cash flow.
- Work with an accountant. While cloud-based accounting solutions like Sage can help you keep track of your cash flow and stay compliant, an accountant can identify areas to save money and cut costs, freeing up working and investment capital.
When you improve your cash flow, you reduce the need to rely on bank overdrafts and loans. The key to the success of any business is to free up as much cash as possible. And, with the VAT increase, you need more cash than you did yesterday.
*Remember, you have until 31 May to reflect the VAT increase in your product and service prices. Until then, you can apply the additional 1% at the till point, as long as you put up signs informing customers that you will be doing this.
R350 000 Worth Prizes To Help Boost Entrepreneurs’ Businesses
Find out more here.
Even more prizes to help entrepreneurs grow their businesses have boosted the entrepreneur competition being run by The Workspace and MiWay. These include communications strategy, responsive design website, a share portfolio worth R10 000 and estate planning.
The competition, launched in March to celebrate the collaboration between co-working and serviced office solutions company, The Workspace, and MiWay business insurance, is open to entrepreneurs based in South Africa, who have valid identification documents, who run a business with four or less employees and are making an impact in their industry.
The Workspace and MiWay have joined forces to launch an entrepreneurial hub and business development programme at the newly developed Village Road premises in Selby in Johannesburg’s central business district. MiWay’s presence at Village Road will afford The Workspace members the convenience of having business insurance and a host of other requirements fulfilled at their place of work whenever it suits them.
Entrepreneurship key to SA’s future
Mari Schourie, chief executive officer of The Workspace, says President Cyril Ramaphosa’s recent SONA reflected on how important small businesses and entrepreneurship is to South Africa’s future.
“I was thrilled that President Ramaphosa recognised how vitally important it is for everyone – business, government and citizens – to support entrepreneurs and small businesses. It is something that as a company, we’ve made a core part of our business. Being in the co-working and serviced office industry, we work with entrepreneurs and small businesses every day. They are the backbone of our business,” she said.
Schourie emphasised how the company had developed in-house programmes to support them. “When we can utilise their services ourselves, we do. We run workshops and knowledge hubs to encourage ongoing skills development and the joy of learning. We’ve even put some of our entrepreneurs at the centre of our marketing campaigns; we live and breathe the business lives of our entrepreneur members. And we learn from them too.”
Schourie said recognising entrepreneurs and small businesses sometimes means changing our thinking and looking a little bit further than our immediate surroundings. For this reason she believes the entrepreneur competition is so important to help give businesses a leg up.
Related: Register A Company In South Africa
The prizes – worth R350 000
The winning business will not only receive 12 months free office space for up to four people, free Wi-Fi, free phone rental, free business insurance and business advice, as well as all risk equipment insurance, free tea and coffee, free usage of meeting and board rooms, free security and 24-hour access, free parking and a new laptop, but even more valuable business prizes have been added too.
These include a brand new responsive design website and content management system, logo and corporate identity design, SEO and social media set up as well as training in how to keep digital collateral up to date worth R24 500.00 from Webartist.
Opulentus Wealth are offering the winner a bespoke share portfolio for the business worth R10 000, business life stage Risk Assessment, Estate plan for the Directors and shareholders valued at R15 000 per plan, Advice on managing and improving cash flow with the business (R10 000) and Tax advice for the business (R5000) Oxigen Communications will build the company a compelling brand communication strategy as well as offer two strategic sessions worth over R50 000.
“The entrepreneur competition is a call to action to those vibrant entrepreneurs out there. Start-ups always need a bit of a hand and the winner of this competition will have a serious advantage once the it has gone through its paces,” said Morné Stoltz, Head of Business Insurance at MiWay.
“We are looking for an entrepreneur who has created or is busy creating a special environment where employees can flourish, and in the process, potentially create more jobs. Stoltz adds, “An entrepreneur who makes an impression on the judges due to aspects such as the business’ social impact, attitude, positive entrepreneurial outlook and a good business mind will definitely stand a good chance of walking away with the prize.”.
The prize on offer – worth over R350 000 – will help set-up the winning entrepreneur for a period of 12 months, giving them a boost to help build their business.
Closing date: 15 May 2018
For details, click here.
For queries, please email email@example.com
Entries can be uploaded to the website, or delivered to One Chadwick Avenue, Wynberg, Sandton
Why Is It Important To Grow Manufacturing?
Manufacturing Indaba will take place at the Sandton Convention Centre in Johannesburg on the 19th and 20th of June, 2018 and will be facilitated with the collaborative backing and strategic partnership of the Department of Trade and Industry (the dti) and the Manufacturing Circle, a corporate association of manufacturers.
One of the aspects of the conference will be to focus on South Africa’s manufacturing as a fundamental driver of GDP growth and associated with direct employment, as many services sectors are likely to increase their employment capacity on the basis of an increased GDP.
Newly elected President Cyril Ramaphosa delivered his maiden State of the Nation Address (SONA 2018) and alluded to addressing the decline over many years of South Africa’s manufacturing capacity, which has deeply affected employment and exports. As a result, poverty levels have risen, economic growth has weakened, with the President stating that it has become imperative to re-industrialise on a scale and at a pace that draws millions of job seekers into the economy. Unemployment levels have risen due to looming investment downgrades; hence he emphasised the need for a focus on local manufacturing and production.
Nicholas Kaldor (Zalk, 2014) developed a set of hypotheses to explain the central role of manufacturing in the process of economic development. He contended that manufacturing reveals a unique characteristic: The capacity to generate ‘dynamic increasing returns’, displaying a positive correlation with GDP growth while other primary and tertiary sectors generally do not. That is, indicating that the faster the rate of growth of output in manufacturing, the faster the rate of growth of both manufacturing and economy-wide productivity (Thirlwall, 1983, as cited in Zalk, 2014). Thus, clarifying that manufacturing is the core driver of GDP growth and employment while other sectors, particularly many services sectors are only likely to grow on the basis of the growing demand derived and resulting from an increasing GDP. Therefore, growth and employment in most services sectors follow rather than lead growth in GDP (Zalk, 2014).
In accordance with the vital importance of this sector’s encouraged growth, the President undertook to promote greater investment in key manufacturing sectors through the strategic use of incentives and other measures. Accordingly, and further stimulating manufacturing by forging ahead with the localisation programme, through which products like textile, clothing, furniture, rail rolling stock and water meters will be designated for local procurement. Ramaphosa also reiterated that the country had spent more than R57 billion on locally-produced goods that otherwise might have been imported from other countries.
The Industrial Policy Action Plan (IPAP) 2017/18 – 2019/20 report as part of the National Development Plan (NDP) 2030 outlines sector specific goals and a vision for South Africa to be achieved by the year 2030 and referred to inherent structural challenges within the economy that remain difficult to overcome. These challenges include weak growth and domestic demand reflecting and contributing to persistent unemployment, resulting in unsustainable race and gender-based inequality and rural marginalisation. Value-add in manufacturing lagged behind the economy as a whole from 2008, and investment in manufacturing has declined since the global credit crisis. The IPAP report also indicated that investment as a share of GDP is also below the 25% level required for sustained economic expansion.
In light of this aspect, Ramaphosa at SONA referred to the special economic zones that will remain important instruments that SA will use to attract strategic foreign and domestic direct investment and build targeted industrial capabilities in order to establish new industrial hubs. He also emphasised that the process of industrialisation must be underpinned by transformation, and that through measures like preferential procurement and the black industrialists programme, a new generation of black and women producers will be able to build enterprises of significant scale and capability.
The objective industrial financing and incentive support has played a key role in supporting private sector investment and black economic empowerment in critical industrial areas. Another example and a high point of 2016/7 has been the Automotive Investment Scheme with R8.7bn on investment leveraged through 2 new projects with an estimated investment value of R548.9m, projected to create 1 140 jobs. Included in this buoyant mix is the Manufacturing Competitiveness Enhancement Programme (MCEP) which has reopened a R1bn loan component with 270 projects supported, and R8.24m disbursed thereby supporting R3.38b of investments & 62 2353 jobs.
Bearing these examples in mind, and Ramaphosa’s affirmation at SONA that, “…at the centre of our national agenda in 2018 is the creation of jobs, especially for the youth”, Philippa Rodseth, executive director, Manufacturing Circle (2016, in The importance of Manufacturing for SA’s economic growth), stated that in order to promote a resilient, sustainable manufacturing environment, three goals were identified in order to secure the long-term sustainability of South Africa’s manufacturing industry.
Hence, these following aspects will ultimately contribute to the economic growth of the country-: the achievement of a competitive manufacturing environment, the attainment of a supportive international trade position and the advancement of the reputation of SA manufactured goods.
These issues and other pertinent topics relating to Manufacturing in South Africa and the continent will be considered, evaluated and debated at the upcoming prestigious Manufacturing Indaba conference in June, in this year of “hope and renewal.”
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